Christensen v Gordon
[2020] NZHC 1486
•29 June 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-710
[2020] NZHC 1486
IN THE MATTER
AND
of an application for interlocutory injunction IN THE MATTER of a claim for breach of contract and for assistance to breach of contract BETWEEN
TONY CHRISTENSEN and ROSALINE
MARY CHRISTENSEN as trustees of the CHRISTENSEN FAMILY TRUST TWO
First Plaintiffs
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
ALUMINATE SOLUTIONS LIMITED
Second DefendantANGELA GORDON
Third Defendant
Hearing: 17 June 2020 Appearances:
P Amaranathan for the Plaintiffs
E St John and S P Maloney for the Defendants
Judgment:
29 June 2020
JUDGMENT OF GAULT J
This judgment was delivered by me on 29 June 2020 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar: ……………………………………
CHRISTENSEN v GORDON [2020] NZHC 1486 [29 June 2020]
[1] The plaintiffs, trustees of the Christensen Family Trust Two and the Purdom Family Trust, seek an interim injunction restraining the defendants from breaching restraints of trade and disclosing confidential information. The plaintiffs are the current shareholders of Trans-Space Industries Ltd (Trans-Space). The restraints of trade and confidentiality obligations were included in agreements for sale and purchase of shares in Trans-Space between the plaintiffs and the first defendant (Mr Gordon).
Factual background
[2] Trans-Space manufactures, imports and installs operable (movable) walls and doors, including partitioning systems, aluminium doors, aluminium sliding doors, swing doors and other door systems, such as bi-fold doors. It has approximately 20 employees, including 14 full-time, and turnover of around $4.5 million per year.
[3] Mr Gordon was the majority shareholder, sole director and managing director of Trans-Space from September 2012 until he sold his shares to the plaintiffs in late 2019. He owned 100 per cent of the shares in Trans-Space until 2016 when he sold a 20 per cent shareholding to the Purdom Family Trust.
[4] The third defendant, Mrs Gordon, was employed by Trans-space as an estimator until 20 May 2020.
[5] Mr Purdom has worked in the Trans-Space business for 17 years, focused on installation until 2019.
[6] Mr Christensen joined Trans-Space in 2017, focused on manufacturing until recently.
[7]By agreements for sale and purchase dated 27 November 2019:
(a)the trustees of the Christensen Family Trust Two agreed to purchase 625 ordinary shares, being 50 per cent of the shares in Trans-space,
from Mr Gordon for $900,000 plus 50 per cent of Mr Gordon’s
$481,000 retained earnings in his shareholder current account; and
(b)the trustees of the Purdom Family Trust agreed to purchase 375 shares, Mr Gordon’s remaining 30 per cent shareholding, for $540,000 plus the other 50 per cent of Mr Gordon’s shareholder current account.
In aggregate, the purchase price for the 80 per cent shareholding was
$1.44 million plus the $481,000 shareholder current account.
[8] Both agreements included clause 7.3, which provided that Mr Gordon (and, in the case of the Purdom Family Trust agreement, Mrs Gordon) covenanted not to, and not to permit any associated party (as defined in the Income Tax Act 2007) to:
(a)during the period of three years following the Completion Date and within New Zealand 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 the Company’s business, namely the manufacture, importation, distribution or installation of movable walls (operable wall systems), partitioning systems or door systems either in the domestic or commercial markets within New Zealand including but not limited to the Dormakaba Group of companies including Skyfold; or
(b)during the period of three years following the Completion Date, whether on their own account or for any other person, solicit, entice or endeavour to entice away any employee, officer or consultant of the Company, any customer of the Company or any employee, officer consultant or Customer of a Related Party of the Company; or
(c)at any time disclose or use confidential information or other intellectual property rights of the Company or its Related Parties.
[9] Completion of the sale and purchase agreements occurred on 6 December 2019.
[10] Mr Gordon agreed to be available to assist the business if required, until 6 March 2020. Trans-Space paid him a salary based on remuneration of $50,000 per annum, paid fortnightly until late February/early March 2020.
[11] On 27 February 2020, Mr Gordon telephoned Mr Purdom to advise that he was considering purchasing AutexPSL, another business involved in the manufacture of partitions and doors. Mr Purdom emailed Mr Gordon the next day to confirm his concern with such a purchase due to the restraint of trade. Mr Gordon replied that his discussion was premature, and it was unlikely anything would proceed.
[12] During the COVID-19 lockdown, Mrs Gordon was the only Trans-space employee with remote access to Trans-space’s computer system. Unknown to the plaintiffs, Mr Gordon had retained administrator rights to Trans-space’s computer system. At some stage, Mr Gordon accessed his Trans-Space email account and deleted his emails. They were recovered, and he deleted them a second time. They were recovered again.
[13] On 8 April 2020 Mrs Gordon emailed to Mr Gordon at his private email address a copy of an invitation to tender Trans-space had received for a Genesis Energy Ltd project.
[14] On 23 April 2020 Mrs Gordon emailed to Mr Gordon a copy of an invitation to tender Trans-space had received for a Sir Howard Morrison Performing Arts Centre project.
[15] On 29 April 2020 Mr Gordon told Mr Purdom that he had purchased AutexPSL.
[16] After correspondence between solicitors seeking undertakings, the plaintiffs commenced proceedings on 22 May 2020 and applied for interim relief. As against Mr and Mrs Gordon, the claim is for breach of contract relying on clause 7.3. As against the second defendant, the claim is pleaded as knowingly or unlawfully assisting breaches of contract. Ms Amaranathan, for the plaintiffs, confirmed this is intended to refer to the tort of inducing breach of contract. At this stage, the statement of claim alleges assistance rather than inducement by the second defendant.
[17] The second defendant, named as Partition Solutions Ltd, is a company owned by Mr Gordon. It has had different names since it was incorporated in February 2020.
On the same day as the proceedings were issued, it changed its name to Aluminate Solutions Ltd. I direct the intituling be updated accordingly. Mr St John, for the defendants, accepted the second defendant is Mr Gordon’s vehicle for his proposed purchase of the business of AutexPSL, being a going concern asset purchase, not a share purchase.
Relief sought
[18] The interlocutory application seeks an interim injunction in the following terms:
(a)The first, second and third defendants be restrained from disclosing, holding or using confidential information belonging to Trans-Space.
(b)The first and third defendants be restrained from directly or indirectly carrying on or being 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 the second defendant’s business or any other business, venture or activity that is the same as or substantially similar to the business of Trans-Space either in the domestic or commercial markets within New Zealand, including but not limited to the Dormakaba Group or companies including Skyfold.
(c)The first and third defendants be restrained from directly or indirectly carrying on or being 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 the second defendant’s business or any other business, venture or activity that manufactures or imports or installs or distributes any of the following:
(A)movable walls (operable wall systems);
(B)partitioning systems; or
(C)door systems;
either in the domestic or commercial markets within New Zealand, including but not limited to the Dormakaba Group or companies including Skyfold.
(d)The second defendant (being a company directly or indirectly established, owned or operated by the first defendant) be restrained from manufacturing or importing or distributing or installing any of the following:
(A)movable walls (operable wall systems);
(B)partitioning systems; or
(C)door systems;
either in the domestic or commercial markets within New Zealand, including but not limited to the Dormakaba Group or companies including Skyfold.
[19] Ms Amaranathan acknowledged that the plaintiffs would not need an order in terms of (b). I agree that (c) addresses the issue in dispute more specifically.
Approach to interim injunctions
[20] It is well settled that on an application for an interim injunction the Court addresses:1
(a)whether the plaintiff can show there is a serious question to be tried;
(b)where the balance of convenience lies; and
(c)where the overall justice lies.
1 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142; and
American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).
[21]As the House of Lords held in American Cyanamid Co v Ethicon Ltd:2
It is no part of the Court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations.
Serious question to be tried
Restraint of trade
[22] The legal principles applicable to restraint of trade clauses are well established. Restraints of trade are prima facie invalid but will be enforced where they are no wider than is reasonably necessary to protect the legitimate interests the restraint was intended to protect.3 Reasonableness in the relevant sense relates to the legitimate interest of the parties to the covenant and to the wider public interest.
[23] At least at this stage, Mr St John accepted the restraint is enforceable. In terms of the serious question threshold, I proceed on that basis.
[24] It is also not disputed that Mr Gordon has agreed to purchase the business of AutexPSL. But Mr St John submits it does not compete with Trans-Space. The dispute focuses on the scope of the restraint. The relevant terms of the restraint are any activity that is the “same as or substantially similar” to Trans-Space’s business, “namely the manufacture” or “distribution” of “partitioning systems or door systems”. Mr Gordon said that Trans-Space has never advertised or sold “partitioning systems” and that Trans-Space amended its marketing materials to use that phrase only after he notified Mr Christensen and Mr Purdom of his intention to purchase AutexPSL. However, the term “partitioning systems” was included in the description in clause
7.3. Ms Amaranathan submitted a plain reading indicates the list following the word “namely” describes the activities prohibited as well as Trans-Space’s own activities. If it were referring only to Trans-Space’s activities, the list would use the conjunction
2 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 407. See also Villa Maria Wines Ltd v Montana Wines Ltd [1984] NZLR 422 (CA) at 425; and Health Club Brands Ltd v Colven Botany Ltd [2013] NZHC 428 at [9].
3 Brown v Brown [1980] 1 NZLR 484 (CA) at 491, the leading New Zealand authority on the enforceability of a restraint of trade in connection with the sale and purchase of shares in a business. See also BYOF Holdings Pty Ltd v Bencho Ltd [2014] NZHC 1560 at [25]-[31]; and Feng v Liu [2017] NZHC 2479.
“and” rather than “or”. I consider it is at least seriously arguable that the list following “namely” describes the activities agreed to be the “same or substantially similar” to Trans-Space’s activities, and thus prohibited under the restraint for three years.
[25] The primary issue relates to the phrase “partitioning systems or door systems”. The defendants accept that AutexPSL purchases and on-sells raw aluminium extrusions which can be used by its customers to construct fixed walls or “partitions”. Mr Gordon says the phrase “partitioning systems” has a particular industry meaning different from “partitions”. He says “partitioning systems” means movable systems whereas Mr Purdom says it includes movable and fixed. That is an issue for trial. As is whether AutexPSL in fact also supplies movable systems, such as sliding stacker doors, or Alement products. There is some evidence that tends to support the plaintiffs’ case. First, AutexPSL’s own website refers to “partitioning systems”. Mr Gordon said that what is advertised on the AutexPSL website is exaggerated and does not reflect what AutexPSL actually do – as its wholesale products are not photogenic, its website uses images of finished products, which they do not produce, in order to make their website more appealing to customers. That is said to be confirmed in a very brief affidavit from Mr Croot of the Autex group. Secondly, back in February 2020, following concern raised by Mr Purdom, Mr Gordon asked Autex to remove any insinuation that a product had acoustic capability from their website. Thirdly, Mr Purdom’s affidavit in reply exhibited recent tenders where Trans-Space and AutexPSL have competed. Those documents also refer to Alement products. Mr St John said those documents were not accepted. Ultimately, the issue for trial appears to be whether the activities of AutexPSL are substantially similar to those of Trans-Space.
[26] Both in relation to the restraint of trade and confidentiality claims, the plaintiffs’ written submissions emphasised that the defendants’ explanations were not credible. As indicated, it is no part of the Court’s function at this stage to try to resolve conflicts of evidence on affidavit. As Mr St John submitted, that indicates a trial is needed. The question at this stage is whether the plaintiffs can show there is a serious question to be tried.
[27] Mr St John’s submission cuts both ways. I consider the plaintiffs have shown there is a serious question to be tried as to breach of the restraint of trade by Mr Gordon. Whether or not there is a clear distinction between movable and fixed walls and doors, there is evidence, including from AutexPSL’s website, that its activities include designing and installing partitioning systems and sliding door systems, including Alement products.
[28] In relation to the second defendant, I am not satisfied there is a serious question to be tried on the current pleading. There is no pleaded allegation or evidence that it has induced, rather than assisted, a breach of contract. Given the acknowledgement that the second defendant is Mr Gordon’s vehicle for his proposed purchase and he is its sole director, any such allegation would effectively involve Mr Gordon inducing himself. In any event, any interim order against him in relation to the restraint of trade would suffice. The terms of the restraint and the order sought capture direct or indirect interests.
[29] In relation to Mrs Gordon, there is no evidence that she is, or intends to be, involved in the purchase of the AutexPSL business. She signed the Purdom agreement as a separate covenantor which may give rise to an obligation not to permit Mr Gordon, as an associated party, to breach the restraint. To that extent only, there is a serious question to be tried in relation to her compliance with the restraint.
Confidential information
[30] The plaintiffs allege two instances of breach of confidential information, namely Mrs Gordon’s disclosure of the two invitations to tender to Mr Gordon by email in April 2020. Mr Gordon is alleged to have knowingly assisted her. The defendants accept that Mrs Gordon forwarded the emails to Mr Gordon, and by way of explanation say she sent them to her husband to ask for his assistance with solving issues in relation to the tenders during the lockdown. The plaintiffs do not accept that explanation. Ms Amaranathan submitted that in the circumstances an interim order is required.
[31] Again, at this stage it is not for me to resolve conflicts of evidence on affidavit. I consider there is a serious question to be tried in relation to disclosure of confidential
information. Disclosure to Mr Gordon while he was Managing Director would of course have been no issue, but by April 2020 he had sold and left the business and appears to have been arranging to purchase AutexPSL. The explanation for and consequences of the disclosure to him are matters for trial – except insofar as his conduct is relevant to the balance of convenience and overall justice.
Balance of convenience
[32] The balance of convenience involves balancing the risk of injustice to each party – deciding whether granting or refusing an injunction is the course which, after substantive determination, would best allow the adjustment of the rights of the parties in a way that accords with fairness and justice.4
Adequacy of damages
[33] A key consideration is the adequacy of damages. Ms Amaranathan first referred to the acknowledgement in the sale and purchase agreements that if a restrictive covenant is breached, monetary damages may not be sufficient compensation. That acknowledgement is, of course, not determinative.
[34] Ms Amaranathan submitted the harm to the Trans-space business could be irreparable and considerable – that damages may not be readily provable or quantifiable, particularly as projects involve confidential tenders. She submitted that damages would not be an adequate remedy to compensate for the unfair springboard gained by the defendants. Ms Amaranathan also referred to the effect on Trans-Space’s innocent employees, which she acknowledged would only be consequential on financial loss. It is also said there is no evidence the defendants would be able to pay damages. In relation to adequacy of damages for the defendants, Ms Amaranathan submitted that there is insufficient detail of harm likely to be caused.
[35] Mr St John submitted that the plaintiffs should have no issue demonstrating any loss whereas damages will be inadequate for the defendants if an injunction is granted because the opportunity for Mr Gordon to purchase it will be lost.
4 Congoleum Corporation v Poly-Flor Products (NZ) Ltd [1979] 2 NZLR 560 (CA) at 571; and
Mansfield v Bilkey [2016] NZHC 752 at [7].
[36] I first consider whether damages would be an adequate remedy for the plaintiffs if an interim injunction is not granted but they succeed in establishing breach of the restraint of trade at trial. I accept that in a case involving breach of a restraint of trade by a person who joins an existing competitor – as the plaintiffs characterise AutexPSL – it would often be difficult to quantify the loss caused by the breach, that is caused by the covenantor’s input into the business of an existing competitor as opposed to its ongoing legitimate competition without the covenantor’s input. A before and after comparison might be a starting point for such an assessment but that may be fraught with difficulty when extraneous economic factors may also affect the businesses. The COVID-19 pandemic may be a particular and possibly acute example given the timing of this case.
[37] However, this case has unusual features. The statement of claim seeks an account of profits. Given the structure of the proposed purchase,5 Mr St John accepted that, if the defendants are found in breach of the restraint at trial, any profits of the second defendant will be attributable to the breach. That makes quantification relatively simple. Further, although not currently pleaded, if the plaintiffs were to elect damages in the alternative, Mr St John also accepted that the profits of the second defendant would equate to the plaintiffs’ loss. Given those concessions, I consider that the plaintiffs’ loss will be relatively easy to quantify. Mr St John further offered rolling discovery of the second defendant’s performance to monitor its activities.
[38] On the other hand, even though the order sought does not expressly restrain the purchase of the AutexPSL business, I accept an interim injunction may well have the effect of causing Mr Gordon to lose his opportunity to purchase AutexPSL (even though Mr Gordon’s evidence that AutexPSL “will not wait forever and I will lose the sale if I do not act soon” was somewhat vague). In the face of the order sought, it would be very bold indeed to proceed on the basis that the AutexPSL business did not fall within the terms of the order. Quantifying that loss of opportunity would be difficult. But I accept Ms Amaranathan’s submission that there is little detail of the harm likely to be caused by that. The defendants have not disclosed the sale and purchase agreement nor explained the terms of purchase, including the price, in order
5 See [17] above.
to indicate the extent of the capital investment. Although Mr Christensen understood when the proceeding was commenced that the agreement went unconditional on 27 April 2020 (two days before Mr Gordon told Mr Purdom he had purchased AutexPSL), on 25 May 2020 Mr Gordon’s lawyer “unequivocally confirmed” that his client had not entered into an unconditional agreement to purchase any business. Mr Gordon does not claim he is already committed to the purchase and his capital investment is at risk. It is his loss of opportunity that is at risk. Also, Mr Gordon’s evidence on the harm if the purchase cannot proceed, that is the value of the opportunity that would be lost, is vague. He said “I will lose a very valuable opportunity that I will be unable to recover”. But he also said that AutexPSL has lost
$200,000 to $300,000 over the last two years. Therefore, while I accept quantification of the defendants’ lost opportunity would be difficult, the weight to be placed on this factor is somewhat reduced given the business’s recent losses and the absence of more specific evidence about its perceived value.
[39] Balancing the adequacy of damages each way, I consider that given the defendants’ concessions it should be easier for the plaintiffs to quantify their loss if an interim injunction is not granted than for the defendants to quantify the lost opportunity if an interim injunction is granted.
[40] I do not draw an adverse inference from the defendants’ lack of evidence as to their ability to pay damages. The plaintiffs did not raise this issue in evidence, only in submissions. They put forward no evidence about their own ability to pay damages if their undertaking is called upon, and I do not draw any adverse inference from that either. This issue is neutral.
[41] Mr St John also advised that the defendants would consent to, or even apply for, a priority fixture. He indicated that a statement of defence could be filed and served within days and discovery could be completed very quickly. He estimated a three day fixture would be sufficient. The issues would be confined and allowing for briefs of evidence (even with the possibility of expert evidence as to industry terms) the proceeding could be ready for trial within three months. I have made enquiries about a priority fixture. If an application is made quickly and priority is granted, a
fixture may be available in November 2020. The next earliest date available would be in 2021.
Employees
[42] I accept the interests of innocent third parties can be important. Here, the position of employees is relevant. I accept that damage to Trans-Space’s business may impact employees and that even if damages following trial would be an adequate remedy for the plaintiffs, employees might lose jobs in the meantime. However, the consequential impact of breach (as opposed to broader economic factors) on employees is somewhat speculative. In the absence of more specific evidence, I am reluctant to give it too much weight. Equally, I am reluctant to place much weight on the risk that, in the absence of Mr Gordon’s investment, AutexPSL employees will also suffer. Although it was suggested it needs investment to avoid liquidation, it was also suggested that AutexPSL has been trading for years and if an injunction is refused all that will occur is it will continue to trade under new ownership.
Status quo
[43] Ms Amaranathan submitted that the status quo favours the plaintiffs because Mr Gordon has not yet purchased the AutexPSL business. This assumes that Mr Gordon is not yet committed to the purchase – or at least was not committed when the proceedings were commenced – which as indicated appears to be a fair assumption on the evidence provided. Preserving the status quo may be a relevant factor in favour of interim relief in the balance of convenience, particularly when other factors are evenly balanced. Ordinarily, the status quo means the position prevailing when the defendant embarked upon the activity sought to be restrained. In that sense, the status quo favours the plaintiffs.
[44] On the other hand, Mr St John submitted this case is on all fours with Western Work Boats Ltd v Kelly,6 where Palmer J considered that the balance of convenience and overall justice did not favour granting an interim injunction in relation to a restraint of trade obligation. He considered that, if the defendants succeeded at trial,
6 Western Work Boats Ltd v Kelly [2016] NZHC 2577.
an interim injunction would have significantly altered the rights of the parties in the interim, and that the balance of convenience did not favour such a change in position.7 Leaving the defendants to assess their chances of success placed the appropriate set of incentives on them – “to make their business decisions consistent with their best assessment of their legal obligations”.8 I note that Palmer J also considered that in that case it would be easier to quantify the loss accruing to the plaintiffs from breach of the restraint than the defendants’ lost business opportunities due to an interim injunction.9
[45] Ms Amaranathan submitted that Western Work Boats Ltd v Kelly is distinguishable in terms of the status quo because here Mr Gordon has not yet completed purchase of AutexPSL. I accept that distinction and note that balance of convenience and overall justice are fact intensive enquiries so there is limited utility in comparing the facts of other cases. But here too I have concluded that the adequacy of damages favours the defendants and the point about incentives also has some application.
Injunction determinative
[46] Mr St John submitted that this is a case where granting interim relief will effectively determine the matter because it will preclude Mr Gordon from purchasing AutexPSL. The Court of Appeal has recognised that:10
…where the grant or refusal of an interlocutory injunction may well “determine the fate of the litigation … the Court should take a more robust attitude than may be suggested by a reading of the decision of the House of Lords in American Cyanamid Co v Ethicon Ltd.”
[47] This is especially so where the facts appear to be clear and, to a certain extent, undisputed or at least indisputable.11 But this is not a case where the facts appear to be clear, let alone undisputed. I am therefore cautious about the risk of effectively determining the litigation in the plaintiffs’ favour. The financial resources of the
7 Western Work Boats Ltd v Kelly [2016] NZHC 2577 at [26]-[27].
8 At [27].
9 At [28].
10 Wilfred v Gan [2013] NZCA 457 at [21], citing McKay Electrical (Whangarei) Ltd v Hinton
[1996] 1 ERNZ 501 (CA) at 507.
11 McKay Electrical (Whangarei) Ltd v Hinton [1996] 1 ERNZ 501 (CA) at 507.
parties and the size of their investments together with the market prospects are factors to be weighed in assessing whether the finality of an interim injunction is relevant.12 Ms Amaranathan submitted that the plaintiffs have invested $1.9 million in Trans- Space whereas the level of Mr Gordon’s investment in AutexPSL is unknown. That is true but, as indicated, it is his loss of opportunity, rather than loss of investment, that is at risk. Taking these matters into account, I consider the risk that an interim injunction may effectively determine the litigation in the plaintiffs’ favour is a factor weighing against the grant of an injunction, although not an overriding factor.
Conduct
[48] Ms Amaranathan submitted that the defendants’ conduct is relevant to the balance of convenience and overall justice. I accept that the conduct of the defendants can be an important factor.13 This is sometimes described as acting with “eyes wide open”. It was a factor in Klissers.14 But, as Gilbert J said in Mansfield v Bilkey,15 there is a distinction between a defendant seeking to avoid relief on the basis of inconvenience when it has deliberately wronged and a defendant who has proceeded in the face of opposition but genuinely believing it is acting within its rights.
[49] Several aspects of the defendants’ conduct are relied on. First, Mr Gordon appears to have proceeded with knowledge that the plaintiffs consider purchase of AutexPSL would breach the restraint. Mr Purdom indicated his position on 28 February 2020. Despite Mr Gordon claiming to have at all times been open and transparent, following his statement to Mr Purdom on 28 February 2020 that it was unlikely anything would proceed, he appears not to have updated the plaintiffs until 29 April 2020 when he advised of the purchase.
[50] Secondly, as indicated, the defendants have not disclosed the purchase agreement nor explained the terms of purchase, which is unhelpful. Mr Christensen says he understands that Mr Gordon entered into an agreement to purchase the AutexPSL business on or about 18 March 2020. Mrs Gordon’s lawyer advised the
12 Plix Products Ltd v Frank M Winstone (Merchants) Ltd (1984) 3 IPR 373 (HC) at 388.
13 See for example Mansfield v Bilkey [2016] NZHC 752 at [26].
14 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 141.
15 Mansfield v Bilkey [2016] NZHC 752 at [29].
agreement was signed on 17 March 2020. Although I have accepted the agreement was not unconditional on 25 May 2020, an Autex website announcement indicates to customers that settlement was due to take place on 31 May 2020. That was apparently deferred following the defendants’ undertakings pending this decision. Mr Gordon said his purchase is currently on hold.
[51] Thirdly, Ms Amaranathan also refers to Mr Gordon’s conduct accessing Trans- Space’s systems and deleting information. Accessing his mailbox after his departure to delete emails (twice) without liaising with the purchasers was at the very least unwise. His purpose for doing so and what was deleted are matters for trial. I am not at this stage in a position to draw an adverse inference in relation to that.
[52] Fourthly, Ms Amaranathan also relies on Mrs Gordon’s conduct in breach of confidence. As indicated, the explanation for the disclosure to Mr Gordon is largely a matter for trial. At this stage, I am not in a position to accept or reject Mrs Gordon’s explanation.
[53] Although the defendants’ conduct lacks transparency in material respects, I am not in a position to conclude on the affidavit evidence that Mr Gordon has deliberately acted in breach of clause 7.3. I do not consider the defendants’ conduct is a significant factor in favour of interim relief.
Conclusion on balance of convenience
[54] Weighing these various factors, I consider the balance of convenience is clearly against the grant of an interim injunction restraining the defendants from proceeding with the purchase of AutexPSL. The strongest factor is that damages should be an adequate remedy for the plaintiffs given the unusual features of the case.
Overall justice
[55] Stepping back, in relation to the restraint of trade issue, I consider that, given the defendants’ concessions, damages should be an adequate remedy for the plaintiffs and overall justice weighs against an interim injunction that prevents the defendants
from proceeding with the purchase of AutexPSL. An early trial will reduce the period of uncertainty for all parties.
[56] Turning to confidential information, Mr St John offered undertakings in relation to the two pleaded invitations to tender and advised that the defendants will give further undertakings in relation to confidential information that is particularised. He proposed that an interim order in relation to confidential information could be conditional on the provision of undertakings.
[57] The plaintiffs are entitled to expect Mr and Mrs Gordon to comply with their obligations not to disclose or use confidential information. But the only alleged breach is that Mrs Gordon disclosed the two invitations to tender to Mr Gordon in breach of her own covenant in the Purdom agreement, and Mr Gordon is alleged to have knowingly assisted her. There is no evidence that Mr Gordon assisted, that is induced, her to disclose those documents to him or that he used that confidential information. The alleged breach is secondary in the dispute. The issue could have been addressed by the defendants providing undertakings earlier, but the order sought is in general terms and indeed the plaintiffs’ submissions belatedly sought a further order that the first and second (which I take to mean third) defendants render up and (which I take to mean or) destroy all confidential information they hold belonging to Trans-Space and allow that to be independently verified. I do not consider such a mandatory interim order is necessary. In the circumstances, I consider the appropriate course is to make an interim restraining order in relation to confidential information but conditional in the sense that it takes effect unless more specific undertakings are provided.
Result
[58] I make an interim order restraining the first and third defendants from disclosing or using confidential information of Trans-Space, to take effect five working days after delivery of this judgment unless within that time the first and third defendants provide written undertakings to the plaintiffs’ solicitors that they:
(a)will not disclose or use confidential information of Trans-Space; and
(b)will forthwith deliver up to the plaintiffs’ solicitors all hard copies, and delete permanently all electronic copies, of:
(i)the invitations to tender dated 8 and 23 April 2020; and
(ii)any other confidential information of Trans-Space particularised by the plaintiffs’ solicitors within three working days of delivery of this judgment.
[59]The application for interim injunction is otherwise dismissed.
[60]I also make timetable directions:
(a)the parties are to file and serve a joint priority fixture application within five working days;
(b)the defendants are to file and serve their statement of defence within five working days; and
(c)the parties are to confer through their solicitors and file a memorandum (preferably joint) in relation to discovery and a pre-trial timetable for evidence within 10 working days. The defendants’ discovery is to include rolling discovery of the second defendant’s performance.
[61] Given the result, it may be appropriate for costs to lie where they fall. If costs cannot be agreed, I will receive brief memoranda (not exceeding three pages) within 15 working days and determine costs on the papers.
Gault J
Solicitors / Counsel:
Mr P Amaranathan, Rice Craig, Papakura
Mr E St John and Mr S P Maloney, Barristers, AucklandMr K Mackie (defendants’ instructing solicitor), Mackie & Co Ltd, Auckland
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