Harbour City Security Limited v Allied Security Limited
[2021] NZHC 952
•3 May 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-751
[2021] NZHC 952
BETWEEN HARBOUR CITY SECURITY LIMITED
Plaintiff/Respondent
AND
ALLIED SECURITY LIMITED
First Defendant/Applicant
ALLIED INVESTMENTS LIMITED
Second Defendant/Applicant
Hearing: 13 April 2021 Appearances:
D A Bleier for Plaintiff/Respondent W D Hofer for Defendants/Applicants
Judgment:
3 May 2021
JUDGMENT OF ISAC J
Introduction
[1] The defendants have applied to rescind a mandatory interim injunction granted by this Court on 23 December 2020.1
[2] The case concerns a dispute between two security companies over the possession of keys to client premises. Both companies claim they have the greater right to possession of the keys. The interim injunction required the defendants to hand over the keys to the plaintiff.
1 Harbour City Ltd v Allied Security Ltd [2020] NZHC 3530 Judgment (No. 1) granted a mandatory interim injunction against the first defendant. The following day the Court extended the interim injunction to the second defendant: see [2020] NZHC 3535 Judgment (No. 2).
HARBOUR CITY SECURITY LIMITED v ALLIED SECURITY LIMITED [2021] NZHC 952 [3 May 2021]
[3] The defendants now argue the plaintiff materially misstated facts, and omitted others, which wrongly led to the grant of the injunction. They say the injunction should be rescinded as a result.
[4] I have concluded that the application should be declined. That is because there is no “required linkage” between the defendants’ criticisms of the legal and factual basis on which the application was originally advanced, and the Court’s order granting the injunction.
A brief procedural history
[5] On 21 December 2020, Harbour City Security Ltd (Harbour City)2 commenced proceedings against Allied Security Ltd (Allied)3 seeking the return of keys that Harbour City claims Allied was not entitled to retain.
[6] On 23 December 2020, the Court granted Harbour City an interim injunction requiring Allied to return or provide for collection certain keys and associated identifying tags.4 On 24 December 2020, that injunction was varied to include a related company — the second defendant — on the basis that it was actually the entity in possession of the keys.5
[7] On 27 January 2021, Harbour City filed an amended statement of claim, accompanied by a memorandum from their counsel seeking orders that Allied Investments Ltd be added as a defendant to the claim. The claim alleged a breach of bailment and/or conversion, or negligence, and sought damages and costs from the defendants for this breach.
2 The plaintiff, but the respondent in relation to the current application.
3 The first defendant, but an applicant here. As explained below, it is that entity which appears to have acquired the call-out business formerly owned by Total Harbour City Guards Ltd, and which is central to the application to rescind. The second defendant is a party because after the Court granted an injunction against the first defendant it’s principal, Mr Damian Black, advised the plaintiff that it did not hold any keys which were subject to the order and would not therefore be in breach of the injunction. In the same communication Mr Black advised the plaintiff that the keys subject to the order were now in the possession of another company, the second defendant.
4 Judgment (No. 1), above n 1.
5 Judgment (No. 2), above n 1.
[8] On 17 February 2021, the defendants filed a statement of defence denying the causes of action set out in the amended statement of claim.
[9] On 24 March 2021, the defendants filed an application to rescind the interim injunction under rr 7.49 and 7.51 of the High Court Rules 2016.
Background
[10] Mr Shepherd is the sole director of the plaintiff. He swore affidavits in support of both the original interim injunction and in opposition to Allied’s application to rescind it.
[11] According to Mr Shepherd’s original affidavit of 21 December 2020, the plaintiff is a security company providing alarm monitoring services to a range of commercial and residential clients in the Greater Wellington region. The plaintiff enters into an alarm monitoring agreement with each client, which includes a “callout” option, and, amongst other things, involves the dispatch of a security guard to the client’s premises to check on the alarm notification.
[12] As Harbour City does not provide callout services itself, it refers that work to other security companies.
[13] If they wish, clients can provide a set of keys to their premises to Harbour City. Harbour City in turn provides those keys to the guard company to access the premises if an alarm activation is triggered. The keys have a unique client identifier attached to them but are otherwise anonymised by Harbour City. So, it is not possible for the guard company to identify the property to which the keys belong without further information from Harbour City.
[14] When the plaintiff receives an alarm notification, it checks its database for information associated with the alarm code. If the client has requested a callout, Harbour City will call the guard company, advise them of the alarm activation and provide the unique client key identifier so the correct set of keys can be identified. After the guard company has gone to the site to investigate, it will report back to the plaintiff to confirm the attendance and any outcome.
The current dispute concerning keys
[15] The current dispute began in August 2020, when Harbour City received an email from Allied requesting payment of an invoice relating to a large number of callouts Allied had made to Harbour City’s alarm monitoring clients.
[16] Mr Shepherd said the invoice came as a surprise because Allied had never previously invoiced Harbour City for callouts. Previously, Allied had invoiced the client directly.
[17]The plaintiff contacted Allied querying the invoice. Allied replied stating:
Management has decided that from now on that if the clients are not a patrol client we will now be invoicing the Monitoring Companies directly.
[18] This began a back-and-forth conversation through emails. Allied confirmed it would invoice Harbour City rather than its clients for callouts and requested payment of the invoice. Harbour City denied that it was liable for the charges and did not accept Allied’s new terms and conditions.
[19] On 27 November 2020, Allied advised Harbour City that it would no longer respond to its clients “effective immediately”.
[20] Harbour City then made urgent alternative arrangements for guard services, and requested that the keys of their clients be returned to it. Allied initially appeared to agree to return the keys, and asked for the associated key codes for identification, but subsequently refused to return the keys on the basis the disputed invoice had not been paid. It then said:
Regarding the keys I am told by Damian that the clients are actually Allieds [sic]. It appears when Allied bought the Total Security company it included these clients and their keys, further to that we have had these clients sitting with you but we own these clients.
[21] In that same email, Allied also informed Harbour Security that it would be contacting the plaintiff’s clients, explaining the situation to them, and then arranging to have their alarm monitoring business transferred to Allied. Allied said it expected
Harbour City to release the key codes required to facilitate this or it would take legal action.
[22] Mr Shepherd considered this to be an admission by Allied that it intended to actively acquire Harbour City’s clients, and compete with it in alarm monitoring market. He took steps to obtain written confirmation from Harbour City’s clients that keys held by Allied should be returned to Harbour City. A demand for the keys was then made to Allied by Harbour City’s solicitors.
[23] Later, in an attempt to resolve the dispute without the intervention of the Court, Harbour City proposed the parties instruct an independent lawyer to review the names, key codes, addresses, and contact details of the clients along with the letter from each demanding the return of their keys. It was proposed that the independent lawyer then prepare a report to both parties confirming that the key return request information was verified. Allied would then need to agree to immediately release the keys identified by the independent lawyer.
[24] Allied did not accept this proposal, or at least did not respond directly to it. As a result, Harbour City filed its application for an urgent interim injunction on 21 December 2020. The application was advanced on a Pickwick basis but without notice to Allied.
The contested evidence central to the application to rescind
[25] In his original affidavit, Mr Shepherd deposed that initially the Harbour City Group provided its own guard services through a company called Harbour City Security Guard Services Ltd. In November 2000 that company was then sold to an unrelated company with a very similar name: Harbour City Guard Services Ltd.
[26] Harbour City Guard Services Ltd was eventually sold to a company called Total Risk Management Ltd. In turn, Total Risk Management sold its business to Allied in 2017.
[27] Mr Shepherd further deposed that after the sale of the call-out business, Harbour City followed its usual practice of referring call-out work to a security company providing that service. This eventually involved using Allied as the guard company for Harbour City’s clients.
[28] Mr Black, the director of Allied, filed an affidavit in support of the application to rescind/vary the injunction. In contrast to Mr Shepherd’s evidence, Mr Black set out a different account in relation to the ownership and transfer of the business previously operated by Harbour City Guard Services Ltd.
[29] Mr Black deposed that Harbour City Security Guard Services Ltd was not in fact owned by Harbour City at all, as Mr Shepherd appeared to suggest in his original affidavit. Rather, it was owned by another company of which Mr Shepherd was the sole shareholder and director: Harbour City Holdings Ltd.
[30] Mr Black went on to depose that prior to 2000, Harbour City Security Guard Services Ltd entered into separate contracts with clients for the provision of keys to it for the purposes of enabling it to carry out call-out attendances. This was inconsistent with Mr Shepherd’s evidence that the keys were provided pursuant to an implied term in Harbour City’s monitoring contracts.
[31] In 2000, Harbour City Security Guard Services Ltd sold its business to the unrelated Harbour City Guard Services Ltd. This was an asset purchase, not a shareholding purchase. The latter company then continued to enter into call-out contracts on similar terms, providing for the hand-over of client keys.
[32] According to Mr Black, in a subsequent series of business sales it seems that Harbour City Guard Services Ltd transferred its business to Total Harbour City Guards Ltd, which in turn sold its business in 2016 to Allied.
[33]Summarising what he said flowed from these facts, Mr Black deposed that:
(a)Harbour City never sold Harbour City Security Guard Services Ltd in 2000. Rather, Harbour City Security Guard Services Ltd sold its
business to an unrelated company, namely Harbour City Guard Services Ltd.
(b)Harbour City Guard Services Ltd never sold its business to Total Risk Management Ltd, and instead transferred its business to another (but apparently related) company, called Total Harbour City Guards Ltd.
(c)Harbour City never entered into a contract with its clients under which clients provided keys to Harbour City.
(d)Mr Shepherd failed to disclose that he, as director of Harbour City Security Guard Services Ltd, signed agreements on behalf of that company with clients for the provision of their keys, meaning that “Mr Shepherd knew that clients provided their keys directly to [Harbour City Security Guard Services Ltd] and not to [Harbour City].”
(e)Harbour City did not provide client keys to Harbour City Security Guard Services Ltd, or Allied.
[34] Mr Black noted that Mr Shepherd innocently failed to exhibit any contracts that he had signed on behalf of Harbour City Security Guard Services Limited for the provision of clients’ keys to it. This is the premise for Allied’s argument that the interim injunction was improperly obtained, on the basis that material facts were omitted or misstated by Mr Shepherd, and those facts were material to the grant of the injunction.
[35]In response to Mr Black’s evidence, Mr Shepherd filed a further affidavit dated
31 March 2021. Mr Shepherd appears to accept Mr Black’s primary factual contentions but in essence says the passage of time was significant and he did not recall all of the finer details of the complex relationships between various companies referred to as the “Harbour City group of companies” when he swore his original affidavit. The Harbour City Group included:
(a)Harbour City Security Ltd;
(b)Harbour City Security Guard Services Ltd;
(c)Harbour City Security Monitoring Ltd;
(d)Harbour City Security Holdings Ltd; and
(e)Harbour City Security Finance Ltd.
[36] Mr Shepherd explained the reasons for the inaccuracy in his first affidavit in these terms:
The majority of the companies were set up in the early 90’s. The companies were, on the advice of my lawyers and accountants established, to undertake different tasks within the Group. The underlying security businesses were mine personally.
As the years progressed the entities mostly merged from my perspective and I admit I did not pay as much attention to which entity was doing what over the last 20 or so years.
…
I did intentionally separate the company that provided the guard services so that this could be sold (which it was). Following the sale of HC Security Guard Services in 2000… there was no need for this company to continue. The decision must have been made (and I can’t recall the reason why this done this way) to amalgamate HC Security Guard Services with HC monitoring.
…
A search of the Companies Office registered documents shows that HC [Security] Guard Services was amalgamated with HC Security Monitoring on 28 February 2011. All of this took place over 10 years ago and the exact reasons for all of this I can’t recall.
The evidence in more detail: Harbour City’s clients demand return of their keys in December 2020
[37] When Harbour City’s application for an interim injunction was filed it was accompanied by approximately 250 signed letters from clients who:
(a)consider themselves to be clients of Harbour City, rather than Allied; and
(b)required Allied to “return” their keys to Harbour City.
[38]Each letter was in the following standard terms:
Key Return Request
To
Allied Security Wellington
Dear Sir/Madam,
I own the keys/access cards that you are holding in trust and I hereby demand that these are released and returned to Harbour City Security Ltd immediately.
Key/Access Card Number:
Signature Date
[39] Importantly, these letters confirm that each of Harbour City’s clients is identified by a unique Harbour City access key number starting with the prefix “HCK”, for “Harbour City Key”.
[40] Each of those key numbers were set out in the application before this Court in December 2020. There are 498 key numbers, and therefore clients, in the relevant list subject to the interim injunction.
[41] It follows from this summary that approximately half of the clients subject to the Court’s order have very recently given a written instruction (or more correctly, a demand) to Allied for the immediate return of their key to Harbour City.
Evidence of the contracts of sale of the Harbour City call-out business and the acquisition by Allied
[42] As part of the material provided to the Court in his original affidavit, Mr Shepherd disclosed the existence of an agreement dated 13 November 2000 for the sale of the call-out business by Harbour City Security Guard Services Ltd to Harbour City Guard Services Ltd. This agreement now forms an important part of the defendant’s claim to rescind the injunction. That is because it was the start of a series of sales and purchases that led to the Harbour City Group’s call-out business eventually being acquired by Allied in 2016. Allied says through this string of transactions it has acquired the greater right to possession of the client keys.
[43] Despite the importance of this agreement to Allied’s application, Mr Hofer was unable to point to a provision within it that purported to hand over client keys from the vendor to the purchaser.
[44] The recital and cl 4.2 of the agreement refer to existing client contracts. The recital states:
B.The Purchaser has agreed to purchase the Business from the Vendor as a going concern, including the Vendor’s fixed assets, client list or customer database and the benefit of the Vendor’s security guard contracts, at the price on the terms and conditions set out below.
(emphasis added)
[45]Under the title ‘Payment and Settlement’, cl 4.2 states:
The further sum of $34,000 (adjusted in accordance with 4.3 below) shall be paid on the Settlement Date at which time the Vendor shall deliver to the Purchaser the Guard Assets and an assignment of all Guard Patrol Contracts of the Vendor.
[46] Although cl 4.2 appears to assign the contractual rights to the purchaser, it does not mention transfer of possession of the keys.
[47] In any event, and if the assignment did include the provision of keys, Allied has not provided the intermediary contracts with clients from 2000 onwards6 or established that such assignment has followed through into the 2016 agreement.
[48] In fact, the 2016 agreement makes no reference to novation or assignment of client call-out agreements. Nor are any such contracts listed in the intangible asset register forming part of the agreement. And, once again, there is no reference in the agreement to the transfer of client keys from the vendor to the purchaser as part of the sale.
6 The one exception appears to be a single contract dated 20 January 2005 between Harbour City Guard Services Ltd and owners of a property in Seatoun, Wellington, exhibited to Mr Black’s affidavit of 24 March 2021.
The parties’ arguments
Defendants/applicants
[49] Allied rejects the entire premise underlying the plaintiffs’ injunction and, necessarily, the decisions of this Court.7 It advances its application to rescind the 23 December orders on the basis of rr 7.49 and 7.51 of the High Court Rules, as well as the Court’s supervisory jurisdiction over interim injunctions.
[50] Allied asserts that the keys subject to the Court’s orders are “owned by individuals or companies that are mutual clients of [Harbour City] and Allied…”.
[51] Mr Hofer went on to argue that the cornerstone of Harbour City’s without notice application was that the clients’ keys should be “returned” to it. The evidence it relied on when seeking the injunction asserted that:
(a)Harbour City had owned another entity, Harbour City Security Guard Services Ltd (a predecessor of Allied’s call-out business);
(b)keys were provided by Harbour City’s clients to Harbour City, and Harbour City provided those keys to Harbour City Security Guard Services Ltd; and
(c)Harbour City later sold that company.
[52] These factual assertions are reflected in Harbour City’s statement of claim and ultimately were material to the Court’s decision to grant an injunction.8
[53]However, according to Mr Hofer, the true facts are that Harbour City:
(a)did not receive keys from clients subject to an implied terms in a key agreement as pleaded in the statement of claim;
7 Judgment (No. 1), above n 1, and Judgment (No.2), above n 1.
8 Judgment (No.1), above n 1, at [3], [5], [11] and [36].
(b)did not own Harbour City Security Guard Services Ltd, as the Companies Register reveals; and
(c)never sold Harbour City Security Guard Services Ltd.
[54] Rather, Harbour City Security Guard Services Ltd and its predecessors entered into contracts with clients for the provision of keys directly, and separately from alarm monitoring agreements with Harbour City. Two points flow from this.
[55] First, Mr Hofer submits it was Harbour City Security Guard Services Ltd that received the client’s keys and was therefore the bailee, not Harbour City. And Harbour City Security Guard Services Ltd sold its business in 2000 to Harbour City Guard Services Ltd. Allied eventually acquired Harbour City Guard Services Ltd after it had been on-sold to an intermediary company.
[56] Second, as a result, the plaintiff had no contractual right to hold the keys, nor any contractual relationship with the clients in relation to their keys: that relationship was with Harbour City Security Guard Services Ltd.
[57] These two key facts were not before the Court in December. Had they been, it would have been evident that the plaintiff’s claim of a bailment relationship with its clients, and sub-bailment arrangements with the defendant, was unsustainable.
[58] Mr Hofer submits as a result of the materially inaccurate and misleading factual picture (albeit innocently) presented to the Court, the orders should now be rescinded in their entirety and to the extent that client keys have not already been returned by Mr Shepherd and Harbour City to their owners they should now be returned to Allied pending a trial.
Respondent’s/Plaintiff ’s positions
[59] Mr Bleier for Harbour City contends that to the extent the application is advanced under r 7.49 of the High Court Rules, it should be dismissed because there is no reasonable explanation for the substantial delay in seeking a review of the Court’s
23 December 2020 judgment.9 The five working day time-frame in which to bring such an application is necessarily strict and here the delay was months.
[60] In relation r 7.51, it is said the order was properly obtained and there was no misuse of the Court’s process. The non-disclosure of the client agreements for callouts and the purported confusion about which entity within the Harbour Group held the keys arose because the transactions and documents were created some 23 years ago, and the corporate structure had changed over the last 20 years. Mr Shepherd had a tendency not to distinguish between which of his various corporate vehicles undertook aspects of the Group’s work.
[61] Mr Bleier submitted that even if the information provided to the Court in support of the injunction had not contained these infelicities it would have made no difference to the outcome:
(a)another Harbour City entity could have been added or substituted as a joint plaintiff (and I take from this submission can still be added); and
(b)the critical fact that persuaded the Court to grant the interim injunction was not the points Allied was now raising to challenge the order, but rather the numerous key return request letters from people who consider themselves to be clients of Harbour City, making a demand on Allied for the return of their keys to Harbour City.
The 23 December judgment
[62] Before turning to consider the parties’ submissions, it is useful to examine the basis on which the Court granted the interim injunction.
[63] The Court’s judgment noted the breakdown in the commercial relationship between Harbour City and Allied that led to the complete termination on 27 November
9 Judgment (No.1), above n 1.
2020 of the provision by Allied of call-out services to Harbour City’s clients.10 The judgment goes on to record that Allied:11
initially appeared to agree to return the keys, and asked for the associated key codes for identification, and then refused to return the keys on the basis that the disputed invoice needed to be paid, and that when Total Risk Management sold the business to the respondent, the clients and keys came with it.
[64] The Court also noted a link Allied drew between its possession of the keys and solicitation of Harbour City’s clients:12
[12] In that same email, [Allied] also informed [Harbour City] that it would not be returning the keys, and that [Allied] would be contacting [Harbour City’s] clients, explaining the situation, and then arranging to move their monitoring to [Allied’s] own station. [Allied] stated that it would expect [Harbour City] to release the key codes required to do this, or it would take legal action.
[13] Mr Shepherd deposed that [Harbour City] considered this to be an admission of intention by [Allied] to steal its clients, and that [Harbour City] therefore took steps to obtain written confirmation from its clients that any keys held by [Allied] were to be returned to them. [Harbour City] then demanded return of the keys back from [Allied] through its lawyers.
[65] Having reviewed the leading principles relevant to bailment, sub-bailment and the grant of interim injunctions, the decisive factor that led the Court to grant the injunction were the “many letters” from Harbour City’s clients to Allied, demanding the return of their keys:13
Here, there is not only a tenable cause of action based on bailment, but sufficiently precise factual evidence to satisfy this court that there is a real prospect of success. This evidence is in the form of the many letters from [Harbour City’s] clients to [Allied], demanding the return of their keys, which, if it is proven that a bailment relationship exists, they would have the legal right to do and/or [Allied] would have the legal obligation/duty to comply.
Jurisdiction to rescind the interim injunction
[66] Mr Hofer submits jurisdiction to rescind the interim injunction arises in three ways:
10 Judgment (No.1), above n 1, at [10].
11 At [11].
12 At [12] and [13].
13 At [36].
(a)under the Court’s supervisory jurisdiction in relation to the grant of interim injunctions;
(b)pursuant to r 7.49, to vary or rescind an order shown to be wrong; and
(c)pursuant to r 7.51, rescinding an order obtained fraudulently or improperly.
[67] Regardless of which of these three lenses is applied to the facts, I am satisfied that the 23 December order should not be rescinded. It is therefore unnecessary to set out in detail now the relevant legal framework. To the extent it is helpful I deal with relevant principles in the analysis that follows.
Were the alleged inaccuracies in Harbour City’s evidence and pleadings material to the grant of the injunction?
[68] It will be recalled that Allied argues that erroneous and misleading facts put forward by Harbour City led to the grant of the interim injunction. It says:
(a)A related but different entity within the Harbour City Group of companies, namely Harbour City Security Guard Services Ltd, held client keys under separate call-out contracts, contrary to Harbour City’s original allegations;
(b)Harbour City Security Guard Services Ltd was not owned by Harbour City, but rather Harbour City Holdings Ltd;
(c)As the call-out business (and the keys) was not Harbour City’s to sell, there was no bailment between that entity and the client. The clients’ keys could not therefore be subject of a sub-bailment by Harbour City with a subsequent purchaser of the call-out business, namely Allied.
[69] These criticisms are technical and do not go to the underlying reasons which led the Court to grant the injunction. There were clearly errors in the evidence provided
by Harbour City. But there is no “required linkage” between those errors and the Court’s order.14
[70] First, there is no doubt that an entity within the Harbour City Group of companies entered into client contracts that ultimately led those clients to part with possession of their keys to businesses and their homes. As Mr Bleier correctly noted, the ground of objection raised by Allied is entirely resolved by the joinder, if necessary, of an additional plaintiff. More importantly, I see nothing in the 23 December 2020 judgment that suggests it turned on the correct identification of the particular entity within the Harbour City group that had ultimate responsibility to its clients for the safe custody of their keys.15
[71] Second, as noted by Churchman J, a contractual relationship is not a necessary ingredient of a bailment.16 Bailment arises when someone who is not the owner of goods willingly takes possession of them.17 While the decision reflected the cause of action advanced at the time in bailment and sub-bailment through Harbour City, ultimately it does not matter whether Allied holds the keys as a sub-bailee of Harbour City, or some other entity, or indeed whether it received the keys subject to the order directly from its own clients. That is because I agree with Mr Bleier that the critical factor in the Court’s decision to grant the injunction was that approximately 250 of the 498 identified key owners have sent Allied a recent demand requiring their key to be handed to Harbour City.
[72] Allied does not assert a right to withhold any keys from their owners. Even if Allied had acquired a right to possession of the keys directly under a contract or through a business purchase, absent a contractual term permitting it to withhold keys from its own clients it must deal with the keys consistently with the directions of their owners.
14 Elvidge v ASB Bank Ltd [2015] NZHC 44 at [134(i)]: conduct which does not influence the court’s decision is outside the rule.
15 Judgment (No.1), above n 1.
16 Judgment (No.1), above n 1, at [18], citing Tipping J in Ngan v R [2007] NZSC 105, [2008] 2 NZLR 48, at [54].
17 Ngan v R, above n 16, at [54].
[73] Here, approximately 250 such owners identified by Harbour City as its clients have made a recent demand on Allied to hand over their keys to Harbour City. Allied’s criticisms of the factual and legal basis on which Harbour City presented its case are entirely incidental to that fact.
[74] This is not a “small group” of clients as Mr Hofer described it. On the evidence currently available there is no credible argument, in my view, that Allied can withhold possession of the keys from those clients who have made a demand for return of their keys to Harbour City. It was for this reason that I suggested to Mr Hofer during the hearing that his strongest argument may not be for rescission of the entire order but rather modification to reflect the transfer of keys from Allied to Harbour City where there is some evidence to suggest a direct bailment of keys by the client to Allied.
[75] This leads to another significant difficulty with Allied’s application. It is almost four months since the Court’s original order was made. That period has provided ample opportunity for Allied to identify clients with whom it claims to have a direct contractual relationship leading to its possession of their keys, and to provide that evidence to the Court. All the relevant information—namely the identity of the client and the relevant contract—should already be in Allied’s possession. The fact Allied has not provided such evidence, is, I think, telling.
[76] Despite the ease of proof of this point, and Mr Hofer’s assertion that a significant part of the defendant’s business had been lost as a result of the injunction, there is no clear evidence to support Allied’s submission. Rather, Mr Black’s affidavit focuses on what is said to be inaccuracies and omissions in Mr Shepherd’s original affidavit. The closest Mr Black’s evidence gets to addressing one of the critical issues is this:
I have searched through about 20% of Allied’s clients subject to the order, and only found contracts between the clients and Total Harbour and Harbour City Guard Services Limited. I have found none between [Harbour City] and clients, or between [Harbour City Security Limited] and Allied/Total Harbour/Harbour City Guard Services Limited.
[77] The affidavit does not go on to provide evidence of the contracts said to found Allied’s claim to possession of the keys. And, even if it did provide them, as I have
noted already that would not be an answer to a request, or requirement, by the owner of the keys for their return or transfer to Harbour City.18 The few call-out contracts in evidence are now approximately 20 years old. They are expressed to continue for a minimum period of 12 months, terminable on three months’ notice. None of this provides any real support for Allied’s claim that it has acquired a direct contractual right to the keys as a result of the purchase of the call-out business sold by part of the Harbour City Group over 20 years ago, or subsequently.
[78] As Mr Bleier submits, had the 23 December orders wrought an injustice on Allied’s clients one might expect some evidence of that to have emerged by this stage. While Mr Black has deposed that his business is suffering damage as a result of the orders, he has been unable to quantify it. This again undermines the submission that keys provided to Allied directly by one if its clients have been handed over to Harbour City as a result of the interim injunction.
[79] Finally, in terms of the Court’s discretion, Allied’s own conduct following the grant of the injunction does not support rescission pending trial. When first served with the order, Allied asserted that it had been made against the wrong entity. I infer Mr Black’s intention was to suggest that as a result non-compliance with the order would be as a result of a deficiency in the order rather than a decision on his businesses’ part not to comply with it. Then when served with the amended order the following day, Mr Black did not comply with it immediately and instead went on holiday for three weeks. It was only after contempt proceedings were threatened that compliance occurred the following month. None of this can give the Court confidence that a decision to rescind the order and return the keys to Allied is the appropriate position pending trial. And in addition, it would be entirely inconsistent with the express wishes of many owners of the keys.
[80] For these reasons I dismiss the application for rescission, but will nonetheless turn to the arguments advanced by the parties in the context of the findings already made.
18 Absent a contractual entitlement by Allied to withhold possession.
Is there an adequate explanation for Allied’s delay in seeking rescission under r 7.49?
[81] I consider the explanation provided by Allied for its delay in seeking rescission of the order under r 7.49 is insufficient to warrant such a substantial extension of time for bringing its application under r 7.49. That rule requires any application to be brought within five working days of delivery of the order or judgment on the party challenging it.19 Accordingly, Allied seeks leave to bring its application out of time.
[82] Allied was served with the Court’s orders on 23 and 24 December 2020. The five working day period for filing its application expired on 21 January 2021, given the intervening Court holiday. Despite this, it took no steps to rescind the order until 24 March 2021, when it filed its application.
[83] And as Mr Bleier points out, the statement of defence filed by Allied on 17 February 2021 indicates that by that point in time it was aware of the essential grounds on which its rescission application is based.
[84] Given these factors, there is no sufficient explanation for the period of delay between the filing of the statement of defence and its application to rescind the orders, or indeed for the 10 weeks it took following service of the order to file the application.
[85] I also think it is relevant to the question of leave to consider Allied’s conduct when first served with the orders, as noted at [79] above. The Court is less likely to be sympathetic to a party seeking an indulgence when its response to compliance with Court orders has been nonchalant. The very nature of this type of application requires strict compliance with the time limits.20
19 Rule 7.49(3) provides that an application to rescind an order shown to be wrong “must be filed and served … within 5 working days after receipt by the party of notice of the making of the order or the giving of the decision, and of its terms.”
20 Arkley v Fraser Mill Properties Ltd (1988) 1 PRNZ 616 (HC) at 617. See also McGechan on Procedure (online ed, Thomson Reuters) at HR7.49.05.
Was the order improperly obtained under Rule 7.51?
[86] Rule 7.51 provides that a judge may rescind any order that has been “fraudulently or improperly obtained”.
[87] Allied does not advance its application under r 7.51 on the basis that the order was fraudulently obtained. Rather, it contends that it was improperly obtained as a result of the unintended inaccuracies in the evidence and pleadings filed in support.
[88] As I have noted at [65] and [71] above, the critical evidence informing the 23 December 2020 decision were the “many letters” from clients demanding return of their keys to Harbour City. Whether the claim to the return of the keys is by virtue of bailment arising under a contract, and with whom that contract exists, is ultimately beside the point. The short answer is that the Court was satisfied, based on the evidence, that there was a seriously arguable case that Harbour City had the stronger claim to possession of the keys based on the client letters, and the balance of convenience favoured the grant of the order.
[89] Accordingly, I have concluded that the criticisms made of Harbour City’s application are technical and not sufficiently material to conclude that the order was improperly obtained. I therefore dismiss the application to the extent it is advanced under r 7.51.
Should there be complete rescission of the order? The Court’s discretion
[90] Finally, Mr Hofer argued that the order should be rescinded in its entirety and that the remaining keys in Harbour City’s possession ought to be returned to Allied pending either an on-notice hearing of the interim injunction application, or trial.
[91] This approach could result in the unattractive spectacle of keys passing to Harbour City under Churchman J’s judgment,21 returned to Allied on rescission of that order, and then returned again to Harbour City on a further hearing of the interim injunction. As I indicated to Mr Hofer, that did not commend itself to the Court and is
21 Judgment (No.1), above n 1.
unlikely to be regarded by the owners of the keys as a sensible application of the Court’s supervisory powers.
[92] Had it been raised by Allied and supported by evidence, it may have been possible to review the scope of the injunction to the extent that it could be demonstrated to have affected clients who had parted with possession of their keys to Allied under a contract. But that is not the application that has been brought and it was not an argument Allied was prepared to advance. Accordingly, there is no middle-road before the Court.
Conclusion and result
[93] I dismiss the defendants’ application to rescind the orders of Churchman J of 23 and 24 December 2020.22
[94] Costs should follow the events. Harbour City has been successful in its opposition. I am minded to grant costs in its favour on a 2B basis. With that indication I hope the parties can resolve costs issues amongst themselves.
[95] If they are unable to do so, I direct the plaintiff file submissions of not more than three pages in length. Any submissions by the defendant in response, of not more than three pages in length, should be submitted 10 working days thereafter. I will then determine costs on the papers.
Isac J
Solicitors:
Paul Cheng and Co, Wellington for Plaintiff/Respondent Tompkins Wake, Hamilton for Defendants/Applicants
22 Judgment (No.1), above n 1, and Judgment (No.2), above n 1.
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