August 2014. . . At what point does “sharp practice” in commercial transactions cross the line and become unlawful activity? That was question the Court of Appeal had to determine in the recent case of Wagner v Gill and others that was decided last month.
The case involved a claim by Ms Wagner (W) against Mr Gill (G) and his various companies. G’s company Digital Partners Limited (DPL) had purchased a website business from W for $700,000 with the purchase price payable in five instalments subject to the future performance of the website business. The purchase price was guaranteed by another of G’s companies called BA Partners Ltd (BAP). The troubles began for W after DPL had paid approximately half of the purchase price but then claimed nothing further was owed since the website business had not been as profitable as expected. Arbitration followed in which W successfully obtained an award of around $320,000 however DPL and BAP then went into receivership with the result being there were no funds available to pay W.
W then took legal proceedings against G and his companies claiming that they had conspired to implement an asset stripping scheme to disadvantage creditors. The main element of the conspiracy claim involved a sponsorship and marketing contract that BAP held with Netball NZ – that contract was BAP’s main asset. The contract allowed Netball NZ to terminate the agreement if G (as the key person) resigned. G had written to the directors of BAP (being himself as sole-director) resigning from his employment as CEO of the company. He then wrote to Netball NZ advising that BAP was in financial difficulty and that he had resigned, acknowledging their right of termination and seeking support from Netball NZ for a new contract on the same terms with G’s new company (BAMC). Netball NZ duly obliged and sent a termination letter to BAP and a new appointment letter to BAMC (those letters having been drafted by G himself). The result was that BAP (as guarantor of DPL’s obligations to W) had lost its main asset.
W’s claim for conspiracy had two elements: firstly “conspiracy to injure” and secondly “unlawful means conspiracy”. The general purpose of these causes of action is to prevent conduct that damages or interferes with the business interests of others.
A “conspiracy to injure” claim requires the claimant to show that the conspirators had acted for the dominant purpose or with the intention of injuring the claimant’s interests. In the High Court the judge did not agree that G’s conduct met that threshold – the most that could be said was that G had been careful to structure the business and affairs of BAP to enable him to protect the netball contract from W and other creditors. Therefore the “conspiracy to injure” claim failed and W did not pursue that in the Court of Appeal.
The second claim was for “unlawful means conspiracy”, which is committed where two or more people combine and agree that at least one of them will act unlawfully to cause damage to another person. In this case the unlawful action was said to be G’s breach of his director’s duty under the Companies Act to act in the best in interests of BAP because of the steps he took to “engineer” the transfer of the netball contract to another company. The problem for W was that, under the Companies Act, that director duty is owed to the company rather than to creditors. The judges in the Court of Appeal considered various cases about whether this could amount to “unlawful means” for the purposes of the conspiracy claim but in the end they decided it did not in W’s situation, noting that the Companies Act and Property Law Act provided possible alternative remedies for W and there was no “gap in the law” that needed to be addressed.
Therefore W’s claims were unsuccessful – the Court of Appeal decision ultimately upholding the High Court judge’s conclusion that, although G was a shrewd businessman and there may have been an element of “sharp practice” in what had taken place, that conduct was not sufficiently unlawful for W to succeed.