TPD 2018 Ltd v Godfrey and Company Ltd
| Jurisdiction | New Zealand |
| Judge | Gault J |
| Judgment Date | 09 March 2021 |
| Neutral Citation | [2021] NZHC 431 |
| Court | High Court |
| Docket Number | CIV-2019-404-93 |
| Date | 09 March 2021 |
and
[2021] NZHC 431
Gault J
CIV-2019-404-93
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Company, Equity — claim as assignee against the respondents for breach of a joint venture agreement — whether the joint operation should be characterised as a partnership or a joint venture giving rise to fiduciary obligations — whether the assignment was of a bare cause of action and offended against the rules against champerty and maintenance — test for establishing whether a partnership existed — Partnership Act 1908 — Partnership Law Act 2019
S O McAnally and N W Coyle for the Plaintiff and First Third Party
R J Hollyman QC and T E Bielby for the Defendant
This judgment was delivered by me on 9 March 2021 at 3:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
The plaintiff (TPD) claims as assignee of the claim of Thomas Pasley and Associates Ltd (TPA) against the defendant (Godfreys) following a joint operation in anticipation of a full merger that ultimately did not proceed and had to be unwound.
TPD claims the joint operation was a joint venture and Godfreys was obliged to account to TPA for revenue received on behalf of the joint venture as a fiduciary or by way of breach of contract. TPD claims it is entitled to a final accounting.
Godfreys says in its defence that the joint operation was a partnership and that, applying equitable principles where details were not agreed, Godfreys overpaid TPA. In a third party claim, Godfreys seeks recovery of the overpayment from CNZ (Auckland) Ltd (in liquidation) (CNZ), TPA's successor following a subsequent amalgamation. Godfreys' defence also disputes the assignment to TPD on the basis that TPA's rights had been carved out of the merger with CNZ and the assignment was of a bare cause of action, which is void. In addition, Godfreys pleaded breaches of fiduciary duty by TPA and a limitation defence (but these were not pursued at trial).
The trial began with TPD claiming that Godfreys owed $1,320,139 and Godfreys claiming that it was owed $1,453,394 (that is, a difference between the parties of $2,773,533). There were numerous issues. However, the accounting experts continued to confer and narrow the differences during the trial, and filed further joint statements. As a result, the remaining issues reduced considerably and the quantum difference reduced to $1,243,264 with TPD claiming Godfreys owes $817,286 and Godfreys claiming it is owed $425,978.
TPA and Godfreys were each established firms carrying on the business of insurance loss adjusting. Leading up to the events in issue, the two directors and shareholders of TPA were Mr Pasley and Mr Ziegler. TPA was based in Auckland. The major shareholders of Godfreys were Mr Godfrey and Mr Moonlight. Godfreys had three other shareholders, including Mr Buckley who was not an insurance loss adjuster. Godfreys had several offices around New Zealand.
Sometime prior to 4 September 2010, Godfreys approached TPA about a possible merger. The idea was not progressed immediately. Following the first major Canterbury earthquake on 4 September 2010, the increase in workload and other business imperatives led to further discussions. Financial information was exchanged, and a meeting was held on 18 November 2010. The parties informally agreed to progress towards a merger by 1 April 2011 and started co-operating in the interim.
The catastrophic earthquake of 22 February 2011 led TPA and Godfreys to meet that night and agree that joint operations as TPA-Godfreys (TPAG) should commence immediately. They announced an operational merger the next day.
There was no formal written agreement recording the terms of the joint operation but it is common ground that TPA and Godfreys also agreed:
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(a) Invoicing would be done using Godfreys' existing infrastructure; Godfreys would receive payments and account to TPA for its share of net proceeds of the joint operation. 1 Revenue and costs of their respective existing businesses were to remain the benefit/obligation of each.
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(b) TPAG would use Godfreys' premises in Christchurch and, progressively, TPA's premises in Auckland.
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(c) Each party would reimburse the other for the increased costs incurred by each giving effect to the combined operation. 2
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(d) Mr Godfrey would be the managing director of TPAG and Mr Pasley would be the professional practice leader.
Although the parties' proportionate shares in the net proceeds had been discussed and modelled prior to 22 February 2011, this was not agreed until later. On 10/11 June 2011 the parties met and agreed that the net proceeds derived from the
Similarly, allocation of staff between the existing businesses and TPAG was not finalised on 22 February 2011. This was addressed in the monthly reconciliations that Mr Godfrey began to provide in the following months.
In April 2012 Mr Godfrey suffered a heart attack and was off work for some weeks before returning, initially for three days per week. In August 2012 a new chief operations officer was engaged.
Formal merger was not progressed due, it seems, to the post-earthquake workload. Mr Pasley urged the resumption of discussions in early 2013. The parties met in March 2013 and discussions continued, evidently with different expectations, until Mr Pasley advised Mr Godfrey on 14 May 2013 that TPA no longer wished to proceed with the merger. The parties exchanged documents relating to the unwind later in May 2013, but there was no new agreement relevant to the remaining issues affecting the parties' respective shares of the net proceeds derived from the TPAG operation.
Relations deteriorated somewhat thereafter, culminating with news that TPA would become part of CNZ, followed by Mr Godfrey's email on 23 October 2013 stating that the joint venture should be concluded on 31 October 2013. Despite allegations both ways in relation to the reasons for the breakdown, it was ultimately common ground that the reasons are not material and the joint operation terminated with effect from 31 October 2013.
Although there were subsequent attempts, the parties never reached agreement on the reconciliation of their respective shares of the net proceeds.
On 30 November 2013 TPA amalgamated with CNZ.
On 31 March 2018 CNZ, in anticipation of its liquidation as part of a group restructure, assigned its rights against Godfreys to TPD.
The remaining issues to be determined are:
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(a) the nature of the joint operation;
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(b) allocation of staff;
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(c) allowance for Mr Godfrey as managing director;
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(d) Godfreys' “run off” costs;
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(e) whether TPD had inherited TPA's rights by assignment and, if not, whether that matters.
The parties ultimately agreed that nothing turned on whether the joint operation was characterised as a joint venture or a partnership. I consider that is correct given that what the parties agreed at the time is important whether the joint operation is characterised as a partnership or a joint venture giving rise to fiduciary obligations, 3 and given the confined issues remaining in dispute. Nevertheless, the characterisation was addressed in submissions and I therefore address it (relatively briefly).
Mr McAnally, for TPD/CNZ, submitted that the following circumstances, cumulatively, point away from the existence of a partnership:
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(a) This was not a case where an established partnership restructured and adopted another guise such as an incorporated company (as in
Amaltal Corporation Ltd v Maruha Corporation). 4 Rather the relationship in issue might fairly be categorised as something of a “waiting room”. The general notion of the partnership as an available business structure would suggest a partnership should not be thought of as something that happens by accident while waiting to implement the intended end structure. -
(b) The parties did not, jointly or in common, own any assets.
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(c) The parties did not jointly contract. For example, employees were engaged by one or the other of the two companies and contractors in the “shared pool” were contracted by Godfreys.
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(d) The parties took none of the steps that would be usually expected, such as formalising some sort of partnership agreement, opening shared bank accounts or registering and reporting as a partnership for matters such as payment of GST.
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(e) The parties retained separate business interests in the sense of the resources they entered the relationship with, it being agreed that pending “formal merger”, the “shared pool” of contract resource and the associated uplift of the cost to service it was to be shared.
Mr McAnally accepted that a partnership is defined as “the relationship that exists between persons carrying on a business in common with a view to profit”, 5 but submitted that is analogous with the essence of a joint venture that has been described as an arrangement or understanding between two or more parties to work together towards achieving a common objective. 6 He submitted that here terms were loosely agreed on or about 22 February 2011 but were the subject of ongoing development, as was progress, or lack thereof, towards a formal amalgamation of the two companies. In many respects it was not until at least June 2011 that important matters of principle were resolved (such as the division of net proceeds) and, given the ever present eye to
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