Strung along with lies from Ever Health Group promising $5.3 million immediate funding for a proposed infant milk project, Brian Wagstaff and Richard Young were justified in dumping intended Chinese investors from a proposed joint venture and looking elsewhere.
The High Court was told Pure Elite Holdings Ltd, short of cash through 2014, made empty promises about its joint venture cash contribution being readily available. Desperate to make money from the deal, Pure Elite attempted to on-sell the proposed project before completion and Pure Elite executive David McCann lost US$30,000 in an advance fee scam whilst trying to raise money. Pure Elite is part of the Ever Health Group.
Messrs Wagstaff and Young joined with Pure Elite in a joint venture intended to produce canned infant formula for the China market. Heads of Agreement signed in 2014 envisaged an all-up cost of $10.4 million. Agreement on a detailed business plan and budget was left for later.
In the background, Pure Elite was looking to fund its joint venture contribution with borrowing. It failed to raise the necessary cash. In one instance, Pure Elite’s David McCann was led to believe he had a deal with the wealthy Wang family, based in Singapore. He paid personally the $US 30,000 demanded in advance as first interest payment on the loan. There was no Wang loan. His payment disappeared through untraceable contacts in Italy and Romania.
Evidence was given of Wagstaff and Young funding joint venture company Danpac (NZ) Ltd for the dairy project’s initial engineering and regulatory work, all the time prompting Pure Elite that its share of the cash was needed promptly. Promises were made by Pure Elite, but no cash arrived. Unbeknown to Messrs Wagstaff and Young, Pure Elite at that time was struggling to meet its monthly payroll. Still without any cash delivered, Pure Elite management convinced Wagstaff and Young to transfer a 51 per cent share in the project to Pure Elite in anticipation of funding being delivered within days. It never arrived. Pure Elite then used its controlling shareholding in Danpac to try and forward-sell the project; have a buyer fund the construction and take ownership on completion. No buyer was found.
Frustrated with the lack of funding from Pure Elite, Wagstaff and Young declared the joint venture at an end, unilaterally dumping Pure Elite from the project. Pure Elite sued, claiming $282 million damages.
Justice Wylie ruled the Heads of Agreement unenforceable. It was no more than an aspirational declaration of mutual intent. It left out critical issues regarding a business plan and budget, leaving hanging the question of when funding was required and the proportion in which shareholding would be taken. It left for further agreement, issues that went to the heart of a joint venture, providing no mechanism to settle any disagreement. There was no enforceable joint venture and Pure Elite was not entitled to retain its 51 per cent shareholding, Justice Wylie ruled.
The High Court was told Randolph van der Burgh and David McCann from Pure Elite have now joined other investors in Happy Valley Milk Ltd, with plans to build an infant milk plant in Otorohanga.
Pure Elite Holdings Ltd v. Bodco Ltd – High Court (3.09.19)
19.159