Diver v Loktronic Industries Ltd

• Jurisdiction: New Zealand
• Judge: Ellen France J
• Judgment Date: 04 April 2012
• Neutral Citation: [2012] NZCA 131
• Docket Number: CA258/2011 CA260/2011
• Court: Court of Appeal
• Date: 04 April 2012

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

[2012] NZCA 131

Court:

Arnold, Ellen France and Stevens JJ

CA258/2011

CA259/2011

CA260/2011

IN THE COURT OF APPEAL OF NEW ZEALAND

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.

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

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.

JUDGMENT OF THE COURT

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, Trimec), Trimec and Mr Bowyer interfered in Loktronic's business by unlawful means; and

• (d) Mr Diver, Trimec and Mr Bowyer conspired to interfere with Loktronic's business by unlawful means. 2

6 On Loktronic's case, the tortious conduct arose because the two contracts were brought to an end in breach of an implied term that Loktronic was entitled to reasonable notice. Loktronic sued for a total of over $10.9 million.

7 The matter went to trial in the High Court before Courtney J. The Judge found there were two oral contracts as pleaded by Loktronic. Courtney J also concluded there was an implied term in each contract that termination required reasonable notice. That term had been breached in relation to each contract. Courtney J found that the claims now in issue were made out against the various defendants. 3 The Judge awarded damages in the order of $1.4 million together with interest. 4

8 There is no challenge now to the finding that there were two oral contracts or to the implied term of termination on reasonable notice (six months for the manufacturing contract and three months for the distribution contract) or that what occurred amounted to a breach of those terms. NHEL abandoned an appeal against the finding that the contract was exclusive and that part of the appeal is formally dismissed. Rather, the primary focus is on the Judge's approach to knowledge and intention in relation to the claims based on inducing breach of the two contracts.

Factual background to the intentional torts

9 The background is set out in the judgment of Courtney J and we largely adopt the Judge's description of background events. 5

10 As the starting point, we go back to 1995 when Mr Diver, formerly an official in the Ministry of Foreign Affairs and Trade, formed a company called SDR Ltd (SDR). The company acted as an adviser and consultant for New Zealand exporters wanting to enter the German and Eastern European markets. In 1996, Mr Diver approached Peter Calvert and his wife, Elizabeth Calvert, offering his company's

services to Loktronic to identify export customers in Europe. Mr Calvert had incorporated Loktronic in 1989. Prior to that he was the General Manager of Loktronic Distributors Limited

11 Loktronic and SDR reached an agreement under which SDR was paid fees on a daily rate with a sales-related percentage success fee. The parties' arrangement led to a three year supply contract between Loktronic and effeff Fritz Fuss GmbH and Co (effeff), which was signed in March 1998. The three-year period was later extended to 2003.

12 We can move then to mid-1999. At that point, effeff engaged SDR to advise it on the acquisition of Trimec. Acting on effeff's behalf, in February 2000 Mr Diver gave Mr Calvert a letter setting out effeff's interest in acquiring Loktronic. Mr Calvert's response was that he wanted to deal directly with Martin Brandt who was the Managing Director of effeff. Correspondence between Mr Calvert and Mr Brandt about effeff's interest ensued. Soon after this Mr Calvert ended Loktronic's relationship with SDR. This was an amicable arrangement with a payment by Loktronic to SDR of a relatively modest lump sum in full and final settlement of any amounts that might become due under the terms of their arrangement.

13 Mr Diver's relationship with effeff continued. In 2000 effeff acquired Trimec. About that time, effeff was itself acquired by a Swedish company Assa Abloy so that Trimec and effeff became part of the wider Assa Abloy group. Assa Abloy was described by Mr Bowyer as the largest locking company in the world, although the group's specialty was the supply and manufacture of mechanical locking devices rather than electronic locks. Mr Diver...