Bradfields Ltd v Brookwater Investments Ltd

JurisdictionNew Zealand
JudgeGendall J
Judgment Date07 May 2020
Neutral Citation[2020] NZHC 935
CourtHigh Court
Docket NumberCIV-2017-409-000822
Date07 May 2020
Between
Bradfields Limited
First Plaintiff
Matthew Peter Sullivan
Second Plaintiff
Gabrielle Lee Sullivan
Third Plaintiff
and
Brookwater Investments Limited formerly named Bradfield Marketing Limited
First Defendant
Paul William Bradfield
Second Defendant
Malley & Co
Third Defendant

[2020] NZHC 935

Gendall J

CIV-2017-409-000822

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA

ŌTAUTAHI ROHE

Contract, Fair Trading, Law Practitioners, Tort — claim for damages for misrepresentation in the sale of a business — whether the misrepresentation had induced the plaintiff to enter the contract — aiding and abetting a misrepresentation — agreement subject to due diligence — test for implying terms — solicitors' approval clauses — mitigation of loss — appropriate measure of loss — Contract and Commercial Law Act 2017 — Contributory Negligence Act 1947 — Fair Trading Act 1986

Appearances:

B M Russell and MDW King for Plaintiffs

M M Bell and R A Hearn for First and Second Defendants

G N Galloway and W J Hamilton for Third Defendant

JUDGMENT OF Gendall J

This judgment was delivered by me on 7 May 2020 at 3:30 p.m. pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Table of Contents

Introduction

[1]

Background facts

[11]

– History of the business

[11]

– Mr Bradfield's experience with regulatory compliance issues

[13]

– Marketing of the business in 2014

[18]

– The Information Memorandum

[20]

– Retainer of Malleys

[22]

– Concluding the business Purchase Agreement

[25]

– Due diligence phase

[27]

– Meeting on 21 November 2014

[29]

– The client sales tour

[30]

– Product files held by business

[31]

– Settlement of the business purchase

[32]

– Plaintiffs made aware pet care products were non-compliant with regulations

[34]

– Response of BL

[39]

– The registration position

[47]

Plaintiff's claims

[52]

General credibility and memory issues

[61]

First issue — Has Brookwater breached the express warranty in cl 6.1 of the Purchase Agreement? (First cause of action)

[70]

Second issue — Is there an implied term in the Purchase Agreement that the pet care products sold as part of the business were legally able to be manufactured and sold? (First cause of action)

[106]

Third issue — Did Brookwater make the pleaded representations and did they induce the plaintiffs to enter into the Purchase Agreement in terms of s 35 of the Contract and Commercial Law Act 2017 (CCLA)?

[119]

Fourth issue — Fair Trading Act 1986 — Have Brookwater and Mr Bradfield engaged in misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986 ( FTA)?

[139]

– Contributory negligence

[158]

Fifth issue — Has Mr Bradfield aided and abetted a breach of s 9 of the Fair Trading Act?

[171]

Sixth issue — Have Malleys breached their duty to exercise reasonable skill and care when providing the plaintiffs with legal services?

[174]

– Contributory negligence

[203]

Seventh issue — Mitigation of loss

[222]

– Principles to be applied

[226]

– Conclusion on mitigation

[239]

Damages

[240]

– What is quantum of the loss?

[240]

– Diminution in value loss

[248]

– Wasted costs

[262]

• Lease costs

[263]

• Additional staff costs

[274]

• Marketing costs

[277]

• “Clipsell” cards

[279]

• Computer costs

[280]

• Experts' fees

[282]

• Coghlan's storage fees

[285]

• Malleys' finance fees

[286]

– General damages

[289]

– Adjustment for mitigation and contributory negligence

[292]

– Allocation of responsibility between defendants

[296]

– Interest

[301]

Result

[302]

Costs

[305]

Introduction
1

The plaintiffs' group, through their company, the first plaintiff, Bradfields Limited (BL), purchased a business which involved the manufacture and sale in New Zealand and Australia of natural pet care products and air freshener products from the first defendant, Brookwater Investments Limited (Brookwater). The pet care products which comprised approximately 45 per cent of the business were sold to pet care retailers in New Zealand and Australia. The separate arm of the business involving the sale of air fresheners to retailers such as service stations and the like comprised the remaining 55 per cent of the business.

2

The total sale price for the business and its assets under the Agreement for Sale and Purchase between the parties entered into on 29 September 2014 (the Purchase Agreement) was $400,000. Settlement of the sale occurred in December 2014.

3

BL, together with its directors the second plaintiff, Matthew Sullivan (Mr Sullivan), and the third plaintiff, Gabrielle Sullivan (Mrs Sullivan), say it was a condition of the contract for the sale of the business and represented to them throughout that the pet care products were being sold legally in New Zealand and Australia and did not require registration under applicable regulations in those countries.

4

In April 2016 BL received notice from an Australian regulator, Australia Pesticides and Veterinary Medicines Authority (APVMA) that most of the pet care products were required to be registered with it under the relevant regulatory regime before they could be legally sold in that country. APVMA as the relevant authority in Australia then required BL to withdraw these pet care products from the market. Similarly, around this time the plaintiffs were told by equivalent New Zealand regulatory authorities that some of their pet care products also required registration in New Zealand.

5

BL withdrew all the pet care products from sale in Australia and New Zealand. With the minor exception of only three products in New Zealand, none of the pet care products have since been reintroduced into Australia or New Zealand. BL and the Sullivans contend in this proceeding they suffered a significant loss as a result and sue to recover damages for that loss.

6

On 9 October 2014 Mr Sullivan and Mrs Sullivan retained the third defendant solicitors, Malley & Co (Malleys), to act on their behalf and on behalf of BL to be incorporated to represent them and to advise on the business purchase. This included to provide advice on the conditions included in the business purchase contract, first, as to solicitors' approval and, secondly, as to general due diligence.

7

BL and the Sullivans claim against Brookwater in contract and misrepresentation and against Brookwater and Mr Bradfield under the Fair Trading Act 1985 ( FTA). They also bring a claim against Malleys in contract and negligence.

8

The plaintiffs contend that Malleys are also liable for the loss they have suffered here through failing to advise them adequately in terms of, first, the solicitors' approval clause and, secondly, as to exercising their right to carry out due diligence under the Purchase Agreement.

9

The plaintiffs seek in this proceeding, first, the cost of registering the products in Australia and New Zealand which is estimated at nearly $11 million or, alternatively, losses allegedly suffered as a result of the pet care products not being registered, being an amount totalling around $500,000.

10

Brookwater and Mr Bradfield, on the one hand, and Malleys, on the other, oppose all the claims against them.

Background facts
History of the business
11

Mr Bradfield established and operated the business for some years having developed it from scratch. It was established and operated throughout under his name “Bradfields”. His counsel, Mr Bell, before me described the business as Mr Bradfield's “baby”. He had built it from scratch and been intimately involved in its development and in every aspect of the business for many years. Clearly, he was very proud of “his Bradfields” business.

12

The pet care product arm of the business which I refer to at [1] above had been built up over the preceding few years. It involved the manufacture and sale of about 15 pet care products which were:

  • (a) “Neem” Soap

  • (b) “Don't Bite My Ears”

  • (c) “Fragrance My Pet”

  • (d) “4 in 1”

  • (e) “Pet Calmer”

  • (f) “Gentle Ear Cleaner”

  • (g) “Glyco Omega Plus”

  • (h) “Anti-Itch Spray”

  • (i) “Dog Shampoo — Regular”

  • (j) “Dog Shampoo — Citrus”

  • (k) “Omega 3, 6, 9 Flax Seed Oil”

  • (l) “Sore Paw Balm”

  • (m) “Odour Neutraliser”

  • (n) “Flea and Tick Spray”

  • (o) Hygiene House Odour Neutraliser”

Mr Bradfield's experience with regulatory compliance issues
13

Over the years of the business' operation it is clear too that Mr Bradfield had regular involvement with regulatory compliance issues, in particular, for the pet care products in New Zealand and Australia. A number of examples that follow illustrate aspects of this.

14

Going back some years, in the evidence before me, it was established that on 5 February 2009 Mr Bradfield had printed off the glossary of common terms section of the Agricultural Compounds and Veterinary Medicines Standard for Prescription Animal Remedy Veterinary Medicines published on the New Zealand Food Safety Authority website. The glossary contained, among other terms, “Agricultural Compound” and its definition in terms of the New Zealand legislation. He also printed off the APVMA “Requirements and Guidelines for Veterinary Herbal Remedies” dated March 2009. He made some annotations on that document, including a statement that his products “do not meet (the definition of “Veterinary Chemical Product” (VCP))”.

15

In April 2009 Mr Bradfield was advised (in relation to a product he says he did not proceed with attempting to register) that the cost of registration of VCPs could be “substantial” in terms of “toxicological, safety, and ecotoxicology reviews”.

16

Later, in 2011 Mr Bradfield...

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