Cloud House Limited v Bulletproof Group Limited

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1453

[2018] NZHC 1450

BETWEEN

CLOUD HOUSE LIMITED

Plaintiff

AND

BULLETPROOF GROUP LIMITED

First Defendant

BULLETPROOF NETWORKS PTY LIMITED

Second Defendant

Hearing:

8 June 2018

Appearances:

J E M Lethbridge for the Plaintiff

T M Pasley and T J Lindsay for the Defendants

Judgment:

15 June 2018

JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by Associate Judge Smith on 15 June 2018 at 4.30pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date: 15 June 2018

Solicitors / Counsel:

Lowndes Ltd, Wellington Lindsay LA, Auckland

Case Officer: Isabella Wilson

CLOUD HOUSE LTD v BULLETPROOF GROUP LTD [2018] NZHC 1450 [15 June 2018]

[1]                 The defendants apply for security for their costs in this claim, in which the plaintiff (Cloud) seeks damages of approximately $3.9 million arising out of a contract entered into between the parties (the deed).

[2]                 The second defendant (Networks) has filed a counterclaim, in which it seeks to recover the amount of $1 million paid by it under the deed, together with

$127,061.65 as its costs of negotiating and executing the deed.

Background

[3]                 Cloud formerly operated a cloud computing services business in New Zealand. The first defendant (Bulletproof) has been a leading cloud services provider in Australia. Until recently, it was listed on the ASX. Networks is a subsidiary of Bulletproof.

[4]                 In mid-2015 Bulletproof began looking to enter the New Zealand market. It decided the best way to do that would be to acquire a successful existing New Zealand cloud services provider.

[5]                 Mr Woodward,  Bulletproof's  chief  executive,   began   negotiating   with  Mr Jordan Greig and Mr Scott Judson, the directors of Cloud. Messrs Greig and Judson were then the major shareholders in Cloud, each holding 46.3 per cent of the Cloud shares.

[6]                 The parties entered into the deed on 31 January 2016. Under the deed, Networks agreed to acquire the business assets of Cloud (the Business). Networks would begin trading in New Zealand under the "Bulletproof" brand.

[7]                 The consideration for the purchase was an initial $1 million, payable on settlement, together with further contingent sums that would be dependent on Networks' Services Revenue for the period from completion to 30 June 2017.

[8]                 If earned, there were to be three contingent payments, referred to as "earn-out" payments. The first earn-out payment would be payable on 30 June 2016, the second on 31 December 2016, and the third on 30 June 2017. The maximum Cloud could

potentially have been entitled to by way of earn-out payments, was NZ$4,200,000, split between cash and Bulletproof shares.

[9]                 Networks paid the $1 million, and settlement was effected, on 15 February 2016. In accordance with arrangements made between the parties, Messrs Greig and Judson moved over to Networks and became part of the Bulletproof (New Zealand) management team.

[10]              The defendants did not make any earn-out payments. Mr Woodward says that was because the Business…