Ipsofactoj.com: International Cases [2003] Part 3 Case 7 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

New World Property Ltd

- vs -

New Image International Ltd

BLANCHARD J

McGRATH J

ANDERSON J

26 MARCH 2002


Judgment

Blanchard J

INTRODUCTION

  1. The appellant, New World Property Ltd (New World), entered into an agreement on 11 August 1998 with the first respondent, New Image International Ltd then known as New Zealand New Image Ltd (NZ New Image), for the sale to NZ New Image of its 26% shareholding (the shares) in a Hong Kong company, NZ New Image (HK) Ltd (the Hong Kong company) in which NZ New Image already held the other 74% shareholding.

  2. NZ New Image is a multi-level marketing company which manufactures and/or distributes health care and nutritional products through a network of individual distributors.

  3. The agreed price for the shares was US$260,000 payable by a deposit of US$65,000 and 12 monthly instalments of US$16,250 commencing on 2 October 1998. The deposit was paid and the shares were duly transferred to NZ New Image. But it failed to make any further payments. New World sued in the High Court at Auckland for the balance of the price plus interest. It also sued Mr Graeme Clegg, the second respondent, the principal of NZ New Image, who had signed a guarantee relating to his company’s performance of the sale and purchase agreement.

  4. NZ New Image and Mr Clegg defended the claim and brought a counterclaim seeking recovery of moneys paid under the agreement alleging that New World was in breach of an implied term that it would use its best endeavours to protect the goodwill of the Hong Kong company and NZ New Image "including assisting with hand over to new management, maintaining good relationships with staff and distributors and not in any way upset the good relationships of all parties". It was alleged against New World that in the latter part of 1998 it formed or acquired an interest in a company called Bettalife International (HK) Limited (Bettalife) which was in competition with the Hong Kong company and that it induced employees of the Hong Kong company to terminate their employment and move to Bettalife. These employees were said to include a key employee and distributor, Ms Maisie Mei Sze Tryde. It was also alleged that New World induced distributors to terminate their distributorships with the Hong Kong company and generally undermined its business.

  5. In the counterclaim the first respondent sought a declaration that it had no liability to New World and had validly cancelled the agreement. It also sought recovery of the US$65,000 deposit.

  6. New World appeals from a judgment from Morris J delivered on 24 May 2001 in which he dismissed its claim and found that it was liable on the counterclaim to repay the US$65,000 to NZ New Image. The issues on the appeal are whether the Judge was right in finding that there was an implied term as alleged by the respondents and, if so, whether New World and its principal, Mr Graham Cornell, were in breach of that term by certain activities, including the establishing of Bettalife and the subverting of Ms Tryde’s relationship with the Hong Kong company to the advantage of Bettalife, and so brought about the financial downfall of the Hong Kong company.

    FACTS

  7. In 1994 NZ New Image incorporated the Hong Kong company as a joint venture in which it held 74% of the shares and a Dr Hew held 26%. In April 1995 Dr Hew sold out. Mr Cornell had prior to that time been a New Image distributor in Australia. He believed that with the help of Ms Tryde, a Hong Kong resident who had become the Hong Kong company’s national sales manager and had built up a network of distributors, he could successfully run the Hong Kong company. Through his own company, New World, Mr Cornell purchased the 26% shareholding for HK$117,000 and paid NZ New Image a licensing fee of US$260,000 which was in effect a goodwill payment for the use of the New Image name and marketing plan. Mr Cornell was appointed managing director of the Hong Kong company on a salaried basis. At the same time Mr Cornell was appointed as the principal distributor of the company’s products in Hong Kong and signed a distributorship agreement with NZ New Image which provided that during the currency of the agreement or for six months after its termination he would not recruit or solicit any distributor of NZ New Image on his own behalf or on behalf of any other direct selling or network marketing company. It has not been suggested to us that this obligation did not cover distributors of the Hong Kong company like Ms Tryde.

  8. The Hong Kong company traded quite profitably in the years ended 30 June 1995 and 1996 but made large losses in the years ended 30 June 1997 and 1998.

  9. By May 1998 an accountant, Mr Stewart, who acted as financial consultant to NZ New Image, was advising Mr Clegg that the Hong Kong company was insolvent. Over a period of some weeks there were negotiations between Mr Clegg and Mr Cornell in which Mr Stewart was also involved on Mr Clegg’s behalf. Mr Clegg and Mr Stewart were also negotiating with a Mr Sun of a Taiwanese company called Totalife. The idea being discussed was that Totalife would in some manner replace New World and Mr Cornell as NZ New Image’s Hong Kong joint venturer, with NZ New Image continuing as manufacturer of all or part of the products which would be distributed.

  10. After a meeting between Mr Cornell and Mr Clegg on 24 June 1998 there was a proposal in writing for the resolution of the position and the transfer of New World’s shares. One of the proposed terms (Clause 5) appeared as follows in a document prepared on behalf of NZ New Image and was subsequently carried forward in virtually identical terms in counter-offers by Mr Cornell:

    Cornell to use his best endeavours to protect the goodwill of NZ New Image (HK) Ltd and New Image International including assisting with hand over to new management, maintaining good relationships with staff and distributors and not in any way upset the relationships of all parties.

  11. The document of 24 June also proposed a sale price for the shares of US$260,000 but payable over a period of 18 months.

  12. Eventually on 11 August 1998 a document prepared by Mr Cornell was signed in Hong Kong as follows:

    LETTER OF INTENT

    This is a Letter of Intent between the parties listed below:

    New Zealand New Image Limited, a duly incorporated company having its registered office at Auckland New Zealand ("the purchaser")

    Graham Frederick Cornell ("the vendor")

    Graeme Lindsay Clegg ("the guarantor")

    And in recognition of the Joint Venture between the purchaser and the vendor dated the 28th April 1995:

    The purchaser hereby agrees to acquire from the vendor the rights to the license, goodwill and business known as N.Z New Image (HK) Ltd on the following terms and conditions:-

    Purchase Price: US$260,000, US Dollars two hundred and sixty thousand

    Settlement Terms: US$65,000, US Dollars sixty five thousand

    Payable on execution of this document. The balance payable in 12 (twelve) monthly installments of US$16,250, commencing on the 2nd October 1998 and finalizing on 2nd September 1999.

    Shall arrange the necessary documentation to enable the pledge (as security of the debt until paid in full) of 50% (fifty percent) of the share holding in N.Z. New Image (HK) Ltd.

    The vendor hereby agrees to:

    Transfer his interest in the business to the purchaser, and

    Resign all official offices within the business

    The guarantor agrees to unconditionally guarantee the performance of the purchaser in this transaction.

    All parties agree that as soon as practicable hereafter, the purchaser will arrange to have a full business contract drawn up for execution by all parties. Such contract must reflect the transaction as described in this document.

  13. No "full business contract" was ever signed. Although New World was not a signatory to the Letter of Intent it transferred its shares upon payment of the US$65,000 and there is no question but that in relation to the shareholding Mr Cornell was acting on New World’s behalf. It was also agreed that Mr Cornell would be paid HK$15,000 in recognition of his efforts during the hand over of the business which occurred in August 1998. This sum was duly paid. Mr Cornell’s connection with the company ceased as from 11 August. Ms Tryde continued working as national sales manager for the Hong Kong company.

  14. It is common ground that Mr Cornell’s distributorship agreement continued and that he remained bound by the restraint clause to which reference was made in para [7] above. Ms Tryde’s operations as a distributor took place within the Cornell distributor network, which was said in Mr Clegg’s evidence to make about 90% of the Hong Kong sales.

  15. Evidence was given by a Mrs Fettes, who was not a New Image distributor, that in "early August" she had initiated a meeting with Mr Cornell as a result of learning from a Mr Johnston that Mr Cornell was leaving the Hong Kong company and was setting up a new network marketing company. He had confirmed to her that he was looking for investors and personnel. The new company was envisaged to be a supplier of skin care and nutritional supplement products to five countries and Mr Cornell and Ms Tryde were to be in the supplying operation. (In passing we note that this suggestion about Ms Tryde’s proposed involvement at this time – i.e. prior to the transfer of the shares – had not been put to Mr Cornell when he gave evidence. Indeed, he said that this meeting occurred only a day before the second meeting to which we now refer. He was not cross-examined on this point either.)

  16. It does not appear from Mrs Fettes’ evidence that Ms Tryde was present at this first meeting. She was however present at a second meeting with Mr Cornell and Mr and Mrs Fettes on 19 August where there were similar discussions but no decision was taken. In her brief of evidence, Mrs Fettes said that a company name like Bettalife was mentioned by Mr Cornell. In giving evidence, however, she suggested this had happened at the earlier meeting.

  17. A few days later Mrs Fettes told Mr Johnston what she had learned from Mr Cornell. Mr Johnston, the managing director of an Australian company which has products distributed through the New Image network, then contacted Mr Cornell who confirmed that he had approached Mrs Fettes and "many others" (it is not clear that any of those referred to were New Image distributors) and that he was using New Image staff to assist him. He had mentioned Ms Tryde as one of those. The nature of the assistance, and whether it related only to the approaches to others, was not made clear in Mr Johnston’s evidence.

  18. Mr Johnston alerted Mr Clegg to what was said to be happening. Mr Johnson’s evidence was that rumours were rife in Australia, New Zealand, Hong Kong and Malaysia that Mr Cornell was setting up a network distribution company to be known as Bettalife.

  19. On 28 September Mrs Fettes telephoned Mr Clegg and told him what she knew about Mr Cornell’s activities.

  20. On 30 September Mr Clegg wrote to Mr Cornell. He referred to the accumulating losses of the Hong Kong company over the last couple of years which had necessitated some form of restructuring or closing of the company. He said that Mr Cornell was well aware of the financial situation "and how important it would be for the Hong Kong company to continue its recovery, or at the very least maintain its market share". He referred to Clause 5 as being a "key condition of the agreement to pay you $260,000 (for a very substantially devalued licence)". Mr Clegg continued:

    Within days of payment to you [of] $65,000 stories began to surface that you were involved in setting up another network marketing company with proposed branches in Hong Kong, Malaysia, Singapore, Australia and New Zealand. At that stage I naturally dismissed the rumours.

    Graham, over the past month sufficient information has come my way clearly indicating that you have been discussing the concept with people known to us inside and outside of New Image in Hong Kong and elsewhere about the proposal including the arranging of finance etc. I have details of meeting dates and names of people within the discussion group including the name of the proposed company and the proposed holding company.

    You have been in business long enough to know that ethically and legally these activities constitute a breach of the agreement that was signed and this letter serves notice that no further payments will be made and action will be taken to recover the US$65,000.

    The case for the respondents has been advanced on the basis that the share sale agreement was by this means cancelled on 30 September 1998.

  21. The business of the company had from the time of Mr Cornell’s departure been run by appointees of Mr Sun of Totalife. Totalife had acquired 50% of the shares. The company was not prospering. Sales had dipped sharply in September, although in October they returned to above the levels experienced at the beginning of 1998. Ms Tryde was told that as a result of restructuring the company could no longer continue to pay her a 2% override she had previously received. Her position of national sales manager was discontinued, and although the company "was very keen for me to keep working for it....the remuneration package was not sufficiently attractive for me to stay". She left in December 1998. In his evidence, Mr Sun accepted that Ms Tryde had been made redundant.

  22. At the end of the year Mr Clegg and Mr Sun closed down the company. It was subsequently treated as valueless and wound up. The closure was because Mr Sun was unhappy that there were:

    .... many problems and obstacles preventing growth. I felt there were skeletons undiscovered. I decided it would be prudent to form a completely new company ....

  23. Mr Clegg and Mr Sun incorporated a new company which traded as from January 2000, but it too was unsuccessful and closed down the same year with large losses.

  24. After leaving the Hong Kong company Ms Tryde occupied herself for a few months establishing a beauty salon. It was not until April 1999 that the Bettalife Hong Kong company, which Mr Cornell had incorporated on 21 December 1998, began its operations and Ms Tryde joined that company.

    THE HIGH COURT JUDGMENT

  25. Morris J said that he had no doubt whatsoever that when the parties signed the agreement on 11 August 1998 both understood that Mr Cornell would act as indicated by Clause 5. He referred to passages in the cross-examination of Mr Cornell he saw as supportive of this view. He referred also to his own question to Mr Cornell asking whether he would understand a clause such as Clause 5 to be part of the deal, to which the response had been that it was "unnecessary to write [it] in". The Judge said that Clause 5 was "never a clause which was in dispute. Indeed it was first proposed by Mr Cornell". (Although nothing turns on the point, it appears that it was in fact first suggested by Mr Stewart.) The Judge was sure that Mr Cornell realised that such a clause was reasonable and equitable and essential to make the contract work and be meaningful. He found that without the clause there would be no business efficacy to the contract and that its necessity was so obvious that it went without saying; and that its inclusion as a term satisfied the five point test found in the decision of the Privy Council in BP Refinery (Westernport) Proprietary Ltd v Shire of Hastings (1977) 16 ALR 363, namely that the term:

    1. must be reasonable and equitable;

    2. must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

    3. is so obvious "it goes without saying";

    4. must be capable of clear expression; and

    5. must not contradict any express term of the contract.

  26. Morris J said that in the circumstances it was plain that all parties felt this provision was necessary.

    If it was not there Mr Cornell could have with impunity set up a rival organisation and taken key distributors with him. He could, in other words, simply destroy New Image. Any monies paid over would have been for nothing.

  27. Turning then to the issue of whether New World/Mr Cornell had breached the term, the Judge said that it had imposed on him a duty to assist in the handing over to the new management, which was then likely to be Totalife. It imposed upon him an obligation of maintaining a good relationship with staff and, probably more importantly, distributors.

  28. It was plain to the Judge that there was goodwill to be protected. Apart from anything else, there was a Hong Kong license. If the evidence established that Mr Cornell actively solicited staff or distributors to change their allegiances from the Hong Kong company to a company of his own likely to compete with New Image this would, in the Judge’s view, be a breach of the provisions of Clause 5.

  29. The Judge found it established that:

    • Mr Cornell had left NZ New Image on 11 August and at no time thereafter had given any assistance "to Totalife;"

    • Mr Cornell had met Mrs Fettes in early August 1998 and had told her (inter alia) that he was starting a new company, namely Bettalife, and was looking for an investor;

    • The new company would supply skin care and nutritional supplement products; and Ms Tryde would be part of the new company operation;

    • Mr Cornell had met Mrs Fettes again on 19 August when Ms Tryde was present; and both Mr Cornell and Ms Tryde had spoken about Bettalife;

    • Financial forecasts for Bettalife had been prepared, including predictions for October 1998;

    • Mrs Fettes had telephoned Mr Clegg on 28 September and told him of the meetings;

    • Mr Johnston had spoken to Mrs Fettes and as a result of what she had told him had then spoken to Mr Cornell who confirmed approaching Mrs Fettes and others to join his new company; that Mr Cornell had said he was using New Image staff to assist him, specifically mentioning Ms Tryde "as one of the staff of New Image"; and that he was working in conjunction with a Mr Alexander;

    • Bettalife had been incorporated on 19 October 1998 by Mr Alexander’s solicitors;

    • Mr Alexander was experienced in network marketing and had worked for New Image since 1988;

    • Mr Alexander had resigned from New Image on 2 September and left its employ on 10 October;

    • Ms Tryde had not formally resigned from the Hong Kong company until December 1999* but from August until the time of her resignation she and her network "did very little to actively sell New Image products".

    *This appears to be a slip and the Judge intended to refer to December 1998 when, it is common ground, Ms Tryde resigned from the Hong Kong company.

  30. Morris J indicated that where there was a conflict between the evidence of Mr Cornell or other New World witnesses and the evidence of persons called by the defendants, he preferred the evidence of the latter. Neither Mr Cornell nor Mr Alexander impressed him as persons of truth, whereas the witnesses on the other side did so. He was satisfied that both Mr Cornell and Mr Alexander had been discussing the formation of Bettalife for some time prior to mid-August 1998, which would explain the timing of Mr Alexander’s resignation. The Judge was also satisfied that Ms Tryde was well aware of Mr Cornell’s plans "and indeed was an integral part of them".

  31. The Judge found that Mr Cornell had acted in clear breach of the terms of the agreement entered into August 1998.

  32. The Judge also found that by September and October sales had dropped dramatically. It would have been obvious to Mr Cornell and to Ms Tryde that any drop in the sales of New Image products

    .... could only be of ultimate benefit to Bettalife when it started up business as it did in 1999. Because New Image’s business became so bad the company had to close.

    The Judge was satisfied that Mr Cornell’s actions and his involvement with Ms Tryde was a direct cause of the downfall of the Hong Kong company and destroyed the effectiveness of its distribution network.

    DISCUSSION

  33. The first issue on this appeal is whether Morris J was correct in concluding that Clause 5 was an implied term in the agreement recorded in the Letter of Intent. In arguing that it was not, Mr Miles QC, for the appellant, faced the difficulty that Mr Cornell himself had appeared to concede in the witness box that it was unnecessary to write it in because it was understood to be part of the deal. Mr Miles submitted nevertheless that when Clause 5 had featured in earlier drafts it had been contemplated that there would be a gap of at least a few weeks between contract and settlement and that it would be necessary to provide for the protection of the company’s goodwill during that period of interregnum. But, as it happened, the final deal involved the immediate handing over of the operation of the company’s business which took place within 24 hours. There was no longer any need for the clause. It was further unnecessary because the company continued to be protected by the covenant Mr Cornell had bound himself to in the continuing distribution agreement which prevented him from soliciting New Image distributors. (We pause to mention that the counterclaim rested entirely on Clause 5. The respondents have never in this proceeding attempted to rely on any breach by Mr Cornell of the restraint in the distributorship agreement.)

  34. There is something to be said for Mr Miles’ argument but we think that in view of Mr Cornell’s concession it cannot be said that Morris J was wrong to find that Clause 5 was implicit in the contract. But in our view it makes little difference since we regard it as a clause of more limited application than the Judge appears to have thought, extending no further than the law generally implies where the goodwill of a business is sold by one person to another. (Here of course there was a sale of shares but the parties were plainly concerned with the protection of the goodwill of the company’s business.) It is well settled that on a sale of goodwill, in the absence of a stipulation to the contrary, the vendor is obliged not to do anything which prevents the purchaser from having the opportunity of taking advantage of all the benefits of the business, including its staff and customers. The vendor will therefore not be permitted to undermine the transfer of those benefits – effectively to derogate from the promise to transfer them – by, for example, making conflicting arrangements prior to the transfer with key employees and customers. It does not follow, however, that, in the absence of a specific restraint of trade clause, the vendor is prevented after the completion of the transfer of the business from setting up a competitive business. Certainly, in the absence of an agreed restraint, the vendor will not be in breach of any obligation by engaging with such persons after they have made the first approach to the vendor.

  35. The leading case is the decision of the House of Lords in Trego v Hunt [1896] AC 7 where Lord Herschell said that it was settled that where the goodwill of a business was sold the vendor did not, by reason only of that sale, come under a restriction not to carry on a competing business. His Lordship accepted that by doing so and inviting "all men" to deal with him, he thereby invited, amongst the rest of mankind, the former customers of the business. But what the vendor could not do was to use the knowledge acquired of those customers in order to appeal to them [p20]

    to seek to weaken their habit of dealing where they have dealt before, or whatever else binds them to the old business and so to secure their custom for himself.

    That would be "a direct and intentional dealing with the goodwill and an endeavour to destroy it". Former customers might of their own accord transfer their custom to the vendor’s new business. That "incidental advantage" was unavoidable and did not result from any act of the vendor [p21]:

    But when he specifically and directly appeals to those who were customers of the previous firm he seeks to take advantage of the connection previously formed by his old firm, and of the knowledge of that connection which he has previously acquired, to take that which constitutes the goodwill away from the persons to whom it has been sold and to restore it to himself.

  36. Lord Macnaghten also put the matter very clearly [p24-5]:

    .... a person who sells the goodwill of his business is under no obligation to retire from the field. Trade he undoubtedly may and in the very same line of business. If he has not bound himself by special stipulation, and if there is no evidence of the understanding of the parties beyond that which is to be found in all cases, he is free to carry on business wherever he chooses. But, then, how far may he go? He may do everything that a stranger to the business, in ordinary course, would be in a position to do. He may set up where he will. He may push his wares as much as he pleases. He may thus interfere with the custom of his neighbour as a stranger and an outsider might do; but he must not, I think, avail himself of his special knowledge of the old customers to regain, without consideration, that which he has parted with for value. He must not make his approaches from the vantage ground of his former position moving under cover of a connection which is no longer his. He may not sell the custom and steal away the customers in that fashion.

    ....

    A man may not derogate from his own grant; the vendor is not at liberty to destroy or depreciate the thing which he has sold; there is an implied covenant, on the sale of goodwill, that the vendor does not solicit the custom which he has parted with; it would be a fraud on the contract to do so.

  37. In our view, Clause 5 was intended merely as an assurance to NZ New Image that the goodwill of the business would remain with the Hong Kong company when the shares were transferred and the new management of Mr Sun was put in place. But it went no further than the common law position described in Trego v Hunt. As Mr Miles pointed out, the clause is quite inapt to operate as a restraint of trade. It specifies no extent of time or geography. The intended limited operation of the clause is also quite apparent from Mr Stewart’s letter to Mr Cornell of 15 July 1998 in the course of the negotiations when a settlement date of 31 July was in mind. Mr Stewart said:

    The person being provided by Totalife [the new management] is in the process of being confirmed and will be available in the near future and it is intended that he work with you so as to implement clause 5 of the agreement through until the end of the month. The end of the month is more appropriate to get a clean cut-off and therefore stocktake can take place 31st July with settlement effected on that day.

  38. Morris J was of the opinion that because there was an existing goodwill to be protected, the obligation placed on Mr Cornell and New World was wide-reaching but, as worded, we think the clause, like the obligation at common law, is limited in the way we have mentioned. The Judge later said that the clause must cover more than the hand over and that, if the evidence established that Mr Cornell actively solicited staff or distributors to change their allegiances to a Cornell company which was "likely to compete" with New Image, there would be a breach. We agree with that observation. The Judge then found that there was such evidence.

  39. We therefore turn to see whether the evidence in fact proves that there was active solicitation by Mr Cornell/New World of staff or distributors of the Hong Kong company. We are bound to say at once that there is no evidence at all of any such activities except possibly in relation to Ms Tryde. There was no challenge to her evidence that when Bettalife began its Hong Kong operations in April 1999, some eight months after the transfer of the shares, it did not utilise the services of any former distributor other than Ms Tryde herself. It was not suggested that Bettalife employed any of the Hong Kong company’s former staff other than Ms Tryde. Nor was there any definite evidence given of solicitation of any such distributor or staff member.

  40. The case for the respondents in this Court therefore rested, virtually in its entirety, on whether Mr Cornell was in breach of Clause 5 in relation to Ms Tryde. Reference was also made to the rumours which spread about the Hong Kong company in August and September 1998 but no proof has been provided that Mr Cornell or New World was responsible for them. Mr Waalkens suggested during oral argument that Mr Cornell was in breach of Clause 5 because after 11 August he had not used his best endeavours in relation to his own network of distributors. But the evidence does not show that he was supposed to personally work to make product sales. That was the task of Ms Tryde. No complaint was ever made in the period in question about the lack of personal sales effort by Mr Cornell. Mr Stewart actually testified that during the negotiations he had been aware that Mr Cornell had been intending to go back to Australia for a break. No request was made to Mr Cornell for any form of assistance.

  41. In relation to Ms Tryde, there was of course the evidence of Mrs Fettes and Mr Johnston that Mr Cornell in August and on later occasions had mentioned her involvement in a new network marketing venture and that she had attended a meeting to discuss it about a week after the transfer of the shares. Mrs Fettes placed the first of her meetings as occurring early in August but, as noted earlier, in his evidence Mr Cornell had said it was only a day before the meeting attended by Ms Tryde which was on 19 August. The Fettes/Johnston evidence, which the Judge obviously accepted, suggests that Ms Tryde may have been considering joining Mr Cornell’s new company at that stage. But it does not show whether her participation in the discussions came about as a result of an approach to her by Mr Cornell or whether it was the other way around. That question was never put to her. Contrary to the Judge’s finding, there is no evidence that Ms Tryde spoke of Bettalife at the meeting on 19 August. Mrs Fettes did not say she did so. Indeed, Ms Tryde was not even asked whether she agreed that Mr Cornell had stated at the meeting with Mrs Fettes that she was going to be part of his new organisation. In her evidence she in fact denied even being aware of rumours that he was setting up a new company. The evidence also does not show that matters went further, so far as she was involved, prior to 30 September. Ms Tryde herself denied that she was induced to leave the Hong Kong company by Mr Cornell, pointing out that she remained in its employ until made redundant in December. She said Mr Cornell did not encourage her to become involved until after that time. We note in this connection that Bettalife Hong Kong was not incorporated until 21 December 1998 which was after Ms Tryde’s departure from the Hong Kong company and that there is no evidence that she worked for it until March or April 1999 when it actually began operations. (The Bettalife company the Judge mentions as having been incorporated on 19 October by Mr Alexander’s solicitors was an Australian company. There was no evidence that it ever traded in Hong Kong or was ever intended to do so. Mr Alexander had apparently worked for the New Image group in Australia. He was not a distributor.)

  42. In rejecting the evidence of Ms Tryde and in finding that from August until December she and her network did very little to actively sell New Image products, Morris J appears to us to have overlooked what we regard as a cogent piece of contemporary documentation which indicates strongly that, although Ms Tryde had obvious concerns for the Hong Kong company’s future and may have been having discussions with Mr Cornell about his possible Bettalife venture, she remained loyal to the Hong Kong company, was prepared to voice criticism of Mr Cornell’s performance and suggested to Mr Clegg the need to announce the new venture promptly and properly. Ms Tryde wrote the following letter to Mr Clegg on 1 September:

    Attn: Mr Graeme Clegg

    From: Maizie Tryde

    Date: September 1, 1998

    Ref: Your fax dated August 28, 1998

    Dear Graeme,

    It was fantastic to have the opportunity to see Totalife in K.L. They really looked after me and made me feel welcome. I picked up a lot of good ideas from them, their kind of Royalty is outstanding, built around testimonials with everyone being involved. It was very much like a fashion parade of distributors, done by the distributors a great idea.

    Their business plan seems to pay out less on the surface. Actually they pay full house of quite a good percentage. It looks to me their distributors have to put in a lot of effort to see this market plan rewarding. People are willing to work because they have very intensive training modules every month. People are educated to go through all kinds of training when they first join.

    I was really amazed to see that they have a Nutritionist working in the office, I tried really hard to get Graeme Cornell to employ a person for us too, but he was always so negative about spending the little extra money to do this. We could use a person like that to back up the distributors in Hong Kong too. They have a hot line answered by the nutritionist regularly which give very good confident to customers.

    They do not have as many products as we do, and I think this is good, because our people see a lot of products that don’t sell and they think that this is because the quality is no good. We know that our products are the best, but there are too many for the people to learn about.

    Their weight loss is quite good and seems easy to sell, maybe not so hard as ours for the small distributors to understand, they have a product similar to X28, Frederick [Mr Ng, Totalife’s general manager from Malaysia who had assisted in the transfer of management] tells me that theirs has more nutrients than ours, and they are really enthusiastic about that too.

    The skin care products look OK too, although I am being guided mostly by Frederick as I have not used them myself, and until I do I am not able to give a qualified opinion.

    Right now I would like to be able to give my people positive information, they are all wondering what is the future, what is the Company name, who is going to run it, what products are we keeping, what products are we introducing, what plan are we using, where will the company be located? These are just some of the questions that need to be dealt with quickly as people are looking at their future in these tough times. There are so many other networking companies offering more stable opportunities.

    They have a very adequate team of specify management (sales, marketing, nutrition), therefore each team focus on doing each department.

    One thing very urgent is when am I going to release information about the merge of Totalife and New Image to distributors. Mrs Wong from Macau already called and heard rumours about the company will close down and so people do not want to renew their membership. I have no instruction from your side that I can start telling them.

    Once we release the merge they will be interested to know about the information of the new company’s location, marketing plan, products and so on, I hope we can come up to some decision on the above matter as soon as possible.

    When will we be making the necessary announcements?

    Best regards

  43. This letter was not the subject of any cross-examination of Ms Tryde. It demonstrates an enthusiasm for the participation of Totalife and also a concern that the company needed urgently to announce the "merge" of Totalife and New Image and tell people [i.e. distributors] what products would be sold. Clearly Ms Tryde was worried about the rumours of the company closing down.

  44. It seems to us that this letter, which is not suggested as being self-serving or concocted for an ulterior purpose, demonstrates an ongoing commitment to the Hong Kong company under the joint ownership of NZ New Image and Totalife. If Ms Tryde had by 1 September decided to join Bettalife, it is hard to see why she would have written to Mr Clegg in these terms, for it would apparently have been to Bettalife’s advantage to leave the Hong Kong company to founder without reacting to the rumours. She was also unlikely to have urged measures to respond to the rumours of closing down if she and Mr Cornell had been responsible for them. In the absence of cross-examination or evidence to the contrary those are inferences which must in our view be drawn.

  45. It is suggested for the respondents that the business of the Hong Kong company was undermined by a lack of selling performance by Ms Tryde and the rest of Mr Cornell’s network of distributors, and that this resulted from the influence upon her of Mr Cornell’s proposals for Bettalife. Sales were steady in August but did fall considerably in September, recovering somewhat in October to the levels of the early part of the year. However the evidence of the letter suggests that the problem did not stem from Ms Tryde’s attitude but from the uncertainty surrounding the new joint venture with Totalife and the rumours about the company’s solvency. In truth, it had been insolvent for some time prior to the sale of New World’s shares. It is significant in our view that the letter cancelling the contract made no mention of Ms Tryde, nor did Mr Clegg or Mr Sun say that they raised with her prior to her redundancy the matters concerning her sales performance which are now relied upon by the respondents. Ms Tryde said that Mr Clegg did not consent to the release of information about the joint venture until October and that the reaction of "people" [distributors] at that time was that they were unhappy about the proposed commission arrangements.

  46. Having carefully reviewed the evidence and the findings of the Judge, we are drawn to the conclusion that he erred in his assessment and that the respondents have failed to prove any breach of contract by the appellant and Mr Cornell. It follows that the purported cancellation of the contract on 30 September was not valid and that the counterclaim must fail. The appellant is entitled to receive payment of the balance of the agreed purchase price.

    RESULT

  47. The appeal is allowed. There will be judgment for the appellant in the sum of US$195,000 together with interest on that sum at the rate of 11% per annum from the respective dates on which each of the 12 instalments of US$16,250 fell due for payment. It will be for the High Court to fix costs for the appellant in that Court. In this Court the appellant will have costs in the sum of $5,000 together with its reasonable disbursements, including travel and accommodation costs of counsel, to be fixed if necessary by the Registrar.


Cases

BP Refinery (Westernport) Proprietary Ltd v Shire of Hastings (1977) 16 ALR 363

Trego v Hunt [1896] AC 7 

Representations

Buddle Findlay, Auckland for Appellant

Nicholas Fisher, New Market for Respondents


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