NINE PADDOCKS LIMITED V TASMAN LIQUOR COMPANY LIMITED HC INV CIV-2008-425-000354

NINE PADDOCKS LIMITED V TASMAN LIQUOR COMPANY LIMITED HC INV CIV-2008-425-000354 18 December 2008IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY CIV-2008-425-000354BETWEEN NINE PADDOCKS LIMITED Plaintiff AND TASMAN LIQUOR COMPANY LIMITED Defendant Hearing: 17 December 2008 (Heard at Christchurch) Appearances: ADG Hitchcock for Plaintiff N Flanagan for Defendant Judgment: 18 December 2008JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN[1] The plaintiff applies for summary judgment. By written agreement dated 21 December 2007 it sold its wholesale liquor distribution business to the defendant (Tasman) for $1.85 million. Of this sum goodwill and plant comprised $1 million, and stock in trade at $850,000.00. $1 million was paid on completion date of 7 January 2008. The balance due for stock in trade was payable 28 days later, once the actual stock in trade figure had been determined by joint stocktake by vendor and purchaser. [2] It is common ground that the amount required to be paid in the outcome of the joint stocktake was $269,947.05. [3] That is the amount the plaintiff sues for.The summary judgment application Background[4] The agreement concerned a business which involved the wholesaling and distribution of liquor, which operated chiefly in the lower part of the South Island. By purchasing the business Tasman intended to increase its presence in that part of the country. It also sought to take advantage of an exclusive supply agreement between the plaintiff and CEA Trading Limited (CEA) which owned a large number of bars in New Zealand (CEA Distribution Agreement). [5] Mr Simpson, the general manager of Tasman, deposes that the arrangements with CEA were one of the primary reasons Tasman was interested in buying the plaintiff's business. He says Mr Jones, the owner of the plaintiff, knew that. He said supplies to CEA made up approximately half of the plaintiff's business. He said without those Tasman would have had limited interest in acquiring the business as a going concern. It would have been more interested in merely acquiring the Queenstown warehousing and distribution assets to expand its South Island distribution network. [6] According to Mr Simpson, Mr Jones was initially only proposing to sell the non-CEA part of the business, but when Tasman indicated it considered that business, excluding the CEA contract, to be of nominal value, Mr Jones decided that the CEA business would also be offered in the sale. [7] Mr Jones purchased the plaintiff's business from Mr Quirk in 2004. After that sale Mr Quirk continued building New Zealand Hospitality (NZH) which involved running 28 bars. Then in February 2007 he sold NZH to CEA and subsequently became its general manager. [8] In his first affidavit Mr Quirk deposes that in about 2004 a verbal arrangement was entered into between Lion Nathan (Lion), NZH and the plaintiff, whereby the plaintiff was able to supply Lion product direct to NZH. According to Mr Quirk, this was to ensure that the business was a "one stop shop" and "was because Lion had had difficulty in reliably supplying product in the some of theareas that NZH had bars". According to Mr Quirk "that agreement ran on and subsequently involved the plaintiff supplying Lion product directly to CEA". [9] Mr Quirk states that in February 2007 the plaintiff and CEA entered into two agreements. One concerned a loan on $250,000.00 from the plaintiff to CEA. The other was an agreement by which CEA was obliged to purchase all of its liquor products from the plaintiff for five years, for which a credit would be given and off set against the amount owing under the term loan. [10] Mr Quirk was involved during the negotiations between the plaintiff and Tasman. He deposes that one of Tasman's concerns was to ensure CEA continued to obtain its supplies from the business Tasman was purchasing. [11] Conversely, Mr Quirk's concerns were to ensure a continuation of service to CEA's "extensive portfolio of bars". He was concerned also that the pricing and direct supply of Lion products continued. He said he made that clear these were major issues but, to him, it was apparent Tasman did not want to deal with Lion prior to purchasing the business. [12] Mr Quirk recalls a meeting with Mr Jones of the plaintiff and Mr Hughes of Tasman at his offices in late October/mid November 2007. According to him, Mr Hughes seemed unconcerned regarding continued direct supply of Lion product and pricing to CEA's bars. Rather, Mr Hughes assured them that he "didn't see a problem". [13] Mr Quirk says they specifically discussed the issue of Tasman's ability to supply Lion product to CEA. He was concerned to establish that Tasman would continue to supply all of CEA's various bars in the way that the plaintiff had previously. According to Mr Quirk, Mr Hughes stated Tasman would be talking with Lion, and that it was "up in the air" as to what would happen. Mr Quirk perceived Mr Hughes did not appear to see any problems with the continuation of supply of Lion product to CEA.[14] Mr Quirk recalls a subsequent telephone conference in early December 2007 he had with Mr Jones, and Mr Simpson of Tasman. He said they covered the same issues as earlier, but traversed a new issue, concerning a Power of Attorney. [15] According to Mr Quirk, Mr Simpson assured him Tasman's only worry was the smooth transition of the sale, and minimum disruption to CEA's supply of product; that the issue of Tasman being able to supply Lion product directly to CEA was one it would sort out later. Mr Quirk said it was apparent to him Tasman had not spoken with Lion at all about the issue of supply of Lion product to CEA if Tasman was to buy the plaintiff's liquor distribution business. [16] That account is supported by Mr Jones. [17] He deposes being advised in late January of Tasman's advice by its solicitors of a refusal to settle the balance due because of an alleged breach of warranty or misrepresentation. Initially, the allegation comprised a claim Mr Jones had not informed Tasman about alleged advice from Lion that CEA would cease to purchase all of its Lion liquor products from the plaintiff's business, and would instead purchase them directly from Lion if the plaintiff sold its liquor distribution business. That claim was refuted by letter from the plaintiff's solicitor, to which Tasman's solicitor responded by facsimile dated 13 February 2008:Your client's instructions that it and in particular Mr Stan Jones were not aware that there was any prospect that CEA Trading might no longer purchase Lion Nathan products from (the plaintiff) and instead would acquire it from Lion Nathan itself is directly contrary to the information received by our client. In fact our client understands that prior to the sale Lion Nathan had it made it clear that CEA Trading Supply Agreement between it and (the plaintiff) would come to an end if the business was sold and that Lion Nathan would service CEA Trading directly. In those circumstances, our client may withhold the unpaid amount of the purchase price by way of set off and counter claim for the remainder of its damages. Your client is already on notice that the balance of the purchase price is withheld accordingly.[18] Subsequently, by further letter, Tasman's solicitors noted:Our client's position is that Neil Hinton of Lion Nathan made it clear to Mr Jones that the arrangements with (the plaintiff) were historical and anomalous, to the extent that they were unique in New Zealand, and LionNathan's long term goal was to bring the position into line with nationwide arrangements. As a result, while Lion Nathan would honour the existing arrangement it was clear that if the business was sold it would come to an end. That position is entirely consistent with Lion Nathan's demonstrated commercial strategy and its statements to our client. It is also what our client (and ourselves) have been told by people independent of Lion, including CEA (namely Ricky Quirk). We would be surprised if Lion Nathan contradict that and invite you to demonstrate it if they do[19] In a response from the plaintiff's solicitor, a letter is attached from Mr Hinton of Lion which advises Mr Jones that a written agreement regarding the transportation of keg beer would be terminated if the plaintiff sold its business, but that the arrangement allowing (the plaintiff) to supply outlets who were otherwise contracted to purchase directly from Lion had not been discussed. [20] In brief, Mr Jones advises that he was never advised by anybody that anything other than the transportation of keg beer would be at risk if the business was sold. [21] Thereafter, Mr Jones claims the plaintiff changed its position. He said it received the letter dated 11 April 2008 from Tasman's solicitor, in which for the first time Tasman alleged it did not know anything about the agreement allowing CEA to get Lion product direct from the plaintiff. Mr Jones says this was a new allegation, namely that he failed to disclose the existence of the verbal agreement at all. Mr Jones terms it a remarkable "turn around" and diametrically opposed to the initial position taken by Tasman. [22] And so it might appear. Initially, Tasman's position was Mr Jones failed to inform it of advice from Lion that CEA would be required to purchase direct from it, rather than from the plaintiff in the event the plaintiff sold its business. The second allegation, the "turn around", concerns a fresh allegation from Tasman that it did not know anything about allowing CEA to get Lion product direct from the plaintiff. [23] Mr Jones disputes any claim of an arrangement allowing CEA to source Lion product direct from the plaintiff. He said, clearly, Tasman knew of the arrangement and took the position it was of significant benefit to it. Further, that view is endorsedby the two meetings averted to by Mr Quirk. In the outcome of those, he said it is clear Tasman expressed no immediate concern regarding continuation of supply by Lion. Rather, the concerns related to the pricing of that supply, something Mr Simpson was content to "sort out later".The agreement for sale and purchase[24] Under clause 14.1 of the agreement, the plaintiff as vendor, and Mr Jones as covenantor, provided certain warranties to Tasman as purchaser. These included: (a) Clause 13.1 of the first schedule: "The vendor and Covenantor have disclosed to the purchaser details of all material contracts which relate to the Business or to which the Vendor is a party in relation to the Business". (b) Clause 14.1 of the first schedule: "The Vendor and the Covenantor warrant that (d) The CEA distribution agreement and the term loan agreement contain the entire agreement between the parties relating to the subject matter of the CEA distribution agreement and the Term Loan Agreement respectively and there have been no variations or amendments thereto." (c) Claude 14.8 provides that: "The Vendor and the Covenantor indemnify the Purchaser against: (a). All losses, damages, costs and expenses suffered or incurred by the Purchaser; arising out of any breach or non-fulfilment of any of the Warranties or any other provision contained or implied in this agreement, and the Vendor acknowledges that the purchasershall be entitled to set off against the purchase price for the Assets in the amount payable to the Purchaser under this clause." [25] Initially, Tasman withheld the stock in trade amount of the purchase price of $269,947.05. Since filing a statement of defence and counterclaim in this proceeding, Tasman has calculated its losses resulting from alleged breach of warranties at $222,948.00. Accordingly, it has paid the difference between the two sums to the plaintiff as being properly due. Tasman's position is that the remainder of the plaintiff's claim is subject to a set off and counterclaim accruing to it, which entirely extinguishes the plaintiff's claim.Summary judgment principles[26] There is no dispute regarding these. In addition to those usually applying, in this case the following are of particular importance: (a) Where there is a genuine conflict of evidence the summary judgment procedure is inapt. (b) The Court is not required to accept uncritically every or any disputed fact. (c) Claims of legal or equitable set off shall survive only if there is an overlap between them and the plaintiff's claim to the extent that the factual nexus between makes it appropriate both should be heard together.Evidence in opposition to summary judgment[27] It is supplied by affidavits from Mr Hughes and Mr Simpson. [28] Mr Hughes refers to the claim of Mr Jones and Mr Quirk that Tasman knew of the agreement with Lion that the requirement from CEA for exclusive supply would be waived by Lion to allow supply through the plaintiff. He notes Mr Jonesand Mr Quirk refer to two meetings wherein they say Tasman indicated a lack of concern of any issues regarding supply with Lion. [29] Mr Hughes provides a different perspective of those meetings. As to the first, he said it was about reassuring Mr Quirk that Tasman was a professional outfit that would not have any difficulty meeting deadlines and obligations. He was concerned to assure them of Tasman's ability to provide good service. That apart, he says the discussion about supply of Lion product was very brief. This was, he says, because there was never any question about Tasman's ability to supply Lion product. There was discussion regarding the cost of kegs, and any matter of uncertainty concerned only the pricing of those kegs. [30] Mr Hughes' point is that there was never any discussion of a "side agreement" between the plaintiff, Lion and CEA which was the basis for the plaintiff being able to supply CEA at all. As far as Tasman knew there was no impediment to it supplying Lion product to CEA just as it does to dozens of other customers. Had it been known that it was not the case, then that would have been critical to Tasman, and its assessment of what the plaintiff's business was worth. The side agreement concerned the supply of Lion product through the plaintiff to CEA upon terms by which CEA obtained a rebate of costs of supply by Lion. I will discuss the issue of the plaintiff's knowledge of this arrangement later. [31] First, I will refer to the second discussion already averted to in the affidavits of Mr Jones and Mr Quirk. It is to be recalled this occurred in early December, involving Mr Hughes and Mr Simpson. The meeting took place by telephone conference. [32] Mr Hughes says the only issue discussed concerning Lion was the pricing of kegs. The reason was that the plaintiff picked up kegs from Lion in return for a lower price, an option not then available to Tasman. That was the focus of discussion, say Mr Hughes. [33] He says Mr Quirk is correct when he says Tasman would be talking to CEA, but that was only about pricing. It is also correct that Tasman was unconcernedabout supply arrangement with CEA, because they supplied Lion products to other customers and knew of no impediment to doing so to CEA. Mr Simpson deposed that the purchase of the plaintiff's business was to ensure delivery of volumes of product supplied to CEA. That is why the agreement insisted on certain warranties being made by the plaintiff and Mr Jones. Clauses were inserted, he said, at Tasman's request, requiring a warranty that there had been disclosure of "all material contracts which relate to the business". In addition, there was a requirement to warrant that the CEA Distribution Agreement, and the Term Loan Agreement "contained the entire agreement between the parties relating to the subject matter of those two agreements". [34] Mr Simpson said those two warranties were absolutely fundamental to Tasman. It was paying in excess of $1 million for the plaintiff's business, primarily in order to take over the benefit of its supply agreements with CEA and the Queenstown warehousing and distribution network. According to Mr Simpson, if the supply agreement with CEA was in jeopardy, or otherwise somehow not worth the same amount going forward, as it had been in the past, then Tasman would not have paid what it did for the business. [35] Instead, Mr Simpson said it has become clear since the purchase that the arrangements with CEA are not what they were at the time the business was sold. He said Lion has now confirmed it will not allow CEA to fulfil its rebate contract obligations by buying its Lion product via the plaintiff, as it had done in the past. He said Lion requires that CEA purchase of its Lion product directly from it in order to obtain a discount on its purchases, known as a "rebate". He said that is very significant. Often in the liquor industry retail customers are supported or subsidised significantly in exchange for an exclusive supply of product. In this case, he says, it now appears that CEA and Lion were party to such an agreement, allowing CEA rebates if it purchased exclusively from Lion, or from an "aligned wholesaler" – of which to them Tasman was not one. He said Tasman did not know that before acquiring the plaintiff's business. Further, because the arrangement was between CEA and Lion, it was not something that Tasman could have found out from inspecting the plaintiff's records in due diligence.[36] However, Mr Simpson says that as it turns out, CEA, the plaintiff and Lion had agreed that CEA would be taken to satisfy its obligations to Lion in order to earn rebates on its purchases, even if it purchased Lion products from the plaintiff, and not directly. That, he says, was obviously vital to the viability of the plaintiff, because CEA could not otherwise purchase Lion product through the plaintiff, but would have been obliged to take supply directly from Lion. [37] That arrangement, Mr Simpson says, was never disclosed to, nor known by Tasman. Had it been, Tasman would have inquired with Lion as to whether the arrangement would continue if the plaintiff changed ownership. It is now apparent it would not have been, at which point it would have been clear CEA's business with the plaintiff would have been greatly reduced, as all of the Lion volume would be gone. This would in turn have substantially diminished the value the plaintiff's business to Tasman. The obligations on the plaintiff, Mr Jones, to fully disclose anything that might be material to the arrangements with the plaintiff were imposed by Tasman for precisely such an eventuality. [38] Mr Simpson notes that a very significant figure in the overall sale price was attributed to good will – a reflection on the fact Tasman was buying the plaintiff's arrangements with its customers and suppliers at a high price, when the physical assets were worth comparatively little. The goodwill figure was calculated on the plaintiff's sales for a 12-month period. Mr Simpson notes the supply agreement with CEA was a primary arrangement between the plaintiff and his customers when Tasman took over when buying the business. It constituted approximately 57% of the plaintiff's business, and of that approximately 55% was Lion product. Accordingly, approximately 31% of the plaintiff's business that Tasman thought it was buying has not eventuated as a result of Lion forcing CEA to buy directly from it, or lose its rebates. [39] In that outcome, Tasman calculates a 31% reduction in the goodwill payment portion of the purchase price translates to a discount of $222,948.00, the amount which it has all but paid in terms of the agreement for sale and purchase.[40] As to Mr Jones' claims that Tasman has done an about face on its knowledge of the arrangements with Lion, Mr Simpson states this is not correct. He said Tasman knew nothing of the exclusive supply arrangement between Lion and CEA. When Mr Quirk raised an issue regarding Lion threatening not to pay CEA rebates if CEA bought its stock pursuant to the plaintiff supply arrangements, Tasman's initial understanding was that Lion had affirmatively told the plaintiff that it would not allow CEA to purchase Lion product through it if its business was sold. That was the basis on which the issue was first raised by Tasman. That was Mr Jones' understanding of the "first allegation". [41] Mr Simpson states that it is simply incorrect that Tasman knew of any arrangement between CEA, Lion and the plaintiff regarding exclusive supply. He does not agree with the claims of Mr Jones and Mr Quirk, in their recollection of the telephone conference, to the contrary. Rather, that conference was essentially a "meet and greet". He had previously not met or spoken to Mr Quirk. Mr Simpson said the purpose of the meeting was to provide an assurance of business as usual following the acquisition. He recalled the discussion regarding pricing of products, in particular of Lion kegs. He recalls Mr Quirk's wish for an assurance that the pricing of same would not change substantially. He recalls saying that if it turned out that Tasman was not able to guarantee good prices for the kegs, then CEA would be free to buy its kegs directly from Lion. This account is, he says, confirmed by a facsimile sent by him to Mr Quirk and Mr Jones on 10 December 2007. [42] Mr Simpson says it is not correct that he said Tasman would sort out later its ability to supply Lion product. There had never been any doubt about its ability to supply Lion product. No issue regarding that had, he said, been raised. Importantly, there was never any suggestion at the meeting that Lion and CEA had a rebate contract arrangement, or that Lion, CEA and the plaintiff had an arrangement whereby Lion would allow CEA to fulfil its rebate contract obligations by purchasing its Lion product via the plaintiff. That, he says, was not known to him at the time prior to the agreement for sale and purchase being signed. Had it been, then obviously Tasman would not have taken the view there would be no problems with supplying Lion product to CEA.[43] Mr Simpson reports that recently CEA has informed Tasman that its supply agreements, and the term loan agreement between CEA and the plaintiff, are invalid because Mr Quirk was not authorised to sign them. Further, since the plaintiff's business was sold to Tasman, CEA was also sold and Mr Quirk has had all his connections with that company severed by its new owners. Indeed, in an email sent by a director of CEA, the director expresses the view that Mr Quirk has perpetrated a fraud on CEA by the agreements between CEA and the plaintiff because such were not disclosed to the new directors, nor were the funds advanced under it ever received by CEA.Discussion[44] Tasman's initial case was that Lion had told Mr Jones, prior to the sale, that CEA would cease to purchase Lion products from the plaintiff and would purchase them directly from Lion if the plaintiff sold its liquor distribution business. [45] Notwithstanding that claim, the plaintiff asserts there had been no earlier surprise expressed concerning supply by the plaintiff of Lion products to CEA. Rather, the concern was solely that direct supply would not continue. When first purporting to withhold the balance of the settlement price, Tasman adopted the view that the direct supply of Lion products from the plaintiff to CEA was important to it. Its position was that Mr Jones had been told by Lion (Mr Hinton) the arrangement would cease if the plaintiff sold its liquor distribution business, and that Mr Jones had not told Tasman about that, but when Mr Hinton later advised that no Lion representative had ever made such statement to Mr Jones, the plaintiff said Tasman contrived a factual conflict to prevent the plaintiff making good on its threat for applying for summary judgment. This is the "turnaround" to which I have earlier referred. The plaintiff says Tasman's change was to allege that it did not know about the direct supply of Lion product at all. This is, it says, the second allegation, and that which is diametrically opposed to what it earlier maintained. It indicated a change of position from no concern at all regarding the direct supply of Lion product, to one of no knowledge of direct supply at all. Rather, it says the correspondence clearly shows Tasman knew about the direct supply of Lion productand that it was of significant benefit to it. That is why it agreed to pay the price it did. That is why it withheld the agreed balance properly due. [46] In the plaintiff's view, Tasman is raising an unmeritorious and inconsistent factual dispute to oppose summary judgment. Therefore, the Court should prefer the evidence of Mr Jones and Mr Quirk. [47] The plaintiff says no-one from it knew anything other than that Lion had distribution issues and that an agreement had been entered into between Lion and NZH, which carried over to CEA, whereby they would obtain their Lion product from what became the plaintiff's business. Therefore, the arrangement between NZH/CEA and Lion for their mutual benefit was to ensure regular supply of Lion product. It was not, as alleged, a three-way agreement involving the plaintiff. It was, instead, an ad hoc verbal arrangement. [48] Concerning Mr Simpson's claim that supplies to CEA made up approximately half the plaintiff's business, the plaintiff notes that due diligence was done by Tasman, that all information requested was provided, and that it was plainly apparent that Lion product was being supplied direct from the plaintiff to CEA. The plaintiff submits that Mr Simpson's denial of any arrangement of direct supply is contradicted by the affidavit of Mr Hughes, who is quite clear that from the beginning the direct supply of Lion product to CEA was specifically discussed. Although Mr Hughes points out that Tasman had no knowledge of the details of the arrangement, he specifically accepts Tasman was aware there was a direct supply of Lion product. [49] Concerning Mr Simpson's claim that it has only become clear since the purchase of the plaintiff's business that the arrangements of CEA are not what they were at the time the business was sold, that concern is no more than that initially expressed – ie, that it did not know there was a direct supply. Its concern was that Lion Nathan were not going to allow direct supply following the purchase by Tasman and they somehow wanted to make the plaintiff responsible for that.[50] By those same facts, the plaintiff asserts a counterclaim cannot be supported. The reason is that the principal allegation in the counterclaim is that the fact of direct supply of Lion product was not disclosed to the defendant. After, the plaintiff claims the defendant's affidavits and contemporaneous correspondence are clear, ie that the defendant's real concern is that it did not know the terms of the agreement between CEA and Lion, and in particular that Lion would not continue with the arrangement if the business was sold. [51] The primary focus of the plaintiff's opposition is to identify points of difference between issues initially raised and those subsequently maintained in opposition to the claim by the plaintiff for payment. The plaintiff says the evidence is clear that whilst Tasman claims an absence of knowledge of the arrangement between CEA and Lion, there is evidence it was aware of a direct supply of Lion product to CEA. [52] As to the latter point, I think there is no dispute. Rather, it is a question of what was commonly understood by that arrangement. By its own account, the plaintiff states it had no knowledge of the rebate arrangement between Lion and CEA. I think there must be reason to question that position. It was an arrangement set up by Mr Quirk at a time when he established the plaintiff, which arrangement continued with his involvement with CEA. Of course, it is not proper to draw any inferences from those facts upon the basis of the affidavit evidence. [53] My preference is for the view that the state of evidence is such that the plaintiff cannot satisfy the Court to the requisite standard that there is the necessary factual basis on which to dismiss the defendant's set off and counterclaim such that the summary judgment could be granted. [54] Clause 14.8 specifically provides for the raising of a set off and counterclaim. In this case the plaintiff has identified a specific sum arising out of the same contract the plaintiff seeks to enforce. If proven, that set off affords a defence to the claim. The issue is then whether that set off and counterclaim provides no arguable defence. [55] The issues identified by the affidavits are:(a) Whether there was an agreement entered into between the plaintiff, CEA, and Lion, which was separate to the CEA distribution agreement and the term loan agreement. If so; (b) Was the existence of that agreement disclosed to Tasman? [56] Clearly the plaintiff's submissions and evidence focus on whether or not the defendant knew of the fact of it supplying CEA with Lion product. Plainly it did, and that is not in dispute. The issue is whether or not Tasman knew of the basis on which that was done: namely by the side agreement. [57] I accept the submission that the evidence shows there was in existence an oral agreement between CEA, the plaintiff and Lion varying the exclusive arrangement between CEA and Lion, pursuant to which CEA would qualify for rebates from Lion when it purchased Lion product, even if it did so from the plaintiff rather than directly from Lion. As much is apparent from Mr Quirk's first affidavit:4. In or about 2004 a verbal agreement was entered into between Lion, NZH, and the plaintiff whereby the plaintiff was able to supply Lion product directly to NZH That agreement ran on and subsequently involved the plaintiff supplying Lion product direct to CEA.[58] I also accept the submission that the evidence of Mr Jones supports that. In his first affidavit he adduced a letter of 17 March 2008 from Mr Hinton, regional director of Lion. In that letter Mr Hinton makes it clear that an agreement had been reached between Lion and the plaintiff that it could supply companies like CEA "that were otherwise contracted to purchase directly from Lion". [59] Mr Flanagan explains that that being the position, at the time the defendant filed its statement of defence and its evidence it seemed that there was no question but that such a three-way arrangement existed. Accordingly, the defendant addressed only the second of the two issues noted above, namely whether such an arrangement was known to it before it bought the business. Mr Flanagan surmises that the plaintiff changed its position on that, no doubt because it now realised the significance of the issue. That change is, Mr Flanagan submits, evidenced from the second affidavits of Mr Quirk and Mr Jones. Referring to paragraph 4 of his firstaffidavit, Mr Quirk states that his description of the arrangement was "loosely couched". Instead, he says that the plaintiff was never a party to the side agreement, but merely inherited the situation. [60] Mr Flanagan submits Mr Quirk's second affidavit is not a clarification of loosely chosen words, but a direct contradiction. He notes in fact Mr Quirk offers no explanation for his change in position. [61] In his second affidavit, Mr Jones claims too much is made of Mr Hinton's communications. Mr Flanagan says Mr Jones does not explain why in his second affidavit, and for the first time, he denies the existence of the side agreement, notwithstanding he was clearly aware earlier that it was fundamental to the defendant's position. [62] I accept the submission that the apparent changes in explanation given by the plaintiff's witnesses are a matter which could be important for a Court to determine in due course. [63] The primary issue really concerns whether or not Tasman were aware of the side agreement. In their first affidavits Mr Jones and Mr Quirk state that they mentioned the existence of the side agreement to both Mr Simpson and Mr Hughes at the two meetings held in November and December of 2007. Incidentally, in their second affidavits Mr Jones and Mr Quirk now do not accept the plaintiff was a party to that side agreement. [64] However, whatever the position, neither Mr Simpson nor Mr Hughes accept there was ever a mention of the side agreement at all. At paragraph 26 of Mr Simpson's affidavit he says:Above all, there was never any suggestion at that meeting that Lion and CEA had a rebate contract arrangement, or that Lion, CEA and [the plaintiff] had an arrangement whereby Lion would allow CEA to fulfil its rebate contract obligations by purchasing its Lion product via [the plaintiff]. That was not known to me at any time prior to the agreement for sale and purchase being signed. Had we known it we would obviously not have taken the view that we did that there would be no problems with supplying Lion product to CEA.[65] By Mr Simpson's account, and supported by reference to his facsimile sent to Mr Quirk and Mr Jones following the second meeting, the purpose of that meeting concerned the pricing of Lion product, and was not concerned with the ability of Tasman to supply Lion product in general. [66] Mr Hughes is equally clear that the side agreement was never raised in discussions.Summary[67] On both issues, regarding the existence of the side agreement, and whether it had been disclosed to Tasman, there is a fundamental factual dispute between the parties that cannot be resolved without recourse to oral evidence and cross- examination at a trial. I accept Mr Flanagan's submission there is an obvious and direct conflict between the plaintiff's and the defendant's witnesses. The issues goes to the heart of the defendant's set off and counterclaim, because it is determinative of whether there has been a breach of warranty such that it is entitled to damages and can set off, or counterclaim for, the amount sought by the plaintiff.Judgment[68] The application for summary judgment is dismissed. [69] As this is a case where costs should be determined in the cause, they shall upon this application be reserved. [70] I direct the Registrar to schedule a telephone conference for when I am next in Invercargill or Queenstown, to discuss a way forward for this proceeding.Solicitors: AWS Legal, Invercargill Meredith Connell, Auckland