Wagner v Gill

[2013] NZHC 1304

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-003509 [2013] NZHC 1304

BETWEEN  NICOLA JOANNE WAGNER Plaintiff

ANDROBERT GILL Defendant

DIGITAL PARTNERS LIMITED (IN RECEIVERSHIP)

Second Defendant

DIGITAL PARTNERS (NZ) LIMITED Third Defendant

BA PARTNERS LIMITED (IN RECEIVERSHIP)

Fourth Defendant (Discontinued)

(intituling continued over…)

Hearing:                   19-23, 29 November 2012

Appearances:           J R Eichelbaum for Plaintiff

A R Gilchrist for First, Third, Fifth, Sixth and Ninth Defendants

Judgment:                5 June 2013

JUDGMENT OF ELLIS J

This judgment was delivered by Justice Ellis on 5 June 2013 at 3:00 pm

pursuant to R 11.5 of the High Court Rules.

Registrar / Deputy Registrar

Date………………………..

WAGNER v GILL [2013] NZHC 1304 [5 June 2013]

BRAND ADVANTAGE MEASUREMENT AND CONSULTING LIMITED

Fifth Defendant

CPG YORK LIMITED Sixth Defendant

91991 LIMITED (IN RECEIVERSHIP) Seventh Defendant (Discontinued)

11260 LIMITED (IN RECEIVERSHIP) Eighth Defendant (Discontinued)

BRAND ADVANTAGE LIMITED Ninth Defendant

[1]      As a consequence of an arbitral award made in February 2011, the second defendant, Digital Partners Ltd (DPL) owes the plaintiff, Mrs Nicola Wagner, approximately $319,000 together with costs of approximately $21,000.  The dispute that gave rise to the arbitration related to two agreements whereby Mrs Wagner had sold 75 per cent of the shares in two website companies owned by her to DPL.

[2]      DPL’s obligations to Mrs Wagner under the agreements were guaranteed by the fourth defendant, BA Partners Ltd (BAP).1   Both DPL and BAP are substantially owned and controlled by the first defendant, Mr Robert Gill.  Both companies are now  in  receivership  and  liquidation.    As  only  an  unsecured  creditor  of  the companies, Mrs Wagner is unlikely to receive payment from them.

[3]      For that reason Mrs Wagner seeks to recover the amount owing from Mr Gill personally.   To that end she alleges that Mr Gill and entities associated with him deliberately arranged their financial affairs in such a way as to defeat her claim.  In tortious terms, she says that they have conspired to injure her either by unlawful means or for an unlawful purpose.   She claims damages in the sum of the debt owing.

[4]      It is fair to say that Mrs Wagner and her counsel presented her claims as straightforward ones.  Her theory of the case was essentially “I am owed money and so should be paid” and Mr Eichelbaum’s approach was not much more sophisticated. The reality is, however, that Mrs Wagner’s claims bristle with difficult factual and legal issues.

[5]      The factual difficulties arise largely because Mrs Wagner was not, herself, able to give evidence about most of the matters in issue.  Rather, she asks the Court to draw inferences of dishonesty and illegality against the defendants largely based on circumstantial evidence.  And there are the further complicating factors I refer to at [17] to [21] below.

[6]      The  legal  difficulties  arise  largely  because  of  two  recent,  contentious, decisions in the House of Lords relating to the somewhat underused tort of unlawful

1 BAP was initially the fourth defendant but the claim against it has been discontinued.

means conspiracy.2    As far as I am aware, the English developments that are most relevant to the present case have yet to be considered by a New Zealand court.

Parties

[7]      Mrs Wagner is presently the National Member of Parliament for Christchurch Central.  Prior to her election to Parliament, she had established two websites which she owned and operated through two companies, which were then known as Ltd (Fashion) and Ltd (Garden).  Those companies (now called 91991 Ltd and 11260 Ltd respectively) were originally the seventh and eighth defendants in these proceedings. The two companies were placed in receivership on 17 November 2011.

[8]      The first defendant, Mr Gill, is a businessman who owns and/or controls the Brand Advantage and Premier Group of companies (the Group).  Those companies are variously involved in the media, advertising and brand development and marketing industries, and include the second, third, fourth, fifth, sixth and ninth defendants.  Prior to 2010 the Group was run by Mr Gill effectively in partnership with Mr Tony Regan, who was also (either personally or through entities associated with him) a minority shareholder in a number of the companies.

[9]      The second defendant (DPL) was incorporated in May 2006 and is owned

77.6 per cent by Gill interests, 14.4 per cent by Regan interests and 8 per cent by Mr Blair Dods, who was also involved in running the company.   DPL was in the business of website hosting and, during the time now at issue, promoted and administered a number of websites of a kind similar to those operated by Fashion and  Garden.    DPL received  income  from  advertising  and  agency  commissions associated with those websites.  Receivers were appointed to DPL in April 2011.

[10]     The third defendant, Digital Partners (NZ) Ltd (DPL(NZ)) was incorporated in November 2010 and is wholly owned by Mr Gill.

[11]     As  I  have  said,  BAP  was  originally  the  fourth  defendant.    BAP  was incorporated in July 2003 and is owned 80 per cent by Gill interests and 20 per cent

by Regan interests.  It was in the business of sponsorship management including, in

2 OBG Ltd v Allan [2008] 1 AC 1 (OBG) and Revenue and Customs Commissioners v Total Network

particular,  arranging  and  managing  sponsorship  for  Netball  New  Zealand  Ltd

(NBNZ) between 2007 and 2010.  Receivers were appointed to BAP in April 2011.

[12]     The  fifth  defendant,  Brand Advantage  Measurement  and  Consulting  Ltd (BAMC), was incorporated in July 2008 and is owned 85 per cent by Gill interests and 15 per cent by Regan interests.  Prior to 8 March 2010, BAMC was known as BA Measurement Ltd.

[13]     The sixth defendant, CPG York Ltd (CPG York) is owned 80 per cent by Gill interests and 20 per cent by Regan interests.   CPG York operated as the Treasury Company for the Group.  It was incorporated in February 2008.

[14]     The  ninth  defendant,  Brand  Advantage  Ltd  (BAL)  is  wholly  owned  by Mr Gill’s interests and was incorporated in 2003.   Although named as the ninth defendant  no  allegation  is  made  by  the  plaintiff  about  BAL and  nor  was  any evidence relating to the company adduced.  BAL will not, accordingly, feature in this judgment further.

[15]    Mr Gill also has interests in other corporate entities that feature in this proceeding, including in particular Premier Events Group Ltd (PEG) which was incorporated in June 2003 and became a leading Australasian travel and hospitality service provider.  Gill interests hold approximately 80 per cent of the shares in PEG with the remaining 20 per cent owned by Regan interests.

Mr Regan’s role in these proceedings

[16]     As  mentioned  earlier,  at  the  time  of  the  transactions  with  Mrs  Wagner, Mr Gill was effectively in partnership with Mr Regan.  In 2006 Mr Regan had been appointed the Chief Financial Officer of the Group.  Towards the end of 2009 and in early 2010, however, Mr Gill’s relationship with Mr Regan and another employee, Mr Malcolm Beattie, soured significantly.   As a result, there is now highly acrimonious and ongoing litigation in both this Court and the Employment Court between the three men.

[17]     It is quite clear that Mrs Wagner and Messrs Regan and Beattie have, for better or worse, chosen to join forces across their respective proceedings against Mr Gill and, indeed, Mrs Wagner has sworn affidavits in the Regan and Beattie

litigation, just as Messrs Regan and Beattie gave evidence on her behalf in these proceedings.    Their  motive  for  doing  so  seems  clear  from  an  email  exchange between them in June 2011.  Mr Regan wrote to Mr Beattie:

Through this period of intense provocation from Gill we need to keep a steady hand on the wheel to ensure our key aim (to get rid of Gill) is forefront in our mind.

The current strategy alongside Nicki Wagner will pay dividends – we do however need to keep a low profile on it so we get through the court process hopefully starting this week.

...

This is a desperate man in 12 months time no one will remember him!

He wants to pervade (sic) the thought he is here to stay – I for one strongly believe if we implement [two words illegible] strategy and let Nicki Wagner loose then this will be key to us.

[18]     In his reply, Mr Beattie concurred.  He said:

Lets [sic] get Mr Gill and use our energies to achieve this outcome.

[19]     It is difficult therefore not to infer that pursuit of Mr Regan’s own agenda has influenced the part that he played in these proceedings.  Such an inference is borne out by the fact that his evidence purported to go far beyond that of a simple witness of fact.  Although he was involved with certain of the matters that are presently at issue,  much  of  what  he  said  constituted  inadmissible  submission,  hearsay  and opinion evidence.

[20]     It is also important to record for the benefit of Mrs Wagner that Mr Regan was not called by Mr Eichelbaum as an expert witness and there was no suggestion that he had complied with the relevant (and mandatory) rules in that respect. Moreover he was plainly neither impartial nor independent.3    I therefore accord his statements  of  opinion  about  matters  with  which  he  was  not  involved  and,  in particular, his opinions about accounting and financial matters no evidentiary weight.

Indeed,  the only properly qualified  expert  who  gave  evidence on  those matters

before me was Mr Weber, who was called on behalf of Mr Gill.   His evidence

3Notwithstanding his denial of any particular animus towards Mr Gill, his profound dislike of his

necessarily forms the only admissible basis upon which I can make some of the important determinations in this case.

Facts

[21]     As  is  often  the  case,  the  facts  here  are  key.    But  before  moving  to  a chronology of the events involving Mrs Wagner it is necessary to  refer to  two important background matters.

DPL’s existing indebtednesss

[22]     First, it is relevant to note that in September 2007 (prior to the agreements with Mrs Wagner) DPL had entered into a General Security Agreement (GSA) for

$640,664 with the Trustees of the Robert Gill Trust, as a consequence of funds that had been advanced to DPL by the Trust.  There is no evidence that Mrs Wagner was aware of the existence of the GSA or of DPL’s indebtedness to Mr Gill’s Family Trust at the time she entered into the agreements with that company.

BAP’s contract with Netball New Zealand

[23]     Secondly, in November 2007 (also before Mrs Wagner’s agreements) BAP had entered into a sponsorship and rights marketing contract with NBNZ.  Again, it is unclear to me whether Mrs Wagner knew about this contract at the time of entry into the guarantee with BAP.   But aspects of it assume some importance in this litigation and I set those out below.

[24]     The contract was for an initial three year term, with a commencement date of

30 November 2007.4   After the expiry of that period BA had a right of renewal for two years, provided certain conditions were met.

[25]     Under the contract BAP would receive commission at specified rates on any sponsorship and rights marketing sold or renewed during that term.  The Schedule of Services to be provided under the contract stipulated that:

Key Personnel: BA must supply NBNZ with the services of the following key people at BA.

(a)       Robert Gill

4 The date of the contract is unclear.  The draft, but signed, version appears to be from 2008 or 2009,

NBNZ may give notice in writing to BA terminating this agreement with immediate effect if:

...

(d)       Key Personnel, That Robert Gill ceases to be available and/or a suitable experienced executive or a new lead executive is appointed that NBNZ is in agreement with

[27]     There  was  a  clause  dealing  with  the  payment  of  commission  upon termination.  It relevantly said:

If this Agreement is terminated:

...

(b)       By  NBNZ:  by  NBNZ,  commission  on  sponsorship  and  rights marketing will be paid on all contracts that have been agreed by NBNZ for the term of the contracts up to the date of termination including the contracted amount by the sponsors or rights holder and any additional monies paid by the sponsor or rights holder for an [sic] additional benefits and rights

(c)       By Brand Advantage: [sic]: by Brand Advantage, commission on sponsorship and rights marketing will continue to be paid by NBNZ for the duration of the relevant Sponsorship Agreement including all commission on all and any additional money developed with the sponsors or rights holder in additional [sic] to the sponsorship rights or rights fees (not including any renewals or extensions); and

(d)       By expiration: by expiration of the Term, 100% of commission on sponsorship and rights marketing will continue to be paid by NBNZ to Brand Advantage for the duration of the relevant Sponsorship agreement (not including any renewals or extensions).

The agreements with Mrs Wagner

[28]     On 28 April 2008, Mrs Wagner entered a contract with DPL for the sale and purchase of 75 per cent of the shares in Fashion.  On 9 May 2008 she entered into a similar agreement to sell DPL 75 per cent of the shares in Garden.   The total purchase  price  was  approximately  $700,000,  which  was  to  be  paid  in  five instalments.  The sale and purchase agreements provided for the price to be adjusted if, in the following two years, actual overhead costs for each of the companies were more than 20 per cent higher than the levels specified in the agreements, or if revenue was over 20 per cent less than specified levels.

[30]     Following the change of ownership, the directors of Fashion and Garden then became Ms Wagner, Mr Gill, Mr Regan and (later) Mr Dods.

The financial performance of DPL and BAPin 2008 – 2010

[31]     Because of the way in which Mr Gill (and Mr Regan) operated the Group as a whole (and in particular the complexities of the inter-entity indebtedness that they created) it was difficult to unravel the discrete financial positions of DPL or BAP with any clarity. That was confirmed by the expert accountant, Mr Weber who said:

Due to the high level of activity between BAP, Digital and its [sic] related parties, it is difficult to ascertain how much value one entity could have on its own, if any.

But then, he went on:

What is clear to me is that BAP and Digital owed significant amounts to related parties such as CPG from as early as 2008.

[32]     It seems that DPL’s financial difficulties, in particular, were greater and more long-standing than  just the 2007 debt it owed  to the Robert Gill Family Trust. Indeed, Mr Regan (who, as  I have said,  was  for some time the Group’s  Chief Financial Officer) said in evidence in the Employment Court proceedings (which was put to him in cross-examination in these proceedings) that DPL had made a cumulative loss of over $1.2 million between 2006 and 2009.

[33]     As far as BAP was concerned, Mr Gill’s evidence was that the company had been profitable between 2003 and 2008 but was hit hard by the 2008 financial crisis, and made a net loss for the 2008/09 year of $355,000.  That was confirmed by the financial statements produced by Mr Weber.

[34]     There  was  further  evidence  that  supported  what  Mr  Gill  said  about  the financial  difficulties  experienced  across  the  Group  at  this  time.    In  2009,  for example, both Mr Regan and Mr Gill voluntarily took salary cuts of approximately

25 per cent and 40 per cent respectively.  Staff were also asked to work a four, rather than five, day week.  Shareholder advances were made and drawings were foregone.

[35]     Mr Gill’s evidence was (supported by Mr Weber) that without shareholder support both BAP and DPL were effectively insolvent by late 2009.

The genesis of the dispute with Mrs Wagner

[36]     In October 2009 Mr Regan resigned as Chief Financial Officer, largely (he said at the time) due to mental health and stress issues.   He did not stop work immediately, however, and in November 2009 he wrote an email to Mr Gill and his accounting and legal advisors in which he expressed the view that “no further payment is required on the FNZ [Fashion] site ...”.  Mr Regan had done calculations that showed that the performance of the Fashion and Garden websites had not been as profitable as anticipated and had formed the view that the targets specified in the contract had not been met.   There were also said to be issues about alleged pre- contractual misrepresentations by Mrs Wagner.  But, in any event, no more payments were made under the contracts from that point onwards.

[37]     In January 2010 Mr Gill made an approach to APN in the hope of selling all the websites administered by DPL, which included Fashion and Garden.   In that context he prepared a 12-month profit and loss overview of the websites which showed a net predicted profit for the year of $452,771.   But that overview was subject to the express qualification that:

The above expenses reflect the website costs and there [sic] share of costs not the costs of Digital Partners.  Nor do these costs include Blair [Dods] as he drives our overall business and the other group income.

[38]     Upon receipt of that overview Mr Regan emailed Mr Gill and Mr Dods, saying:

Blair [Dods] and I agree that it shows a positive forward for Digital Partners websites and that the company has matured significantly over the past 24 months.

It shows a positive P & L position and whilst we all know we need to ensure it is adequately capitalised and funded, there is a real and tangible value for the websites and related IP that a buyer will eventually share, all things being equal!

The sale would greatly assist in the reduction of external, bank and intercompany debt funding and from a shareholding perspective be very positive for the shareholders.

On the basis of the numbers discussed and even reducing the P & L by 25 per cent and applying a multiple of 5 we are still talking about a 1.7m sale.

[39]     APN were not interested in the proposal.  Mr Bailey, of APN, gave evidence at trial and said that, notwithstanding the profit and loss predictions that had been provided to him, he quickly formed the view that the website businesses were not profitable.

[40]     In  early February a teleconference between  the directors  of  Fashion  and

Garden  was  arranged.    Originally  the  meeting  was  scheduled  to  take  place  on

12 February but that date was later changed to 19 February.  In early February the agenda for the meeting was sent to Mrs Wagner by Mr Gill.  It listed various matters for discussion relating to the development and future of the websites, draft accounts for the year ending 30 June 2009 and planned actions to reduce costs and drive direct sales. Also included on the agenda were the following items:

Loan funding for the site and

oThe intercompany loan that relates directly to the Garden and Fashion sites for development and operating costs

o Cash flow funding

The funding that will be required as working funding to continue the cash flow of the FashioNZ business/site

General security agreement for the loan funding

This is a GSA being requested to provide security for the borrowings extended to the Garden and FashioNZ businesses

Sale of the site and/or combined group sites

Given the current business environment, we should consider looking at  either finding an additional investor or selling the site and/or group of sites to allow us all to address some relief to the funding issues, addressing the current disagreement re values and earn out pricing.

[41]     On 11 February 2010, before the directors’ meeting took place, it seems that certain debts said to be owing by Fashion and Garden to CPG York were entered into CPG York’s accounts.  The dates on which these debts are recorded as arising vary between March and December 2009.   Mr Gill’s evidence was that a delay of this kind was not unusual and was in this case a manifestation of the general disarray of the Group’s accounts, for which Mr Regan was responsible and which had, in fact,

been the subject of comment in earlier email exchanges between them.  Mr Regan (and Mrs Wagner) had a more sinister theory, which was that the debts were backdated  and  falsely  attributed  to  Fashion  and  Garden  in  order  to  create indebtedness  to  CPG York  that  would  be  secured  by  way  of  General  Security Agreements (GSAs).

[42]     The directors’ meeting occurred on 19 February 2010, by telephone.   All directors, namely Mrs Wagner, Mr Regan and Mr Gill, together with Mr Dods, were present.5    Minutes of the meeting were taken and subsequently circulated to all the attendees.     Some  time  later  Mr  Dods  expressly  confirmed  them  as  correct. Mrs Wagner  did  not  respond  or  make  any  comment  on  the  minutes  when  she received  them  at  the  time, although  she now  disputes  them.    I am  nonetheless satisfied that they are a fairly accurate record of what was discussed.

[43]     The  minutes  disclose  that  there  was  some  discussion  around  the  draft accounts and, in particular, that Mrs Wagner raised questions about the costs attributed to the running of the websites.  She expressed the view that they were too high and that continues to be her position today.

[44]     Plans to reduce these costs and to “grow income” were also discussed.  The

minutes then record:

TR [Mr Regan] outlined the intercompany loans, being new working capital provided to fund the business since the purchase date, to cover all development  and general funding.   A break-down  of this  was provided. Nicky stated that she felt that this was a result of the business not being run well that this money was required as she had always run the business out of cash flow.   TR stated that this included the agreed redevelopment of the sites,  being  over  $68,000  and  the  ongoing  fine  tuning  of  the  sites,  the staffing that was needed to evolve the business to a position of just being competitive in the market, costs of money re bank funding.  Nicky asked had we borrowed the funds and TR/BG confirmed that all our funding invested in the running of the businesses was by way of our bank facilities.  Nicky stated that this was a very big investment indeed and TR stated that this was at  the  base  level  to  maintain  the  businesses/sites  going  forward.    TR explained that the amounts for some 320k, less the 120k back in advertising revenue making around 200k.

…

5 Mr Dods was a shareholder in DPL which, in turn, owned 75 percent of the shares in Fashion and

Garden.

General security agreement: TR explained that CPG York Ltd a treasury company was requiring a GSA as security and formal loan documents to be established against the Fashion and Garden businesses given the amount of funding involved and that we needed to have all the documentation in place on  this  as  all the funding has  come  from CPG York and  the Auckland shareholders.  Nicky stated that we could do what we liked as we are 75 per cent shareholders and asked if we were wanting her to sign papers for this. BG [Mr Gill] stated that we would like her to as this funding has benefited all parties and TR and BG were moving a motion to resolve to support the issuing of the GSA and would go ahead with agreeing to it.  We agreed to send all the documentation to Nicky.

…

Sales  of  the  business:  BG  outlined  that  we  were  starting  work  on investigating the potential to sell all the Digital business/sites including fashion and garden and Nicky confirmed that it had always been the end play that we both agreed with.  BG stated that with the market looking unlikely to improve in the short term, with earn out now no longer being anything like what they had been we would gain a limited amount in a multiple, but in just selling the sites and base cost of key staff etc, we could gain a better price. With limited funding options open to us this could be a good way out of the issues we are currently facing and also to address the earn out issues between us. All parties agreed that this made sense to pursue.

[45]     The minutes then refer to the dispute brewing between Mrs Wagner and DPL about the outstanding payments under the sale and purchase agreements and the possibility of referring the matter to arbitration.   Mrs Wagner is recorded as confirming that DPL would “hear from her lawyers” the following week.

[46]     The loan agreements and GSAs referred to at the meeting had already been prepared in draft and, it seems, were executed by Mr Gill on 25 February 2010.  The loans were for $218,162 (Fashion) and $130,948 (Garden) and the GSAs were in the amounts of $105,668 and $82,481 respectively.   At the same time, further GSAs were also entered into between CPG York and DPL and BAP for $1,015,320 and

$902,381 respectively.

[47]      Mr Regan’s position was that he refused to co-sign the loan documents or the GSAs, although the position taken by him at the 19 February meeting (where he is recorded as explaining the need for the loans and the GSAs and moving a resolution to support them) seems to belie any assertion that he had a substantive objection to them.  Mr Regan was, in fact, on the point of departing for overseas as part of what (Mr Gill says) was his and Mr Beattie’s plan to set up business in competition with Mr Gill.

[48]     In any event, it is clear that Mr Regan did not co-sign the GSAs and it seems they were (in fact) signed by Mr Dods, instead, in March 2010. Immediately prior to that occurring, Mr Dods was made a Director of both DPL and of Fashion and Garden.  Mr Gill said that it had always been assumed that Mr Dods (who, as I have said, was a shareholder of DPL and involved in its management) was a director of that  company but  that due to  an administrative oversight  (which he  blamed on Mr Regan)  his  appointment  had  never  been  registered.    Mr  Gill’s  position  was consistent with other evidence that indicated that Mr Dods had, indeed, been holding himself out to be a director of DPL for some time.  And as far as his appointment to Fashion and Garden there was evidence that Mrs Wagner knew about this at the time, and was pleased about it.

[49]     Mr Eichelbaum contended that Mr Dods’ appointments as director were made solely to enable the loans and the GSAs to be authorised, thereby creating a secured indebtedness by DPL and Fashion and Garden to CPG York that would potentially operate  to  the  detriment  of  unsecured  creditors  and  Mrs  Wagner  in  particular. Mr Dods’ own evidence was that he signed “backdated” agreements under pressure from Mr Gill.

[50]     I do not, however, regard Mr Dods’ evidence on this point as particularly significant.  Mr Gill no doubt dated the agreements when he himself signed them; that does not in my view constitute “backdating”.  Nor was the purpose served by any such “backdating” apparent to me; Mr Dods did not go so far as to say that he regarded the loans and the GSAs were themselves contrived or unreal.   As with Mr Regan, there is clearly no love lost between Mr Dods and Mr Gill, and this was reflected in aspects of his evidence which were quite irrelevant to the matters in hand.   While I have no doubt that Mr Gill is a dominant and sometimes difficult person with whom to work, that does not advance the matters with which I am presently concerned.

[51]     In any event, on 26 February 2010 the promised letter from Mrs Wagner’s lawyers was received by DPL.  It referred to a $25,000 default under the Garden sale and purchase agreement.  The letter set out (and dismissed) the various matters that had been raised by DPL as justifying the non-payment.   At some point after this

Mrs Wagner invoked the arbitration clause in the agreements, and an arbitrator was appointed.

[52]     In early March 2010 Mr Beattie resigned from his position with Mr Gill’s

companies.  Mr Regan also left his employment with the Group at that time and on

17 March 2010 he advised Mr Gill that he was resigning as a director of BAP.

[53]     On  8  March  2010  BA  Measurement  Ltd  changed  its  name  to  Brand

Advantage Consulting and Management Ltd.

[54]     On 18 March Mr Regan and Mr Beattie incorporated two companies of their own which, Mr Gill says, then proceeded to compete with Mr Gill’s companies. Indeed, Mr Gill alleges that these companies misappropriated the 2011 Rugby World Cup and London Olympics corporate hospitality programme from PEG.6    He said that these lost contracts not only caused PEG to cease trading but, in turn, compounded BAP’s financial problems.7

[55]     Mr Gill’s evidence was that at this point BAP was no longer in a position to continue paying him a salary and so, on 18 March 2010, he wrote a letter to “the directors” of the company resigning as an employee, effective 31 March 2010.8   The expert  evidence  was  that,  as  at  31  March  2010,  BAP  owed  CPG  York  some

$1,720,966.

[56]     Following a meeting between the two of them, Mr Gill wrote to Ms Castle of

NBNZ on 21 May 2010 as follows:

Further to our discussions, this letter confirms that BA Partners finds itself in financial difficulty and whilst I remain as a director, seeing through the issues with creditors and the closing down of the business, I have resigned as the Chief Executive of BA Partners Ltd.

The above has been brought about due to the major changes in our group structure and the departure of Tony and Malcolm, which has dramatically affected our business.

6 As I have said, proceedings were issued by Mr Gill/PEG against Messrs Beattie and Regan and their companies on 27 May 2010, claiming damages of $11.9 million for breach of fiduciary duty. Proceedings in the Employment Court against both men were also brought.  Conversely, Mr Regan has brought a minority shareholder claim against Mr Gill under s 174 of the Companies Act 1993. None of those proceedings have yet, to my knowledge, been determined.

7 BAP apparently earned most of its revenue from arrangements with PEG..

8 Mr Regan’s resignation meant that Mr Gill himself was, in fact, the sole director of BAP.

We very much do wish to continue our work for Netball NZ and whilst we acknowledge netball’s right and need to terminate BA Partner’s appointment we would seek your support to allow us to gain an appointment on the same terms and conditions through our new company BA Measurement & Consulting Ltd.

[57]     It appears that shortly after this letter was written a draft termination letter was also prepared by Mr Gill for Ms Castle and a letter in those terms was sent by Ms Castle to Mr Gill on 17 June 2010. That letter stated:

Further to our recent discussions we note your advice that BA is in financial difficulty and  will  soon cease carrying on  its  business.   We  are further concerned with changes to key personnel and your ongoing ability to deliver the contracted services. We believe, and you acknowledge there exist default events under clause 12.3 of our agreement which entitled Netball NZ to terminate the sponsorship sales and management agreement with you.  We now give notice terminating our agreement effective immediately.   Please ensure the orderly and timely return of materials in terms of clause 13.2 of the agreement.   All other rights under the agreement in the event of termination by us are reserved.

[58]     On the same day Ms Castle wrote a separate letter to BAMC (also drafted by

Mr Gill) stating:

We are pleased to confirm your appointment to provide sponsorship and rights marketing services to NNZ formerly provided by BA Partners Ltd.

The terms of your appointment will be as follows:

1.The agreement will be on the same terms embodied in the agreement with BA dated 29 April 2009 except that the term will run from 14

June 2010 to 29 November 2011 (which means that we propose the agreement be renewed for a further year beyond the initial term);

2.        You will sign a new formal agreement if required;

3.You will assume all obligations of BA which have been delivered, be required  to  be  delivered  or  provided  by  BA under  its  previous agreement.

[59]     On 8 June 2010 the Group’s new Chief Financial Officer, Mr Kearney, wrote a letter to all of BAP’s unsecured trade creditors proposing an informal compromise which would see them receive approximately 75 cents in the dollar.9    It seems this proposal was unanimously accepted, obviating the need for any formal application

under Part XIV of the Companies Act 1993.

9  Estimated monies owing at that time to trade creditors was between $35,000 and $45,000.  There was in addition substantial secured debt owed to the BNZ and to shareholders.

[60]     On 21 June $89,392.50 was paid by NBNZ to BAMC for sponsorship work that had already been performed by BAP.  It is accepted by Mr Gill that that money should have been paid to BAP and it has subsequently been accounted for back to BAP.  But from the end of the 2010 until June 2011 financial year, BAMC received approximately $340,000 gross revenue from NBNZ.  Mrs Wagner contends that this was money that properly belonged to BAP.

[61]     During September and October 2010 Mr Gill continued in his efforts to sell DPL’s websites, including Fashion and Garden.   In particular, he entered into negotiations with Times  House Publishing Ltd (Times) which led to a proposal which was explained in a letter from his lawyers, to Mrs Wagner’s, on 29 October

2010. The letter said:

As I outlined to you briefly the position simply is that the companies do not have sufficient working capital to continue trading.  Your client declined to put in more capital a few months ago and our client is neither prepared or in a position to advance further capital.  If it cannot work out a way to keep the business operating it proposes to appoint receivers.

It has accordingly been negotiating with Times Newspapers an arrangement whereby Times will effectively take over the running of the business (including Digital’s business) and meet all the costs.

Our client has still not concluded or entered into a binding agreement. However, negotiations with Times are at a sensitive stage and any direct approach by your client to Times is likely to affect those negotiations and could jeopardise a deal.   Needless to say this letter should be treated as notice to your client that if any deal is lost or terms are unfavourable affected by interference from your client, our client reserves its position to claim all losses and damages arising from those actions.

Our client was not proposing to and nor will it make any binding agreement with Times before it has discussed the proposal with your client.

[62]     The letter also referred to the writer’s understanding that “our clients have

now been in contact and are arranging a time for a telephone conference.”

[63]     It seems that shortly afterwards Mrs Wagner may have contacted Mr Gill.  In any event, on 5 November, Mr Gill emailed her, saying:

I know you will have seen the various emails from my lawyers to yours regarding the position of the businesses in total and neither Fashion, Garden or Digital have working capital to carry on trading.

We have tried without success to gain some interest to sell the businesses in whole or part and/or to partner with various parties.  The best and only deal

we could put together is a JV/buyout arrangement with Times which still is a performance based deal, but it does remove the ongoing funding risk.

Whilst we have still not finalised an agreement with Times we do not have any options left if we cannot do so.  We indicated through our lawyers that we did not propose to conclude any deal with Times before we had discussed it with you.  Stuart and Paul have been trying to arrange a meeting to do this

…

The reality is that failing an agreement with Times, receivers will be appointed.  I am sure that this position has been apparent to you from our meetings earlier this year and the financials Stuart has sent to you.

Please advise urgently when we can either meet personally or by teleconference to discuss the above.

We have no problem if our respective lawyers are involved in any meeting and I think this may be advantageous.

[64]     Mrs Wagner responded on 7 November 2010 to Mr Gill, saying:

Thanks for your email.  I am keen to get some movement on this situation.

As I have said repeatedly I am happy to talk but I need to see how I will benefit from any discussions.   Please can you give me the details of the Times arrangement and what’s in it for me.

[65]     By the time this email exchange took place, draft agreements for the Times deal had been prepared by Mr Gill’s solicitors.   On 11 November 2010 they sent Mr Gill “signature” copies of those agreements, but it is clear that he did not sign them then.

[66]     On  17  November  2010  both  Fashion  and   Garden  were  placed  into receivership by CPG York under the GSAs.

[67]     On 19 November Mrs Wagner’s solicitors wrote to the receivers disputing their appointment on a number of grounds and advising that Mrs Wagner had not seen copies of the proposed sale and purchase agreements with Times.   The letter ended by saying:

We  also  note  that  there  is  a  dispute  between  the  shareholders  of  the companies that is currently before an arbitrator.   The directors of Digital Partners  Ltd  (who  are  also  directors  of  CPG  York  Ltd  and  the  two companies) are to give undertakings that any funds received from the sale of these companies will not be disbursed until an award is made.   Can you please confirm that you have received instructions from CPG York Ltd to that effect.

[68]     DPL’s lawyers responded on the same day.  The letter addressed issues raised

relating to the appointment of receivers and further stated:

The proposed agreements for the sale of the business assets of Fashion, Garden and Digital Partners to a new joint venture company with Times are attached.    The  terms  of  the  arrangement  effectively  provide  that  once

$450,000 has been paid in management fees or in any other form Times will completely take over the shares in the company owning the businesses.  Of

the $450,000 payable in total the sum of $270,000 will be payable on terms

to Fashion and Garden.

[69]     On 23 November 2010 the receivers separately responded to Mrs Wagner’s solicitors attaching copies of the GSAs that had been requested and advising that the existence of those agreements had been known to Ms Wagner for some time.  The letter said:

As we understand it, the dispute between the shareholders that is going to arbitration and relates to the amount now payable for the shares under the sale and purchase agreement, has no impact on the receivership or the realisation  of  the  assets.   As  we  understand  the  arbitration  proceedings neither Fashion Ltd or Garden Ltd are parties to the proceedings.

[70]     The letter went on:

In our opinion, the most important issue that we face is realisation of the company assets. This is because:

The economic environment is poor;    The costs of trading exceed revenue;

There is no ongoing commitment to fund the shortfall;    Future revenue is uncertain;

There is a  very small pool  of  interested  parties  in the company assets;

The larger potential parties have been approached and have declined;    Waiting for future realisation opportunities could easily result in no

or negative tangible return for the assets.

We therefore intend to proceed with the sales which will see $270,000 realised for the assets.   We need to proceed with haste as the current offer will likely expire shortly and may not be capable of restoration.

[71]     On 25 November 2010 Mrs Wagner’s solicitors emailed the receivers, saying:

Thank you for your letter.

I have spoken with my client.  She is comfortable with the sale proceeding. However, that is subject to an appropriate undertaking that funds received will not be disbursed in a way that would prejudice her.  For example the payment of funds to CPG York Ltd would, in all the circumstances, conduct [sic] oppressive conduct under s 174 of the Companies Act 1993.

[72]     As generally foreshadowed by Mr Gill and his lawyers, the way in which the

“sale” to Times was structured was as follows:

(a)      The intellectual property/assets of Fashion and Garden were sold (by the  receivers  of  Fashion  and  Garden)  to  DPL  for  $202,500  and

$67,500 respectively.   The purchase prices were payable quarterly over three years but with the ability to defer payment if DPL did not have sufficient funds;

(b)      Two new entities were incorporated:

(i)       DPNZ (the third defendant); and

(ii)Times House Digital Ltd (THDL), which was owned equally by DPNZ and Times;

(c)      DPL then sold all its business assets (including the assets of Fashion and Garden) to THDL in return for further interdependent agreements whereby:

(i)THDL  met  all  the  ongoing  running  costs  of  the  website businesses;

(ii)DPL was responsible for managing the business for THDL but was able to effect that through DPNZ;

(iii)DPL  would  receive  50  per  cent  of  EBIT10   by  THDL  as payment for the management services provided by DPNZ to

THDL;

10 Earnings before interest and tax.

(iv)     Once DPL had been paid $450,000 THDL had a call option to

purchase DPNZ’s shares for $1.

[73]     Again, there were allegations of backdating of documents in relation to the sale and there does appear to have been some carelessness as regards dates by those who executed them.  The point of those allegations as I understood it was that the sale was completed before the appointment of receivers and before Mrs Wagner was advised of the structure.  But given the fact of Mrs Wagner’s consent, it is difficult to see that this latter allegation could be of any moment.

[74]     As I understand it, the receivers of Fashion and Garden have not yet received any money as a result of the “sale”.  In the event that they do so, however, it will be used to meet the indebtedness to CPG York under the GSAs.  Mrs Wagner’s 25 per cent shareholding in those companies has no value.

[75]     In the meantime, progress with the arbitration was continuing.  DPL/BAP had filed a defence and a counterclaim.  A three day fixture was scheduled to begin on

1 November 2010 but that was adjourned until 2 December 2010 and then, in late November and, at DPL/BAP’s request, further adjourned until 22 January 2011.  At that point, the parties were ordered to give security for the arbitrator’s costs.

[76]     Evidence was filed on behalf of DPL/BAP during December 2010 but later that  month  the  solicitors  for  DPL/BAP  advised  that  they  were  unable  to  give security, and that their financial position was such that receivers were likely to be appointed.  Mrs Wagner’s solicitors sought an “unless” order the result of which was that the arbitrator directed that if security was not paid by the companies by 12

January 2011 the matter should be determined on a formal proof basis.  Security was not forthcoming and, after considering Mrs Wagner’s affidavit in support of her claim, the arbitrator found in her favour and awarded her $340,000.

[77]     Ms Wagner demanded payment of the award from DPL and BAP but they did not pay.  Both companies were later put into receivership pursuant to the terms of CPG York’s GSAs.  The receivers’ evidence was that Mrs Wagner will never receive any payment from DPL.  And while BAP’s financial future is said to be contingent on the outcome of the litigation involving PEG and Messrs Beattie and Regan, even

if PEG is successful in that litigation, unsecured creditors are unlikely to receive any payment.

Mrs Wagner’s claim

[78]     The third amended statement of claim pleads the alleged combination or conspiracy in two parts.11    One focuses principally on DPL and the sale of Fashion and Garden.  The other focuses on BAP and the contract with NBNZ.  Necessarily, the parties to the two combinations are not identical, although Mr Gill is, of course, alleged to be the spider at the middle of each web.

[79]     The first “limb” of the conspiracy is alleged to have been implemented by

Mr Gill, BAP and the fifth defendant as follows:

(a)       BAP sought from and achieved a compromise with its creditors at approximately 0.50 – 0.60c in the dollar.   The claimant was not aware of the compromise, despite her position as contingent and now a confirmed creditor of the BAP.

(b)       The NZ Netball contract was transferred out of BAP and into the fifth defendant company in June 2010 for no consideration.

(c)       No shareholders meeting was held to approve the transaction. (d)   No special resolution was passed to approve the transaction.

(e)       The contract between BAP and NZ Netball provided that, where the contract was cancelled, BAP was entitled to continue to be paid out of sponsorship whose terms ran on past the cancellation date.

(f)       Between December 2010 and July 2011, approximately $344,000 of run-off revenues that should have been paid to BAP were misappropriated   from   BAP   to   the   fifth   defendant   for   no consideration.

(g)       The   ninth   defendant   company,   previously   known   as   Semm Nominees Ltd, was restored to the Register on 17 December 2010 having previously been struck off.

(h)       The  ninth  defendant  company  changed  its  name  from  Semm Nominees Ltd to Brand Advantage Ltd on 17 March 2011, and the ninth defendant trades under the same trade name as BAP, the effect

11 The pleading is that:

Between 13 March 2010 and 1 December 2010, the Defendants conspired to implement an asset-stripping scheme in order to disadvantage the Defendants’ creditors.  The scheme had two limbs.

of which is to allow the ninth defendant to receive payments due to

BAP.12

(i)       BAP was put into receivership on 20 April 2011.

[80]     And the second limb is pleaded to have been implemented by Mr Gill, DPL, the third defendant and the sixth defendant thus:

(a)       On or about 25 February 2011 the first defendant as a director of FNZ and GNZ entered into a general security agreement in favour of the sixth defendant without direct or shareholder approval;

(b)       The  purpose  of  the  general  security  agreement  was  allegedly  to secure advances by the sixth defendant to FNZ and GNZ;

(c)       The level of advances allegedly made by the sixth defendant to FNZ and  GNZ  was  artificially inflated  by  the  first  defendant  causing incorrect expenses and charges to be charged to FNZ and GNZ;

(d)      The sixth defendant then unlawfully appointed receivers to FNZ and

GNZ;

(e)       The  intellectual  property  of  FNZ  and  GNZ  was  then  sold  by receivers appointed  by the  sixth defendant to  DPL for $202,500 payable by instalments to FNZ and $67,500 payable by instalments to GNZ;

(f)       On or about 1 December 2010 the intellectual property of FNZ and GNZ and the other business assets of DPL were then sold by DPL to either the third defendant or to Times House Ltd (a joint venture of which the third defendant was a partner) for a stated consideration of

$1 on 1 December 2010;

(g)       A management fee was agreed to be paid by Times House Digital

Ltd to the Fresh Company the third defendant company or to DPL of

$450,000 over three years;

(h)       The management fee was in truth a consideration for the sale and all property being paid to DPL which instead received $1;

(i)       DPL was put into receivership by the first defendant on 20 April

2011;

(j)       DPL was placed into voluntary liquidation on 3 July 2011.

[81]     The “unlawful purpose” in relation to both limbs is said to be:

12 The allegations about the restoration of Semm Nominees to the register and its subsequent change of name is mistaken.  While Semm Nominees did change its name to Brand Advantage Ltd (the ninth defendant) on 17 March 2011 that company did not contract with NBNZ and received no money from NBNZ (payments had been made by NBNZ to BAMC well before 17 March 2011). As noted at the beginning of this judgment there was no evidence led whatsoever that indicates that BAL played any part in the matters presently in issue and I do not consider this aspect of the pleading further.

... damaging the plaintiff and other creditors/shareholders of the defaulting companies.

[82]     In terms of the “unlawful means” that are alleged to have been employed, the

pleading was spread across two causes of action.13  The first was that:14

The transfer of the NZ Netball contract from BAP to the Fifth Defendant was a major transaction but:

(i)       No shareholders meeting was held by BAP to approve the transaction; and

(ii)      No special resolution was passed by BAP to approve the transaction.

No consideration was paid to BAP in respect of the transfer of the NZ Netball contract and funds to the fifth defendant.

...

The general security agreement was registered over FNZ and GNZ by the

First Defendant without:

(iii)     Approval from the other directors of FNZ and GNZ; and

(iv)     Approval from the shareholders of FNZ and GNZ.

The granting of the general security agreement in respect of artificially inflated advances oppressed the Plaintiff as minority shareholder of FNZ and GNZ as the value of her shares was decreased.

Inadequate consideration was paid by the Third Defendant or Times House

Digital in respect of sale of the websites’ intellectual property from DPL.

[83]     The second pleading of unlawful means was that the alleged actions of the conspirators had the effect of:

Creating/facilitating the creation of a shield against bona fide creditors including the  Plaintiff by leaving liabilities with  companies  (specifically BAP and DPL) who would be bereft of assets/means/cashflows to meet such liabilities;

By filtering the sale of the websites through Digital Partners Ltd, ensuring that all and any proceeds of the sale would be blocked from reaching the plaintiff, who was duly entitled at law to 25% thereof, on account of the very large charges or general security agreements ... back to himself/entities controlled by himself

13  Although the two causes of action had slightly different headings they were, in effect, both pleadings of an unlawful means conspiracy.

14 The pleading is quoted in its entirety, but without the relevant paragraph numbers.

By encumbering with charges back to himself/entities controlled by himself, both  the  companies/entities  that  owed  the  companies  which  owed  the plaintiff moneys, effectively attempting to block/blocking the flow of any monies back to the plaintiff

Placing the moved assets into new companies ... which were not encumbered

by BAP and DPL’s liabilities

Allowing/facilitating the First Defendant to personally access the $334,000 per annum cashflow from the NZ Netball contract and the $450,000 from the websites thus enabling the First Defendant/the First Defendant’s companies to defeat creditors (including the plaintiff);

Authorising/directing/facilitating the sale of valuable assets from BAP and

DPL without calling the required shareholders meetings;

Authorising/directing/facilitating the sale of valuable assets from BAP and

DPL without obtaining the necessary special resolutions.

[84]     The loss caused by the conspiracies to Mrs Wagner is pleaded to be the amount owing under the arbitral award.

What was not pleaded

[85]     For completeness I record that in Mr Eichelbaum’s closing submissions he

contended that:

(a)      The termination by of NBNZ’s contract with BAP was a sham;

(b)      The sale of the websites was a sham.

[86]     The rules about the need to carefully and particularly plead and prove such allegations (and the consequences where that is not done but the allegations are made) are well known.  Notwithstanding that, neither of the allegations were made in the third amended statement of claim and nor, in my view, was there any basis in the evidence to support them.  I do not propose to consider those allegations further in this judgment.

Relevant law

[87]     Before  turning  to  analyse  Mrs  Wagner’s  claims  against  the  facts  it  is necessary to say something about the law relating to unlawful purpose and unlawful means conspiracy. As indicated at the beginning of this judgment, aspects of the law in this area are far from straightforward.

Unlawful purpose conspiracy

[88]     The principal elements that must be proved by a plaintiff alleging conspiracy to injure for unlawful purpose (which is also known as lawful means conspiracy) are relatively clear. They are:

(a)       an agreement or understanding between two or more people;

(b)a  concerted  course  of  action  taken  pursuant  to  that  agreement  or understanding;

(c)       a  dominant  intention  by  the  combiners  to  injure  the  plaintiff’s

legitimate interests by that course of action;

(d)the absence of any legitimating object or just cause/excuse for the actions;

(e)       actual injury caused to the plaintiff thereby.

[89]     Although in other cases the level of knowledge required by each of the co- conspirators is a central issue, that is (for obvious reasons) not the case here.15

Rather, it is the third element, namely the requirement that injury to the plaintiff

must be the conspirators’ dominant purpose that is problematic for Mrs Wagner.

[90]     A word must also be said, however, about the “combination” requirement.  It will be recalled that the conspiracy alleged by Mrs Wagner is between Mr Gill and companies  in  his  Group  of  which  he  was  director,  majority  shareholder  and employee.   There is  no  doubt  that  Mr Gill  is  properly to  be regarded  as  their “controlling mind”.

[91]     Mr Gilchrist did not dispute that a company can conspire with its directors and/or shareholders and nor, on that basis, that it was possible for Mr Gill to have

combined with any or all of the other defendants.  Without more, however, that is a

15  See for example Diver v Loktronic Industries Ltd [2012] 2 NZLR 388 (CA); Loktronic Industries Ltd v Diver [2012] NZSC 60. Here, the issue does not arise because Mr Gill was the guiding mind of all the alleged conspirators.

not particularly helpful concession.  Neither counsel referred me to any authority on this point.

[92]     In fact, for example, the learned authors of Clerk & Lindsell on Torts remain equivocal on the issue.   They note the authority to the effect that such company cannot  relevantly  combine  with  its  directors  in  cases  of  criminal  conspiracies because it is regarded as impossible in such case to find an agreement between two minds.16  They nonetheless acknowledge that this might not be so in a civil action “where the controller had used the corporate machinery in what was alleged to be a conspiracy to damage the claimant”.17

[93]     There  are  certainly  cases  in  which  the  Courts  have  been  prepared  to contemplate the possibility of tortious conspiracy existing between a company and its directors or shareholders.18   A recent example is the English decision in Digicel

(St Lucia) Ltd v Cable & Wireless Plc.19  There, the Court said:20

In a group of companies, all of the individual companies have separate legal personality.   If an enterprise organises itself so as to operate its business through a group of companies, taking the benefits of limited liability and perhaps the tax advantages involved, it cannot complain if a court holds it to an analysis based on the separate legal personality of the individual companies.   Thus, in principle, a parent company can combine with a subsidiary and two subsidiaries can combine with each other.   Further a director  can  combine  with  the  company  he  directs  and  a  shareholder (whether a corporate body or a natural person) can combine with the company in which the shares are held.   Whether such a combination has taken place will depend upon the detailed facts …

The above conclusions are also subject to the limitation identified by Chadwick LJ in MCA Records Inc v Charly Records Ltd [2003] 1 BCLC 93. That case concerned the circumstances in which a director of a company could be held to be a joint tortfeasor with the company. The case did not involve the tort of conspiracy as such.  However, the law on joint torts was explained so that a person was liable as a joint tortfeasor if he participated in a common design to commit the tort or otherwise procured or induced the tort.  There are obvious similarities between the test as to a common design

16  See the discussion in Christian Witting Intra-corporate conspiracy: an intriguing prospect (2013)

72(1) C.L.J 178. The title of this very recent article is notably forward looking.

17 Clerk & Lindsell on Torts (20th ed, Sweet & Maxwell, London, 2010) at [24-93]. See for example R

v McDonnell [1966] 1 QB 233, Canadian Dredge & Dock Co Ltd v The Queen [1985] 1 SCR 662 at

[20] and Stone & Rolls Ltd v Moore Stephens [2009] 1 AC 1391 (HL) at [159].

18  Gulf Oil (Great Britain) Ltd v Page [1987] Ch 327 (CA); Taylor v Smyth [1991] 1 IR 142; Chew

Kong Huat v Ricwil (Singapore) Pte Ltd [1999] 3 SLR (R) 1167.

19 Digicel (St Lucia) Ltd v Cable & Wireless Plc [2010] EWHC 774 (Ch).

20 At [77].

for a joint tort and as to a combination for the tort of conspiracy.  Chadwick

LJ said this:

[49]     First,  a  director  will  not  be  treated  as  liable  with  the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company - that is to say, by voting at board meetings.  That, I think, is what policy requires if a proper recognition is to be given to the identity of the company as a separate legal person.   Nor, as it seems to me, will it be right to hold a controlling shareholder liable as a joint tortfeasor if he does no more than exercise his power of control through the constitutional organs of the company - for example by voting at general meetings and by exercising the powers to appoint directors.   Aldous LJ suggested in Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2000] 1 Lloyd's Rep 218 at 235 - in a passage to which I have referred - that there are good reasons to conclude that the carrying out of the duties of a director would never be sufficient to make a director liable. For my part, I would hesitate to use the word

‘never’ in this field; but I would accept that, if all that a director is doing is carrying out the duties entrusted to him as such by the

company under its constitution, the circumstances in which it would be right to hold him liable as a joint tortfeasor with the company

would be rare indeed.  That is not to say, of course, that he might not be liable for his own separate tort, as Aldous LJ recognised at paras [16] and [17] of his judgment in the Pakistan National Shipping

case.

[50]      Second, there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a joint tortfeasor if he is not exercising control through the constitutional organs of the company and the circumstances are such that he would be so liable if he were not a director or controlling shareholder.  In other words, if, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability because he could have procured those same acts through the exercise of constitutional control.  As I have said, it seems to me that this is the point made by Aldous J (as he then was) in PLG Research Ltd v Ardon International Ltd [1993] FSR 197.

[51]     Third, the question whether the individual is liable with the company as a joint tortfeasor – at least in the field of intellectual property – is to be determined under principles identified in CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] 2 All ER 484, [1988] AC 1013 and Unilever plc v Gillette (UK) Ltd [1989] RPC

583. In particular, liability as a joint tortfeasor may arise where, in the words of Lord Templeman in CBS Songs v Amstrad [1988] 2 All

ER 484 at 496, [1988] AC 1013 at 1058 to which I have already referred, the individual ‘intends and procures and shares a common

design that the infringement takes place’.

[52]      Fourth, whether or not there is a separate tort of procuring an infringement  of  a  statutory  right,  actionable  at  common  law,  an

individual who does ‘intend, procure and share a common design’ that the infringement should take place may be liable as a joint tortfeasor.   As Mustill LJ pointed out in Unilever v Gillette, procurement  may  lead  to  a  common  design  and  so  give  rise  to liability under both heads.

(emphasis added)

[94]     A similar approach has been taken in Canada, where the point has been expressed in this way:21

[18]      It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity or interest from that of the corporations such as to make the acts or conduct complained of those of the directing minds: see Scotia McLeod Inc. v. Peoples Jewellers Ltd (1995) 26 OR (3d) 481 at 491 (CA).

…

[19]     It  therefore  follows  that,  limiting  the  acts  under  review  to  the directing minds per se, a directing mind of a corporation cannot, by causing the corporation to act in a certain way, be said to have made an agreement with that corporation.   The directing mind could make an agreement with another corporation by making an agreement with the directing mind of that other corporation, but if both directing minds are acting on behalf of their respective corporations, the agreement is between the two corporations.  To conclude  otherwise  would be  to  challenge  the  recognized  separate  legal identity afforded to corporations under our law and to conclude that every corporate action which may give rise to a breach, by virtue of the decision making authority of the corporate management, is an action of the directing minds   personally.      As   I   will   develop,   an   agreement   between   two corporations to injure can amount to the tort of conspiracy, but it does not necessarily follow that those who as directing minds caused their respective corporations to enter into the agreement are themselves party to the conspiracy.

(emphasis added)

[95]     I will therefore need to return to this issue in the specific context of the present case later, below.

Unlawful means conspiracy

[96]     The law in relation to conspiracy to injure by unlawful means has always been less clear than in relation to its unlawful purpose brother.  Prior to the recent

English decisions to which I referred at the beginning of this judgment the position

21 Normart Management Ltd. v West Hill Redevelopment Co Ltd (1998) 37 OR (3d) 97 (CA).

in New Zealand was as summarised by Fisher J in MESB Berhad v Lu.22   There, he said:

[98]      …  In  essence,  a  combination  of  persons  causing damage  to  the plaintiff is an actionable conspiracy if the acts done pursuant to the combination would have been actionable if done by one person alone ...

[99]      Although some aspects of unlawful act conspiracy remain unsettled, it appears that the participants must intend to cause harm to the plaintiff, but only in the sense that they knew that damage to the plaintiff was a likely consequence of their planned actions.   It is not necessary that harm to the plaintiff be the participants’ primary purpose: .... However, it seems that intention to injure the plaintiff must be a concurrent or a subsidiary purpose, which in practice seems unlikely to differ substantially from the question whether the defendants knew that injury to the plaintiff was a likely consequence of their planned actions.   In this respect purpose must be distinguished from motive.  It is not necessary that injury to the plaintiff be the  actuating  motive  if  it  is  known  to  be  an  incidental  consequence  of carrying out the plan …

100]     The proposed action by the conspirators must be unlawful in the sense that it would be actionable by the plaintiff, at least in cases where the plaintiff is not relying upon a criminal action…

[101]    A further element of the tort is that the defendants must know of the facts which would make the proposed action unlawful .... At times this has been approached as the defence of justification, with a consequential onus on the defendant (Todd pp 708 and 709 seems unclear on the point).  I do not think that onus will make any difference in the present case but am inclined to prefer the view that where the context is conspiracy by unlawful means, as distinct from conspiracy with unlawful purpose, the onus of proving the requisite knowledge lies upon the plaintiff.   I will assume for present purposes, without finally deciding , that just cause or excuse is nevertheless available as a provable defence.

(citations omitted)

[97]     If Fisher J’s summary of the elements of the tort at [102] of MESB Berhad

were to be applied in the present case, Mrs Wagner would need to prove:

(a)       a  combination  between  two  or  more  of  the  defendants  to  take  a particular course of action;

(b)knowledge by the relevant defendants that that course of action was likely to cause loss to her;

22 MESB Berhad v Lu HC Auckland CL12/98, 16 June 2000.

(c)       that the course of action included a step that was unlawful;23

(d)knowledge by the relevant defendants of the facts which would make that step unlawful;

(e)

(f)       that the course of action caused her loss.

[98] The dicta from earlier cases and, in particular, dicta about the content of the requirement at [97](c) above have now been comprehensively reviewed in the two decisions of the House of Lords I have mentioned earlier, OBG and Total.24   Those decisions comprise 10 separate speeches by nine different judges.   Unhappily, the content of the “unlawful means” requirement is of some moment in Mrs Wagner’s case and accordingly these decisions require careful consideration.

[99]     The  specific  legal  subject  of  the  decision  in  OBG  was  what  have  been described as the “three” or “third” party economic torts, which include the tort of causing loss by unlawful means.25    The House did not, however, consider unlawful means  conspiracy,  which  is  regarded  as  a  “two  party”  economic  tort.     But nonetheless there is necessarily a significant focus in the speeches on the concept of “unlawful means”.

[100]  The uninitiated might think it that there would be a unitary concept of “unlawful means” for the purposes of the economic torts.   But, as the decision in Total shows (which was specifically concerned with unlawful means conspiracy) they would  be wrong.    Nonetheless  the  speeches in  OBG very much  form  the backdrop to the later decision and it is necessary to refer to OBG in more detail

before turning to consider Total itself.

23 In the sense referred to in [100] of the judgment, ie actionable at the suit of the plaintiff.

24 Above n 2.  While the OBG decision has been referred to in subsequent New Zealand jurisprudence (see in particular Diver v Loktronic Industries Ltd [2012] 2 NZLR 388 (CA)) the central question of “unlawful means” was not at issue in those cases.

25 These are the economic torts where the defendant, through an unlawful act, causes a third party to cause harm to the claimant. The tort of inducing breach of contract is an obvious example.

[101]   The leading speech for the majority in OBG was given by Lord Hoffmann.26

In relation to the ambit of “unlawful means”, he said:

49.      In my opinion, and subject to one qualification, acts against a third party count as unlawful means only if they are actionable by that third party. The qualification is that they will also be unlawful means if the only reason why they are not actionable is because the third party has suffered no loss. In the case of intimidation, for example, the threat will usually give rise to no cause of action by the third party because he will have suffered no loss. If he submits to the threat, then, as the defendant intended, the claimant will have suffered loss instead. It is nevertheless unlawful means.  But the threat must be to do something which would have been actionable if the third party had suffered loss.

…

56.      Your Lordships were not referred to any authority in which the tort of causing loss by unlawful means has been extended beyond the description given by Lord Watson in Allen v Flood ... and Lord Lindley in Quinn v Leathem ... Nor do I think it should be.  The common law has traditionally been reluctant to become involved in devising rules of fair competition, as is vividly illustrated by Mogul Steamship Co Ltd v McGregor, Gow & Co…  It has largely left such rules to be laid down by Parliament.  In my opinion the courts should be similarly cautious in extending a tort which was designed only to enforce basic standards of civilised behaviour in economic competition, between traders or between employers and labour.  Otherwise there is a danger that it will provide a cause of action based on acts which are wrongful only in the irrelevant sense that a third party has a right to complain if he chooses to do so. …

57.      Likewise,  as  it  seems  to me,  in  a  case like  Lonrho  Ltd  v  Shell Petroleum Co Ltd (No 2) ..., it is not for the courts to create a cause of action out of a regulatory or criminal statute which Parliament did not intend to be actionable in private law.

(citations omitted)

[102]   But for reasons that will become apparent, however, it is also necessary to consider the minority judgment of Lord Nicholls, who favoured a broader conceptual scope. He said:

149.     Although the need for “unlawful means” is well established, the same cannot be said about the content of this expression.   There is some controversy about the scope of this expression in this context.

150.     One view is that this concept comprises, quite simply, all acts which a person is not permitted to do.  The distinction is between “doing what you have a legal right to do and doing what you have no legal right to do” ...  So

26 Lord Walker, Baroness Hale and Lord Brown agreed with Lord Hoffmann’s analysis: see at [266], [269], [270] per Lord Walker, [302] per Baroness Hale and [320] per Lord Brown.

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.

151.     Another view is that in this context “unlawful means” comprise only civil wrongs.   Thus in Allen v Flood itself Lord Watson described illegal means as “means which in themselves are in the nature of civil wrongs” .... A variant on this view is even more restricted in its scope: “unlawful means” are limited to torts and breaches of contract.

152.     The principal criticism of the first, wider view is that it “tortifies” criminal conduct.   The principal criticism of the second, narrower view is that  it  would  be  surprising  if  criminal  conduct  were  excluded  from the category of “unlawful” means in this context.  In the classical “three-party” form of this tort the defendant seeks to injure the claimant's business through the instrumentality of a third party.  By this means, as Lord Lindley said, the claimant is “wrongfully and intentionally struck at through others, and is thereby damnified”: Quinn v Leathem …  It would be very odd if in such a case the law were to afford the claimant a remedy where the defendant committed or threatened to commit a tort or breach of contract against the third party but not if he committed or threatened to commit a crime against him. In seeking to distinguish between acceptable and unacceptable conduct it would be passing strange that a breach of contract should be proscribed but not a crime.  In Rookes v Barnard ... , Lord Devlin noted it was “of course” accepted that a threat to commit a crime was an unlawful threat and continued:

“It cannot be said that every form of coercion is wrong.  A dividing line must be drawn and the natural line runs between what is lawful and unlawful as against the party threatened.”

(citations omitted, emphasis added)

[103]   Lord Nicholls goes on to traverse the rationales underlying both the narrow and the wide interpretations.  Then, he says:

156.     On either interpretation complications may arise in the application of this tort in certain types of cases, notably where the civil rights of a third party infringed by the defendant are statute-based.  The existence of these perceived complications is not a pointer in favour of either interpretation.

157.     Take the case of a patent.  A manufacturer seeks to steal a march on his rival by employing a novel, patented process.  In order to sell his product more cheaply, he does so without paying any licence fee to the owner of the patent.  By means of this patent infringement he undercuts his law-abiding rival.  He has damaged his rival's business by an unlawful means.  But this conduct,  however  reprehensible,  cannot  afford  the  rival  manufacturer  a cause of action for damages for interference with trade by unlawful means. 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.

...

159.     The difficulties here are more apparent than real.  The answer lies in keeping firmly in mind that, in these three-party situations, the function of the tort is to provide a remedy where the claimant is harmed through the instrumentality of a third party.  That would not be so in the patent example.

(emphasis added)

[104]   He concludes:

162.     For these reasons I accept the approach of Lord Reid and Lord Devlin and prefer the wider interpretation of “unlawful means”.   In this context the expression “unlawful means” embraces all acts a defendant is not permitted to do, whether by the civil law or the criminal law.”

[105]   In Total, a differently constituted bench in the House of Lords,27  faced with an unlawful means conspiracy claim, adopted an approach to “unlawfulness” that was closer to the minority view of Lord Nicholls than to Lord Hoffmann’s.

[106]   Total  concerned  a  VAT  carousel  fraud.     The  allegation  was  that  the defendants had conspired to defraud the tax authorities in a way which, on the facts pleaded, would have constituted the common law crime of cheating the Revenue. No doubt as a result of the absence of a general anti-avoidance provision in the United Kingdom, the means adopted by the defendants to achieve their aim did not give rise to the possibility of other recourse for the Revenue.

[107]   The case was argued on the basis that if there was no independent cause of action against any one of the conspirators individually, and even if the conspirators did not have the predominant intention of injuring the Revenue (as distinct from a dominant intention of benefiting themselves) the commission of the common law offence   constituted   “unlawful   means”   for   the   purposes   of   unlawful   means conspiracy.  The House of Lords agreed.

[108]   I shall attempt to refer only to the most pertinent parts of their Lordships’

speeches.

[109]   At [89] – [96], Lord Walker said:

27 Lord Walker of Gestinghope was the only Law Lord who was a member of both Panels.

89.      My Lords, faced with this confusion in the recent case law, the House must, I suggest, go back to the general principles to be derived from the older cases in which the economic torts have been developed.   It is however necessary to bear in mind that their development has been a long and difficult process, and may not yet be complete, as Lord Templeman observed (with the concurrence of the majority) in Lonrho plc v Fayed ... A particular difficulty is that it has been generally assumed, throughout the

20th-century cases, that “unlawful means” should have the same meaning in the intentional harm tort and in the tort of conspiracy.  A good deal of legal reasoning in the speeches and judgments (as to the ingredients of one or other of these torts) has been based on the assumption that the meaning must be the same in both.   That assumption is however challenged, if the commissioners are correct, by the speech of Lord Hoffmann in OBG Ltd v Allan [2008] 1 AC 1 (with which the majority concurred).28   I shall have to come back to that difficulty.

...

91.      … In its ordinary legal meaning “unlawful” certainly covers crimes and torts (especially intentional torts).  Beyond that its scope may sometimes extend to breach of contract, breach of fiduciary duty, and perhaps even matters which merely make a contract unenforceable, but the word's appropriateness becomes increasingly debatable and dependent on the legal context …

(emphasis added)

[110]   After reviewing the relevant authorities, Lord Walker went on:

94.      From these and other authorities I derive a general assumption, too obvious to need discussion, that criminal conduct engaged in by conspirators as a means of inflicting harm on the claimant is actionable as the tort of conspiracy, whether or not that conduct, on the part of a single individual, would be actionable as some other tort.   To hold otherwise would, as has often been pointed out, deprive the tort of conspiracy of any real content, since the conspirators would be joint tortfeasors in any event ...

95.      In my opinion your Lordships should clarify the law by holding that criminal conduct (at common law or by statute) can constitute unlawful means, provided that it is indeed the means (what Lord Nicholls of Birkenhead in OBG Ltd v Allen ... called “instrumentality”) of intentionally inflicting harm. ...

96.      Having  said  that  I  would  accept  that  the  sort  of  considerations relevant to determining whether a breach of statutory duty is actionable in a civil suit ... may well overlap, or even occasionally coincide with, the issue

28  This is a reference to what has been called a “throw-away line” in Lord Hoffmann’s judgment

where he said at[61]:

“In defining the tort of causing loss by unlawful means as a tort which requires interference with the actions of a third party in relation to the plaintiff, I do not intend to say anything about the question of whether a claimant who has been compelled by unlawful intimidation to act to his own detriment, can sue for his loss.  Such a case of “two party intimidation” raises altogether different issues.”

of unlawful means in the tort of conspiracy. But the range of possible breaches of statutory duty, and the range of possible conspiracies, are both so wide and varied that it would be unwise to attempt to lay down any general rule. What is important, to my mind, is that in the phrase "unlawful means" each word has an important part to play. It is not enough that there is an element of unlawfulness somewhere in the story.

(emphasis added)

[111]   It will be observed that an “unlawful means” inquiry is therefore twofold. Some  qualifying  illegality  required,  but  the  illegal  act/s  must  also  be  the “instrument” by which  the loss is inflicted.   The unlawful acts will not be the instrument in this sense if the unlawful act is incidental, or collateral, to the loss in question.29   The extent to which this requirement has the effect of raising the bar in terms of the level of intent that is possessed by the conspirators is not entirely clear to me.

[112]   Returning now to the breadth of the concept of illegality, however, Lord

Mance said in Total:

119.    Caution is nonetheless necessary about the scope of the tort of conspiracy by unlawful means.  Not every criminal act committed in order to injure can or should give rise to tortious liability to the person injured, even where the element of conspiracy is present.   The pizza delivery business which obtains more custom, to the detriment of its competitors, because it instructs its drivers to ignore speed limits and jump red lights ... should not be liable, even if the claim be put as a claim in conspiracy involving its drivers and directors.   And—as in relation to the tort of causing loss by unlawful means inflicted on a third party – there is a legitimate objection to making liability “depend upon whether the defendant has done something which is wrongful for reasons which have nothing to do with the damage inflicted on the claimant”: per Lord Hoffmann in OBG Ltd v Allan, at para

59.

120.     But the same concern does not apply where, as here, the offence exists in its very nature to protect the revenue; where its commission is necessarily,  directly  and  intentionally  targeted  at  and  injurious  to  the revenue; and where its intended result is the wrongful non-payment of VAT by Redlaw and Lockparts of statutorily recoverable VAT or the payment to Alldech of a VAT credit not properly due under the VAT Act 1994.  Like others of your Lordships, I think that there would be an evident lacuna if the law did not respond to this situation by recognising a civil liability.

[113]   And similarly, at [222] Lord Neuberger said:

29 See also OBG at [159] – [160] per Lord Nicholls.

222.     I do not think that the conclusion, at least on the facts of in this case, that the "mere" crime of cheating the revenue can constitute unlawfulness for unlawful means conspiracy can be said to involve illegitimately creating a tort out of a crime, as mentioned in OBG, para 57.  First, there is the narrow point that the crime (or at least the crime primarily relied on in the commissioners' argument) in the present case is a common law one, and therefore  there  is  no  question  of  disregarding  the  legislature's  intention, which only arises where the [crime] is statutory.  Secondly, there is the more general and telling point that the tort in this case involves the element of conspiracy, which is, of course, lacking in the tort considered in OBG.  The importance of the ingredient of conspiracy has been examined and explained by Lord Walker and Lord Mance in their speeches, and is, as already mentioned, underlined in the field of economic torts by the anomalous tort of conspiracy to injure (or lawful means conspiracy).   Thirdly, as already mentioned, the crime in the present case exists for the protection of the victim.

Approach

[114]   It is against all of the above that I turn now to consider the legal and factual merits of Mrs Wagner’s claims.  I propose to deal with each of the two limbs of the conspiracy separately, as they have been pleaded.  I record, however, that whether they are analysed as two separate conspiracies or as two parts of one, larger, combination would make no difference to the ultimate conclusions I have reached.

[115]   In this case, liability depends on the answers to the following questions, asked in relation to each limb:

(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?

First limb: the alleged conspiracy involving BAP

The combination

[116]   The first limb of the conspiracy is alleged to exist between Mr Gill, BAP and BAMC. At the relevant time Mr Gill was an employee, the majority shareholder and the sole director of both BAP and BAMC.  Although there is no doubt that he was the controlling mind of both, the two companies remain distinct entities with potentially competing interests (as the events surrounding the NBNZ contract show). Clearly, a relevant combination between the two companies is conceptually possible. Based on the authorities I have canvassed above, the existence of a relevant combination between Mr Gill personally and BAMC depends on whether he can be said to have acted disloyally and against BAP’s interests and in favour of BAMC’s. But on the basis of the conclusions I reach later, below, I am satisfied that Mr Gill is properly to be regarded as a conspirator for the purpose of the first limb, at least.

The course of action

[117]   As pleaded, the critical steps taken by the BAP conspirators were:

(a)      Mr Gill’s resignation as CEO of BAP and the deliberate triggering of the termination of the NBNZ contract (and the entry into the identical, new, contract with BAMC);

(b)      BAP’s  compromise  with  its  trade  creditors  in  2010  from  which

Mrs Wagner was excluded and of which she had no knowledge; and

(c)       the placing of BAP into receivership in 2011.

[118]   But I consider that in order for the BAP combination to have the adverse effect on Mrs Wagner that is alleged, the relevant course of conduct would need to be defined more widely.  In particular it seems to me that it would need to include:

(a)      the way in which Mr Gill chose to operate and fund certain of the companies in the Group, and in particular BAP; and

(b)      CPG York’s loans to BAP; and

(c)       the GSAs given by BAP to CPG York in February 2010; and

(d)      The  fifth  defendant’s  change  of  name  in  March  2010  from  BA

Consulting Ltd to BrandAdvantage Measurement and Consulting Ltd.

[119]   On that basis, it seems to me that CPG York should also have been named as a party to the BAP conspiracy.30   That is because BAP’s indebtedness to CPG York played some part in:

(a)       Mr Gill’s ability to resign from his employment with BAP (which, in

turn, facilitated the termination of the NBNZ contract); and

(b)      BAP’s subsequent receivership, in which Mrs Wagner is merely an

unsecured creditor.

[120]   While none of the facts referred to at [118] were explicitly pleaded as steps in the BAP combination, they were plainly matters that were part of the conspiratorial mix alleged by Mrs Wagner.  But while I am therefore prepared to proceed on the basis that they are matters that can be taken into account as part of the factual matrix, I am not prepared to take them into account insofar as they give rise to discrete issues of unlawfulness.  The particular issue that arises in that respect is addressed in more detail below.

Unlawful purpose?

[121]   It is, of course, one thing to conclude that there is a commonality of interest between Mr Gill and his companies that results in certain course of action that has a particular outcome, and quite another to conclude that that commonality of interest gave rise to the taking of steps which had, as their specific and dominant purpose, injury to Mrs Wagner’s interests

[122]   In  the  absence  of  any  direct  evidence  of  such  an  intention  or  purpose Mrs Wagner must necessarily ask the Court to draw an inference from the steps outlined at [118] and [119] above that there was a dominant intention by Mr Gill, BAP  and  BAMC  (and  CPG York)  to  ensure  that  Mrs  Wagner  would  have  no

meaningful recourse to BAP in the event of her success in the arbitration.

30 CPG York is pleaded to be a conspirator in the DPL limb only.

[123] In the present case, the difficulty in this respect is recognised in the statement of claim itself. I have referred to the relevant passage at [81] above. The fact that the pleading of unlawful purpose refers to the alleged conspiracy damaging not only Mrs Wagner’s interests but the interests of other creditors and shareholders accurately reflects my view of the facts here; the BAP combination as I have found it to be was not, in my view, dominantly directed at Mrs Wagner. There were other business purposes that were effected by it, including the protection of valuable assets and settling with other creditors. There can be no doubt that those effects were intended by Mr Gill and his companies.

[124]   The conclusion that damage to Mrs Wagner was not the dominant intention here is, I think, fortified by the fact that during the time that the relevant actions were effected Mrs Wagner was only a contingent creditor of either DPL or BAP.   Her claim against those companies was being actively defended by those companies. Mr Regan had first articulated the grounds for the defence in late 2009 and evidence was filed on their behalf with the arbitrator as late as December 2010.  To suggest that Mr Gill was also the architect of a parallel and alternative “asset stripping” plan that was constructed specifically and principally to prevent Mrs Wagner ever from recovering a debt that had yet to be established seems to me to be an overly long bow to draw.

[125]   Accordingly I consider that the most that can be said is 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 from creditors.   I have no doubt that Mr Gill would have been aware that, in the event that Mrs Wagner succeeded in establishing DPL/BAP’s liability at arbitration, BAP’s  absence  of  assets,  its  intercompany  debts  and  the  GSAs  would  make  it difficult (if not impossible) for her to recover from that company.  While there is no reason to think that he would have been unhappy about that consequence, I am unable to infer from the facts that I have found to be established that this was his actuating purpose in orchestrating the steps at [117] and [118] above.

[126]   The issue of the existence of any legitimating object or excuse has been subsumed in my discussion of dominant purpose and does not need to be considered further. The unlawful purpose conspiracy must fail.

Unlawful means?

[127]   As far as unlawful means are concerned I agree with Mr Eichelbaum that the matters referred to at [117] and [118] raise issues about Mr Gill’s compliance with his duties as a director of BAP.  Although not advanced by Mr Eichelbaum in quite such a concise way, I consider that there are issues specifically about his compliance

with his duties as a director of BAP.31

[128]   As far as the NBNZ contract is concerned Mr Gilchrist is correct that, in technical legal terms, once Mr Gill had resigned as CEO of BAP, there were grounds for NBNZ to terminate the contract.  Similarly, viewed in a circumstantial vacuum, there  was  nothing  to  prevent  NBNZ  from  entering  into  a  “fresh”  but  identical contract with BAMC. Thus on a contract law analysis:32

(a)     what occurred cannot be characterised as a “transfer” for “no consideration”;

(b)the  commission  paid  by  NBNZ  to  BAMC  from  the  end  of  2010 through to July 2011 was lawfully paid under the contract for work done  by  BAMC  and  cannot  fairly  be  characterised  as  “run-off” revenue that should have been paid to BAP.

[129]   Similarly, on such an analysis, there was no requirement for a shareholders’

meeting or for a special resolution.

[130]   But when these steps are viewed in light of Mr Gill’s director’s duties, the

position is less clear-cut.

[131]   In particular, there can in my view be little question that Mr Gill did contrive to move a valuable asset from BAP to BAMC right at the time when BAP was at a critical financial point (and, indeed, was offering to compromise with trade creditors for 75 cents in the dollar).

[132]   In his text Directors’ Powers and Duties, Professor Peter Watts says:33

31 Namely his common law fiduciary duties and his duties under s 131 of the Companies Act 1993.

32 It follows from these conclusions that even had Mr Eichelbaum been permitted to pursue his sham allegation I would not have found it established on the facts.

33 Peter Watts Director’ Powers and Duties (Lexis Nexis, 2009, Wellington) at 149.

In the absence of a constitutional provision that permits the directors to act in the related party’s interests ... directors are not permitted to subordinate the interests of one company in the group in favour of others.  More accurately, perhaps, directors must not be indifferent to the interests of a company when exercising its powers in the basis of some broader group interest.  This will be particularly important upon a company’s insolvency.  Directors must not deliberately move assets or value from one company to the other, since that may  leave  creditors  of  the  first  company  “high  and  dry”.    Generally speaking, creditors have no claim on the group, but only on the company with which they contracted.   Conversely, ... disloyalty is not established simply because a director, in good faith, assumes that the interests of the company are aligned with those of the group.

[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.

[134]   As  far  as  the  compromise  with  BAP’s  creditors  is  concerned,  it  is  not disputed that BAP sought from and achieved a compromise (albeit of 75, rather than

55, cents in the dollar) with its unsecured trade creditors and that Ms Wagner did not know about this. As I have said, this was not a formal (Part XIV) proposal and there was no statutory requirement to notify Mrs Wagner.34

[135]   The existence of any discrete duty on insolvency or near insolvency not to discriminate against a particular creditor is far from clear.35   The cases that touch on the subject involve preference being accorded to a shareholder or a director rather than a particular group of creditors.  Moreover there has never been a duty to treat all creditors equally.  I am not prepared to hold that the decision to compromise with unsecured trade creditors without considering Mrs Wagner’s interests is capable of

constituting misfeasance by Mr Gill.

34 Whether or not her status as a contingent creditor meant that she would be regarded (had Part XIV applied) as being in the same class as those to whom the proposal was put is a matter about which I heard no argument.

35 See Peter Watts Directors’ Powers and Duties above n 33 at 10.2.

[136]   Lastly, I record that, had it been pleaded, there would in my view be a real issue about a potential breach by Mr Gill of the phoenix companies rules contained in ss 386A to 386F of the Companies Act 1993.  A breach of s 386A would be based on findings that:

(a)       BAP was a “failed company” as defined;

(b)      BAMC was  a “phoenix  company” within the meaning of s 386B

because it had “a similar name” to BAP;36 and

(c)      Mr Gill had been a director of a failed company (BAP) and a director of a phoenix company (BAMC) within a period of five years after the date of commencement of the liquidation of BAP.

[137]   I consider that there would be little difficulty in establishing those matters here.  There would, however, remain an issue about whether Mr Gill could escape liability under s 386F.37

[138]   As I have said, however, no reference was made to the phoenix companies provisions either in the statement of claim or in Mr Eichelbaum’s submissions. Because breach of s 386A is a criminal offence I consider it would be wrong to make a finding of such a breach without Mr Gill receiving unequivocal notice that he was at risk.

[139]   I  consider  that  a  factual  inference  can  nonetheless  fairly  be  drawn  that

Mr Gill attempted to avoid the operation of these provisions by:

36  “Similar name” is defined to mean “a name that is so similar to a preliquidation name of a failed company as to suggest an association with that company.

37 Section 386F(1) provides that:

The prohibitions in section 386A(1)(a) and (b) do not apply in respect of a phoenix company that  has  been  known by a  name  or  names that  are  the  same  as  the  failed  company's preliquidation name or are similar names if –

(a)        it has been known by that name or those names for not less than the period of 12 months before liquidation commences; and

(b)       it has not been dormant during those 12 months.

(a)      Changing the fifth defendant’s name from BA Measurement Ltd to BrandAdvantage Measurement and Consulting Ltd shortly before transferring the NBNZ contract;38 and

(b)Waiting for 13 months to put BAP into liquidation in order to gain the benefit of the s 386F exception to liability under s 386A.39

[140] Accordingly it seems to me that Mr Gill was well aware of the legal significance of the transfer of the NBNZ contract to BAMC.  So, although I make no finding on the specific issue of s 386A unlawfulness,  I consider that  Mr Gill’s consciousness of the possible operation of that section serves to underscore the view that I have come to about the breach of his fiduciary duty to BAP.

[141]   On   the   basis   of   the   analysis   above,   the   only   potentially   relevant “unlawfulness” I have found is that breach of fiduciary duty.  Mr Gilchrist conceded that such a breach could constitute the relevant unlawful act for the purposes of the unlawful means conspiracy and I accept that there is contingent support for that concession to be found in Lord Walker’s speech in Total.40    But I am not wholly persuaded that that would be the correct outcome here.

[142]   As the Companies Act itself makes clear, a director’s duty of fidelity is owed to the company itself.41   To the extent breach of that duty also involves prejudice to minority shareholders there are (limited) remedies in that respect.42     There is necessarily a concern that “tortifying” such a breach (by permitting a person who is a creditor to  bring an  action  in  tort  against  the  errant  director) would  cut  across Parliament’s clear intention.

[143]   A further legislative indication that it would be wrong to permit a creditor to bring a tortious action in such cases is that as a (contingent) creditor of BAP, Mrs

Wagner may also have had the ability to apply under Part 6 of the Property Law Act

38  It can reasonably be inferred that Mr Gill considered that Brand Advantage Measurement and Consulting Ltd was a name that was less “similar” to BA Partners Ltd than was BA Measurement Ltd.

39 Which arguably brought him within s 386F.

40 Revenue an Customs Commissioners v Total Network, above n 2 at [91].
41 See s 169.

42 See s 174.

2007 (PLA) to have the disposition of the NBNZ contract to BAMC set aside.43   The existence of that remedy not only suggests that Parliament has turned its mind to the appropriate recourse in such cases but indicates that a prejudicial disposition cannot constitute an unlawful act by and of itself.  As the nature of the remedy suggests, the transaction is merely voidable, it is not illegal.

[144]   Thus it seems to me that this is a very far cry from the position in Total where there the House of Lords considered there was a “hole” in the law that needed to be filled.44    There, the Revenue had suffered loss of a kind that the law specifically sought, but had failed, to prevent.

[145]   If I had found that relevant unlawfulness existed, it would perhaps have been less difficult to conclude that the conspirators here had the relevant intent to injure Mrs Wagner here.  If the threshold is as indicated by Fisher J in MESB Berhad v Lu45 then it would likely be met.  But if, as a result of Total, a higher threshold is now required (as the quid pro quo of broadening the scope of unlawful means) Mrs Wagner would again be in difficulty.  I would not, for example, consider injury to her

to be the “target” of the Mr Gill’s breach of fiduciary duty.   But because of the conclusions I have reached both above and below it is not necessary to decide that issue.

Loss

[146]   Lastly, and irrespective of the difficulties I have identified with the BAP conspiracy  claim  Mrs  Wagner  would  also  need  to  establish  that  the  alleged conspiracy or combination did in fact cause her loss (ie the inability of BAP to meet its liability under the arbitral award).   Indeed, Mr Gilchrist’s principal submission was that she would have suffered that loss in any event because even if the NBNZ contract had not been terminated BAP would not have been able to meet the arbitration debt.  This contention was supported by the expert accounting witness,

Mr Weber whose evidence was, as I have said, essentially uncontested.46

43 She would, of course, need to establish prejudice which, for the reasons given in the “loss” section

of this judgment, is not necessarily straightforward.

44 As I have said, in New Zealand this “hole” would likely be filled by the operation of the general

anti-avoidance provision contained in the taxing statutes.

45 MESB Berhad v Lu, above n 22. Referred to above at [96] – [97].

46  See my comment above at [20] about Mr Regan’s evidence.  Although Mr Eichelbaum did cross- examine Mr Weber by reference to the various contemporaneous documents etc.

[147]   More specifically, and as regards the specific unlawful act relied upon for the BAP limb of the conspiracy, Mr Weber’s evidence was that in his opinion (based on his review of BAP’s annual financial statements and the management accounts) the contract with NBNZ yielded gross income for BAP of an average of $263,000 for the years 2009 - 2011.

[148]   Mr Weber also attempted to ascertain the expenses associated with the NBNZ contract, although he said that that was difficult to do due to the interrelatedness of all Mr Gill’s companies.   But his conclusion was that, on average, the expenses between  2008  and  2010  were  $247,000  per  annum  (most  of  which  comprised Mr Gill’s salary).  Thus, he said the net income or profit from the contract for BAP would have been $16,000 per annum.  Receipt of such a profit (in light of existing indebtedness) would not have enabled Mrs Wagner’s claim to be met and she has thus failed to establish that the transfer of the BAP contract to BAMC has caused her loss.

Second limb: the alleged conspiracy involving DPL

[149]   As regards the second limb of the conspiracy, I am prepared to accept that there could be a relevant “combination” between DPL and CPG York.47   By contrast with the BAP limb, however, whether or not Mr Gill personally could properly be viewed as  a separate actor in the combination  is a more difficult question.   In particular (and as I will elaborate below) it is not clear on the evidence that he ever took steps in relation to the matters involving DPL and Fashion and Garden that

went beyond the proper bounds of his role as director and/or shareholder of those companies.   In the absence of such steps, and based on the authorities previously discussed, I do not consider it would be right to view his actions as separate from

those of the companies themselves.48

47  Strictly speaking I consider that Fashion and Garden and their receivers (and probably Times and THDL) should also be regarded as actors and conspirators here. Again, I do not propose to hold the pleading deficit against Mrs Wagner.

48 Mr Gill of course remained the guiding mind of those companies but the effect of my finding is that he could not personally be held jointly and severally liable as a conspirator in so far as the DPL limb is concerned.

Course of conduct

[150]   On the basis of the facts as I have found them to be, I consider that the relevant course of conduct that resulted from the DPL combination was:

(a)      The determination and allocation to Fashion and Garden of their share of overheads and other expenses within the Group;49

(b)The making of the loans to Fashion and Garden by CPG York and the consequent giving of the GSAs by Fashion and Garden to CPG York in February 2010;

(c)      The making of loans to DPL by CPG York and the consequent giving of a GSA by DPL to CPG York in February 2010;

(d)the sale of the assets of Fashion and Garden to DPL and the way in which that sale, the on-sale by DPL to THDL and the joint venture between DPL and THDL was structured;

(e)      the appointment of receivers to Fashion and Garden by CPG York immediately before that sale was effected; and

(f)       the appointment of receivers to DPL.

Unlawful purpose

[151]   I do not consider that the evidence relevant to the DPL conspiracy supports the existence of a dominant purpose to injure Mrs Wagner’s interests.  The position might have been different had the evidence established that Mrs Wagner was kept in the dark about any of the matters that led to the effective demise of Fashion and Garden.  But the evidence supports the opposite conclusion.

[152]   First, Mrs Wagner did not deny that the 19 February 2010 teleconference between the directors and shareholders of fashion and Garden took place.   I have already recorded my acceptance that the minutes of the teleconference meeting are accurate.  They make it clear that Mrs Wagner did know about the proposed GSAs

before they were given.  And although the minutes record her questioning the need

49 As I have said above, there is insufficient admissible evidence to conclude that those expenses were artificially inflated.

for further borrowing it seems that she also recognised the reality that she was a minority shareholder.50      She,  in  fact,  supported  the  possibility of  a  sale  of  the websites.

[153]   Secondly, it is clear that:

(a)      Mrs Wagner was told about the proposed sale of the assets of Fashion and Garden;

(b)      her lawyers were advised of the structure of the sale;

(c)      Mrs  Wagner  then  consented  to  the  sale,  in  the  absence  of  the undertaking she had sought (which could not, in the circumstances, have been given in any event).

[154]   The one matter that gives me some pause arises from the timing of the appointment  of the receivers,  immediately before the  completion  of the sale of Fashion and Garden.  An inference can in my view fairly be drawn that the decision made  by  CPG York/Mr  Gill  at  this  time  was  driven  by  a  desire  to  avoid  any difficulties that Mrs Wagner might pose in relation to the sale and, in particular, to avoid the need to comply with s 129 of the Companies Act.

[155]   But Mr Gill’s desire to push the sale through does not in itself mean that his dominant purpose must have been to damage Mrs Wagner’s interests.  On the one hand it is possible to infer from the structure of the sale and Mr Gill’s determination that it proceed, that the sale was driven by his desire to ensure that DPL’s 75 per cent shareholding in Fashion and Garden was valueless, thus depriving Mrs Wagner of the opportunity to (for example) place a charge on those shares to secure any debt that she was owed.   But an inference that is equally open is that he genuinely believed (as the correspondence and history of the matter suggests) that the sale was the only tenable way forward for the companies and that there was a risk that the deal with Times might fall over if anything (or anyone) got in the way.  Given that

those two inferences are, in my view, equally open, I do not consider that these

50 Between them, Messrs Gill, Regan and Dods owned over 90 per cent of DPL.  In turn, DPL had a

75 per cent shareholding in Fashion and Garden.  The minutes show (and I accept) that Mr Gill and Mr Regan (and therefore DPL) supported the proposed transactions.   Mr Dods’ position is not recorded but it seems unlikely that he demurred. There was, accordingly, 75 percent approval of the loans, and of GSAs.

matters ultimately assist Mrs Wagner.  And there is, in any event, the fact that she eventually consented to the sale.

[156]   As far as DPL itself is concerned I have accepted the evidence that economic times were tough and that DPL was in a poor financial health.  The company had substantial indebtedness that pre-dated the combination that I found existed.   The fact that Mrs Wagner was not aware of this was immaterial; there was no obligation to inform her.   That indebtedness was increased by the February 2010 loans from CPG York but, as I have said, the evidence fell short of satisfying me that those loans were artificially created or inflated.

[157]   Nor  do  I  consider  that  Mr  Gill’s  attempts  to  sell  the  website  business throughout 2010 were not genuine or can tenably be seen as part of some subterfuge to deprive Mrs Wagner of the fruits of her arbitration (which had not been concluded and which was being contested).   The evidence was that the joint venture entered into by DPL with Times has, indeed, enabled the website businesses to keep going in a not especially profitable, but mutually advantageous, way.

[158]   Although I have no doubt that Mr Gill would have been aware of the effect that the way in which he structured matters would have on any subsequent debt that might be established by Mrs Wagner, I do not consider that that effect can be said to be the actuating purpose of the combination.

Unlawful means?

[159]   I did not understand Mr Eichelbaum to contend that the entry by Fashion and Garden into the loans and GSAs were “major transactions” that required special resolutions under s 129 of the Companies Act 1993.  There was, in any event, an inadequate evidential basis for him to do so.51    Nor do I consider that the evidence establishes that those transactions were entered into without director or shareholder approval. That was given on 19 February 2010.

[160]   It is not prima facie wrong for directors to create a situation of financial interdependence amongst related companies.

51 By which I mean no evidence was called by him to establish that the loans gave rise to a liability the value of which was more than half the value of the companies’ assets.  On the contrary, Mr Eichelbaum’s contention was that those assets were worth a  good deal more than the price eventually put in them at the end of 2010.

[161]   As I have already said, I also consider that there is an insufficient basis for me to conclude that the advances made to Fashion and Garden were the result of incorrect  expenses  and  charges  being  attributed  to  those  companies  or  that  the charges were otherwise inflated or backdated.  Strong and clear evidence, rather than confusion and speculation, would be required to establish such a contention.

[162]   In that regard I also accept Mr Gilchrists’s submission that it is relevant that there has been never been any direct challenge made to the validity of the GSAs given by Fashion and Garden.   In the absence of such a challenge they remain binding and effective according to their terms.52

[163]   Accordingly, the evidence was that Fashion and Garden could not meet their indebtedness to CPG York. CPG York was therefore entitled to appoint receivers under the GSAs.   In my view it has not been established that the receivers were unlawfully appointed.

[164] Next, and in terms of the sale of Fashion’s and Garden’s “intellectual property” at the end of 2010, I consider that the legal position based on the documents signed is as I have set out at [73] above. The effect of those interdependent agreements is that the consideration for the (on)sale by DPL to THDL was $450,000 (albeit payable on a contingent basis over time). Of that sum

$270,000 was attributable to Fashion and Garden.  It cannot be said that the assets were transferred for no consideration.  I have rejected the allegations of backdating

[165]   Although  the  sale  of  the  assets  of  Fashion  and  Garden  (and  the  other websites) would in my view constitute a “major transaction” for which a special resolution is required under s 129 of the Companies Act 1993, s 129 does not apply once receivers have been appointed.   Although there might be adverse inferences drawn from the timing of their appointment (which I have discussed above), there is no question of unlawfulness.

[166]   It follows that I have been unable to ascertain any aspect of unlawfulness in the DPL limb of the conspiracy.

52 Personal Property Securities Act 1999, s 35.

[167]   Even if any or all of these conclusions prove to be incorrect I also consider that Mrs Wagner’s loss was not caused by the DPL conspiracy.  As I have said, I accept Mr Weber’s evidence was that DPL was effectively insolvent from the end of

2009 at the latest and I have been unable to find that the debt to CPG York was not genuine.  Even if DPL’s shares in shares in Fashion and Garden had retained value it could not have met her claim.

[168]   Finally, I record that because I have found that Mrs Wagner’s claims fail on the merits I do not need to consider the alternative claim for loss that was developed by Mr Eichelbaum during the hearing.53

Conclusions and result

[169]   In summary, therefore:

(a)      The evidence establishes that there were conspiracies or combinations of the general kind pleaded,54 between:

(i)       Mr Gill, BAP, BAMC and CPG York (the BAP combination);

(ii)      Fashion    and   Garden,    DPL   and   CPG   York    (the    DPL

combination).

(b)While injury to Mrs Wagner’s interests may have been an incidental purpose or effect of the course of conduct to which each or both the combinations gave rise, the evidence is insufficiently strong to satisfy me that such injury was the actuating purpose of either (or both);

(c)      The improper purpose required for a lawful means conspiracy has not therefore been made out;

(d)The transfer of the NBNZ contract from BAP to BAMC involved a breach by Mr Gill of his duty as a director of BAP;

53 Mr Eichelbaum said that rather than having suffered the loss of her ability to recover the amount of the arbitral award she had suffered an earlier loss of a “chance”. As I understood it, that lost chance was said to be Mrs Wagner’s chance to injunct or to wind up the companies at various points during

2010.  How such a chance might be valued is far from self-evident and there was no basis upon which the Court could develop an appropriate counterfactual.

54 I say “general” kind because I have found that quite a number of the allegations in the statement of

claim in this respect have not been made out.

(e)      Breach of that duty is not, however, a qualifying unlawful act for the purpose  of  an  unlawful  means  conspiracy in  relation  to  the  BAP combination;

(f)      The  evidence  does  not  satisfy  me  that  any  relevant  unlawful  act resulted from the DPL combination;

(g)Even if I am wrong in any of the conclusions at (b), (c), (e) and (f), Mrs Wagner is unable to establish that she has suffered loss as a result of either, or both, of the combinations because:

(i)(insofar as the BAP conspiracy is concerned) the amount of net revenue yielded by the NBNZ contract was minimal; and

(ii)DPL and BAP were effectively insolvent prior to the course of conduct that was followed as a result of the DPL and the BAP combinations, and would have been unable to meet the arbitration debt even if that conduct had not occurred.

[170]   In short, Mr Gill is plainly a shrewd businessman.  Although there may have been an element of sharp practice in what has taken place, the conduct of Mr Gill and his companies was neither directed enough nor sufficiently unlawful to establish the tortious liability alleged.

[171]   Mrs Wagner’s conspiracy claims must fail accordingly.

[172]   There is no reason why 2B costs should not follow the event in the usual way. Counsel may submit memoranda if they are unable to agree.

Rebecca Ellis J