McClean & Co Limited v Malloch McClean Limited

[2016] NZHC 875

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2016-425-000054 [2016] NZHC 875

BETWEEN

MCCLEAN & CO LIMITED

Plaintiff

AND

MALLOCH MCCLEAN LIMITED Defendant

Hearing:	2 May 2016 (by way of telephone conference)
Appearances:	D M Lester for Plaintiff G L Wilkin for Defendant
Judgment:	3 May 2016

REASONS FOR JUDGMENT OF GENDALL J

Introduction

[1]      The plaintiff, McClean & Co Limited (which I understand is largely owned or controlled by Lindsay Robert McClean (Mr McClean), has applied for an interim injunction against Malloch McClean Limited, the defendant (the company), seeking orders regarding what  they say is the company’s wrongful cutting of  IT access following the sale and purchase of portions of an accountancy practice business.

[2]      This matter was heard on an urgent basis by telephone conference yesterday,

2 May 2016, and submissions were provided on behalf of the plaintiff and on behalf of the company.

[3]      Following that hearing I ruled that the plaintiff ’s application for an interim injunction failed and was dismissed.  In doing so I indicated that my reasons for this

decision would follow.  I now give those reasons.

MCCLEAN & CO LIMITED v MALLOCH MCCLEAN LIMITED [2016] NZHC 875 [3 May 2016]

Background facts

[4]      Under an agreement for sale and purchase of shares (the sale agreement) entered into between Mr McClean and a family trust associated with him as vendors, Campbell John Hay (Mr Hay) as purchaser, and the company, Mr McClean and the trust sold their shareholding in the company which operated accountancy business practices in Invercargill, Southland and Queenstown.

[5]      As part of the sale agreement, Mr McClean and his trust had an option to purchase back from the company the Queenstown clients of the business.   They exercised this option using the plaintiff as a “Related Company” to effect the transaction, and the purchase back of the Queenstown clients took place on 1 April

2016.

[6]      Under that portion of the sale agreement relating to the buy-back of the Queenstown clients by the plaintiff as Mr McClean’s Related Company, a provision had  been  included  giving  to  the  plaintiff,  once  this  option  was  exercised,  paid “IT support” from the company for a period of six months.  In particular clause 5.6 of the sale agreement provided specifically:

If the option (for purchase of the Queenstown clients) is exercised the company agrees to provide IT support to the vendor for a period of six months.  The vendor shall pay the company for the IT support provided by the company at a price that covers the company’s cost of providing the same.

For  the  purposes  of  this  provision,  the  expression  “the  vendor”  it  seems  was

regarded as the plaintiff here.

[7]      Settlement  and  takeover  of  Mr  McClean’s  and  his  trust’s  shares  in  the company by Mr Hay and completion of the buy-back of the Queenstown clients from the company by the plaintiff took place, as I understand it, on 1 April 2016.

[8]      Initially,  from  that  date  it  seems that  Mr McClean,  who set  up  his new Queenstown accounting practice under the plaintiff’s name, simply continued to operate using the company’s entire computing setup including its server, databases, the company’s internet access and the like.  These parties who, as I understand it,

were previously partners in the same accountancy practice, had at that time maintained a reasonably friendly and co-operative relationship.

[9]      From  about  the  middle  of  April  2016,  however,  the  company  says  it endeavoured to make arrangements with Mr McClean and the plaintiff for them to set up a separate server and their own computer arrangements, including email and internet access and the like.  The company maintains that Mr McClean at every step effectively thwarted this both on his own behalf and for the plaintiff.   They made no attempt, it is said, to do anything other than continue fully using the company’s computer, databases, accounting records (both client and personal) and the like.

[10]     Finally, the company said that, out of desperation last week, it unilaterally cut off IT access for Mr McClean and the plaintiff to the company’s computer arrangements.

[11]     Mr  Lester,  counsel  for  the plaintiff,  then wrote  to  the company alleging breach of clause 5.6 of the sale agreement.  Mr Lester demanded that the company immediately restore internet/email/APS Virtual Cabinet and all other relevant software access to the plaintiff and Mr McClean.

[12]     In response, the company argued that full and unfettered continuing access and use of the company’s entire computer system, as the plaintiff and Mr McClean were demanding, was inappropriate and certainly something that was not provided for  under  the  sale  agreement.    The  company  maintained  that  “IT  support”,  as provided for in clause 5.6 of the sale agreement, did not mean that Mr McClean and the plaintiff must have complete access to the company’s entire computer system and database.   The company submitted that, as it was a private accounting practice, unlimited access could well lead to real issues of client confidentiality, corruption and unwarranted third party access.

[13]     Also of relevance here appears to be a dispute which had developed between the parties over the cost of extracting the Queenstown clients database from the overall company database, which included Invercargill and Southland clients.  The company maintains that due to the plaintiff’s and Mr McClean’s delayed response

and refusal to engage on these computer issues throughout April 2016, together with their unwillingness to pay or contribute towards the cost of extraction of this data, the opportunity to have outside computer consultants complete and transfer this

material to a new database was lost.

[14] Mr M	As   I cClean w (a)	understand   the   position,   the   software   which   the   plaintiff   and ished to access specifically here includes the following: Outlook – on this the company rejects the plaintiff’s access request on
the    grounds    that   it    is    said    it    includes    confidential    client
correspondence.    The company says  also  it  has  already requested Mr McClean and the plaintiff to set up their own email account which
to date they have neglected to do.
(b)	APS – this, as I understand it, is the data of the accounting firm’s
clients’ financial  records.    The  company  has  said  it  is  willing  to transfer this data relating to the Queenstown clients once agreement is
reached with the plaintiff concerning the costs of extraction.
(c)	Virtual Cabinet – as I understand it, this is the database that holds
clients’ information.    On  this  the  company  says  it  has  agreed  to

transfer all data of the Queenstown client database once the plaintiff advises the form in which it wants the files.  I understand this has not

occurred to date.

The law

[15]     The principles relating to interim injunctions are well understood.  The Court must be satisfied that:

(a)       There is a serious question to be tried in the proceeding; and

(b)      The balance of convenience favours the grant of relief sought.1

1      American Cyanmid v Ethicon Ltd [1975] AC 396.

[16]     These two questions, and the issue of whether or not therefore damages may be an adequate remedy, however, are not exhaustive.   In every case a Judge must finally stand back and ask where the overall justice of the case lies.2

Analysis

Is there a serious question to be tried?

[17]     Here, Mr Lester for the plaintiff indicates that the initial cause of action against the company is brought in contract.  This is in the sense that the company is alleged to be in breach of clause 5.6 of the sale agreement in that it has failed to “provide IT support to the vendor (the plaintiff here) for a period of six months” from 1 April 2016.  In addition, Mr Lester maintains that, given what the company provided and charged to the plaintiff during April 2016, the first month following the sale of the Queenstown clients, the plaintiff also has an available action against the company in estoppel, for misrepresentation or for misleading and deceptive conduct under the Fair Trading Act 1986.

[18]     A real question at issue here must be whether “IT support to the vendor for a period of six months” as provided for in clause 5.6 of the sale agreement equates to what has been full access to the company’s IT system.

[19]     On this, the ordinary meaning of the word “support”, in my view, means to give assistance.   The Chambers Dictionary3  definition of “support” includes the following:

To bear the weight of; to hold up; to endure; to sustain; to maintain; to keep going; to corroborate; to make good; to uphold; to backup; to second; to contend for; to represent in acting; to maintain a loyal interest in the fortunes of (especially a sporting team)…

[20]     As I see the position, to provide IT support is different from providing “IT access”.  The provision of IT support, in my judgment, does not necessarily allow a party full and unimpeded access to a third party’s entire IT system which is what the

plaintiff and Mr McClean contend for here.

2      Klisser Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA).

3      Chambers Dictionary 11th Ed.

[21]     I do acknowledge that before me Mr Lester suggested that, if the previous arrangement through April for the plaintiff to  have access to the company’s  IT system should properly continue, then Mr McClean and the plaintiff would be happy to provide suitable undertakings for the protection of the company, and the confidential and personal information of its own clients and the company’s personal records.  That, however, in my view does not answer the real issue in this case.  This is whether the provision of “IT support” as outlined in the sale contract envisages full access to the company’s entire computing system for the six month period in question.

[22]     And, in my judgment, I need to go further and express my view that it is clearly not unreasonable for the company here to wish to protect the integrity and confidentiality of its IT system.  In selling their shares in the company, Mr McClean and his trust effectively sold any rights they may have had to access the company’s computing arrangements and internal records.  The arrangements with regard to the Queenstown clients taken over by the plaintiff and Mr McClean envisaged, as I see it, a new server and computing facilities being arranged by them without delay (as indeed  they  would  have  been  required  to  do  with  other  setup  matters  such  as premises lease, furniture, telephone and similar arrangements for their Queenstown operation).  The company would then assist the plaintiff and Mr McClean in an IT support function with regard to that new operation involving the Queenstown clients taken over, but not with regard to the bulk of the company’s continuing business which remained with it.

[23]     In this case, in seeking the mandatory injunction which it does, the plaintiff, as a rival accountancy business in the general region, might be said, at one level, to be somewhat strangely endeavouring to maintain for a five month period continued access to all the computing records of its competitor, the company.   This would necessarily include access to the rival client database, to those clients’ accounting records and to the company’s own personal financial records.  These are not matters which in any event are appropriately dealt with here on an interim injunction status quo basis.

[24]     One other matter also is of some significance here.  During the hearing of the present  application  Mr  Wilkin,  counsel  for  the  company,  proposed  a  practical solution to the current problem that had arisen.  On the instruction of the company, the company’s outside computing consultants, APS, were apparently now in the process of putting together and providing a separate server for the use of the plaintiff and Mr McClean.   This would give them electronic access to the database for the Queenstown clients.   Mr Wilkin confirmed that the computer consultants said this new database would be available for the plaintiff for the commencement of business tomorrow, Wednesday, 4 May 2016. The new database would also allow the plaintiff and Mr McClean to do all the things they reasonably required with respect to the Queenstown clients the plaintiff had purchased under the buy-back agreement.

[25]     In addition, Mr Wilkin confirmed that, in terms of the six months IT support arrangement under clause 5.6 of the sale agreement, the company undertook that henceforth the plaintiff need simply ask for anything it reasonably needed for this Queenstown clients database or otherwise, and this would be provided by the company.   Mr Wilkin said that the company effectively undertook to provide all these arrangements as part of what it saw as a pragmatic and practical solution to resolve this matter.

[26]     Mr Wilkin said that it was never envisaged that, for the entire six month period in question, the plaintiff and Mr McClean would, for example, have unlimited internet access and database access through the company and use no personal email address but have everything circuited through the company’s email address and the like.  Although this had largely occurred for some weeks after 1 April 2016 this was essentially an indulgence on the part of the company and not in accordance with what  it  was  required  to  do  under the buy-back  agreement.    Instead  Mr Wilkin confirmed that the plaintiff, of course, is entitled to ongoing IT support and will get that for the six month period but that this does not equate to carte blanche access to the company’s computing system.  It was always envisaged, Mr Wilkin says, that the plaintiff would need its own computing systems in place, which would then be the subject of IT support from the company when reasonably requested.

[27]     In  my view this practical solution suggestion advanced  on behalf of the company is an entirely appropriate one here.  Effectively, it would be in place from the start of business tomorrow, 4 May 2016.

Where does the balance of convenience lie?

[28]     Given my conclusions on the legal entitlement to IT support here, and what that entails, and my comments regarding Mr Wilkins’ suggested practical solution advanced as outlined above, I am satisfied that the balance of convenience in this case, must favour the company. Although the plaintiff claims that it is effectively out of business at the moment because it has no computer access, given the practical solution  proposed  by  Mr  Wilkin  and  noted  at  para  [24]  above,  this  would  be remedied by the start of business tomorrow, 4 May 2016, and thus little, if any, prejudice would be caused to the plaintiff in refusing the injunction it seeks here.

Where does the overall justice lie?

[29]     The company, in my view, has generally acted reasonably in its approach to the plaintiff and Mr McClean throughout this matter.   There are real and obvious concerns with allowing complete and open access into the company’s accounting business internal IT system and software as the plaintiff seems to require.   The plaintiff has had a period of about one month, as a minimum, to set up its own email address and eventually a computer and software system of its own.  It seems it has taken  no  steps  to  do  so.    The  company  itself,  to  its  credit,  has  now  made arrangements for a separate server for the plaintiff’s use to be available from tomorrow, 4 May 2016.

[30]     I  am  satisfied  too  that  overall,  the  provisions  of  clause  5.6  of  the  sale agreement do not entitle the plaintiff to demand complete and uninterrupted access to the company’s entire computing system as “IT support” for the six months period in question.  If that full access may have happened during most of April 2016, in my view, that was a simple indulgence granted by the company to assist the plaintiff and Mr McClean and the plaintiff simply took advantage of this.

Conclusion

[31]     For all these reasons, the application by the plaintiff for an interim injunction against the company failed.

[32]     Costs are reserved.  If counsel are unable to agree between themselves on the issue of costs they may file memoranda sequentially which are to be referred to me and, in the absence of either party indicating they wish to be heard on the matter, I will decide the question of costs based on the material then before the Court.

...................................................

Gendall J

Solicitors:

Dale Lester, Christchurch

AWS Legal, Invercargill