Nick Mowbray arrives at the Auckland High Court on Tuesday morning to begin giving evidence in his case alleging dirty dealings in the nappy business. Photo / Jason Dorday
Zuru billionaire Nick Mowbray has begun giving evidence in his case against a rival nappy manufacturer, and claimed his former friend and business partner, Grant Taylor, disclosed trade secrets that hamstrung his efforts to dominate nappies on both sides of New Zealand’s supermarket duopoly.
The High Court at Auckland saw nearly a full day of testimony by Mowbray, who, along with his brother Mat, are said to be worth $20 billion - thanks to their Zuru toy and consumer-goods conglomerate, with cross-examination expected to continue into tomorrow and possibly beyond.
The case concerns a spectacular breakdown in the relationship between Mowbray and Taylor.
The court heard the pair had been friends for nearly a quarter-century since they were classmates at St Peter’s Cambridge – Mowbray said he had known Taylor for 26 years – but their teaming up in 2017 to supercharge the Rascals nappy business later led to a meltdown of epic proportions and sparked a four-year legal battle.
Taylor and his sister had founded Rascals in 2016, and Mowbray said he was approached for advice soon after by Taylor about how to turbocharge the struggling startup during a joint holiday in Bali.
“He told me he was struggling to sell nappies online,” Mowbray said.
He said Rascals was achieving annual sales of only $35,000 annually and “was losing money”.
“I confirmed that thinking big was the only way to go,” Mowbray recalled advising Taylor.
Mowbray said he signed on to Rascals in 2017 – demanding a half-share of the business for his time and effort to help push Zuru into consumer goods – and introduced them to contacts at The Warehouse and Foodstuffs that made Rascals available on retail shelves for the first time.
He said he also discovered Taylor was using a shipping container as a warehouse: “I distinctly remember when Grant opened the container, nappies all spilled out.”
Mowbray said he introduced free-on-board logistics to Rascal, a model also used extensively by Zuru, that sees no need for warehouses as the product is shipped directly from the manufacturer to the buyer.
By March 2018, Mowbray claimed Rascals’ revenue totalled $10m annually and accounted for 25% of total nappy sales at Foodstuffs and was responsible for “60% of the total gross margin” for the supermarket’s nappy aisle.
The court was shown transcripts of text messages between Mowbray and Taylor that stretched for at least 240 pages, showing a long and warm relationship sharply deteriorating between May 2020 and July 2020.
May 2020 marked the buy-out of the Taylors from Rascals – for $30m plus dividends and a five-year restraint of trade clause – and July was when Mowbray confronted his then-friend over rumours Taylor was corresponding with factories in China and supermarkets in Australia in an attempt to re-enter the nappy business.
The court heard Taylor was pushed out of the business as he was not considered a good cultural fit by the Mowbrays, who were said to privilege meritocracy.
Text messages shown to the court show Taylor reminiscing with Mowbray about the recently ended four-year partnership in May: “No doubt it’s been an awesome ride.”
But by August, Mowbray was complaining about a break in trust, and Taylor responded with: “Talking about trust is a bit hypocritical”.
Taylor claimed that: “You sat in front of me saying if we didn’t sell or even went on as normal you would start another brand anyway.”
Taylor, in the messages, said he recalled saying Rascals’ agreements prevented partners setting up competing brands, but recalled Mowbray’s response: “Your answer was you don’t care and your boys will get around it.”
Under cross-examination by JJK lawyer Sam Lowery, Mowbray said he did not accept Taylor’s recollection of that conversation: “We would have had robust negotiations, but I never said it.”
The four-year legal campaign reached its zenith this week when the first day of a scheduled four-week trial started.
The hearing began in dramatic fashion on Monday with news that the Taylors – Grant and his father Keith, both former Rascals directors – had settled on the eve of trial.
Grant was said by Mowbray’s lawyers to have settled and admitted to several of the claims brought against them, seeing proceedings continuing only against the JJK Group – a trio of businessmen who took over ailing local nappy brand Treasures after Taylor’s exit from Rascals in early 2020.
Mowbray and his Zuru group alleged Grant had provided JJK confidential information and breached a restraint clause to enable their raid for Treasures.
Treasures, the last mass-market, locally-manufactured nappy made in New Zealand, ceased production in 2020 with its then-owner, Asaleo Care, citing an inability to compete with imported alternatives.
The court heard JJK trumped Zuru’s bid for Treasures branding and intellectual property – in what is said to have been a “fire sale” as the former owners sought to exit New Zealand – by paying $300,000.
Mowbray said he had low-balled a $200,000 offer – messages shown to the court saw him saying he hoped to get it “super super cheap” – as he was not expecting any competition to his bid.
The lawsuit seeks damages on the basis that Treasures would have allowed him to sell into Woolworths and grow the brand on the same trajectory as Rascals over the past five years.
Rascals are sold exclusively through Foodstuffs and agreements with the supermarket giant prevented Zuru from selling its existing or newly-formed brands to its rival, the court heard.
Acquiring an established brand with pre-existing sales channels into Woolworths would skirt this restriction, the court heard.
Mowbray told the court Rascals has expanded globally and made significant headway, particularly in the giant United States market, in the years since buying out the Taylors.
He said Rascals was on track to top $1b in global sales this year. Zuru also has significant and longstanding interests in toys and is seeking to break into mass-produced housing with Zuru Tech.
JJK has filed a counter-claim alleging Mowbray called Woolworths after the dispute with Taylor erupted, informing them of his allegations about breach of restraint and intellectual property theft and forwarding a copy of his statement of claim.
Lowery said this communication had led to a loss of business for Treasures that he quantified at $1.6m, but noted this quantum was disputed.
“Purchase orders on Friday, issued by Woolworths, were cancelled on Monday. And what happened in between was Mowbray’s bull-in-china-shop routine,” Lowery told the court.
Herald requests to take pictures and record video of Mowbray in court were declined after complaints from his lawyers that such coverage would “place unnecessary pressure on him” and make him “uncomfortable”.
Lawyers for JJK did not oppose the application and cited Mowbray’s “extraordinarily high public profile”.
The Herald had sought such coverage given the high-profile nature of the dispute and serious allegations about well-known consumer brands and exclusivity arrangements between manufacturers and the supermarket duopoly.
Many of the details about margins earned, exclusivity arrangements between Zuru and supermarket giants, and the relationship between them and details of Zuru’s manufacturing plants in China are subject to suppression orders issued earlier in the week by Justice Gariner.
The trial and Mowbray’s testimony continues.
Matt Nippert is an Auckland-based investigations reporter covering white-collar and transnational crimes and the intersection of politics and business. He has won more than a dozen awards for his journalism – including twice being named Reporter of the Year – and joined the Herald in 2014 after having spent the decade prior reporting from business newspapers and national magazines.