Christensen v Gordon
[2021] NZHC 1737
•12 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-000710
[2021] NZHC 1737
BETWEEN TONY CHRISTENSEN and ROSALIND
MARY CHRISTENSEN as trustees of the CHRISTENSEN FAMILY TRUST TWO
First PlaintiffsAND
WOODY ROBERT PURDOM, LEANNE GILLIAN RUBY CLOUGH and PROFESSIONAL TRUSTEE SERVICES
2019 LIMITED as trustees of the PURDOM FAMILY TRUST
Second Plaintiffs
AND
TIMOTHY PAUL GORDON
First Defendant
AND
PARTITION SOLUTIONS LIMITED
Second Defendant
AND
ANGELA GORDON
Third Defendant
Hearing: 28 April 2021 Appearances:
P Amaranathan for the Plaintiffs S P Maloney for the Defendants
Judgment:
12 July 2021
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 12 July 2021 at 4.00pm Pursuant to Rule 11.5 of the High Court Rules
Solicitors/Counsel:
Mackie & Co Limited
E St John, Barrister, Auckland Rice Craig, Auckland
…………………………
Registrar/Deputy Registrar
CHRISTENSEN v GORDON [2021] NZHC 1737 [12 July 2021]
Introduction
[1] In a judgment delivered on 16 March 2021,1 Palmer J found that the first and third defendants, Timothy Gordon and Angela Gordon (the Gordons), and by extension, the second defendant, Aluminate Solutions Ltd (Aluminate), had breached a three-year restraint of trade which the Gordons had entered into when selling their shares in Trans-Space Industries Ltd (Trans-Space) to Tony and Rosalind Christensen and Woody Purdom and Leanne Clough, who, as trustees of the Christensen Family Trust Two and the Purdom Family Trust, are the first and second plaintiffs.2
[2] Palmer J issued an injunction restraining the Gordons from being involved the activities identified in the injunction and from being involved in the business of Aluminate until after 6 December 2022.3
[3] The plaintiffs now apply for a freezing order in respect of all of the assets of Aluminate pending determination of costs and the quantum of damages to be awarded to the plaintiffs. The defendants oppose the application for a freezing order.
[4] Meanwhile, the defendants have filed a notice of appeal of Palmer J’s decision in the Court of Appeal and apply to this Court for a stay of Palmer J’s decision pending the outcome of the appeal. The defendants also seek an order that any hearing on quantum is deferred until after the appeal has been determined. The plaintiffs oppose the application for a stay.
[5]The two applications were heard before me on 28 April 2021.
Relevant background
[6] In November 2019, Mr Gordon sold his shares in Trans-Space to the plaintiffs. The agreements for sale and purchase between Mr Gordon on the one hand and Mr and Mrs Christensen on the other, and between Mr Gordon on the one hand and Mr Purdom and Ms Clough on the other, each contained a clause under which the Gordons
1 Christensen v Gordon [2021] NZHC 490.
2 It has been accepted in this proceeding that the plaintiffs, in their capacities as trustees, completed the agreements with Mr Gordon for purchase of shares in Trans-Space.
3 Christensen v Gordon, above n 1, at [41].
covenanted that they and any associated party would not, within three years of the completion date of the agreements:
… directly or indirectly carry on or be interested, engaged or concerned (whether on their own account or in partnership with or as manager, agent, director, shareholder, employee or beneficiary under a trust or in any other capacity), in any business, venture or other activity that is the same as or substantially similar to [Trans- Spaces’] business, namely the manufacture, importation, distribution or installation of mov[e]able walls (operable wall systems), partitioning systems or door systems either in the domestic or commercial markets within New Zealand …
(emphasis added)
Aluminate acquires Autex PSL
[7] In February 2020, Mr Gordon told Mr Purdom of his interest in acquiring Autex PSL Ltd, a company involved in the manufacture of door and partitioning systems. Notwithstanding Mr Purdom’s objection, in April 2020, Mr Gordon entered into an agreement to purchase the business of Autex, through the second defendant, which was then called Partition Solutions Ltd but later changed its name to Aluminate Solutions Ltd.
Proceeding commenced
[8] In May 2020, the plaintiffs commenced the current proceeding. In two causes of action against the Gordons, the plaintiffs sought an accounting of profits to compensate them from losses arising from the Gordons’ breaches of the restraints of trade and injunctions against the Gordons. In a separate cause of action against Aluminate, the plaintiffs alleged that Aluminate knowingly assisted in the Gordons’ breaches of their restraint of trade and sought an accounting of profits to compensate for losses arising from Aluminate’s unlawful assistance.
Gault J declines application for interim injunction
[9] In a judgment dated 29 June 2020, Gault J declined the plaintiffs’ application for an interim injunction restraining the Gordons from being engaged in Aluminate’s business or any other similar business in New Zealand.4 Gault J accepted that there
4 Christensen v Gordon [2020] NZHC 1486.
was a serious question to be tried with respect to the alleged breach of the restraint of trade.5 However, he considered that the balance of convenience was against granting the injunction.
[10] Gault J considered that the strongest factor was that damages should be an adequate remedy for the plaintiffs.6 He noted that counsel for the defendants accepted that if the defendants were found to be in breach of the restraint, any profits of Aluminate would be attributable to the breach and that those profits would equate to the plaintiffs’ losses. Given those concessions, Gault J considered that plaintiffs’ losses would be relatively easy to quantify.7
[11] Gault J also took into consideration that to grant the injunction may have the effect of causing Mr Gordon to lose the opportunity to purchase Autex PSL. He considered it would be easier for the plaintiffs to quantify their losses if an interim injunction were not granted than it would be for the defendants to quantify the lost opportunity if an interim injunction were granted,8 and that to grant the interim injunction might effectively determine the litigation in the plaintiff’s favour.9
Amended pleadings
[12] In an amended statement of claim dated 21 September 2020, the plaintiffs alleged a single cause of action against the Gordons and sought an accounting of the profits of Aluminate and compensation for the loss of the goodwill purchased under the agreements for sale and purchase, and revised the terms of the injunctions sought against the Gordons. The cause of action against Aluminate was amended to allege inducement of breach of contract. The relief sought was an accounting of all of Aluminate’s profits, compensatory damages for loss of goodwill, and injunctions restraining Aluminate from assisting or allowing the Gordons to be involved in the activities identified in the injunctions sought against the Gordons.
5 At [27].
6 At [54].
7 At [37].
8 At [38] – [39].
9 At [46] – [47].
Palmer J’s decision
[13] Palmer J heard the plaintiffs’ substantive claim from 30 November to 2 December 2020. He issued his judgment on 15 March 2021 and reissued the judgment on 16 March 2021.10
[14] Palmer J considered the history of the agreements between Mr Gordon and the plaintiffs for the purchase of Trans-Space and, in that context, the purpose of the restraint of trade clauses. He also considered the evidence and submissions on the differences between and the similarities of the businesses of products distributed by Trans-Space and Aluminate, and the language of the restraint of trade clauses. Commenting on the evidence of Mr Gordon, Palmer J stated:11
My impression was that Mr Gordon was straining somewhat to avoid the accepting that most of [Aluminate’s] products are used for partitioning systems and door systems. However, I accept that he genuinely believes that [Aluminate] and Trans-Space supply different products.
(footnotes omitted)
[15] Palmer J held that the issue in the case was whether depended on the scope of the restraint of trade clause and, in particular, whether Aluminate was a business that was “the same or substantially similar to” Trans-Space's business, “namely the manufacture, … distribution … of … partitioning systems or door systems”?12 He found that Aluminate did not assemble or manufacture door systems or partitioning systems.13 However, he considered that Aluminate distributed a sufficiently large proportion of a partitioning system and, on balance, a door system, that, for the purpose of the restraint clause, it effectively distributed those systems and competed with Trans-Space in the market for interior partitions, or more broadly in the interior fit-out market.14 Palmer J held that Mr Gordon's operation of Aluminate meant he was trenching directly on Trans-Space's business, however genuinely he believed he was not.15
10 Christensen v Gordon, above n 1.
11 At [24].
12 At [32].
13 At [33].
14 At [36].
15 At [37].
[16] Palmer J held that the plaintiffs’ separate claim against Aluminate added little and said that because Aluminate acted through its directors, it was artificial to say that Aluminate induced the Gordons to breach the restraint of trade; the Gordons had done that themselves.16
[17]Under the heading “Result”, Palmer J stated:
[41] I find that the first and third defendants, and by extension the second defendant, have breached the restraint of trade clause. Accordingly, I issue an injunction restraining the first and third defendants, until after 6 December 2022, from:
(a)being involved either directly or indirectly in the manufacture, importation, distribution, or installation, of moveable wall systems, or partitioning systems, or door systems, within the domestic or commercial market in New Zealand; and
(b)more specifically, being involved directly or indirectly in the business of the second defendant.
[18] The terms of the injunction granted by Palmer J were those sought in the prayer for relief in the first cause of action in the plaintiffs’ amended statement of claim.
[19] Palmer J observed that the parties, with the assistance of counsel, should be able to agree on the compensation implications of his decision but, if not, there would need to be a separate hearing on quantum.17
Subsequent developments
[20] On 17 March 2021, the day after Palmer J reissued his judgment, the plaintiffs applied without notice for an order freezing the assets of Aluminate.
[21] On 19 March 2021, Campbell J declined the plaintiffs’ application to proceed without notice and directed that the application for a freezing order be served on the defendants.18
16 At [40].
17 At [42] – [43].
18 Christensen v Gordon HC Auckland CIV-2020-404-710, 19 March 2021.
[22] On 22 March 2021, defendants filed a notice of appeal of Palmer J’s decision in the Court of Appeal. The defendants’ appeal is against Palmer J’s finding that the Gordons were in breach of the restraint of trade and granting an injunction against the Gordons. The plaintiffs have not appealed Palmer J’s finding that the second cause of action against Aluminate was artificial.
[23]On 23 March 2021, the defendants applied to stay Palmer J’s decision.
Plaintiffs’ application for freezing order
[24] Freezing orders, which used to be called Mareva injunctions, are provided for in pt 32 of the High Court Rules 2016. Rule 32.2 provides that the Court may make a freezing order restraining a respondent from removing any assets located in or outside New Zealand or from disposing of, dealing with, or diminishing the value of, those assets.
[25] Counsel agree that the test for whether a freezing order should be granted is whether:
(a)The plaintiffs have a good arguable case on their substantive claim;
(b)There are assets to which the order can apply; and
(c)There is a real risk that a judgment will be partly or wholly unsatisfied if the order is not made.
[26] Those elements derive in part from the Court of Appeal’s decision in Shaw v Narain, where the Court also held that the interests of justice must be weighed.19 The Court of Appeal also emphasised the flexibility of the jurisdiction to grant Mareva injunctions or freezing orders.20
19 Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.
20 At 548.
Do the plaintiffs have a good arguable case?
Submissions of parties
[27] Ms Amaranathan, counsel for the plaintiffs, says it is clear the plaintiffs have an arguable case. The defendants have already been found liable for breaches of restraints of trade. The defendants have also accepted, in the hearing before Gault J, that if they are held to be liable, any profits of Aluminate are the damages. In addition, she says the defendants’ case on appeal is weak and is inconsistent with statements made by Mr Gordon about Aluminate’s products.
[28] Mr Maloney, counsel for the defendants, says the defendants accept that the plaintiffs have a good arguable case against the Gordons but say there is no arguable case against Aluminate. Aluminate was not a party to the restraint of trade and Palmer J rejected the only claim against Aluminate. Mr Maloney observes that Aluminate did not exist at the time the agreements containing the restraint of trade were signed.
Discussion
[29] I am satisfied that the plaintiffs have a good arguable case against the Gordons. That is established by Palmer J’s finding that the Gordons breached the restraint of trade as pleaded in the first cause of action.
[30] I agree with Palmer J that the plaintiffs’ claim against Aluminate in the second cause of action was artificial. As Palmer J said, it was the Gordons who breached the restraint of trade. Aluminate was the vehicle by which they did it. Accordingly, a cause of action based on the premise that the vehicle for the breach induced the breach had little prospect of success. In any event, Palmer J found against the plaintiffs on this cause of action and the plaintiffs have not appealed his decision. The only live cause of action is that against the Gordons.
[31] I do not consider that Palmer J’s finding that Aluminate, by extension, breached the restraint of trade, extended the first cause of action against the Gordons to include Aluminate. The agreements containing the restraints were between the plaintiffs and
Mr Gordon. Whether or not Aluminate (then Partition Solutions) was in existence at the time, it was not a party to the agreements. Moreover, Palmer J’s injunction was given in the terms sought by the plaintiffs in their cause of action against the Gordons. The injunction, in its own terms, applies only to the Gordons.
[32] I am satisfied that Palmer’s finding that Aluminate had “by extension” breached the restraint of trade was intended to mean, in a colloquial sense, that Aluminate was the vehicle by which the Gordons had breached the restraint of trade. However, that finding does not itself found a claim by the plaintiffs directly against Aluminate based on breach of the restraint of trade.
[33] The defendants’ acceptance in the hearing before Gault J that Aluminate’s profits would equate to the plaintiffs’ losses for any breach of the restraint of trade has no bearing on Aluminate’s liability to the plaintiffs. That acceptance was only with respect to the quantification of damages if a breach should be established. It does not mean that the plaintiffs have a direct right of recourse against Aluminate.
[34] For these reasons, I am satisfied that the plaintiffs have a good arguable case against the Gordons and, on their current pleadings, do not have a case against Aluminate.
Are there assets to which the order can apply?
Submissions of parties
[35] Ms Amaranathan says the order can and should apply to the assets of Aluminate because of Palmer J’s finding that Aluminate had “by extension” breached the restraint of trade. She also says Aluminate has “primary liability” because it was the vehicle by which the breaches occurred and was a party to the breach, because damages will be based on profits from Aluminate’s sales, and because plaintiffs seek damages against all three defendants.
[36] Ms Amaranathan says that the plaintiffs seek an order against the assets of Aluminate became the plaintiffs are not confident that the Gordons have the means to meet personally a damages award of the order sought by the plaintiffs: loss of profits
of $500,000 to $700,000, and compensatory damages for loss of good will of
$720,000.21
[37] Mr Maloney says the defendants accept that there are assets to which the order can apply. However, that acceptance is subject to the qualification that the defendants say there is no arguable case against Aluminate.
Discussion
[38] For the reasons given above, I do not accept that Palmer J’s finding that Aluminate had “by extension” breached the restraint of trade makes Aluminate subject to the plaintiffs’ cause of action against the Gordons and I do not accept that the plaintiffs have an arguable case against Aluminate. That means I do not accept that Aluminate has primary liability for breach of the restraint of trade or that it was a party to the breach as pleaded in the amended statement of claim as argued by Ms Amaranathan. The plaintiffs’ claim for damages against Aluminate was only in the separate cause of action against Aluminate. That cause of action is gone following Palmer J’s decision.
[39] The question that arises, therefore, is whether Court can make a freezing order over the assets of Aluminate if the plaintiffs’ arguable case is only against the Gordons.
[40]As Gault J said for the Court of Appeal in Shaw v Narain:22
There must be a good arguable case that the person seeking [a Mareva injunction] will succeed in a claim against the owner of the property to be frozen.
[41] It is inherent in that statement that the property to be frozen is property of the party against whom the person seeking the Mareva injunction or freezing order has a good arguable case.
21 In his affidavit sworn on 17 March 2021, Mr Purdom says the Gordons’ home and the premises the Gordons lease to Trans-Space are owned by a Gordon family trust. Similarly, 98 per cent of the shares in Aluminate are held by a Gordon family trust.
22 Shaw v Narain, above n 19, at 548.
[42] As was recognised in SCF Finance Co Ltd v Masri,23 a Mareva injunction or freezing order may extend to property held by a third party to which the person against whom the order is sought has a claim of ownership. Even so, and regardless of the flexibility of the jurisdiction to issue freezing orders, Masri and subsequent decisions do not establish that a freezing order may extend to property held by a third party to which the person against whom the order has sought has no direct claim or beneficial interest.
[43] In the present case, Mr Gordon owns two percent of the shares of Aluminate in his own name. The remaining 98 per cent of the shares are held by a Gordon family trust. A freezing order could properly apply to the shares held by Mr Gordon and, arguably, to the shares in which Mr Gordon has a beneficial interest through the family trust. However, the plaintiffs have not sought a freezing order over the shares of Aluminate. The only order they seek is in respect of the assets of Aluminate.
[44] It is a fundamental principal of company law that a company is a legal entity in its own right, separate from its shareholders.24 The assets of a company are owned by the company and the shareholders have no rights to those assets other than a right to share in the distribution of surplus assets.25
[45] The English courts have considered whether a freezing order against a shareholder of a company can extend over a company’s assets. In Group Seven Ltd v Allied Investment Corporation Ltd, Hildyard J concluded that the assets of a single person company could not be considered assets covered by a freezing order over the assets of the sole shareholder, having regard to the fundamental principle that shareholders do not have ownership of their company’s assets.26
[46] This approach was endorsed by the Court of Appeal in Lakatamia Shipping Company LTD v Su & Ors, where the Court accepted that, even where the shareholder was, for all practical purposes the sole owner of the properties at issue, the assets of
23 SCF Finance Co Ltd v Masri [1985] 1 WLR 876, [1985] 2 All ER 747 (CA).
24 See s 15 of the Companies Act 1993; see also Salomon v A Salomon & Co Ltd [1897] AC 22.
25 See s 36 of Companies Act.
26 Group Seven Ltd v Allied Investment Corporation Ltd [2013] EWHC 1509 (Ch), [2014] 1 WLR 735 at [64] – [65].
the company belonged to the company only and so could not be covered by a freezing order against that shareholder.27 In that decision, Tomlinson LJ observed that, “It can no doubt be both surprising and unsettling to be reminded of these first principles.”28
[47] For these reasons, I do not consider that an order can be made in respect of Aluminate’s assets where the plaintiffs’ arguable case is against the Gordons and not against Aluminate.
Risk that a judgment will be partly or wholly unsatisfied if the order is not made
[48] Because I have concluded that the Court cannot make the freezing order sought by the plaintiffs, there is no need to consider whether there is a real risk that any award of damages ordered against the plaintiffs may not be satisfied or where the interests of justice may lie.
[49] For completeness, however, I record that I was unpersuaded by the evidence and submissions of the plaintiffs that there is a real risk of the Gordons not being able to meet an award of damages even of the order that the plaintiffs say they should be awarded. The essence of the plaintiffs’ assertion of risk is that the Gordons hold many of their assets, including the shares in Aluminate, through trusts and that Mr Gordon has indicated an intention to sell or wind up Aluminate if his application to stay Palmer J’s judgment is unsuccessful.
[50] I do not consider that the fact Mr Gordon has chosen to use a trust to hold the shares in Aluminate in itself indicates an intention to dissipate assets or to avoid payment of a damages award. In the absence of other evidence indicating an intention to avoid payment of the award,29 that would be an unlikely conclusion in view of the ubiquity of the use of trusts in New Zealand; particularly when the plaintiffs themselves are trusts through which the Christensens, Mr Purdom and Ms Clough chose to acquire and hold their interests in Trans-Space. In addition, given that Palmer J’s injunction restrains the Gordons from being directly or indirectly involved
27 Lakatamia Shipping Co Ltd v Su and Ors [2014] EWCA Civ 636, [2015] 1 WLR 291 at [50] –
[51]per Rimer LJ.
28 At [31].
29 I put to one side the hearsay evidence in Mr Purdom’s affidavit of 17 March 2021 in which Mr Purdom says he understood Mr Gordon was trying to sell Aluminate or its assets.
in the business of Aluminate, the Gordons have little choice but to divest themselves of Aluminate or wind it up if they are to comply with the injunction.
[51] This last point also bears on the overall interests of justice. Whatever fears the plaintiffs may have that the Gordons may seek to avoid paying an award of damages, it can hardly be in the interests of justice for the Court to order, in effect, that the Gordons dispose of their interests in the business of Aluminate and then to put in place a freezing order that would make a sale of the business or its assets unlikely, notwithstanding the company’s ability to dispose of assets or make payments in the ordinary course of business while the order was in place.
[52] It is unnecessary to make any findings on the submissions by Ms Amaranathan that the plaintiffs are entitled to an accounting of profits plus compensatory damages and that the damages for breach of the restraint of trade should be calculated by reference to the purchase and sale price of Aluminate’s stock in trade and that the administrative costs of running the company should be excluded. The merits or otherwise of those submissions are best left for consideration on any hearing on quantum.
[53]For all these reasons, I dismiss the plaintiffs’ application for a freezing order.
Defendants’ application for a stay of Palmer J’s judgment
[54] It is well-established, and was accepted by both counsel, that in determining whether or not to grant a stay, the Court must weigh in the balance a successful litigant's rights to the fruits of the judgment and the need to preserve the position in case the appeal is successful.30
[55]Factors to be taken into account in this balancing exercise include:
(a)Whether the appeal may be rendered nugatory by the lack of a stay;
(b)The bona fides of the applicant as to the prosecution of the appeal;
30 Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].
(c)Whether the successful party will be injuriously affected by the stay;
(d)The effect on third parties;
(e)The novelty and importance of questions involved;
(f)The public interest in the proceeding; and
(g)The overall balance of convenience.
[56]The apparent strength of the appeal has been treated as an additional factor.
Would appeal be rendered nugatory by lack of a stay?
[57] Mr Maloney says that, if a stay is not granted, the Gordons would have to sell Aluminate or its business in order to comply with Palmer J’s injunction. The evidence of Mr Gordon is that if he had to sell Aluminate, he would lose the valuable opportunity obtained through the acquisition of Aluminate. and would be highly unlikely to recover it if the appeal were successful. He also says that, because Aluminate had been losing money before he acquired it and was still not profitable despite the improvements in performance he was able to achieve, Aluminate would be likely to cease to exist within six months if he were unable to be involved with it, and that any purchaser of the business would sell off its assets and wind the company down.
[58] Ms Amaranathan says that, given Mr Gordon’s evidence that the company is not making a profit, little if anything would be rendered nugatory if the Gordons sold Aluminate.
[59] The effect of refusing the stay is to require the Gordons to comply with Palmer J’s injunction irrespective of the outcome of the appeal and irrespective of whether the Gordons should have complied with the injunction already.
[60] As I have already noted, the injunction effectively requires the Gordons to divest themselves of Aluminate or wind it up if they are to comply with its terms. I
accept, therefore, that if the stay is not granted, the opportunity of the investment on Aluminate, and such time and effort as the Gordons have invested in Aluminate in the expectation of recouping that investment in the future would probably be lost. I also accept that, having disposed of the company or its assets, there would be a real prospect that the Gordons would be unable to reacquire the business if their appeal were to succeed.
[61]This factor, therefore, weighs in favour of granting the stay.
Bona fides of prosecution of the appeal
[62] The defendants filed their notice of appeal on 23 March 2021, five working days after Palmer J’s re-issued decision and well within the 20 working days provided for in r 20.4 of the High Court Rules. They have paid security for costs and applied for a hearing to be allocated. They have also paid the plaintiffs’ costs of the hearing before Palmer J.
[63] I accept that the defendants have prosecuted their appeal diligently and in good faith. I do not accept Ms Amaranathan’s submission that the appeal is designed to achieve a tactical advantage by running down the period of the restraint of trade.
[64]This factor also weighs in favour of granting the stay.
Will the plaintiffs be injuriously affected by a stay?
[65] Mr Maloney says the plaintiffs had not provided any evidence, other than hearsay evidence, to show that Aluminate is in competition with the plaintiffs or that the plaintiffs have lost business to Aluminate during the period that Aluminate has been operating. He also says that any losses that the plaintiffs can prove at a hearing on quantum to have flowed from the stay will be included in the damages awarded to the plaintiffs if the defendants’ appeal is unsuccessful.
[66] Ms Amaranathan says a stay would exacerbate the injury of the breaches of the restraint found by Palmer J and that the plaintiffs do not have to prove loss or damage because the defendants have accepted before Gault J that the profits of Aluminate
would equate to the plaintiff’s losses. Ms Amaranathan says that, if the stay is granted and the appeal is unsuccessful, the plaintiffs’ only remedy will be damages, which may not be an adequate remedy because the defendants have said that the profits of Aluminate are nil and because the defendants have provided no evidence of a capacity to satisfy an award for damages of the kind sought by the plaintiffs.
[67] It is unnecessary to decide what weight to give to some of these submissions, which can only be established after evidence at a hearing on quantum. It is enough for present purposes to note, first, that Palmer J has found that Mr Gordon's operation of Aluminate meant he was trenching directly on Trans-Space's business in breach of the restraint of trade,31 and secondly, that Gault J has held, albeit in the context of an application for an interim injunction, that damages would be an adequate remedy for the breach of the restraint.32 Palmer J’s finding weighs strongly against granting a stay. Gault J’s finding indicates that such injury as may be caused by a stay can be adequately remedied.
[68] On balance, I am satisfied that this factor weighs against granting a stay, but not heavily. I consider the asserted risks that damages may not be an adequate remedy to be somewhat overstated and mutually contradictory.
Effects on third parties
[69] As already noted, Mr Gordon’s evidence is that Aluminate would cease to exist within six months if he were unable to be involved with it. Mr Gordon also says that would mean that up to six employees would lose their jobs.
[70] While, as Ms Amaranathan notes, the defendants have provided no financial information to support those assertions, I accept that Aluminate being wound up and its employees losing their jobs must be a reasonable possibility if the Gordons are required to divest themselves of any interest in the company.
[71]I accept, therefore, that this factor weighs in favour of granting a stay.
31 Christensen v Gordon, above n 1, at [37].
32 Christensen v Gordon, above n 4, at [36] – [39].
Novelty and importance of questions involved / public interest
[72] Mr Maloney and Ms Amaranathan agree that no novel or important questions arise on the appeal and that no public interest considerations arise.
Overall balance of convenience
[73] Mr Maloney says the overall balance of convenience is in favour of granting a stay because, if it is not granted and the appeal succeeds, the Gordons will have sold Aluminate, lost their investment of time and effort in the company and would not be able to get it back. Ms Amaranathan says the balance is against granting the stay because that will return the parties to the status quo when the parties first entered into agreements for the sale and purchase of Trans-Space and the restraints of trade. She also says that the appeal is a delaying tactic that will undermine the restraint and the value of the plaintiffs’ purchase of Trans-Space.
[74] There is some force to Ms Amaranathan’s first submission. While it is for the Court of Appeal to decide the merits of the defendants’ appeal, on the basis of the documentary evidence one could well reach the conclusion that Mr Gordon has chosen to run a calculated risk that he could get away with his investment in Aluminate despite the restraint of trade, despite the obvious similarities in the businesses of Trans-Space and Aluminate and despite the warning from Mr Purdom that he should not do so. On the other hand, Palmer J, who heard Mr Gordon’s evidence, found that Mr Gordon genuinely believed that Aluminate and Trans-Space supply different products. It is reasonable to infer that Mr Gordon genuinely holds to that view and to the view that his acquisition of the business of Autex PSL and operation of Aluminate were lawful, and that Palmer J was wrong. For that reason, I do not accept that the appeal is just a delaying tactic.33
[75] Whatever the views of Mr Gordon and the plaintiffs, the issues between them are legal and commercial in nature and will be resolved on that basis. If the appeal is unsuccessful, the Gordons will be liable to the defendants in whatever amount is agreed or determined follow a hearing on quantum. If the appeal is unsuccessful, that
33 See also discussion above at [62] – [63].
agreement or determination must be reached for the period between the Gordon’s acquisition of the business of Autex PSL and Palmer J’s judgment. A stay will simply increase the period of inquiry and, perhaps, the quantum of the damages payable to the plaintiffs. The plaintiffs’ commercial position is protected, and they will be compensated in whatever amount is agreed or decided.
[76] By contrast, if the stay is not granted and the appeal is successful, it is likely that the Gordons will have sold Aluminate or its assets, will have lost the opportunity of their investment in Aluminate and the value of the time and effort invested in the company to date and that the company’s employees will have lost their jobs. Given these considerations, I am satisfied that the balance of convenience lies in favour of granting the stay.
Strength of the appeal
[77] Mr Maloney says the defendants’ case on appeal challenges Palmer J’s conclusion that Aluminate distributes a sufficiently large proportion of a partitioning system and a door system, that, for the purpose of the restraint clause, it effectively distributes those systems, challenges the purposive approach Palmer J used in interpreting the restraint of trade clause, and asserts that Palmer J failed to give consideration to the defendants’ affirmative defence that the plaintiffs had not proved that the restraint was necessary to protect the plaintiffs’ legitimate interests. Mr Maloney says the appeal will require a de novo hearing of the evidence.
[78] It will be for the Court of Appeal to assess the merits of the appeal. I simply observe that it is not apparent to me that there was any flaw in Palmer J’s analysis and conclusions.
[79]I consider this factor weighs against granting a stay.
Overall assessment
[80] My overall assessment, therefore, is that the factors in favour of a stay outweigh by some margin those that weigh against granting a stay, notwithstanding
my doubts as to strength of the defendants’ case on appeal. Accordingly, I am satisfied the stay should be granted.
Application for order delaying quantum hearing until after appeal is determined
[81] Although Ms Amaranathan did not address the point, I am satisfied that there should be an order deferring any hearing on quantum until after the appeal has been determined.
Result
[82] I dismiss the plaintiffs’ application for a freezing order over the assets of the second defendant, Aluminate Solutions Ltd.
[83] I grant the defendants’ application for a stay of the judgment of Palmer J issued on 16 March 2021 pending determination of the defendants’ appeal.
[84] I order that any hearing on the quantum of the defendants’ liability to the plaintiffs be deferred until after the defendants’ appeal has been determined.
Costs
[85]The defendants are entitled to costs on both applications on a 2B basis.
[86] If the parties are unable to agree costs, or otherwise wish to make submissions, they may submit memoranda of no more than five pages. Any memorandum from the defendants should be filed and served by 2 August 2021. Any memorandum from the plaintiffs should be filed and served by 16 August 2021.
G J van Bohemen J
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