A1 Commercial Services Limited v Spooner Commercial Limited [2013] NZHC 796 (18 April 2013)

Last Updated: 30 April 2013

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV 2012-419-001238 [2013] NZHC 796

BETWEEN A1 COMMERCIAL SERVICES LIMITED Appellant

AND SPOONER COMMERCIAL LIMITED Respondent

AND MARK WARREN SPOONER AND KAREN LINDA SPOONER

Second Respondents

Hearing: 25 March 2013

Appearances: E J Hudson for the Appellant

T Braun and K Lomas for the Respondents

Judgment: 18 April 2013

_{[RESERVED] JUDGMENT OF WYLIE J}

This judgment was delivered by Justice Wylie on 18 April 2013 at 10.00 am

Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

E Hudson: [e-mail]

T Braun: [e-mail]

A1 COMMERCIAL SERVICES LIMITED V SPOONER COMMERCIAL LIMITED & ORS HC HAM CIV

2012-419-001238 [18 April 2013]

Introduction

[1] The appellant, A1 Commercial Services Limited (“A1”), appeals two

judgments of Judge P R Spiller, both given in the District Court at Hamilton.

[2] The first judgment appealed against is the substantive judgment, delivered on

10 August 2012. The matters raised in the notice of appeal are as follows:

(a) Did the Judge err by failing to consider the first respondent’s, Spooner Commercial Limited’s (“Spooner Commercial”), liability under the Contractual Remedies Act 1979?;

(b) Did the Judge err when he determined that the second respondents, Mr and Mrs Spooner, had not breached the provisions of the Fair Trading Act 1986?;

(c) Did the Judge err in relying upon the decision of the High Court in

Yandina Investments Limited v ANZ National Bank?;1

(d) Did the Judge err in assessing damages in the sum of $8,880?

[3] The second judgment appealed against is the costs judgment, delivered on

30 August 2012. The matters raised in the notice of appeal are as follows:

(a) Did the Judge err in awarding costs of $2,325 in favour of A1, and in particular, did he fail to give due weight to whether or not it was reasonable for A1 to reject a “Calderbank offer” made by Spooner Commercial and Mr and Mrs Spooner on 19 June 2012?;

(b) Did the Judge err in awarding costs of $12,613.11 in favour of Mr and

_{Mrs Spooner?}

1 Yandina Investments Limited v ANZ National Bank [2012] NZHC 1389.

Factual Background

[4] In early September 2009, Mr and Mrs Spooner purchased a business known as A1 Cleaning Services through their company, Spooner Commercial. Mr and Mrs Spooner owned farms, and in late September 2009, they became aware that a neighbouring farm was about to be put on the market for sale. They wished to buy it and they therefore decided to sell the cleaning business. They advertised it for sale on Trade Me.

[5] Mr Holden responded to the advertisement at the end of October 2009. He spoke with Mrs Spooner, who requested that he should sign a confidentiality agreement. Mrs Spooner prepared an agreement. It was sent to Mr Holden. He signed and returned it.

[6] Mrs Spooner then sent an information brochure on the business to Mr Holden. It indicated that the business was high performing and profitable. It was stated as follows:

This business has accumulated a number of loyal clients that have been with the company for many years, and who appreciate a high standard of cleaning and customer service...

We have 40 clients on our books at present and have signed contracts for each client. They are involved in various areas of business ranging from lawyers, professional officers, and body corporates, to a day hospital thus reducing risk.

The document referred to “we” and “our”. Both Mr and Mrs Spooner’s names

appeared at the bottom of the document.

[7] Mr Holden had a number of discussions with Mrs Spooner thereafter. At Mr Holden’s request, some limited financial information was provided by Mrs Spooner. The Holdens attended a meeting with Mr and Mrs Spooner in Morrinsville on 24 November 2009 to discuss the business, and how it was run. Mr and Mrs Holden then indicated that they required further financial information, before they could take the matter further.

[8] On 16 December 2009, Mrs Spooner sent the Holdens financial statements for the period ending 30 November 2009. She also sent them a list of 41 clients, detailing the amount invoiced to each client on a monthly basis, inclusive of GST. The invoices totalled $34,808.50, GST inclusive. The 41 clients were not listed by name, but rather by number.

[9] The Holdens sought advice from their own accountant.

[10] In mid January 2010, the Holdens decided to buy the business, and on

22 January 2010, they made a verbal offer of $280,000 to Mrs Spooner by telephone. They then received a telephone call from Mr Spooner, advising that he and his wife wanted $285,000 for the businesses. Mr Holden told Mr Spooner that he would need to think about it. He discussed the position with his wife and then spoke direct to Mr Spooner. The parties agreed to a purchase price of $282,500. The Spooners arranged for the agreement for sale and purchase to be prepared. The Holden’s solicitors requested a few minor changes, and ultimately, the agreement was signed on 4 March 2010.

[11] The agreement was between Spooner Commercial (then known as A1

Commercial Services Limited) and Mr and Mrs Holden, or their nominee. Inter alia, the agreement provided as follows:

(a) The sale/purchase price was $282,500, comprising: (i) Tangible assets — $20,000;

(ii) Intangible assets — $261,300; (iii) Stock in trade — $1,200;

(b) The deposit to be paid was $20,000;

(c) The settlement date was 15 March 2010.

[12] Mr and Mrs Holden purchased the business through their company — A1.

[13] Pursuant to the agreement, Spooner Commercial warranted to A1 as follows:

6.5 The vendor warrants and undertakes that the turnover warranty details stated on the front page of this agreement correctly disclose the turnover of the business (excluding GST) for the period stated and the vendor further warrants that as at the date of this agreement there are contracts in place in respect of the services of the business with turnover of not less than $33,008 (exclusive of GST) per month, and no client of the vendor has advised the vendor as at the date of this agreement that [they] propose to cease or reduce their existing business with A1 Commercial Services Limited.

[14] The turnover warranted on the front page of the agreement for the period

1 September 2009 to 31 December 2009 was $195,205 (excluding GST).

[15] There was a further term of sale, which read as follows:

27.1 The vendor undertakes that to the best of the vendor’s knowledge:

(a) all information known to the vendor which is likely to materially and adversely affect the purchaser in the operation of the business or the profitability of the business has been disclosed by or on behalf of the vendor...

(e) all information given by the vendor or any person on the vendor’s behalf in the course of negotiations leading to this agreement is true and correct in all material respects.

(f) it will disclose forthwith in writing to the purchaser any matter or thing which becomes known to it after the date of this agreement and prior to the settlement date, which is inconsistent with any other warranties, undertakings or the agreement contained in this agreement and pending the settlement date it will not do or remit to do or suffer to be done anything whereby any warranty or undertaking could be prejudiced.

...

[16] The agreement contained a due diligence provision.

[17] Prior to confirmation, Mr Holden asked for details of the business’ contracts with its various clients. The Spooners declined to provide details, but did supply a spreadsheet setting out the amount charged out to each client on a monthly basis. The spreadsheet did not disclose the names of clients. Mrs Spooner also sent copies of the business’ invoices sent to clients to Mr Holden, but again, the names of clients had been blanked out. Ultimately, copies of the client contracts were provided, but again, the names were deleted.

[18] The contracts were in the names of the previous owner of the business. Mrs Spooner told Mr Holden that she had sent out new contracts, but had not received all of them back.

[19] The Holdens were primarily concerned with the value of the contracts. Although they did not know the names of individual clients, they thought that all contracts were in place and that no clients had advised that they intended to cease or reduce their existing business with Spooner Commercial.

[20] The agreement became unconditional, and it was settled on 15 March 2010. Following settlement, the Holdens were given access to the business. They then obtained the signed client agreements, and they became aware of the identity of the business’ clients.

[21] On 18 March 2010, Mr and Mrs Holden received an email advice from one client, Bettle Advertising, advising that it was terminating its contract. In that email, it was noted that Bettle Advertising had had numerous issues with the company’s services that they had brought to the attention of Spooner Commercial and the Spooners. Mr Holden followed up, and Bettle Advertising replied, attaching copies of emails which it had sent to Mr and Mrs Spooner on 15/16 December 2009.

[22] Mr Holden visited various clients of the business. He met with a representative of a business known as WEL Networks Limited, based in Hamilton. It had two contracts with the business. The representative told Mr Holden that WEL’s contracts with the business were up for renegotiation. The WEL representative sent to Mr Holden copies of earlier correspondence dated

23 November 2009 which had been sent to Spooner Commercial, attention Mrs Spooner. The letter advised that WEL Networks considered that it was not obliged to honour its existing contracts, but had done so out of good faith. It recorded that the contracts expired in May 2010, and that a full review of WEL’s cleaning requirements and the market would be undertaken at that time.

[23] In the event, A1 tendered for the WEL cleaning contracts when they came up for review, but it was not successful.

[24] As a result, A1 found that it had lost the two contracts with WEL Networks Limited, and the contract with Bettle Advertising. The total value of these contracts was $7,267.75 per month. This was 23 percent of the represented monthly turnover of $31,008.

[25] The loss of the contracts was brought to the attention of Mrs Spooner, first by telephone calls and then through correspondence sent by Mr and Mrs Holden’s solicitor. The parties were unable to settle the matter, and proceedings were issued in the District Court.

District Court Decisions

[26] In a reserved judgment issued on 10 August 2012, Judge Spiller summarised the background to the matter, and then set out the competing arguments. He noted that Mr and Mrs Holden were asserting that Spooner Commercial had breached the warranties contained in cls 6.5 and 27.1 of the agreement, and that Spooner Commercial and Mr and Mrs Spooner were denying any breach of warranty.

[27] The Judge found that, in respect of the Bettle Advertising contract, Spooner Commercial had breached the warranty contained in cl 27.1 of the agreement. He noted that Spooner Commercial conceded that the notice of termination, and the concerns raised by Bettle Advertising in December 2009 were not disclosed to the Holdens. He reached the same conclusion in respect of the WEL Network contracts. He found that Mrs Spooner’s refusal to disclose the names of clients made it difficult for A1 to obtain an adequate grasp of the WEL contracts, and that this was compounded by the fact that Spooner Commercial did not disclose the letter of 23 November 2009.

[28] Judge Spiller acknowledged that the loss of the Bettle and WEL contracts resulted in a loss of monthly revenue representing 23 percent of the monthly turnover.

[29] Given those findings, the Judge did not consider it necessary to go on to

consider A1’s claim under the Contractual Remedies Act. Similarly, given his

finding that Spooner Commercial was liable for breach of warranty in the contract, he considered that it was not necessary for him to consider its liability under the Fair Trading Act. He did consider the liability of Mr and Mrs Spooner under that Act. He found that no evidence had been presented as to Mr Spooner’s liability under the Fair Trading Act. He noted evidence given by Mr Holden that Mrs Spooner did not specifically say that all contracts were in place, and that no clients had advised that they intended to cease or reduce their existing business. On this basis, he found that A1 had not established that Mrs Spooner made the representation alleged.

[30] The Judge then went on to consider evidence from a Mr Fieldes, who was an accountant in private practice. He was the accountant for A1. He also noted evidence given by a Mr Braithwaite, on behalf of Spooner Commercial and Mr and Mrs Spooner. It was Mr Fieldes’ evidence that the losses suffered by A1 amounted to $56,688.45. It was Mr Braithwaite’s evidence that the total loss was $8,880.

[31] Judge Spiller recorded that A1 was entitled to damages, being the difference between the purchase price of the business and the value of the business that it actually received. He referred to Yandina Investments, but then went on to say that while he had had regard to the evidence of Mr Fieldes, he had placed greater weight on the evidence of Mr Braithwaite. He recorded that he found Mr Braithwaite’s methodology to be more persuasive. He therefore adopted Mr Braithwaite’s calculation of loss, and awarded damages to A1 against Spooner Commercial of

$8,880. The claim against Mr and Mrs Spooner was dismissed.

[32] In a further judgment in relation to costs dated 30 August 2012, the Judge set out the relevant District Court Rules relating to costs. He considered that the proceedings were properly assessed on a 2B basis. He noted that A1 had succeeded to a limited extent in its claim against the first defendant, but that it failed substantially in respect of quantum, and that it failed altogether against Mr and Mrs Spooner. He referred to a Calderbank offer made by Spooner Commercial and the Spooners, and said that in light of these factors, A1 was entitled to costs of $2,325, but that the defendants were entitled to costs of $12,613.11. He ordered A1 to pay

the difference — $10,288.11 as costs and disbursements to Spooner Commercial and

Mr and Mrs Spooner.

Analysis

Was the Judge required to make a finding under the Contractual Remedies Act?

[33] Mr Hudson submitted that Judge Spiller was wrong in law in declining to consider Spooner Commercial’s liability under the Contractual Remedies Act. He argued that liability under the Contractual Remedies Act was the basis for establishing liability under the Fair Trading Act 1986, and that the need for a determination was therefore pivotal when it came to a consideration of Mr and Mrs Spooner’s liability under the Fair Trading Act.

[34] Mr Lomas submitted that Mr Hudson’s analysis was in error, that one claim was not contingent on the other, and that it was open to Judge Spiller to consider the claims independently.

[35] I do not consider that there is anything in this ground of appeal.

[36] A1’s notice of claim referred to both the Contractual Remedies Act and the Fair Trading Act. It outlined the facts relied on, and sought damages for loss of turnover in the sum of $56,688, together with damages for pain and suffering of

$10,000.

[37] While the notice of claim did not separate the causes of action relied on against each of the respondents, given that the claim was based on the agreement entered into on 4 March 2010, the claim under the Contractual Remedies Act could only have been against the first respondent, Spooner Commercial, because only Spooner Commercial was liable in contract.

[38] Judge Spiller expressly found that Spooner Commercial was liable for breach of the warranties contained in the agreement for sale and purchase. Given this conclusion, it was not necessary for him to go on to determine whether or not

Spooner Commercial was also liable for damages under the Contractual Remedies

Act, and I cannot see that he erred in declining to do so.

[39] The Fair Trading Act deals with conduct and practices in trade, and inter alia, it prohibits misleading and deceptive conduct and false representations. It provides for remedies which in some respects are more extensive than those provided by the Contractual Remedies Act. The same representation may well be caught under both Acts. Indeed, s 15(h) of the Contractual Remedies Act provides that nothing in the Act affects any other enactments so far as it prescribes or governs terms of contracts or remedies available in respect of contracts, or governs the enforcement of contracts. Similarly, s 50(1) of the Fair Trading Act provides that nothing in its provisions affects the operation of any other enactment. The two Acts stand apart, notwithstanding that they may frequently overlap. A claim under the Fair Trading

Act is not contingent on a finding of liability under the Contractual Remedies Act.2

[40] It is also noteworthy that A1 was seeking damages against the respondents. It had not sought to cancel the agreement. Damages for breach of warranty would have been the same as any damages which might have been awarded under s 6 of the Contractual Remedies Act.

[41] This ground of appeal fails.

Did the Judge err when he found that Mr and Mrs Spooner had not breached the

Fair Trading Act?

[42] Mr Hudson argued that Judge Spiller focussed on one point only, namely what words were used by Mrs Spooner. He submitted that A1’s claim was much wider than that, and that it embraced a number of representations. He argued, by reference to s 45(2) of the Fair Trading Act, that actionable misrepresentations were made by all respondents, and that the second respondents were liable for breach of

_{the Fair Trading Act.}

2 Burrows, Finn & Todd, Law of Contracts in New Zealand (4th ed LexisNexis, Wellington, 2012)

at [11.3.1] and [18.4.2(c)].

[43] Mr Lomas argued that Judge Spiller’s finding was a factual finding, made by reference to evidence given in the course of cross-examination by Mr Holden. He referred to the pleadings and noted that Mr Holden had accepted that Mrs Spooner had not specifically said that all contracts were in place, and that no clients had advised that they intended to cease or reduce their existing business with A1

Commercial Services Limited. He also argued that in any event, the Judge’s finding should stand, because such representations as were made by Mrs Spooner were not misleading and deceptive.

[44] I deal first with whether or not Judge Spiller erred when he found that

Mr Spooner could not be liable for misleading and deceptive conduct.

[45] Judge Spiller held that there was no evidence as to Mr Spooner’s liability

under the Fair Trading Act. In my judgment, Judge Spiller did not err in this regard

[46] There was evidence as to Mr Spooner’s role in the events which took place:

(a) There was the information brochure. As I have noted above, it referred to “we” and “our” and it had both Mr and Mrs Spooner’s names on it;

(b) It was Mr Holden’s evidence that Mr Spooner was present at the first meeting when, according to Mrs Spooner, many aspects of the business were discussed. Mr Holden also said that Mr Spooner was present at a later meeting, which took place after the agreement was signed, but before the agreement was confirmed as being unconditional. Mrs Spooner said that the names of clients were disclosed at this later meeting;

(c) Mr Spooner was, on the evidence, directly involved in settling the purchase price;

(d) According to Mrs Spooner, Mr Spooner delivered the business assets and information to the Holdens on settlement;

(e) Mr Spooner acknowledged that he had “a couple of conversations” with Mr Holden, and that he was present when Mrs Spooner was discussing matters with Mr Holden on the telephone.

[47] Mr Spooner clearly had a role, albeit a limited role. It cannot, however, be concluded that Mr Spooner engaged in misleading or deceptive conduct. The onus was on A1 and the Holdens to establish that Mr Spooner breached s 9 of the Fair Trading Act. Mr Holden made only passing reference in his evidence to Mr Spooner. He did not attribute any misleading and deceptive conduct to him. I agree with Judge Spiller that, on the available evidence, there was nothing to suggest any misleading or deceptive conduct by Mr Spooner.

[48] I now turn to consider Mrs Spooner’s conduct.

[49] It is first necessary to consider A1’s pleadings. It was alleged that the respondents misrepresented the business and failed to supply information relating to its clients. Further, it was alleged that the first respondent, through the second respondents, had contractual obligations under the agreement for sale and purchase. Clauses 6.5 and 21.7 were noted. The information brochure was referred to, as were the various discussions Mr Holden had with Mrs Spooner, and the information which she provided at various points in time. It was alleged that the information brochure was a representation made by the respondents to induce A1 to enter into the agreement for sale and purchase. Reference was made to advice said to have been given by Mrs Spooner that all contracts were in place, and that no client had advised that it intended to cease or reduce its existing business. It was alleged that both Spooner Commercial and Mr and Mrs Spooner had failed to advise prior to settlement that advice had been given by WEL Networks that its contracts were due to be re-tendered in May 2010, and that both Spooner Commercial and Mr and Mrs Spooner failed to advise that they had received notification from Bettle Advertising recording that it intended to terminate its contract.

[50] Mr Holden read a statement of evidence at the hearing. He recorded that he and his wife had relied upon Mrs Spooner’s advice that all contracts were in place and that no clients had advised that they intended to cease or reduce their existing

business with Spooner Commercial. He was challenged in this regard in cross- examination. Initially, he said that Mrs Spooner had told him what he had stated in his written brief. When he was questioned further, he conceded that Mrs Spooner had not said this word-for-word. He said as follows:

Um, can I – well she told, she never told us that there was any letter of termination, okay, that she had received a letter of termination of the contracts, um, as I said here, we had to rely on her advice, um, and look I’ve written that there because I know that so basically word for word, but, um, we had to rely on her advice that exactly that had happened, that no client of (Spooner Commercial’s) had, um, indicated they wished to cease or reduce their business with [Spooner Commercial].

He went on to reiterate that Mrs Spooner did not tell him that there had been any letters of termination, although he accepted that Mrs Spooner did not specifically say that all contracts were in place, and that no clients had advised that they intended to cease or reduce their existing business with Spooner Commercial. He said as follows:

Well I’m sorry it was a long – I can’t recall exactly what she said but she certainly did not say that there were any contracts that were coming up for termination that, they had been told that any contracts were getting terminated. She presented all the contracts that they had and that they were all current contracts, that they had sent out replacement, their form of the contract to replace the old ones because of the change in the name of the business. She’d received some back, they were still waiting on some to come back and, yeah, that they were all, all good to go.

He then went on to say that the language he used in his written brief of evidence was his way of “expressing what [they] were told”, but that the wording could have been different.

[51] Judge Spiller noted Mr Holden’s acknowledgement that Mrs Spooner did not specifically say that all contracts were in place and that no clients had advised that they intended to cease or reduce their existing business with Spooner Commercial. He found that A1 had not established that Mrs Spooner made the representation alleged.

[52] In my view, the Judge erred in this finding. He focussed on the concession made by Mr Holden, and did not fully address A1’s pleaded causes of action or Mrs Spooner’s conduct in its totality.

[53] Section 9 of the Fair Trading Act is wide in its import, and it extends to catch misrepresentations that induce parties to enter into contracts. Mrs Spooner, as a director of Spooner Commercial, was trying to sell the cleaning business. She was in trade for that purpose. It may not have been her intention to mislead, but s 9 does not require that. It is enough if that was the tendency of her conduct. In my judgment, Mrs Spooner’s overall conduct, examined objectively, was deceptive or misleading in the circumstances that applied. I note the following:

(a) The information brochure made much of Spooner Commercial’s

contracts with its existing clients;

(b) Monthly charge out details on a client-by-client basis were made available by Mrs Spooner;

(c) Mrs Spooner told Mr Holden that Spooner Commercial had sent out new contracts to existing clients, given the change in ownership. While she advised that not all of the contracts had been returned, she did not disclose that some contracts might not be signed or returned;

(d) Copies of existing contracts with clients were made available by

Mrs Spooner;

(e) Mrs Spooner was aware of the emails from Bettle Advertising. The email dated 15 December 2009 was addressed direct to her. She was also aware of the letter from WEL Network. She failed to disclose these documents to the Holdens. Rather, she provided to them information which represented that the turnover of the business on a monthly basis was $33,008 (exclusive of GST). That turnover included revenue derived from the Bettle Advertising and WEL Networks contracts.

The failure to disclose, together with the positive representation as to turnover, were in my view, misleading and deceptive conduct, in terms of s 9 of the Fair Trading Act. The conduct was that of Mrs Spooner. She was a director of

Spooner Commercial and she was, in effect, acting as its agent. Her conduct is also deemed to have been engaged in by Spooner Commercial.3 Both Mrs Spooner and Spooner Commercial were liable for any loss or damage suffered by A1 as the Holden’s nominee.4

Did the Judge err in relying upon the decision of this Court in Yandina Investments

Limited v ANZ National Bank?

[54] Mr Fieldes was A1’s accountant. He accepted that in cross-examination, and he accepted that he was not independent of A1. Further, in his evidence he did not record that he had read and agreed to comply with the experts’ code of conduct contained in the District Court Rules.5

[55] Mr Hudson argued that no objection has been taken to Mr Fieldes’ failure to comply with the Rules. He submitted that leave had been implicitly given for him to give evidence. He acknowledged that Mr Fieldes acted as A1’s accountant, but submitted that this did not mean that Mr Fieldes was not an expert, or that he was unable to give expert evidence as to the appropriate damages for the breaches of warranty. He referred to the decision of Mallon J in McIntyre v Nemesis DPK

Limited.6

[56] Mr Lomas submitted that A1’s notice of appeal did not accurately reflect what Judge Spiller decided. It was argued that the Judge did in fact have regard to Mr Fieldes’ evidence.

[57] Mr Fieldes’ failure to comply with the code of conduct for expert witnesses meant that his evidence could only be given with permission of Judge Spiller.7 No express permission was sought or granted. However, Judge Spiller expressly recorded that he did have regard to Mr Fieldes’ evidence. It must follow that the

_{Judge in effect granted permission.}

3 _{Fair Trading Act 1986, s 45(2).}

4 _{Ibid, s 43.}

5 _{District Court Rules, r 3.68.}

6 _{McIntyre v Nemesis DPK Limited HC Nelson CIV 2005-442-558, 14 April 2008.}

7 Evidence Act 2006, s 26(2).

[58] Judge Spiller referred to Yandina Investments Limited v ANZ National Bank Limited. He noted that in that decision, Miller J observed that evidence, given by one party’s accountant, which was not given with any evidence of expert qualification, and without the usual undertakings to the Court, was unlikely to be accepted at trial.

[59] However, Judge Spiller did not go on to exclude Mr Fieldes’ evidence.

Rather, he said as follows:

In the present case, while I have had regard to the evidence of Mr Fieldes, I have placed greater weight on the evidence of the expert witness, Mr Braithwaite.

[60] In my view, there is nothing in A1’s notice of appeal in this regard. Judge Spiller did not, in reliance on Yandina, decline to accept Mr Fieldes’ evidence.

Did Judge Spiller err in assessing damages in the sum of $8,880?

[61] Mr Hudson submitted that the award of damages made by Judge Spiller was not in accord with established principles, and that it failed to place A1 in the position it would have been in but for the breaches of warranty.

[62] Mr Lomas submitted that Mr Fieldes’ calculation of loss was simplistic, and that the various criticisms now made of Mr Braithwaite’s evidence were not put to him in cross-examination. He submitted that Mr Braithwaite was the only independent, properly qualified expert, who gave evidence at the trial. It was submitted that Judge Spiller adopted an orthodox approach, when he preferred Mr Braithwaite’s evidence.

[63] I have difficulty with this aspect of the Judge’s decision. As I have noted, he recorded that he placed greater weight on Mr Braithwaite’s evidence. He then went on to say as follows:

I find the methodology of Mr Braithwaite to be more persuasive. I therefore adopt the calculations of loss as outlined by Mr Braithwaite.

[64] The Judge gave no further or more detailed reasons for this finding.

[65] The difficulty posed by the Judge’s finding is that it is based on conclusory reason. There is no analysis of Mr Braithwaite’s evidence, or of Mr Fieldes’ evidence. There is no reason given for fixing damages in the sum of $8,880.

[66] The importance of a decision maker giving reasons was recognised in Lewis v Wilson & Horton Limited.8 The Court acknowledged that there is no invariable rule established by New Zealand case law that Courts must give reasons for their decisions, but went on to record that it is highly desirable for Courts to do so. The Court identified three main reasons why the provision of reasons by Judges is desirable:

(a) The provision of reasons by a Judge is an important aspect of openness in the administration of justice. It considered that the provision of reasons is critical to the maintenance of public confidence in the judicial system. As the Court noted, “Without reasons, it may not be possible to understand why judicial authority has been used in a particular way”;9

(b) A failure to give reasons means that the lawfulness of what is done cannot be assessed by a Court exercising supervisory jurisdiction. As the Court noted, “It is important that sufficient reasons are given to enable someone affected to know why the decision was made and to be able to be satisfied that it was lawful. Without such obligation, the right to seek judicial review of a determination would, in many cases,

be undermined”;10

(c) The provision of reasons provides a discipline for a Judge, which is the best protection against wrong or arbitrary decisions and the

_{inconsistent delivery of justice.}11

8 _{Lewis v Wilson & Horton Limited [2000] 3 NZLR 546 (CA).}

9 _{Ibid, at [79].}

10 _{Ibid, at [80].}

11 Ibid, at [82].

The Court acknowledged that reasons may be abbreviated, and that in some cases, they will be evident without express reference.

[67] In the present case, it is simply not possible to conclude why Judge Spiller

accepted Mr Braithwaite’s evidence.

[68] The difficulty is compounded because Mr Braithwaite, in his will say statement, did not explain his methodology at all. Rather, he simply annexed his calculation of the plaintiffs’ loss in a spreadsheet. The methodology leading to the spreadsheet which had been prepared was not obvious. In his oral evidence-in-chief, Mr Braithwaite gave a partial explanation of his methodology. He explained that he had attempted to allocate the goodwill paid across the contracts that were purchased. He explained that he had taken two approaches. The first approach was to assume that the revenue from each open-ended contract would run for a term of 30 months, and to assume that the revenue from the fixed-term contracts would only run for the fixed term. His second approach was to take the same methodology, so as to spread the purchase price across the various contracts, but to assume that the period for which the open-ended contracts would run would be linked to the period that they had run to date. He gave different loss calculations for each method.

[69] When he was asked whether it would affect his calculations if the Court were to conclude that the Bettle Advertising emails should have been disclosed to A1 and the Holdens, he answered in the affirmative, and said that any such finding would require a “re-weighting” of the value ascribed to the Bettle Advertising contract, to take into account what he described as the “uncertainty” attaching to the contract. He considered that that uncertainty would require an “assessment of probability” of the ongoing revenue attaching to the contract, and suggested that there was perhaps a

50 percent chance of the contract continuing, or not continuing. He had ascribed a value of $13,327.59 to the Bettle Advertising contract, and he suggested that that sum should be reduced to say, $6,500.

[70] Mr Braithwaite was not asked any similar questions in relation to the WEL Networks correspondence.

[71] The net loss calculated by Mr Braithwaite on his first approach, without allowing for any adjustment for the Bettle Advertising contract, was $15,543.19. His net loss using his second approach was $17,530.49. Nowhere did he state that the net loss was $8,880.

[72] Presumably, Judge Spiller accepted Mr Braithwaite’s first approach, ignored the value he had initially ascribed to the Bettle Advertising contract, instead took Mr Braithwaite’s estimated loss of $6,500 in relation to the Bettle Advertising contract, and added that sum to Mr Braithwaite’s calculated loss in respect of the WEL Networks contracts, namely $2,215.59. Presumably, he then rounded this figure to allow damages of $8,880, although how the Judge got to the relatively precise figure is not clear.

[73] If Judge Spiller had adopted Mr Braithwaite’s second approach, and made the

same calculations as I have set out above, the net loss would have been $9,911.39.

[74] Nowhere is any of this explained by the Judge. There was no attempt to

analyse Mr Braithwaite’s evidence, or to explain how the damages were fixed.

[75] In my judgment, there were not insignificant difficulties with

Mr Braithwaite’s evidence. I note the following:

(a) Goodwill represents the amount somebody is prepared to pay to purchase a business’ future ability to make a profit. It can include for example, the name of the business, its standing and the likelihood of existing clients remaining and new clients coming to the business. Mr Braithwaite made no allowance for these intangible benefits. His calculations were profit driven, and they failed to allow for other factors which can contribute to goodwill.

(b) Mr Braithwaite assumed that term contracts without a fixed term would continue for 30 months. This assumption is not explained. It appears to have been purely arbitrary.

(c) Mr Braithwaite assumed that fixed-term contracts would not continue or be renewed. There does not seem to be any basis for this assumption. Indeed, it was contrary to evidence given by Mr Holden.

(d) Mr Braithwaite’s calculations failed to reflect that a purchaser pays goodwill for a business, in the expectation that it will continue. Clearly, a purchaser has to accept that some clients will be lost over time, but equally, he or she is entitled to expect that others will replace them if the firm has a good reputation. Mr Braithwaite’s calculations appear to have been made on the basis that the business would progressively shut down, and that it would cease to have any goodwill as and when the contracts came to an end.

(e) There was no basis advanced by Mr Braithwaite as to why the losses suffered as a result of non disclosure of the Bettle Advertising emails reduced the loss by 50 percent.

(f) There was no evidence as to how non disclosure of the

WEL Networks correspondence affected his loss calculations.

[76] I have some sympathy for Judge Spiller. None of these matters were put in cross-examination. Many of them were advanced to me in the course of the appeal hearing. They should have been put to Mr Braithwaite at the initial hearing.

[77] In my judgment, an award of damages of $8,800, given the breaches of warranty here accepted by the Court, was patently inadequate. Mr and Mrs Holden paid $261,300 for the business’ intangible assets — including its ability to generate monthly revenue of $33,008. In my view, the Holdens would not have paid that sum, had they known that 23 percent of that monthly revenue was either lost or at significant risk.

[78] Mr Hudson asked me to set aside the damages fixed by the Judge, and substitute the loss calculated by Mr Fieldes — namely $56,688.45.

[79] I am not prepared to do so. It seems to me that there are deficiencies in Mr Fieldes’ analysis as well. Mr Braithwaite accepted that Mr Fieldes’ calculation, while broadly acceptable, was based on inappropriate assumptions. In particular, he was critical of Mr Fieldes’ calculation, because it assumed that the goodwill attributable to each of the business clients should be valued on a pro rata basis. I agree with Mr Braithwaite’s comments in this regard. Because the various contracts had different terms, different weighting needed to be applied to them, and it was inappropriate to apportion goodwill pro rata on a client-by-client basis. Further, it was inappropriate to assume that goodwill is driven only by the existing clients that the business had. This is the same mistake that Mr Braithwaite made. Further, Mr Fieldes’ calculations assumed that the WEL Networks and Bettle Advertising contracts had no value as at the date of settlement. That assumption was not correct. While the Bettle Advertising contract was terminated shortly after settlement, the WEL Networks contracts continued to run through until mid May 2010, and A1 obtained some value from those contracts. Mr Fieldes accepted this in cross- examination, but he declined to modify his loss calculation.

[80] It is tempting, given the modest amount in dispute, to fix damages, and to bring this dispute to an end. However, I have concluded that it would not be appropriate to do so. There is no satisfactory evidence before me on which I can properly assess damages. Any figure I might set would be no more than an educated guess. I am conscious that Mr Braithwaite in particular has not had the opportunity to respond to the criticisms I have set out above. There may be answers to them. Accordingly, I have no alternative but to remit this matter to the District Court, to reconsider the quantum of damages in this matter.

The Costs Decision

[81] I am allowing the appeal, and setting aside the substantive decision. The costs decision made by Judge Spiller cannot stand.

[82] In any event, it seems to me that there are difficulties with the costs decision. First, Judge Spiller awarded costs in favour of the respondents against A1, because he considered that it had not acted reasonably in rejecting a “Calderbank offer”. An

initial offer was made by the respondents on 27 March 2012 in the sum of $6,500. A later offer was made by the respondents on 17 June 2012, in the sum of $20,000. As at the date of both offers, A1 had filed a will say statement from Mr Fieldes. No will say statement had been filed on behalf of the respondents from Mr Braithwaite. Mr Braithwaite’s will say statement was not filed until 17 July 2012. In my view, it cannot be said that A1 acted unreasonably in declining the offers. It only had Mr Fieldes’ assessment of loss. It did not know what the respondents were saying about that issue. Secondly, in my judgment, Judge Spiller erred in awarding costs in favour of Mr and Mrs Spooner. As I have noted above, Mrs Spooner had breached the provisions of the Fair Trading Act. Mr Spooner had not done so, but he was not separately represented at the hearing.

Result

[83] The appeals are allowed. The substantive decision of the District Court dated

10 August 2012, and its costs decision dated 30 August 2012 are set aside.

[84] I hold that Mrs Spooner has breached s 9 of the Fair Trading Act 1986. It follows that both Spooner Commercial and Mrs Spooner are liable to pay damages to A1. The proceeding is remitted to the District Court so that it can reconvene the hearing and consider what damages should appropriately be awarded to A1.

[85] I decline to make an order for costs in relation to the appeal. My reasons for doing so are as follows:

(a) A1 has only succeeded in part in relation to the matters raised by it in its notice of appeal. Some of the matters raised by it were always unlikely to succeed.

(b) A1 failed to put to Mr Braithwaite in cross-examination before the District Court the various criticisms of his methodology which were advanced before me. It should have done so. Had it done so, it is likely that Judge Spiller would have addressed the damages issue rather more closely, and analysed the evidence presented both by

Mr Fieldes and Mr Braithwaite in more detail. The need for this appeal and for the matter now to be remitted to the District Court may

_{well have been avoided.}

Wylie J