VLIETSTRA v MALCOLM FLOWERS INSURANCES LTD [2015] NZHC 1681

VLIETSTRA v MALCOLM FLOWERS INSURANCES LTD [2015] NZHC 1681 [20 July 2015]IN THE HIGH COURT OF NEW ZEALANDROTORUA REGISTRYCIV-2015-463-000054[2015] NZHC 1681BETWEEN KEIRAN JOHN VLIETSTRAIntending PlaintiffAND MALCOLM FLOWERS INSURANCESLIMITEDIntending DefendantHearing: 17 July 2015Appearances: J W Howell for Intending PlaintiffS A Hickman for Intending DefendantJudgment: 20 July 2015JUDGMENT OF GILBERT JThis judgment is delivered by me on 20 July 2015 at 3 pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarIntroduction[1] Keiran Vlietstra intends to pursue a claim against Malcolm Flowers Insurances Limited (MFI) arising out of the sale of an insurance broking business by MFI to BrokerWeb Risk Services Limited (BrokerWeb) in September 2014. Mr Vlietstra contends that he and MFI operated this business in partnership or as a joint venture and that they were each entitled to receive a 50 per cent share of the proceeds of sale. He says that he agreed to accept a payment of $200,000 as hisshare based on Mr Flowers' advice that BrokerWeb had offered to pay $400,000 forthe business. Mr Vlietstra says that he was later told by an employee of BrokerWeb, after the agreement was signed, that the purchase price was significantly more than $400,000. Mr Vlietstra seeks pre-commencement discovery of the sale and purchase agreement so that he can quantify the amount of his claim which will be based on breach of fiduciary duty and misleading conduct in contravention of the Fair Trading Act 1986.[2] MFI opposes the application on the grounds that Mr Vlietstra is not entitled to make a claim in court against MFI and, in any event, it is not impossible or impracticable for him to formulate his claim without access to the agreement for sale and purchase. MFI contends that Mr Vlietstra has not established either of these two pre-requisites to the making of an order for pre-commencement discovery under r 8.20(1)(a) of the High Court Rules:8.20 Order for particular discovery before proceeding commenced(1) This rule applies if it appears to a Judge that —(a) a person (the intending plaintiff) is or may be entitled to claim in the court relief against another person (the intended defendant) but that it is impossible or impracticable for theintending plaintiff to formulate the intending plaintiff'sclaim without reference to 1 or more documents or a group of documents.[3] MFI submits that it is clear from the written agreement it entered into with Mr Vlietstra on 1 March 1992 that Mr Vlietstra was at all times an employee of MFI, not a partner, and had no right to participate in the goodwill of the business. Mr Flowers says that MFI agreed to pay Mr Vlietstra $200,000 in recognition of his long service to the company but that it had no obligation to do so. MFI submits thatMr Vlietstra has no basis for making a claim. Further, MFI contends that its 1992 agreement with Mr Vlietstra is an employment agreement and any claim must be pursued in the Employment Relations Authority or the Employment Court. For this reason, MFI submits that Mr Vlietstra is not entitled to commence a claim in thiscourt, being "the court" referred to in r 8.20. Alternatively, MFI says that in their 1992 agreement, the parties agreed that any dispute between them would be resolved by arbitration.[4] MFI also contends that it is not impossible or impracticable for Mr Vlietstra to formulate his claim without discovery of the sale and purchase agreement. MFI acknowledges that Mr Vlietstra will not be able to quantify his loss without seeing this document but submits that this can be done after proceedings have been issued, following discovery.Does it appear that Mr Vlietstra may be entitled to claim relief against MFI in the Court?[5] Mr Vlietstra says that in late 1991, he purchased a book of insurance broker business from his former employer, National Bank of New Zealand Ltd. He saysthat he approached MFI about "joining forces". He claims that the parties verballyagreed to a partnership with a view to growing market share in the insurance broking business in the Bay of Plenty region. The alleged partnership was between Mr Vlietstra and MFI and traded under the name Tauranga Insurance Services. Mr Vlietstra says that the parties agreed to share profits equally.[6] Mr Vlietstra says that after the business was established, it was agreed that he would be a salaried partner. He claims that this is the effect of the agreement dated 1 March 1992. This agreement records in the recital that Mr Vlietstra has agreed to enter into the services of MFI on the terms and conditions of the agreement. Clause 1 provides that MFI shall employ Mr Vlietstra to serve MFI at its Tauranga branch as an insurance broker from 1 December 1991 to 31 March 1993. Clause 2 provides that during the continuance of the employment, a fixed salary would be paid. In addition, MFI would pay Mr Vlietstra 50 per cent of the net profits of theTauranga branch of its business as certified by MFI's accountant. Any losses wouldbe carried forward to future financial periods and offset against future profits beforedistribution. Clause 10 provides that the agreement will continue from year to year on the same conditions following expiry of the initial term but that each party could terminate it by giving three months' notice in writing.[7] MFI submits that these and other provisions in the agreement show that the relationship was one of employer and employee, not a partnership. MFI deductedPAYE from Mr Vlietstra's earnings and met its responsibilities to pay other benefits to which employees are entitled, such as under the Holidays Act. MFI says that it owned the assets of the business, including the lease of the premises and the goodwill. It was the sole lessee of the premises from which the business operated. As to goodwill, cl 7 relevantly provides:If the Agreement is terminated by either party all clients of the Tauranga branch as recorded in the records of MFI will remain the property of MFI unless MFI does not wish to retain any one of them, in which event, KJVwill purchase from MFI all such clients at a price to be determined by [8] Mr Vlietstra says that in early 2014, he and Mr Flowers discussed an approach made by BrokerWeb to purchase the business of Tauranga Insurance Services. He says that Mr Flowers indicated that the business might be worth $400,000 but he thought it was worth more like $600,000. Mr Vlietstra says that these discussions proceeded on the understanding that any sale proceeds would be shared equally. Mr Flowers denies this.[9] It appears that nothing further came of these discussions until August 2014 when, according to Mr Vlietstra, Mr Flowers advised him that he had received an offer of $400,000 from BrokerWeb for the business. Mr Vlietstra claims that Mr Flowers told him that they would share the proceeds, 15 per cent of which would be retained by BrokerWeb until after 30 September 2015 and paid only if agreed revenue to that date was achieved. Mr Flowers says that he did not tell Mr Vlietstra what the sale price was or how these would be applied.[10] Mr Vlietstra says that after meeting with Mr Flowers on 22 August 2014, he agreed to the proposal and confirmed this in an email to Mr Flowers later that day. Significantly, he confirmed his agreement to the sale of his interest in the assets of the business in return for a payment of $200,000. His email states:Subject: Tauranga Insurance ServiceHi MalcolmIt was good to catch up with you this morning.With regard to our Memorandum of Agreement dated 1992, specifically Clause 10 which refers to termination of the agreement, I agree that this clause could be put aside in the interests of a compatible sale of the assets to Brokerweb. However, in the interests of all concerned, I would prefer this to be a legally endorsed, perhaps by solicitors letter which we both can sign.Furthermore, I agree to the sale of my interest in the assets for a consideration of one payment of $200,000 and transfer of ownership of the vehicle registration FQH95 to me prior to the date of termination of the Agreement.All other interests in the Agreement to remain in force until the date of termination of the Agreement.Kind regardsKeiran[11] MFI's solicitors wrote to Mr Vlietstra on 2 October 2014 recording the termsof termination of his employment. This letter was countersigned by Mr Vlietstra and reads as follows:Dear Mr VlietstraMALCOLM FLOWERS INSURANCES LIMITEDWe write to advise that we act for Malcolm Flowers Insurances Limited and have received instruction in relation to the negotiated termination of your employment as at 30 September 2014 as a result of your new employment with Brokerweb Risk Services (Bay of Plenty) Limited, effective from 1 October 2014.The purpose of this letter is to confirm the discussions with Mr Malcolm Flowers and to record the agreed terms of termination as follows:1. The termination is subject to a sale of the MFI Tauranga broking business to Brokerweb Risk Services (Bay of Plenty) Limited being concluded on 1 October 2014 (now 2 October 2014).2. Your termination is conditional upon you entering into a satisfactory contract with Brokerweb Risk Services (Bay of Plenty) Limited with effect from the 1 October 2014 – this condition to be satisfied no later than 30 September 2014 (which we understand is now concluded).3. Your current salary including holiday pay and any other agreed entitlements are to be paid to and including 30 September 2014.4. Any profits or losses accrued to the 30th September 2014 will be paid or refundable as the case may be for the financial year commencing 1 April 2014 based on existing arrangements. These payments will be actioned once financial accounts are available.5. In the event of the aforesaid sale being concluded a capital payment of $200,000.00 will be paid to you as a share of the goodwill from the sale of Tauranga Insurance Services[. This] will be paid to you as follows:(i) The sum of $170,000 in cash on the settlement of the sale to Brokerweb Risk Services (Bay of Plenty) Limited being 85% of the agreed capital payment and;(ii) The sum of $30,000 (being the remaining 15%) subject to adjustment based on actual premium renewals for the period 1 October 2014 to 30 September 2015 to be paid within 45 days of ascertaining that Produced Revenue which will be based on existing brokerage rates (at time of sale) will be adjusted by the quantum of any lost renewals.6. Malcolm Flowers Insurances Limited will also transfer ownership of the Holden motor vehicle registration FQH95 to yourself and Malcolm Flowers Insurance Limited will pay the Fringe Benefit Tax.Would you please confirm these terms as being correct, complete, and accepted in terms of your discussions with Malcolm Flowers Insurances Limited by signing, dating and returning the duplicate of this letter.Receipt of the signed letter is requested no later than 2 October 2014. If you have any queries, please do not hesitate to contact me.Yours sincerely[12] Mr Vlietstra says that after he became an employee of BrokerWeb, he had a discussion with one of its representatives about the $30,000 payment to be made to him after 30 September 2015. He says that the BrokerWeb representative told him that he could expect to receive more than this because BrokerWeb had paid significantly more than $400,000 for the business. He says that he approached MFI about this but was told that the sale price was $400,000. He then asked, through his solicitor, for a copy of the agreement for sale and purchase. MFI declined to provide this saying that it could not do so because of a confidentiality clause in the agreement.[13] Mr Vlietstra's draft statement of claim pleads two causes of action. The firstis based on his contention that he was in a joint venture with MFI and that MFI owed fiduciary duties to act in the interests of the joint venture and not to prefer its own interests. He claims that MFI breached its fiduciary duties by misleading him about the sale price for the business. He seeks damages calculated as 50 per cent of the difference between the amount received on the sale and $400,000. His second cause of action is for damages for misleading conduct in breach of the Fair Trading Act.[14] It is not appropriate for the Court to attempt to make an assessment of thelikelihood of Mr Vlietstra's proposed claims succeeding at trial. This is not the focusof the enquiry when considering an application for pre-commencement discovery. The question is whether he has a claim, not whether it is likely to succeed.[15] Even if Mr Vlietstra did not have any right to the assets or goodwill of the business in terms of the 1992 agreement, his co-operation may have been required to enable the sale to BrokerWeb to proceed. Mr Vlietstra transacted the business in the Tauranga region and BrokerWeb evidently wanted him to continue in the business for 12 months following purchase to assist in securing the goodwill of the business. On Mr Vlietstra's evidence, he agreed to accept $200,000 in return for his interest inthe business, early termination of the agreement and his agreement to accept employment with BrokerWeb. He says that this agreement was procured by Mr Flowers' representation that the sale price for the business was $400,000. There is some support for Mr Vlietstra's position in his email of 22 August 2014 whichrefers to his agreement "to the sale of my interest in the assets" for $200,000 plus transfer of the car. There is further support for it in the letter from MFI's solicitors dated 2 October 2014 referring to a "capital payment of $200,000" to be paid toMr Vlietstra "as a share of the goodwill". This is arguably inconsistent with MFI'scontention that Mr Vlietstra had no interest in the assets and no entitlement to share in the goodwill.[16] Mr Flowers may be correct that Mr Vlietstra had no right to any goodwill.Mr Flowers' evidence that he made no representation concerning the sale price of the business may be accepted at trial. It is not possible to express any view as towhether Mr Vlietstra's claim will succeed. It is unnecessary and would beinappropriate to do so at this stage. I am satisfied on the evidence that Mr Vlietstra has shown that he may be entitled to claim relief against MFI. That is sufficient.[17] I do not accept MFI's submission that Mr Vlietstra's proposed claim must bepursued in the Employment Relations Authority or the Employment Court because the 1992 agreement is an employment contract. The claim is not based on the 1992 agreement. It is founded on alleged discussions between Mr Flowers and Mr Vlietstra in 2014 leading to a new agreement. For the same reason, Mr Vlietstrais not bound to pursue the present claim in arbitration. The arbitration clause in the 1992 agreement is restricted to disputes concerning the construction of that agreement or the rights or liabilities of the parties arising under it.[18] For these reasons, I consider that Mr Vlietstra has met the first prerequisite of a pre-commencement discovery order. I am satisfied that he is, or may be, entitled to pursue a claim in the Court against MFI.Is it impossible or impracticable for Mr Vlietstra to formulate his claim without reference to the agreement for sale and purchase?[19] Mr Vlietstra cannot plead the quantum of his loss without discovery of the agreement for sale and purchase. Rule 5.26 of the High Court Rules requires a plaintiff to set out in the statement of claim sufficient particulars to inform the Court and the defendant of the cause of action. Rule 5.33 requires a plaintiff seeking to recover special damages, as is the case here, to state their nature, particulars and amount in the statement of claim. However, these general rules do not preclude a plaintiff from filing a statement of claim without all such particulars where the defendant has knowledge of the relevant particulars but the plaintiff does not. In such cases, the particulars can be provided after interlocutory steps have been completed, including discovery. It is not uncommon for statements of claim to be filed in circumstances where the quantum of loss cannot be calculated prior to discovery of relevant information held by a defendant.[20] Mr Vlietstra is able to provide sufficient particulars of his claim to fairly inform MFI and the Court of the nature of the claim and the damages claimed. He has set out how he contends the damages should be calculated. This is sufficient to enable him to initiate his proceeding. I consider that it is not impossible or impracticable for him to formulate his claim without discovery of the agreement for sale and purchase. For this reason, the application must be declined.Result[21] The application for pre-commencement discovery is declined.[22] If Mr Vlietstra does not file any claim within three months of the date of delivery of this judgment, an application for costs can be made by way of memorandum. If a claim is filed within that time, costs should be reserved and dealt with in the context of the substantive proceeding.______________________________M A Gilbert J