Pendarves Packing Limited v Baitworx Limited [2014] NZHC 3327 (18 December 2014)

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BETWEEN	PENDARVES PACKING LIMITED First Plaintiff
AND	SOUTHERN BAITS (2003) LIMITED Second Plaintiff
AND	BAITWORX LIMITED First Defendant
AND	MARK EVAN FRENCH AND BETH MARGARET FRENCH Second & Third Plaintiffs
AND	ALLAN GARY HUME AND JUDITH ANNE HUME _{Fourth & Fifth Defendants}

This judgment was delivered by me on 18 December 2014 at 4pm pursuant to r 11.5 of the High Court Rules.

PENDARVES PACKING LTD v SOUTHERN BAITS (2003) LTD [2014] NZHC 3327 [18 December 2014]

[1] Pendarves Packing Limited and Southern Baits (2003) Limited, two Auckland related companies, contend that Baitworx Limited, a Tauranga company, which deals in recreational fish bait product at the wholesale and retail levels, has since at least April 2007 been in breach of an exclusive supply and distribution agreement between them, dated 6 November 1998; and more especially since 6

November 2008 when, as they contend, their contractual relationship entered a second 10 year term.

[2] After 1 April 2007, and more particularly after 6 November 2008, the two Pendarves companies contend, Baitworx did not, as their agreement required, purchase from them branded and related recreational fishing bait product exclusively or even primarily. It purchased product from other suppliers, in competition with them, as a result of which they suffered a loss of net profits in the years 2008-2013.

[3] If Baitworx contract was with PPL with which, as they say mistakenly, Baitworx entered into an agreement on 3 July 2003, varying their supply and distribution agreement, PPL’s loss was $378,713. If, as they contend, Baitworx supplier under the agreement should have been SB (2003), and became their supplier in August 2003, as a result of an assignment or novation, SB(2003)’s loss was

$322,720. The difference between the two claims lies in the difference between their gross profit margins.

[4] The Pendarves companies seek first a declaration that their agreement has extended for a second 10 year term beginning on 6 November 2008, and thus will not expire until 6 November 2018, unless earlier terminated. They seek an injunction restraining Baitworx from selling, promoting or distributing the products of their competitors. They seek damages on one or other of the bases I have identified. If the agreement was not renewed, however, they seek damages for 24 months after 6 November 2008, contending that Baitworx was then in breach of a restraint of trade. On all of these bases they pursue Baitworx directors as guarantors.

[5] Baitworx, and its directors, deny that its contractual relationship was ever renewed for a second 10 year term as from 6 November 2008. They contend that their then agreement expired on 6 November 2008 and that a new agreement was

never entered into. Also, they contend, because their first agreement merely expired and was never terminated, Baitworx never became subject to any restraint of trade. But if Baitworx did become subject to a restraint, it nevertheless acted with the implied consent of its Pendarves supplier, or the restraint itself was unreasonable and unenforceable. If, by contrast, the agreement was renewed and is still on foot to this day, they say, Baitworx has never been in breach. It has had to buy from other suppliers, as the agreement allows, because its Pendarves supplier frequently failed to supply product within a reasonable time, or at all.

July 2007 – 6 November 2008, in breach of their agreement before it expired, their

Pendarves supplier supplied a Tauranga competitor, Top Catch, causing Baitworx a

$1,663 net profit loss. Their more major counterclaim assumes what they otherwise deny, that their agreement did extend beyond 6 November 2008. In that event, they contend, between November 2008 – August 2013, their supplier also supplied Top Catch Tauranga, and four other competitors within their assigned territory, Top Catch Hamilton, the Ice Man, and two Rotorua competitors, Bidvest and Shellpac, causing Baitworx a $257,565 net profit loss; and a further $31,085 loss between September

[7] They also contend that their Pendarves supplier is accountable for a relational breach of the agreement, relying on the fact that Mr Powell, the sole director of the two Pendarves companies, is also sole director of a related company, Auckland Distributors Limited. Between October 2009 – March 2013, they contend, ADL supplied bait product to three retailers within their territory, three BP Connect service stations, causing Baitworx a $5336 net profit loss; also a further $1,528 loss between April 2013 – 31 March 2014.

[8] The first principal issue, to which this claim and counterclaim give rise, is as to the identity of the supplier under the supply and distribution agreement, dated 6

November 1998, as from 11 July 2003. Did Baitworx supplier then become and remain PPL, with whom it then entered into the variation agreement, or did its

supplier almost immediately become SB (2003), by way of assignment or novation? Which Pendarves company, if either, the one or the other or both, enjoyed the benefit, and carried the burden, of the agreement?

[9] Baitworx seeks also to introduce two prior issues. One is whether PPL ever took a valid assignment of the rights of Southern Bait Limited, the original supplier under the supply and distribution agreement, before the varying agreement was entered into on 11 July 2003. The other is whether that agreement any longer accurately expressed its contractual relationship with Southern Bait. By then, Baitworx says, the agreement had been varied very significantly orally, especially as to Baitworx distribution area, but also as to its ability to source produce elsewhere and to package product, that it had ceased to be definitive.

[10] On the pleadings these two proposed prior issues do not and cannot arise. They are irreconcilable with Baitworx’s admissions, in its statement of defence, that on 11 July 2003, when the variation agreement was entered into, the supply and distribution agreement applied according to its terms. That indeed is what the varying agreement itself says.

[11] The second principal issue to which this case does give rise is whether the supply and distribution agreement, which initially ran for a 10 year term expiring on

6 November 2008, unless renewed in the manner it prescribes, was replaced by a second 10 year contact expiring on 6 November 2018, despite the fact that this did not happen as the agreement prescribes. Is that second contract to be inferred objectively, having regard to what was then done and said? Did Baitworx waive the need for a prescribed formal renewal? Is it estopped from denying a new agreement?

[12] The third principal issue is as to the respective merits of the Pendarves companies claim and of the Baitworx counterclaim, including their calculations of damages, in each case wholly or largely contingent on whether their relationship after 6 November 2008 was subject to an agreement essentially identical to their original agreement. If that was their contractual position, did Baitworx breach the agreement by looking to other suppliers causing its Pendarves supplier the loss claimed? If that was not the position, did Baitworx breach any restraint of trade by

which it was bound causing its Pendarves supplier a more confined loss? Conversely, did its Pendarves supplier breach their agreement by supplying Baitworx competitors, without Baitworx consent, causing Baitworx the losses it claims?

[13] These three issues are mixed questions of fact and law, and to the extent that they are questions of fact, the burden of proof lies with the proponent. As to the two claims that they make, the Pendarves companies carry the persuasive and evidential burden to the civil standard. As to the three counterclaims it makes, that burden lies with Baitworx.

1998 when, under an agreement for sale and purchase, Southern Bait Limited, a Mt Maunganui company, then a manufacturer, wholesale distributor and retailer of fish bait products, sold to Baitworx, a fish bait retailer in Tauranga, its two retail outlets in Mt Maunganui and its wholesale distribution business throughout the Bay of Plenty and the Waikato.

[15] On that date, also, Southern Bait and Baitworx entered into two further complementary agreements, the supply and distribution agreement with which this case is concerned, and a packaging contract, to run for one year unless renewed, under which Baitworx was for an agreed price to package and label Southern Bait products to a value not less than $50,000.

[16] Under the supply and distribution agreement Southern Bait agreed to supply Baitworx ‘Southern Bait’ branded product, burley, tackle and associated products, and granted to Baitworx two central rights; the exclusive right to distribute those products, at a wholesale level, throughout a defined territory in the Bay of Plenty and the Waikato, and a further right to own and operate retail outlets in the Tauranga - Mt Maunganui area under the brand name ‘The Bait Shop’.

[17] In return, Baitworx assumed three central obligations. The first was to market those products actively, at wholesale, within the territory, and to increase the volume

of sales; an obligation that was of the essence of the agreement. The second was to purchase bait products only from Southern Bait, subject to a limited right to purchase elsewhere if Southern Bait could not supply. The third was not to become involved with, or to assume any interest in, any Southern Bait competitor within the territory; or to solicit product sales, or to set up any competitive entity, or to sell product to any competitor, outside the territory.

[18] The Baitworx shareholders and directors, Mark and Beth French and Allan and Judith Hume, signed this agreement as guarantors. Southern Bait’s principal, perhaps sole shareholder, Stephen Newlands, also signed it as a director of the supplier, to support a reciprocal guarantee.

[19] The initial term of this agreement was to be for 10 years. The supply and distribution relationship it created was then able to be extended for a further 10 years, if Baitworx so elected, by giving Southern Bait written notice within six – three months before the date on which that first term was to expire, 6 November

2008. In that event, a new agreement was to be entered into on Southern Bait’s then current terms, which might or might not have coincided with the agreement as it had been.

[20] On 30 May 2003, under a further agreement for sale and purchase, Southern Bait sold to Ross Powell, or his nominee, its residual business; its Mt Maunganui factory and its rights as wholesale supplier under two distribution agreements, one with Baitworx and the other with North Harbour Ice Limited, a completely unrelated enterprise. Mr Powell was then, and is still, the sole director of Pendarves Limited, an Auckland company incorporated in 2001, which then traded in tuna and sold bulk and packaged recreational bait.

[21] On 11 July 2003 Mr Powell incorporated two further companies, SB (2003) and PPL, each with the same shareholders as Pendarves Limited, and each with himself as sole director. On 11 July 2003 also PPL, as supplier, entered with Baitworx into the agreement varying the supply and distribution agreement with which this case is also concerned. This variation recorded that Southern Bait had assigned to PPL its ‘interests as supplier’ under the principal agreement. It also

incorporated in that agreement a schedule setting out the unit prices for 38 bait products, ranging between 275 grams and five kilograms, and five unpriced bulk products ranging between 10 and 20 kilograms.

[22] From that point, and until March 2008, Baitworx was able to continue to take delivery of Southern Bait branded product, and the other priced products itemised, free of freight, directly from Southern Bait’s Mt Maunganui factory, which PPL had taken over. In March 2008 that factory was closed and since then Baitworx has been supplied from Auckland by the Pendarves group. From the outset Baitworx can only have received the bulk unpriced items in the schedule from Pendarves Limited in Auckland.

[23] On 6 November 2008 the initial term of the supply and distribution agreement expired, as did the continuing contractual relationship between the Pendarves group and Baitworx, unless it was renewed under a new contract. No such contract was then formally entered into, but the Pendarves group continued to supply Baitworx with product, and Baitworx continued to trade in Mt Maunganui as

‘The Bait Shop’ and to distribute Southern Bait products throughout the Bay of

[24] Baitworx denies that this was under any orally renewed agreement, or any to be inferred from conduct. Baitworx contends that their relationship then became one of willing buyer and willing seller, on Pendarves then standard terms of sale, and nothing more. To sheet home their claim against Baitworx the Pendarves companies must prove that their continuing relationship is only explicable on the basis that it remained governed by a supply and distribution agreement essentially identical to that subsisting between them until 6 November 2008.

[25] In part, this critical issue is to be resolved on the contemporary documents, such as they are, as well as the oral evidence. But, no less significantly, that issue, and the two other issues, must be set against the supply and distribution agreement that was governing until 6 November 2008, more especially because the Pendarves companies contend that this agreement in its entirety remained the basis of their relationship, as a result of assertions and conduct, and continues to do so to this day.

[26] In Vector Gas Ltd v Bay of Plenty Energy Ltd,¹to which both counsel referred me, the Supreme Court did not, as Francis Dawson remarked in his recent commentary, speak with a single voice about how to reconcile ‘the fundamental antithesis between intention and expression’.²Each reconciled these antitheses differently. Only Gault J did not. The issue in that case, he said, did not call for it. It concerned what correspondence meant, objectively assessed, nothing more. Gault J aligned himself with Blanchard J.

[27] In this case, which does involve a formal contract, albeit a contract not renewed as prescribed, I will rely rather on the principles of interpretation summarised by Arnold J without reference to Vector, for the majority of the Supreme Court, in the recent decision Firm PI 1 Ltd v Zurich Australian Insurance Ltd T/A Zurich New Zealand & Anor.³As to that summary, the minority did not disagree.⁴

[28] First, Arnold J said, echoing Lord Hoffman in the Investors Compensation Scheme case,⁵the language of a contract must be assessed objectively to establish what meaning it would ‘convey to a reasonable person having all the background knowledge which would have been available’ when the contract was entered into. Crucially, ‘this objective meaning is taken to be that which the parties intended’.⁶

[29] Secondly, such a purposive or contextual approach, set against the whole relevant background, ‘is not dependent on there being an ambiguity in the contractual language’.⁷However, a commercial contract:⁸

will result from a process of negotiation, will attempt to record in a formal way the consensus reached and will have the important purpose of creating certainty, both for the parties and for third parties (such as financiers).

¹_{Vector Gas Ltd v Bay of Plenty Energy Ltd [2010]
NZSC 5; [2010] 2 NZLR 444.}

²Objectivity and Interpretation in the Supreme Court. Auckland University Conference, 14

³Firm PI 1 Ltd v Zurich Australian Insurance Ltd T/A Zurich New Zealand & Anor [2014] NZSC

⁵Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 (HL)

While context is a necessary element of the interpretative process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.

[31] Fourthly, the general structure of the bargain made can assist to identify its commercial purpose and an interpretation which flouts common sense is not to be assumed.¹⁰But that will depend on the extent to which that purpose ‘can reliably be

identified’.¹¹The Court may need to recognise that words are being used in a

specialised way, if there is evidence.¹²A commercially absurd result is not to be assumed simply because the contract appears to favour one party unduly.¹³And so:¹⁴

Where contractual language, viewed in the context of the whole contract, has an ordinary and natural meaning, a conclusion that it produces a commercially absurd result should be reached only in the most obvious and extreme cases.

[32] That said, I return to the first of the three issues on which this case turns, the identity of Baitworx supplier on and after 11 July 2003, and that entails these two questions. Did PPL transfer the benefit of its interest as supplier under the agreement to SB (2003)? Did SB (2003), by a novation, then become solely entitled and liable as supplier, displacing PPL, and rendering PPL immune from any past or future liability?

[33] Clause 13.8 of the agreement confers on the supplier an ability to transfer the burden of the agreement, as well the benefit, without the consent of Baitworx:

The Supplier is entitled without the prior written consent of the Distributor to assign, transfer, sub-licence, sub-contract or in any manner make over the benefit of and ... the burden of this agreement.

[34] Southern Bait must have relied on cl 13.8, when it transferred its interest as supplier under the agreement to Mr Powell or his nominee, by their agreement for sale and purchase, dated 30 May 2003. Mr Powell must then have nominated PPL as purchaser of Southern Bait’s business, and thus also as supplier under the Baitworx distribution agreement. Then, though cl 13.8 did not require Baitworx to consent, it did so by entering with PPL into the variation agreement, dated 11 July 2003.

[35] These two transactions, which are not in issue on the pleadings, are to be assumed in this case, at any rate, to have freed Southern Bait from any further liability. But PPL did not then enter into a further agreement with SB(2003), transferring to SB (2003) its interest as supplier, its liability as well as its entitlement, let alone any agreement to which Baitworx then subscribed or later ratified formally. On the face of the 3 July 2003 variation agreement PPL remains liable to Baitworx whatever liability SB (2003) then assumed as actual supplier.

[36] In essence this issue is, as McGrath J said, speaking for himself and Elias CJ in another recent decision of the Supreme Court, the Savvy Vineyard case, ‘Whether the old party continues to be bound or the new party has been accepted in place of the old.’¹⁵As he then explained:¹⁶

Novation of a contract takes place where contracting parties agree that a third party, who must also agree, is to take the place of one of them. The substituted party is released from its obligations so that the remaining original party is able to enforce the contract only against the new party. It is essential to novation that the remaining original party releases the other original party from liability either entirely or at least from the date of the novation.

[37] Novation, as McGrath J continued to say, is not the only way to transfer contractual rights and obligations. Another is by assignment, where the assignor

_{‘remains as a party to the contract and continues to be
bound’. Yet another is where}

¹⁵Savvy Vineyards 3552 Ltd and Savvy Vineyards 4334 Ltd v Kakara Estate Ltd and Weta Estate

a contracting party arranges to have its obligations performed by a third party, but again remains liable.¹⁷In the earlier case, Hela Pharma AB v Hela Pharma Australasia Ltd,¹⁸the Court of Appeal also recognised this, when it spoke of a hybrid, lying between a novation and an assignment, in which both remain liable. ¹⁹

[38] Clause 13.8 is unorthodox, in that it confers on the supplier not just the ability to assign the benefit of the agreement without the consent of Baitworx, an ability consistent with principle, but also the ability to transfer the burden of the agreement, an ability inconsistent with the principles governing novation. However, that might not matter if there were consent. William J Young said in the Savvy

It is ... conceptually possible for a party to a contract to have a contractual right to novate by nominating a successor, who, by accepting the novation, becomes a party to the contract in succession to the novating party.

[39] In this case, as in that, the wide power cl 13.8 gives to the supplier to abstract itself, and introduce a substitute supplier, makes sense when set against the term of the agreement, 10 years, and potentially 20 years, especially if renewed in its original terms. Clause 13.9, moreover, declares that the agreement binds successors and assigns, and that they are deemed to be referred to whenever a principal party is.

[40] In that case, however, in contrast to this, the remaining original parties knew that the Savvy companies were to be substituted completely and that they were no longer to have recourse against the original parties. Knowing that, William Young J said, they ‘nonetheless accepted the Savvy companies as being in contract with them and did not challenge the terms proposed as to how this should happen.’²¹A novation carrying the consent of all parties came into existence.

[41] In this case cl 13.8 may expressly confer on the supplier the ability to transfer the burden of the agreement without consent. But, I consider, that alone cannot give

_{the supplier the ability to impose a novation. A novation is, in
essence, a fresh}

¹⁸_{Hela Pharma AB v Hela Pharma Australasia Ltd
CA165/03, CA206/03, 17 February 2005.}

contract with a new party, on the then existing or varied terms. Acceptance of, or consent to, such a new contract is not to be attributed to Baitworx in advance.

[42] In this case there is no suggestion that Baitworx was privy to the terms of the agreement for sale and purchase between Southern Bait and Mr Powell, skeletal though they were, under which Mr Powell later nominated PPL as supplier under the supply and distribution agreement, and PPL and Baitworx entered into the equally skeletal agreement on 11 July 2003 varying the latter.

[43] The most that the Pendarves companies can say is that, as from August 2003, and at least until 2008, SB (2003) and not PPL supplied to Baitworx all the priced items in the schedule, introduced by the 11 July 2003 variation, and Baitworx paid for product supplied, in response to SB (2003) invoices. That, however, only takes them so far.

[44] It is, I accept, more probable than not that PPL assigned the benefit of its interest as supplier under the agreement to SB (2003), and that Baitworx knew and accepted this. There is, however, no evidence that Baitworx also knew and accepted that it was to cease to have recourse against PPL, or to exclude the possibility, which I find to be more probable than not, that, when trading with SB (2003), it retained recourse against both companies.

[45] In that conclusion, I should first confirm, I have taken no account of Mr Powell’s correspondence with the other distributor, whose distribution agreement had also been assigned by Southern Bait, North Harbour Ice Limited. That correspondence was never discovered and, in any event, is irrelevant to the relationship between the Pendarves companies and Baitworx.

[46] Secondly, I have considered the conflict in the evidence as to whether the Baitworx directors executed the agreement varying the supply and distribution agreement in their lunch room on 11 July 2003 under pressure from Mr Powell; and

whether, as Mr Hume put it, Mr Powell then said that he had acquired Southern Bait, that it was then about to go under, and that if they did not sign the agreement their business would be ‘f – d’.

[47] The evidence as a whole favours Mr Powell’s account to this extent. He says that he signed the agreement in Auckland. His signature was witnessed by an Auckland resident, and the Baitworx signatures were witnessed by Mt Maunganui residents. The agreement itself is impressed with two fax exchanges that day between Auckland and Mt Maunganui. Nor are the Baitworx directors unanimous. Mrs French especially speaks of a meeting in Auckland, which might have been earlier than 11 July 2003.

[48] I do accept, however, that Southern Bait, then controlled not by Mr Newlands but by Douglas Forsythe, and Mr Powell himself, confronted the Baitworx directors with a fait accompli. If Baitworx was to continue to distribute Southern Bait branded product under the agreement its directors had to accept that PPL, formally if not actually, was to be Baitworx supplier. Mr Powell might well have brought that home to them as graphically as they say.

[49] Thirdly, I have considered, but do not accept unreservedly, Mr Powell’s evidence that SB (2003) was always to be the Baitworx supplier and not PPL, which then controlled the Mt Maunganui factory, and possibly another in Auckland; that there was a simple mistake. Mr Powell’s evidence does not square readily with the contemporary evidence:

(a) On 11 July 2003, the day that Mr Powell incorporated PPL, PPL, as Mr Powell’s nominated supplier, entered into the variation agreement with Baitworx, and Mr Powell executed that variation as PPL’s sole director.

(b) On 25 July 2003, responding to Mr Powell’s nomination as purchaser under the sale and purchase agreement, Southern Bait issued to PPL a tax invoice statement for the sale and purchase of the plant, fittings, fixtures, goodwill and stock in trade.

(c ) On 9 October 2003, Mr Powell’s solicitors reported to PPL, marked for his attention, attaching that invoice, and a note of their costs in which they confirmed they had advised him ‘regarding alternative methods of purchasing business’, and ‘regarding purchasing entity’, and ‘the distributor contracts’.

[50] This contemporary evidence confirms that Mr Powell must have deliberately nominated PPL as the purchaser under the agreement for sale and purchase with Southern Bait, and that made sense. PPL was to assume ownership of Southern Bait’s factory. The mistake Mr Powell actually repents, as he explained in evidence, was in not then interposing SB (2003) between PPL and Baitworx. But he did not explain why he did not.

[51] After Mr Powell entered into the agreement for sale and purchase with Southern Bait he had the ability to nominate PPL as purchaser under that agreement and to have PPL enter into an agreement with SB (2003), nominating it as supplier under the supply and distribution agreement with Baitworx. What other role did Mr Powell envisage for SB (2003), which he incorporated on the same day as PPL? Mr Powell did not say. It is at least conceivable, moreover, that he made no error and elected then not to commit SB (2003) formally to that supply and distribution relationship.

[52] Clause 7.1 of the agreement prohibited the supplier from acting as a wholesaler within the territory or entering into a relationship with any wholesaler or retailer apart from Baitworx. Subject to cl 13.2, which gives the supplier an option to purchase the distributor’s business, cl 7.1 says this:

(a) as a wholesale agent or Distributor to retail outlets for Products in the Territory; or

[53] In 2003 this constraint would not have affected PPL. It did not become a wholesale supplier in its own right until 2008. It might then, however, have

impinged on SB (2003). It may be no coincidence that Baitworx founds its counterclaim both before and after 2008 on the proposition that, in breach of their agreement, SB (2003), certainly in main part, supplied its competitors in Tauranga and Mt Maunganui, and within its wider distribution area.

[54] The decisive issue whether since 6 November 2008 the Pendarves group and Baitworx have continued to trade under a renewed agreement, or merely on Pendarves’ standard terms of supply, transaction to transaction, did not emerge immediately.

[55] Before 6 November 2008, the Baitworx directors say, they knew that the initial term of the agreement was to expire on that date, and thus that their continuing contractual relationship with their Pendarves supplier was also about to expire, unless they gave notice, under cl 10.2, invoking their right to a fresh agreement. They chose, they say deliberately, not to exercise that right.

[56] The Pendarves group, they contend, had not proved a reliable supplier. It had often not supplied what they had ordered. The quality of the supplies had been uneven. Baitworx market share, as the exclusive distributor of Southern Bait product in the Bay of Plenty and Waikato, had been eroded. In 2006 Mr Powell had acquired a Tauranga competitor of Baitworx, which he had renamed Top Catch. He had set up other Top Catch outlets in Baitworx territory, which SB (2003) supplied in main part and which Baitworx had been denied the ability to supply. He had become their largest competitor.

[57] Under the agreement, as they say, they were not obliged to give notice to their Pendarves supplier confirming that they did not seek a new supply and distribution agreement. They simply allowed Baitworx contractual relationship with the Pendarves group to cease. And Baitworx continued, as before, to place most orders with Pendarves , but also freely obtained supplies elsewhere.

[58] Mr Powell’s evidence is to the contrary. He says that in October 2008, in a telephone call, Mr Hume asked him to ‘roll over’ the agreement and he agreed to do

so. He says they agreed to have their lawyers prepare a new agreement. He then says that in early 2009 he checked whether that had happened. He was told that

‘they’, presumably the Pendarves directors, had been too busy. It was peak season. He was content to let matters lie. Mr Hume denies both these conversations.

[59] Mr Powell and the Baitworx directors are equally at odds about whether he had their consent to acquire Tackle King, Tauranga, and to have SB (2003), as opposed to Baitworx, supply Top Catch and other retail outlets within its territory. He contends that they consented to this, first because he only took over Tackle King as part of a strategy to eliminate Baitworx principal competitor in its territory, Pelco, and because SB (2003) gave Baitworx a one year three per cent discount on supplies.

[60] The Baitworx directors contend that Mr Powell was not then, as he contends he was, their altruistic white knight. He was intent on expanding his market share at the retail and wholesale levels in their territory. They were not asked to consent to this and would not have consented. His strategy was at the expense of their viability.

[61] This point of contention eventually became acute in 2012, or early 2013, when Mr Powell failed in what had become a two year negotiation to acquire the Baitworx business, principally its retail presence in the Mt Maunganui - Tauranga area.

[62] In early 2011 the Baitworx directors discussed selling their business with a potential investor, Andrew Fitzsimmons, whom they took to meet SB (2003) general manager, Michael Kampkes. Mr Powell also attended. His evidence was that this meeting only took place because the agreement had been rolled over. The Baitworx directors say it only took place because Pendarves remained their main supplier.

[63] There is email evidence to confirm that by September 2011 Mr Powell wanted to buy the Baitworx business, setting against that possibility another he then identified; to take over one or more of Baitworx close retail competitors, adversely affecting their market share. These negotiations continued without result until late

2012. Mr Powell more than once pressed the Baitworx directors to renew their supply agreement formally, but without result.

[64] The result of the dispute crystallising as late as it did, towards the end of

2012, is that the conflict in the evidence has widened. The Pendarves group rely on three witnesses to confirm that in 2011 – 2012, during the sales negotiation, the Baitworx directors affirmed that a new contract had been entered into after 6

[65] Two of those witnesses were engaged in the negotiation itself on behalf of Mr Powell, either directly or indirectly. Directly engaged was James Mullany, the sales manager of Pendarves Limited. Indirectly engaged was Conrad Lewis, an independent supplier, from whom the Baitworx directors had obtained supplies themselves early in the relationship with Southern Bait.

[66] Mr Mullany said that between November 2011 – October 2012 he visited Baitworx six times. In November 2011 he visited them to pursue Mr Powell’s offer to acquire their business, not then knowing of any distribution agreement. He next visited them with Mr Kampkes in early 2012, and saw that they were selling other suppliers’ bait. He visited them again in June, July and August 2012 and finally on 6

[67] The Baitworx directors, Mr Mullany said, consistently confirmed that the supply and distribution agreement continued on its original terms. They defended selling other suppliers’ product by saying that Pendarves had not been a reliable and satisfactory supplier. They challenged his right to visit the retail outlets in the territory that they supplied.

[68] Conrad Lewis, who gave evidence as to the two occasions on which he met Baitworx directors, once in May 2012 and then in early 2013 after the dispute had finally crystallised, also said that the Baitworx directors affirmed that their relationship with Pendarves remained governed by a supply and distribution agreement on its original terms.

[69] The third witness, Geoffrey Curley, a half shareholder and director of Premium Bait and Tackle Limited, a bait distributor in the upper half of the north island, also said that in his contact with the Baitworx directors Mr French confirmed that Baitworx was still in a contractual relationship with the Pendarves group.

[70] Premium Bait, now struck off the Regsiter, was set up by Mr Curley and Stephen Hudgell, who had I understand originally been SB (2003)’s general manager, until Mr Powell dispensed with his services. In early 2012 he and Mr Curley set out to establish Premium Bait as a wholesale distributor, inevitably in competition with the Pendarves group. Mr Curley’s evidence is that he approached the Baitworx directors to see whether Baitworx might become a Premium Bait retailer.

[71] On 31 July 2012, Mr Curley said, and as to this there is no dispute, Mr French and two other distributors attended an Auckland conference convened by Mr Hudgell, to which Mr Curley was linked by video from Bangkok. One purpose of this meeting, Mr Curley says, and the minutes taken by Mr Hudgell confirm, was to settle on a strategy to undermine the Pendarves group’s market share. In August

2012, after that meeting, Mr Curley says, Mr French confirmed to him that Baitworx was still tied to the Pendarves group by agreement. He gave hearsay evidence that Mr Hudgell persuaded the Baitworx directors to deny any continuing agreement, relying on an opinion obtained as to the effect of the original agreement.

[72] The Baitworx directors deny outright that, during the sales negotiation with Mr Powell and his surrogates, they ever affirmed any continuing contract. They accept Mr French’s part in the Premium Bait conference on 31 July 2012, but put in issue the accuracy of the minutes. Mr Hudgell was not called as a witness and Mr French was never at the time asked to confirm the minutes. Mr French equally denies that he ever told Mr Curley afterwards that there was a supply and distribution agreement still in place.

[73] To resolve these conflicts in the evidence I will set them against, first, what the supply and distribution agreement itself prescribed as to renewal, and then against the emails relating to the 2011 – 2012 sales negotiation.

[74] The agreement itself, in contrast to this disputed narrative, is simple and clear. Under cl 10 the agreement was to run for an ‘Initial Term’ unless earlier terminated; and that term, as defined by cl 1.1, was 10 years from the date of settlement under the sale and purchase agreement between Southern Bait and Baitworx.

[75] Clause 10.2 prescribed how the agreement might be renewed beyond the end of the initial term. It said this:

On the condition that the Distributor is not persistently in breach of any of the terms of this agreement and that the Distributor has consistently and substantially performed all the Distributor’s obligations under this agreement throughout its term, the Distributor has the right (exercisable in writing not more than six calendar months or less than three calendar months prior to the expiration of the Initial Term) to enter into a new distribution agreement (‘the new agreement’) upon the following terms and conditions:

(a) The New Agreement will be upon the terms and conditions contained in the Supplier’s then current form of distribution agreement and if such New Agreement is in conflict with the terms of this Agreement the terms of the New Agreement will apply.

(b) The New Agreement may (but need not) provide for a further right of renewal at the expiry of its term.

(c) The New Agreement will not be available to the Distributor without payment of goodwill or any fee for the rights and benefits of

‘Distributor under the New Agreement, and for a term not less than the present term of (10) years.’

[76] Clause 10, as a whole, could not be more plain. At the end of the initial term of the supply and distribution agreement it expired unless Baitworx, which had a right to a further supply and distribution agreement on the then current terms of its supplier, gave notice that it wished to exercise that right, no earlier than six months and no later than three months before the agreement expired.

[77] In this cl 10 is consistent with cl 16, which declared that the contract for the initial term was the entire agreement and that it could only be varied by an equally formal agreement:

16.1 This agreement together with the Business Sale Agreement sets forth the entire agreement and understanding of the parties and supersedes

all prior oral or written agreements, understandings or arrangements relating to its subject matter.

16.2 This agreement cannot be amended, modified, varied or supplemented except in writing signed by duly authorised representatives of the parties.

[78] Clause 10 and cl 16 are to a consistent theme. They make the agreement definitive and complete as to the distribution and supply relationship between Baitworx and its supplier. They require that any variation be equally formal. They limit the agreement to a term of 10 years unless an equally formal agreement replaces it. The cl 10.2 prescription as to renewal is, therefore, highly significant. But it is not conclusive.

[79] In Savvy Vineyards, McGrath J accepted for the minority that a term requiring any variation to be in writing did not rule out an oral variation. But, he said, it did demonstrate a shared intent to be bound only by a formal variation. It was an objective reason for questioning the efficacy of any oral variation.²²William Young J for the majority also said that such a term might be of ‘distinct evidential significance’.²³

[80] The principles engaged were helpfully described by Finn J in Australia in the

Marconi Systems case. They rest on the premise that prescriptive terms like cl 10 are

‘self imposed’ not ‘externally imposed (that is, imposed by law).’²⁴And thus, as he said:²⁵

Notwithstanding the writing requirement, it is open to the parties by express oral agreement or by contract implied from conduct to impose further or different rights and obligations on each other from those contained in the original contract.

As he also recognised, however, in the face of such a prescriptive term, a propounded oral contract may suffer the ‘common, often fatal difficulty’ that it is

²⁴_{GEC Marconi Systems Pty Ltd v BHP Information
Technology Pty Ltd [2003] FCA 50 at [216].}

[81] As the Court of Appeal made clear in Fletcher Challenge Ltd v Electricity Corporation of New Zealand,²⁶a searching objective inquiry is called for. There must be evidence of an intent to be bound on the express or implied terms essential. Whether in this case that inquiry needs to extend to whether Baitworx waived its right to rely on cl 10.2 by words or conduct is debatable.²⁷Its conduct after 6

November 2008 is irrelevant, because a right can only be waived within the time during which it enures.²⁸The cl 10.2 right had to be exercised within the term of the agreement, not later than three months before 6 November 2008. After 6 November

[82] The Pendarves companies also assert, in the alternative, that Baitworx became estopped from denying that a new contract was entered into after 6

November 2008, even though, as they concede, the Baitworx directors did not give notice under cl 10.2. In this they rely on that alternative as it is helpfully described by Finn J:²⁹

One party may so induce or encourage the other’s assumption on which it relies that the relevant formal requirements need not be complied with, as to be estopped from later setting up those requirements.

[83] They say that all three of the elements of an estoppel by representation existed.³⁰Baitworx, by its conduct after 6 November 2008, represented to them or encouraged them to believe, that their contract had been renewed. They relied on that and they did so to their detriment. They desisted from trading with Baitworx competitors within the territory. They did not, after 6 November 2008, invoke the restraint of trade to which Baitworx was subject.

[84] The Pendarves group may not have needed to plead waiver. They were obliged to plead estoppel because they rely on it to found an alternative cause of

_action.³¹_{Strictly their failure to plead this
cause of action precludes them from}

²⁶Fletcher Challenge Ltd v Electricity Corporation of New Zealand [2001] NZCA 289; [2002] 2 NZLR 433, [50] –

²⁸_{Hawker v Vickers [1991] 1 NZLR 399 at 402,
Williams v Kirk [1987] NZCA 132; [1988] 1 NZLR 452.}

²⁹_{GEC Marconi Systems Pty Ltd v BHP Information
Technology Pty Ltd, above n 25, at [217].}

³¹The Laws of New Zealand, Estoppel, Part VI, Estoppel: Procedure (10), para 89.

relying on estoppel. I will consider their submission, however, simply to be complete.

[85] Estoppel, like the possibility of a contract by oral agreement or conduct, must be set against the whole of the evidence and most especially the terms of the original agreement, given that the Pendarves companies assert that they continued unchanged after 6 November 2008. No less relevant are the acquisition negotiation emails in

[86] On 6 September 2011, after speaking with Mr Hume that day, Mr Powell sent him this email offering to purchase Baitworx business, set against, or alongside, another option Mr Powell then identified, which was to purchase Big Fish, another Tauranga retailer then competing with Baitworx:

Allan, after talking today I thought I would try to put down some options. Firstly I have to do something in the Mount so Roly has some future asset

The other option is to Buy Big Fish and either move or stay in their building if the lease can be negotiated. Our 2^ndoption after Baitworx would be to move into the Big Fish and refit into a Top Catch.

We can either Buy your business for say $160,000 or we can Buy 50% for say $80,000 and both you and Roly have 50% then say we buy Big Fish for

The profits from this would be around 160K/year so you would earn $40,000 as you do now but also have $80,000 in the bank.

I can’t see anything else we can do as the other options will hurt your sales,

We have considered both purchase options and have decided not to accept your offer. We wish you well with negotiations to buy Big Fish.

[88] On 12 September 2011 Mr Powell responded saying that within Pendarves they had met that morning to discuss what to do next in Mt Maunganui. He then said this:

The issue I put to the team was that we want to do something for Roly, but also Shimano wants us to have a presence in the Mount.

The problem I have is that over time we will affect your business badly and I do not want to be put in that position and you guys do not need this with all the work you have put in over the last 10 years plus.

We have agreed that we will be in the Mount, but a suggestion was put forward that we offer to buy both your shop and Distribution Business so we would then on sell the Distribution and carry on the shop. This would then ensure that we did not affect your long term and have made an attempt to help.

Other than buying the shop this is the only other thing we could think of. Let me know your thoughts and if this is an option.

I will understand if you say no, but then you must also understand that you will then do what is right for our staff and business.

[89] On 21 November 2011 Mr Mullany, on behalf of Pendarves, in an email to Mr Hume and Mr French, said that Pendarves adhered to its then offer to purchase the business for $160,000, including stock. Pendarves was not prepared to purchase at the price they were looking for, $200,000. He said that their stock was of ‘little or zero value’ and then this:

In addition to this we would sign over to you the distribution contract for Southern Bait for the area under preferential terms and conditions. On the basis of historical and current sales, total area under contract and potential business opportunities, there is definitely a tangible value in securing this contract.

If I interpreted your comments correctly, your retail operation at Baitworx serves as a distraction to your core business of Southern Bait and Ice Distribution. So this sale would free up time and capital to grow your main business.

As discussed we are looking at the Big Fish store in Newton Road. If we cannot reach agreement then we will have to proceed with this purchase which we believe will impact negatively on Baitworx which is not what we want to achieve, given all the reasons discussed at our meeting. ...

[90] On 28 May 2012 Mr Lewis sent Mr Hume and Mr French an email after visiting them in their shop and spoke to them about the two aspects of their business which they wished to preserve. One was as a purchaser and distributor of Southern Bait product. The other was as to their relationship with another player in the industry, Frank Tong, with whom since November 2003 they had owned Alpine Ice Limited, which traded in ice and also in Triple Your Catch bait. Mr Lewis said this:

I hope your meeting with Ross tomorrow goes well for you all. everyone knows how hard you have worked despite all the hassles, starting with Steve when you first took over.

Fact – Ross has driven Pendarves to become the major player in the recreational bait business and he is determined to expand and grow his share of the market. Southern Bait is a critical part of this – Frank’s involvement is not. Any conflict with Ross cannot benefit you so it is working out the future rather than bringing up the supply and quality issues of the past. There are good reasons why you felt it necessary to deal with Frank but discussing this with Ross will achieve nothing.

Continuing as things are will mean conflict and even if you feel you are in the right, it will hurt you financially.

Do you want to stay in the business – if not, then how best to exit. The ice operation needs to be built up before selling to get your investment back. I am sure Ross will be fair in valuing SB Distribution despite the lack of contract. The shop? Do you want to stay or sell? If so when?

You have done a great job with bait but whether you like it or not, now is probably time to move on to get best return. You take your work personally whilst Ross treats it purely as a business. He may seem difficult but I have always found him fair.

[91] On 24 June 2012 in an email about the future Mr Powell spoke of a meeting that he and the Baitworx directors must then have just had:

As to my thoughts after our meeting. Firstly you need to have a contract in writing for any future sale of the distribution business.

Secondly the shop should be considered to change to a Top Catch Brand as I think I can show you that the profitability of the shop can be more than all your current businesses at present.

When I come down I will have a business plan done for both these businesses so you can take it to your accountant.

But what you need to do is to have the ice business separated as soon as possible or you can get no value for your other businesses and future sales.

I will also have all pricing for next season (bulk) when I come down. Can you let me know where you are with splitting out the ice business?

[92] On 16 August 2012 Mr Powell sent to Mr Hume and Mr French a profit and loss statement for another outlet, which he suggested might be comparable to theirs; and he proposed the following:

3. You consider changing to a Top Catch shop with details to be agreed but until next April no fees would be charged and you would have access to all Top Catch suppliers (we would need to change signage in the first instance).

He also said ‘Thanks for the copy of the contract. This is the same as the one I

The shop is the critical one with Shimano putting pressure on us for a decision. They have agreed to supply you if you are a Top Catch. The other suppliers will be no problem.

We have given your proposal consideration and in principle agree to come under the Top Catch banner and address the issues you have with the distribution. Be aware that Mark and I may wish to exit this industry but not before doing our best to build up the shop and distribution even further.

There are points of concern from your and our position that need discussing and agreeing on but we are sure these can be worked out to both our satisfaction.

This email is short I know but any detail can be worked out as we progress. More than anything this email is an affirmation to proceed as you have suggested so you can give Shimano an answer.

[94] In an email, dated 21 August 2012, Mr Powell reiterated his essential proposals, adding ‘Also redo the Southern Bait contract so the business is saleable in the future’. Then in an email, dated 23 August 2012, speaking elliptically about the concerns the Baitworx directors had about an agreement, Mr Powell said that it was

‘The only value in your business at the moment’; and he concluded by saying ‘So for

the future, a Southern Bait contract is vital for you to continue’. His reason was this:

If you had no contract then you need to be out of all bait for 23 months, including retail, wholesale etc. This is the reason Southern Bait could not be sold to Bidvest two years ago. Because you had an ongoing contract which had rolled over. So without the contract you have no shop and ice only distribution for two years.

[95] On 5 December 2012 in a letter from Pendarves’ solicitors, Pendarves asserted that when the contract expired ‘the parties informally agreed that the agreement would continue’. As well as confirming that Southern Bait would no longer be given a three per cent discount and would be charged freight, Pendarves’ solicitors said:

Our clients have recently discovered that you have been distributing their competitor’s baits and you have recently started supplying your own brand, Real Bait.

Pendarves, they said, had a substantial claim for loss of profits for these breaches and looked to Baitworx for its undertaking.

[96] In this lay the genesis of this case. On 14 December 2012 Baitworx solicitors replied that it had elected not to exercise its right of renewal; that the original agreement had expired on 6 November 2008, and that supply had since been on Pendarves’ standard terms. The battle lines were then drawn but not completely.

[97] On 29 January 2013 Mr Lewis wrote to Mr Powell saying that he had met Mr French at Baitworx on the Sunday and had told him that he had met Mr Powell on the Friday before. He said he been asked ‘about any contract between Baitworx and Southern Bait’, without at this remove being clear whether that was by Mr Powell on the Friday or Mr French on the Sunday. Mr Lewis said that he confirmed to Mr French:

1. Prior to Andrew showing interest in purchasing Baitworx, I had been told there was a contract in place with Southern Bait, but had not been signed/renewed.

2. Andrew had told me when we met he had been told the existing contract would be offered to him. Andrew had told me he had met

		with both Ross and Mike at Takanini. Andrew had shown some interest in SB Distribution but not keen on the shop.
		Mark confirmed Andrew was in Perth ....
	4.	You had indicated legal costs would be prohibitive if lawyers got too deeply involved.
	5.	I confirmed my position is and always has been to try and get both parties to work together for a positive solution. I was not employed by Pendarves. I wanted to facilitate the sale of Baitworx as that had been the impression they had given me – it was a question of getting a price and terms to suit. Personality clashes have not made things easy.
[98]	Mr	Lewis then said ‘They are making progress to separating the

distribution/retail/ice operations’, and that he had ‘a strong impression that even Allan wants to move on’. He suggested that Mr Powell not press the Baitworx directors. It was ‘the height of the season’ when ‘they are under most pressure’. Also ‘demand for ice is giving them even more work’. Lawyers are ‘happy’ to create division. He recommended that Mr Powell state that:

... a contract/agreement is in place but you are prepared to give them time to respond as to how and when the businesses will be separated and sold. If they wish, you will help. You appreciate the hard work to date. Give them a final date.

An iron fist in a velvet glove approach may get you exactly what you want rather than appearing in their eyes of being confrontational – only they will know how their lawyer is interpreting ‘facts’. You need them to be 100% loyal to SB customers to the end. It shouldn’t take long for your management team to get SB Tauranga where you want it.

He asked ‘Could I see the part of the lawyer’s proposed letter to Baitworx for

[99] In making my credibility findings I begin with what is incontestable. The original agreement, according to its own terms, expired on 6 November 2008. The right to renew the relationship by a new agreement was reserved to Baitworx, as

distributor, not to Pendarves, as supplier. To exercise that right Baitworx had within the term of that agreement to give notice. It never did so.

[100] Despite that Baitworx and Pendarves could still have negotiated a fresh agreement as cl 10.2 anticipated, which might have been the same as or a variant of the original agreement. Once again it is incontestable that they never did so. Nor do I accept Mr Powell’s evidence that in October 2008, before the agreement expired, Mr Hume asked him to ‘roll over’ the agreement, that they agreed they would get the lawyers on to it and that in early 2009 he had found that this had not happened. These conversations were never documented and Mr Hume denies them. I accept Mr Hume’s evidence.

[101] It was not until October 2010, according to Mr French, that Mr Powell asked him to send a letter of intent to renew the agreement. But in that conversation Mr Powell did not mention any prior conversation with Mr Hume. The Baitworx directors did not respond, Mr Hume says, because they had no interest in resuming a formal relationship. They simply continued to place most of their orders with the Pendarves group because that was most convenient. I accept his evidence also.

[102] I find it implausible that Mr Powell, once alerted to the fact that the agreement was about to expire, would have been so casual. He could easily have documented his exchange with Mr Hume, if exchange there was, and ensured that any further agreement was prepared as soon as possible. I cannot accept that he would have been content to leave their relationship informal. It may even be that, at that stage, he had no wish to commit the Pendarves group to a further formal relationship.

[103] Conversely, I accept the evidence of the Baitworx directors that they deliberately elected not to exercise their right of renewal under the agreement because it had ceased to be of advantage to them. Apart from the issues as to the reliability and quality of supply, which they speak of, they had real reason to be sceptical. The agreement tied Baitworx to Pendarves, and limited the range of products it could carry. It no longer secured to Baitworx the place in the market it had enjoyed before the 2003 variation.

[104] Baitworx relationship with Southern Bait, its local supplier, had been reciprocal and symbiotic. Baitworx relationship with the Pendarves group was of a different order. The only company within that group committed to supplying Baitworx, and not competing with it within its territory, was its supplier. The others remained largely free agents. Mr Powell, furthermore, had a quite independent interest in the Top Catch outlets within the territory, supplied by SB (2003), which Baitworx had been denied the ability to supply. Baitworx share of the market at the wholesale and retail levels had been eroded.

[105] In 2006 Mr Powell, or a surrogate, purchased Baitworx close Tauranga competitor, Tackle King, and renamed it Top Catch. The directors say Mr Powell had assured them, just beforehand, that he would not acquire Tackle King and they felt betrayed. I accept their evidence and find Mr Powell’s contrary evidence commercially implausible.

[106] I do not accept that Mr Powell only purchased Tackle King to eliminate Baitworx main competitor within their territory, Pelco, and that they consented to this. Nor do I accept that, for the same reason, they consented to SB (2003) supplying all the Top Catch outlets within the territory. I accept the Baitworx directors’ evidence that Pelco was not their largest competitor and that, in reality, Mr Powell’s wholesale and retail interests had become so instead.

[107] Nor do I accept that the Baitworx directors, as Mr Powell also says, consented to these arrangements because on 21 February 2007 SB (2003) gave Baitworx a three per cent discount between 1 March 2007 – 31 March 2008. That discount stands in contrast to Mr Powell’s evidence that SB (2003) had the ability to supply the Top Catch outlets at a price 20 – 30 per cent less than Baitworx was able to. In that sense, it was a negligible discount of no competitive advantage to Baitworx.

[108] Furthermore, the letter, dated 21 March 2007, in which SB (2003) gave that discount to Baitworx, a letter Mr Powell signed as managing director, contradicts his evidence. The discount was offered as part of a revised pricing schedule to all SB

(2003)’s distributors as from December 2007 and it was to reward Baitworx for increased sales of Southern Bait product.

[109] Wherever, then, there is any conflict in the evidence between Mr Powell and the Baitworx directors, apart from that as to how the July 2003 variation agreement was entered into, where I partly found in his favour, I prefer their evidence to his. The issue remains, however, whether Mr Powell’s evidence becomes more credible, when set against that of the three witnesses the Pendarves companies called to corroborate his evidence. I find that it does not.

[110] The discussions the Baitworx directors had with Mr Mullany, the sales manager of Pendarves Limited, and Mr Lewis, the independent supplier, acting as an intermediary between them and Mr Powell, only or mainly concerned Mr Powell’s offer to acquire Baitworx business for $160,000. Mr Powell in particular, but also Mr Mullany, put the Baitworx directors under pressure to accept a price which they considered was less than their business was worth. Mr Powell’s position was that they had one asset of value, their supply and distribution relationship with Pendarves. By this stage he unequivocally wanted them to formalise it.

[111] It may not assist the Pendarves directors, but it is unsurprising that they then may have been equivocal as to the status of their relationship with Pendarves. What is clear is that they continued to resist entering into a new formal relationship and ultimately refused Mr Powell’s acquisition offer. Anything they said then cannot, retrospectively, have given rise to a contractual relationship, which had never been formally negotiated after 6 November 2008.

[112] Mr Curley is a surprising witness for the Pendarves companies. In 2012 he and Mr Hudgell, who then had no reason to feel any loyalty to the Pendarves group, appeared as a willing witness, not subject to compulsion. Why he was willing to do so has to be an issue in itself. He said that he and Mr Hudgell had fallen out but that, in itself, hardly assists. I am sceptical about his evidence for that reason alone. Where he and Mr French conflict, I prefer the evidence of Mr French.

[113] Furthermore, Mr Curley’s evidence assists the Baitworx directors. The fact that they were interested in becoming Premium Bait distributors in July 2012 is consistent with their evidence that as from 6 November 2008 they had become free to purchase from any supplier they chose. Furthermore, as their email exchange with Mr Powell himself also confirms, they accepted the corollary. In one of their emails to him during the negotiation they wished him well in his purchase of Big Fish, one of the retail outlets in their territory.

[114] I conclude, therefore, that Pendarves cannot, on the evidence as a whole, establish that after 6 November 2008 a supply and distribution agreement, on the same terms as the original agreement, came into being as a result of assurances the Baitworx directors then gave. Nor can that be inferred from their course of conduct. I find it more probable than not that after that date Baitworx simply purchased from Pendarves on its standard terms.

[115] By parity of reasoning I conclude that Pendarves has no basis for asserting an estoppel by representation as a cause of action. Mr Hume did not give to Mr Powell any assurance, or make to him any representation, in October 2008 – January 2009 on which the Pendarves group was entitled to rely. Nor am I convinced that the Pendarves group ever acted on any such assurance to its detriment.

[116] Mr Powell contends that it did so by holding back from a transaction it would otherwise have entered into within the territory. As to that I am sceptical. There is nothing contemporary to support his evidence, which in other respects I have found to be unpersuasive. Nor did the Pendarves group have any basis for invoking a restraint of trade against Baitworx during the ensuing 24 months, an issue to which I shall come shortly.

[117] My conclusion, that the supply and distribution agreement did not survive by expressed intention or conduct beyond 6 November 2008 makes it unnecessary for me to decide either Pendarves principal claim against Baitworx for obtaining

supplies from competitors, or Baitworx counterclaim as a result of SB (2003) and ADL supplying retailers in its exclusive distribution area. I will nevertheless set out my essential conclusions.

[118] The first issue, which I must decide, concerns Pendarves claim that Baitworx was in breach of its restraint of trade constraint during the 24 months after 6

November 2008; a constraint which Baitworx contends was never triggered because the contract had merely expired and was never terminated. The second is Baitworx own counterclaim for damages as a result of SB (2003) supplying bait to Top Catch, Tauranga, before 6 November 2008.

[119] The Pendarves companies’ restraint of trade claim against Baitworx hinges on cl 14.1 of the agreement which says this:

The Distributor and the Guarantor agree that the Distributor and Guarantor will not during the term of this Agreement or during a period of 24 calendar months after the termination of this Agreement:

(a) conduct on the Distributor’s or Guarantor’s own account or be concerned or interested in whether directly or indirectly as agent, representative, trustee, servant, employee, shareholder or director of any other person carrying out the business of sale, distribution or promotion of any goods or products similar to the Products whether at wholesale or retail within the Market Area.

[120] The issue, whether the restraint cl 14.1 imposes, during the term of the agreement, continues for 24 months afterwards, depends on whether the word

‘termination’, as it appears in cl 14.1, includes the agreement expiring under cl 10 as well as terminated under cl 11. ‘Termination’ is not defined in cl 14, or in the definition clause, cl 1.1. It must be set against those two material clauses.

[121] Clause 10.1 defines the term of the agreement as the initial term ‘subject to

the provisions for earlier termination and the following right of renewal’. Clause

10.2, which confers the right of renewal, confers on Baitworx the right to renew by

giving prescribed notice ‘prior to the expiration of the initial term’. The new

agreement cl 10.2 speaks of adds that it ‘may (but need not) provide for a further right of renewal at the expiry of its term’. By contrast, cl 11 prescribes the grounds for earlier termination.

[122] The distinction cls 10 and 11 make between expiry and termination is precise and intelligible. If termination in cl 14.1 were construed to merge the two, there is nothing in cl 14.1 itself to justify that shift in language nullifying that distinction. I conclude, therefore, that, ‘termination’ under cl 14.1 is confined to ‘termination’ under cl 11 and that, because the agreement simply expired under cl 10, cl 14.1 never came into play.

[123] I should also add that Baitworx puts in issue whether, if it did come into play, there was ever any sale or disposition during those 24 months which might have offended cl 14.1.

[124] In its first counterclaim Pendarves contends that, between 12 July 2007 – 6

November 2008, its Pendarves supplier, in breach of cl 7.1 and cl 8.2 of the agreement supplied Top Catch, Tauranga, as a result of which it suffered loss.

[125] The evidence is that SB (2003) did supply Top Catch, Tauranga with Southern Bait product and, as the Pendarves companies themselves contend, PPL assigned its interest as supplier to SB (2003) soon after the varying agreement was entered into that year. Whether or not PPL remains liable, SB (2003) must be liable, if it is in breach of either cl 7.1 or cl 8.2.

[126] Baitworx first alleges a breach of cl 7.1, which I have already set out, under which the supplier, SB (2003) for this purpose, undertakes not to:

(a) as a wholesale agent or distributor to retail outlets for products in the territory; or

(b) as an agent or seller at retail end users for products in the Tauranga area.

Clause 7.1, however, only constrains appointments. It does not constrain supplies. Pendarves is not in breach of cl 7.1.

[127] Baitworx claim, I consider, lies rather under the supplier’s warranty given in

The supplier shall not during the continuance in force of this agreement and any renewal of it distribute the Products in the territory or establish retail outlets in the Tauranga area.

Though cl 8.2(c) distinguishes between the territory and the Tauranga area, and only proscribes the supplier distributing products in the territory, cl 1.1, which defines both areas, confirms that ‘the Tauranga Area is part of the Territory’.

[128] Consequently, by supplying Top Catch, Tauranga, between 12 July and the date on which the agreement expired, 6 November 2008, SB (2003) was in breach of cl 8.2(c). In this instance, as in the others, there is no significant issue as to the quantum once a breach is established. Baitworx claims $1,663 net loss of profits and is entitled to judgment in that amount.

[129] The principal claim the Pendarves companies make, which I do not have to resolve, because it arises entirely after 6 November 2008, depends in the first instance on which Pendarves company was Baitworx supplier, PPL or SB (2003). I accept that it was the latter.

[130] Setting that to one side, Pendarves claims that Baitworx obtained supplies from other suppliers in breach of the agreement relying firstly on an analysis of Baitworx financial statements to establish the extent to which it did purchase elsewhere; and that analysis shows that it did so extensively. Nor is the calculation significantly in contest. What is in issue is whether it begins to be probative.

[131] Pendarves contends that these purchases demonstrate that Baitworx was in breach of its obligation under cl 7.2(a), under which it undertook that it would not:

be concerned or interested either directly or indirectly in the manufacture, marketing, sale or distribution of any goods in the Territory which the supplier considers are like or similar to or competitive with the Products or which might otherwise interfere with any sale of any of the Products except for that permitted by cl 6.1(a).

[132] Under cl 6.1(a) Baitworx supplier agreed that it would fulfil Baitworx orders. It would:

Use reasonable commercial endeavours to fulfil with reasonable dispatch orders received from the Distributor but will be under no liability to the Distributor for any delay or failure to make delivery of Products other than a delay or failure caused by a wilful default of the Supplier to comply with the terms of an order accepted by the Supplier. In the event that the Supplier is in default of its obligations under this clause the Distributor may source products from alternative suppliers.

[133] The effect of these two clauses together is that, if Baitworx supplier did not respond to Baitworx orders with ‘reasonable dispatch’, Baitworx was entitled to look to other suppliers, and by way of affirmative defence Baitworx contends that it was entitled to purchase from other suppliers to the extent that it did.

‘reasonable dispatch’ under cl 6.1(a) and that, as a result, in purchasing elsewhere Baitworx must be in breach of cl 7.2(a)? Or is it for Baitworx to establish that Pendarves did not supply in accord with cl 6.1(a) and that, in looking elsewhere, it could not be in breach of cl 7.2(a)?

[135] I conclude, despite the fact that Baitworx has raised this issue by way of affirmative defence, the ultimate persuasive burden to the balance of probabilities lies with Pendarves as claimant. If, however, I am wrong in that I find that Baitworx did adduce sufficient evidence to put in issue whether Pendarves did fulfil its orders ‘with reasonable dispatch’.

[136] The most obvious feature of the significant body of evidence on this issue is that neither the Pendarves companies nor Baitworx are now able to replicate with any precision the extent to which Pendarves did or did not respond with reasonable dispatch to Baitworx orders. Neither retained Baitworx orders against which to

compare the classes of document that have been retained, and then incompletely, Pendarves warehouse pick lists, bills of lading and invoices.

[137] As late as the fixture itself Baitworx attempted to rely on bills of lading and pick lists, obtained from Pendarves, which I ruled could not be accepted in evidence because they came in too late to enable Pendarves a fair opportunity to respond. But their sheer volume indicates the potential breadth of this issue. Just as materially, I also find, the evidence for Pendarves is ultimately unhelpfully abstract.

[138] Mr Powell did give uncontested evidence that Pendarves kept four weeks supply of Southern Bait product in cold storage and that it could be replaced within a week with packaged bait drawn from a three month bulk supply. Baitworx itself had under the agreement, furthermore, a duty to keep sufficient stock to meet all reasonably foreseeable demand, and Mr Hume accepted that at least some of out of stock issues were caused by Baitworx’ failure to order.

[139] Pendarves is also assisted by the evidence of its group accountant, Annette Hayward, who was able to demonstrate by way of a number of examples that at times when Baitworx obtained product from other suppliers, and even when that coincided with an immediate inability by Pendarves to supply, Pendarves had the product in stock or had it within a very short time.

[140] Mrs Hayward also gave evidence that as from late 2009 there was a system in place, under which the Pendarves group notified Baitworx and other customers that the product ordered was not in stock and when it would be back in stock. She also accepted, however, that there was no record in evidence of it ever having been activated or of Baitworx ever having been advised of it.

[141] Crucially, I find ultimately, Pendarves did not call any witness to confirm that, day to day, Pendarves did advise Baitworx when it could supply product, which it could not immediately supply. Surprisingly, it did not call Mr Kampkes, SB (2003)’s general manager, who might have been able to say, let alone any witness at warehouse level.

[142] On the evidence as a whole, therefore, I am unconvinced to the balance of probabilities that Pendarves did comply with its duty under cl 6.1(a) and that in obtaining supplies elsewhere Baitworx can only have been in breach of cl 7.1. At the very least I would have had real difficulty quantifying Pendarves loss if there was one.

[143] In its second, and principal counterclaim, again contingent on the supply and distribution agreement having continued after 6 November 2008, Baitworx contends that it suffered a net loss as a result of Pendarves, in breach of cls 7.1 and 8.2(c), supplying product within Baitworx territory between that date and 23 August 2013, and later, to Top Catch Tauranga, Top Catch Hamilton, The Ice Man, Bidvest and Shellpac Rotorua.

[144] There is no issue that SB (2003) did supply those entities in that period with branded product. Nor is there any as to the order of net profit loss Baitworx would have suffered. I have rejected Mr Powell’s assertion that SB (2003) supplied those entities with Baitworx consent. But for my primary finding that the agreement did not subsist beyond 6 November 2008, Baitworx would be entitled to judgment.

[145] In its third counterclaim, again assuming that the agreement continued after 6

November 2008, Baitworx contends it suffered loss as a result of SB (2003), in breach of the agreement, supplying Southern Bait product to Auckland Distributors Limited, a related company of which Mr Powell was also sole director, which ADL in turn supplied to three BP service stations within the territory.

[146] For this purpose Baitworx invokes the guarantee given by Mr Newlands initially as a director of Southern Bait under cl 12.2, a guarantee now deemed to be given by Mr Powell as sole director of PPL and SB (2003). Clause 12.2 reciprocates the guarantee given by Baitworx directors in cl 12.1. The two must be read together.

[147] Clause 12.1, which sets out the guarantee given by Baitworx directors, says this:

In consideration of the Supplier entering into this agreement the Guarantor guarantees the due and full performance by the Distributor of its obligations under this agreement and undertakes to the Supplier that if the Distributor fails in any material respect to fulfil or is in material breach of any of its obligations the Guarantor will indemnify the Supplier against all losses, damages, costs and expenses which may be incurred by reason of such failure or breach to the intent that in any such case the Guarantor is liable as if the Guarantor were the party principally bound by such obligations.

[148] The guarantee given on behalf of the supplier, whom Baitworx now deems to be Mr Powell, since the July 2003 variation agreement, says this:

The Director(s) of the Supplier reciprocate the Guarantee to the Distributor and clause 12.1 shall be included and read also as if the reference to Supplier is changed to Distributor and vice versa and the reference to Guarantor shall be to the Director(s) of the supplier so that the additional changed reciprocated Guarantee clause benefits the Distributor.

[149] The difficulty that Baitworx faces is that it has not sued Mr Powell as guarantor and, in any event, its claim cannot lie primarily under that guarantee. It must lie against SB (2003), under cl 7.1(a), for appointing an agent or distributor of products within the territory other than itself, assuming the evidence is there. If then the agreement did subsist after 6 November 2008, Baitworx may have a basis for judgment.

(b) After 6 November 2008 the relationship between Pendarves and Baitworx was according to Pendarves standard terms of supply without any special feature.

(c) After the agreement expired on 6 November 2008 Baitworx did not become subject to a restraint of trade because the agreement merely expired and was not terminated.

(d) Before 6 November 2008 SB (2003) supplied the Top Catch outlets within the territory, and two other retail outlets, in breach of the agreement and Baitworx is entitled to $1,663 damages.

[151] As a consequence, I decline the Pendarves companies judgment on their two claims and I give judgment in favour of Baitworx on the first of its counterclaims for

$1,663. Baitworx is entitled to costs in scale 2B and its reasonable disbursements. Baitworx entitlement is to be settled with the Registrar, in the first instance. If there

Hearing:	6 - 8 October 2014
Appearances:	N J Carter for Plaintiffs G G Barnett for Defendants
_Judgment:	_{18 December 2014}

High Court of New Zealand Decisions

Pendarves Packing Limited v Baitworx Limited [2014] NZHC 3327 (18 December 2014)