Diver v Loktronic Industries Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeEllen France J
Judgment Date04 April 2012
Neutral Citation[2012] NZCA 131
Date04 April 2012
Docket NumberCA258/2011 CA260/2011

[2012] NZCA 131

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Arnold, Ellen France and Stevens JJ

CA258/2011

CA259/2011

CA260/2011

Between
Stephen John Diver
Appellant
and
Loktronic Industries Limited
First Respondent

and

Sdr Limited
Second Respondent

and

Roy Bowyer
Third Respondent

and

Trimec Technology Pty Limited
Fourth Respondent

and

Neil Richard Hingston
Fifth Respondent

and

Neil Hingston Engineering Limited
Sixth Respondent

and

Assa Abloy New Zealand Limited
Seventh Respondent
And Between
Neil Richard Hingston
First Appellant

and

Neil Hingston Engineering Limited
Second Appellant
and
Loktronic Industries Limited
Respondent
And Between
Roy Bowyer
First Appellant

and

Trimec Technology Pty Limited
Second Appellant

and

Assa Abloy New Zealand Limited
Third Appellant
and
Loktronic Industries Limited
First Respondent

and

Stephen John Diver
Second Respondent

and

SDR Limited
Third Respondent

and

Neil Richard Hingston
Fourth Respondent

and

Neil Hingston Engineering Limited
Fifth Respondent
Counsel:

M H L Morrison and K D Puddle for Mr Diver

S A Grant and K J Dawson for Loktronic Industries Ltd

P L Rice and B P Molloy for Mr Hingston

Z G Kennedy and P D M Johns for Mr Bowyer, Trimec Technology Pty Ltd and Assa Abloy New Zealand Ltd

Appeals from a High Court decision that the appellants were liable for inducing a breach of contract, interference in business by unlawful means, and conspiracy to interfere with a contract by unlawful means — first respondent supplied electronic drop bolts which were manufactured by fifth respondent under oral agreement — first respondent distributed products of fourth respondent under oral agreement — fourth and fifth respondents made new manufacturing and distribution agreements and ended relationship with first respondent — whether appellant had caused loss to first respondent — elements of the torts.

Held: To establish the tort of inducing a breach of contract, it had to be shown that:

  • • an enforceable contract was in existence;

  • • there was conduct which induced a breach; and

  • • there was knowledge the conduct would induce the breach and damage.

Liability for inducing breach of contract required the defendant to actually realise they were inducing a breach of contract. It was not sufficient to know that the act was being procured. Nor was it sufficient that the defendant ought reasonably to have realised that a breach would result. The required state of knowledge involved a suspicion of sufficient strength that a contract existed and a deliberate choice not to make inquiries. The fact that the existence of a contract should have been obvious was not sufficient as that was negligence. A subjective, rather an objective, inquiry was required. This approach accorded with the fact that this was an intentional tort.

The HC's approach had been to focus on a “means of knowledge approach”, namely that the party had the means of knowledge but deliberately disregarded them or was indifferent or reckless. In a situation involving oral contracts that the defendants denied existed, there was a risk that the focus would be shifted from an inquiry into a subjective state of mind to an objective one. The impact of an oral contract was a factual one that was part of the matrix when considering the appellant's state of mind, as to whether there was a genuine belief as to the existence (or non-existence) of the contract.

Shut-eye knowledge could apply to the present case. H ran NHEL, and the evidence supported H's belief that he had an order by order arrangement with Loktronic and that his belief was genuine. The finding that H was indifferent to whether NHEL had any contractual obligations to Loktronic could not be sustained, H did not have the requisite knowledge. The finding of tortious liability against H could not be established.

D was on the board of Trimec and had made inquiries into whether there was contract between Loktronic and NHEL through H. D had made inquiries of the person who should have known and it was reasonable for him to have accepted H's response. Liability for D had not been established.

B as a director of Trimec knew that NHEL or H manufactured products for Loktronic but had sought assurances from H as to the arrangement with Loktronic. There was no basis to believe that B had not believed H's assurances. Insistence on an indemnity was not necessarily an indication of acceptance of a risk or of a deliberate choice not to make inquiries. Trimec and Assa's liability was based on the knowledge of its directors. The claim against it fell away based on the conclusions relating to B and D.

The basis for B and Assa's liability regarding inducing a breach of the distribution contract had not been established. It had not directly been put to B whether he knew there was a contract.

The essence of the tort of interference in business by unlawful means was:

a) a wrongful interference with the actions of a third party in which the claimant had an economic interest; and a

b) an intention to cause the claimant loss.

A deliberately misleading statement made to H by Trimec regarding its arrangement with Loktronic and that Loktronic was looking at overseas suppliers of the product would, if actionable, constitute an unlawful means. However, there was no evidence that B or D had not believed the statements were true. The appeals against the finding of interference in business by unlawful means and conspiracy to interfere with the manufacturing by unlawful means succeeded.

Appeal allowed. The judgment in favour of Loktronic in the sum of $1,420,721 was set aside.

JUDGMENT OF THE COURT

A The appeals by Stephen Diver (CA258/2011), by Neil Hingston (CA259/2011) and by Roy Bowyer, Trimec Technology Pty Limited and Assa Abloy New Zealand Limited (CA260/2011) against the findings of liability for the various torts are allowed. The judgment in favour of Loktronic Industries Limited in the sum of $1,420,721 plus interest is set aside.

B Neil Hingston Engineeering Limited's appeal, (CA259/2011), against the finding that the manufacturing contract was exclusive, having been abandoned, is dismissed.

C The cross-appeal is dismissed.

D Loktronic Industries Limited must pay Stephen Diver, Neil Hingston, Roy Bowyer, Trimec Technology Pty Limited and Assa Abloy New Zealand Limited costs on a band A basis for a complex appeal. We certify for second counsel.

E Costs in relation to the appeal by Neil Hingston Engineering Limited lie where they fall.

REASONS OF THE COURT

(Given by Ellen France J)

Table of Contents

Para No

The appeals

[1]

Factual background to the intentional torts

[9]

The High Court decision

[20]

Inducing breaches of contract

[23]

Interference by unlawful means

[25]

The issues on appeal

[28]

Inducing breach of the manufacturing contract (Loktronic and NHEL)

[29]

The test for knowledge and intention

[33]

Drawing the threads together

[47]

Mr Hingston

[51]

Mr Diver

[66]

Mr Bowyer and Trimec

[78]

Assa Abloy NZ Limited (AANZL)

[88]

Inducing breach of the distribution contract between Loktronic and Trimec

[93]

Mr Bowyer

[95]

AANZL

[99]

Interference in business by unlawful means

[100]

Misrepresentations

[106]

Inducing breach of the effeff contract

[127]

Conspiracy to interfere with the manufacturing contract by unlawful means

[132]

Other matters

[133]

Disposition

[135]

The appeals
1

For a number of years prior to 2002, Loktronic Industries Ltd (Loktronic), ran a profitable business supplying electronic products to the domestic and export market. Loktronic's most profitable product was an electronic drop bolt. A company called Neil Hingston Engineering Ltd (NHEL) had manufactured the drop bolt for Loktronic over a 13-year period. There was no written agreement between Loktronic and NHEL but each month over the period of their arrangement Loktronic would order by invoice to NHEL the number of bolts to be manufactured that month. NHEL had supplied locks to Security Screen Doors Ltd (later Loktronic Distributors Ltd), the company that was purchased by Loktronic from 1984.

2

Loktronic acted as distributor of bolts and other products for Trimec Technology Pty Ltd (Trimec), an Australian company. There was no written agreement between Loktronic and Trimec although their arrangement had been in place for a number of years.

3

The relationship between Loktronic and the other parties changed in July 2002. In late July, Trimec and NHEL agreed on a joint venture arrangement under which NHEL agreed to stop manufacturing for Loktronic and instead make the bolt exclusively for Trimec. At the same time Trimec ended its relationship with Loktronic. In effect, the new arrangements cut out the “middle man”, namely, Loktronic.

4

Loktronic brought proceedings against the appellants alleging that either alone and/or in combination they caused loss to Loktronic of its business. The claims depended on Loktronic's argument that there were two oral contracts, each of which included an implied term that the respective contract could only be terminated on reasonable notice. The first of the oral contracts contended for was with NHEL, under which NHEL agreed to manufacture the drop bolt exclusively for Loktronic (the manufacturing contract). The second contract was with Trimec, under which Loktronic was appointed Trimec's exclusive New Zealand distributor (the distribution contract).

5

The claims which give rise to the appeals were as follows:

  • (a) The appellants, except for NHEL, 1 induced NHEL to breach the manufacturing contract;

  • (b) Roy Bowyer (a director of Trimec) and Assa Abloy New Zealand Ltd (AANZL, the ultimate owner of Trimec), induced Trimec to breach its distribution contract with Loktronic;

  • (c) Stephen Diver (an adviser to, and director of,...

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