Mediaflow Limited v Marin

[2023] NZHC 2636

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2023-425-80

[2023] NZHC 2636

BETWEEN

MEDIAFLOW LIMITED

Plaintiff

AND

LUCAS MARIN

Defendant

Hearing:	On the papers
Appearances:	M R Walker and B B Gresson for Plaintiff
Judgment:	21 September 2023

JUDGMENT OF DUNNINGHAM J

This judgment was delivered by me on 21 September 2023 at 10.30 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

[1]    The applicant, Mediaflow Ltd (Mediaflow), has filed a without notice application for an interim injunction under s 164 of the Companies Act 1993 (the Act). The injunction is sought to restrain the respondent, Lucas Marin, from withdrawing more than $2,800 per month from Mediaflow’s bank account until further order of the Court.

MEDIAFLOW LIMITED v MARIN [2023] NZHC 2636 [21 September 2023]

Background

[2]    Mediaflow was incorporated on 7 July 2020. At the time, its directors were Mr Marin, David Akal, and Nahuel Lukomski. The three directors were also equal shareholders in Mediaflow.

[3]    Mediaflow was incorporated for the purpose of providing digital photo and video recording systems to tourism operators in the Queenstown District. As part of the operation of Mediaflow’s business, the directors created and developed the software and hardware for a digital video recorder (DVR) system. Mediaflow would then contract with tourism operators who would pay for the rights to use the DVR system.

[4]    Mr Akal says all three directors were involved in developing the business. He and Mr Lukomski left their previous employment and were working full time developing the DVR and media recording software. When Mr Marin joined them, Mr Akal and Mr Lukomski agreed to be responsible for installing, building and maintaining the hardware and system and dealing with clients and customer service, while Mr Marin focused on development of the backend software.

[5]    In or around July 2020, the directors agreed to pay themselves, as shareholders, remuneration of $2,000 per month for their work. On or around July 2022, the shareholders’ remuneration increased to $2,800 each per month.

[6]    In late 2021, conflicts arose between the directors regarding the operation of Mediaflow’s business. Mr Marin restricted access to Mediaflow’s software and source code hosted by Amazon Web Services, which meant Mr Akal was unable to view or use the software, or provide system installation, maintenance or client support, as those tasks required access to the software. In 2022, despite requests from the other directors, Mr Marin refused to restore Mr Akal’s access.

[7]    In September 2022, as a result of the breakdown in the parties’ relationship and the inability to effectively carry out Mediaflow’s business, Mr Akal and Mr Lukomski resigned as directors.

[8]Following their resignation, Mr Lukomski and Mr Akal say that Mr Marin:

(a)completely locked them out of the business;

(b)prevented them from accessing Mediaflow’s software;

(c)prevented them from accessing their individual Mediaflow email accounts and customer service email account;

(d)prevented their access to all Mediaflow’s resources and services; and

(e)prevented their access to Mediaflow’s bank account and financial information.

[9]    On 12 December 2022, Mr Marin, as sole director, entered into an employment contract between himself and Mediaflow which provided for a gross annual salary of

$500,000 per annum. It also provided for a payment of 12 months’ salary in the event of redundancy and included a clause expressly excluding Mr Marin from being subject to any restraint of trade. Mr Marin did not, as required under s 161(4) of the Companies Act 1993 (the Act), certify that, in his opinion, entering into that employment contract or making the payments pursuant to that contract were fair to Mediaflow.

[10]   At  the  time  the  contract  was  entered  into,  Mediaflow’s  turnover  from   1 December 2021 to 30 November 2022 was approximately $340,000, significantly less than the amount payable to Mr Marin under the contract.

[11]   On 2 February 2023, Mr Marin incorporated a company named Mediaflow Group Ltd of which he was the sole director and shareholder. After Mr Akal raised concerns as to the incorporation of this company, Mr Marin removed it from the Companies Register.

[12]   On 6 June 2023, Mr Akal and Mr Lukomski called a meeting of shareholders and resolved to reinstate themselves as directors. Although Mr Lucas was given notice of this meeting, he did not attend it.

[13]   At a subsequent Board meeting on 23 June 2023, which all three directors attended, Mr Marin advised he considered his salary was justified by an employment contract he entered into with Mediaflow. He also asserted he owned the source code for Mediaflow’s software which is why he did not have to provide the other directors access to it.

[14]   At a subsequent Board meeting on 28 June 2023, Mr Marin agreed to reduce his salary to $180,000, which the other directors still maintain is excessive. Mr Marin maintained his stance that he owned the source code because he had “rewritten” it.

The proceeding

[15]   Mediaflow’s statement of claim asserts that Mr Marin, as director of Mediaflow, was required under s 161(4) of the Act to sign a certificate stating that, in his opinion, entering into the contract and the payments made pursuant to that contract were fair to the company and give the grounds for that opinion. He did not do so. He also continues to withhold all access to the company’s software, intellectual property and other information from Mr Akal and Mr Lukomski, which Mediaflow alleges breaches its ownership rights in that intellectual property.

[16]   The application for an injunction seeks to restrain Mr Marin from taking more than $2,800 per month from Mediaflow’s bank account as remuneration. Mediaflow says this is what is required to allow the company to remain solvent pending the determination of the substantive causes of action set out in the statement of claim.

Discussion

[17]   Under s 164 of the Act, which the applicant relies on, the Court may make an order restraining a company that, or a director of a company who, proposes to engage in conduct that would contravene the constitution of the company or the Act from engaging in that conduct.

[18]   I am satisfied on an interim basis that it is clearly arguable there has been a breach of the Act in that Mr Marin has not complied with the requirements of s 161 of the Act. He has not signed a certificate stating that the making of the payment or the

entering into of the contract entitling him to payments of $500,000 per annum is fair to the company, nor has he provided the grounds for any such opinion. It is also arguable on its face that payments which exceed the company’s total turnover would not be fair to the company and would jeopardise its solvency. The position with the amended payments of $180,000 is less clear.

[19]   Under s 164, I can only restrain future conduct. It is for the substantive proceedings to determine whether payments made to Mr Marin to date were unauthorised and can be recovered.

[20]   As this is a statutory injunction, although I can have regard to the usual equitable considerations, I must ensure that the grant of the injunction achieves the statutory purpose of restraining contraventions of the Act. As Keane J observed in JJ International Ltd v Streetsmart Ltd:1

The jurisdiction to be exercised is not ancillary to that in equity. Conferred as it is by the Companies Act, it is independent. The Court is not confined to the usual considerations in equity.

[21]   In this case, the injunction seeks to stem the outflow of money which appears not to have been properly authorised by the company under s 161. Traditionally, claims involving monetary sums are not amenable to injunctions where the assumption is the wrongdoing can be addressed by an award of damages.2 However, in this case, there is a concern about the solvency and, therefore, the very existence of the company should such payments continue.

[22]   However, there is a real question mark over what the company can afford, as is evident from the minutes of the Board meetings on 23 and 28 June 2023. Furthermore, there is the complication that under s 161(1) of the Employment Relations Act 2000, the Employment Relations Authority has exclusive jurisdiction over employment relationship problems.3 In FMV v TZB, the Supreme Court recorded that where a director is also an employee (or claims to be), there can be disputes which

1      JJ International Ltd v Streetsmart Ltd (2005) 2 NZCCLR 255 (HC) at [19].

2 At [26].

3      FMV v TZB [2021] NZSC 102, [2021] 1 NZLR 466 at [92].

arise in both the Employment Relations Authority and the ordinary courts.4 The overlap here between the directors’ duties under the Act and the purported employment relationship Mr Marin has with the company complicates the issue of what this Court can do to intervene in a contract which is, on its face, an employment agreement.

[23]   For these reasons, I am  not  prepared  to  make  an  order  without  notice.  Mr Marin should be heard on the matter. I direct that Mr Marin is to be served promptly with the application. Any notice of opposition to the interim injunction is to be filed, along with any supporting affidavit, within 10 working days of service of the application.

[24]   If such opposition is filed, the matter is to be scheduled for a telephone conference, in order to make timetabling orders to an urgent hearing on the interim injunction application.

Solicitors:
Todd & Walker Law, Queenstown

4 At [102].