Harbour City Security Limited v Allied Security Limited
[2020] NZHC 3530
•23 December 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-751
[2020] NZHC 3530
BETWEEN HARBOUR CITY SECURITY LIMITED
Applicant/Plaintiff
AND
ALLIED SECURITY LIMITED
Respondent
On the papers: Counsel:
D Bleier for Applicant/Plaintiff
Judgment:
23 December 2020
JUDGMENT OF CHURCHMAN J
Introduction
[1] Harbour City Security Ltd (the applicant or the plaintiff) have made a without notice interlocutory application for an interim injunction. Specifically, the applicant seeks orders from this Court:
(a)granting a mandatory interim injunction pending further orders of the Court that Allied Security Ltd (the respondent) is to return to, or make available for collection by the applicant, the keys and associated identifying tags belonging to the clients of the applicant as set out in the schedule attached to the applicant’s without notice application; and
(b)costs of and incidental to this application.
In the alternative, the applicant seeks orders that:
HARBOUR CITY SECURITY LIMITED v ALLIED SECURITY LIMITED [2020] NZHC 3530 [23 December 2020]
(a)the applicant is to provide the information set out in the schedule attached to its without notice application along with the names, addresses, contact information, and a letter of instruction and covering email from the clients of the applicant addressed to the respondent providing their instruction to the respondent that the keys are returned to an independent lawyer appoint by the Court for verification;
(b)the independent lawyer is to review the information described in the subparagraph above and provide a written report to the parties confirming and verifying instructions from the clients of the applicant that the keys should be returned;
(c)following from the information being verified by the independent lawyer and provided to the parties, the respondent is to deliver all keys identified in the report as being verified to the applicant within two working days of receiving the report;
(d)the reasonable costs of the independent lawyer are to be shared equally between the parties; and
(e)costs of and incidental to the application.
Background
[3] The applicant is a security company that was incorporated in 1947. Mr Shepherd (the current director) has been the sole director of the company since 1991. The applicant provides security services to a range of commercial and residential clients in the Greater Wellington region, which include providing an alarm monitoring service. The applicant enters into an alarm monitoring agreement with each client, which includes a “callout” option whereby clients are able to choose who is called when an alarm on their property is triggered. This option is selected through what is termed a “callout response schedule”, which sets out the list of parties which each client nominates to be notified in the event that an alarm is triggered. This includes guard companies, which the applicant will notify about the alarm being triggered, and who will go to the client’s premises to investigate further. As part of
the monitoring agreement, the clients can provide keys to their premises to the applicant, who will in turn give them to the guard company, so that the latter can access their premises in the event that an alarm is triggered.
[4] When the applicant receives an alarm notification, it checks the database and the callout schedule associated with the alarm code. If the client has requested that a guard be notified, then the applicant will call the guard company and notify them of the alarm being triggered. After the guard company has gone to the site to investigate, it will report back to the applicant to confirm the attendance of the guard and any outcome. The usual arrangement, up until the current dispute in these past several months, has been for the guard company to invoice the clients for the callout directly.
[5] The applicant’s relationship with the respondent, and the background to the current dispute between the parties, is important to note for the purposes of this case. Initially, the applicant also provided its own guard services, through a company it owned called Harbour City Security Guard Services Ltd. The applicant sold this company in November 2000 to a company with a very similar name: Harbour City Guard Services Ltd.
[6] In his affidavit in support of the application, Mr Shepherd stated that the sale and purchase agreement between these two companies did not address the provision of the client’s keys to the purchasing company. He deposed about the arrangement that was in place instead:
These were provided to the purchaser on the basis that they were to be used for the provision of the guard services. This is standard industry practice, and all guard companies are provided with client-owned keys in order to allow access to monitoring companies’ clients premises.
The keys that are provided to the Guard Company do not have any details attached to them. They only have a code number on a tag attached to the key. This is intentional so that if the keys are lost, they will be of no use to anyone who finds them unless the associated codes are known which show what building and client the key relates to. When a Guard Services Company is sold part of the sale is a database of client information which will show the client details for the keys that the Guard Services Company holds which they do not have the codes for and without the associated codes the Guard Company will not be able to determine which property they relate to.
Only HSCL will have the associated codes that allow the keys to be matched to a property. Often when HSCL sends a guard company for a call out the
only information they have is the key code and the address. If they don’t have a contract in place with a client, they will need to ask HSCL for that information in order to be able to send an invoice for the call out charges.
[7] Harbour City Guard Services Ltd was then sold to a company called Total Risk Management Ltd. In turn, Total Risk Management sold its business to the respondent in 2017. According to Mr Shepherd, the applicant followed the same process as with the other companies and recommended the respondent as the guard company to its clients.
[8] The current dispute began in August 2020, where the applicant received an email from the respondent requesting an invoice for payment for a call out. As deposed by Mr Shepherd, this was a surprise as the respondent had never previously invoiced the applicant for a call out. The applicant contacted the respondent on the same day querying this invoice, with the respondent replying, 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.
[9] This began a back-and-forth conversation through emails between the applicant and respondent, whereby the respondent confirmed that it would invoice the applicant rather than clients for call outs and requested payment for recent past call outs, and the applicant refused to agree that it was liable for these charges and would not consent to the respondents new terms and conditions.
[10] This dispute led to the respondent refusing to provide guard services to the applicant’s clients. On 27 November 2020, after the applicant had refused to accept the new terms of the arrangement and indicated that it would arrange for another company to provide guard services, the respondent stated that it would no longer respond to the non-contract clients of the applicant “effective immediately”.
[11] The applicant then made emergency alternative arrangements for guard services and requested that the keys of their clients be returned to them. The respondent initially appeared to agree to return the keys, and asked for the associate 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:
Regarding the keys I am told 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.
[12] In that same email, the respondent also informed the applicant that it would not be returning the keys, and that the respondent would be contacting the applicant’s clients, explaining the situation, and then arranging to move their monitoring to the respondent’s own station. The respondent stated that it would expect the applicant to release the key codes required to do this, or it would take legal action.
[13] Mr Shepherd deposed that the applicant considered this to be an admission of intention by the respondent to steal its clients, and that the applicant therefore took steps to obtain written confirmation from its clients that any keys held by the respondent were to be returned to them. The applicant then demanded return of the keys back from the respondent through its lawyers.
[14] In an attempt to rectify the situation, the applicant prepared a proposal which suggested that in order to avoid the need for a Court order, the parties could instruct an independent lawyer to review the names, keys codes, addresses, and contacted details along with the letter from each client addressed to the respondent demanding the return of the keys. It was proposed that the independent lawyer would review the information and prepare a report to both parties confirming that the key return request information was verified and to provide a list of the key codes which had their associated information confirmed. The applicant would then need to agree to immediately release the keys identified by the independent lawyer. The applicant sent this proposal, along with a recommended lawyer to the respondent, who did not accept it.
Relevant law and analysis
The law of bailment
[15] The applicant pleads in its statement of claim that it holds the keys of its clients through an implied term in the contract of its monitoring agreement between itself and its clients. It is alleged, this implied term provides that:
(a)the keys are provided to the applicant by the clients in order to facilitate the provision of the monitoring agreement;
(b)the applicant is subject to a duty of care and custody of the keys on the client’s behalf;
(c)the applicant is responsible to the clients for the safekeeping of the keys; and
(d)the applicant is permitted to provide the keys to third party guard companies nominated by the client to allow for the provision of the guard services.
[16] The applicant effectively submits that it holds the keys pursuant to a contractual entitlement between itself and its clients, and that the keys are then provided to the nominated guard services company (in this case, the respondent), on the basis of bailment.
[17] The applicant submits that, as a bailee, the respondent holds the keys on behalf of the clients of the applicant. The applicant is entitled to hold the keys on behalf of its clients under the terms of their monitoring contract. Once the terms of the arrangement between the applicant and respondent were terminated, the respondent ceased to have a right to hold the keys and was obligated to immediately return the keys to the applicant. By refusing to return the keys, the respondent is denying the applicant its lawful possession over them.
[18]The basic premise of the law of bailment was described by Tipping J in
Ngan v R:1
Leaving aside cases of so-called involuntary bailment, a bailment arises when someone who is not the owner of goods willingly takes possession of them. A contractual relationship is not a necessary ingredient. Nor does there have to be any delivery, formal or otherwise, by bailor to bailee. The duties which a bailee owes necessarily include a duty to return the goods to their owner at some time in the future. All bailments therefore involve a separation between possession and ownership — possession of the goods resides in the bailee,
1 Ngan v R [2007] NZSC 105 at [54] (footnotes omitted).
ownership resides in the bailor. Any lawful relationship which demonstrates these characteristics may properly be described as a bailment without necessarily having to be brought within any pre-existing category.
[19] Thus, possession by a party that is not the owner of the relevant goods or chattels is an essential element to bailment. The learned authors of Garrow and Fenton’s Law of Personal Property in New Zealand describe all bailments as having one ingredient in common: the person who has possession (the bailee) does not own the article bailed, or more precisely, does not hold the ultimate possessory right in it.2
[20] The doctrine is also aptly described by the authors of Palmer on Bailment, who similarly stress that possession is the central tenet of bailment:3
The essence of bailment is possession. The word derives from the French word bailer, meaning “to deliver”. The doctrine is confined to personal property and denotes a separation of the actual possession of goods from some ultimate or reversionary possessory right. Thus the owner of the goods may make a person his bailee by putting him in possession of them for a limited period, and a bailee may create a bailment of goods to their owner by regranting possession to that owner during the existence of the original bailment. Even a person with no right of possession against the original owner may create an enforceable bailment by conferring a limited right of possession upon a third party, as where a thief bails stolen property to a repairer, or a finder delivers lost property to an expert for valuation. Thus the central theme of every standard bailment is the carving out, by the bailor, of a lesser interest than his own. That interest is possession, and without possession there can be no relationship of bailor and bailee. Conversely, a transfer that simultaneously confers both possession and ownership upon the grantee cannot create a bailment; and an owner of goods cannot constitute himself their bailee at common law.
[21] Bailment therefore generally entails voluntary possession of goods by a party that is not the owner of them.4 In this case, the voluntary possession of goods (namely keys) by the respondent that they do not have ownership over (with ownership resting in the hands of the clients) may give rise to a bailment relationship. Notably, the bailment relationship includes a duty upon the bailee to return or relinquish the goods upon the bailor’s demand.5
2 Roger Fenton (ed) Garrow and Fenton’s Law of Personal Property in New Zealand (7th ed, LexisNexis, Wellington, 2010) at 5.1
3 Nathan Palmer (ed) Palmer on Bailment (3rd ed, Thomson Reuters, London, 2009) at 1-001.
4 See The Laws of New Zealand – Bailment (online ed, LexisNexis) at [1]. See also the observations of Lord Goff in The Pioneer Container [1994] 2 AC 324 (PC).
5 The Laws of New Zealand, above n 4, at [149].
[22] Arguably, this may be a case where sub-bailment has occurred. Sub-bailment arises when a third party, with sufficient notice of another party’s interest, takes into its custody goods already bailed to the person from whom possession is transferred.6 It is the voluntary acceptance of possession that creates the relationship and so it can arise even if there is no direct contract between the owner and the sub-bailee.7 Here, the owners of the goods (the clients who own the keys – the bailors) appear to have bailed the goods to the applicant as the bailee, and in turn the applicant has created a sub-bailment with the respondent through the respondent voluntarily accepting possession of those goods. Thus, the applicant is the bailee/sub-bailor and the respondent is the sub-bailee.
[23] Importantly, owner of the goods and the bailee concurrently have the rights of a bailor against the sub-bailee, according to the nature of the sub-bailment.8 Therefore, the applicant, as bailee/sub-bailor, has the right to enforce and regulate the duties of the respondent as the sub-bailee, including the duty to return the goods when demanded as such. As observed by Lord Goff in The Pioneer Container:9
…if the effect of the sub-bailment is that the sub-bailee voluntarily receives into his custody the goods of the owner and so assumes towards the owner the responsibility of a bailee, then to the extent that the terms of the sub-bailment are consented to by the owner, it can properly be said that the owner has authorised the bailee so to regulate the duties of the sub-bailee in respect of the goods entrusted to him, not only towards the bailee but also towards the owner. …
[24] In this case, this would entail the respondent having a duty as the sub-bailee to return the keys to their owners, specifically the clients as bailors.
The test for an interim injunction
[25] Rule 7.53 of the High Court Rules 2016 sets out the requirements for an interlocutory injunction for interim relief:
6 Garrow and Fenton’s Law of Personal Property in New Zealand, above n 2, at 5.10. See also
The Laws of New Zealand, above n 4, at [46].
7 At 5.10.
8 At 5.10. See also The Pioneer Container, above n 4, at 338 per Lord Goff; and The Laws of New Zealand, above n 4, at [149].
9 The Pioneer Container, above n 4, at 339.
(1)An application for an interlocutory injunction may be made by a party before or after the commencement of the hearing of a proceeding, whether or not an injunction is claimed in the party’s statement of claim, counterclaim, or third party notice.
(2)The plaintiff may not make an application for an interlocutory injunction before the commencement of the proceeding except in case of urgency, and any injunction granted before the commencement of the proceeding—
(a)must provide for the commencement of the proceeding; and
(b)may be granted on any further terms that the Judge thinks just.
[26] Under r 7.54, an applicant for an interim/interlocutory injunction must file a signed undertaking that they will comply with any order for the payment of damages to compensate the other party for any damage sustained through the injunction.10 The undertaking must be referred to in the order granting the interlocutory injunction and is part of it.11 Such an undertaking was filed along with counsel for the applicant’s without notice application.
[27] While there are no specific requirements within r 7.53 for an interim/interlocutory injunction under urgency to be filed with a memorandum of counsel, under r 7.23, any interlocutory application that is without notice must use form G32 of the High Court Rules 2016 (which requires the grounds on which each order is sought to be set out in an accompanying memorandum).12
[28] Rule 7.23 also sets out the requirements for when an interlocutory application without notice can be made. This includes the ground that “requiring the applicant to procced on notice would cause undue delay or prejudice to the applicant”.13
[29] Rule 7.23 also dictates that a memorandum must be filed with the interlocutory application, and that this memorandum must include the background to the proceeding, grounds on which each order is sought, an explanation for those grounds, and relevant information for the application known by the applicant.14 Failure to
10 High Court Rules 2016, r 7.54(1).
11 Rule 7.54(2).
12 Rule 7.23(1). See also High Court Rules 2016, Form G 32.
13 Rule 7.23(2)(a)(i).
14 Rule 7.23(3).
disclose all relevant matters to the court or to comply with the requirement of filing a memorandum may result in the Court dismissing the application.15
[30] McGechan on Procedure notes that counsel should be especially mindful of their obligations in giving the certificate required by r 7.23, as, following Sea Link Ltd v Tranzpacific Container Services Ltd, the Judge is entitled to rely on counsel’s memorandum as certified in accordance with the rules.16
[31] There are three stages to the consideration of an application for an interlocutory or interim injunction:17
(a)the applicant must establish that there is a serious question to be tried, or put in another way, that the claim is not frivolous or vexatious;
(b)the balance of convenience must be considered, which requires consideration of the impact on the parties of the granting of, and the refusal to grant, an order; and
(c)an assessment of the overall justice of the position is required as a check.
[32] With regard to the specific requirement of urgency, the Court of Appeal has recently provide some direction on how urgent interlocutory applications for interim relief under s 7.53 should be applied in Commerce Commission v Viagogo AG:18
[29] It is commonplace for interim relief to be granted against a defendant present in New Zealand, under the High Court Rules and the court's inherent jurisdiction, before the proceedings have been served on the defendant. This is appropriate where the purpose of the order would be undermined by serving the proceedings before the orders are made, or in cases where the interim relief is so urgent that it is not possible to formally serve the defendant before seeking that relief.
…
15 Rule 7.23(4).
16 McGechan on Procedure (online ed, Thomson Reuters) at [HR7.53.12]. See also Sea Link Ltd v Tranzpacific Container Services Ltd (1982) 1 PRNZ 431.
17 McGechan on Procedure, above n 16, at HR7.53.04.
18 Commerce Commission v Viagogo AG [2019] NZCA 472 at [29] & [94].
[94] An application for interim relief should be made without notice to the defendant only where that is essential, either because giving advance notice will defeat the purpose of the order sought, or because the application is so urgent that it is not feasible to give notice. Applications in the second category should be rare, and every attempt should be made to provide such notice as possible — even if it is only a telephone call or text or email — to alert the defendant to what is happening and enable them to participate on a Pickwick basis.
[33] Counsel for the applicant accepted that the test for a mandatory interim injunction is the same as set out at [30] above, but that it is harder to satisfy. As stated in McGechan:19
Interim mandatory injunctions are subject to broadly the same test as interim prohibitory injunctions but, in the case of interim mandatory injunctions, it will be a rare set of facts that will withstand the scrutiny of that test: Pilkington v Fidelity Life Assurance Co Ltd HC Wellington CIV-2007-485-2270, 14 April 2010 at [18], approved in Fidelity Life Assurance Co Ltd v Pilkington [2010] NZCA 424 at [26]; Clode v Oliphant [2018] NZHC 1442 at [21]; Bacon Holdings Ltd v Bally McCahill Ltd [2018] NZHC 2507 at [18]; A C Rhodes Ltd v Bush Inn Shopping Centre Ltd [2019] NZHC 877 at [53].
…
In considering whether special circumstances exist justifying a mandatory injunction on an interlocutory application, the Court will look for clear cases either where the Court thinks that the matter ought to be decided immediately or where the injunction is directed at a simple and summary act, which could be easily remedied or where the defendant has attempted to steal a march on the plaintiff: Precast NZ Ltd v Anystep Ltd [2016] NZHC 377 at [44]; Roman Catholic Bishop of the Diocese of Auckland v Boynton [2018] NZHC 2636 at [15].
The overriding consideration will be which course is likely to involve the least risk of injustice if it is wrong. An order requiring a party to take a positive step at an interlocutory stage may carry a greater risk of injustice if wrong, than one that merely preserves the status quo. Accordingly, the Court is entitled to seek a high degree of assurance that the plaintiff will be able to establish the right to such a positive step at trial (as part of minimising the risk of injustice if the injunction is granted). But even where the Court is unable to feel any high degree of assurance that the plaintiff will establish this right, there may be circumstances in which it is appropriate to grant a mandatory interim injunction where the risk of injustice if the injunction is refused sufficiently outweighs the risk of injustice if it is granted: Zockoll Group Ltd v Mercury Communications Ltd [1997] EWCA Civ 2317, [1998] 1 FSR 354, citing Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 at 474.
19 At HR7.53.16(2).
[34] However, as submitted by counsel for the applicant, the Court of Appeal in Viagogo did acknowledge that the characterisation of an interim injunction as being mandatory or prohibitive was not particularly helpful – what is important is to consider the practical implications of the order for the affected parties, which informs the assessment of the overall interests of justice:20
[90] Nor do we consider that it is helpful to seek to characterise an injunction as prohibitive or mandatory in this context. As Lord Hoffmann said in Olint, such arguments “are barren. … What matters is what the practical consequences of the actual injunction are likely to be.” The problematic nature of this classification is well illustrated by the present case. An order restraining the making of statements would normally be seen as prohibitive in nature. But if a defendant has automated the making of such statements, using a website (or an auto-dialler, or some other form of technology) some positive action by that defendant would be required to stop that conduct from continuing. There is a sense in which an order requiring that action to be taken could be described as mandatory. Arguing about how such an order should be labelled is in our view beside the point. Rather, what matters is the practical implications of the order for the affected parties. This in turn informs an assessment of the overall interests of justice.
[35] Noting the three elements of the test for an interim injunction discussed above, and that the standard is higher for mandatory interim injunctions, I will now consider each element.
[36] I consider that there is a serious question to be tried in relation to the first element. I note that there needs to be more than a tenable cause of action from a legal point of view. A plaintiff seeking interlocutory relief must adduce sufficiently precise factual evidence to satisfy the court that there is a real prospect of succeeding in the claim for a permanent injunction at the trial.21 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 the applicant’s clients to the respondents, 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 the respondent would have the legal obligation/duty to comply. I do not consider this claim to be frivolous or vexatious, as it appears to have arisen out of necessity and the need for the situation to be resolved (in order for there to be
20 Above n 18 at [90] (footnotes omitted).
21 McGechan on Procedure, above n 16, at HR7.53.05(1).
some consistency and stability in the security services provided to the applicant’s clients) rather than vexatious intent.
[37] Turning to the second element, the balance of convenience, which involves a decision as to whether granting or refusing an injunction is the course which, after the action itself has been tried and the issues between the parties determined, would fairly allow the adjustment of the rights of the parties in a way that accords with fairness and justice.22 Here, I agree with counsel for the applicant’s submission that the balance of convenience favours the granting of the orders sought. This is because it would be, in my view, a fair adjustment to the rights of the parties to return the keys back to their owners or, at the very least, allow an independent lawyer to properly assess the owners’ demands for the return of their property. This would bring the parties back to the status quo before the dispute, which could then be resolved without the concern of the applicant’s clients’ security being undermined.
[38] Finally, in my view it is in the overall interests of justice for an order to be made here. This again goes back to the critical issue of ownership: if the keys are owned by the clients of the applicant, and there are security concerns arising from the respondent withholding them, then it is in the interests of justice for an order to be made under which those keys are returned.
[39] The application seeks alternative orders: firstly, that this Court order the respondent to return to the applicant or make available for collection by the applicant, the keys and associated identifying tags belonging to the clients of the applicant as set out in the schedule attached to the application. Alternatively, an order is sought requiring that the key return information be verified by an independent lawyer, with the respondent being compelled to return the keys identified in a report written by that lawyer. The case of Cama Products Ltd v Power Parts (2018) Ltd is of relevance here. In that case, the plaintiff (an importer and wholesaler of parts for small engine products such as chainsaws and lawnmowers) alleged that the defendant (a competitor in the same market) copied a substantial part of its products database, infringing the plaintiff’s copyright.23 The plaintiff successfully sought an interim injunction
22 At HR 7.53.06(1).
23 Cama Products Ltd v Power Parts (2018) Ltd [2020] NZHC 802.
restraining the defendant from using its database, and then later sought ancillary orders that the defendant provide an independent barrister with log-in details to access its computer database for the sole purpose of ensuring compliance with those restraining orders.24 Gault J granted those ancillary orders.
[40] Here, the same logic could be applied, whereby an independent barrister (whose costs would be covered by the applicant and respondent equally) could be engaged in order to carefully assess the return letters and associated key information, and write a report directing the respondent to return the appropriate keys which have been requested back. However, such an approach suffers from the significant disadvantage of delay. That disadvantage is exacerbated by the impending holiday season.
Conclusion
[41] As set out in [35], I am satisfied that there is a serious question to be tried and that the plaintiff has a real prospect of succeeding at the trial of the matter.
[42] For the reasons set out in [36], the balance of convenience favours the granting of the relief sought. The overall justice of the case favours the granting of the orders. I agree with the proposition advanced by the plaintiff that it appears that the respondent has refused to return the keys in order to exert leverage to obtain confidential information. Unless interim relief is granted, the plaintiff is likely to suffer irreparable harm. The plaintiff’s clients who have lawfully requested the return of their keys are also potentially disadvantaged.
[43] I am also satisfied that this is an appropriate case for the plaintiff to proceed without notice. I note the advice in counsel’s memorandum that the plaintiff has placed the respondent on notice of the possibility of an injunction application and has invited the respondent to nominate a solicitor for service on a Pickwick basis. The respondent has not nominated a solicitor and the plaintiff has served the application on the respondent by email.
24 At [4]-[8].
Outcome
[44] Pending further order of the Court, the respondent is directed to forthwith return to, or make available for collection by the applicant, the keys and associated identifying tags belonging to the clients of the applicant as set out in the schedule to the application.
[45]Costs are reserved.
Churchman J
Solicitors:
Paul Cheng and Co, Wellington for Plaintiff
Barrister:
D Bleier, Wellington for Plaintiff
1
0
0