Greenfields Internet Ltd v Rural Networks South Island Ltd
[2019] NZHC 645
•29 March 2019
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
CIV-2019-412-000004
[2019] NZHC 645
BETWEEN GREENFIELDS INTERNET LIMITED
First Plaintiff
AND
RURAL NETWORKS LIMITED
Second Plaintiff
AND
RURAL NETWORKS SOUTH ISLAND LIMITED
First Defendant
AND
CENTRAL LAKES INTERNET COMPANY LIMITED
Second Defendant
Hearing: 28 March 2019 Appearances:
A Barker QC and J Moss for Plaintiffs B Nevell and S Carter for Defendants
Judgment:
29 March 2019
JUDGMENT OF DUNNINGHAM J
[1] The plaintiffs, Greenfields Internet Ltd (GIL) and Rural Networks Ltd (RNL), have commenced proceedings against the defendants Rural Networks South Island Ltd (RNSIL) and Central Lakes Internet Company Ltd (CLICL) alleging:
(a)breach of an implied term of contract against RNSIL for terminating the agreement between the parties without giving reasonable notice; and
GREENFIELDS INTERNET LIMITED v RURAL NETWORKS LIMITED [2019] NZHC 645 [29 March 2019]
(b)breach of confidence against RNSIL and CLICL for unlawfully copying and using RNL intellectual property to build new infrastructure to support customers of CLICL and by using GIL customer details to “directly poach” GIL customers.
[2] In their statement of claim dated 7 February 2019, the plaintiffs sought an order for an interim injunction restraining RNSIL until 31 March 2019 from terminating the internet connection it provides to GIL and from interfering with the transition of clients by GIL off the RNSIL infrastructure. They also sought an order for a permanent injunction restraining the defendants from:
(a)using any confidential information or intellectual property obtained and learned during the business relationship between the parties; and
(b)directly or indirectly approaching GIL’s customers except for advertising their services to the general public.
[3] The plaintiffs also made a without notice application for interim injunction orders to the same effect on 30 January 2019. While I initially made orders on the plaintiffs’ application to preserve the status quo, after hearing from the parties on 8 March 2019, I issued decisions on 15 and 20 March 2019 declining the interim injunction orders sought.1 My primary reason for declining the interim injunction was that I considered each of the claims could be addressed by an award of damages if successful.
[4] Matters went into abeyance for a short period. However, on 22 March 2019, GIL applied for:
a stay of the judgment of Dunningham J dated 20 March 2019 in respect of the first two issues (network and approach of GIL customers) until the matter has been heard on appeal or further orders.
[5]The grounds on which the order was sought were:
1 Greenfields Internet Ltd v Rural Networks South Island Ltd [2019] NZHC 465 (the results judgment) and [2019] NZHC 504 (the reasons judgment).
(a)GIL has filed a notice of appeal with the Court of Appeal seeking an urgent fast track appeal. GIL has sought an appeal hearing in the next two to three weeks.
(b)The appeal will be rendered nugatory and GIL is likely to suffer a substantial miscarriage of justice and irreparable harm if the judgment is not stayed.
[6] The position became more complicated when, on 25 March 2019, the Court of Appeal advised that it was unable to accept GIL’s appeal for filing. Sections 56(3) and 56(4) of the Senior Courts Act 2016 required the plaintiffs to obtain leave to appeal from the High Court before the matter could be heard by the Court of Appeal.
[7] In a telephone conference convened with the parties on the same day, I said I would hear the application for leave to appeal promptly. I also made an interim order restraining the defendants from directly, or via a third party, approaching any of GIL’s customers until the plaintiffs’ application for leave to appeal was heard and determined. In practical terms that also prevented termination of the network services to those customers because the defendants had agreed not to withdraw services to any GIL customer until they were transitioned onto an alternate internet service provider.
The application for leave
[8] The plaintiffs seek to appeal those parts of my decision where I declined to grant an interim injunction:
(a)restraining RNSIL from turning off the wholesale network to GIL; and
(b)restraining RNSIL and CLICL from directly or indirectly approaching GIL’s customers.
[9] The plaintiffs also seek a stay of the judgment as it relates to those issues and a reinstatement of the interim orders initially made on a without notice basis in respect of those issues, pending the hearing of their appeal.
Principles governing the grant of leave to appeal
[10] The requirement for leave to appeal is found in s 56 of the Senior Courts Act 2016. That section does not give the Court express guidance as to the circumstances in which leave to appeal should be granted. The issues have been considered in the decision of Fitzgerald J in Finewood Upholstery Ltd v Vaughan, where she identified the following three relevant considerations when granting leave to appeal:2
(a)A high threshold exists for the granting of leave. An allegation of error of law or fact is generally insufficient. A plaintiff should raise an arguable error.
(b)Leave should only be granted where the circumstances warrant incurring further delay.
(c)The alleged error should be of general or public importance that requires determination, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.
[11] As the plaintiffs submitted, in the decision of Li v Chief Executive, Ministry of Business, Innovation and Employment, a further and more important consideration was identified, which is the extent to which the decision on the interlocutory application determines the substantive rights of the parties.3 That is reflected in the following statement of principles applying to applications for leave which Palmer J sets out in Li:4
Pulling all these strands together, I consider the text, purpose, context and case law of s 56 suggests an application to appeal an interlocutory decision under s 56(3) is likely to be granted if:
(a)the appeal is not likely to be overtaken by the substantive hearing or cannot otherwise be considered as effectively in the context of an appeal of the substantive decision; or
(b)the appellant is likely to be prejudiced by a postponement to the substantive appeal; or
(c)the appeal may be dispositive of the case in law or as a practical matter;
and
2 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [9].
3 Li v Chief Executive, Ministry of Business, Innovation and Employment [2018] NZHC 1171.
4 At [21]-[22].
(d)the arguments in the appeal are capable of bone fide and serious argument; and
(e)the issue on appeal concerns a decision of sufficient significance to the parties or a question of law or general principle of sufficient importance as to outweigh the cost and delay of the appeal.
More pithily, perhaps, an application to appeal an interlocutory decision under s 56(3) is likely to be granted where (a) there is good reason to consider it before, or separately to, the substantive appeal; and (b) it is sufficiently meritorious in substance and relates to a sufficiently important issue as to outweigh the cost and delay of appeal.
[12] In my view, there is no material divergence in these respective statements of law. The principles identified by Palmer J are simply a more detailed exposition of the principle that the alleged error be of sufficient importance to the plaintiff to outweigh any lack of general or precedential importance and of the principle that the circumstance warrant incurring further delay. Accordingly, I agree that where the decision finally determines any aspect of the claim by either party, that would almost inevitably mean that leave to appeal should be granted. That is consistent with the fact that s 56(4) dispenses with the need to seek leave where the order or decision strikes out or dismisses the whole or part of a proceeding, claim or defence or grants summary judgment.
Submissions
The plaintiffs’ submissions
[13] The plaintiffs’ primary position is that the judgment has finally determined their rights in respect of both issues. They claim that the refusal of the injunction effectively determines that a notice period to 15 March 2019 is a reasonable notice period. It also makes it pointless for GIL to obtain an order at trial that RNSIL and CLICL should not be able to approach customers. Once the approaches have been made, then whatever damage was feared will be done.
[14] The plaintiffs also submit that there are the following arguable errors of fact and law in this Court’s decision on the interim injunction:5
5 These do not exactly replicate the errors in the notice of appeal which the plaintiffs sought to file on 22 March but are taken to be the grounds of appeal which the plaintiffs now seek to advance.
(a)The Court erred when it effectively determined that a reasonable notice period was to 31 January 2009, and at worst to 15 March 2009, without determining the purpose for which notice was required. That was critical as what is reasonable will depend on the purpose of the notice period.
(b)The Court erred in its tentative determination that GIL agreed to a termination date of 31 January 2019 and they say, in any event, GIL did not receive a “clear run in bringing the business to a close during that period” because of the alleged hacking of the network on 17 January 2019, which meant it could not continue an orderly transfer of clients during that period, which justified an extension of the period.
(c)The Court erred when it concluded that damages were an adequate remedy. A figure that the plaintiffs proposed for the sale of a residential customer is not the same thing as losses that might flow from “destruction of a business”. In any event, GIL only proposed selling its residential customers not its commercial customers.
(d)The Court erred by failing to consider whether damages were an adequate remedy for RNSIL and CLICL in determining where the balance of convenience lay.
(e)In respect of the interim injunction restraining RNSIL and CLICL from directly or indirectly approaching GIL’s customers, it says the Court erred in determining this issue solely on the basis of arguments over confidentiality, because if a reasonable period of time extended past 15 March 2019, then it would be implicit in that decision that CLICL would not be free to approach GIL’s customers.
[15] The plaintiffs say that these matters mean it has an arguable case on appeal, but its key submission is that the judgment has determined the primary issue in this case, which is whether it should have a longer notice period for termination of RNSIL’s services in which it can manage its clients into new arrangements on alternative fixed
wireless access (FWA) infrastructure to that of RNSIL without unfair competition from the defendants. Given that the judgment has “finally determined its rights in respect of these issues” that, alone, should dictate the grant of leave. Any detriment to RNSIL is minimal and can be addressed through damages. Furthermore, there is unlikely to be any significant delay in terms of the proceeding itself, and there is ample time for an appeal particularly if it is brought on with urgency.
The defendants’ submissions
[16] The defendants point out that the main issue on appeal is whether I erred in deciding that damages were a suitable remedy for the plaintiffs’ claims. If that conclusion could not reasonably be said to be wrong (and a bare allegation of error is not enough), then the threshold for leave to be granted has not been made.
[17]In this case, the reasons I gave for my decision were:
(a)The loss of residential customers could readily be compensated for in damages, noting that GIL was prepared to sell those clients to the defendants for $1,000 each prior to the arrangement being terminated.
(b)There is no reason to doubt that the loss of commercial clients could not similarly be assessed as to their value as customers to GIL.
(c)Even if the defendants obtained all of the remaining clients, that would not mean the end of GIL as a business as it still has its main business in the North Island. It has also already erected some parallel infrastructure in the South Island and transitioned approximately 20 customers to that network.
The defendants say that my reasoning is correct and an alternate position is not reasonably arguable so leave to appeal should not be allowed.
[18] Similarly, the suggestion that there is damage to GIL’s reputation or goodwill through the loss of these customers does not meet the threshold of an arguable case to be heard. The damage to the plaintiffs’ business reputation derives from the risk of
the defendants precipitously terminating GIL’s clients’ internet connection, before their transition to a new network provider. The defendants have, both in submissions and in practice, demonstrated that they will not take steps to turn the network off to a GIL customer without an alternative provider having been arranged. The defendants will ensure that CLICL is available to be an alternative provider so that no customers are left without an internet connection or left feeling they have been let down by GIL. In those circumstances, where the GIL business will continue to operate both in the North Island and with customers they have already transitioned to new infrastructure in the South Island, any allegation that there will be damage to GIL’s reputation or goodwill has an insufficient basis to reach the threshold of being an arguable case sufficient to grant leave to appeal.
[19] In effect, if damages remain a suitable remedy and GIL has no arguable case that such determination was wrong, then leave to appeal must be declined.
[20] Similarly, in respect of the reasonable notice period issue, it is submitted there are no real prospects of success for an appeal on that point. The plaintiffs agreed to a termination date of 31 January 2019, then set 31 March 2019 as the notice date in their pleadings. An appeal which now argues for a significantly greater notice period has no reasonable prospect of success.
[21] The defendants accept that the considerations of delay are of little relevance in the current case where the substantive proceedings are at an early stage. However, they say that in the current case, a high threshold for the granting of leave to appeal is required to ensure that the appeal process itself is not being used by the appellants to cause delay, not in the substantive proceeding, but in the ability to enjoy the fruits of the interim judgment. Here, the defendants say I should take account of the fact the plaintiffs are seeking to gain a commercial advantage, irrespective of the ultimate outcome of the appeal. GIL has said it was seeking “as long as possible in order to replicate as much of the FWA infrastructure as possible” and in the defendants’ submission, this is the true purpose of filing this appeal, and reflects on the bona fides of the appeal.
[22] In terms of the general or precedential importance of the issues on appeal, or their importance to the plaintiffs, the defendants point out that whether or not damages are a suitable remedy falls to be determined on the particular facts of the case and there is no real general or public importance, or precedential value, to a further appeal on that point.
[23] With respect to the importance of the appeal to the plaintiffs, the defendants say it really only relates to the retention of 100 or so clients who are still with GIL as an internet service provider but who will likely be transitioned away in the termination process. A decision to decline leave to appeal would not therefore spell the end of GIL as a business, nor would it preclude GIL from competing with CLICL for other clients in the Central Otago or South Island regions.
[24] In these circumstances, the importance to the plaintiffs cannot be said to be so crucial that a serious injustice would occur if leave to appeal was not granted. Furthermore, putting this into perspective, at a high watermark of $1,000 per client, the plaintiffs will suffer a loss of $100,000 and the legal fees involved in the proposed appeal ought to be balanced against that.
[25] In summary, the defendants say the plaintiffs cannot satisfy the threshold of a reasonably arguable case that my decision was wrong in fact or law when I determined that damages were a suitable remedy for the plaintiffs. The appellants also cannot satisfy the high threshold required in respect of the determination that an agreement had been reached to the 31 January 2019 termination date. There is no real risk of reputational damage or loss of goodwill to the appeal. Furthermore, given the long delays since the notice of termination was first issued, the appellants have already had a greater period of notice than they originally requested, or that they agreed to. Finally, in the defendants’ submission, the real goal here is to give the appellants further time to build their FWA infrastructure in the South Island, rather than to right a judicial error.
Discussion
[26] The starting point is whether there are arguable errors in the decision. The threshold is not high although, of course, a bare allegation is generally insufficient. In
Li the threshold was described as an error that was “capable of bona fide and serious argument”.6 In my view, the primary issue which meets this threshold is the issue of whether damages are an appropriate remedy for the plaintiffs, if the injunctions are not granted. In my view, all other matters flow from that, as it was on that basis that I declined the interim injunctions sought.
[27] Accepting that this issue is capable of serious and bona fide argument, then the issue is whether other relevant considerations warrant leave being granted to pursue this issue on appeal.
[28] I do not consider that the issue can strictly be regarded as dispositive of the plaintiffs’ substantive rights. What it does is preclude a particular remedy which is sought by the plaintiffs rather than to close off their substantive right to argue there has been a breach of an implied term or a misuse of confidential information. For example, the plaintiffs allege that it was an implied term of the contract that reasonable notice would be given to GIL in the event of termination. The relief it sought was first an interim injunction until 31 March 2019 restraining RNSIL from terminating the internet connection it provides to GIL and (presumably in the alternative) damages in a sum to be quantified after discovery and on expert evidence.
[29] My decision on the interim injunction did not prevent GIL from pursuing that claim and, if vindicated, from being awarded damages representing the losses it had suffered as a result of breach of that contract. What it did do was close off the option of the injunction continuing until 31 March 2019, or such later date as GIL now says it should have.
[30] The fact that the pleadings only sought an injunction to 31 March 2019 would normally be a powerful factor against granting leave, as the practical effect of what is sought by the plaintiffs is at least a two month extension to that date. However, Mr Barker argued that the plaintiffs were now seeking a longer termination period. The evidence he relied on for this was the evidence of Mr Hurst, in his affidavit of 20 February 2017, where he explained that, contrary to the plaintiffs’ expectations, RNSIL would not sell GIL the equipment on the customer’s premises (the CPE). That
6 Li v Chief Executive, Ministry of Business, Innovation and Employment, above n 3, at [2].
was not anticipated at 7 February 2019 when the statement of claim was filed. The consequence of that was that it would take “on average about 1.5 hours per client to replace and reconfigure the CPE as compared with about five minutes if the existing CPE is used”. Mr Hurst says “now that GIL is forced to transfer each of the clients on the slow process, GIL seeks longer than the 31 March 2019 time period first sought”, although he adds “hopefully all of the clients are transferred by that date and longer is not required”.
[31] Given the plaintiffs now argue that a longer termination period is reasonable than that set out in the 7 February pleadings, I accept that the date of 31 March 2019, which will be spent before the appeal is heard, is not determinative of the issue of leave.
[32] I accept that the alleged errors are not of general or public importance. They are very much factual questions which are confined to the circumstances in which these two parties find themselves. The real issue is whether they are of sufficient importance to the parties, in particular the plaintiffs, that they should be allowed to argue them regardless of any delay which is involved.
[33] Here, the defendants responsibly accepted that given the early stage of the proceedings, and the plaintiffs’ proposal to seek an urgent hearing of the appeal, there was no real delay to the proceedings. However, they did urge me to see the application for leave to appeal as intended to achieve a tactical advantage for the plaintiffs through further delay, to give them further time to set up a competing wholesale FWA network, which they said should be taken into account as pointing against leave being granted.
[34] As I said in my earlier decision, I am conscious that both parties stand to gain commercial advantages depending on the decisions made in this Court. I am also conscious of the acrimony which has built up between the parties during the course of the payment disputes, the notice of termination being given and then this litigation. Indeed, both parties candidly acknowledged that matters had reached the stage of “trench warfare”, albeit each saying that the shots were coming from the other party. In such circumstances, I consider I must be careful not to attribute blame or decide which party is more “worthy” when I am dealing with matters at an interlocutory stage.
This is not a case where one party is so obviously more blameless or blameworthy than the other party that it should be a factor in my decision on the application for leave.
[35] I also take note that the willingness of the parties to put such resources into the loss or gain of what appears to be around 100 clients suggests there may be matters at stake which go beyond a simple valuation of the clients lost by one or gained by the other and which can be assessed at leisure in the resulting proceedings.
[36] Finally, and importantly, the application for leave to appeal is being advanced on the basis that the appeal would be sought to be heard urgently, with the expectation that it would be on in six weeks. In my view, this is a critical factor in granting leave to appeal as I consider that no irreparable harm will be occasioned to the defendants in that period, while the plaintiffs test whether the interim injunction orders they still pursue should have been granted.
Result
[37] Accordingly, for the reasons set out above, I have decided, albeit by a fine margin, to grant leave to the plaintiffs to appeal my judgment dated 20 March 2019. I do so on the basis that the appeal will be applied for and heard with urgency. If that position changes, I reserve leave to the parties to revert to this Court.
[38] That leads to the question of whether I should grant what is, in effect, a stay on aspects of my 20 March judgment and reinstate the relevant interim injunction orders. In this regard, it was agreed that the range of factors set out in Keung v GBR Investment Ltd were relevant.7
[39] In my view, the most compelling ground for granting the stay sought is that the appeal would be rendered nugatory without it. The whole point of the appeal is to preserve the plaintiffs’ right to an interim injunction pending the hearing and disposition of the appeal. There is no other factor which in my view displaces this
7 Keung v GBR Investment Ltd [2010] NZCA 396 at [11].
consideration. Accordingly, the interim orders which were in place prior to my decisions of 15 and 20 March are reinstated with the following modifications:
(a)The order restraining RNSIL and CLICL from using RNL’s tower designs is not reinstated.
(b)The defendants must file an amended statement of claim no later than 5 April 2019 specifying the termination date for the reasonable period of termination.
(c)The interim injunction order restraining RNSIL from terminating the provision of network services to existing GIL clients will endure to that date, or such earlier date as this Court orders, but no longer.
Costs
[40]Costs are reserved.
Solicitors:
Andrew Lewis Law, Auckland J Moss, Barrister, Christchurch
Guest Carter Law Limited, Dunedin
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