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Bradfields Limited v Brookwater Investments Limited formerly named Bradfield Marketing Limited [2019] NZHC 1609 (10 July 2019)

Last Updated: 24 July 2019

JUDGMENT OF NATION J

[1] These proceedings are due to go to trial for two weeks on 29 July 2019. The plaintiffs have challenged the admissibility of certain evidence included in briefs provided for the first and second defendants. The contested evidence will also be relied on by the third defendant.

BRADFIELDS LTD v BROOKWATER INVESTMENTS LTD [2019] NZHC 1609 [10 July 2019]

[2] The proceedings arise out of the first plaintiff’s purchase of a business, Bradfields, from the first and second defendants. The business involved the sale of pet care products in New Zealand and Australia. The plaintiffs say it was a condition of the contract of sale and purchase and represented to them that products then being sold were being sold legally in those countries and did not require registration under applicable regulations. They contend that, contrary to those obligations, the products did have to be registered. They were required by the relevant authorities to withdraw them from the market and they did so. They contend they suffered a significant loss as a result and sue to recover damages for that loss. They claim the third defendant solicitors are also liable for that loss through failing to advise them adequately in terms of exercising their right to carry out due diligence under the contract.

[3] In a statement of defence to an amended statement of claim dated 5 June 2018 the first and second defendants pleaded by way of affirmative defence that the plaintiffs had failed to mitigate their loss in:

(a) ceasing manufacture and supply of all products which did not need registration;

(b) where, if registration was required, averting or rectifying the need for registration by making changes to the products’ composition and/or advertising in ways that it was claimed would have no impact on the marketability or profitability of the products or of the business; and

(c) not challenging the stances taken by the relevant authorities in Australia and New Zealand regarding registration of the products.

[4] In its statement of defence to the amended statement of claim, the third defendant also pleaded, by way of affirmative defence, an alleged failure to mitigate loss.

[5] In response to that pleaded affirmative defence, on 19 June 2019 the plaintiffs pleaded:

(a) they were advised by the defendants the products could be sold without requiring any change;
(b) they did challenge the decision of the Australian authority as to their requirement for registration; and

(c) there was no reason to dispute the advice they had received from the New Zealand authority.

[6] In a second amended statement of defence of 20 December 2018, the defendants referred specifically to 15 pet care products which were sold with the business. They pleaded eight products were exempt from registration. They pleaded one was not exempt from registration but pleaded that fact was made known to the plaintiffs before they confirmed the sale and purchase agreement. They pleaded six other products required registration at the time of sale solely by virtue of wording on the products’ label and advertising, and would be exempt from registration if certain particularised changes were made to the labelling and advertising.

[7] In a statement of defence to that second amended statement of defence, the plaintiffs maintained the pleas they had made in their earlier reply but also pleaded:

(d) minor changes to the products’ composition and/or advertising would not have avoided the need for registration;

(e) they denied such changes would have had no impact on the marketability or profitability of the products or the business; and

(f) in the event that minor changes to the products’ composition and/or advertising could have avoided the need for registration, they denied they were reasonably obliged to make those changes to mitigate their loss.

[8] In a minute of 31 July 2018, Associate Judge Osborne (as he then was) had directed:

(a) the plaintiffs were to serve their briefs of evidence by 1 March 2019;

(b) the defendants were to serve their briefs of evidence by 3 May 2019; and

(c) the plaintiffs were to serve any reply briefs by 31 May 2019.
[9] There was slight slippage with compliance with that timetable but briefs of evidence for the defendants were served on 6 May 2018. The briefs included those from Margaret Alice Lucille Langan, Mark Edward Littler and Christopher Paul Henderson. It is the admissibility of their amended briefs which is now at issue.

[10] These witnesses had been engaged by the Bradfields business when it was owned by the first and second defendants and by the plaintiffs to sell the pet care products to retailers in Australia. In their initial briefs, each of these witnesses spoke of their general experience in selling the relevant pet care products to retailers. Each expressed an opinion that the need to register products could be avoided by rebranding. Each suggested that alterations to the labelling or advertising would have been unlikely to have affected sales.

[11] The defendants also served a reply brief from Dr Lloyd Reeve-Johnson. He is a highly qualified veterinary surgeon with a Phd in veterinary/agricultural economics. He has experience of working as a veterinary surgeon in a variety of clinical practices. He had experience of submitting 51 new product regulatory submissions on behalf of companies for review by the Australian authority. In his evidence he assessed whether each of the pet care products required registration in Australia and/or New Zealand. He spoke of the options open to manufacturers of products which were potentially liable for registration and of how registration could be avoided if changes were made to the products’ labelling, advertising material and/or composition. He said in his brief:

It is difficult to estimate the impact on sales by the required changes given the number of variables in marketing strategies and options of product placement. However, I believe that it is likely that the commercial viability for only two of the products considered in this report would be significantly negatively impacted. The impact on the others is likely to be far less substantial or even negligible.

[12] Dr Reeve-Johnson gave more detailed evidence as to the options available to a manufacturer facing potential issues regarding the need to register pet care products. He gave his opinion as to how the potential for sale and for sales growth might be affected by changes in labelling claims or ingredients and of how those factors might be weighed in the balance with the particular pet care productions that are at issue in this case
[13] On 22 May 2019, the solicitors for the plaintiffs wrote to the solicitors for the defendants objecting to the inclusion of opinion evidence in the briefs of the three witnesses on the basis they had not qualified themselves as expert witnesses as to both the requirements for registration in Australia and the impact on sales of amending the labelling.

[14] The plaintiffs served their reply briefs on 6 June 2019.

[15] In his reply brief the second plaintiff, Matthew Sullivan, responds to a suggestion in Mr Bradfield’s evidence that:

(a) customers do not read or rely on product brochures; and

(b) the information on the label was almost irrelevant in terms of its effect on selling a product.

[16] In his response, Mr Sullivan expresses the view that Mr Bradfield’s views were not accurate and said:

16. ... My view is that the end customers and retailers bought the Bradfields products due to the fact that they were natural products and also, and importantly, because of the claims and characteristics of the products which made them unique in the marketplace. This information is contained on the labelling of the products and the product brochure.

[17] There is a section in Mr Sullivan’s reply evidence under the heading “why didn’t we change the pet care labels and remove any registrable claims in order to mitigate losses”. Mr Sullivan says that, when they took expert advice, they were told of the possibility of amending the labelling and marketing material with respect to some of the products. Mr Sullivan expresses the view that:

59. The changes proposed would create new products which were different from the ones we purchased with the business.

60. Many of the changes proposed by Mr Bradfield or Dr Reeve-Johnson would change the particular products to a generic natural product with no special features or claims. The special features and claims on the product labelling and advertising were fundamental to the products that we purchased when we purchased the business.

61. We purchased the Bradfields brand name for its reputation as a quality product that was well received by retailers and their clients in a

competitive market. The pet care products were marketed as premium products and attracted a premium price. We did not want to replace them with generic products.

[18] In another portion of his evidence, Mr Sullivan says:

67. Mr Bradfield and Dr Johnson’s suggestions also assumes retailers would be willing to stock amended products at a lower price point. I am not convinced they would. Competition for shelf space at retailers that Bradfields previously sold to is high. Mr Bradfield and Dr Reeve- Johnson seem to suggest that retailers would simply accept amended products with open arms. With all due respect, for the reasons outlined above, I do not agree.

[19] The plaintiffs’ solicitors also served a reply brief of Michael Tichon. He is a regulatory consultant of New South Wales. In his reply he provides what I understand to be accepted expert evidence as to various issues regarding whether registration of certain products was required in Australia. He also responds to suggestions from the defendants that the plaintiffs had not been justified in withdrawing their products from the market. In doing that, he comments on particular risks the business-owners would face generally in making products available to the market while label changes were being made and of the potential impact on sales if changes were to be made for a new or amended product.

[20] There was another reply brief from Dr Ruth Davis. She provides further evidence as to the need for registration of various products but also responds to the suggestion that non-compliance issues could be addressed by labelling changes or changes in marketing material. She refers to the Sullivans’ view that the changes suggested by the defendants were not viable because the changes would significantly change the position of the products, their points of differentiation to the competitors and would likely decrease their commercial value. She is of the opinion the Sullivans’ view was reasonable in the circumstances. She refers to certain matters in support of that view.

[21] The amended briefs of evidence of the three witnesses for the defendants were dated the same day as the originals, 6 May 2019, but were actually served on 14 June 2019.
[22] The primary change in the amended briefs from the three witnesses referred to earlier is to include information by which they each seek to qualify themselves as experts able to express an opinion as to the pet care market in Australia. They also each agreed to comply with Schedule 4 of the High Court Rules. They also included with their evidence a schedule of the changes which they understood may have been needed to be made to the products’ labelling and advertising to avoid the need for registration. They were not in their evidence purporting to say that such changes were necessary. There is no dispute that the schedule was based on information and advice from another witness for the defendants who was suitably qualified to give that evidence, the veterinary surgeon, Dr Reeve-Johnson. The witnesses Langan, Littler and Henderson said in their amended briefs that, in their opinion, making the changes set out in the schedule would be unlikely to affect the marketability of the relevant products in Australia.

[23] On 25 June 2019, counsel for the plaintiffs filed a memorandum seeking a pre- trial conference and ruling as to admissibility of evidence in the supplementary briefs of evidence served on behalf of the first and second defendants.

[24] All that provides the context in which I must make a ruling as to the admissibility of the disputed evidence.

Legal principles

[25] The challenged briefs are supplementary briefs. Rule 9.8 of the High Court Rules provides:

9.8 Supplementary briefs

(1) A party wishing to offer a supplementary brief must serve it as soon as possible.

(2) The acceptance and use of the supplementary brief in court will be at the discretion of the trial Judge.

[26] As Heath J stated in Western Park Village Ltd v Baho, this rule gives the Court a wide discretion for which the “touchstone will be the interests of justice”.¹

¹ Western Park Village Ltd v Baho [2013] NZHC 1909 at [12].

[27] Toogood J stated in Total Air Supply Co Ltd v Total Air Supply Company (2007) Ltd, in relation to a prior version of the rule, leave should be determined:²

... by considering the overall justice of the case, weighing the prejudice which would be suffered by the plaintiff if leave was refused, against such prejudice as might occur to the other parties if the plaintiff was permitted to adduce it.

[28] Relevantly, the Evidence Act 2006 provides:

23. Opinion rule

A statement of an opinion is not admissible in a proceeding, except as provided by section 24 or 25.

24. General admissibility of opinions

A witness may state an opinion in evidence in a proceeding if that opinion is necessary to enable the witness to communicate, or the fact-finder to understand, what the witness saw, heard, or otherwise perceived.

25. Admissibility of expert opinion evidence

(1) An opinion by an expert that is part of expert evidence offered in a proceeding is admissible if the fact-finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.

(2) An opinion by an expert is not inadmissible simply because it is about—

(a) an ultimate issue to be determined in a proceeding; or

(b) a matter of common knowledge.

...

[29] As to s 23, the authors of Cross on Evidence say:³

In most cases, the distinction between fact and opinion is clear, in that a statement of fact is a statement about what the witness did, saw, heard, smelt, tasted or felt (whether in the sense of touch or an emotion). And typically, any inference that may arise from this evidence is for the fact-finder rather than the witness. But the distinction is not always clear.

2. Total Air Supply Co Ltd v Total Air Supply Co (2007) Ltd HC Auckland CIV-2008-404-7627, 25 May 2011 at [60].

³ Matthew Downs (ed) Cross on Evidence (online ed, LexisNexis) at [EVA23.2].

[30] The authors refer to Taiatini v R.⁴ There, the mother of the complainant described how her daughter behaved in light of an undiagnosed intellectual difficulty, including how her daughter appeared to function intellectually. The Court of Appeal held the mother’s observations were just that, observations as to matters of fact rather than opinion evidence.

[31] An expert, as referred to in s 26, means a person who has specialised knowledge or skill based on training, study or experience. Expert evidence means the evidence of an expert based on the specialised knowledge or skill of that expert and includes evidence given in the form of an opinion.⁵

[32] In Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd, the Court noted that, where the witness qualifies as an expert and his evidence is based on the knowledge or skill which qualifies him as an expert, his opinion will be admissible if the trial Judge is likely to obtain substantial help from the opinion.⁶ The Court said:

• [93] As noted, it was not in dispute that Mr Keys is an expert, meaning that he has specialised knowledge or skill based on training, study or experience, and his evidence was based on that knowledge or skill.⁷ That being so, his opinion was admissible if the trial Judge was:⁸

... likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceedings.

[94] Substantial helpfulness is an amalgam of relevance, reliability and probative value.⁹ The assessment is ultimately that of the trial judge, not the parties; a court need not accept the opinion of an expert even where it is uncontradicted.¹⁰ Under s 25 the trial Judge serves as a gatekeeper. That role is necessary, even where the judge is the trier of fact, because of the discipline that it brings to the admission and evaluation of expert evidence. Experts are permitted to offer opinions because they possess an advantage over the fact- finder that assists it to understand something of consequence to the case. But there are risks associated with it, and there are examples where expert

⁴ Taiatini v R [2013] NZCA 593.

⁵ Evidence Act 2006, s 4.

6. Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750.

⁷ Evidence Act 2006, s 4(1) definitions of “expert” and “expert evidence”.

⁸ Evidence Act 2006, s 25(1).

9. Mahomed v R [2010] NZCA 419 at [35]. The “amalgam” test was endorsed in Pora v R [2015] UKPC 9, (2015) 27 CRNZ 47 at [41].
10. Davie v Edinburgh Magistrates 1953 SC 34, (1953) SLT 54 (IH (1 Div)); and Van Mil v Fence Crete Ltd HC Auckland CP128/95, 1 February 1996 at 7.

evidence has led to miscarriages of justice.¹¹ Hence the need for processes that allow trial judges to evaluate expert evidence for admissibility and weight.

[95] The gatekeeping function need not be performed before the evidence is given, although it commonly is where the trier of fact is a jury.¹² As with any other evidence, the Court may choose to admit an expert’s evidence provisionally under s 14, reserving admissibility for later decision once the evidence has been heard.¹³ Subject to fair trial considerations, there can be no objection to a court concluding at that stage that expert evidence was inadmissible.

(Footnotes original)

[33] The Court of Appeal noted “trial judges enjoy substantial leeway in the exercise of their s 26 discretion to admit non-compliant evidence”, that is, evidence that does not comply with r 9.43 and the code of conduct set out in Schedule 4 to the Rules. The Court pointed out compliance with the code of conduct for expert witnesses allows the opposing party and the Court to evaluate the experts’ expertise and opinion, initially for admissibility and ultimately for weight.

Analysis

[34] The further briefs of the three witnesses were served outside the required time- frame as set out in timetabling directions made earlier by the Associate Judge. Timetabling directions must be respected. Where they are not, the party in breach should recognise that, in wishing to put the further evidence before the Court, they are seeking an indulgence first from the other party and ultimately from the Court. That should have been recognised in the circumstances of this case through the defendants applying for leave to serve the further supplementary evidence. Mr Hearn, for the defendants, responsibly apologised to the Court for not doing so.

[35] With the parties able to make full submissions as to admissibility at the hearing before me, matters have actually proceeded as if an application for leave had been filed. The admissibility of the amended briefs is to be determined in accordance with the interests of justice.

11. Tristram Hodgkinson and Mark James Expert Evidence: Law and Practice (4^th ed, Sweet & Maxwell, London) at 74.

¹² See for example Mahomed v R, above n 9.

¹³ See R v Bain [2009] NZSC 16, [2010] 1 NZLR 1 at [46].

[36] Mr Russell for the plaintiffs acknowledged that, had this further evidence not been provided in the amended briefs, the defendants would, in all likelihood, have been able to lead the further evidence at trial. In providing the supplementary evidence by way of the amended briefs on 14 June 2019, the defendants ensured there would be some, albeit limited, time available to the plaintiffs to decide if and how they would respond to the additional evidence. They were also meeting the obligation they had under r 9.8 to serve the supplementary briefs as soon as possible.

[37] Admission of the amended briefs would qualify the three defendants to give opinion evidence based on their experience. That evidence is likely to be relevant and could well be of probative value to an affirmative defence all three defendants’ are advancing, namely the plaintiffs’ alleged failure to mitigate their loss.

[38] I asked counsel for the plaintiffs, Mr Russell, if the plaintiffs would want further time to deal with this additional evidence and thus if the Court needed to consider whether there should be an adjournment of the proceedings to allow the plaintiffs more time to avoid the prejudice of having to respond to the amended briefs.

[39] Mr Russell said it was not a situation where the plaintiffs would definitely wish to call further evidence in response. He said it was unlikely the plaintiffs would want to see an adjournment of the proceedings, given the time it has already taken to bring the matter on for trial. He submitted there would be prejudice in that, through admission of the evidence, they would now have to consider whether they did wish to call further evidence. He said, if the plaintiffs did choose to call further evidence, they would be forced to obtain that evidence at a time when they and their advisors were under the intense pressure of preparation close to the trial date. He indicated the plaintiffs might well deal with the opinion evidence by seeking to persuade the trial Judge that little weight should be attached to the opinion evidence of the three witnesses.

[40] Given the evidence as referred to above and given the pleadings, I consider the plaintiffs are unlikely to choose to adduce further evidence in response to the opinion evidence included in the amended briefs from the three witnesses, and they are unlikely to suffer significant prejudice in choosing not to do so.
[41] The plaintiffs have been on notice since the first and second defendants filed their amended statement of defence on 5 June 2018 and pleaded failure to mitigate as an affirmative defence that the defendants’ claim varying the labels etc would have been an economically viable way of dealing with any registration problems for the pet care products. The defendants’ assertions as to that were further highlighted through the evidence as briefed for the defendants from Mr Bradfield and Dr Reeve-Johnson. The plaintiffs could have adduced evidence in reply from witnesses with special experience in the marketing of pet care products in either Australia or New Zealand. They chose not to do so and instead relied on the evidence of Mr Matthew Sullivan as to the plaintiffs’ reasons for responding as they did, and evidence from Mr Tichon and Dr Ruth Davis as to the reasonableness of that response.

[42] The witnesses have made it clear in their amended briefs that they do not claim to be experts in terms of what products do require registration or how the description or claims for particular products have to be changed to meet the requirements of the regulatory authorities in Australia and New Zealand. Evidence as to those matters has been given by appropriately qualified experts for both the plaintiffs and the defendants. Reference in the amended briefs to the witnesses having a belief or understanding as to such matters is thus unlikely to cause any prejudice in that regard to the plaintiffs.

[43] The defendants’ amended briefs do provide evidence as to whether changes in the labelling and advertising of the products would affect the profitability of those items. In some respects, the evidence is not clearly to be classified as opinion evidence. They are, first of all, giving evidence as to the saleability of the relevant products through their experience in wholesaling those products in Western Australia, New South Wales and Queensland when no claim was made, on the packaging or otherwise, that the products had been approved for sale by the relevant Australian authority. To the extent they express a conclusion as to whether the quantity of sales or profit margin were affected by a change in the way products are labelled, based on their actual observations and experience in selling products to retailers, their evidence would be, as in Taiatini v R, observations as to matters of fact rather than opinion.¹⁴

¹⁴ Taiatini v R, above n 4.

[44] If they had no such experience of products being sold after changes to labelling or composition, then their evidence would more likely be both opinion and speculative. The basis for their opinions and conclusions will no doubt be scrutinised carefully at trial. For that reason, issues as to the admissibility of potentially opinion evidence should more appropriately be left for determination by the trial Judge after the evidence has been fully tested at trial.

[45] On the evidence available to me through the amended briefs, I accept, at least provisionally, that the three witnesses are entitled to express an opinion as experts. They have, what appears to be, relevant experience in the marketing of pet care products in Australia. They have particular knowledge based on their experience of selling pet care products that were manufactured and sold in the course of the business the plaintiffs purchased. They had experience of doing that both before and after the sale of the business to the plaintiffs. In terms of the definition of expert, they thus had specialised knowledge based on experience.

[46] Margaret Langan had been a sales agent in the pet care industry for approximately 21 years with five years’ experience of selling Bradfields’ products. Mark Littler had worked in the pet care industry from 2004 until the present, had run his own business selling pet care products since 2011 and has experience in selling pet care products to retailers. Christopher Henderson started working in the pet industry in 2009, with two years’ experience initially employed in selling a particular product and from then on working on a free-lance purely commission-based basis with Bradfields, one of the first companies he worked for.

[47] Each of these witnesses primary experience has been in the marketing of pet care products wholesale to retailers. This may well affect the weight to be given to their evidence, including any opinion evidence as to what the likely response of retail customers would be to any change in the way the pet care products might be labelled or advertised. I assess however that it is likely to be of substantial help to the trial Judge. That evidence will provide the Judge with evidence as to the market demand for pet care products marketed in a particular way, as reflected in the demand from retail businesses for the products which these witnesses had experience in selling.
[48] The assessment of substantial helpfulness in the expert evidence context requires a consideration of the relevance, probative value and reliability of the evidence. The assessment is fact-intensive. In the context of this case, that is again good reason for the ultimate issue as to the admissibility of any evidence as expert evidence to be determined by the trial Judge when each witness’s evidence, both as to his or her expertise and the conclusions they have reached, has been fully tested through cross-examination and consideration of opposing evidence.

[49] The ultimate admission of the amended briefs is to be considered by reference to r 9.8 on the basis they are supplementary briefs. In terms of r 9.8(2), the acceptance and use of the supplementary brief in court is to be at the discretion of the trial Judge.

[50] I dealt with the issues raised as to admissibility because the plaintiffs wished that issue determined without delay. As matters now stand, I may well not be the trial Judge. Even if I was to be the trial Judge, I would still have held that issues as to the admissibility of the contested evidence should be left for determination at the conclusion of the trial, rather than the outset.

[51] For all the above reasons, I decline to rule inadmissible the contested amended briefs of evidence of the three witnesses at this stage.

[52] I note also that, in his submissions for the defendants, Mr Hearn raised an issue as to the admissibility of opinion evidence from Mr Matthew Sullivan as to the economic viability of changing the way the pet care products might be marketed on the basis that he had not qualified himself as an expert. Mr Hearn however accepted that the evidence would be admissible insofar as it was evidence as to the plaintiffs’ reasons for withdrawing the products from the market. Counsel did not seek any particular rulings from me at this stage as to that evidence. It will be for the trial Judge to determine how that evidence is ultimately brought into account.

[53] In counsel’s memorandum seeking a pre-trial conference to deal with admissibility issues, there was reference to certain other objections to aspects of the evidence given by the three witnesses in their initial briefs of evidence. There was an objection to the inclusion of allegedly hearsay evidence. There was also an objection
to another witness giving evidence allegedly in breach of a confidentiality agreement with the plaintiffs. I was not asked to rule on those objections. Counsel were agreed that, to the extent, if at all, such issues remain, they can appropriately be left for the trial Judge to determine at the end of the trial.

[54] By minute, I have dealt with other issues on which there was a considerable measure of agreement.

Costs

[55] The plaintiffs have been unsuccessful in their objections to the evidence at this stage. The defendants however served the relevant evidence without regard to the timetabling directions and without recognising that acceptance and use of the supplementary briefs in Court would be at the discretion of the trial Judge. With the trial now close, it is appropriate that costs in respect of the issues dealt with in this judgment be reserved.

Solicitors:

Lane Neave, Christchurch Corcoran French, Christchurch Chapman Tripp, Christchurch.