Baker v Libeau

[2022] NZHC 3137

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2021-425-000017

[2022] NZHC 3137

BETWEEN

ROBERT DARCY BAKER

Plaintiff

AND

JEAN-MICHEL LIBEAU

First Defendant

AND

LINCSPUN LIMITED

Second Defendant

AND

LIBEAU LIMITED

Third Defendant

Hearing:	16 November 2022
Appearances:	B B Gresson for the Plaintiff B P Molloy for the Defendants
Judgment:	28 November 2022

JUDGMENT OF NATION J

Introduction

[1]    The first defendant (Mr Libeau) is a director and shareholder of a number of companies that have an interest in a yarn and fabric manufacturing technology (the Lincspun technology) which they licence to spinning mills and other manufacturers of yarn and fabric-based products. In 2015, the plaintiff (Mr Baker) and Mr Libeau discussed the potential value of Mr Libeau’s companies being USD 10 million. Mr Libeau planned on setting up a holding company which would own all the Lincspun technology intellectual property. Mr Baker agreed to invest USD 150,000 and receive a 20 per cent shareholding in the company. Mr Libeau owned the other 80 per cent of shares, which he transferred to the third defendant (Libeau Ltd). In 2016, the shares

BAKER v LIBEAU [2022] NZHC 3137 [28 November 2022]

were reallocated so that Mr Baker owned 26 per cent of them. He paid an additional USD 10,000 in consideration. The relationship between Mr Baker and Mr Libeau ultimately broke down.

[2]    In 2021, Mr Baker filed proceedings against Mr Libeau and the defendant companies associated with him, seeking damages and relief for breach of contract and misrepresentation under the Contract and Commercial Law Act 2017, and for oppressive and unfairly discriminatory conduct under the Companies Act 1993.

[3]    On 13 July 2022, Mr Baker filed an interlocutory without notice application for freezing orders as to certain assets in which Mr Libeau and the defendant companies had an interest, and an application for ancillary orders requiring Mr Libeau to file an affidavit identifying property he owned.

[4]    On 15 July 2022, Mander J made an interim freezing order to continue until a telephone conference with the parties, the telephone conference to serve as first call of the application on an on notice basis.

[5]    On 21 July 2022, Dunningham J confirmed the freezing order would continue until a further order of the Court. The application for ancillary orders remained before the Court.

[6]    On 9 September 2022, Mr Libeau and the other defendants filed an application for the discharge of the freezing order. There was a hearing as to all applications on 16 November 2022.

Initial requirements for the making of a freezing order

[7]Rule 32.5 of the High Court Rules 2016 relevantly provides:

32.5 Order against judgment debtor or prospective judgment debtor or third party

(1)   This rule applies if—

…

(b)an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in—

(i)the court; or

...

(4)   The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because—

(a)the judgment debtor, prospective judgment debtor, or another person might abscond; or

(b)the assets of the judgment debtor, prospective judgment debtor, or another person might be—

(i)removed from New Zealand or from a place inside or outside New Zealand; or

(ii)disposed of, dealt with, or diminished in value (whether the assets are in or outside New Zealand).

…

[8]Under r 32.2 there are three requirements for a freezing order to be made:

(a)        a good arguable case on the substantive claim;

(b)       assets to which the order can apply; and

(c)        a real risk the respondent will dissipate or dispose of those assets.

[9]    Once the applicant establishes both its good arguable case and the relevant danger under rr 32.5(1)(b) and 32.5(4), the Court will determine the application on the balance of convenience.1

Leave to bring application

[10]   In a minute of 5 April 2022, in accordance with a joint memorandum of then counsel for all parties, Associate Judge Lester directed that the close of pleadings date for the proceedings was 30 May 2022. The plaintiff’s on notice application for a

1      Robert Osborne ed McGechan on Procedure (online ed, Thomson Reuters) at [HR32.5.04] citing

Murren v Schaeffer [2018] NZCA 318, (2018) 24 PRNZ 285 at [17].

freezing  order  and  ancillary orders was  filed on   13  July 2022.    The defendants’ application to discharge the freezing order was filed on 9 September 2022.

[11]   Leave was accordingly required for the filing of these applications. There was no opposition and the parties have fully addressed the merits of the respective applications. Leave to file the applications is accordingly granted.

Has Mr Baker established he has a good arguable case on his substantive claims?

[12]   A good arguable case is established if the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application for a freezing order is made.2 The applicant does not need to demonstrate its case is strong enough to entitle it to summary judgment.3

[13]   Mr Libeau is the sole director and shareholder of Libeau Ltd. He is also the sole director of Lincspun Ltd. Libeau Ltd is the majority shareholder of Lincspun Ltd.

[14]   Mr Baker claims that, on or about 4 May 2015, he and the defendants entered into a contract whereby Mr Baker would invest into and be a 20 per cent shareholder in a Singaporean registered company to be named Lincspun Tech Ltd (Lincspun Tech). That company was to be an intellectual property holding company, managing existing licencing agreements owned by Mr Libeau and other companies.

[15]   That is a tenable claim. Mr Libeau and Mr Baker signed an email dated 4 May 2015 by which they agreed Mr Baker was:

… undertaking an investment to purchase 20% shareholding of a new umbrella LincSpun company.The new company will be a IP Holding Company managing the royalty licensing agreements with global spinning mills and other licensed users.

2      Robert Osborne, above n 1, at [HR32.2.03(1)(d)] citing Dotcom v Twentieth Century Fox Film Corp [2014] NZCA 509, (2014) 110 IPR 442 at [18] and [31]; Hannay v Mount [2011] NZCA 530 at [20]-[22]; and Wing Hung Printing Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754.

3      Robert Osborne, above n 1, at [HR32.2.03(1)(b)] citing Wilsons (NZ) Portland Cement Ltd v Gatz- Fuller Australasia Pty Ltd [1985] 2 NZLR 11 (CA).

The new company will provisionally be called LincSpun Tech and be registered in Singapore, as a Private Limited Company with 100000 shares. Jean Michel Libeau as the majority shareholder. With a 80% shareholding and Robert Baker holding 20% . Both shareholders agree to sell down or dilute their shareholding at a later time for new investment or sale of a percentage of the company.

The new company will acquire all intellectual property and royalty income of Mr Libeau’s existing LincSpun companies.Except royalty income to cover all expenses of running the existing NZ and European companies.

[16]   Mr Baker pleads the contract provided he would pay USD 150,000 in consideration of his investment into the new company.

[17]That is a tenable claim. The email recording the contract stated:

The 20% share investment of a new LincSpun company will be purchased with an investment of $150000 USD. The investment will mainly go to pay for Patent and Company costs to take the new company through to its next level.

The first payment of $50000 USD will be transferred into a New Zealand bank account of a Lincspun Company controlled by Mr Libeau.The remaining

$100000 will be held by Mr Baker while new company registration and bank accounts are set up and the funds are available immediately on completion of this.

[18]   Through the pleadings, there is agreement that a New Zealand company, Lincspun Tech, was formed on 21 July 2015 instead of a Singaporean company. Ten thousand shares were issued with Mr Libeau owning 8,000 shares (80 per cent) and Mr Baker owning 2,000 (20 per cent).

[19]   Also admitted is that Mr Baker invested USD 150,000 into Lincspun Ltd in consideration of his 2,000 issued shares in July 2015.

[20]   Mr Libeau transferred his 8,000 shares to Libeau Ltd in September 2015. In July 2016, Mr Baker paid USD 10,000 to Libeau Ltd in consideration of a reallocation of shares so that he owned 26 per cent of the shares in Lincspun Tech.

[21]   Consistent with Mr Baker’s claim, it is also admitted in pleadings that Lincspun Tech, LincSpun Ltd, Mr Libeau and Libeau Ltd entered into deeds of assignment whereby intellectual property owned by Mr Libeau and all those companies was assigned either to Lincspun Tech or Libeau Ltd.

[22]   Mr Baker claims that, although it was agreed the USD 150,000 was to be an investment into Lincspun Tech, Mr Libeau has misappropriated those funds and used them for his own financial benefit. The defendants plead the USD 150,000 was to be paid in consideration of the provision of shares. Mr Baker’s claim is that it was money to be paid to Lincspun Tech for the benefit of its business.

[23]   There is evidence supporting Mr Baker’s claim in this regard. The 4 May 2015 email referred to the investment of USD 150,000 as being to “mainly go to pay for Patent and Company costs to take the new company through to its next level”. The 4 May 2015 email referred to USD 100,000 being held by Mr Baker until the new company had been formed and bank accounts were set up with the funds to be available immediately on completion of this. All of that was consistent with there being an agreement that USD 100,000 would be paid to and used by the new company. Fifty thousand USD was to be paid into a New Zealand bank account of another Lincspun company controlled by Mr Libeau but that could still have been consistent with the monies being used by Lincspun Tech for developing its business. There is evidence of Mr Libeau messaging Mr Baker around 20 July 2015 saying “[c]an you send other 50k and I’ll open bank account for Lincspun Tech and transfer money into it”.

[24]   Mr Baker claims that USD 150,000, which was to be paid to or for the benefit of Lincspun Tech, was never received by that company. Mr Baker asserts his USD 150,000 was paid to Libeau Ltd, to an account controlled by and for the personal use of Mr Libeau, and that NZD 134,984.22 was spent from that account on expenses personal to Mr Libeau.

[25]   Accounts for Lincspun Tech for relevant years do not show an investment in that company of USD 150,000 from Mr Baker either as share capital or funds introduced. The defendants do not assert the funds were paid to Lincspun Tech. Rather, they say, legally, the funds did not have to be paid to Lincspun Tech. The defendants accepted NZD 134,984.22 was spent from the Libeau Ltd account but say the manner in which such money was spent was irrelevant given Mr Baker was not a director or shareholder of Libeau Ltd.

[26]   Mr Baker also pleads that, contrary to the agreement recorded in the email of 4 May 2015, Lincspun Tech has not acquired all intellectual property of Mr Libeau’s existing Lincspun companies. Mr Baker pleads that, on 11 July 2015, Mr Libeau and Libeau Ltd entered into a deed of assignment of intellectual property whereby intellectual property owned by Mr Libeau relating to “patent specifications soon to be filed with patent applications in the United States of America” was assigned to Libeau Ltd.

[27]   Mr Baker also pleads it was agreed Lincspun Tech would acquire all royalty income of Mr Libeau’s existing Lincspun companies with the exception of royalty income to cover all expenses of running the existing New Zealand and European companies (net Lincspun royalty income).

[28]   Mr Baker pleads that, on 11 July 2015, Lincspun Tech and Lincspun Ltd entered into an exclusive global licence agreement whereby Lincspun Tech agreed to supply Lincspun Ltd with the right to use and acquire royalty income for all intellectual property associated with the Lincspun trademark.

[29]The defendants admit those pleadings.

[30]   Mr Baker also pleads that, for the period from July 2016 to June 2020, Lincspun Tech did not receive all Lincspun net royalty income from Mr Libeau’s existing companies after deduction of such income as was genuinely and reasonably used in the running of existing New Zealand and European companies.

[31]   Mr Baker’s pleadings refer to the amounts shown as royalty income in the accounts for Lincspun Tech and Lincspun Ltd, and pleads that Lincspun Tech’s royalty income only amounts to 26 per cent of Lincspun Ltd’s royalty income. Mr Baker pleads that Lincspun Tech has not received all the royalty income which it should have because some of that royalty income has been used to meet expenses which were not for running existing New Zealand and European companies.

[32]   Through answers to interrogatories on 10 February 2022, the defendants seek to justify the deduction for expenses made but, on all the information in the pleadings

and otherwise currently before the Court, Mr Baker does have a tenable basis for claiming that Lincspun Tech should have received more from royalties than it has done in the years to date.

[33]   Mr Baker pleads that on 8 March 2021 he cancelled his contract with the defendants of 4 May 2015. The defendants accept that he purported to cancel the contract but deny that cancellation was valid. They assert they were not in breach of contract. Mr Baker had however acquired a 26 per cent shareholding in Lincspun Tech at the time of the purported cancellation and thus can still claim to have his rights as a shareholder.

[34]   Mr Baker has a tenable basis for claiming he is entitled to damages in such sum as the Court thinks just under s 43(3)(a) of the Contract and Commercial Law Act following the cancellation of the contract.

[35]   With the pleadings and evidence before the Court, Mr Baker does have a good arguable case that he was induced to pay USD 150,000 to Mr Libeau by a representation that Lincspun Tech would be assigned all the intellectual property and net Lincspun royalty income. That has not happened. Mr Baker therefore has a good arguable case that he was induced to make the payment by a misrepresentation.

[36]   On his claim for breach of contract and misrepresentation and for relief under the Companies Act, Mr Baker also has a good arguable case that:

(a)        Mr Libeau, in conducting the affairs of Lincspun Tech, failed to ensure Lincspun Tech benefited from the USD 150,000 which the parties had agreed would be invested in that company; and

(b)       Mr Libeau failed to ensure Lincspun Tech obtained the benefit of all net royalty income and intellectual property which the parties had agreed it would receive.

[37]   In his amended statement of claim, Mr Baker has not quantified the compensation or damages he is seeking. Nevertheless, with the pleadings and evidence as they stand, Mr Baker does have a good arguable case that, through ss

35-43 of the Contract and Commercial Law Act and s 174 of the Companies Act, he could be entitled to damages or compensation from Mr Libeau, Lincspun Ltd and Libeau Ltd to the extent of:

(a)        the USD 150,000 he paid in 2015; and

(b)       compensation to the extent he has suffered a loss through the value of his shares in Lincspun Tech being less now than it would have been if Mr Libeau had not been in breach of the contract and/or had not conducted the business of the various companies in a way that was oppressive to Mr Baker as a shareholder in Lincspun Tech.

Are there assets to which a freezing order can apply?

[38]   The second requirement for a freezing order is that Mr Baker must show there are assets of the defendants to which the order can apply.

[39]   The defendants did not suggest this requirement had not been established. In his affidavit of 4 July 2022, Mr Baker detailed assets owned by the defendants. These included shares in various companies owned by Mr Libeau, bank accounts in the name of Libeau Ltd and Lincspun Ltd, and property, plant, equipment and a motor vehicle shown as owned by either Lincspun Ltd or Libeau Ltd in financial statements for those companies.

[40]This requirement has been met.

Has Mr Baker satisfied the Court that there is a risk of the defendants removing assets from New Zealand or disposing of or diminishing the value of their assets?

[41]   Mr Molloy for the defendants cited in support of the defendants’ case a statement from Sinclair J on an application to discharge a Mareva injunction:4

To sustain an injunction of this nature, there must be some degree of particularity or some substantial ground for believing there is a real risk of the defendant transferring his assets outside the jurisdiction of this Court.

4      Barson Computers NZ Ltd v Bristow (1988) 2 PRNZ 584 (HC) at 588.

[42]   The test now is in terms of r 32.5 and, in particular, r 32.5(4). Mr Baker does not have to prove that Mr Libeau or the defendant companies might abscond. He has to satisfy the Court, having regard to all the circumstances, there is a danger that a judgment or prospective judgment will be wholly or partially unsatisfied because the assets of Mr Libeau or the defendant companies might be:5

(a)        removed from New Zealand or from a place inside or outside New Zealand; or

(b)       disposed of, dealt with or diminished in value (whether the assets are in or outside New Zealand).

[43]In Colville Developments Ltd v Colville, Gendall J stated:6

[39] From the authorities it is clear that affirmative proof of nefarious intent is not necessary.7 It is clear that proof of such intent will rarely be available in most cases. What is needed, however, is that the applicant must point to circumstances from which “a prudent sensible commercial (person) can properly infer a danger of default”. This too has been seen as a test which is “not unduly exacting”.8

[44]   In an affidavit of 9 September 2022, Mr Libeau said he is 66 years old. His home is in New Zealand where he grew up. He has children and grandchildren in New Zealand. He said it is his intention to defend these proceedings and continue with his business and life here in New Zealand.

[45]   Mr Libeau says he is a personal shareholder in the various Lincspun companies, and the value of his assets is reflected in his shareholding in those companies. He says the movement of funds between the companies will not affect his net worth. He said he has no intention of being made bankrupt over a USD 150,000 dispute. Bankruptcy would end his ability to be a director, run his business and travel.

[46]Mr Baker submitted there is a risk of dissipation of assets because:

5      High Court Rules 2016, r 32.5(4)(b).

6      Colville Developments Ltd v Colville [2021] NZHC 2272.

7      Bank of New Zealand v Hawkins [1989] 1 PRNZ 451 (HC).

8      Raukuara Moana Fisheries Ltd v The Ship “Irina Zharkikh” [2001] 2 NZLR 801 (HC) at [122].

(a)        Mr Libeau is the controlling director and shareholder of a number of overseas companies;

(b)       he appears to borrow substantial sums from the companies;

(c)        the overseas companies also appear to borrow substantial sums from the New Zealand companies; and

(d)       the allegations against the defendants involve elements of deceit and misleading conduct.

[47]   As to that last reason, Mr Molloy for Mr Libeau pointed out that allegations of deceit had not been pleaded in the amended statement of claim.

[48]   In his affidavit, as to what he knew of the assets of the defendants, Mr Baker referred to assets appearing in the accounts for various Lincspun companies and shares in those companies owned by Mr Libeau. He said he was not aware if there was cash or other assets owned by the defendants based in New Zealand.

[49]   It appears, from statements in an affidavit answering interrogatories, that Mr Libeau has rented various properties in Wanaka from which he claims to have conducted business activities. In that affidavit, he said he had rented these properties and rental payments were paid broadly in accordance with the proportion of the properties used for business purposes. Fifty per cent of the rent was paid by Lincspun Ltd and Lincspun Tech.

[50]   On Mr Baker’s evidence, part of the background to the parties entering into the contract of 4 May 2015 was that Mr Libeau had told Mr Baker he was seeking to move the patents and intellectual property associated with the Lincspun technology offshore in order for a new, large investor to purchase a majority control of the company and patents. The new company was to be based in Singapore. Mr Baker said Mr Libeau told him the Lululemon Corporation was interested in investing into the company and, on the basis of negotiations with Lululemon, the new company could be worth USD 10 million. No Singapore-based company was established.

[51]   Instead, Lincspun Tech, with its registered office in Wanaka, was set up to obtain the Lincspun technology intellectual property and net royalties. Nevertheless, the evidence as to the background to the 4 May 2015 agreement suggests, if there is significant value in the Lincspun technology, Mr Libeau would consider having that value held by an overseas company.

[52]   It might be said this is now unlikely because there has been an assignment of Lincspun intellectual property to Lincspun Tech pursuant to deeds of assignment dated 11 July 2015 but not all intellectual property has been assigned to Lincspun Tech. Intellectual property associated with patent applications in the United States of America have been assigned to Libeau Ltd. That is another New Zealand-based company but it is not a company in which Mr Baker had an interest.

[53]   The risk for Mr Baker as a prospective creditor is that Mr Libeau would transfer income or other property associated with the licencing of Lincspun technology to an overseas-based company.

[54]   In his affidavit answering interrogatories, Mr Baker referred to travel expenses in the end of year financial statements for Lincspun Ltd as relating to international travel by Mr Libeau from New Zealand to Hong Kong, South Korea and China, and Mr Libeau’s need to travel to those countries because Lincspun products are manufactured in South Korea and China.

[55]   In an emailed letter to the Registry of the High Court of 15 June 2022, copied to the solicitors for Mr Baker, Mr Libeau represented himself as:

Jean-Michel Libeau, CEO/President | LincSpun Group | Melbourne, Australia | Wanaka, New Zealand | Seoul, South Korea | Charlotte, NC, USA | Hong Kong | New Delhi, India | Hamburg, Germany

[56]   There is also affidavit evidence from Mr Baker that Mr Libeau is the controlling shareholder/director of overseas-based companies: Lincspun Yarns Europe UG (Germany), Lincspun HK Ltd (Hong Kong) and Lincspun Technology Incorporation (United States). He was also a controlling shareholder and director of Lincspun Yarns Pty Ltd (Australia) which was deregistered on 17 January 2022. The end of year financial statement for Lincspun Ltd for the year ending 30 June 2020

identified loans to overseas companies totalling NZD 122,771. As Mr Baker asserted in his affidavit of 4 July 2022, those loans appear to show a willingness by Mr Libeau to transfer funds from his New Zealand companies to his overseas companies while retaining little or no cash in the New Zealand companies.

[57]   The risk Mr Libeau would transfer wealth associated with New Zealand-based companies to a company overseas must also be assessed as greater given my assessment that Mr Baker has a good arguable case that Mr Libeau diverted the USD 150,000 investment, which the parties had agreed would be made in Lincspun Tech, to another company or to Mr Libeau in ways which Mr Libeau, but not Mr Baker, could benefit from.

[58]   There is also evidence that Mr Libeau takes funds from defendant companies for his personal benefit. In his affidavit answering interrogatories, he said the shareholders’ advance accounts for Lincspun Ltd represented drawings to shareholders. He said the payments had been made to a shareholder from the company on the basis the company was not yet in a position to pay a salary. I infer he was referring to payments from that company to himself as a shareholder.

[59]   Draft accounts for Lincspun Ltd showed the shareholders’ advance accounts balance at 30 June 2020 of NZD 87,963 for Mr Libeau’s company Libeau Ltd and NZD 100,212 for Mr Libeau personally, including drawings of some $72,000 during the year to 30 June 2020.

[60]   Draft accounts for Lincspun Ltd show loan advances to Lincspun Yarns PL Ltd and Lincspun Yarns Pty Ltd of NZD 42,834 and NZD 11,239. There is thus evidence of funds being advanced from companies based in New Zealand to companies based overseas.

[61]   Mr Libeau also referred to advances in the accounts for Lincspun Tech as having been made to himself as a shareholder. The draft accounts for Lincspun Tech showed the balance of the shareholder’s advance account for Mr Libeau as being NZD 51,439 as at 31 March 2020.

[62]   I am satisfied there is a risk that assets of the defendants could be dissipated through transfer to companies beyond the jurisdiction of New Zealand. Even if the transfer of such assets is recorded in the accounts for Mr Libeau or his companies based in New Zealand, it would then be difficult for Mr Libeau or the official assignee or liquidator of one of Mr Libeau’s New Zealand companies to recover the value of such loans should Mr Baker ultimately obtain a judgment against any of the defendants.

[63]   On all the evidence, I am not satisfied there is a risk the defendants will abscond but I have been satisfied there is a danger that any judgment in favour of the plaintiff will be wholly or partly unsatisfied, because assets of the defendants might be:

(a)        removed from New Zealand or from a place inside or outside New Zealand; or

(b)       disposed of, dealt with or diminished in value (whether the assets are in or outside New Zealand).

Balance of convenience and Mr Baker’s undertaking

[64]   Once the applicant establishes both its good arguable case and the relevant danger, the Court will determine the application on the balance of convenience.9

[65]   Mr Libeau and the defendant companies have been subject to the interim freezing order since 15 July 2022. In his affidavit in support of the application for discharge of freezing order, Mr Libeau said:

The freezing order is proving to be an inconvenience as it is hindering my ability to operate freely. Specifically, it is preventing me from being able to pursue the business and investment opportunities which require meeting clients and potential investors outside of New Zealand.

It is difficult to quantify the value of those lost opportunities, but they may well exceed the $150,000USD disputed in these proceedings.

[66]The freezing order, as sealed, expressly states:

9      Robert Osborne, above n 1, at [32.5.04], citing Murren v Schaeffer, above n 1, at [17].

This freezing order does not prohibit you [the defendants] from dealing with the assets covered by the order for the purpose of —

(a)         paying ordinary living expenses; or

(b)        paying legal expenses related to the freezing order; or

(c)         disposing of assets or making payments, in the ordinary course of your business, including business expenses incurred in good faith.

[67]   Given that limitation to the scope of the freezing order, it is difficult to see how the freezing order prevents Mr Libeau from pursuing business and investment opportunities associated with the Lincspun technology unless, in doing so, Mr Libeau would be seeking to transfer the value of Lincspun technology intellectual property to new companies or entities that are not subject to the existing freezing order.

[68]   The substantive proceedings have been set down for hearing commencing 17 April 2023. Any impact the freezing order will have on the conduct of the defendants’ businesses will be relatively short-term.

[69]   There is no evidence the freezing order is causing hardship to Mr Libeau or the defendant companies. Relevant to the balance of convenience is however the third ground on which the defendants seek a discharge of the consent order, namely that the “plaintiff’s undertaking as to damages is inadequate to meet the risks associated with the continuation of a freezing order”.

[70]   Rule 32.2 of the High Court Rules permits a Court to make a freezing order on or without notice in accordance with pt 32 of the Rules. Rule 32.2(5) states “[a]n applicant for a freezing order must file a signed undertaking that the applicant will comply with any order for the payment of damages to compensate the respondent for any damage sustained in consequence of the freezing order”.

[71]   As stated in McGechan on Procedure, the undertaking must represent a real protection to the other party in the event of the freezing order being wrongly issued.10

10     Robert Osborne, above n 1, at [32.2.04], citing Taylor v Mahne HC Wellington CP786/90, 11 September 1992 and Tema Holdings Ltd v Kostanich HC Auckland CP509/92, 16 April 1992.

[72]   When Mr Baker made his initial without notice application for a freezing order and ancillary orders, he simply said:

I undertake that I will abide by any order the Court may make in respect of damages that are sustained by any party or person served through the making of the orders sought and that the Court decides I ought to pay.

There has been nothing in Mr Baker’s affidavits to indicate there is substance behind the undertaking he gave.

[73]   With their application for discharge of freezing order and Mr Libeau’s affidavit in support of that application, both of 9 September 2022, the defendants had put Mr Baker on notice that they were concerned Mr Baker’s undertaking had no substance.

[74]   The fact Mr Baker has not, by way of reply, provided information as to property he might hold to back up his undertaking does suggest his undertaking may not have substance.

[75]   When an application for a freezing order is being considered on a without notice basis, a failure to provide financial information showing the required undertaking has a value may well be fatal. As to a Mareva injunction, Tipping J in Automatic Parking Coupons Ltd v Time Ticket International Ltd described the fact the plaintiff had not provided the Court with an indication of the strength of the undertaking nor its financial backing was “an extraordinary fact” and a breach of counsel’s duty on a without notice application.11 In Yang v Chen, Asher J stated it was “good practice for all plaintiffs seeking Mareva injunctions to address the value of the undertaking in both the affidavits and memorandum filed in support of the ex parte application”.12

[76]   The need for the applicant to provide such information has become even clearer with r 32.2(3) of the High Court Rules. This requires:

(3)   An applicant for a freezing order without notice to a respondent must fully and frankly disclose to the court all material facts, including—

11     Automatic Parking Coupons Ltd v Time Ticket International Ltd (1996) 10 PRNZ 538 (HC) at 539-540.

12     Yang v Chen HC Auckland CIV-2007-404-1751, 8 August 2007 at [8].

(a)any possible defences known to the applicant; and

(b)information casting doubt on the applicant’s ability to discharge the obligation created by the undertaking as to damages.

[77]   However, that is not the end of the matter on this issue. The Court is now having to decide whether the existing freezing order should continue in the context of a hearing as to on notice applications.

[78]   Mr Gresson for Mr Baker accepted the adequacy of the undertaking is a relevant consideration in assessing the balance of convenience. It was in this context the adequacy of the undertaking was considered to be important by Wylie J in Sanson v Energy Products Ltd.13

[79]   In Smith v Claims Resolutions Service Ltd, Osborne J noted that he was considering an application for a freezing order at the on notice stage.14 He said:15

The limiting of r 32.2(3) clearly involved a deliberate limitation to without notice applications having regard to the fact that the respondent to an on-notice application is able to present the Court with its information as to defences and any criticism of the undertaking as to damages.

[80]Osborne J said:16

There will be many cases where either the nature of the subject matter of the freezing order or the sums involved will make it important for the Court’s consideration of the application that the applicant does proactively provide information relating to the strength of its undertaking. But the need for such disclosure is fact-dependent.

[81]   Central to these proceedings is the hoped for or spoken of value of Lincspun technology intellectual property. Mr Baker’s case is that he contracted with Mr Libeau to invest USD 150,000 in Lincspun Tech on the basis it would acquire all the Lincspun technology intellectual property and net royalties obtained from that.

13     Sanson v Energy Products Ltd HC Auckland CIV 2009-404-5464, 4 December 2009 at [40], citing

Eide v Huxford Holdings Ltd HC Dunedin CIV-2003-412-677, 1 October 2003.

14     Smith v Claims Resolutions Service Ltd [2021] NZHC 3424.

15 At [59].

16 At [60].

[82]   The actual income Mr Libeau currently obtains from the licencing of Lincspun technology appears to be modest. In his affidavit of 4 July 2022, Mr Baker said Mr Libeau told him his director salary from Lincspun activities was NZD 500 per week. In an answer to interrogatories, Mr Libeau said shareholder advances in financial statements for Lincspun Ltd for the years ended 2016 to 2020 represented shareholder drawings from the company on the basis the company was not yet able to pay a salary.

[83]   The freezing order is in terms that permit the defendant companies to dispose of assets or make payments in the ordinary course of business, including for business expenses incurred in good faith. The continuation of the freezing order should thus not prevent the defendants from continuing to grow their businesses through licencing new entities to use the Lincspun technology, whether in New Zealand or overseas.

[84]   Mr Libeau has not provided any evidence to suggest the freezing order would hinder the defendants’ business in this regard.

[85]   A continuation of the freezing order will however restrain the defendants from being able to sell or diminish the value of the Lincspun technology intellectual property. It is possible the defendants, in carrying on their normal business, could find there is potential for such a sale. It would be possible, with appropriate terms, for them to make an application to the Court for a variation to the freezing order that would permit such a sale to take place.

[86]   On the particular facts of this case, the potential for the defendants to suffer a significant financial loss as a result of the continuation of the freezing order would appear to be limited. That being so, Mr Baker’s inability or reluctance to show he has assets or property to back up his undertaking does not warrant the immediate discharge of the freezing order when considering the balance of convenience and, overall, what justice between the parties requires.

Conclusion as to the freezing order

[87]   For all the above reasons, I decline the application to discharge the freezing order made by Mander J on 15 July 2022 and continued by Dunningham J on 21 July

2022. I make an order for that freezing order to continue, subject to the terms and conditions set out in that order, with the following further conditions:

(a)        that order is to remain in effect until and subject to the substantive judgment in these proceedings;

(b)       leave is reserved to the defendants to seek a variation to the terms of the freezing order should the defendants consider that, as a result of particular circumstances that have arisen during the course of carrying on their businesses, the freezing order needs to be varied to preserve or enhance the value of assets which are subject to this freezing order.

Application for ancillary orders

[88]   Mr Baker also filed an application for ancillary orders. The ancillary orders sought would require Mr Libeau to provide details of all bank accounts, New Zealand an overseas funds or other investment accounts controlled or beneficially owned by him, including accounts in the name of Lincspun Ltd and Libeau Ltd.

[89]   The Court may make orders ancillary to freezing orders if it considers this just. Ancillary orders may be made to elicit information relating to assets relevant to the freezing order.17 Orders requiring a party to disclose information relating to assets are common and relatively orthodox in nature.18

[90]   The application for ancillary orders has been before the Court on an on notice basis since 13 July 2022. The defendants did not file a notice of opposition or an affidavit in opposition relating to the application for ancillary orders.

[91]   In submissions for the defendants, Mr Molloy said the issue of ancillary orders remained relevant only to the extent that the freezing order was maintained. He said there had been discovery of the defendants’ accounts and financial information, and further orders had been sought to obtain further financial information in relation to the defendants’ position.

17     High Court Rules, r 32.3(2)(a).

18     Colville Developments Ltd v Colville, above n 6, at [59].

[92]   It is appropriate here for ancillary orders to be made in order to properly police the freezing order.

[93]   I accordingly make ancillary orders as set out in Appendix 1 to the plaintiff’s application of 12 July 2022.

Costs

[94]   With the hearing of the substantive proceedings now scheduled for 17 April 2023, I reserve costs as to the on notice application for freezing orders, ancillary orders and the discharge of the interim freezing order. I note however that, as to such applications, Mr Baker has been successful.

Solicitors:

Todd & Walker, Queenstown

Haigh Lyon Lawyers Ltd, Auckland.