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Curtis v Gibson [2011] NZCA 373 (5 August 2011)

Last Updated: 10 August 2011

JUDGMENT OF THE COURT

1. The substantive appeal (CA368/2010) is allowed. The judgment in CIV-2008-485-2735 in favour of the respondents is set aside. Judgment is entered in favour of the appellants on the issue of liability.
2. The appellants’ claim in CIV-2008-405-2735 is remitted to the High Court for an accounting of profits in accordance with this judgment.

100. The costs appeal (CA285/2011) is allowed and all costs orders made in the High Court in relation to CIV-2007-485-907 and CIV-2008-485-2735 are set aside. The High Court is to determine the costs in that Court in light of this judgment and any further steps necessary in the High Court.

4. The respondents in the substantive appeal (CA368/2010) are to pay to the appellants costs as for a complex appeal on a band A basis with usual disbursements. We certify for second counsel. We make no award for costs in CA285/2011.
   

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

Introduction

[1] These appeals arise from the dismissal by Simon France J of two sets of proceedings heard jointly in the High Court.[1] The proceedings arose from a joint venture the first appellant Mr Curtis alleged he entered into with the first respondent Mr Gibson to develop and sell a portable home called the Habode.
[2] The Habode was built in, and formed part of, a standard shipping container, a feature the Judge described as having significant attractions for delivery to remote locations. It was intended that the Habode would be developed and marketed both in New Zealand and internationally. A company, Habode (NZ) Ltd was formed to pursue the development and marketing of the Habode in New Zealand. The Curtis interests were not involved in this company when it was first formed, but later obtained a 45 per cent shareholding in it. There is no dispute that Mr Gibson was responsible for the design of the Habode with Mr Curtis providing substantial finance and marketing expertise.
[3] Mr Gibson also formed another company in New Zealand (Habode IP Ltd) which was owned wholly by himself or interests associated with him. It was accepted throughout that Hadobe IP owned all the intellectual property in connection with the Habode. Habode IP later entered into a formal licensing agreement authorising Habode NZ to market and distribute the Habode in New Zealand.
[4] The project encountered financial difficulties and the relationship between Mr Curtis and Mr Gibson broke down in March 2006. This led to the liquidation of Habode NZ.
[5] Prior to the collapse of Habode NZ, some steps had been taken to explore marketing opportunities in Australia including discussions with a West Australian architect, a Mr Muir. Mr Curtis contends that the pursuit of international sales opportunities for the Habode was part of the joint venture between himself and Mr Gibson. Although corporate vehicles had been formed which could have been used to pursue plans in Australia, no formal steps had been taken to implement any such plans by the time of the collapse of Habode NZ. Thereafter, Mr Gibson established an Australian operation for the sale and distribution of the Habode which attracted large-scale investment from an Australian company. It is common ground that the link to development of the Australian operation occurred through Mr Muir. It is said further that Mr Gibson and his associated interests received at least US$3 million from the Australian operation.
[6] The contention advanced by the Curtis interests in the High Court was substantially wider in its scope than that contended for on appeal. In the High Court, the Judge summarised the contention of the Curtis interests as being:

(a) There was an arrangement or agreement specific to Mr Curtis and Mr Gibson whereby together they would develop the Habode project.

(b) This arrangement would be implemented by developing the concept into an actual building and marketing it in New Zealand.

(c) This arrangement would also be implemented by then launching the Habode concept internationally, again through a licensing agreement from Habode IP Ltd.

[7] It was further contended in the High Court that the “Habode project” was an asset of the joint venture and that those assets included the benefits which the Gibson interests received from the development of the Australian operation. This occurred within a short time of the collapse of the New Zealand operation.
[8] The Judge found there was no joint venture as the Curtis interests had contended. Their claim for an accounting in respect of profits failed accordingly.
[9] Mr Goddard QC (who did not appear in the High Court) advanced the appeal on behalf of the Curtis interests on a narrower basis than was argued in the High Court. It was accepted there was no joint venture in relation to the New Zealand arm of the plan independently of the formal arrangements entered into. These included the incorporation of Habode NZ and the conclusion of a licensing agreement between that company and Habode IP. It was also accepted that, if there were a joint venture in respect of the international arm of the plan, it did not acquire ownership of the Habode project in the sense that it held, or was entitled to be granted, a licence from Habode IP in respect of the intellectual property rights needed to market the Habode internationally.
[10] Rather, it was contended on behalf of the Curtis interests on appeal that the evidence before the High Court supported the existence of a joint venture between Mr Curtis and Mr Gibson to pursue international sales opportunities for the Habode. The information obtained during the currency of the joint venture about opportunities in Australia was said to be intangible property belonging to the joint venture. Neither Mr Curtis nor Mr Gibson was entitled to use that information and pursue those opportunities for their own benefit during the existence of the joint venture and upon its termination. It was accepted that the joint venture was terminated in March 2006 at which time the New Zealand operation collapsed and Mr Gibson terminated the licence agreement with Habode NZ. The opportunities in Australia, it was submitted, remained the subject of mutual equitable obligations. Neither party was entitled to pursue the opportunities arising for their own benefit without the consent of the other.
[11] It was submitted the evidence demonstrated that Mr Gibson had used these opportunities for his own benefit or for those of his family interests without the consent of Mr Curtis and that an account in respect of the profits derived from exploiting those opportunities was the appropriate remedy the Judge ought to have granted.
[12] The Curtis interests also submitted that, while the international joint venture was on foot, three further companies were established: Habode Holdings Ltd, Habode (Australia) Pty Ltd and Habode International Limited – through which the international arm of the joint venture was to be pursued. Habode Holdings was owned equally by the Gibson and Curtis interests (except for a very minor share) but the other two companies were owned by the Gibson interests. It was contended that the shares in these two companies were acquired for purposes falling within the scope of the joint venture. A declaration to that effect and an order for an account in respect of profits derived by the Gibson interests for ownership of those shares was also sought.
[13] The broad issues arising on the substantive appeal (CA368/2010) are:

(a) Was there sufficient evidence to support a finding of a joint venture in the more limited form contended for on appeal?

(b) If so, was Mr Gibson in breach of fiduciary obligations arising from any such joint venture?

(c) If so, what relief is appropriate?

[14] There is a second appeal (CA285/2011) by the Curtis interests in relation to a costs judgment delivered by Simon France J on 23 June 2010.[2]

Factual background

[15] The hearing in the High Court occupied some two weeks and canvassed a great deal of material not directly relevant for present purposes. The principal witnesses were Mr Curtis and Mr Gibson. Other witnesses who are of importance to the resolution of this appeal are Mr G W F Thompson (a solicitor who detailed steps taken in 2004 to establish corporate structures for the purpose of developing the international arm of the business), and Mr D W Pringle (a principal of the Australian company which invested in the marketing and distribution of the Habode in Australia).
[16] Our discussion of the facts will summarise the position with the New Zealand arm of the business, but will focus principally on the steps taken to exploit opportunities overseas. Our summary of the facts is drawn in part from the substantive judgment of Simon France J in the court below, and partly from the evidence produced in the High Court. Of particular significance is the documentary evidence of communications with Mr Muir in the latter half of 2005.
[17] The Judge did not find it necessary to make any credibility findings as between the principal witnesses so that, on appeal, we are in a position to make our own assessment of the facts and the inferences to be derived from them. Because of the way the case was presented on behalf of the Curtis interests in the High Court, the trial Judge was not called upon to make specific findings on some of the issues raised on appeal. In particular, the Judge was not required to make any findings about the status of the business contacts made in Australia since there was no contention before him that the information relating to these opportunities formed an asset of the joint venture for which Mr Curtis contended.

The initial concept and the introduction of Mr Curtis

[18] Mr Gibson had designed his concept for the Habode by about the middle of 2003. He had known Mr Curtis for some years prior to that time and offered him the opportunity to become involved in the Habode project. Mr Curtis initially declined the opportunity due to other business commitments. In July 2003, Habode Ltd (later renamed Habode (NZ) Ltd) was incorporated. The shares were owned as to 55 per cent by Mr Gibson; 10 per cent by Mr Mark Fowler (a neighbour of Mr Gibson) and 35 per cent by Mr Chris Morrison (Mr Fowler’s brother in law). Mr Gibson’s 55 per cent shareholding was owned through his company UGroup Holdings Ltd which was in turn owned by Mr Gibson’s family trust known as the Ivy Mariner Trust. We will refer to entities owned or controlled by Mr Gibson as “Gibson interests”.
[19] A Hawkes Bay company was approached to build a prototype for the Habode but the initiative was unsuccessful. In late 2003, Mr Morrison experienced some financial difficulties and Mr Curtis was approached again. Habode NZ was short of funding. Mr Curtis indicated his willingness to become a shareholder and to provide a short-term loan of up to $150,000. Mr Morrison’s shareholding and part of Mr Gibson’s shareholding were transferred to Curtis Holdings Ltd, a company controlled by Mr Curtis. The result was the Gibson and Curtis interests each held 45 per cent in Habode NZ with the balance of 10 per cent remaining with Mr Fowler. Mr Curtis joined the Board as a director at the same time.
[20] A memorandum of understanding entered into in December 2003 described Mr Gibson’s role as having responsibility for product design, documentation of manufacturing processes, project management, testing and location of the first prototype Habode and ensuring the protection of the Habode intellectual property. The responsibilities of Mr Curtis were said to be business management including the identification, negotiation and management of contracted service providers; the provision of start-up funding; expense management and insurance. The Curtis interests contributed share capital of $45,000 and some $160,000 in loans over the next 12 months. These loans were made at a commercial interest rate of 15 per cent.
[21] It was agreed at a Board meeting held on 3 December 2003 that Mr Gibson would retain ownership of all intellectual property. In return, he would be paid 5 per cent of the FOB costs of every Habode constructed. Mr Gibson would give Habode NZ the right to manufacture, market, distribute and sub-license the Habode concept.

Developments in 2004 including Mr Thompson’s involvement

[22] During 2004, there were activities on a number of fronts to progress the Habode project. A Chinese company (Renhe) was engaged to manufacture the prototype Habode. By the last quarter of 2004, a prototype was effectively completed but there was an ongoing dispute with Renhe about cost escalations and other issues. Ultimately, the decision was made to abandon Renhe and to recommence development of a prototype with another company. Mr Gibson was spending substantial periods of time in China working with the manufacturers to produce the first Habode and to set up processes for manufacturing more of them.
[23] Steps continued to develop the New Zealand market for the Habode. But moves were also afoot to explore the prospects of international sales. In March 2004, Mr Gibson approached Mr Thompson for advice about setting up international business structures. The Judge described the twin aims of the international Habode structures as preserving ownership of the IP with Mr Gibson and ensuring that income on international sales was not subject to New Zealand tax.
[24] Mr Thompson gave evidence of steps taken to set up an elaborate web of international companies in order to achieve these aims. The Judge saw Mr Gibson alone as being responsible for establishing the international corporate structures and was clear that Mr Gibson was “unwavering” in his determination to maintain ownership and control of all the intellectual property. However, the Judge accepted that Mr Gibson “plainly intended to bring Mr Curtis on board with the future international sales, and did so for a while”.
[25] On 5 March 2004, Habode IP was incorporated by Mr Gibson. It was around this time that Habode Ltd was renamed Habode (NZ) Ltd. On 10 June 2004 Habode IP Ltd granted the licence to Habode NZ. The agreement was for five years with one right of renewal. Habode IP was to set the recommended retail price which would include a margin for Habode NZ as licensee. There were minimum purchase obligations. An initial licence fee to be paid to Habode IP required Habode NZ to meet the costs of construction, production and shipping to New Zealand of the first two Habodes without any monetary cap. The Judge described this term of the contract as being disastrous for Habode NZ since it committed that company to translate the Habode concept into the finished product. This proved to be a great deal more expensive than the nominal retail cost of two Habodes. The licensing agreement allowed for sub-licensing. Habode NZ divided the country into regions and a number of sub-licences were sold, realising substantial sums of money.
[26] In the meantime, steps were being taken to progress the international arm of the Habode project. On 28 June 2004 Habode Holdings Ltd was incorporated with the Gibson and Curtis interests holding equal shareholdings. Mr Thompson proposed that Habode Holdings would be the first stage in the internationalisation of Habode. Later, Mr Thompson took a two per cent shareholding in Habode Holdings in a tiebreaker capacity. The Judge observed that no explanation was given for Mr Fowler being excluded from the proposed international arrangements.
[27] Habode Holdings was incorporated in Hong Kong and a bank account opened with an initial deposit of $1,000. The account was never used and the company did not trade at any stage in the sense of selling or distributing the Habode. However, on 1 August 2004, Habode Holdings entered into a manufacturing agreement with Renhe. The prototype being developed by Renhe was not covered by this agreement which did not in the end proceed due to the collapse of the business relationship with Renhe. The Judge found that Habode Holdings was named as the contracting party with Renhe because Mr Thompson said it should be. He added that this instruction was obviously in anticipation of the international model Mr Thompson was setting up.
[28] While it was always made clear that Mr Gibson through Habode IP would retain ownership of the intellectual property in the Habode, the international business arrangements being prepared by Mr Thompson were being communicated to both Mr Gibson and Mr Curtis. It was also clear (as evidenced for example by the equal shareholding in Habode Holdings) that it was proposed that Mr Curtis would share equally in the benefits to be gained from the international marketing and distribution of the Habode. The correspondence in 2004 made it clear that Mr Gibson’s instructions to Mr Thompson were that the Habode had great promise. For example, in a letter which Mr Thompson wrote to Mr Gibson on 12 May 2004, Mr Thompson described the project as having “a very real potential to produce high profits from the manufacture of the building in China and distributing worldwide through licensees having exclusive territories”.
[29] In order to realise this potential, it was anticipated that Habode IP would grant an exclusive international master licence to Habode Holdings which would in turn be empowered to grant territory licences. As Mr Thompson explained to Mr Gibson in a letter dated 4 June 2004, there was a model for the international licensing agreement represented by the licensing agreement for New Zealand between Habode IP and Habode NZ. (This had already been prepared and, as earlier noted, was executed on 10 June 2004.)
[30] Mr Thompson went on to say in his letter of 4 June that it was proposed to “quickly develop value in Holdings so that it can be sold by its shareholders to Habode International Ltd”. It was intended that Habode International Ltd would be incorporated in Malta for tax purposes and that Habode International Ltd would “become the major trading area of the enterprise receiving profits from licensees and pay royalties for the IP Master Licence it will be acquiring from Holdings”.
[31] The draft international licensing agreement provided for the appointment by Habode IP of Habode Holdings as the exclusive worldwide distributor of the Habode but excluding New Zealand and certain countries in the Pacific islands. Some critical terms, such as the amount of the licence fee payable under the agreement, were not settled.
[32] Although various drafts of this agreement were prepared and provided for comment by the proposed participants, no international licensing agreement was ever signed. By the end of 2004, the working relationship between Mr Gibson and Mr Thompson had broken down and Mr Thompson’s instructions came to an end. The Judge noted that the arrangements for payment of Mr Thompson’s legal fees were that Habode IP paid for all the licensing and other arrangements while the costs of establishing the international structures which would give effect to the licence to be granted by Habode IP were shared equally between Mr Gibson and Mr Curtis.

The termination of the Renhe arrangements and events in 2005

[33] The termination of the arrangement with Renhe occurred towards the end of 2004. In the first part of 2005, arrangements were entered into with other Chinese companies to produce the Habode prototype. In an email from Mr Gibson to Mr Curtis on 11 May 2005, Mr Gibson advised that any contract with the new Chinese manufacturer would be with Habode Holdings Ltd not Habode NZ. However, on 7 June 2005 when an order was placed with the Chinese manufacturer, Mr Gibson advised that the order had been given from Habode IP. He went on to say that the relevant contracts would be with Habode IP “until I complete the sub-licensing agreements with Habode Holdings. As Rick [Curtis] is still away, he was unable to sign various documents so as not to hold things up I have taken this on myself as the ultimate decisionmaker and owner of the Habode Intellectual Property.” The invoices subsequently sent by the Chinese manufacturer were nevertheless rendered to Habode Holdings.
[34] During 2005, there were ongoing issues with funding of the project. By June 2005, Mr Curtis, through Curtis Holdings Ltd, had advanced $160,000 to Habode NZ. By that time, the sale of regional licences throughout New Zealand had brought in a little over $400,000. When those funds were received, Mr Curtis withdrew funds in repayment of the loans he had made including interest. Despite significant further sums being received in July and August through further licence sales, Mr Curtis was called upon to advance further funds of $150,000 in late 2005 in circumstances we later describe in more detail.
[35] Around this time (mid-2005) Mr Fowler was becoming dissatisfied with his position in Habode NZ and offered his resignation. In an email on 6 June 2005, Mr Gibson told Mr Fowler (amongst other things):

So you don’t get this miss lead [sic] the International License Rights in Countries other than New Zealand still remain with HABODE_IP_Limited and will do so until I receive a financial offer that is attractive to me to grant such licenses. It could be that I just license country by country as I have with NZ or even as small as state by state in the USA.

Don’t get your hopes up that our 10% of NZ will see you retire with an International cash flow. The success of NZ will be very profitable in it’s own right. I have been offers [sic] significant sums for other countries but have told them to wait until I get a fix on the real value of such. It’s likely to be in the millions.

Contacts with Mr Muir

[36] The Judge described the picture of business activities in 2005 in these terms:

[73] ... it can be observed that throughout much of 2005 Mr Gibson was in China working on the prototype. His correspondence throughout the year indicates a viewpoint that he was working hard, and suggests a feeling on his part that the effort involved was unappreciated; there was also an increasing frustration with funding delays. Mr Curtis was primarily based in New Zealand. His activities here included promoting regional licence sales, and responding to expressions of interest both domestically and internationally. He was also arranging the work that would be needed to be done once the prototype arrived in New Zealand. It was hoped to work with BRANZ to get a generic sign-off on building code compliance that would greatly assist with building consent issues with individual councils.

[37] One of the expressions of interest from overseas came from Mr Craig Muir, a member of the West Australian firm of architects known as Allen and Muir. It appears that Mr Muir was initially a contact made by Mr Gibson. The earliest documentary evidence produced in the High Court was an email dated 30 August 2005 from Mr Muir to Mr Gibson seeking advice about progress on the “WA franchise option”. There must have been contact between the two earlier because Mr Muir refers to his August email as being a follow-up to one he sent in June.
[38] Mr Gibson must have passed on this communication to Mr Curtis because the latter replied to Mr Muir, in a letter dated 16 September 2005 (written on Habode NZ letterhead) in these terms:

Dear Craig,

re Habode License – and our recent tele/cons

It is part of my present responsibilities to deal with enquiries and license issues in respect of the developing Australian territory, and so Rod Gibson has passed your details and interest on to me.

Rod is currently working in China, ensuring that the latest prototype will be completed and shipped to Wellington by the end of this month. The expectation is that it will be fully erected and available for inspection and appraisal by early November.

We have registered a company ‘Habode (Australia) Pty Ltd’ in your country and propose to license (or franchise) selling areas, similar to what is occurring – with some success – in New Zealand. I am enclosing a copy of our License Agreement, which indicates the geographical split into 25 distinct areas. The license areas are likely to be based on local council boundaries, or some other suitable reference.

We can confirm that the retail price of a standard Habode, for the 2006 year, will be A$125,000 (GST inclusive) delivered to site. The Regional Licensee will be responsible for the positioning and assembly of the Habode unit, but the cost will be borne by the customer (as will connections to appropriate services).

The cost of a Regional License will be A$235,000, comprising:

(a) the retail price of a standard unit, for use as a Show Home, A$125,999; plus

(b) the License Fee of A$100,000 + GST, total $1,10,000.

The Regional License is for a period of five years, but is renewable for a further five-year period for the cost of the License Fee only.

The Commission per unit will be A$12,000, plus an additional A$1,000 on each unit sold if approved budgeted sales are achieved.

It should be noted that the Regional Licensee has no capital outlay on retail sales, as all financial dealings will be through Habode (Australia) Pty Limited – which will settle all commission entitlements. (There are also provisions in relation to commissions payable for sales generated between license areas).

Should you wish to acquire all the franchises for the total Western Australia area then we could consider options along the lines of:

(a) extending the license period to, say, eight-years;

(b) reducing the number of license areas to, say, ten;

(c) discounting the license fee, per area, by 25%;

(d) reducing the number of Show Homes to ten, as per (b).

You will appreciate that there is a degree of flexibility in relation to the franchising arrangements, so we could be receptive to any constructive comments or suggestions you may care to make.

I trust this brief outline, together with the copy of our New Zealand License Agreement, has whetted your appetite sufficient to pursue this exciting opportunity further.

As indicated, the prototype will be available for inspection in the not-too-distant future, and you would be most welcome to come and view it and discuss your interest further.

I look forward to your considered response in the near future.

Kind regards

Yours sincerely

RICHARD J CURTIS

Director

[39] It is unclear whether Mr Gibson was aware of this letter at the time it was sent. It refers to the registration of a company called Habode (Australia) Pty Ltd which was incorporated on 3 September 2005 shortly before the letter of 16 September was sent. This company was incorporated by Mr Gibson who was its sole director and shareholder. Mr Gibson said in evidence that he had registered the company as part of the protection of the Habode brand, but this would not, in our view, exclude the future use of the company as a vehicle for the expansion of sales of the Habode in Australia. Although Mr Curtis was not a director or shareholder of this company, he clearly knew about it at the time he wrote the letter to Mr Muir on 16 September.
[40] It was not until 1 November 2005 that a completed Habode unit arrived in New Zealand. Not long after that, on 15 November 2005, Mr Muir responded to the letter from Mr Curtis of 15 November 2005. The letter was in these terms:

Re: Habode License – Western Australia

License Agreement

Dear Rick [Curtis] & Rod [Gibson]

Thank you for your letter dated 16 September 2005 and attached Regional License Agreement.

The proposed franchise and cost structure set out in your letter is not as agreed to in our last 12 months of negotiations detailing a WA Franchise fee of $250K.

Based upon the June correspondence, and suggested franchise arrangement, I have sought the involvement of Archestral Pty Ltd and Wisepeak International to compliment the skills of Allen + Muir Architects, with a view to creating a new entity to professionally market and manage Habode (WA) inc.

Wisepeak International brings significant franchise expertise to the group, with a proven track record of franchise and business successes, both in the local and national Australian market.

We have reviewed the documents and have concerns regarding the viability of the proposed business model and margins within the Western Australian legal and geographical context.

We would therefore like to propose an alternative structure which we believe is in the best interests of both parties, as a successful franchise will in turn ensure a profitable return to the Licensor.

Our model is based upon a single WA Territory franchise with an immediate order of 10 Homes of which 2 will be set up as dedicated show homes, based upon a total cost of $1.25 million incl GST for the WA Franchise, incl the initial 10 homes. This would effectively be the equivalent deal you have struck with the NZ Regional Licensee’s of $NZ 100K per region, incl show home.

We would then establish a dedicated sales and project management team, utilising the combined expertise of Allen + Muir Architects, Archestral Pty Ltd and Wisepeak International to promote and market Habode to prospective private, corporate and government purchasers.

The early establishment of a West Australian Franchise we believe offers Habode IP a unique opportunity to develop a track record and product profile within Australia, prior to rolling out Habode franchises within the larger markets of the east coast.

The design expertise of Allen + Muir Architects combined with the building experience of Archestral Pty Ltd will also ensure a product customized and tested for the Australian climate.

Should you have any queries, please do not hesitate to contact me on Ph:...

Yours faithfully

Allen + Muir Architects

CRAIG MUIR

[41] We note that the letter is addressed to both Mr Curtis and Mr Gibson and refers to negotiations over the last twelve months. Although the proposed licence agreement and franchise arrangement was not accepted by Allen and Muir, substantial interest was plainly being expressed. There was no reply to this letter until 2 December 2005 in terms we will shortly describe.
[42] In the meantime, there was discussion by email between Mr Gibson and Mr Curtis which the Judge accurately described as being somewhat “testy” in nature. Mr Gibson was clearly expressing frustration about delays in completing the Habode units then on order and at the prospect that he would be spending Christmas in China in an effort to expedite completion of the units. He was also concerned about delays in the funding needed. This led to Curtis Holdings Ltd advancing a further $150,000 to Habode NZ in two instalments in November and December 2005. Again, interest was fixed at 15 per cent.
[43] Mr Gibson’s concerns about the funding issues were expressed in an email from him to Mr Curtis dated 17 November 2005. Significantly, this email also dealt with the response received from Mr Muir with regard to franchise arrangements for Western Australia. The relevant portion of the email reads:

... Further Rick. Got a copy of Craig Muir’s response from Western Australia. Before you respond we should discuss this.

I have responded say thanks and we’ll get back to him by the 7th of December. That will give us time on my short return 2nd-7th of December 2005 to work through the Australian and International sales process etc.

Have some thoughts of how you see things working Rick and put them down on paper. I’ll do the same. Also you mention Todd Corporation wanting to buy a stake? Is that just whaffel [sic] or if so what is in your mind of how you see our business going. Don’t want any surprises as to where you think we are going and where Rod thinks we are.

I have had a second approach from South Africa on HABODE and positive feed back from my brother in law from Manilla. Lots to think about.

[44] Other email traffic on 18 November 2005 between Mr Curtis and Mr Gibson referred to their respective roles. Mr Curtis said to Mr Gibson:

So, Rod, like running any company – you concentrate on designing and producing a saleable product and I’ll be able to handle the finances and the licenses etc. You said you would not interfere on my side, as I have not on yours, but you keep on doing it! (eg Western Australia).

[45] In response the same day, Mr Gibson said, amongst other things:

This is a joint venture.

[46] And in response to the complaint by Mr Curtis of interference with Mr Gibson’s area of responsibility, Mr Gibson said:

I have not interfered in this so back off. Remember this is a contact that I generated and all I have done is respond professionally and said we’d be back to him. ...

[47] Mr Curtis replied on 2 December 2005 to Mr Muir’s letter of 15 November. This time, the letter was written on the letterhead of Habode (Australia) Pty Ltd and Mr Curtis signed as a director of that company. The letter was in these terms:

Dear Craig

Re: Habode License – Western Australia

Many thanks for your letter of 15 November.

Whilst we are flattered at your interest in taking up the Western Australia license, we must reject your proposal in its current form.

The initial deal struck in New Zealand, with a limited number of licensees, was valid up and until our first – prototype – unit was manufactured, shipped and subsequently approved by them. This was essentially because they were taking the up-front business risk.

However, that situation is now irrelevant as the latest four licenses sold have been at the full price of $235,000 – the new licensees having viewed and approved the prototype unit.

Nonetheless, your offer to take on the whole Western Australia territory is still very interesting to us. Over and above price, some of the areas of concern we have – and obviously open to negotiation/discussion – include:

1. How many readily accessible show homes are required to cover the whole State? We feel your proposal of two is insufficient.
2. The license is for a period of five years from delivery of the show homes, plus a further five years at the original license cost. Your offer does not clearly establish what the license cost is.
3. There is no minimum annual sales figure indicated.
4. We believe that there must be a uniform, established, unit price across all States for consistency and marketing plans. Would you agree?
5. Advertising and subsidies. What parameters – taking into account national campaigns – are you working to?

We have felt that we needed to trial the New Zealand market first, followed by Australia; learning and fine-tuning from experience as we went along. However, since you have expressed keen interest in progressing a deal we are prepared to listen and negotiate, before any formal foray into your country.

Prior to negotiations proceeding too far, it would be preferable for you to actually sight the prototype unit – which you can do so in Wellington any time from now on. It would also give both parties the opportunity of informally expressing their views and ensuring a ‘meeting of minds’.

Some further clarification of your initial thoughts would be appreciated, together with an indication of an increased financial commitment.

We look forward to receiving your views in due course.

Yours sincerely

RICHARD J CURTIS

Director

[48] As the Judge noted, Mr Curtis was not a director of Habode (Australia) Pty Ltd but he was clearly aware of the existence of this company and had access to its letterhead. Mr Gibson maintained he did not see this letter until it was disclosed during the discovery process after the litigation commenced. There is no evidence of any further written communications with Mr Muir after this date.

The collapse of Habode NZ and the end of the Curtis/Gibson business relationship

[49] Mr Gibson returned to New Zealand around Christmas 2005. There were several meetings of the board of Habode NZ in the period January to March 2006. There continued to be cashflow difficulties and doubts about the solvency of the New Zealand company. A number of different proposals were discussed for restructuring the company but no final agreement was reached.
[50] On 6 March 2006 Mr Gibson resigned as a director of Habode NZ. The following day Habode IP cancelled the licence agreement between itself and Habode NZ. These events spelled the end of the business relationship between Mr Gibson and Mr Curtis. Habode NZ went into liquidation shortly afterwards.

Subsequent events in Australia and the introduction of Mr Pringle

[51] Mr D W Pringle gave evidence for the Curtis interests. He is a director and shareholder of a substantial company in Western Australia described as Pindan. The company is involved in construction and property development. While based in Perth, the company’s business extends throughout Western Australia. It has a turnover of between A$200 and A$250 million per annum.
[52] Mr Pringle said he first met Mr Gibson in mid-2006. Pindan had been approached by Mr Craig Muir who informed Pindan of the Habode project. A meeting was arranged in Perth when representatives of Pindan met Mr Gibson. Also present were Mr Muir and Mr Gibson’s brother-in-law, Mr Jim McMillan. In evidence, Mr Gibson accepted that he met Mr Muir along with others in Perth on 13 or 14 May 2006.
[53] Pindan expressed definite interest in the Habode as well as another type of portable home called the Ihouz. Mr Pringle said there were three or four meetings resulting in an agreement that Pindan would place an order for a number of the Habode and Ihouz products. In return Pindan would receive the rights to distribute these throughout Australia. Initially it appears that Pindan acquired ownership of Habode (Australia) Pty Ltd as a vehicle for distributing the Habode in Australia. At this point, there was a distribution agreement dated 20 July 2006 entered into between Habode International Ltd (a Gibson controlled company) in favour of Habode (Australia) Pty Ltd.
[54] Later, a new company (International Housing Solutions Ltd) was formed which effectively took the place of Habode International Ltd. Habode IP then entered into a licensing agreement with International Housing Solutions Ltd for distribution rights which we understand extended not only to Australia but also globally (excluding New Zealand and possibly some Pacific island countries).
[55] Pindan paid very large sums of money for the acquisition of its interest in International Housing Solutions Ltd. It acquired a 40 per cent interest in all. Thirty per cent of the shares were acquired from Gibson interests for US$5 million and ten per cent from Mr McMillan for US$500,000. Not all of this money was paid to the Gibson interests. Some of it was injected into the company to provide capital.
[56] Mr Pringle explained that about 40 Habodes had been sold in Australia and about 60 of the Ihouz products. It had been agreed between Pindan, International Housing Solutions Ltd and Habode IP that Pindan would negotiate directly with the manufacturers in China. Pindan (or associated interests) would place the orders and pay for the homes. A royalty would be paid to Mr Gibson’s company (presumably Habode IP).
[57] There had also been an ongoing agreement with Mr Muir from the time he was first introduced to Pindan by Mr Gibson. Pindan agreed to pay Mr Muir a commission on each future sale. That arrangement had continued.

The Judge’s findings

[58] The Judge recorded that the Curtis interests were contending for a personal joint venture between Mr Gibson and Mr Curtis to:

(a) Fund, develop and physically produce the Habode.

(b) Protect the intellectual property of the product.

(c) Develop the marketability of the product.

(d) Develop the international marketing and distribution of the product.

[59] As originally framed, it was alleged that Mr Gibson had breached fiduciary duties arising from the joint venture by the manner in which he had acted when Habode NZ got into financial difficulties and by cancelling Habode NZ’s licence from Habode IP. The Judge noted that, in closing, the Curtis interests put the case differently. Relying on the decision of the Supreme Court in Chirnside v Fay,[3] it was contended that, on termination of the joint venture (which it was accepted had occurred in March 2006) any assets, tangible and intangible held by or on behalf of the joint venture would usually be held on trust for the joint venture members. It was submitted by the Curtis interests that the product sold by Mr Gibson in Australia was an asset of the joint venture. It followed, the Curtis interests had submitted, that Mr Curtis was entitled to his share of those sales which it was said amounted to US$5 million.
[60] The Judge noted:

[103] ... I consider it important, though, to emphasise first what is claimed – a joint venture personal to Mr Gibson and Mr Curtis that sat above the commercial and contractual arrangements entered into, and which in effect owned “the Habode project”. Recalling that there was from the outset a plan to market Habodes internationally, what is being claimed is that at some point after Mr Curtis became involved there was a new overarching joint venture between just these two men.

[61] The Judge went on to say:

[111] Overall the case is that there was a joint venture that can be called the Habode project. Some of the steps were formalised by the creation of companies and the entering into of licensing agreements. Some of the steps were not so formalised, but nevertheless existed and were acted on by the partners to the joint venture. The Habode project was to bring Mr Gibson’s design into reality, to market it in New Zealand, to use that activity as a vehicle to perfect the concept, and then together to launch it internationally.

[112] The joint venture assets as at termination are claimed to be:

(a) the value underlying the Habode unit to the stage it had been developed.

(b) the value of another unit (Ihouz, yet to be discussed);

(c) the value of the potential business in New Zealand and internationally. The $5 million gained from the Australian sale is an asset because it directly flowed from the initial West Australian inquiries.

[62] The Judge observed[4] that the evidence disclosed a “mixed situation of the formal, and the inchoate”. There were formal arrangements between the New Zealand companies in which the participants accepted the duties and responsibilities according to the corporate structures and contractual arrangements agreed upon. The Judge considered it to be important that a formal licensing agreement was signed between Habode NZ and Habode IP. That agreement dictated the relationship between Mr Gibson as owner of the intellectual property and the three partners in the plan to develop it. The Judge went on to say:[5]

However, it is equally clear that Habode (NZ) did not represent the whole of the grand plan; if it all worked out there was more to come.

[63] The Judge reiterated this when dealing with the evidence given by Mr Thompson. [6] This showed that:

...Habode (NZ) was not the complete plan. More was anticipated. Habode Holdings was a manifestation of what more was intended, although the fact that its shareholding lacked Mr Fowler was a change. A licensing agreement was clearly also part of the plan. That is what never happened.

[64] The Judge then set out the issues as he saw them:

[120] Against that rather mixed bag of complete and incomplete structures, one has to assess the specific claim now contended for. I summarise that as being:

(a) there was an arrangement or agreement specific to Mr Curtis and Mr Gibson whereby together they would develop the Habode project.

(b) this arrangement would be implemented by developing the concept into an actual building, marketing it in New Zealand whereby together they would develop the Habode project.

(c) this arrangement would also be implemented by then launching the Habode concept internationally, again through a licensing agreement from Habode IP.

[121] If that claim is established, then the next part of the plaintiff’s case is to show that:

(a) on termination of this agreement, the two men jointly owned the Habode project. It was an asset of the joint venture;

(b) what Mr Gibson sold about two years later in Australia was part of that asset to which Mr Curtis was therefore entitled.

[65] The Judge went on to conclude that there was no joint venture in the sense of an arrangement or agreement specific to Mr Curtis and Mr Gibson whereby, together, they would develop the Habode project. There were two main reasons for the Judge’s conclusion. First, the essential structure was in place before Mr Curtis joined. The original members of Habode NZ had a plan and they set up a company to implement it. The Judge noted there was no direct evidence that Mr Curtis and Mr Gibson had formed a separate overarching arrangement after Mr Gibson had joined in the enterprise. The Judge also considered there were difficulties since there was no explanation as to why Mr Fowler (who remained a 10 per cent shareholder in Habode NZ throughout) was not part of the international part of the plan. The Judge said he had been left to infer from the work undertaken by Mr Thompson and the various things Mr Curtis did that there was a joint venture between the two men. He did not consider the evidence to be sufficient to establish this.[7]
[66] The Judge described the second key point as being:

[127] ... that it was always accepted by everyone that Mr Gibson would own and control the IP. The group’s participation in the Habode project was always only to be through licensing arrangements. The separate roles were repeatedly emphasised by Mr Gibson, and by Mr Thompson as solicitor throughout 2004. It would be wholly inconsistent with this recognised and agreed structure to suggest that there was a separate joint venture between Mr Curtis and Mr Gibson which had somehow acquired ownership of the project as a whole such that Mr Curtis is entitled to his share, as owner, of the fees paid by an Australian company to acquire a license. It is in my view not a credible proposition.

[67] As to Habode Holdings, the Judge said:

[129] If things had worked out, Habode Holdings would have had a licensing agreement that enabled it to control and profit from Habode sales internationally. It looks as if Messrs Curtis and Gibson intended to shut Mr Fowler out of that. They were the sole joint shareholders. The claim of a joint venture, and the claimed ownership by the joint venture of the Habode project, is an attempt to create the situation that would have existed had Habode Holdings obtained the licensing rights.

[Footnote omitted].

[68] The Judge added:

[130] Whatever plans Messrs Curtis and Gibson made, there is nothing in the case that leads me to conclude it was an arrangement that had the effect of conferring on the two men, outside a formal licensing agreement, joint ownership of the international Habode project. The evidence points the other way, namely that the plan conferred no rights until formalised by creating a company or signing a licensing agreement.

[131] The evidence on which the plaintiff relies for the drawing of inferences has a considerable caveat. It needs to be remembered that the two men, and Mr Fowler, were shareholders in, and directors of, Habode NZ. That company had assumed the development obligations. It had also sold, for considerable sums of money, regional marketing rights. The vast bulk of activity undertaken by the participants is at least as equally referable to this circumstance, than to the idea of a separate joint venture.

[69] Significantly, the Judge considered there was some evidence favouring a joint venture. He regarded the best evidence for a joint venture as being the role of Mr Curtis in handling international inquiries. This was “conduct plainly referable to the wider plan, as indeed in Mr Thompson’s work in establishing overseas holding companies for both of them. The exclusion of Mr Fowler is also indicative of some separate planning”.[8]
[70] The Judge went on to say:

[134] As noted, although this latter material hints at some separate arrangement between the two, it has not led me to the point of concluding there was a separate joint venture. A joint venture would have to be inferred because there is no direct evidence. It is a claim hindered by the reality that otherwise all the arrangements were effected by formal steps – forming companies and entering agreements – and by the fact that most of the evidence is equally referable to the existing formal arrangements and obligations.

[135] Whatever the extent of the relationship between Messrs Curtis and Gibson, I am firm in the view it can only be said they had a common plan in the sense that the relationship did not own the international marketing rights of Habode or in any sense acquire that which it was planned to give to Habode Holdings by the signing of a formal licensing agreement.

[71] Despite the conclusion by the Judge that it was not proven that there existed a separate joint venture between Mr Curtis and Mr Gibson to market the Habode internationally, the Judge accepted that “it was not a fanciful suggestion. There was some evidence to support it”.[9]
[72] The Judge went on to conclude that he did not consider there was any breach of fiduciary duty on the part of Mr Gibson in relation to the failure of Habode Holdings to acquire a licence, nor did he consider there was evidence to establish that, during 2005 and early 2006, the parties had been engaged in dealings and discussions behind the back of the other in relation to the international market. Although the Judge noted that, after the collapse of Habode NZ in March 2006, Mr Gibson was able to set up new structures and partners very quickly in New Zealand and relatively quickly in Australia, he did not consider those events to be evidence of any prior breach of fiduciary duty.
[73] The Judge added:

[141] Likewise, I record for completeness and fairness that there were some communications between Mr Curtis and overseas people which implied that he had been involved in discussions of Habode sales that were not disclosed to the claimed joint venture. I did not find Mr Curtis’ explanation of the correspondence particularly satisfactory in that to be correct it would mean that people had written to him, and expressed themselves to him in an odd way. However I did not form an unfavourable view of the credibility of either party and accordingly accept that there was just some unexplained oddity in how people wrote to Mr Curtis.

[74] The Judge then summarised his conclusions in these terms:

[142] To conclude therefore on this aspect:

(a) I do not accept there was a separate joint venture between Mr Curtis and Mr Gibson;

(b) I accept there is some evidence that there was one as regards international sales, but due primarily to the absence of direct evidence about its establishment, and because most of the evidence is more referable to the existing Habode NZ arrangements, I have not found myself satisfied to the appropriate standard as to its existence;

(c) if such a separate arrangement existed, it definitely did not include or acquire ownership of the Habode project as the plaintiff contends. The joint venture’s right and capacity to market internationally would only ever have been acquired by means of an international licensing agreement conferred on Habode Holdings;

(d) if such a separate arrangement existed, I do not consider that the failure of the joint venture to acquire an international license was the responsibility of Mr Gibson in the sense that I do not consider he was in breach of any fiduciary duty to Mr Curtis in this respect.

Joint venture – legal principles

[75] Fiduciary obligations commonly arise in recognised relationships such as those of a trustee, solicitor, agent or a member of a partnership. But they may also arise in other relationships including those loosely described as joint ventures. As the High Court of Australia said in United Dominions Corporation Ltd v Brian Pty Ltd:[10]

The term joint venture is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. .... The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership.

[76] The High Court of Australia observed further that a relationship short of a concluded contract may give rise to fiduciary duties. The High Court said:

[12] A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressed defined in some formal agreement.

[77] The same point was made in the joint judgment of Blanchard and Tipping JJ in Chirnside v Fay:[11]

[91] ... The essence of a joint venture which is not yet contractual is that it is an arrangement or understanding between two or more parties that they will work together towards achieving a common objective. It is fallacious to think that there can be no joint venture unless and until all the necessary details have been contractually agreed. A joint venture will come into being once the parties have proceeded to the point where, pursuant to their arrangement or understanding, they are depending on each other to make progress towards the common objective. Each party is then proceeding on the basis that he or she is acting in the interests of all or both parties involved in the arrangement or understanding. A relationship of trust and confidence thereby arises; each party is entitled to expect from the others loyalty to the joint cause, loose as the formalities of the joint venture may still be.

[78] And, as the Chief Justice put it:

[14] Where parties join together in a venture with a view to sharing the profit obtained, their relationship is inherently fiduciary within the scope of the venture and while it continues.

[79] The determination as to whether fiduciary obligations have arisen in a joint venture is heavily fact dependent. As Lord Millett observed in delivering the judgment of the House of Lords in Kahn v Miah,[12] the question is whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage.
[80] Relevant factors will include the degree of common purpose established between the parties, the stage in the venture that has been reached and the extent to which the parties have reposed trust and confidence in each other.[13] In general, some positive steps towards the implementation of a joint plan will be required before the Court will be willing to find that fiduciary obligations have arisen. And, as Finn J observed in Gibson Motorsport Merchandise Pty Ltd v Forbes[14] it must be shown that the circumstances are such as to require the parties to subordinate their self interest to joint interest.
[81] The nature and content of fiduciary obligations arising in a joint venture context may also vary depending on the circumstances of the case. As the Chief Justice put it in Chirnside v Fay:

[15] Not every breach of duty by a fiduciary is a breach of fiduciary duty. The distinguishing obligation of a fiduciary is the obligation of loyalty. Within the scope of the joint venture, both Mr Chirnside and Mr Fay were subject to that obligation. Consistently with it, neither was permitted to place himself in conflict of interest with the venture. Each was obliged to account to the other for any unauthorised profit obtained by opportunity arising through the venture. The appropriation of a joint venture by one of the parties to his sole account is as fundamental a breach of fiduciary duty as can be imagined.

[82] It is also well established that a fiduciary may not take advantage of knowledge such as contacts gained during the currency of the joint venture for his or her own benefit.[15] To do so would be to breach the duty of loyalty the joint venturers owe to each other.
[83] Upon the termination of a joint venture, while duties of loyalty for the future will come to an end, confidentiality obligations may remain and any assets, tangible or intangible, held on behalf of the joint venture will usually be held on trust for the former joint venturers. The former joint venturers must still act equitably towards each other to bring the affairs of the joint venture to a fair conclusion.[16]
[84] Should fiduciary obligations of this kind be breached, the ordinary remedy will be the ordering of an account of profits measured by what the defendant has gained. It does not matter that the plaintiff has not suffered any loss. Alternatively, compensatory damages in equity may be awarded where, for example, no profit has been made by the fiduciary but the plaintiff has suffered loss.[17]

Was there sufficient evidence to support a finding of joint venture?

[85] Mr Vincent did not dispute the legal principles we have outlined. Rather, he submitted that the Judge was right to conclude that a joint venture in relation to international sales had not been formed. He emphasised the absence of a business plan for joint sales; the absence of any agreement as to how an international expansion would work; the lack of any commitment of capital or other active steps towards an international expansion; and the absence of any evidence that the parties were dependent on each other to make progress towards any common objective. Mr Vincent was also critical of the lack of any direct evidence from Mr Curtis supporting a joint venture for international sales and submitted that the correspondence in the second half of 2005 relating to Mr Muir was consistent with Mr Gibson “keeping his powder dry” rather than being in furtherance of a joint venture.
[86] Counsel also emphasised, as the Judge did, that any expansion into Australia was wholly contingent upon the grant of a licence by Habode IP which held the relevant intellectual property rights for the Habode. That company was solely owned by the Gibson interests.
[87] Mr Vincent did not suggest in his written submissions that Mr Gibson had been prejudiced by the narrower approach adopted on behalf of Mr Curtis on appeal, but we raised this issue with him and have also considered the scope of the pleadings. We are satisfied that the pleadings are sufficiently widely drawn to permit both a broad and narrow view of the joint venture contended for Mr Curtis. The Muir information and its use by Gibson to establish the Australian business of the Habode after the termination of his business relationship with Mr Curtis was clearly signalled in the pleadings and canvassed in the evidence at trial.
[88] The key difference is that, at trial, it was contended by Mr Curtis that the joint venture owned all the assets of the Habode project which were said to include the value of the potential business in New Zealand and internationally including an interest in International Housing Solutions Ltd (apparently on the footing that the joint venture was also entitled to the intellectual property rights relating to the Habode through a licence from Habode IP). As already noted, this last contention was not pursued on appeal. We do not see Mr Gibson as having been prejudiced by the change of approach adopted on appeal.
[89] Many of the points made by Mr Vincent are relevant to the wider joint venture contended for by Mr Curtis in the High Court. They have less force in relation to the narrower focus Mr Goddard advanced on appeal. Mr Goddard was right to make the concessions he did at the outset. On the evidence, the New Zealand arm of the business was operated through the corporate vehicle Habode NZ and the licence granted to it by Habode IP. It could not seriously be contended that fiduciary obligations arose between the Curtis and Gibson interests in respect of the New Zealand operation.
[90] Mr Goddard also properly accepted that, in relation to international business opportunities, the joint venture did not acquire ownership of the “assets” of the joint venture in the sense that it held, or was entitled to be granted, a licence from Habode IP in respect of the international property rights necessary to enable the international distribution of the Habode to proceed. This concession and the narrowed focus of the joint venture contended for in this Court substantially reduces the materiality of one of the two main grounds for the Judge’s finding in the High Court. This was his rejection of the contention that the joint venture acquired ownership of the whole project such that Mr Curtis was entitled to share in the licensing fees paid for the intellectual property rights.[18]
[91] As we see it too, it could not properly be contended that the joint venture owned the shares in the corporate vehicles owned by the Gibson interests and Pindan after the breakdown of the relationship with Mr Curtis, or that it had any ownership interests in the assets of those companies.
[92] But we accept Mr Goddard’s submission that the evidence was sufficient to establish the existence of a joint venture between Mr Curtis and Mr Gibson to explore the business opportunities available for the sale and distribution of the Habode in Australia, with a view to sharing the profits gained equally between them or their respective interests. The intention was clearly to explore and pursue business opportunities beyond Australia as well but there is no evidence of any active steps being taken to do that.
[93] As the Judge found, it was anticipated from the outset of the business relationship between the two men that the Habode would be developed with a view to being marketed and distributed both in New Zealand and internationally. Those plans were formalised in respect of the New Zealand arm of the project by the corporate structures adopted, but the plan to expand sales internationally continued and evolved over the course of the business relationship.
[94] Importantly, the formal structures entered into in New Zealand provided both a model for the international arm of the business and the platform from which that could occur.
[95] Mr Thompson’s evidence shows that during 2004 the business structures for the international arm of the project were being actively pursued. It is clear that both Mr Curtis and Mr Gibson were involved in these plans. Significantly, Habode Holdings was incorporated with a view to being the corporate vehicle for Australian sales and the first stage in the “internationalisation” of the Habode project. Just as importantly, the shareholding in Habode Holdings was to be allocated equally between the Curtis and Gibson interests. This shows plainly that the two men intended that they or their interests would share equally in the gains to be made by selling and distributing the Habode in Australia. We note too that the evidence shows it was intended that the contract with the Chinese company to manufacture the Habode would be with Habode Holdings. Orders were placed and invoiced on that basis.
[96] We do not see the exclusion of Mr Fowler from the plans for international expansion as an impediment to a finding of a joint venture (which was the second main reason given by the Judge for his rejection of the contention made by Mr Curtis in the High Court). We view the business relationship between Mr Curtis and Mr Gibson as evolving over time and the exclusion of Mr Fowler from the joint venture for international sales was a development which occurred after the New Zealand arm was established and formalised.
[97] An important part of the plans for international expansion was that Habode IP would grant an exclusive international master licence to Habode Holdings which would, in turn, have the ability to grant territory licences within Australia. The model for this was to be the licence granted by Habode IP to Habode NZ which was executed in June 2004 during the very time that the international business structures were being explored through Mr Thompson. Some key terms of the international licence were not agreed and no licence was ever executed but we do not view this as fatal to our conclusion that a joint venture existed to explore international marketing opportunities.
[98] We say that because it was the opportunity to expand the international sales of the Habode which was important. The precise vehicle to be used and the terms of the intended licence were not critical to a finding of joint venture. Mr Thompson’s evidence was that, at least at this stage, he regarded the project as a joint venture. Subsequent events demonstrated that a licence was granted by Habode IP to the company later incorporated in Australia to pursue the business opportunities which were in contemplation while the joint venture was on foot.
[99] During 2005, both Mr Curtis and Mr Gibson were actively courting Mr Muir with a view to granting him a licence to sell and distribute the Habode initially in Western Australia and possibly more widely in other Australian states. The correspondence shows clearly that both Mr Curtis and Mr Gibson were actively involved in exploring this proposal over a period which may have extended for as long as 12 months and that they were obviously doing so with a view to their joint benefit. Each referred the proposals to each other for comment. The matter had progressed to the stage of the exchange of detailed proposals with Mr Muir which continued until late 2005 although without final agreement being reached.
[100] Habode Australia was spoken of by Mr Curtis in the Muir correspondence as the vehicle which could license Mr Muir or his interests to market the Habode in Australia. Mr Curtis was clearly aware of the incorporation of this company in September 2005 during the negotiations with Mr Muir. Although Habode Australia was then owned solely by Mr Gibson’s interests, Mr Curtis assumed that it could be available for the purpose intended. Alternatively, Habode Holdings, already incorporated, could have been used. The Judge saw inconsistencies in relation to issues such as the identification of the corporate vehicles, but we do not view the absence of agreement as to the formal arrangements for the business plan for Australia as material. Given the model established in New Zealand, the broad structure intended was sufficiently clear.
[101] The point is that, at this stage, the parties were dependent upon each other to pursue the international arm of the joint venture in Australia. Despite some difficulties in their business relationship from time to time, they trusted each other to perform their respective roles. That is evident from their communications in the latter half of 2005. Mr Gibson was engaged in China in the development and production of the Habode while Mr Curtis was dealing with administration matters in New Zealand and fielding business opportunities such as that presented by Mr Muir internationally.
[102] Of importance in this respect is the provision by Mr Curtis of the critical funding of $150,000 in November and December 2005. These funds were essential to enable the completion of the units then on order for New Zealand. The loans were made to Habode NZ but the provision of this funding cannot be regarded as referable solely to the activities of Habode NZ. Without the injection of funds, the prototype and production units would not have been completed and reached New Zealand. In turn, the international marketing efforts could not have come to fruition. This was demonstrated by Mr Curtis inviting Mr Muir in December 2005 to come to New Zealand to view the Habode upon the arrival of the first unit in New Zealand. It is also illustrated by the use of the work done during this period in establishing the springboard for Mr Gibson’s rapid conclusion of the arrangements with Pindan after March 2006.
[103] Mr Gibson’s dependence on Mr Curtis for funding is amply demonstrated by the increasingly desperate tone of the former’s entreaties for funds while he was in China in late 2005. The fact that Mr Curtis charged interest at commercial rates for this funding is beside the point. It is likely that Mr Gibson would have had difficulty in obtaining funds for this project from institutional sources and there is no suggestion that he contemplated doing so.
[104] In turn, Mr Curtis was dependent on Mr Gibson for the design and production of the Habode. The implementation of any joint venture in Australia was also dependent upon the grant of a licence in respect of the intellectual property rights from Habode IP. While the joint venture was on foot, the grant of a licence based on the model of the licence granted to Habode NZ could reasonably have been expected by the joint venture. Just as was the case with the New Zealand side of the business, the grant of a licence from Habode IP would have been for the benefit of Mr Gibson through Habode IP and for the benefit of the joint venture between the two men in relation to the development of the Australian distribution of the Habode.
[105] We accept there was little direct evidence from Mr Curtis about discussions with Mr Gibson about a joint venture. As the Judge said, it was necessary to draw inferences from all the circumstances. But the correspondence in the second half of 2005, particularly the emails of 18 November 2005, shows that Mr Gibson regarded his relationship with Mr Curtis as being in the nature of a joint venture. In evidence, Mr Gibson initially denied the existence of a joint venture with Mr Curtis, comparing to their business relationship as similar to that of an engaged couple who, in the end, did not marry. But, in answer to a question from the Bench, Mr Gibson acknowledged that the dealings he and Mr Curtis had with Mr Muir were in furtherance of the plan to develop the Habode business outside New Zealand. That was, we think, a critical concession and is consistent with Mr Gibson’s assertion in his own pleadings that Habode Holdings was incorporated as part of an intended international structure for the manufacture and sale of the Habode overseas.
[106] The point to which the negotiations with Mr Muir had reached by late 2005 is illustrated by the speed with which Mr Gibson was able to advance the formation of the new business structures in Australia after the collapse of the business relationship between himself and Mr Curtis in March 2006. Within two months, Mr Gibson had been introduced through Mr Muir to Mr Pringle of Pindan. By July 2006 a distribution agreement had been entered into between the Gibson controlled company Habode International Ltd and Habode (Australia) Pty Ltd, which by then had been acquired by the Pindan interests. That led ultimately to the formation of International Housing Solutions Ltd and the licensing of that company by Habode IP for the distribution of the Habode in Australia.

Was Mr Gibson in breach of fiduciary obligations arising from the joint venture?

[107] There can be little dispute, and we accept, that the contacts made with Mr Muir in 2005 were in furtherance of the joint venture between Mr Curtis and Mr Gibson while it was on foot. We also find that Mr Muir was the vital link in introducing Mr Pringle and his company (Pindan) to Mr Gibson. Mr Muir’s central role is demonstrated by the ongoing royalty arrangement he enjoyed in respect of the Habode sales in Australia. In exploiting the business opportunity gained by the joint venture for his own benefit to the exclusion of Mr Curtis, Mr Gibson has breached his fiduciary obligation to the joint venture. The information relating to the opportunity presented by Mr Muir belonged to the joint venture and could not be exploited for the exclusive benefit of Mr Gibson and his interests without the agreement of Mr Curtis.

Summary

[108] In summary, there was sufficient evidence to establish the existence of a joint venture between Mr Curtis and Mr Gibson to explore and develop the business opportunities available for the sale and distribution of the Habode in Australia. The two men had common objectives and had taken sufficient steps to implement them prior to the end of their business relationship. It was intended that the two men would share any profits gained equally between them or their respective interests. It was contemplated that the business structures established in Australia would be based on the model already established for the sale and distribution of the Habode in New Zealand. It was intended that a corporate vehicle would be utilised in Australia to market and distribute the Habode in that country and that the ownership of the corporate vehicle would be owned equally by Mr Curtis and Mr Gibson or their respective interests. It was also intended that Habode IP would license the Australian joint venture vehicle along similar lines to the model already developed for the sale and distribution of the Habode in New Zealand.
[109] The steps taken to implement the common objective included establishing the corporate vehicles in Australia (Habode Holdings Ltd; Habode (Australia) Pty Ltd; and Habode International Ltd); the steps taken by Mr Thompson in 2004 to further the common plan for international sales expansion; the arrangements between Habode Holdings and the Chinese manufacturers; the negotiations with Mr Muir in relation to distribution licences in Western Australia; the provision by Mr Curtis of substantial funding in late 2005 which benefited both Habode NZ and the joint venture; and the ongoing efforts by Mr Gibson to develop and bring the Habode units into production (which were similarly referable to the joint venture as well as to Habode NZ). Effectively, the development of the Habode for the New Zealand business was to be the springboard for the expansion into Australia. As matters turned out, that is exactly what happened soon after the end of the business relationship between the two men in March 2006.
[110] The information gained with regard to the business opportunity represented by Mr Muir in Australia was gained during the currency of the joint venture and constituted confidential information belonging to the joint venture. As such, neither Mr Curtis nor Mr Gibson could exploit that information for their own gain and to the exclusion of the other. The joint venturers each owed fiduciary duties to the other. Mr Gibson breached that duty by exploiting the Muir business opportunity to the exclusion of Mr Curtis and without his agreement upon the termination of their business relationship in March 2006. In consequence, Mr Gibson or interests controlled by him gained substantial sums through the introduction of Pindan by Mr Muir and the acquisition by Pindan of its interest in the corporate vehicle or vehicles established in Australia for the sale and distribution of the Habode in that country.

What is the appropriate remedy?

[111] In the circumstances and on the basis of the authorities already discussed, we are satisfied that the remedy which ought to have been granted is an accounting for profits made by Mr Gibson or interests controlled by him in consequence of his breach of fiduciary duty. To that purpose, we will remit this matter to the High Court.
[112] As we see it, the primary focus of the accounting will be on gains attributable to the breach of fiduciary duty by Mr Gibson or his interests made as a consequence of his dealings with Pindan in establishing the corporate vehicle or vehicles in Australia for the sale and distribution of the Habode in that country. We do not at this juncture see any justification for a declaration that the shares held by the Gibson interests in Habode (Australia) Pty Ltd and Habode International Ltd are held in trust for the joint venture. If the Gibson interests made gains through those companies in consequence of the breach of fiduciary duty, then any such gains should also be included in the accounting. The High Court is to determine the precise scope of the accounting and how it is to be undertaken.
[113] It should not be supposed that the accounting will be anything other than complex. We see at least the following issues arising:

(a) The primary task will be to establish the extent of gains made by Mr Curtis properly attributable to his breach of fiduciary duty.

(b) It will be necessary to distinguish the gains Mr Curtis or his interests made through the vehicle or vehicles established for the sale of the Habode in Australia from any gains Mr Curtis or his interests made as the holder (through Habode IP) of the intellectual property rights in the Habode.

(c) It will also be necessary to exclude from account any gains made in respect of the Ihouz home which was not developed as part of the joint venture.

(d) There will be a need to consider the period of time over which it is appropriate to attribute gains Mr Curtis or his interests may have made from the breach of fiduciary duty. In other words, at what point would it be safe to attribute gains made to his own efforts or those of others in carrying on the new business?[19]

(e) It will be necessary to consider what allowance (if any) should be made for costs incurred, skill applied and effort expended by Mr Curtis in achieving any such gains.[20]

(f) It should be noted, of course, that Mr Gibson is entitled to a half share of the gains attributable to the joint venture in his own right.

The costs appeal (CA285/2011)

[114] As already noted, Mr Gibson appealed against the costs award made by Simon France J in relation to the two sets of proceedings which he heard jointly. This is a matter of some complexity but we do not need to deal with it since the outcome of the substantive appeal means that the costs orders made in the High Court must be set aside and reconsidered in the light of our decision.

Result

[115] The substantive appeal (CA368/2010) is allowed. The judgment in CIV-2008-485-2735 in favour of the respondents is set aside. Judgment is entered instead in favour of the appellants on the issue of liability.
[116] The appellants’ claim in CIV-2008-405-2735 is remitted to the High Court for an accounting of profits in accordance with this judgment.
[117] The costs appeal (CA285/2011) is allowed and all costs orders made in the High Court in relation to CIV-2007-485-907 and CIV-2008-485-2735 are set aside. The High Court is to determine the costs in that Court in light of this judgment and any further steps necessary in the High Court.
[118] The respondents in the substantive appeal (CA368/2010) are to pay to the appellants costs as for a complex appeal on a band A basis with usual disbursements. We certify for second counsel. We make no award in respect of the costs appeal (CA285/2011) in all the circumstances.

Solicitors:
Garnham Law, Wellington, for Appellant
Thomas Dewar Szranyi Letts, Lower Hutt, for Respondent

[1] Curtis v Gibson HC Wellington CIV-2007-485-907 and CIV-2008-485-2735, 18 May 2010.
[2] Gibson v Curtis HC Wellington CIV-2007-485-907, 23 June 2010.
[3] Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.
[4] At [116].
[5] At [116].
[6] At [119].
[7] At [126].
[8] At [133].
[9] At [136].
[10] United Dominions Corporation Ltd v Brian Pty Ltd (1984 – 1985) [1985] HCA 49; 157 CLR 1 at 10.

[11] Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [91] (a judgment in which Keith and Gault JJ were in agreement).
[12] Kahn v Miah [2001] 1 All ER 20 at 25.
[13] See Chirnside v Fay at [85].
[14] Gibson Motorsport Merchandise Pty Ltd v Forbes [2006] FCAFC 44, 149 FCR 569 at 575.

[15] Boardman v Phipps [1967] 2 AC 46 (HL); see also Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544; and Marr v Arabco Traders Ltd (1987) 1 NZBLC 192,732 (HC).
[16] See the observations of Blanchard and Tipping JJ in Chirnside at [92].
[17] See the judgment of Elias CJ in Chirnside at [16]–[20].
[18] See [66] above.
[19] See the remarks of Elias CJ in Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [36].

[20] See the discussion in Chirnside in the joint judgment of Tipping and Blanchard JJ at [121]-[139].