IRS International Pty Limited v ContainerCo (NZL) Limited
[2024] NZHC 2266
•13 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV2024-404-1074
[2024] NZHC 2266
UNDER Commerce Act 1986 and Fair Trading Act 1986 BETWEEN
IRS INTERNATIONAL PTY LIMITED
Plaintiff
AND
CONTAINERCO (NZL) LIMITED
First Defendant
QUBE LOGISTICS LIMITED
Second DefendantMETROBOX LIMITED
Third Defendant
SPECIALISED CONTAINER SERVICES (TAURANGA) LIMITED
Fourth DefendantSPECIALISED CONTAINER SERVICES (CHRISTCHURCH) LIMITED
Fifth Defendant
Hearing: 8 August 2024 Appearances:
J Edwards and Y Dong for Plaintiff
D J Cooper KC and S Singh for First Defendant
R Reed KC and V Fowler for Second to Fifth DefendantsJudgment:
13 August 2024
REDACTED JUDGMENT OF MOORE J
[Security for plaintiff’s undertaking as to damages]
This judgment was delivered by me on 13 August 2024 at 11.21 am,
Pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ……………………
IRS INTERNATIONAL PTY LTD v CONTAINERCO (NZL) LTD [2024] NZHC 2266 [13 August 2024]
Introduction
[1] The plaintiff, IRS International Pty Ltd (“IRS”), alleges anti-competitive and unconscionable conduct by the defendants. A one day hearing of its application for an interim injunction is scheduled for 13 November 2024.
[2] In the meantime, the parties have agreed to an “interim interim” position subject to the Court determining whether IRS should give security for its undertaking as to damages until its application for interim relief is determined. This judgment addresses that question.
Background
[3] IRS is an Australian company that services, repairs and provides spare parts for refrigerated containers in, among other countries, Australia and New Zealand. It is the subsidiary of Daikin Industries Ltd (“Daikin”), a Japanese-based air conditioning conglomerate.
[4] Refrigerated containers are known in the shipping industry as “reefers”. IRS contracts with international shipping companies, known as “shipping lines”, to provide, among other things, pre-trip inspection (“PTI”) services on their reefers.
[5] The nature of IRS’ business is that its technicians carry these PTI services out on empty reefers stored by shipping lines at container depots. Naturally, these depots are in close proximity to nearby ports. IRS admits to having its own container depot in Mangere but pleads that it does not and cannot offer PTI or other services to its shipping line customers due to capacity constraints. It maintains, again without supporting evidence, that its container depot only stores “lease and sale” containers.
[6] The first defendant, ContainerCo (NZL) Ltd (“ContainerCo”) and the second defendant, Qube Logistics Ltd (“Qube”) – together with the third to fifth defendants, which are related Qube companies (“the Qube Group”) – operate container depots throughout New Zealand. In addition to providing storage facilities, the defendants also service and repair shipping line containers at their depots. Significantly, this includes providing PTI services on reefers in direct competition with IRS.
[7] Historically, IRS says the defendants never charged it for access to its depots. It says that position changed, however, in 2018 ostensibly for health and safety reasons. In that year, both ContainerCo and the Qube Group proposed licence agreements for IRS technicians to access their depots for a fee in order to accommodate what they cited as costs associated with ensuring the health and safety of IRS technicians working on their sites.
[8] In agreements executed in April and May 2018 respectively, ContainerCo and the Qube Group each agreed that IRS would pay annually for access to the defendants’ depots based on a fee per reefer serviced.1 Their respective agreements with IRS originally provided that the fee would be $3.50 per reefer.
[9] IRS’ Managing Director, Peter Labbad, says that IRS reluctantly accepted these fees. He says IRS could not choose where to service its customers’ reefers and because it needed access to the defendants’ depots. He explains that IRS did not complain to the Commerce Commission or take formal action at the time, in part, because its customers accepted IRS passing on these charges. Mr Labbad says this was because of recent deaths in the port sector in New Zealand at the time, and the belief that there would be additional occupational health and safety measures at the defendants’ depots.
[10] In June 2022, ContainerCo increased its fee to $5 per reefer and $7 per reefer at depots that either had, or did not have, towers on site. It explained that it did so as it had invested heavily in improving both health and safety at its depots and new towers at certain sites, and because general costs of operating (such as driver wages, fuel and machinery servicing) had “increased significantly” over the last four years. Mr Labbad says that IRS reluctantly agreed to this increase, and that its customers agreed to this cost being passed on as charged.
[11] In November and December 2023, ContainerCo advised that it would be increasing its fees to $15.50 per reefer from February 2024, again citing health and safety and other infrastructure costs as its justification. After consulting with its largest
1 IRS refers to this rate as a “levy” while the defendants refer to it as a “fee”. As the agreements with IRS which provide for this rate refer to it as a “fee”, I use that term with the caveat that I make no substantive finding either way as to how it is best characterised.
customer, IRS advised ContainerCo that it “declined” the entire fee imposed and that any communications should be directed to its largest customer directly.
[12]In March 2024, the Qube Group also advised that its fee would increase from
$3.50 to $15 respectively from April 2024. Similar to ContainerCo, it advised that the increase was due to the “escalating costs” associated with “maintaining a secure working environment for all individuals” on its premises.
[13] In his affidavit in support of IRS’ application for interim relief, Mr Labbad explains that in the 2023/2024 financial year, IRS completed PTI servicing on [redacted] reefers at ContainerCo’s depots and [redacted] reefers at the Qube Group’s depots. Based on those figures, he deposes that the differing fees would involve IRS’ paying the following total fees to the defendants:
Fee ContainerCo Qube Group Total $3.50 - ContainerCo
$3.50 - Qube Group
[redacted] [redacted] [redacted] $7 - ContainerCo
$3.50 - Qube Group
[redacted] [redacted] [redacted] $15.50 - ContainerCo
$15 - Qube Group
[redacted] [redacted] [redacted]
[14] Mr Edwards, for IRS, submitted that on these figures, there was a difference of approximately [redacted] between what IRS would pay annually under the defendants’ previously charged fees as compared to their increased fees.
[15] IRS now alleges that the defendants imposed and increased their respective fees in breach of the Commerce Act 1986 and the Fair Trading Act 1986 (“FTA”). It says the defendants’ imposed and increased its fees pursuant to an arrangement or understanding that substantially lessens competition and or amounts to cartel conduct under ss 27 and 30 of the Commerce Act. It further says that the continued charging of the fee and the increases made earlier this year amount to a misuse of market power under s 36 of the Commerce Act and are otherwise unconscionable under s 7 of the FTA.
[16] IRS commenced the present proceedings in May this year. It seeks an interim injunction so that it can continue to access the defendants’ depots at the previously charged fees of $7 per reefer to ContainerCo and $3.50 per reefer to the Qube Group. It says that it will suffer irreparable harm if interim relief is not granted because it will be:
(a)forced to pay the increased amounts which would render its business in New Zealand unsustainable “even in the short term”; and
(b)denied access to the container depots operated by the defendants which would render them unable to provide services to its customers, resulting in the loss of its customer base and staff redundancies.
[17] The “interim interim” position ahead of the determination of the one-day hearing of IRS’ application for interim relief in November is that the defendants will not:
(a)prevent IRS from having access to its container depots for the purpose of servicing its customers’ reefers on the basis that it has not paid the fee amounts in dispute; and
(b)take any steps to enforce the payment of the increase in its fees above the previously charged rates of $7 per reefer for ContainerCo and $3.50 per reefer for the Qube Group.
[18] In essence, the position is that IRS will only pay part of the invoiced fees charged to it by the defendants, but that the defendants will invoice the plaintiff for the entire fee in place from February 2024 (in the case of ContainerCo) and from April 2024 (in the case of the Qube Group).
[19] The parties disagree, however, as to whether IRS should be required to give security for its undertaking as to damages, as a condition of the defendants’ own undertakings until the determination of IRS’ application for interim relief. That is the sole question before me.
Applicable principles
[20] The applicable principles are not in dispute. It is common ground that the Court possesses jurisdiction to order security in these circumstances, notwithstanding that the security sought is for the plaintiff’s undertaking as to damages in respect of the defendants’ “interim interim” undertakings until the application for interim relief is determined. The source of the Courts’ power lies either in r 7.45 of the High Court Rules 2016 or in its inherent jurisdiction.
[21] As with an undertaking as to damages under r 7.54(1) of the High Court Rules, where there is a likelihood of financial detriment to the defendant, the plaintiff has an obligation to provide the Court with sufficient information to enable the Court to assess the worth of its undertaking.2 If a question is raised about its sufficiency, it should be met with evidence.3
[22] In Shell (Petroleum Mining) Co Ltd v Kapuni Gas Contracts Ltd (No 4), Barker J held that security for an undertaking as to damages should normally be made where there is either:4
(a)very clear evidence that the plaintiffs would succeed at trial;
(b)a real risk that the defendants would dissipate or dispose of their assets; or
(c)some indication that the undertaking would not be met.
[23]Notwithstanding the use of the words “some indication”, I proceed on the basis
– bearing in mind the very early stage at which these proceedings are at – that the question before me is whether there is a real risk that IRS will not be able to honour its undertaking in the event that it does not succeed in obtaining interim relief.
2 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR7.54.01] citing Park Lane Builds Ltd v Shiva Eco Homes Ltd [2022] NZHC 1438 at [58].
3 Nuwave Software Ltd v Objective Corporation Solutions NZ Ltd [2022] NZHC 2511 at [17] citing
Cowan v Cowan [2021] NZCA 463 at [12]–[15].
4 Shell (Petroleum Mining) Co Ltd v Kapuni Gas Contracts Ltd (No 4) HC Auckland CL5/94, 8 December 1995 at 7.
Should IRS be required to give security for its undertaking?
[24] IRS has provided recent financial statements (both in respect of its New Zealand business and the company as a whole) in support of its undertaking as to damages. In reliance on those statements and Mr Labbad’s evidence, Mr Edwards emphasised the following points for IRS:
(a)first, that IRS’ revenue from its New Zealand business for the 2023/2024 financial year was NZD $18,047,578 with a net profit of NZD $859,342;
(b)secondly, that IRS’ profits for its whole business were in the region of AUD $1.4 million for the year ended 31 March 2022 and AUD
$890,000 for the year ended 31 March 2023; and
(c)thirdly, that IRS’ stated profit from its New Zealand business for the 2023/2024 financial year was approximately [redacted] between what it would have to pay annually at fees of $15 and $15.50 to the defendants and what it presently pays (at $7 and $3.50), based on the number of reefers it serviced in the 2023/2024 financial year.
[25] On the strength of that information, Mr Edwards submitted the Court could be confident in IRS’ undertaking as to damages.
[26] The defendants’ case for security was advanced on what I apprehended to be four essential points. I take each in turn.
[27] The first argument advanced for the defendants was that IRS’s own case and evidence for interim relief called into question its ability to pay its undertaking as to damages. Mr Cooper KC for ContainerCo led the argument on this point.
[28] Mr Cooper emphasised that IRS seeks interim relief precisely because it says the defendants’ fee increases will render its New Zealand business “unsustainable” in the “short-term”. He also emphasised Mr Labbad’s evidence that IRS could not “really afford an injunction” and that even if IRS were able to pass the defendants’ increased
fees onto its customers, that it would nevertheless have cashflow issues because of when the defendants’ invoices would become payable. He referred to indications that IRS would “pull the pin” on its New Zealand business if it had to pay the defendants’ increased fees. While acknowledging that IRS was an international business, Mr Cooper observed that IRS’ New Zealand business profit appeared to comprise “substantially all” of the company’s total profit. For this reason, he said it was of little assurance that IRS operated in countries other than New Zealand.
[29] While I accept that IRS’ argument for interim relief relies on what it says will be imminently irreparable harm to its New Zealand business if the defendants’ full fees become payable, I consider the defendants’ reliance on this point to be misplaced. IRS’ concern is with its future financial viability, not its present solvency. It seeks to preserve the former in its application for interim relief.
[30] Importantly, the question before me is whether IRS is good for its undertaking in the event it fails in its application for interim relief. I consider that to be the proper ambit of the question because it will be for the Court in November to decide whether security should be ordered if it deems interim relief to be appropriate until the determination of IRS’ substantive claims. That is not least because the effect of ordering security may be to practically circumvent the interim relief that IRS seeks. It is that Court which will be better placed to assess the strength of IRS’ undertaking going forward, and to weigh that in assessing where the overall justice lies.
[31] Thus, the question for me is whether IRS is good for the difference between what it has been paying the defendants at fees of $7 and $3.50 per reefer and what it would be liable to pay at the defendants’ increased fees of $15 and $15.50 per reefer from February and April this year until the question of interim relief is decided. Given the likely date at which IRS’ application for interim relief will be determined,5 it is realistic that this amount will be less than that which it would need to pay if liable to pay the defendants’ increased fees based on the volume of reefers it serviced for the 2023/2024 financial year ([redacted]).
5 Given the hearing in 13 November 2024, it is likely that a decision would be made before 31 December 2024.
[32] While I acknowledge that Mr Labbad does not depose whether the profits made by IRS have been retained or paid out to Daikin by way of dividend, I consider it plain that IRS could meet that kind of damages payment. The financial reports provided to me show that IRS’ New Zealand business had a total equity for the year ended 31 March 2023 of NZD $2,560,727, with cash and cash equivalents of NZD $507,192 at the end of that year. Even more favourably, the financial reports for the entire company show a total equity for the year ended 31 March 2023 of AUD $10,040,578, with cash and cash equivalents of AUD $2,748,691 at the end of that year. In light of that financial backdrop, I consider IRS to be plainly good for its undertaking, financially. As Mr Edwards also rightly emphasised, any undertaking will be enforceable against IRS as a whole, and not merely its New Zealand business which is not a separate entity.
[33] The second argument for the defendants was that security was necessary to ensure they did not have to incur the costs and inconvenience of enforcing any judgment against IRS in Australia. While accepting that it was unlikely that enforcement would be altogether precluded, Ms Reed KC, for the Qube group, submitted that enforcement in Australia was a more difficult and less straight forward process as compared to enforcement in New Zealand.
[34] As with the first argument, I do not consider the prospect of enforcement in Australia to weigh in favour of granting security. First, as Mr Edwards submitted, there is no evidence to suggest that if IRS ceased its business in New Zealand, it would simply remove itself from the register of overseas companies, placing itself beyond reach of its creditors. More fundamentally however, I do not accept that enforcement via the Trans-Tasman Proceedings Act 2010 necessitates security in this case. While Ms Reed rightly highlighted that Australian Courts could refuse to register any judgment against IRS in New Zealand on the grounds that it was contrary to Australian public policy,6 she also rightly conceded that it was difficult to imagine practical examples of this.
6 Trans-Tasman Proceedings Act 2010, sch 1, art 5, para 6.
[35] The third argument for the defendants was that IRS’ risk of default should be borne by Daikin rather than the defendants, given Daikin would be the ultimate benefactor if IRS were to succeed in obtaining interim relief.
[36] Mr Cooper KC submitted that ordering security was fair, given Daikin’s financial resources. He submitted that its refusal to guarantee IRS’ undertaking, given how “simple and painless” this would be, was telling and cause enough for the Court to be concerned.
[37] While I acknowledge the apparent ease with which Daikin could guarantee any undertaking by IRS, I consider this too to be insufficient to justify imposing security against IRS. Daikin is a third party to these proceedings. Although it will be the ultimate benefactor of any relief that IRS obtains, there is no suggestion before me that it would set its subsidiary “adrift”.7 And, indeed, the directors of IRS would need to be satisfied on reasonable grounds that IRS could satisfy the solvency test immediately after any distribution to Daikin.8 Moreover, it does not necessarily follow that if the Court ordered IRS to provide security, this would have the effect of obtaining a guarantee from Daikin by proxy.
[38] The final argument for the defendants was that IRS had not sought its “interim interim” relief with clean hands, given its failure to mention its newly expanded container depot in Mangere (until its statement of reply) and Mr Labbad’s evidence indicating that IRS could not afford to open a container depot itself. On this point, Ms Reed referred to an affidavit of Robert Harvey, Qube’s Director of Operations for New Zealand, sworn on 18 July 2024. In it, Mr Harvey says he recently learned that IRS are opening a new, expanded container depot in Auckland. He says he learned this from a LinkedIn post made by Inbound Connect, a vehicle booking system company, announcing that:
IRS International Pty Ltd will use Inbound Connect’s technology platform to streamline the services it provides its clients and carriers at its new, expanded container depot in Mangere which offers the full range of container-related services.
7 Shell (Petroleum Mining) Co Ltd v Kapuni Gas Contracts Ltd (No 4), above n 4, at 8.
8 Companies Act 1993, s 52.
[39] Ms Reed submitted that IRS’ omission to mention this meant it came to the Court without clean hands. She submitted that this evidence undermined the strength of IRS’ case for interim relief, and called into question both whether such relief was necessary and whether its other evidence that it could meet its undertaking was credible. She also highlighted that IRS had provided no evidence in response.
[40] Mr Edwards explained that IRS had not filed evidence in response as it was simply irrelevant to whether it should be required to give security. He submitted however that it had responded to the allegations in its statement of reply by admitting that it had a container depot in Mangere but pleading that this depot was limited solely to storing lease and sale containers. As in its statement of reply, IRS maintains that it does not and cannot offer PTI or other services to its shipping line customers at its Mangere site due to capacity constraints.
[41] While Ms Reed was right to emphasise that IRS’ pleadings are not evidence, I cannot meaningfully resolve the contest of evidence/pleadings before me. And, at this interim juncture, nor is it preferrable to. As Mr Edwards submitted, it is too early to engage with the broader merits of IRS’ application for interim relief and the extent to which its Mangere-based container depot factors into the balance of convenience calculus. It is also too early to assess whether IRS’ apparent failure to have mentioned its Mangere container depot is so conscious as to preclude it from relying on this Court’s equitable jurisdiction, notwithstanding that I have real doubts that this could be so.
[42] In short, I do not accept this final argument for the defendants’ that security should be given by IRS.
[43]It follows that the defendants’ application for security is declined.
Result
[44] Mr Cooper confirmed that if security was not required, the defendants’ undertakings would remain in place until the determination of IRS’ application for interim relief. I accordingly confirm by consent that until further order of this Court the defendants will not:
(a)prevent IRS from having access to its container depots for the purpose of servicing its customers’ reefers, on the basis that it has not paid the full fee amounts that are the subject of this proceeding; and
(b)take any steps to enforce the payment of the increase in the defendants’ fees above the previously charged rates of $7 per reefer for ContainerCo and $3.50 per reefer for the Qube Group.
[45] IRS is entitled to costs. If costs cannot be agreed, memoranda not exceeding three pages excluding appendices may be filed by IRS within 10 working days of the delivery of this judgment, and by the defendants within 5 working days thereafter. I will then determine costs on the papers.
Moore J
Counsel/Solicitors:
Russell McVeagh, Auckland D J Cooper KC, Auckland
Dentons Kensington Swan, Auckland R S Reed KC, Auckland
Webb Henderson, Auckland
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