Internet Traders Ltd v Williams
[2015] NZHC 2327
•24 September 2015
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV 2014-470-158 [2015] NZHC 2327
BETWEEN INTERNET TRADERS LTD AND ORS
Plaintiffs
AND
NICOLE JEAN WILLIAMS AND ORS Defendants
Hearing: 21 September 2015 (in Auckland) Counsel:
J P Temm and K J Patterson for Plaintiffs
R E Harrison QC for DefendantsJudgment:
24 September 2015
JUDGMENT (NO. 2) OF HEATH J
This judgment was delivered by me on 24 September 2015 at 2.30pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Ken Patterson, Tauranga
Abernethy Broatch Law, Mount Maunganui
Counsel:
J P Temm, RotoruaR E Harrison QC, Auckland
INTERNET TRADERS LTD AND ORS v WILLIAMS AND ORS [2015] NZHC 2327 [24 September 2015]
The application
[1] Ms Nicole Williams, the trustees of the Aesculapian Family Trust (Ms Williams and Arnold Trustees 2009 Ltd), Glencove (2014) Ltd and KiwiPharma Ltd (collectively, the Williams’ interests) apply to review a number of decisions made by Associate Judge Bell, in the High Court at Tauranga, on 15 July 20151, reasons for which were given on 3 August 2015.2 For present purposes, the decision in issue determined that part of the substantive claim should be set down for seven days commencing on 9 November 2015, on terms directed by the Associate Judge.3
[2] The Williams’ interests also apply for orders striking out parts of the Third Amended Statement of Claim of 24 July 2015, which was filed following the directions given by Judge Bell on 15 July 2015 but before his reasons for judgment were available.
[3] All applications are opposed by the plaintiffs, Internet Traders Ltd, IT Pharmaceutical Supplies Ltd (IT Pharmaceutical) and the trustees of the JR and LJ Heale Family Trust (Mr John Heale, Ms Lauren Heale and Holland Beckett Trustee No 5 Ltd).
[4] In this judgment, I determine the application to review Judge Bell’s decision on whether a split trial, in the form he directed, should proceed in November 2015. My decision on remaining issues remains reserved. As I have decided to set aside the order for the split trial, it is unnecessary to provide a hurried response to the important pleading and discovery questions raised by the other applications.
Applications to review decisions of Associate Judges: legal principles
[5] The power of a Judge of this Court to review a decision made by an Associate
Judge is conferred by s 26P(1) of the Judicature Act 1908 and r 2.3 of the High Court
Rules. My duty is to rehear the application determined by Judge Bell.4
1 Internet Traders Ltd v Williams HC Tauranga CIV 2014-470-158, 15 July 2015 (Minute).
2 Internet Traders Ltd v Williams [2015] NZHC 1809.
3 See para [13] below, and following.
4 High Court Rules, r 2.3(4).
[6] The “rehearing” approach equates an application to review an Associate Judge’s decision to an appeal. While the Williams’ interests have the burden of persuading me that the decision is wrong, I must make my own assessment of the points in issue. The standard approach to appellate review set out in the decision of the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar5 applies.
Background6
[7] Mr Heale, a pharmacist, and Ms Williams, a business woman, formed a fruitful professional relationship as long ago as September 1999. At that time, they identified a business opportunity, whereby medical supplies were to be purchased from wholesale suppliers in New Zealand and exported overseas. Their point of difference was that the business would be carried on over the Internet. That meant that the significant costs involved in commencing business and in acquiring assets in New Zealand, were set-off by the absence of any need for the business to carry stock.
[8] Two companies were incorporated to undertake the business venture; Internet Traders Ltd, on 15 September 1999, and IT Pharmaceutical on 17 September 1999. A written shareholders’ agreement (the Shareholders’ Agreement), dated 11
November 1999, was executed by trustees of trusts associated with Mr Heale and Ms Williams who were to hold shares in Internet Traders, as well as two other parties to whom no further reference needs to be made at this time.
[9] Mr Heale and Ms Williams were directors of each company. Ms Williams was employed as managing director of Internet Traders. Her labour was made available to IT Pharmaceutical, by a contractual arrangement between the two companies.
[10] The business relationship between Ms Williams and Mr Heale came to an abrupt end at 11.00am on 23 June 2014, when Ms Williams resigned her position as
5 Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 (SC) at paras [13], [16] and
[17].
6 My summary of the background to the litigation is taken from my judgment of 23 December
2014, on an application for an interim injunction: Internet Traders Ltd v Williams [2014] NZHC
3407.
director of both companies, and as an employee. She had given no prior warning to Mr Heale of her pending resignation. Up to that point, the business of IT Pharmaceutical was trading profitably. The acrimonious dispute that arose following Ms Williams’ resignations led to the present proceeding.
The claims
[11] The Third Amended Statement of Claim pleads nine causes of action, based on allegations that:
(a) Ms Williams and the trustees of the Aesculapian Family Trust (the Aesculapian Trust) breached the Shareholders’ Agreement. Relief is also sought against Glencove and KiwiPharma.
(b) Ms Williams breached duties owed as a director to Internet Traders.
Relief is also sought against Glencove and KiwiPharma.
(c) Ms Williams breached duties owed as a director to IT Pharmaceutical.
Relief is also sought against Glencove and KiwiPharma.
(d) Ms Williams breached fiduciary obligations owed to Internet Traders
Ltd.
(e) Ms Williams breached fiduciary obligations owed to IT Pharmaceutical.
(f) The Aesculapian Trust breached obligations owed to the trustees of the JR and LJ Heale Family Trust (the Heale Trust) under the Shareholders’ Agreement.
(g)Ms Williams (both in her personal capacity and as one of the trustees of the Aesculapian Trust) breached fiduciary duties owed to Mr Heale (as one of the trustees of the Heale Trust). It is said that this duty arose independently of fiduciary obligations owed to either of the plaintiff companies.
(h)Ms Williams and the Aesculapian Trust have conducted themselves in a manner that is “oppressive, unfairly discriminatory or unfairly prejudicial” in the business activities of Internet Traders Ltd and IT Pharmaceutical, giving rise to a claim under s 174 of the Companies Act 1993 at the suit of the Heale Trust.
(i)Ms Williams and the Aesculapian Trust are liable to Mr Heale (as a trustee of the Heale Trust) for unjust enrichment arising out of a partnership investment held by Mr Heale and Ms Williams in “HA Medic”.
[12] The claim, as pleaded, is over-complicated. When I gave judgment on the plaintiffs’ application for an interim injunction on 23 December 2014, I based my decision that there was a serious question to be tried on alleged breaches by Ms Williams of duties owed by her as a director of IT Pharmaceutical, and her
companion fiduciary obligations.7 I concluded that part of my judgment by saying:
[44] There is other evidence to which I could refer. However, what I have already stated demonstrates a seriously arguable case that Ms Williams, on realising that the value of the shares she wished to acquire from Mr Heale’s interests was much greater than she anticipated, embarked upon a course of conduct designed to enable her to use IT Pharmaceutical’s business contacts as a springboard for her own venture, without advising Mr Heale of the steps she was taking. In my view, on those facts there is a seriously arguable case that Ms Williams breached her fiduciary duties as a director that were owed to IT Pharmaceuticals.
The application to review the “split trial” decision
[13] Following a hearing on 8 and 9 July 2015, Associate Judge Bell made a series of orders on the plaintiffs’ application for particular discovery and the Williams interests’ applications to strike-out the relevant statement of claim, to give particulars of its claims, for specific discovery, and to adjourn or stay the proceeding.
[14] The Associate Judge’s decision on the “split trial” point required the parties
to proceed on a basis that was different from an order made by Faire J on 4 February
2015 that liability be tried separately from questions of relief. Judge Bell “refined”
7 Internet Traders Ltd v Williams [2014] NZHC 3407 at paras [19] and [44].
the nature of the proposed hearing.8 Both the need for a split trial and, if one were to proceed, the extent of the modifications to Faire J’s order are in issue.
[15] Some procedural history is required to understand the circumstances in which the original order to divide questions of liability and relief came to be made.
[16] When I refused to issue an interim injunction on 23 December 2014, I did so with the expectation that all questions of liability and relief could be addressed at an expedited hearing scheduled to begin on 9 March 2015. I adjourned the proceeding for remaining trial directions to be made on 4 February 2015 and made it clear that if “the hearing date of 9 March 2015 cannot be met for a reason associated with the conduct of Ms Williams’ interests, the plaintiffs could renew an application for
interim relief orally”.9
[17] The conference on 4 February 2015 was conducted before Faire J. The Judge formed the view that there was inadequate time for the trial to proceed in full in March 2015. As a result, he directed that liability questions be determined at the proposed March 2015 hearing, with questions of relief to be addressed later, if necessary. Counsel for the plaintiffs did not seek to renew the interim injunction application when those directions were made.
[18] On 20 February 2015,10 Moore J delivered a reserved judgment on an application by the Williams’ interests to adjourn the March 2015 hearing. His Honour acceded to the application for reasons associated with (generally speaking) changes to aspects of the existing statement of claim, the need for further discovery from a company in Vanuatu and the likelihood that a liability trial could not be concluded within the available time.11 Following vacation of the March 2015 hearing date, no application was made to resurrect the question of interim relief.
[19] Faire J’s direction for division of liability and relief trials remained in force when a further hearing date was allocated for November 2015. It was against that
8 See Internet Traders Ltd v Williams HC Tauranga CIV-2014-470-158, 15 July 2015 (Minute) at para [8] and Internet Traders Ltd v Williams [2015] NZHC 1809 (Reasons) at paras [24]–[26].
9 Internet Traders Ltd v Williams [2014] NZHC 3407 at para [55].
10 Internet Traders Ltd v Williams [2015] NZHC 229.
11 Ibid, at paras [14]–[17].
background that the Williams’ interests applied, in July 2015, for an order adjourning the trial. Rather than adjourning the hearing, Judge Bell decided to vary the terms on which the intended liability segment of the trial would proceed.
[20] Judge Bell decided that the direction made by Faire J should be modified so that the first trial would decide “whether the defendants’ actions give rise to liability, but will not deal with matters of causation, damage or relief, except to the extent required to deal with the claims for injunctive relief”.12 As a result, an amended statement of claim to be filed before the hearing did not need to specify monetary relief sought.
[21] The Associate Judge made specific directions, by reference to the causes of action pleaded in the second amended statement of claim, about those parts of the claims that would be determined at the November trial. His orders and reasons for judgment make it clear that he did not intend that questions of causation, the effect of any breaches of contract or duty, issues of mitigation of loss and the quantum of damages sought would be canvassed or determined at that time.
[22] In his reasons for judgment, Judge Bell explained why he was modifying the order made by Faire J. He said:13
[24] …
(a) There should be a prompt determination of the claims for injunctive relief. That will provide both sides with certainty as to the extent, if any, that the business operations of the defendants should be restrained. In considering injunctive relief, the court will be concerned with breaches of the plaintiffs’ rights and whether protection of those rights requires the defendants to be enjoined. The question of future damage is likely to be more important than damage that has already occurred. It is not desirable to postpone decisions on injunctive relief until decisions are given as to the amounts of damages or an account of profits is calculated.
….
[23] Mr Harrison QC, for the Williams’ interests, was critical of the variations made by Judge Bell to the previous split trial order. To my mind, the most
12 Internet Traders Ltd v Williams HC Tauranga CIV 2014-470-158, 15 July 2015 (Minute) at para
[8](a) and (c).
13 Internet Traders Ltd v Williams [2015] NZHC 1809 at para [24].
compelling aspect of Mr Harrison’s submission was the articulation of a number of difficulties inherent in the separation of claims for permanent injunctive relief from those involving causation and quantification of loss.
[24] In my view, there are three points that cast serious doubt on the utility of the way in which Judge Bell intended the first part of the trial to be conducted. Although interconnected, they may be summarised as follows:
(a) Some of the pleaded claims are actionable only on proof of damage.
Yet, the Williams’ interests are not (as I read the directions) able to raise questions about the effect of any breach and whether loss has been caused by it, by way of defence.
(b)An application for discovery of business records of Internet Traders and IT Pharmaceutical for the period after Ms Williams’ resignations was refused. Although, on the Associate Judge’s approach, those records were not needed for the first phase of the trial, they would be relevant to discretionary questions about whether permanent injunctive relief should be granted; for example, on whether damages was a more appropriate remedy.
(c) The risk that the Williams’ interests might be enjoined from continuing their business activities in circumstances where it is unknown whether the plaintiffs have actually suffered any actionable loss.
[25] The fundamental reason for the form of the Associate Judge’s “split trial” order was the desirability of obtaining certainty for the parties through a prompt determination on the question of permanent injunctive relief.14 The order was made with the interests of the plaintiffs primarily in mind. Surprisingly, when I asked Mr Temm, for the plaintiffs, about the difficulties that might flow from the relevance of evidence of loss to injunctive relief, he advised me that he did not understand Judge
Bell to have intended that questions of permanent injunctive relief would be
14 Ibid, set out at para [22] above.
addressed at the first hearing. Rather, Mr Temm saw that aspect of the claims as being dealt with contemporaneously with questions of damages.
[26] It is difficult to see how claims for permanent injunctive relief could be determined without evidence about damages; and, necessarily the prior discovery of documents relevant to that topic. In any case where questions of liability and relief are separated there is a real risk of undue delay in addressing the most appropriate remedy because of the availability of appellate procedures to challenge the initial liability decision, whether made in favour of the plaintiffs or not. Experience shows that what appears to be the shortest route to resolution may often prove to be the longest.
[27] For that reason, unless there is good reason to separate the questions for determination, it is preferable for a single hearing to take place. In the absence of any application by the plaintiffs to renew a claim for interim relief and their apparent understanding that questions of permanent injunctive relief would not be determined at the first trial, I can see no benefit in retaining the order in the form directed by the Associate Judge.
Result
[28] The application for review of the split trial decision is granted. That direction is set aside. The hearing scheduled for 9 November 2015 is vacated and appearances are excused. The trial of the whole proceeding shall be set down for three weeks in
2016, on a date to be fixed by the Registrar.
[29] I shall make further case management directions when I determine the balance of the applications argued on 21 September 2015. In the meantime, costs on
all the applications are reserved.
P R Heath J
Delivered at 2.30pm on 24 September 2015
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