Internet Traders Ltd v Williams
[2015] NZHC 1809
•15 July 2015
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2014-470-158 [2015] NZHC 1809
BETWEEN INTERNET TRADERS LIMITED
First Plaintiff
IT PHARMACEUTICAL SUPPLIES LIMITED
Second Plaintiff
JOHN ROULSTON HEALE Third Plaintiff
AND
NICOLE JEAN WILLIAMS First Defendant
GLENCOVE (2014) LIMITED Second Defendant
TENTACLE ENT ERPRISES LIMITED Third Defendant
KIWIPHARMA LIMITED Fourth Defendant
Hearing: 8 July 2015 (in Whangarei) 9 July 2015 (in Auckland) Appearances:
J P Temm and K J Patterson for Plaintiffs
R E Harrison QC for DefendantsJudgment:
15 July 2015
Reasons:
3 August 2015
REASONS FOR JUDGMENT OF ASSOCIATE JUDGE R M BELL
Reasons for Judgment were delivered by me on 3 August 2015 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules
……………………………………………………
Registrar/Deputy Registrar
INTERNET TRADERS LIMITED v WILLIAMS [2015] NZHC 1809 [15 July 2015]
TABLE OF CONTENTS
Paragraph
Introduction [1] Jurisdiction [10] Parties
Trustees of the J R and L J Heale Family Trust [18] Trustees of the Aesculapian Family Trust [19] Deletion of defendants [23]
Split trial directions [24] Heale affidavit of 6 July 2015 [27] Pleadings [29] Claims by more than one plaintiff [31]
Prayers for injunctive relief [34]
Shareholders of IT Pharmaceutical Supplies Ltd and
shareholders’ agreement [35] Third party damage claim [36] Misuse of confidential information [37] Intellectual property [38] Inducing breach of contract [39] Companies Act 1993 section 174 [44] Unjust enrichment [45] Overpleading [46]
Application for particulars [47] Application for stay [49] Plaintiffs’ further discovery application [52] Email addresses [57] Vanuatu documents [63] Computer systems purchase [66]
Trading documentation from 24 June 2014 to current date [70] Lyon O’Neale Arnold files [76] Defendants’ further discovery application [86] Outcome [89]
Introduction
[1] On 8 and 9 July 2015 I heard the plaintiffs’ application for discovery and the defendants’ applications for strike-out, stay, further particulars and discovery. On
15 July 2015 I issued a minute giving my decisions on those applications but without reasons. I now give my reasons.
[2] Heath J set out the background to this proceeding in his interim injunction decision of 23 December 2014.1 It is unnecessary for me to repeat that.
[3] The most recent statement of claim has these causes of action:
(a) A claim of breach of shareholders’ agreement by Internet Traders Ltd and IT Pharmaceutical Supplies Ltd against Ms Williams.
(b) Breach of directors’ duties by Internet Traders Ltd and
IT Pharmaceutical Supplies Ltd against Ms Williams.
(c) Breach of fiduciary duties by Internet Traders Ltd and
IT Pharmaceutical Supplies Ltd against Ms Williams.
(d) Breach of shareholders’ agreement by Mr Heale against Ms Williams.
(e) Breach of fiduciary duties by Mr Heale against Ms Williams.
(f) Prejudicial conduct under s 174 of the Companies Act 1993 by
Mr Heale against Ms Williams.
(g)Internet Traders Ltd and IT Pharmaceutical Supplies Ltd against all defendants for interference in contractual relationships.
(h)Internet Traders Ltd, IT Pharmaceutical Supplies Ltd and Mr Heale against all defendants for unjust enrichment.
1 Internet Traders Ltd v Williams [2014] NZHC 3407, [2015] NZCCLR 7, at [1]-[13].
[4] The proceeding started on 18 September 2014. Heath J dismissed the plaintiffs’ application for an interim injunction on 23 December 2014. While he found a seriously arguable case for the plaintiffs, he found that balance of convenience favoured Ms Williams’ interests. One factor was that the case was set down for a substantive hearing to begin on 9 March 2015.2 Heath J held that if the March date could not be met for a reason associated with the conduct of Ms Williams’ interests, the plaintiffs could renew an application for interim relief.3
The defendants successfully applied in February 2015 for the March hearing to be adjourned.4 Moore J noted that the estimate of five days was inadequate (seven days would be required) and that a hearing beginning on 23 July 2015 may be available.5
The case was not heard in that month. Despite Heath J’s indication that an application for interim relief could be renewed, the plaintiffs have not made any such request.
[5] Both sides filed affidavits of documents in January 2015. The plaintiffs filed the current statement of claim (the third) on 10 February 2015. On 3 March 2015 the defendants requisitioned the plaintiffs for extensive particulars. The plaintiffs responded on 3 June 2015.
[6] On 12 June 2015 the plaintiffs filed their discovery application and the defendants filed an application to strike out the statement of claim and related orders in June 2015.
[7] The defendants have since delivered interrogatories. Those were not the subject of the present application.
[8] This case has a backup fixture in the week of 9 November 2015. There are reasonable prospects that the case to be heard that week will settle. It is desirable to maintain the fixture. The plaintiffs have sought injunctive relief. An unresolved application for injunctive relief leads to uncertainty. It is just as much in the interests
of the defendants as the plaintiffs to know whether they should be restrained from
2 At [50].
3 At [54].
4 Internet Traders Ltd v Williams [2015] NZHC 229.
carrying on their business. The plaintiffs’ attempts to obtain injunctive relief - first interim, later final – have been put off on two occasions, each when the judges considered that there was a prospect of a hearing in the near future. Further delays are not desirable.
[9] The defendants have set themselves against this case being heard in November 2015. Mr Harrison QC has made it plain that the defendants will continue to raise objections and applications directed at stopping this case coming on for hearing this year. In my view, with proper effort on both sides, this case can be ready for hearing in November 2015 while giving due attention to appropriate interlocutory concerns, including clear pleadings and adequate discovery. In that, I am doing no more than following the objective in r 1.2 of the High Court Rules.
Jurisdiction
[10] I was advised that the plaintiffs have filed a claim against Ms Williams in the Employment Relations Authority, but that it has been parked. In this proceeding the plaintiffs have sued Ms Williams as shareholder and as director, but not as an employee. They therefore seem to have given the jurisdiction of the Authority under the Employment Relations Act 2000 a wide berth.
[11] One of the plaintiffs’ claims against Ms Williams is for taking $38,061.98. In defence, Ms Williams says that she was entitled to that money as holiday pay and arrears of holiday pay. She claims an entitlement as an employee and has therefore raised an employment law issue. It is therefore appropriate to check whether that is an issue for the Authority. The jurisdiction question cannot be waived or ignored. It is irrelevant that Ms Williams has filed a statement of defence. This is a jurisdiction question of the sort identified in Rothmans of Pall Mall (Overseas) Ltd v Saudi
Arabian Airlines Corporation.6
[12] The Employment Relations Act 2000 confers an exclusive jurisdiction on the
Authority to make determinations about employment relationship problems.7
6 Rothmans of Pall Mall (Overseas) Ltd v Saudi Arabian Airlines Corporation [1981] QB 368 (CA) at 375-376.
7 Employment Relations Act 2000, s 161.
The decision whether a proceeding is within the jurisdiction of the Employment Relations Authority or the courts of general jurisdiction is to be made at the start of a proceeding. A party with an employment-related claim needs to know before filing whether to lodge a matter in the Authority or a court. There is no provision for proceedings to be transferred between the Employment Relations Authority and courts of general jurisdiction. The test for the Authority’s jurisdiction, no matter how it is formulated, is not a matter of discretion, but requires a rule-based approach. Those rules are derived from the provisions of the Employment Relations Act.
[13] In JP Morgan Chase Bank NA v Lewis,8 the Court of Appeal dealt with the exclusive jurisdiction provisions of the Employment Relations Act and addressed decisions I have given that claims by employers against employees for taking money during employment were within the Authority’s exclusive jurisdiction.9 Referring to Hibernian Catholic Benefit Society v Hagai, the Court of Appeal said:10
While Ms Hagai was clearly in breach of her employment contract, the essence of the Society’s claim was her dishonest theft of the money. This was not an employment-related problem, although it would undoubtedly have justified her dismissal. While the claim may have had its origins in the employment relationship in the sense that the relationship created the opportunity for her theft, Ms Hagai’s conduct was such as would have made her liable to the plaintiff without any such relationship. In other words, the existence of the employment relationship was not a necessary component of many of the causes of action that could have been asserted against her. That indicates that the essence of the claim was not employment related, and should not have been regarded as within the Authority’s jurisdiction.
[14] The Court of Appeal held that for a matter to be an employment relationship problem within s 5 of the Employment Relations Act, the problem must be one that directly and essentially concerns the employment relationship.11 The fact that a matter has its origins in an employment relationship is not enough. The Court’s test for deciding whether a matter essentially concerns the employment relationship appears to turn on the rules of pleading. If it is possible to plead a claim against another party to an employment relationship without referring to the employment
relationship as a necessary component of the cause of action, the matter will not be
8 JP Morgan Chase Bank NA v Lewis [2015] NZCA 255 at [94]-[101].
9 Aztec Packaging Ltd v Malevris [2012] NZHC 243, (2012) 10 NZELC 79,003, Hibernian Catholic Benefit Society v Hagai [2014] NZHC 24, (2014) 11 NZELR 534. Global Kiwi NZ Ltd v Fannin [2014] NZHC 656.
10 JP Morgan Chase Bank NA v Lewis, above n 8, at [97].
within the jurisdiction of the Authority. It is the pleading of the cause of action that counts, not matters that might be raised in defence. On this approach, the fact that an employee may justify taking money from the employer on the basis of entitlements under an employment agreement does not give the Authority jurisdiction.
[15] One issue that can arise when deciding whether a particular matter is within the exclusive jurisdiction of the Employment Relations Authority is the question of concurrent causes of action. Facts in a particular case may give rise both to a cause of action under one of the heads of jurisdiction in s 161(1) of the Employment Relations Act and also to causes of action not referred to in that section. For example, the same set of facts may give rise to a cause of action for breach of an employment agreement (within the Authority’s jurisdiction under s 161(1)(b)) and also in tort. As another example, misuse of confidential information imparted to an employee in the course of employment may give a claim for breach of contract, but may also be actionable at equity. One approach might be to allow only causes of action under s 161 to be heard by the Authority, with concurrent causes of action to be heard in a court of general jurisdiction. That approach does not sit easily with the Authority’s exclusive jurisdiction. It allows a party to choose between the Authority and a court. Another approach is to hold that the Authority’s jurisdiction covers
concurrent causes of action.12 The Court of Appeal seems to have taken the opposite
position. It noted that Ms Hagai’s conduct was in breach of her employment agreement (a matter within the exclusive jurisdiction of the Authority) and justified her dismissal. Even if the employee may be liable for breach of contract (for example, for taking more money than they are entitled to under the employment agreement), if the claim against the employee is also capable of being pleaded without the employment relationship, the Authority’s jurisdiction is excluded.
[16] The ramifications of this seem to include:
(a) Members of the Authority will need to recognise whether matters that fall under one of the heads under s 161(1) of the Employment Relations Act may also give rise to causes of action under the general
law in which the existence of the employment relationship is not a
12 Hibernian Catholic Benefit Society v Hagai, above n 9, at [18]-[19].
necessary component. As members of the Authority are not required to be legally qualified (although many of them are), this may be challenging. They will need to learn the ingredients of causes of action under the general law and the pleading rules of civil courts.
(b)Because the test of jurisdiction looks only to the ingredients of causes of action and not to defences, proceedings outside the jurisdiction of the Authority may raise questions of employment law more than occasionally, as when employees raise affirmative defences based on employment law. Courts of general jurisdiction will be required to apply employment law in civil proceedings.
(c) There will be more cases where the same facts may require determinations in both the Authority and the general courts. For example, an employer’s claim against an employee for taking money is heard in the general courts, which will decide the employee’s defence of entitlement. If the employer dismisses the employee for taking the money and the employee contests the dismissal because they were entitled, the Authority will decide the entitlement as part of a personal grievance claim under s 161(1)(e).
(d)The question may arise whether substantive employment law decided in courts of general jurisdiction should be the same as employment law decided in the Authority. So long as it is consistent with the Employment Relations Act, regulations made under the Act and the relevant employment agreement, the Authority is required to act as it
thinks fit in equity and good conscience.13 It remains to be seen
whether courts of general jurisdiction should apply that as well in employment cases.
[17] It is clear from the Court of Appeal’s decision in JP Morgan Chase Bank NA
v Lewis that even though Ms Williams’ defence that she was entitled to take money
13 Employment Relations Act 2000, s 157(3).
from Internet Traders Ltd as holiday pay raises a question of employment law, the matter is outside the jurisdiction of the Authority and can be heard in this court.
Parties
Trustees of the JR and LJ Heale Family Trust
[18] In the current statement of claim Mr Heale says that he sues as a trustee shareholder of Internet Traders Ltd and IT Pharmaceutical Supplies Ltd on behalf of all trustees of the JR and LJ Heale Family Trust. The current trustees of the JR and LJ Heale Family Trust are Mr Heale, his wife, and Holland Beckett Trustee No.5
Ltd. The shareholders’ agreement of 11 November 1999 shows the then trustees of the Heale Family Trust as one of the parties. As trustees, they have no beneficial interest in the agreement and accordingly have contracted jointly.14 They must accordingly all be joined as plaintiffs in the causes of action based on the shareholders’ agreement and on their rights as shareholders. All the trustees are accordingly added as third plaintiffs.
Trustees of the Aesculapian Family Trust
[19] The shareholders’ agreement shows the trustees of the McArthur Williams Family Trust as one of the shareholders. Ms Williams contends that the trustees of that trust are no longer shareholders of Internet Traders Ltd or IT Pharmaceutical Supplies Ltd. The shares formerly held by those trustees are now held by the trustees of the Aesculapian Family Trust. The trustees of that trust are Ms Williams and Arnold Trustees 2009 Ltd.
[20] While Ms Williams is sued as director, she is also sued as shareholder. For example, in the claims against her in the cause of action under s 174 of the Companies Act, the plaintiffs say that they will rely in part on her conduct after she resigned as a director. Similarly, any relief by way of a buy-out order may be directed against her as shareholder. Claims against her in restitution in the eighth
cause of action are directed amongst other things at payments made to the
14 Anderson v Martindale (1801) 1 East 497, 102 ER 191.
Aesculapian Family Trust. It is for the plaintiffs to assess whether their causes of action are against Ms Williams as director or as shareholder. But insofar as she is alleged to have incurred liability as a shareholder, or relief is sought against her as a shareholder, her co-trustee should be joined. The plaintiffs may join the other trustee as a further defendant by adding it in a new statement of claim without requiring further order of the court.
[21] The transfer of shares from the trustees of the McArthur Williams Family Trust to the trustees of the Aesculapian Family Trust is a matter within Ms Williams’ knowledge, not within the plaintiffs’ knowledge. As I understand that she wishes to take the point that the correct shareholders are the trustees of the Aesculapian Family Trust rather than the trustees of the McArthur Williams Family Trust, she is required to include in her additional discovery all documents relating to the relevant ownership of the shares. That should include the trust deeds, any documents showing changes of trustees, and any documents showing transfers of shares from one trust to the other.
[22] If Ms Williams intends to take the point that the trustees of the Aesculapian Family Trust are not parties to or bound by the provisions of the shareholders’ agreement of 11 November 1999, she should plead that expressly. She should also discover all documents which might bear on any questions of novation. The plaintiffs will also need to consider whether such a defence will require a reply, if they have not already addressed the question in their amended statement of claim.
Deletion of defendants
[23] Mr Harrison QC pointed out that the plaintiffs may realise that they may not have a cause of action against Tentacle Enterprises Ltd. For convenience, in their new statement of claim, the plaintiffs may delete any defendant if they no longer seek relief from that defendant. Costs on such a deletion are reserved.
Split trial directions
[24] On 4 February 2015, Faire J directed that this case was to go to hearing on liability only, but reserving the question of relief for determination at a second hearing. I modify those directions for the following reasons:
(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.
(b)The plaintiffs’ eighth cause of action in the current statement of claim includes claims for specified sums alleged to have been received or used by the defendants. Where claims are for such fixed sums, proof of the amount of the claim should be relatively easy, as opposed to measuring damages or calculating profits. Insofar as the plaintiffs are claiming liquidated sums, the hearing in November will give relief. By liquidated sums I do not mean “liquidated demand” as defined in r
15.7(5) of the High Court Rules. Instead, the term covers fixed sums included in the plaintiffs’ claims for restitutionary relief in the eighth cause of action in the current statement of claim.
(c) On one view of Faire J’s division between liability and relief, the court would deal with everything except the granting of relief. That would require establishing not only whether the defendants had breached the plaintiffs’ rights, but also whether those breaches resulted in damage, whether the plaintiffs took proper steps to mitigate their losses, and associated enquiries. An enquiry into
damage already caused by the defendants’ conduct and measuring the defence to that damage for the purpose of an award of damages is better carried out in a hearing to determine monetary relief. Accordingly the hearing in November 2015 will not deal with matters of causation, effect, mitigation and damage-related issues.
[25] For these reasons, the split trial directions will be in terms of paragraph [8] of my minute of 15 July 2015.
[26] Notwithstanding this split trial direction, there will be inevitable overlap of matters requiring decision in the liability hearing and in a later hearing on monetary relief. It will obviously be more convenient for the court and the parties if the same judge presides at both hearings. It would be regrettable if the judge who hears liability is not available to determine monetary relief. I directed that the judge taking the case in November this year should not be contemplating a retirement for five years. That is a very conservative allowance. It is not an invitation to the parties to spin this case out for another five years.
Heale affidavit of 6 July 2015
[27] On 7 July 2015 the plaintiffs filed an affidavit, sworn by Mr Heale on 6 July
2015. The affidavit is said to be in opposition to the defendants’ strike-out application, but it is really a primary affidavit in support of the plaintiffs’ discovery application. It goes beyond a reply affidavit under r 7.26 of the High Court Rules. In admitting the affidavit, I am in effect extending the time for the plaintiffs to file their primary evidence in support of their discovery application.
[28] My reason for allowing the affidavit in is that I have relied upon the exhibits to the affidavit, rather than the narrative portions. I have broadly disregarded the narrative portions of Mr Heale’s affidavit. I have used it only to assist in identifying documents attached as exhibits. I have referred to the exhibits to that affidavit in considering the discovery application. They are documents which Ms Williams disclosed in her discovery (apart from copies of IT Pharmaceutical Supplies Ltd’s approved customer register and extracts from the sales register, shown for the
purposes of comparison). If, on the hearing of the discovery application, counsel had simply tendered copies of documents obtained on discovery from the defendants, the defendants could surely have had little objection to my reading them. There can therefore be little prejudice to the defendants in my reading those documents when they have been attached to a sworn affidavit.
Pleadings
[29] The defendants applied for strike-out. Their complaint was not that the statement of claim did not disclose a reasonably arguable cause of action, was frivolous or vexatious, an abuse of the process of the court or was amenable to strike-out under any of the other grounds under r 15.1, or the inherent jurisdiction of the court. Instead, they attacked the quality of the pleading.
[30] The defendants’ complaints about the inadequacy of the current statement of claim can be addressed by the plaintiffs filing and serving a fresh statement of claim. I give directions as to particular parts requiring attention. My purpose is to ensure that appropriate particulars for the claims are identified and that issues are adequately articulated.
Claims by more than one plaintiff
[31] Rule 5.17 of the High Court Rules requires distinct causes of action to be stated separately and clearly. A claim by Internet Traders Ltd against Ms Williams for breach of her duty to that company is a separate cause of action from a claim by IT Pharmaceutical Supplies Ltd against her for breach of her duty to it. Accordingly, the claims against her for breach of directors’ duties need to be separated out. That separation is required so as to address an issue identified by the defendants, the question of third party damage, which I address further below.
[32] They point out that such claims will require consideration of separate relief. A claim by Internet Traders Ltd against Ms Williams may give rise to relief by way of damages. But that will only be for damages suffered by Internet Traders Ltd. Internet Traders Ltd says that breaches of her duties as a director of Internet Traders
Ltd have caused loss to the business of IT Pharmaceutical Supplies Ltd and that loss is a recoverable head of the damages for Internet Traders Ltd. That aspect ought to be expressly identified and pleaded. It cannot be blurred over by making both Internet Traders Ltd and IT Pharmaceutical Supplies Ltd plaintiffs in a single cause of action for breach of a director’s duty. The duties are separate, and the remedies for breach also need to be kept separate.
[33] In the current statement of claim the first, second, third, seventh and eighth causes of action require the plaintiffs to be separated.
Prayers for injunctive relief
[34] In the current statement of claim, a number of causes of action are pleaded against Ms Williams only, but injunctions are sought against other defendants. If the plaintiffs believe that they are entitled to injunctions against other defendants, they need to plead separate causes of action against them. So far as those causes of action are directed only against Ms Williams, the defendants accept that the plaintiffs may seek an injunction against her directed at enjoining her through the agency of other persons, including other defendants. They are correct that the plaintiffs are entitled to seek injunctive relief only against the defendant alleged to be liable in the particular cause of action.
Shareholders of IT Pharmaceutical Supplies Ltd and shareholders’ agreement
[35] The shareholder agreement of 11 November 1999 is an agreement of the shareholders of Internet Traders Ltd. Under cl 31, Internet Traders Ltd is able to enforce certain provisions of the agreement in accordance with the Contracts (Privity) Act 1982. IT Pharmaceutical Supplies Ltd is not a party to the agreement. There is no provision of the agreement (express or implied) allowing it to sue on the agreement. Accordingly, IT Pharmaceutical Supplies Ltd cannot be a party to a cause of action alleging breaches of the shareholders’ agreement of 11 November
1999.
[36] Because IT Pharmaceutical Supplies Ltd cannot sue on the shareholders’ agreement, the plaintiffs may attempt to say that losses incurred by IT Pharmaceutical Supplies Ltd are really damage suffered by Internet Traders Ltd. I have required the causes of action of Internet Traders Ltd and of IT Pharmaceutical Supplies Ltd to be separated out so that it can be made clear whether the plaintiffs are making such claims. If Internet Traders Ltd does intend to claim that damage inflicted on IT Pharmaceutical Supplies Ltd may be the subject of a claim in its name
– for example, for breach of the shareholders’ agreement – then it will need to plead clearly the basis for claiming such loss. I call this the third party damage problem. It has arisen in construction claims – see, for example, Alfred McAlpine Construction Ltd v Panatown Ltd.15 It has also received academic discussion.16
Misuse of confidential information
[37] Alleged misuse of confidential information by Ms Williams is referred to in causes of action for breach of the shareholders’ agreement, breach of directors’ duties and breach of fiduciary duty. While the shareholders’ agreement contains obligations as to confidentiality (cl 20), the pleadings do not identify the particular information alleged to be confidential, and which Ms Williams is alleged to have misused. It is important that the alleged confidential information be adequately identified ahead of the hearing. The plaintiffs need to appreciate that restraints that
applied to Ms Williams during employment may no longer apply afterwards.17 It is
unlikely that Ms Williams should be restrained from using general information such as know-how after her resignation. Clear identification of the particular confidential
information alleged to have been misused should save later misdirected effort.
15 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 (HL).
16 Brian Coote “Performance Interest, Panatown, and the Problem of Loss” (2001) 117 LQR 81.
17 See Laws of New Zealand Intellectual Property: Confidential Information, at [66] and Faccenda
Chicken Ltd v Fowler[1987] Ch 117 (CA).
[38] The current statement of claim has generalised allegations of unauthorised use of intellectual property. For example, in the claim for breach of the shareholders’ agreement, it is not clear what the intellectual property is. If it is no more than an allegation of misuse of confidential information, it simply repeats allegations made elsewhere. If it refers to other intellectual property, that needs to be identified. The plaintiffs should identify the intellectual property right relied on (for example, trade mark, registered design, patent, copyright, plant variety right, etc). The defendants should not be left guessing as to the intellectual property rights the plaintiffs rely on. The plaintiffs need to identify the works or materials in which the intellectual property rights are asserted, and also specify in what respect the defendants have breached their intellectual property rights.
Inducing breach of contract
[39] The current statement of claim has a cause of action called “interference in contractual relationships”. This is more correctly described as inducing a breach of contract. In OBG Ltd v Allan, the House of Lords identified the ingredients of the tort as: 18
(a) There must be a legally enforceable contract in existence;
(b)the defendant must have engaged in conduct which in fact induced a breach of the contract;
(c) the defendant must have known that his or her conduct would induce the breach;
(d)the defendant’s conduct inducing the breach must have caused loss or damage to the plaintiff; and
(e) the defence of justification may arise.
18 OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1 at [39]-[44] per Lord Hoffmann.
[40] Following the decision in OBG Ltd v Allan, it is no longer tenable to plead tortious interference with contractual relations, except if unlawful means are used.
[41] For this case, at the liability hearing, the plaintiffs will not be required to show that if the defendants’ conduct did induce breach of any contracts, that resulted in loss or damage to them. That will be a matter for a hearing on relief. Similarly, any question of justification will be for the defendants to raise.
[42] Allegations of inducing breach of contract need to be adequately particularised. It will not be sufficient to plead generally interference with a contractual relationship. Mr Harrison QC made the point that a trading relationship between IT Pharmaceutical Supplies Ltd and a customer may involve a series of orders for the supply of pharmaceuticals, each of them a distinct agreement for the sale of goods. If that is the case, it will be interference with a particular order to supply pharmaceuticals that might be actionable, but not steps taken to persuade the customer to place fresh orders with another entity.
[43] While the plaintiffs will need to identify the particular contracts alleged to have been breached, they will not be required to plead separate causes of action for each contract alleged to have been breached.
Companies Act 1993 s 174
[44] In submissions, the plaintiffs indicated that they intended to rely on conduct by Ms Williams after she resigned as director. The plaintiffs will need to identify the particular actions of Ms Williams alleged to be oppressive, unfairly discriminatory, or unfairly prejudicial. In particular, they should identify those acts after Ms Williams’ resignation as director that amounted to conduct under s 174.
Unjust enrichment
[45] The current statement of claim has an unjust enrichment cause of action pleaded by the plaintiffs generally against all defendants. The plaintiffs will need to break this down into individual claims. While these claims seem to be restitutionary
in nature, for each benefit alleged to have been received by the defendants, the plaintiffs should identify the basis for alleging that a particular defendant must account to a particular plaintiff for that alleged receipt.
Overpleading
[46] Mr Harrison identified other points of weakness in the plaintiff ’s claims. As an example, he submitted that the plaintiffs could not be accountable for all the sums claimed in the eighth cause of action. Those matters are not suitable for summary pre-trial strike-out. It may turn out at the hearing that the plaintiffs have cast the net too wide in their pleadings. They may succeed for far less than they have claimed. That is a matter for trial. I decline to strike out any parts of a cause of action in the absence of any case having been made out under r 15.1.
Application for particulars
[47] The schedule of particulars the defendants seek runs for twenty pages. A number are trivial. For example, paragraph [2] of the statement of claim alleged that IT Pharmaceutical Supplies Ltd carries on business as an internet pharmacy, a fact with which Ms Williams was obviously familiar, having worked as a director and employee for a number of years. Notwithstanding that, the plaintiffs required the defendants to provide full particulars of the nature of the business carried on as an internet pharmacy and to identify documents recording or evidence the allegation. The schedule repeats the particulars the plaintiffs sought in March. The plaintiffs’ response of June 2015 addresses each of the defendants’ requisitions. It might be expected that after the plaintiffs had answered the request for particulars, the defendants would refine their application to those matters on which they considered the plaintiffs’ responses were inadequate, but no such luck. Not only did the application not address the defendants’ responses, nor did the written submissions for the hearing, except to make general assertions of inadequacy. At the hearing, Mr Harrison did not deal with the schedule of particulars in any detail and did not explain why the particulars were necessary or how the plaintiffs’ responses did not address the requests. To all appearances the request for particulars is no more than time-wasting.
[48] In those circumstances I do not see that it is necessary for me to go through each and every particular sought, consider each of the plaintiffs’ responses and assess whether more should be provided. Instead in the directions that I have given above as to pleadings, I have identified those significant matters which the plaintiffs need to give attention to. Aside from those matters, it is unnecessary to require the plaintiffs to give further and better particulars beyond those they gave the defendants on 3 June 2015.
Application for stay
[49] The stay was sought on the basis that the plaintiffs’ case was hopelessly out of order and that the court should stop the proceeding for the time being and not allow it to start again until the plaintiffs had got their case in order. They would be able to do so only on applying for the stay to be lifted. The defendants also asked for the back-up fixture to be vacated.
[50] I do not accept that the plaintiffs’ case is so hopelessly run that it should be stopped now. I have directed the plaintiffs to give attention to certain matters so that its claims are cast more clearly, but the suggestion that the court should stop the proceeding is over the top.
[51] The stay application is an undisguised stalling device. The intention is clearly to prevent this case going to hearing in November this year. As I see it as desirable that this case be heard sooner rather than later, I see no merit in the stay application.
Plaintiffs’ further discovery application
[52] Ms Williams swore an extensive affidavit of documents for the defendants. On the eve of the hearing, she filed a further affidavit with additional documents.
[53] The plaintiffs have applied for further discovery under r 8.19:
8.19Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the party’s
control; and
(ii) if they have been but are no longer in the party’s control, the party’s best knowledge and belief as to when the documents ceased to be in the party’s control and who now has control of them; and
(b) to serve the affidavit on the other party or parties; and
(c) if the documents are in the person’s control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.
[54] There is a starting presumption that an affidavit of documents is conclusive.19
The party seeking further discovery has an onus to establish that further discovery is required. The court’s power is discretionary. That discretion will be applied with a view to relevance and proportionality. The pleadings set the outer limits of relevance. On relevance, it is the case of the party seeking discovery that counts, not the case of the party resisting discovery.
[55] On 16 December 2014, Heath J ordered standard discovery under r 8.7. On an application under r 8.19 the court can consider whether the extent of the discovery should be modified on account of the issues in the case, relevance and proportionality. In Air National Corporate Ltd v Aiveo Holdings Ltd, Asher J said:20
[17] A decision as to whether there should be particular discovery under r 8.19 is by definition a decision as to the discovery of a specific document or documents, and therefore tailored to the particular requirements of the case. The starting point is still the relevance of the document, as with the standard discovery test, but particular discovery under r 8.19 can be refused for documents that would
19 Jones v Monte Video Gas Company (1880) 5 QBD 556 (CA).
20Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 2258, (2012) 22 PRNZ 172 at [17]-[18] (footnotes omitted).
otherwise be relevant and therefore discoverable under standard discovery, if that discovery would be contrary to the interests of justice. Particular discovery will not, for instance, be allowed if the costs of further discovery are disproportionately high in comparison with the matters at issue. On the other hand, particular discovery on a “train of enquiry” basis could be ordered in certain circumstances such as a fraud claim, if that was in the interests of justice.
[18] The starting point remains as it was before the 2012 amendments, an assessment of the relevance of the documents. But more explicitly than before the Court must also consider whether it is in the interests of justice to order the particular discovery, and the Court in this regard will consider the matters at issue, and in particular the proportionality of the cost of particular discovery in comparison with those issues.
[56] The circumstances of this case require discovery on a train of enquiry approach. A significant issue in this case is whether conduct by Ms Williams before her resignation on 23 June 2014 was in breach of the various duties alleged against her. Much of the case will turn on circumstantial evidence. Ms Williams’ defences will be that the plaintiffs cannot prove that she breached any duties, and for that conduct which they rely on as imposing liability she has an innocent explanation. The plaintiffs’ case is that Ms Williams was secretly planning her departure to set up in competition against the plaintiffs. It is the secrecy aspect that means that the plaintiffs cannot count on knowing everything she did. The risk with applying only an adverse documents approach is that, even with the best will in the world, Ms Williams and her advisors may not appreciate the significance of documents to the plaintiffs’ case. The adverse documents test requires the party making discovery to assess relevance, discarding documents that could not be used in evidence or that contain information that would not be the subject of evidence. The train of enquiry approach requires more documents to be discovered, but the more inclusive approach should make it easier to decide which documents should be listed.
Email addresses
[57] The plaintiffs’ application sought discovery by Ms Williams of all emails between 1 December 2013 and 30 September 2014 of 11 email addresses. In the hearing, the plaintiffs relied on an email Ms Williams had made on 17 June 2014 in which she sought a copy of “last night’s backup” and associated handwritten notes. They claimed she had received the backup on 17 June. Ms Williams has also
acknowledged deleting much information stored on the computer system. The plaintiffs therefore wish to obtain from Ms Williams any data she downloaded on
17 June 2014. They also say that access to some parts of the computer data on her current system may be barred because of passwords known only to Ms Williams. They acknowledge that some of the email addresses are already known to the plaintiffs and are not personal to Ms Williams.
[58] In opposition, the defendants submitted that only standard discovery was required. The plaintiffs’ application has required Ms Williams to disclose the plaintiffs’ own documents and that she has already attended properly to discovery. There was no opposition to providing passwords; the only point taken was that the plaintiffs had not asked for them before.
[59] The downloading of back-up files by Ms Williams shortly before she resigned as director creates suspicion. As I shall explain below, she has a substantive obligation of disclosure to the company. The plaintiffs are entitled to know what she downloaded.
[60] I direct further discovery on the basis that Ms Williams is to address what additional documents are in her control. She is not required to repeat what she has already disclosed.
[61] I direct Ms Williams to disclose the passwords she used for the email addresses in the plaintiffs’ application. That is to allow the plaintiffs to access emails on their systems which may not be accessible because only she knows the passwords. That aside, she is not required to make further discovery of emails not in her present control for the following addresses: [email protected], [email protected], [email protected], [email protected], [email protected] and [email protected]. These are addresses that are not personal to Ms Williams but were used by her in her employment with the plaintiffs.
[62] Ms Williams is also required to address whether she retained or had data or
had access to or continues to have access to information she referred to as “deleted
items” in paragraphs 36-38 of her affidavit of 17 October 2014. The reason for requiring this arises out of her email of 17 June 2014 to Datasafe. I see no ground for her not setting out in an affidavit what data, if any, she downloaded from the plaintiffs’ system on 17 June or whether she still retains it.
Vanuatu documents
[63] The plaintiffs’ application sought discovery of documents relating to the shareholding in the Pacific Health Group, HA Medic and the Squidwood Trust between 18 October 2009 and 12 June 2015. In her supplementary discovery affidavit, Ms Williams set out further documents. At the date of the hearing, the plaintiffs had not yet inspected them. They pointed out that the documents did not cover the entire period between 18 October 2009 and 12 June 2015.
[64] The defendants objected, saying that the plaintiffs were also shareholders and also had access to those documents.
[65] I accept the plaintiffs’ submission in reply. The evidence shows an ongoing relationship between the Vanuatu company and Ms Williams. She is clearly in a position to obtain further information and to disclose the documents she presently holds. On the other hand, the plaintiffs cannot be expected to obtain it. It would be unnecessarily burdensome to require them to go to Vanuatu to begin to recover documents there. An order for non-party discovery in this court would not be effective against an overseas entity.
Computer systems purchase
[66] The plaintiffs rely on Ms Williams’ purchase of computer equipment for the business operation at 24A Marsh Street, Tauranga, before she resigned as director. Counsel tendered a copy of a tax invoice dated 13 June 2014 which includes the following:
Computer equipment for the new office development at 24A Marsh Street, Tauranga. This invoice covers the urgent hardware items needed now to meet time schedules or to take advantage of limited promotional pricing.
[67] The purchaser was Glencove Holdings Ltd, the second defendant. The relevance is that if Ms Williams was buying computer equipment for Marsh Street before she resigned, that goes to an intention formed before resignation to compete against the plaintiffs and may be in breach of duties as a director and fiduciary.
[68] There is no real contest as to the relevance of documents relating to the purchase of the computer system. Ms Williams disclosed further documents in her affidavit of 6 July 2015. All of them, apart from a project specification, are dated after her resignation as a director.
[69] I am not satisfied that Ms Williams has made complete disclosure of all the documents relating to the computer purchase. The amount payable under the invoice of 13 June 2014 is $43,488 plus GST. Ms Williams has not, however, disclosed any agreement for sale and purchase. It is standard commercial practice to use written contracts for the sale of substantial items such as the equipment shown in the tax invoice. Some of the equipment comes with warranties. Those warranties must be recorded somewhere. Accordingly, Ms Williams needs to provide in her further affidavit whether she has any other documents relating to the computer purchase in addition to those set out in her affidavit of 6 July 2015.
Trading documentation from 24 June 2014 to current date
[70] Under this head, the plaintiffs seek discovery of the defendants’ correspondence with former customers of the plaintiffs, copies of invoices and sales figures from the defendants to former clients of the plaintiffs, copies of communications between the defendants and the Ministry of Health relating to the wholesale pharmaceutical licence of IT Pharmaceutical Supplies Ltd, and copies of all communications between the defendants and the Ministry of Health relating to the wholesale licence of the defendants and any licence with Nicole Williams or Kate Church as trusted persons.
[71] In submissions, the plaintiffs emphasise how the defendants had apparently
used business forms modelled on the plaintiffs’. The defendants’ business records
show that former customers of the plaintiffs had now become customers of the defendants.
[72] The defendants’ affidavit of documents shows documents relating to transactions between the defendants and former customers of the plaintiffs. The question is whether that disclosure is adequate. Missing from the defendants’ discovery are any documents that go to show how the defendants established their business relationship with the plaintiffs’ customers. How the defendants established these new business relationships is relevant to the plaintiffs’ claims against them. The defendants did not seriously contend otherwise. It seems unlikely that the defendants established these new relationships without some documents passing between the defendants and the customers. Further discovery is required.
[73] The plaintiffs also seek further invoices and sales figures relating to the defendants’ transactions with former clients of the plaintiffs. The defendants seem to have made very full discovery of this aspect. I emphasise that at this stage discovery is not directed at monetary relief. It is sufficient for the defendants to disclose documents which evidence a trading relationship. The existing discovery covers that aspect already. Further disclosure to provide updating documents is not required.
[74] Communications between the defendants and the Ministry of Health regarding the wholesale pharmaceutical licence are relevant, given that Ms Williams apparently arranged that Mr Heale would no longer be recorded as a trusted person in the wholesale pharmaceutical licence for IT Pharmaceutical Supplies Ltd. To the extent that she has not already done so, Ms Williams is to disclose all communications between the defendants and the ministry relating to the IT Pharmaceutical Supplies Ltd wholesale pharmaceutical licence.
[75] The defendants’ communications with the ministry for their wholesale pharmaceutical wholesale licence, including the identification of trusted persons, ought likewise to be disclosed to the extent not already done.
Lyon O’Neale Arnold files
[76] While she was a director of Internet Traders Ltd and IT Pharmaceutical Supplies Ltd, Ms Williams began steps towards the possible acquisition of business premises in Tauranga at 127 Second Avenue, 37 Monmouth Street, and 24A Marsh Street. She arranged for a resource consent to be obtained for 24A Marsh Street. The resource consent application shows that IT Pharmaceutical Supplies Ltd was to use the premises for its business. She took funds from the plaintiffs to pay the resource management consultants (but she has since repaid them). For the legal work on the purchase, she used her lawyers, Lyon O’Neale Arnold. The defendants now operate out of 24A Marsh Street.
[77] Ms Williams’ actions in pursuing the purchase of these properties for business purposes while she was a director of the first and second plaintiffs are clearly relevant. There is no significant objection to the files being produced, aside from the question of privilege. The issue here is whether privilege can be maintained for lawyer-client communications between Ms Williams and Lyon O’Neale Arnold.
[78] Ms Williams may have sought the advice of Lyon O’Neale Arnold as to her legal position in relation to the plaintiffs. She may have sought advice on her rights and liabilities on exiting from the plaintiffs. She is entitled to maintain privilege for that advice, unless of course she has waived it (for example, by injecting the substance of that advice into this proceeding). The matters I am now about to discuss are not intended to take away her privilege in communications to obtain and receive that advice. There was no corporate purpose in obtaining that advice. Instead, the question goes to privilege for other communications between her and Lyon O’Neale Arnold.
[79] It is convenient to draw a distinction between substantive disclosure and procedural discovery. Under procedural discovery parties are required to set out in affidavit documents in their control that relate to the issues in the proceeding, even if they could not be required to make those documents available but for the litigation. The use of documents under procedural discovery is limited to the particular case.
A party making an affidavit of documents is entitled to claim privilege under the standard heads, including communications with legal advisers and preparatory materials for legal proceedings.21 Outside legal proceedings, there are occasions when the law requires documents to be disclosed. It is unnecessary to catalogue them here. One example is a beneficiary’s right to obtain information from a trustee.22 I call this substantive disclosure. One party may be entitled to information from another, even if there are no proceedings between them, and may use that information for purposes other than legal proceedings. While substantive disclosure can be enforced without legal proceedings (for example, cancellation of an insurance policy for non-disclosure), the courts may also make orders requiring the information to be made available, including by orders for procedural discovery.
[80] Under substantive disclosure privilege in communications with legal advisers may not provide an adequate ground for refusing to provide information. That will happen in cases where the content of the advice is information the applicant is entitled to under substantive rules. In W Dennis & Sons Ltd v West Norfolk Farmers’ Manure and Chemical Co-operative Ltd, shareholders were held to be entitled to legal advice the directors had obtained before any dispute had arisen between the
shareholders and the company.23 In CIA de Barca Panama SA v George Wimpey &
Co Ltd a joint venture partner was required to disclose to the other partner documents which were otherwise subject to litigation privilege.24 In such cases, it may be necessary to establish the purpose for which legal advice was obtained. So in discussing disclosure between partners and trustees and beneficiaries, the learned authors of Disclosure say:25
It is necessary to distinguish clearly two situations. One is where the trustee or partnership communicates with a lawyer (or third party, where this is protected) for the benefit of the trust or partnership. For example, he or it may seek or obtain advice with reference to the trust’s or partnership’s relations with others, or as to the trustee’s powers under the settlement, or the partnership’s powers under the deed. The other is where the trustee or an
21 See Evidence Act 2006, Part 2, subpart 8.
22 See Foreman v Kingstone [2004] 1 NZLR 841 (HC).
23 W Dennis & Sons Ltd v West Norfolk Farmers’ Manure and Chemical Co-operative Ltd [1943] Ch 220 (Ch).
24 CIA de Barca Panama SA v George Wimpey & Co Ltd [1980] 1 Lloyd’s Rep 598 (CA).
25 Paul Matthews and Hodge M Malek Disclosure (4th ed, Sweet & Maxwell, London, 2012) at
11.77 (footnote omitted).
individual partner does so for his own personal benefit, as against the trust beneficiaries or the other partners, for example as to whether he has committed a breach of trust or of his obligations as a partner. Although there can in an appropriate case be litigation privilege as against the beneficiary or other parties in the latter case, there can be no privilege, as against the beneficiary or other partners, in the former case.
[81] Ms Williams was under a substantive disclosure duty to Internet Traders Ltd and IT Pharmaceutical Supplies Ltd. As their director she was required under s 131 of the Companies Act to act in good faith and in what she believed to be the best interests of the company. Decisions of the English courts on that duty have held that it requires directors to inform the company of the existence of a business opportunity to the company.26
[82] In her affidavit of 17 October 2014, Ms Williams says that the purchase of
24A Marsh Street and obtaining the resource consent was part of her plans for expanding and rebranding the business of IT Pharmaceutical Supplies Ltd, albeit after she had bought out Mr Heale’s interests. She therefore presents herself as having acted in the interests of IT Pharmaceutical Supplies Ltd at that time. That was a corporate opportunity she had to disclose to her co-director, Mr Heale. That corporate opportunity was not only to operate the business at 24A Marsh Street, but also to acquire the premises for the purpose of running the business there. It is irrelevant to Ms Williams’ duty of disclosure that she contemplated making use of that corporate opportunity, only after she had obtained Mr Heale’s shareholding. She owed a duty to the companies which remained constant, unaffected by the shareholding. In keeping that information to herself, she was not carrying out her duty under s 131.
[83] The information Ms Williams obtained on the acquisition of 24A Marsh Street included legal advice given by the lawyers she engaged. As she says that she instructed her lawyers for a corporate purpose, to find an alternative place of business, she was required to disclose that advice to the companies in the same way
that she was required to give them other information about the proposed purchase.
26 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, Bhullar v Bhullar [2003] EWCA Civ 424, 2 BCLC 241 at [41].
[84] Ms Williams will need to show her hand in deciding whether to claim
privilege in her communications with Lyon O’Neale Arnold on the acquisition of
24A Marsh Street and other properties. If she maintains her position set out in paragraphs 51-53 of her affidavit of 17 October 2014 that she was pursuing these matters in the interests of IT Pharmaceutical Supplies Ltd (albeit under her sole control), she is required to disclose to IT Pharmaceutical Supplies Ltd communications with her lawyers. While those communications may be privileged against third parties, they will not be privileged against the plaintiffs.
[85] On the other hand, if her case is that the acquisition of these properties was never to be for IT Pharmaceutical Supplies Ltd and that she was acting only in her own personal interests, and not in the interests of IT Pharmaceutical Supplies Ltd, she will be entitled to claim privilege for those communications as against the plaintiffs, but that change of stance will require her to recant parts of her affidavit of
17 October 2014.
Defendants’ discovery against the plaintiffs
[86] The documents the defendants seek by way of further discovery are set out in Schedule F to Ms Williams’ affidavit of 26 June 2015. They seek discovery of large amounts of business records of the plaintiffs from 23 June 2014 until discovery is made. The broad purpose of the discovery goes to loss and damages suffered by the plaintiffs if liability is established. The defendants want full sales data, copies of communications between the plaintiffs and the customer, copies of all bank accounts, copies of sale registers for certain products and records of payments from customers.
[87] My split trial directions make it unnecessary to require the plaintiffs to discover documents going to their losses at this stage. Most of them will however be relevant at a hearing as to monetary relief. I say most, not all. For example, I do not see how electronic security records for the plaintiffs’ premises could be relevant. In many claims for damages for loss of profits, accountants are able to make their calculations without requiring every document the defendants seek.
[88] The defendants did not submit that their discovery was required to establish whether an injunctive relief should be ordered at the liability hearing and I cannot think how it could be. For good measure, in case the plaintiffs’ financial records might be relevant to that question, I would regard what the defendants are seeking as disproportionate for that purpose.
Outcome
[89] The above are my reasons for the directions I gave in my minute of 15 July
2015. I omitted to address the matter of review. Mr Harrison has advised that the defendants will seek review. Under r 2.3(2) of the High Court Rules, the time for applying for review is five working days from the date of delivery of this decision.
[90] I invite the parties to confer as to costs. If they cannot agree, memoranda may be filed and I will decide costs on the papers. The party filing second should do so within five working days of the party filing first.
[91] For convenience, a copy of my minute of 15 July 2015 is attached to this decision.
……………………………………….
Associate Judge R M Bell
Solicitors:
Ken Patterson, Tauranga, for Plaintiffs
Abernathy Broatch Law, Mt Maunganui, for Defendants
Counsel:
J P Temm, Rotorua, for Plaintiffs
R E Harrison QC, Auckland, for Defendants
Attachment (Minute of 15 July 2015)
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2014-470-158
BETWEEN INTERNET TRADERS LIMITED
Plaintiff
IT PHARMACEUTICAL SUPPLIES LIMITED
Second Plaintiff
JOHN ROULSTON HEALE
Third Plaintiff
AND NICOLE JEAN WILLIAMS
First Defendant
GLENCOVE (2014) LIMITED (formerly CASPER47 HOLDINGS LIMITED)
Second Defendant
TENTACLE ENTERPRISES LIMITED
Third Defendant
KIWIPHARMA LIMITED
Fourth Defendant
Hearing: 8 July 2015 (in Whangarei)
9 July 2015 (in Auckland)
Counsel: J P Temm and K J Patterson for Plaintiffs
R E Harrison QC for Defendants
Minute: 15 July 2015
MINUTE of ASSOCIATE JUDGE R M BELL
Solicitors/Counsel:
Ken Patterson, Tauranga, for Plaintiff
Abernathy Broatch Law (P Broatch) Mt Maunganui , for Defendants
Copy for:
J P Temm, Barrister, Rotorua, for Plaintiffs
R E Harrison QC, Auckland, for Defendants
[1] In this minute I give my decisions on the applications heard on 8 and 9 July
2015, without reasons. I shall issue a judgment later giving reasons.
Jurisdiction
[2] All the plaintiffs’ causes of action against Ms Williams are within the jurisdiction of the High Court. Even though Ms Williams was an employee of the first and second plaintiffs, the claims against her are not excluded under the exclusive jurisdiction provisions of the Employment Relations Act 2000.
Parties
[3] For those causes of action where Mr Heale is suing as a shareholder, he needs to sue jointly with his co-trustees, Lauren Joy Heale and Holland Beckett Trustee No.5 Ltd. They are added as third plaintiffs.
[4] Ms Williams contends that the trustees of the McArthur Williams Family Trust are no longer shareholders of Internet Traders Ltd or IT Pharmaceutical Supplies Ltd but the shares formerly held by that trust are now held by the trustees of the Aesculapian Family Trust. The plaintiffs will need to assess whether any of their causes of action are against her as shareholder. For example, relief under s 174 of the Companies Act by way of a share buy-out may be directed against her as shareholder. They should assess whether the other trustee of the Aesculapian Family Trust need to be added as defendants. They may join the other trustee by adding it in a new statement of claim without requiring further order.
[5] Ms Williams is to address in a further statement of defence the relevant trust holding the shares, including stating the trust deed and identifying the trustees. She is also required to discover all documents relating to the trusts, including transfers of shares from one trust to the other.
[6] In the causes of action relying on breaches of the shareholders agreement of
11 November 1999, if the plaintiffs contend that the trustees of the Aesculapian Trust have succeeded to the obligations of the McArthur-William Family Trust under the agreement, they will need to plead that. While it may be possible to do so by reply, it may be better to plead it proleptically in a statement of claim.
Split trial
[7] The case is to be given a fixture as a backup for seven days beginning
9 November 2015.
[8] Faire J’s direction for a split trial between liability and quantum is refined as
follows:
[a] Subject to specific directions below, under each cause of action, the court will 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.
[b] The hearing will not deal with claims for monetary relief, damage or account for profits, except for liquidated sums (as under the eighth cause of action).
[c] Except for claims for liquidated sums, the plaintiffs are not required to specify in their statement of claim the amounts of monetary relief they are seeking until after the hearing on liability.
This applies to each cause of action in the current statement of claim as follows
First cause of action – breach of shareholders agreement
The hearing will deal with breach of contract and the plaintiffs’ claims for injunctive relief, but will not deal with the claims for damages or account for profits. Questions of causation, effects of breach and measure of damages are not part of the hearing.
Second cause of action – breach of director’s duties
The hearing will deal with breach of duty and the plaintiffs’ claims for injunctive relief, but will not deal with claims for damages or account for profits. Questions of causation, effects of conduct and measure of damages are not part of the hearing.
Third cause of action – breach of fiduciary duties
The hearing will deal with breach of duty and the plaintiffs’ claims for injunctive relief, but will not deal with claims for damages or account for profits. Questions of causation, effects of conduct and measure of damages are not part of the hearing.
Fourth cause of action – breach of shareholder agreement
The hearing will deal with breach of contract and the plaintiffs’ claims for injunctive relief, but will not deal with the claims for damages or account for profits. Questions of causation, effects of breach and measure of damages are not part of the hearing.
Fifth cause of action – breach of fiduciary duties
The hearing will deal with breach of duty and the plaintiffs’ claims for injunctive relief, but will not deal with claims for damages or account for profits. Questions of causation, effects of conduct and measure of damages are not part of the hearing.
Sixth cause of action – section 174 of the Companies Act 1993
The hearing will decide whether the first defendant’s conduct is
oppressive, unfairly discriminatory, or unfairly prejudicial under s
174 of the Companies Act but will not decide what relief, if any, should be ordered as a result.
Seventh cause of action – inducing breach of contract
Even though damage is an ingredient of the cause of action, the hearing will decide whether the actions of the defendants induced breaches of contracts with the plaintiffs, but will not deal with causation, the effects of the conduct, measure of damages or other monetary relief.
Eighth cause of action – unjust enrichment
The hearing will decide liability and relief where liquidated sums are claimed, but not claims to monetary relief which may involve assessment (as for unliquidated damages or account for profits)
[9] With a split trial, it is important to ensure judicial continuity – the same judge should decide both liability and quantum. Accordingly, out of caution the judge hearing the case in November should not be contemplating retirement for five years.
The Heale affidavit of 6 July 2015
[10] Leave to file the affidavit out of time is granted on the basis that the exhibits to the affidavit may be read, rather than the narrative part of the affidavit.
Pleadings
[11] The plaintiffs advised on 9 July 2015 that they would file and serve an amended statement of claim. It is to be called the third amended statement of claim (being the third amended pleading after the statement of claim) and is to address the following matters:
[a] Except where plaintiffs have joint claims, claims by one plaintiff are to be pleaded separately from claims by another plaintiff. For example, any cause of action by Internet Trade Ltd for breach of
director’s duty should be pleaded as a separate cause of action from a claim by IT Pharmaceutical Supplies Ltd for breach of director’s duty.
[b] In a cause of action with a prayer for injunctive relief, the plaintiffs are to seek injunctive relief only against the defendant alleged to be liable in that cause of action. That does not prevent the plaintiffs asking for an injunction in terms directed at enjoining the defendant through the agency of other persons, including other defendants.
[c] IT Pharmaceutal Supplies Ltd is not a party to the shareholders’ agreement of 11 November 1999 and cannot enforce the agreement under cl 31. It cannot sue for breaches of the shareholders’ agreement. The only company able to sue on the shareholders’ agreement is Internet Traders Ltd. IT Pharmaceutical Supplies Ltd cannot be a party to a cause of action on the shareholders’ agreement.
[d] In those causes of action where a plaintiff claims for losses incurred by a third party, as in Alfred McAlpine Construction Ltd v Panatown Ltd,27 it should plead clearly the basis for claiming third party loss.
[e] For their claims based on misuse of confidential information, the plaintiffs should expressly specify the information alleged to be confidential, so as to allow the claim for confidentiality to be assessed, and identify the misuse of that information by the defendants.
[f] Where plaintiffs allege unauthorised use of intellectual property, the plaintiffs should identify the intellectual property right relied on, identify the works or materials in which the intellectual property rights are asserted, and specify in what respects the defendants have
breached the plaintiffs’ intellectual property rights.
27 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 (HL).
[g] The plaintiffs’ cause of action for interference in contractual relations is more properly considered as a claim for the tort of inducing breach of contract. The causes of action needs to be pleaded with regard to the ingredients of the tort:
[i] There must be a legally enforceable contract;
[ii] The defendant must engage in conduct which in fact induced a breach of the contract;
[iii] The defendant must have known that his or her conduct would induce the breach; and
[iv] The defendant’s conduct in inducing the breach must have caused loss or damage to the plaintiffs.
It is not sufficient to plead generally interference with a contractual relationship. The plaintiffs will need to identify the particular contracts alleged to have been in breach but the plaintiffs are not required to plead separate causes of action for each contract alleged to have been breached.
[h] For the cause of action under s 174 of the Companies Act, the plaintiffs should make it clear whether they rely on conduct after Ms Williams’ resignation as director, and if so, what aspects of that conduct are alleged to be oppressive, unfairly discriminatory or unfairly prejudicial.
[i] The unjust enrichment cause of action is likely to be a misnomer.
The plaintiffs are required to separate out the claims made by each plaintiff and, in respect of each plaintiff’s claim, to show the particular cause of action relied on, e.g. money had and received, money paid by mistake etc.
[j] The plaintiffs are to take care that they plead against the defendants only the matters giving rise to liability under the particular causes of action.
[k] Without requiring further order, the plaintiffs may delete from the proceeding any defendant if they now consider that they no longer seek relief from that defendant.
[12] At trial, it may turn out that the plaintiffs have overpleaded, in that they may claim more than they are able to prove. Overpleading will not be grounds for requiring amendments to the pleadings ahead of the hearing.
[13] The plaintiffs should try to file and serve a statement of claim by the time of the conference on 21 July 2015 at 11:00am. Further timetabling directions for pleadings will be given at that conference.
[14] Apart from the above directions as to an amended statement of claim, I dismiss the defendants’ applications for strike-out, further particulars and stay.
The plaintiffs’ discovery application
[15] The defendants are to file and serve a further affidavit of documents (which
Ms Williams may swear on their behalf) as directed below.
Email addresses
[16] By way of discovery, the first defendant’s affidavit is to disclose:
(a) All passwords she used for the email addresses in the plaintiffs’
application between 1 December 2013 and 30 December 2014.
(b) To the extent that she has not already done so in her affidavit of documents, all emails for the following addresses between 1 December
2013 and 30 December 2014: [email protected];
[email protected]; [email protected] and it-
(c) Whether she retained or had data, or had access to or continues to have access to information she refers to as “deleted items” in paragraphs 36, 37 and 38 of her affidavit of 17 October 2014 and, if so, to list that data.
Vanuatu:
[17] She is to address whether the defendants have or have had H A Medic statements for the following periods, and if so, to disclose them:
[h] 10 March 2010 to 31 May 2010;
[i] 15 November 2010 to 30 September 2011; [j] 5 October 2012 to 31 December 2013; and [k] 15 April 2014 to the date of the affidavit.
Computer systems purchase
[18] In addition to the items listed in her affidavit of 6 July 2015, Ms Williams is to set out whether she has or has had any further documents relating to the computer purchase, including any orders and agreements for sale and purchase and all documents evidencing contact with Pacific ICT before 20 June 2014.
Ongoing trading documentation 24 June 2014 to current date
[19] To the extent that the defendants have not provided it so far by way of discovery, Ms Williams is to disclose all correspondence (email or otherwise) passing between the defendants and the customers of IT Pharmaceutical Supplies Ltd listed in the approved customer register, exhibit H - Heale affidavit of 6 July 2015.
[20] To the extent that she has not already done so, Ms Williams is to disclose all communications between the defendants and the Ministry of Health relating to the wholesale pharmaceutical licence of IT Pharmaceutical Supplies Ltd,
[21] To the extent that she has not already done so, Ms Williams is to disclose all communications between the defendants, or any of them, and the Ministry of Health relating to the wholesale pharmaceutical licence of the defendants, naming Nicole Williams or Kate Church as trusted persons.
Lyon O’Neale Arnold files
[22] The defendants are to disclose all files of Lyon O’Neale Arnold relating to the acquisition of alternative premises for the first and second plaintiffs, with particular regard to the following addresses: 127 Second Avenue, 37 Monmouth Street and 24A Marsh Street. Privilege may not be claimed for any communications between Lyon O’Neale Arnold and any of the defendants that would otherwise be privileged under s 54 of the Evidence Act 2006. The loss of privilege in lawyer- client communications will not apply, however, if Ms Williams abandons the claim made in paragraphs 51-53 of her affidavit of 17 October 2014 that she was pursuing the acquisition of those properties in the interests of the plaintiffs. Moreover, she will still be entitled to claim privilege in communications between herself and her lawyers going to her and the defendants’ rights and liabilities in relation to her departure from Internet Traders Ltd and IT Pharmaceutical Supplies Ltd.
Discovery by the plaintiffs
[23] The plaintiffs are not required to disclose the documents in Schedule F of the affidavit of Ms Williams of 26 June 2015 at this stage, but further disclosure may be required if there is any later hearing to establish the amount of the plaintiffs’ losses, if any.
Conference
[24] There will be a telephone case management conference on 21 July 2015 at
11:00am. I will give case management directions through to the hearing on 9
November 2015. In memoranda for the conference, counsel should address the following matters:
[a] Time for the plaintiffs to file and serve an amended statement of claim, if not already filed.
[b] Time for any fresh statement of defence by the defendants. [c] Time for a reply.
[d] Date for defendants to file and serve a further affidavit of documents. [e] Close of pleadings date.
[f] Service of evidence and list of documents by the plaintiffs. [g] Service of evidence and list of documents by the defendants. [h] Bundle of documents and chronology.
[25] For the conference, the parties should also set out the likely number of
witnesses to be called and whether any of them are expert witnesses.
Associate Judge R M Bell
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