The Judicial Committee of the Privy Council Decisions

Brazier & Anor v. Bramwell Scafolding (Dunedin) Ltd & Ors (New Zealand) [2001] UKPC 59 (18 December 2001)

Privy Council Appeal No. 7 of 2001

(1) Colin Joseph Brazier and

(2) Brazier Scaffolding Ltd. Appellants

v.

(1) Bramwell Scaffolding (Dunedin) Limited

(2) Bruce Leonard Harvey and

(3) Bramwell Scaffolding Limited Respondents

FROM

THE COURT OF APPEAL OF NEW ZEALAND

JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 18th December 2001

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Present at the hearing:-

Lord Slynn of Hadley

Lord Hutton

Lord Hobhouse of Woodborough

Sir Martin Nourse

Sir Murray Stuart-Smith

[Delivered by Sir Murray Stuart-Smith]

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Introduction

1. This is an appeal against a judgment of the Court of Appeal of New Zealand delivered on 3rd May 2000, dismissing an appeal from judgments of Young J given, as to liability, on 1 July 1999, and as to injunctive relief and damages on 20th August 1999. By these judgments the judge held that Mr Brazier, the first appellant, and his companies Brazier Scaffolding Limited (Brazier Scaffolding) the second appellant and Reefton Enterprises Limited (Reefton) were in breach of covenants in restraint of trade contained in a deed of settlement dated 10th March 1997. He awarded damages in the sum of $785,000.00 against the appellants, made up as to $345,000.00 for the period prior to judgment, and $440,000.00 thereafter during the remaining period of the restraint. He also granted injunctive relief against the appellants and Reefton.

Background to the dispute

2. Bramwell Scaffolding (Dunedin) Limited (Bramwell Dunedin) was a company of long standing in the Otago region of the South Island of New Zealand. For many years leading up to March 1997 the respondent Bruce Harvey had been a 40% shareholder in Bramwell Dunedin and he and his wife were the two directors. In 1990 the appellant Colin Brazier acquired from Mr Murray Clydesdale, by means of Reefton, the other 60% shareholding. Mr Brazier's interest in Bramwell Dunedin was not evident from the public documents relating to the company. Mr Brazier had extensive scaffolding interests in Invercargill through Brazier Scaffolding and Bramwell Scaffolding (Southland) Limited, though again his interest in the latter company was not evident in the public documents.
3. In 1995 Mr Brazier wished to carry out restructuring of Bramwell Dunedin, but he lacked the necessary 75% holding to be able to do so, and an impasse was reached. To overcome this Reefton issued proceedings in the High Court against Bramwell Dunedin and Mr Harvey under section 209ZG of the Companies Act 1955 seeking an amendment of the Articles of Association.
4. In the event these proceedings were settled on the basis that Reefton would sell the 60% shareholding to Mr Harvey for $1.1 million. The agreement was embodied in a deed of settlement dated 10th March 1997, which contained the relevant covenants relied upon in the present proceedings.
5. The relevant clauses are as follows:-

"3.3 Reefton, Brazier Scaffolding and Bramwell Southland Restraint of Trade

Reefton, Brazier Scaffolding and Bramwell Southland undertake that in consideration of the settlement each company will not for a period of five years from settlement date either directly or indirectly carry on or be engaged, concerned or interested either alone or in partnership with or as manager, agent or servant of any other person in any scaffolding business within [the Dunedin area].

3.4 Brazier Restraint of Trade

Brazier undertakes that in consideration of the settlement he will not for a period of five years from the settlement date either directly or indirectly carry on or be engaged, concerned or interested either alone or in partnership with or as manager, agent or servant of any other person in any scaffolding business within [the Dunedin area].

3.6 For the purposes of the restraint of trade covenants:

(a) An indirect interest in a scaffolding business includes actual or beneficial ownership of shares in a company or loans made to a business and specifically includes shares owned by a family trust or loans made by a family trust where the family trust directly or indirectly benefits Brazier, Harvey or either of their spouses or children.

(b) An interest in a scaffolding business includes the hire of scaffolding, plant or material to another scaffolding business."

6. In order to finance the purchase of the 60% shareholding of Bramwell Dunedin, a new company Bramwell Scaffolding Limited (BSL) acquired the undertaking of Bramwell Dunedin. The benefit of the covenants in restraint of trade were assigned to BSL.
7. Following the settlement of March 1997 and the establishment of BSL the scaffolding industry in Dunedin and Invercargill was as follows:-

(i) In Dunedin the real participants were BSL and United Scaffolding Limited (a company independent of the parties in this case); this was so until the arrival of the fourth defendant Able Scaffolding Limited (Able). Able was formed in September 1997 and its sole director and shareholder is Mr Murray Clydesdale (Mr Harvey's former partner in Bramwell Dunedin). The operations of Able and Mr Brazier's relationship to it lie at the heart of the case. A fourth company Boral Acrow had effectively dropped out of the picture.

(ii) In Invercargill there are two companies operating, Brazier Scaffolding and Bramwell Southland, both controlled by Mr Brazier, though this was not apparent in the case of Bramwell Southland.

8. In October 1997 those managing BSL observed that very substantial quantities of Brazier Scaffolding's equipment was being delivered to sites in the Dunedin area and erected. Scaffolding contractors put distinctive markings on their equipment; furthermore Brazier Scaffolding had a substantial quantity of Anglok Scaffolding, which is a distinctive type, not used by any other contractor in South Island. This equipment was being used by Able.
9. On 4th November 1997 the respondents commenced these proceedings and in particular they sought interim injunctive relief. The defendants put forward no evidence explaining the presence of their scaffolding in Dunedin, and the judge, Chisholm J, who heard the application, declined, in the absence of evidence, to hold that a sale of the equipment had taken place; this being an inference which he was evidently invited to draw.
10. Chisholm J granted the injunction sought which was arguably in somewhat wider terms than the covenant. The defendants did not remove the equipment from Dunedin: indeed they made further deliveries in defiance of the injunction.
11. In December 1997 the defendants put forward two affidavits. One by Mr Shane Brazier, Mr Colin Brazier's son, the other by Mr Murray Clydesdale. They were not filed in support of or in relation to any application before the court, but evidently in response to the respondent's solicitor's letter threatening proceedings for contempt. The tenor of these affidavits was that Brazier Scaffolding had sold the scaffolding together with a truck to Able pursuant to an agreement made by the two deponents in September for a total price of $200,000.00, of which $150,000.00 was to be paid in December 1997 and the balance in March 1998. In accordance with this contract there had been deliveries of scaffolding in October 1997. The affidavits exhibited five invoices bearing different dates between 10th and 21st October. Each invoice was related to a separate delivery. There was also a summation document which recorded the figure of $200,000 and how it was arrived at. It appears to be a summary of the material sold.
12. There followed a number of further interlocutory proceedings. The respondents issued two applications to commit the appellants for contempt in breaching the interim injunction, both of which were adjourned to the trial. Able applied to be joined as a fourth defendant and they were so added on 1st May 1998. They are not parties to this appeal.
13. The trial took place between 21st and 25th June 1998. Among the witnesses who gave evidence were Mr Harvey, Mr Colin and Mr Shane Brazier, but not Mr Clydesdale (though his affidavit was admitted); the judge in the judgment commented on the absence of Mr Clydesdale, who had ample foreknowledge of the trial date.
14. The appellants' case as it emerged at trial was that there had originally been an oral contract for the sale of the equipment to Able at a price of $200,000.00, payment to be made over a period of 5 years, with a retention of title clause. This was evidenced by a handwritten draft prepared by Mr Colin Brazier and sent on 20th October to his solicitor, Mr Chapman, for incorporation into a formal agreement. Mr Chapman however advised that such an agreement was in breach of the covenants. The agreement was therefore varied, so that $150,000 became payable in December, the balance in March 1998. No formal or written contract ever came into existence.
15. The respondents challenged this explanation; they said it was false, the alleged contract was a sham, and not a bona fide contract made at arm's length. The true explanation was that Mr Brazier had an interest in Able and this was a clear breach of the covenants. Alternatively, even if there was a sale, the credit terms and the oversupply of equipment were so favourable to Able as to amount to giving an interest to Mr Brazier in Able and thus constituted a breach.

The decision of the judge

16. The judge said that he was satisfied that the defendants' explanation for the presence of the scaffolding in Dunedin was false. In a careful judgment he gave a number of reasons why he had reached this conclusion. He considered three possible explanations for this false account; but concluded of the three "the most logical inference to draw from the false explanations given by the defendants is that they are conscious that a true explanation would involve them in acknowledging a breach of the restraint of trade covenants". And he concluded that the most likely explanation was that "Able and Mr Clydesdale are, in truth, a front for Mr Brazier who owns some or all of the shares in Able or has some similar and related entrepreneurial interest in the company" (Vol. 1 p 419). This was a conclusion that the judge reached on the balance of probability.
17. It is unnecessary to examine in detail the judge's reasons for rejecting the appellants' explanation. In summary they are as follows:-

(i) The evolution of the appellants' case. Originally on the application for an injunction no evidence was put in giving the sale explanation. This was not fully explained by Mr Chapman's evidence, but this omission was on his advice. This was followed by the different case disclosed in the affidavits of December 1997 and that which emerged at trial to the effect that this was a variation following Mr Chapman's advice. This change was necessitated by the disclosure of the solicitor's file.

(ii) The lack of documents of unquestioned authenticity evidencing a bona fide sale. There were no proper invoices; the invoices which were produced did not cover all the deliveries; these invoices did not tie up with the summation document; a number of faxes which appeared to be relevant to the relationship had been destroyed.

(iii) The contents of the solicitor's file was not easy to reconcile with the varying accounts of the sale contract.

(iv) There was very substantial oversupply. This was evident from the discrepancies between the invoices and the summation document; the fact that there had been other documents in relation to which there were no records; there was evidence that on four sites alone much more Anglok scaffolding was in use than could be accounted for in the documents produced.

(v) If this was a genuine sale it was not properly dealt with in the accounting documents of Brazier Scaffolding or Able. GST was not accounted for by Brazier Scaffolding and not claimed as the in-put tax by Able, thereby losing $22,000. The explanation for this was incredible.

(vi) Deliveries continued to be made after the issue of the injunction.

(vii) A number of apparently relevant entries in Mr Brazier's diary were obliterated. The explanation for this was incredible.

(viii) There were a number of other pieces of circumstantial evidence which pointed to the same conclusion, including the fact that Mr Brazier's interest in both Bramwell Dunedin and Bramwell Southland was not disclosed to the public.

18. Appreciating that he faced great difficulty in seeking to reverse these findings of fact before their Lordships' Board, because concurrent findings of fact will not be disturbed and also because an Appeal Court will not normally reverse findings of fact without cogent reasons, Mr David, who appeared before their Lordships but not in the courts below, sought to mount an attack on the fairness of the trial.
19. He submitted that the judge's finding that Able was a front for Mr Brazier was a finding that Mr Brazier had been guilty of conduct akin to fraud and had been branded a liar without such a case ever having been pleaded, advanced to the court of trial or put in cross-examination to Mr Brazier, either by respondents' counsel or the judge.
20. Their Lordships do not accept this submission. The case was pleaded as one of breach of contract and not fraud; that was all that was required. The amended statement of claim made it quite clear that the case was that "the purported sale transaction with the Fourth Defendant (Able) which was in fact a sham" (para 14(e)). And after setting out the ostensible acts relied upon also in paragraph 14, it was alleged in paragraph 15 that by virtue of those matters "the Defendants have an interest in" Able.
21. The expression "akin to allegations of fraud" appears to have originated from Mr Withnall, counsel for Able, who submitted that the judge ought to adopt a high standard of proof, approaching that of the criminal standard, because of the serious nature of the allegations. The judge correctly reminded himself of the principles in Hornal v Neuberger Products Limited [1957] 1 QB 247, when considering his findings of fact, which he reached on a balance of probability.
22. The judge appears to have understood quite clearly how the case was being presented by the respondents. He said there were a number of bases on which they contended that the covenants in restraint of trade were breached. The third was:-

"Mr Brazier, in any event, must be treated as in essence the proprietor of all or some of the shares in Able with Mr Clydesdale (in respect of those shares) just a front for him so that, in that sense, Mr Brazier is, thereby, interested or concerned in the business of Able." (Vol. 1 p 397)

23. If this had been a fundamental misunderstanding of the way the case was put at trial their Lordships would have expected that to be a principal ground of appeal in the Court of Appeal. It was not. On this aspect of the case the submissions in that court were that the judge had drawn the wrong inferences from the circumstantial evidence which was consistent with a sale transaction and having regard to the gravity of the consequences for Mr Brazier the requisite standard of proof was not discharged. In their Lordships' view the present submissions could not properly have been made by counsel who appeared at trial for the appellants.
24. As for the cross-examination Mr Barton, counsel for the respondents, accepted that he had not put in terms to Mr Brazier that Able was a front for him; nor had the judge. It was quite unnecessary to do so. Mr Brazier was cross-examined on the circumstantial evidence referred to in paragraph 17 above with a view to showing that Mr Brazier's explanations of these matters were untrue. It is perfectly obvious that the whole thrust of the cross-examination was to cast doubt on the sale explanation and show that it was false. If it was false, then it was a deliberate falsehood and the inevitable explanation of that was that Mr Brazier had an interest in Able which he wished to conceal. It would have added nothing to the cross-examination or Mr Brazier's understanding of the case that was being made against him for counsel to have said "I put it to you that Able is a front for you and you have a beneficial interest in it". Nor is it correct to say, as Mr David does, that Mr Barton accepted that there was a genuine sale. He plainly did not and never resiled from the case that the purported sale was a sham. The mere fact that when cross-examining Mr Barton did not preface each question about the sale with the word "purported", does not mean that the genuineness of the transaction was accepted. Nor is the fact that two sums of $150,000 and $50,000 were paid by Mr Clydesdale conclusive that this was a genuine arm's length sale. If Able was a front these payments were essential to the cover. It does not follow that the money remained in the hands of Mr Brazier or Brazier Scaffolding, especially since the $150,000 was apparently treated in the books of Brazier Scaffolding as a personal loan from Mr Brazier to Brazier Scaffolding and the $50,000 had not been transferred from the solicitor's trust account when the respondents' expert accountant inspected the relevant books.
25. Nor can their Lordships accept Mr David's further submission that the judge should not have leapt to the conclusion that because the sale explanation was untrue, that meant that Mr Brazier had an interest in Able. In their Lordships' judgment the judge was fully justified in reaching this conclusion. The other possible explanations for the lie, although canvassed by the judge, were so improbable that they did not warrant serious consideration.
26. Their Lordships therefore reject Mr David's primary submission that the trial was unfair and the trial process flawed.
27. The judge also held in the alternative that on his construction of the covenant, even if there had been a sale, the very substantial oversupply of equipment, and the provision of credit on terms more favourable than those available in the market, involved the appellants in having an interest in Able. In the light of their Lordships' conclusion on the main point, they find it unnecessary to deal with Mr David's submission that judge was wrong in so holding. Their Lordships express no opinion on this point.
28. Their Lordships turn to consider the second aspect of the appeal, that relating to the injunctive relief and damages. As their Lordships have indicated the judge awarded $345,000.00 by way of damages for breach of covenant against the appellants for the period down to the trial. He granted an injunction against the appellants for the remainder of the five year period, but expressly excluded Able from its terms. Since he envisaged that Able would continue to trade, he awarded damages against the appellants in the sum of $440,000.00 in respect of the balance of the five year period.
29. At the conclusion of his judgment on liability the judge explained his reasons for this somewhat unusual order. He emphasised that his conclusion that Able was a front for Mr Brazier was reached by applying the civil standard of proof. He said that if he issued an injunction against Able, the effect of which would be to close down its operations, he envisaged difficulty in enforcement proceedings for contempt, since he anticipated that Able would continue to deny that it was a front for Mr Brazier, and in such proceedings proof had to be beyond reasonable doubt. He adjourned the assessment of damages and in doing so expressly gave Mr Brazier the opportunity to close Able down. Had Mr Brazier responded to this invitation, then damages for the future would not have to take account of Able's continued competition and future damage would have been nothing or nothing substantial. The judge indicated that if Able did not cease operations substantial damages would be awarded in addition to any injunction against the appellants.
30. In the event when the matter came on for the assessment of damages Able was continuing to operate. Had it ceased to do so, it would of course have made the appellants' appeal on the main issue difficult, if not impossible, to sustain. The judge therefore in the exercise of his discretion awarded damages in addition to the injunction against the appellants.
31. Mr Long, who argued this part of the appeal on behalf of the appellants, made two submissions. First that as a matter of law the Judicature Act 1908, section 16A (which is in the same terms as the Chancery Procedure Amendment Act 1858 (Lord Cairns's Act)), did not permit the court to award damages in addition to an injunction. This is a bold submission in the light of the express terms of the section which provides:

"Where the Court has jurisdiction to entertain an application for an injunction or specific performance, it may award damages in addition to, or in substitution for, an injunction or specific performance."

32. Mr Long cited no authority in support of his submission. He referred to a passage in the speech of Viscount Finlay in Leeds Industrial Co-operative Society Limited v Slack [1924] AC 851 at p 857 where he said:

"The power given is to award damages to the party injured, either in addition to or in substitution for an injunction. If the damages are given in addition to the injunction they are to compensate for the injury which has been done and the injunction will prevent its continuance or repetition. But if damages are given in substitution for an injunction they must necessarily cover not only injury already sustained but also injury that would be inflicted in the future by the commission of the act threatened. If no injury has yet been sustained the damages will be solely in respect of the damage to be sustained in the future by injuries which the injunction, if granted, would have prevented."

33. But Lord Finlay was not dealing with the question whether, in an appropriate case, damages could be given in addition to an injunction in respect of the future. And the second sentence of the passage cited should not be so understood.
34. Mr Long drew their Lordships' attention to the case of Rombough v Crestbrook Timber [1966] BC. CA 577, a decision of the Court of Appeal of British Columbia, where the court assumed without argument that damages could be awarded in addition to an injunction in respect of the same period. Their Lordships reject Mr Long's first submission. Damages can be awarded in addition to an injunction in respect of the same period, provided there is no double recovery.
35. Mr Long submitted that the judge was confused by the question of the standard of proof in committal proceedings. He submitted that Able would have been bound by the finding that it was a front for Mr Brazier, and the only matter which would have had to be proved beyond reasonable doubt in contempt proceedings against it, would be that it continued to operate in the Dunedin area. Their Lordships agree with this submission. The judge could have simply issued an injunction as to the future and Able would have been bound by it. It would not have been able to reopen the issue again. It might have been preferable if the judge had done so. But it does not follow from this that what he did in the exercise of his discretion was wrong or involved double recovery, which is Mr Long's second submission.
36. The judge carefully crafted the injunction so as to exclude Able from its terms. On the basis therefore that Able, which was well established by July 1999, would continue to trade in Dunedin and cause damage to the appellants, he was entitled to award damages to compensate the respondents for what otherwise would be a gap in the protection afforded to them. The operations of Able are not covered by the injunction and there is no double recovery.
37. Mr Long made a further submission to this effect, that $440,000.00 was in any event excessive and that a proper award would have been in the region of $200,000.00 in respect of the post-trial period. This submission appears to be based on the fact that in the statement of claim, the appellants had sought an order for the repayment of the sum of $440,000.00 paid in respect of the goodwill of the business of Bramwell Dunedin. But this claim was in the alternative to the claim for continuing damage after judgment (see paras 17(a)(iv) and (b)).
38. It is not entirely clear how the judge reached the figure of $440,000.00. But he appears to have taken as a starting point a loss at the rate of $22,000 per month for the pre-trial period. He discounted that for contingencies, apparently reaching a figure of $14,000 per month for the remaining 32 months, which he discounted at 6% for money paid in advance. He referred to the claim for loss of goodwill in the sum of $440,000 as apparently a check and imposing a limit on this aspect of the claim. In fact of course the goodwill figure, insofar as it bore any relation to the period of restraint, would relate to the whole five year period. And it is on this basis that Mr Long submits that $440,000.00 for a period of only 32 months is excessive. But the judge recognised that the claim based on loss of goodwill was conceptually unsound. And since no criticism has been made of the way the judge calculated the figure for future loss, other than by using the goodwill figure as a sort of check or cap, their Lordships do not consider that there is any merit in the submission that the award was excessive.
39. For these reasons their Lordships will humbly advise Her Majesty that the appeal ought to be dismissed and that the costs of the appeal be paid by the appellants.