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Drink Tank Limited v Morrows Pty Limited [2020] NZHC 1391; [2020] 3 NZLR 443 (19 June 2020)

Last Updated: 21 January 2022

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2721
[2020] NZHC 1391
BETWEEN
DRINK TANK LIMITED
Plaintiff
AND
MORROWS PTY LIMITED
Defendant
Hearing:
9 June 2020
Appearances:
B Gustafson and G Grant for the Plaintiff
W A Holden and N J Cannon for the Defendant
Judgment:
19 June 2020


JUDGMENT OF GORDON J


This judgment was delivered by me on 19 June 2020 at 3.30 pm, pursuant to

r 11.5 of the High Court Rules


Registrar/Deputy Registrar Date:















Solicitors: Rainey Law, Auckland

Wotton & Kearney, Wellington

Counsel: B Gustafson, Auckland


DRINK TANK LTD v MORROWS PTY LTD [2020] NZHC 1391 [19 June 2020]

Introduction

Factual background

4. Valuation

The Independent Valuer must be instructed to determine the Default Sale Price by adopting a valuation methodology based on observable market precedents for companies similar to [Sesión] at the relevant stage of [Sesión’s] development.

5. Access to information

[Sesión] must ensure that the Independent Valuer has access at all reasonable times to the accounting and other records of [Sesión] (including any Related Body Corporate of [Sesión]) and can obtain from any officer of [Sesión] such information and explanation as they require to value [Sesión].

6. Process

The parties agree that, in determining the Default Sale Price, the Independent Valuer:

...


(b) may obtain or refer to any documents, information or material and undertake any inspections or enquiries as he or she determines appropriate;
(c) must provide the parties with a draft of his or her determination and must give the parties an opportunity to comment on the draft determination before it is finalised; and

(d) may engage such assistance as he or she reasonably believes is appropriate or necessary to make a determination.

7. Final and binding

The Independent Valuer’s determination of the Default Sale Price will be final and binding on all parties to this agreement.


(a) Morrows failed to follow the valuation method mandated by the Shareholders’ Agreement;

(b) Morrows failed to contact Drink Tank’s directors, who are domiciled in New Zealand, to obtain documentation and information held by those directors in New Zealand before Morrows prepared and finalised the valuation; and

(c) Before finalising the valuation, Morrows failed to supply a draft to Drink Tank in New Zealand.

(a) Morrows was not appointed in accordance with sch 5 of the Shareholders’ Agreement; and

(b) Morrows did not carry out the valuation to determine the Default Sale Price in accordance with sch 5 of the Shareholders’ Agreement.

Principles governing stay applications


(a) has jurisdiction to determine the matters in issue between the parties to the proceeding; and

(b) is the more appropriate court to determine those matters.3



1 Trans-Tasman Proceedings Act 2010, s 3(1).

2 Skelton v Z487 Ltd [2014] NZHC 707 at [19].

3 Trans-Tasman Proceedings Act 2010, s 21(3) and s 24(1).

4 Leeds v Richards [2016] NZHC 1191 at [29].

5 Trans-Tasman Proceedings Act 2010, s 22(2) and s 24(2).

6 Trans-Tasman Proceedings Act 2010, s 27(1).

7 Trans-Tasman Proceedings Act 2010, s 21(3) and s 24(2).

(a) the places of residence of the parties or, if a party is not an individual, its principal place of business;

(b) the places of residence of the witnesses likely to be called in the proceeding;

(c) the place where the subject matter of the proceeding is situated;

(d) any agreement between the parties about the court or place in which those matters should be determined or the proceeding should be instituted (other than an exclusive choice of court agreement to which section 25(1) applies);

(e) the law that it would be most appropriate to apply in the proceeding;

(f) whether a related or similar proceeding has been commenced against the defendant or another person in a court in Australia;

(g) the financial circumstances of the parties, so far as the New Zealand court is aware of them; and

(h) any other matters that the New Zealand court considers relevant.

8 Kuwait Asia Bank Environment Court v National Mutual Life Nominees Ltd (No 2) [1989] 2 NZLR 50 (CA).

9 Graham v McNicholl [2019] NZHC 1973.

r 6.28 of the High Court Rules). The company filed an appearance objecting to the jurisdiction of the Court and then applied to the High Court to dismiss the proceeding. It was not a forum conveniens case.10 It was about whether the New Zealand court had jurisdiction. The test in the rule under consideration required an assessment of the strength of the plaintiff’s case against Kuwait on the merits. The ultimate issue under the relevant rule was whether the Court was satisfied there were sufficient grounds for it properly to assume jurisdiction.11 That is not the issue the Court is required to consider in an application under the Act. The case is therefore not of assistance.

[49] The respective merits of the proceeding favour the case continuing in New Zealand. As noted above, the law in New Zealand is settled. Again, the defendant has not signalled what positive defences he intends to run. The ability of the defendant and his Australian counsel to appear remotely is also significant. Given that this case is likely to be brief, that is another factor that would favour the defendant and his counsel appearing remotely.


10 Kuwait Asia Bank Environment Court v National Mutual Life Nominees Ltd (No 2), above n 8, at 54.

11 At 54.

12 Graham v McNicholl, above n 9, at [49].

13 Fraser v Fraser [2017] NZHC 1055.

14 Fraser v Fraser, above n 13, at [23](a) and Leeds v Richards, above n 4, at [28].

15 Fraser v Fraser, above n 13, at [23](a), citing Lifestyles Investment Group v Coral Investments Securities Ltd [2016] NZHC 2262 at [15].

here, the issues will not have crystallised through competing pleadings. The issues will therefore need to be identified through examination of a statement of claim and the materials filed in support of and in opposition to the application for a stay.16

Does an Australian court have jurisdiction to determine the matters in issue?


(a) First, the valuation was undertaken pursuant to the Shareholders’ Agreement. That document contains a New South Wales governing law and jurisdiction clause which provides:

27.10 Governing law and jurisdiction

This agreement will be governed by and construed in accordance with the laws in force in the State of New South Wales and each party submits to the exclusive jurisdiction of the courts of that State.





16 Leeds v Richards, above n 4, at [28] and Fraser v Fraser, above n 13 at [23](b).

17 At [23](d).

(b) Morrows was retained by Sesión subject to a confidentiality deed. That document contained a New South Wales governing law and jurisdiction clause which provides:

(h) This deed will be governed by and construed in accordance with the laws in force in the State of New South Wales and each party submits to the non-exclusive jurisdiction of the courts of that State;


(c) Morrows engaged a third party, Leadenhall, to peer review the valuation. The terms of engagement also include a New South Wales governing law and jurisdiction clause, which provides:

17. Governing law

The engagement is governed by the law of the State or Territory in which the Director responsible for the engagement resides [New South Wales] and you [Morrows] agree to submit to the non-exclusive jurisdiction of the courts of such State or Territory.


(a) Morrows is domiciled in Victoria, not in New South Wales;

(b) The valuers who produced the valuation live and work in Victoria;

(c) The jurisdiction clause in the Shareholders’ Agreement does not apply to, or govern jurisdiction on, a tort claim between Drink Tank and Morrows, as Morrows is not a party to that agreement;

(d) The jurisdiction clause in the confidentiality deed between Morrows and Sesión does not apply to, or govern, a tort claim between Drink Tank and Morrows, as Drink Tank was not a party to that deed;

(e) Morrows failed to contact the directors of Drink Tank, who are domiciled in New Zealand, to obtain documentation, and that omission occurred in both Victoria and New Zealand but not New South Wales;
(f) Before finalising the valuation, Morrows failed to supply a draft copy of it to Drink Tank in New Zealand, and that omission occurred in both Victoria and New Zealand, but not New South Wales; and

(g) There is no claim particularised by Morrows against Sesión and/or Leadenhall that would become part of the proceeding between Drink Tank and Morrows. It cannot therefore be said that either of those parties would be joined to the claim brought by Drink Tank against Morrows for negligence in completing the valuation.
therefore be inferred that Morrows received information from Sesión directors who are based in New South Wales.

The factors listed in s 24(2) of the Act

The principal place of business of the parties – s 24(2)(a)

Location of witnesses – s 24(2)(b)


(a) Shane McKillen;

(b) Martin Fine, a Director of Drink Tank; and

(c) David Vance, a New Zealand Deloitte partner and expert witness. Drink Tank says Mr Vance has already been briefed and will give evidence about what a reasonably competent and experienced accountant, engaged to carry out and complete a valuation of Sesión’s shares, would have done.

(a) The key employees at Morrows who were involved in the valuation, who both live in Victoria, Australia:

(i) Ashwind Skinnon, Senior Advisor;

(ii) Himself;

(b) The key people who Morrows engaged with at Sesión and “who would likely be required to provide evidence (irrespective of whether they are joined as a third party)”:

(i) Jake Wall, who is based in Sydney, New South Wales, Australia;
(ii) Jennifer Hawkins, a director of Sesión and director of Hawkins who is based in Sydney, New South Wales, Australia;

(iii) Tim Freeburn, a director of Sesión, and at one time the nominee of Drink Tank to the Board of Sesión under the Shareholders’ Agreement, who is based in Caringbah South, New South Wales, Australia; and

(iv) Jill Wilberforce, Finance Manager, Sesión Group, who is based in Sydney, New South Wales, Australia.

(c) The key people Morrows had contact with at Leadenhall and “who Morrows may call to provide evidence”:

(i) Katy Lawrence, Associate Director, Leadenhall (Sydney Valuer), who is based in Newcastle, New South Wales, Australia;

(ii) Simon Dalgarno, Director, Leadenhall (Sydney Valuer) who Mr Hamblin understands lives in Sydney or Adelaide, Australia;

(d) Mr Hamblin says that Morrows will also need to appoint an independent expert commercial valuer to undertake an independent valuation of the subject shares as at 28 May 2019. That witness would also provide evidence as to: the relevant standard of care of a professional valuer; Australian Accounting and Ethical Standards; and whether Morrows’ alleged acts or omissions met the relevant standards. Mr Hamblin says that as Sesión is based in Australia and Morrows’ professional services were provided in Australia in accordance with the Australian Accounting Professional and Ethnical Standard 225, any expert valuer should be Australian qualified and practicing in Australia. Mr Hamblin says such expert is likely to live in Australia;
(e) Mr Hamblin also anticipates that one or other of the lawyers who prepared the Shareholders’ Agreement and who acted for Sesión in relation to the Compulsory Transfer Notice served by Hawkins and in the related process will “likely be required” to provide evidence. Those two lawyers are Terry McCabe and Luke Dominish of McCabe Curwood, Lawyers, Sydney, New South Wales, Australia. Mr Hamblin says that both work from the Sydney office and he says it is “likely” they live in Sydney, Australia;

(f) Morrows would “likely also require” the following, who provided various financial and business advice and services to Sesión, to give evidence:

(i) Rod Dickinson, Director of Altus Financial, Sesión’s accountants, based in Sydney, New South Wales, Australia;

(ii) Craig Gribble, co-founder and managing partner of Allen Partners, Capital Advisory and Asset Managers (who assisted in raising capital for Sesión and attended a meeting with the potential institutional investor L Catterton in the United States on 6 March 2019. He is based in Sydney, New South Wales,
Australia; and

(iii) Frederico Sgubbi, Senior Associate of Allen Partners, based in Sydney, New South Wales, Australia.
South Wales-based witnesses to have a one hour domestic flight than to fly to New Zealand.
therefore submits this factor does not favour the dispute being decided either in Victoria or New South Wales as opposed to New Zealand.

47 ...


(b) Would have requested from Sesión all documentation in Sesión’s possession relating to any issue of Sesión shares or sale of Sesión’s shares including any correspondence relating to any sale, offer, presentation or valuation of Sesión shares;

(c) Would have obtained details of all Sesión shareholders from the Australian Companies Register and determined when those shareholders obtained their shares and what they paid for them;

(d) Would have requested from Sesión all documentation in Sesión’s possession relating to the valuation of all or any part of Sesión’s business, including future business opportunities such as the LA Clippers Deal;

...

(g) Would consider what assumptions and facts existed in September 2018 with respect to Sesión’s business and if any of those assumptions and facts had changed by 30 April 2019. It would identify how any changes to those assumptions and facts would affect the value of Sesión’s business;

...

(i) If it was aware of the March 2019 Investment Report and the March Valuation, it would have carried out further enquiries into the negotiations between Sesión and L Catterton about L Catterton’s potential purchase of a 20% shareholding in Sesión only a matter of weeks prior to the date of its valuation assessment of 30 April 2019.

The place where the subject matter of the proceeding is situated – s 24(2)(c)

When the case is approached on that basis it is clear that, in substance, the cause of complaint is the act of providing the professional accountancy services on an incorrect basis. The same is true if the matter is approached as an omission, for the omission takes its significance from that same act of providing those services ... The act of providing accountancy services was an act complete in itself, or, if not complete in itself, one that was initiated and completed in the one place. That place was Missouri. The fundamental significance of that simple fact is not diminished merely because it may be possible, for the purpose of legal classification, to treat that act as equivalent to a statement that was received or acted upon in Australia.






18 Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538.

19 At 569.

Any agreement between the parties about the court or place in which the matters should be determined or where the proceeding should be instituted – s 24(2)(d).

The law that would be most appropriate to apply in the proceeding – s 24(2)(e)


(a) Expert evidence as to: the relevant standard of care of a professional valuer; Australian Accounting and Ethical Standards; and whether Morrows’ alleged acts or omissions met those standards;

(b) Contractual interpretation of the Shareholders’ Agreement (which is to be interpreted in accordance with the laws of New South Wales); and

(c) Contractual interpretation of the confidentiality deed (which is to be interpreted in accordance with the laws of New South Wales).

20 Grant v McNicholl, above n 9, at [50].

21 Lifestyles Investment Group v Coral Investments Securities Ltd [2017] NZHC 1639.

statutory regime in Australia, the Judge considered an Australian court would be familiar with that regime and therefore able to more efficiently determine the proceedings. Second, the Judge considered that the Australian law of “knowing assistance” in the breach of trust context was unsettled. It was accordingly preferable for this issue to be considered and determined by an Australian court.

[30] Given this context [the Australian statutory regime to which Macquarie was subject], the Judge did not err in concluding that the Australian courts’ familiarity with the applicable statutory and regulatory regime is a relevant consideration. The purpose of the TTPA is to reduce costs and improve efficiency. Although a New Zealand court would be capable of determining any issues of Australian law, with the assistance of expert evidence on the topic, it would clearly be more efficient for an Australian court to do so.

5O Standard of care for professionals

(1) A person practising a profession (a professional) does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice.

(2) However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational.

(3) The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section.

(4) Peer professional opinion does not have to be universally accepted to be considered widely accepted.

59 Standard of care for professionals

(1) A professional is not negligent in providing a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by a significant number of respected practitioners in the field (peer professional opinion) as competent professional practice in the circumstances.

(2) However, peer professional opinion cannot be relied on for the purposes of this section if the court determines that the opinion is unreasonable.

(3) The fact that there are differing peer professional opinions widely accepted in Australia by a significant number of respected practitioners in the field concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section.

(4) Peer professional opinion does not have to be universally accepted to be considered widely accepted.

(5) If, under this section, a court determines peer professional opinion to be unreasonable, it must specify in writing the reasons for that determination.

(6) Subsection (5) does not apply if a jury determines the matter.

I am of the view that in applying the test of carelessness New Zealand should in this context follow England in adopting what has become known as the Bolam principle; Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, 587 per McNair J:

I myself would prefer to put it this way, that he is not guilty of negligence if he has acted in accordance with a practice accepted as proper by a responsible body of medical men skilled in that particular art ... Putting it the other way round, a man is not negligent, if he is acting in accordance with such a practice, merely because there is a body of opinion who would take a contrary view.

22 Scott v Hutchins & Dick Ltd HC Auckland CP154/98, 26 May 1999.

23 At 7.

opinion and practice, which must be “widely accepted”, so long as it is not irrational; there can be different opinions and practices and they do not have to be “universally accepted” to be widely accepted.

24 Richard Cheney “Competent Professional Practice: section 5O of the Civil Liability 2002 (NSW)” (paper presented to Greenway Chambers CPD Program, Sydney, March 2018) at 3.

25 Sparks v Hobson [2018] NSWCA 29.

nuanced argument on a complex area of law in another jurisdiction to a few sentences is a hazardous task.

26 McKenna v Hunter and New England Local Health District [2013] NSWCA 476.

27 An application for special leave to appeal to the High Court of Australia was dismissed: Sparks v Hobson  [2018] HCATrans 191. 

application here. It is more efficient for such uncertainty to be considered and determined in a New South Wales court. While this Court could, by relying on expert evidence, address these points, it will be less costly and more appropriate for them to be resolved in an Australian court. That these may be matters which go to conflicts in appellate authorities only strengthens this point.



28 Grant v McNicholl, above n 9, at [31].

The existence of a related or similar proceeding commenced in Australia – s 24(2)(f)

Financial circumstances of the parties – s 24(2)(g)

Any other matters considered relevant – s 24(2)(h)

Joinder of third parties



29 Trans-Tasman Proceedings Act 2010, s 86.

proceeding in New Zealand. He submits that this would cause substantial prejudice to Morrows.
related proceedings issued in two countries would not further the purpose of the Act, which is to promote cost-effective trans-Tasman litigation.30

Delay

Drink Tank’s investment in an Australian company

Summary of conclusions




30 See Skelton v Z487 Ltd, above n 2, at [49]-[50].

(a) The subject matter of the proceeding is more closely connected to Australia than New Zealand;

(b) Morrows as a firm of accountants was subject to professional standards applying in Australia; and

(c) Additionally, the New South Wales and Victoria statutes contain provisions which embody a “competent professional practice” defence for a professional facing negligence claims.

Result

Costs

Memoranda should not exceed four pages, excluding any attachments. I will determine costs on the papers.




Gordon J

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