Loktronic Industries Ltd v Diver and Others

• Jurisdiction: New Zealand
• Judge: COURTNEY J
• Judgment Date: 30 March 2011
• Neutral Citation: [2011] NZHC 275
• Docket Number: CIV-2008-404-004657
• Court: High Court
• Date: 30 March 2011

BETWEEN

Loktronic Industries Limited

Plaintiff

and

Stephen John Diver

First Defendant

and

Sdr Limited Sdr Limited

Second Defendant

and

Roy Bowyer

Third Defendant

and

Trimec Technology Limited

Fourth Defendant

and

Neil Richard Hingston

Fifth Defendant

and

Neil Hingston Engineering Limited

Sixth Defendant

and

Assa Abloy Nz Limited

Seventh Defendant

[2011] NZHC 275

Judges:

Rodney Hansen J

CIV-2008-404-004657

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application for stay of execution of summary judgment decision pending determination of appeals — judgment found against the defendants for over $2 million — defendants were liable in tort for inducing a breach of contract and/or interfering or conspiring to interfere with contractual relations by unlawful means — whether it was in the overall justice of the case to grant the stay.

Appearances:

S A Grant for Plaintiff

M H L Morrison and S J Nicholson for First and Second Defendants

Z G Kennedy and S K Hindle for Third, Fourth and Seventh Defendants

P L Rice and B P Molloy for Fifth and Sixth Defendants

S A Grant, P O Box 4338 Shortland Street, Auckland 1140 Fax: (09) 309–1904

P L Rice, P O Box 4341 Shortland Street, Auckland 1140 Fax: (09) 309–7633

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 30 March 2011 at 11:00 am pursuant to R 11.5 of the High Court Rules.

Registrar / Deputy Registrar Date…………………………

Table of Contents

	Para No
Introduction	[1]
The manufacturing agreement
Was there an oral contract between Loktronic and NHEL for the manufacture of the electronic drop bolts?	[6]
Notice on termination	[19]
Distribution agreement with Trimec	[28]
Notice on termination	[37]
Termination by Trimec	[40]
Background to the intentional torts
The relationship between Loktronic, Mr Diver and effeff	[48]
The joint venture between Trimec and NHEL	[56]
Inducing breach of the manufacturing and distribution contracts	[61]
Relevant principles	[62]
Mr Hingston	[71]
Mr Diver and SDR	[79]
Trimec and Mr Bowyer	[87]
Assa Abloy NZ Limited (AANZL)	[92]
Interference by unlawful means
Relevant principles	[102]
The unlawful means	[106]
Conspiracy to injure for unlawful purpose and/or by unlawful means	[121]
Conspiracy to injure for unlawful purpose	[124]
Conspiracy to injure by unlawful means	[128]
Failure to mitigate	[130]
Damages	[136]
Interest	[153]
Conclusion	[156]

Introduction

1 For some years prior to 2002 the plaintiff, Loktronic Industries Limited (Loktronic), had a profitable business supplying electronic products to both the domestic and export markets. Its most lucrative product was an electronic drop bolt, the LB25 series. The bolt's novel features were that it was able to accept multiple voltages, was field convertible between fail safe and fail secure, able to accept either DC or AC current, able to function adequately on double-action doors, could incorporate anti-tamper wiring as standard and had dead bolt monitoring.

2 Loktronic's largest export customer was a German company, effeff Fritz Fuss GMEH and Co (effeff), which it had secured with the assistance of an agent, Stephen Diver. 1 Loktronic also acted as distributor for an Australian company, Trimec Technology Pty Limited (Trimec). 2 Loktronic's situation changed when effeff 3 acquired Trimec and the Trimec board determined that it would add Loktronic's drop bolt to its own stable of products.

3 The drop bolt had always been manufactured for Loktronic by Neil Hingston Engineering Limited (NHEL). 4 Trimec offered NHEL a joint venture under which NHEL agreed to stop manufacturing for Loktronic and instead manufacture the bolt exclusively for Trimec. NHEL accepted that offer and terminated its relationship with Loktronic at a meeting on 23 July 2002. At the same time Trimec terminated its relationship with Loktonic. The result was that Loktronic could no longer supply the drop bolt to its customers and also lost the profit previously derived from distributing Trimec products in New Zealand.

4 Loktronic alleges that the defendants, either alone and in combination, caused the loss of both its domestic and export business. It sues for a total of $10.9m, alleging that:

• a) By terminating its relationship with Loktronic, NHEL breached an oral contract under which NHEL agreed to manufacture the drop bolt exclusively for Loktronic (the manufacturing contract);

• b) By terminating its relationship with Loktronic, Trimec breached an oral contract with Loktronic under which Loktronic was appointed Trimec's exclusive New Zealand distributor (the distribution contract);

• c) The defendants, except for NHEL, induced NHEL to breach the manufacturing contract;

• d) The defendants, except for Trimec, induced Trimec to breach the distribution contract;

• e) The defendants, except for NHEL, interfered with the manufacturing contract and the defendants, except for Trimec interfered with the distribution contract by unlawful means;

• f) The defendants, or some of them, conspired with an unlawful object or purpose to injure Loktronic; and

• g) The defendants conspired to injure Loktronic by unlawful means.

5 The various causes of action depend, in part, on Loktronic establishing the existence and breaches of the manufacturing and/or distribution contracts. The defendants deny that any contract existed between them of the kind alleged and maintain that there was no more than an ongoing practice of order and supply between the respective parties. Because of the significance of this issue to all of the causes of action I intend to deal with the alleged existence and breaches of these contracts first.

The manufacturing agreement

Was there an oral contract between Loktronic and NHEL for the manufacture of the electronic drop bolts?

6 NHEL was a small lock manufacturing business operated by its director, Neil Hingston and his son, Matthew. NHEL had purchased the business in 1984. Mr Hingston, a former avionic engineer, was regarded by other witnesses as an honest man with good technical skills. I would add to that, based on my observations of Mr Hingston and the evidence, that Mr Hingston was commercially inexperienced and naïve.

7 When Mr Hingston bought the business its only significant customer was Loktronic Distributors Limited (LDL), whose General Manager was Peter Calvert. In 1989 Mr Calvert incorporated Loktronic, the plaintiff in this case. It acquired the business of LDL and continued to purchase locks from NHEL. It also maintained a life insurance policy over Mr Hingston. There was no written agreement between NHEL and Loktronic. However, Mr Calvert gave evidence of a discussion in which Mr Hingston agreed that NHEL would manufacture locks exclusively for Loktronic. In return, Loktronic agreed not to buy locks of the kind NHEL manufactured from anyone else. He said the deal was “sealed with a handshake”.

8 Mr Hingston denied that any such agreement had been reached and said that NHEL simply continued to supply locks on the same non-exclusive basis as it had done previously with LDL. However, some of Mr Hingston's answers in cross-examination were inconsistent with this position:

He says – Mr Calvert says that you agreed – that you and he agreed that he would only buy your product from you and that you would only sell to him. Do you agree with that?…..Yes.

And is that why you described yourself as having effectively one customer?…..That's right.

9 In trying to reconcile Mr Hingston's answers in cross-examination with his evidence-in-chief I looked to the parties' conduct over the course of their relationship and during the negotiations between NHEL and Trimec.

10 First, Mr Hingston confirmed in cross-examination that during the time NHEL manufactured bolts for Loktronic he did minimal work for any other company. A very small number of drop bolts were supplied to customers other than Lokronic and none at all after 1999. Over a period of 13 years Loktronic represented virtually all of NHEL's revenue.

11 The drop bolt had been developed between 1996 and 1998 by Loktronic and NHEL in collaboration. An electronics engineer, Mr Glanville, designed the software for the product. The two new features the lock offered were the ability to convert between power to open (fail secure) and power to lock (fail open) easily and the ability of the lock to detect the voltage that it was connected to and automatically adjust to run at that voltage between 10–28 volts. There was conflict between Mr Calvert and Mr Hingston over just how innovative the electronic dead bolt was. Mr Hingston did not believe it would support a patent and assigned his rights in the bolt to Loktronic (as did Mr Glanville) without payment. When Mr Hingston gave the assignment he was aware of Mr Calvert's belief that a valid patent could be obtained and of Mr Calvert's intention to pursue that course but never expressed the view that patents were not likely to be valid. Loktronic did, in fact, spend over $100,000 obtaining patents for the bolt in New Zealand, Australia, China, Hong Kong, Singapore, Taiwan and countries covered under the Patent Co-operation Treaty.

12 Thirdly, there was unchallenged evidence of Mr Hingston asking Mr Calvert to formalise the supply agreement between the two companies. The purpose of this request was to assist Mr Hingston's son Matthew to obtain a mortgage by demonstrating that he had secure employment. Mr Calvert said that he suggested NHEL obtain independent legal advice but then when he followed it up “Mr Hingston said that Matthew Hingston now accepted that I was a person of honour and that he trusted me as a man of my word not to terminate our agreement.” Mr Calvert was not cross-examined on this evidence and Mr Hingston did not...