Medtech Limited v Valentia Technologies (NZ) Limited

[2024] NZHC 1618

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-3051

[2024] NZHC 1618

BETWEEN

MEDTECH LIMITED

Plaintiff

AND

VALENTIA TECHNOLOGIES (NZ) LIMITED

Defendant

Hearing:	29-30 May 2024
Appearances:	A J Lloyd, J J K Spring, and O Sutton for Plaintiff K T Glover and D T D Horton for Defendant
Judgment:	20 June 2024

JUDGMENT OF ANDERSON J

This judgment was delivered by me on 20 June 2024 at 3.00 pm pursuant to r 11.5 of the High Court Rules 2016.

.………………………….. Registrar/Deputy Registrar

Solicitors:Minter Ellison Rudd Watts, Auckland Create IP, Auckland

MEDTECH LTD v VALENTIA TECHNOLOGIES (NZ) LTD [2024] NZHC 1618 [20 June 2024]

[1]    In this judgment I address the defendant’s (Valentia’s) application to rescind the preservation orders I made in this proceeding on 21 December 2023 on a without notice application by the plaintiff (Medtech).1 I will address the other argument I heard with the application to rescind (Medtech’s application for an interim injunction) in a separate judgment.

[2]    The parties are competitors in the provision of patient/practice management software to medical practices (PMS). Medtech’s products are Medtech32, and a more recently released product, Medtech Evolution. Valentia’s product is called indici. Medtech currently has 70 per cent of the market. Valentia has 17 per cent. PMS is used for patient record keeping and practice management at GP office practices and other health care providers.

[3]    Medtech has issued proceedings against Valentia alleging breaches of intellectual property rights, interference with contractual relations, breach of confidence, breach of a settlement of earlier litigation, and misleading conduct under the Fair Trading Act 1986.

[4]    The source of Medtech’s concerns is what occurs in two contexts. The first is what happens when Valentia migrates customers from Medtech’s PMS to Valentia’s indici software when the customers change provider. The second aspect relates to Valentia’s operation of a cloud-based software known as the Shared Electronic Health Record (SEHR) Extraction Utility Tool. Under contract to primary health organisations (PHOs), Valentia uses this tool to extract and process patient information, some of which is then held in a central database for access by a range of health providers. Participating medical practices install the SEHR tool, which then operates on whatever PMS the medical practice is using, including Medtech’s.

[5]    Among other allegations, Medtech contends that when data is migrated or extracted from Medtech’s PMS in both these contexts, Valentia has then used or copied Medtech’s database schema and structure in its indici software.

1      Medtech Ltd v Valentia Technologies (NZ) Ltd HC Auckland CIV-2023-404-3051, 21 December 2023.

Preservation orders

[6]    I made preservation orders on a without notice basis having formed the view that there was a proper basis to make such orders. The orders were made expressly on the basis of leave to apply to vary them.

[7]    The preservation orders were aimed at preserving a snapshot of the present version of Valentia’s software and associated intellectual property and operating environment so that Medtech could assess whether there had been a breach of its rights. The order included an obligation to copy materials which I described in my associated minute as an order ancillary to the preservation order. I made the orders in aid of discovery in the litigation given how readily software could be changed and hence the risk, as I saw it then, of dissipation or destruction. I did not have information on Valentia’s change processes and to what extent undocumented inadvertent or deliberate amendments could occur.

[8]    Unusually, Valentia’s application to rescind or vary the orders came before the Court nearly six months after the orders were made. The background to why there has been that delay is not relevant.

[9]    However, because of the delay pending hearing, in February this year Medtech sought “interim interim” orders. From Medtech’s perspective these were directed at preserving the position on the preservation orders pending the hearing of Valentia’s rescission application. By then it was evident this was going to be some months away and the recission application meant that the orders were not going to be complied with in the meantime.

[10]   I declined Medtech’s application because I considered that, in light of the information I then had, interim undertakings given by Valentia provided an appropriate balance between preserving Valentia’s position should its application to rescind succeed, and preserving Medtech’s position if the orders were not rescinded.2

[11]The undertakings were as follows:

2      Medtech Ltd v Valentia Technologies (NZ) Ltd [2024] NZHC 191.

Valentia is treating the following material as potentially discoverable in terms of Rule 8.3:

(a)indici PMS source code;

(b)SEHR portal source code;

(c)SEHR hook source code;

(d)SEHR SQL query store, which stores executable queries;

(e)migration hook source code;

(f)indici PMS production database schema (also called MSSQL DB source script);

(g)SEHR production database schema (also called MSSQL DB source script);

(h)data migration database schema (also called MSSQL DB source script); and

(i)                   document decompression utility, (together, Valentia materials).

Valentia undertakes that it has complied with and will continue to comply with its obligations under Rule 8.3 at all times, and in particular that:

(a)it has preserved the Valentia materials in the forms that they have been used in relation to New Zealand medical practices;

(b)where amendments have been or will be made to any of the Valentia materials, copies will be kept of each iteration of the Valentia materials so that they are all available for disclosure as part of discovery (if necessary); and

(c)it will not amend any of the preserved copies of the Valentia materials or automatically generated logs or software repositories relating to the Valentia material.

[12]   Valentia has confirmed that it would not oppose a discovery order requiring it to discover the above material, consistent with its undertaking that it was treating the material as potentially discoverable.

[13]   Since the without notice application, I have had substantial additional fact and expert affidavit evidence on the application to rescind and an interim injunction application heard at the same time. There are criticisms of the expert evidence filed, particularly Medtech’s concern that Valentia presented its expert evidence in the form of a joint affidavit of two experts. Ultimately, Mr Lloyd did not contend that the

evidence should not be read. I intend to address the nature of this evidence in my judgment on the interim injunction. For present purposes it is enough to say that I have found all the expert evidence helpful in what is a densely technical context, and in an interlocutory context.

Grounds for application to rescind

[14]Valentia applies to rescind the preservation orders on the following grounds:

(a)there was material non-disclosure by Medtech in its without notice application;

(b)alternatively, the order should not be now continued:

(i)as it is unnecessary;

(ii)due to Medtech’s conduct following the orders being made; and

(iii)based on practical difficulties with complying with the part of the order that relates to the “virtual environment”.

Legal principles

[15]   In my minute granting the preservation orders I said the following about the basis for such an order:3

[7]        The plaintiff applies for a preservation order relying on HCR 7.55. In my view the broadly worded rule extends to facilitating orders as to the preservation of purely evidential material, as is sought here.

[8]        McGechan on Procedure comments that HCR 7.55 does not provide guidance for when an order is appropriate but refers to the need for “good reason” for the order, which will be the case where the property is at risk. Applying that approach there is ‘good reason’ for the reasons I come to. As Williams J said in Helicarr Helicopters Ltd v Watts the threshold is not that of an interim injunction, but nonetheless the applicant would need to establish a “proper basis” for the making of such an order. Here I am being asked to make the orders without notice. With that added dimension, I now turn to the detail of the application.

3      Medtech Ltd v Valentia Technologies (NZ) Ltd, above n 1, (footnotes omitted).

[16]   I continue to consider that the test is whether there is (or was) a “proper basis” for making the order.

[17]   Rule 7.49 of the High Court Rules 2016 permits a party impacted by an interlocutory order to apply to the court to vary or rescind the order if that party considers the order or decision is wrong. An application to rescind a without notice order is a hearing de novo of the original application. The onus remains on the party who made the original without notice application.4

[18]   The approach to setting aside such an order on the basis of non-disclosure was outlined by Campbell J in Green Way Ltd v Mutual Construction Ltd and Leaders Hawkes Bay Ltd v Pienaar.5

[19]   A without notice order should only be rescinded in exceptional circumstances.6 Material non-disclosure will not automatically meet the exceptional circumstances threshold.7 Where there has been material non-disclosure, it has been suggested that the offending party is “in mercy before the court”, the court able to use its discretion as to whether to rescind or continue the order, or to make a new order on terms.8 The court should review the merits of the application in light of all the evidence before it.9 The discretion to continue the order may be exercised if the non-disclosure was innocent and the order could properly be granted had the facts been disclosed.10

[20]   Counsel for Valentia took me through the specific facts of Green Way as an instructive comparable case to the present where full disclosure was found not to have been made. Counsel for Medtech disagreed the cases are similar. I do not find it particularly helpful to undertake a “compare and contrast” exercise on what is fundamentally a case specific enquiry.

4      Carter Holt Holdings Ltd v Fletcher Holdings Ltd [1980] 2 NZLR 80 (HC) at 84; Ron West Motors Ltd v Broadcasting Corporation of New Zealand (No 2) [1989] 3 NZLR 520 at 523; and Kennedy Point Boatharbour Ltd v Barton [2022] NZHC 257, [2022] 2 NZLR 696 at [15].

5      Green Way Ltd v Mutual Construction Ltd [2021] NZHC 1704; and Leaders Hawkes Bay Ltd v Pienaar [2021] NZHC 1925.

6      Green Way Ltd v Mutual Construction Ltd, above n 5, at [76].

7 At [77].

8      At [77] citing Brink’s Mat Ltd v Elscombe [1988] 1 WLR 1350 (CA) at 1357.

9      Leaders Hawkes Bay Ltd v Pienaar, above n 5, at [63].

10 Green Way Ltd v Mutual Construction Ltd, above n 5, at [77] citing Brink’s Mat Ltd v Elscombe, above n 8, at 1357.

Non-disclosure?

[21]   There are five aspects to the non-disclosure assertion. Ultimately, I do not find any of them sufficiently compelling to conclude that there has been a breach of the obligation to make full and frank disclosure.

[22]   The first is that Medtech failed to disclose certain matters relating to previous proceedings the parties had been engaged in in 2018. Those alleged are:

(a)That Medtech failed to disclose that when served with those proceedings Valentia acted responsibly and took immediate steps to preserve relevant documentation and give fulsome explanations.

(b)That Medtech abandoned its interim injunction application in those proceedings.

(c)That Medtech’s statement of claim in those proceedings had not been properly particularised.

[23]   The first issue, that I was not told Valentia had acted responsibly in the previous proceedings, is highly subjective. Putting that to one side, the gist of Valentia’s complaint is about whether it has acted appropriately since then. As to the other two points, abandonment of the application for interim injunction, this was in the context of settlement of the proceeding and would have been of no particular materiality in considering Medtech’s application for without notice orders. Nor is the alleged lack of particularisation of the prior claim of moment to whether a preservation order ought to be made.

[24]   Second, Valentia pointed to a failure to disclose that it had been working cooperatively with a medical practice that had issued proceedings against it relating to migration from Valentia to Medtech (Pinacle Proceeding). It is said Medtech wrongly asserted that Valentia was refusing to provide its data to the medical practice when that was (and is) not the case. This is a further allegation that Medtech has characterised Valentia as being uncooperative or acting in a way that should count against Valentia, when it should not have done so. However, the evidence before me is not clear

whether Medtech was sufficiently up to date with offers made by Valentia in the Pinacle Proceeding and hence whether there was any failure to disclose. In any event, the Pinacle Proceeding has only contextual relevance to the current proceeding.

[25]   Valentia also says Medtech ought to have disclosed that it had obtained documents relating to the medical practice involved in the Pinacle Proceeding in breach of confidence to Valentia. This was in substance information about how Valentia migrates business. I have insufficient information to consider whether that contention is made out. In any event, I do not consider this is a matter Medtech can be criticised for failing to disclose given that this is a legal conclusion on a collateral issue.

[26]   A further issue raised is that Medtech did not disclose that it was able to view what data Valentia extracts using the SEHR software and so had visibility over the property it sought to be preserved. Medtech’s evidence is that it only has such visibility if a medical practice gives it permission to interrogate the Medtech software loaded at the practice. As well, the ability to view what data Valentia extracts does not give Medtech visibility over the property that is the subject of the preservation order but rather simply what data is being extracted.

[27]   Valentia also asserts that Medtech did not disclose extensive correspondence that it exchanged with Valentia via Procare (one of the PHOs) in late 2021 and early 2022 regarding what queries were run for SEHR and that Valentia cooperated and made adjustments to the queries, as requested by Medtech at that time. The material before me did include a reference to adjustments that had been made by Valentia.

[28]   More substantively, Medtech’s position in the proceeding as outlined at the time of the application for without notice orders, was that Medtech had in fact enlarged the scope of its data extractions since the 2021/2022 events. It is Valentia’s asserted conduct since those events that is the core of the application, so I would not have been assisted by learning that it was cooperating prior to this. That is, Medtech’s point is that Valentia had acted contrary to what it had indicated it would do back then. I do not comment whether that is right or wrong for present purposes, but it undermines the need to disclose the material Valentia referred to.

[29]   Finally, Valentia referred to certain commercial developments that were in the pipeline affecting whether the SEHR hook will continue to be used on Medtech PMS after mid-2024. Those matters were not material to whether a preservation order of Valentia’s software ought to be made. That order was for the purpose of Medtech identifying any breaches of intellectual property rights by Valentia in the software at that point in time, not about what might happen commercially in the future.

[30]   In summary, I am not satisfied there was a failure to make full and frank disclosure. The first ground for rescinding the order fails.

Medtech misconduct after the orders were made

[31]   Valentia is highly critical of press releases Medtech made in late December 2023 or early January 2024. Those press releases included publication of passages of my 21 December 2023 minute but did not refer to the necessarily qualified nature of my decision, specifically, that it had been made without hearing Valentia’s side of the story.

[32]   Valentia characterises the publication of the orders in this way as opportunistic and alleges that it caused Valentia significant prejudice to its reputation and relationships with customers and others in the healthcare industry. Valentia says that Medtech being granted the preservation orders has given it a platform to spread unfounded allegations in the market, to disrupt Valentia’s business and seriously damage Valentia’s reputation. Valentia says Medtech has followed a “fear, uncertainty and doubt” strategy rather than competing with Valentia on the merits of their respective products.

[33]   Valentia points to Medtech losing market share to Valentia and to evidence from which Valentia has inferred that Medtech will not be continuing with its Medtech32 product beyond 2025. This is said to mean that Medtech’s licensees will be faced with an opportunity to either upgrade to Medtech Evolution or change PMS provider, giving rise to a churn of business to Valentia.11    Valentia suggests  Medtech

11 Valentia initially raised an issue in this context that Medtech is unable to migrate customers back from another software provider to it without a native version of the data, as opposed to a “CSV” file.  Given the consequences of this for Medtech if it was correct, Valentia said it supported

is meeting this upcoming competitive challenge by the publicity it can extract from this proceeding.

[34]   A fair reporting of the orders I made ought to have included the fact that the orders were made without hearing from Valentia. The emails Valentia received do suggest a concern in the marketplace at the orders made. However, I am not prepared to infer an improper motive or ulterior purpose by Medtech for issuing and pursuing these proceedings, including on a without notice basis. The parties plainly have a very different perspective of the merits of their respective positions. I am not able to conclude that Medtech is other than genuine in the claims it has made. Whether those claims will ultimately succeed is a different issue but not one I can resolve in this judgment. I also record that Medtech’s evidence is that it will continue to support the Medtech32 product. Valentia’s evidence as to Medtech’s plans for Medtech32 is said to be speculation.

Substance of the order

[35]   I now move to the crux of the matter from my perspective as to whether I should rescind or vary the order.

[36]   The orders were made to ensure, for Medtech’s benefit, that there was no opportunity for the defendant to “cover its tracks” (as Medtech put it) if Valentia had been contravening Medtech’s intellectual property rights. The without notice basis of the orders was justified on the grounds of the information available to the Court at that time, given that purpose. The orders were intended to preserve the software and associated material in its present form in a manner that a search order would12 but without the intrusion and invasiveness of such an order.13 As I stated in the minute, I see the order as going little further than the obligation of a party to preserve documents for discovery, but required Valentia to take the action of taking and retaining a copy of the present version of the software and operating environment for that purpose.

contentions of improper motive for the proceedings. However, both parties from the bar have confirmed that each of them can implement migration to their software using only a CSV file. Medtech qualifies this to say it is possible to do so but much preferable for the medical practice if the native file is provided.

12 High Court Rules 2016, r 33.2.

13 Compare Fieldforce (NZ) Ltd v Auchterlonie (1994) 7 PRNZ 563.

[37]   At the time I made the orders, I was advised that Medtech’s solicitors had worked closely with PWC to make the orders as targetable and achievable as practicable, while ensuring they served the purposes of enabling Medtech to test its claims. The understanding at the time I made the orders was that they could be complied with readily, in a matter of hours. Mr Lloyd for Medtech acknowledged then that this could not be guaranteed given Medtech did not have insight into Valentia’s software and operating environment. To address this, the orders enabled Valentia to return to the court, as would be usual in this context in any event.

[38]Accordingly, the two assumptions behind the orders were:

(a)That the orders were necessary and appropriate because of the potential for inadvertent or deliberate untraceable changes to the software.

(b)That the orders could be implemented without affecting in a material way the operation of the software or end users and could be complied with readily.

[39]   From the evidence that has been filed by Valentia I am satisfied that Valentia’s change processes are such that there is no realistic risk of deliberate or accidental alteration of Valentia’s software in a manner that would justify a preservation order. That is, there is no sensible risk of “destruction” or “dissipation”, applying those concepts by analogy to software/documents. In retrospect, it was unnecessary to make a preservation order at the time, without notice, given this was to avoid that risk.

[40]   I have also now had evidence from Valentia’s principal and from independent experts engaged on Valentia’s behalf in the proceeding. This evidence outlines the complexity and significant practical difficulties with Valentia taking a copy of its “virtual environment” (being the aspect of the preservation orders that is not subject to the undertakings Valentia has given).

[41]   Valentia’s evidence was initially based on the “virtual environment” including patient data being preserved. However, its subsequent evidence confirmed that the difficulties in preserving the environment would not be resolved if the data was not

required. The concerns include that such a task has never been carried out before which exposes the systems to risk of breach. Valentia says that such a task would require extensive planning, dedication of resources, substantial cost,14 and the purchase of hardware and software.

[42]   Such an undertaking is very different than the implementation of orders I was assuming in December 2023 in which the Court understood that the orders could be complied with readily “over the course of a few hours”.

[43]   Medtech is sceptical at Valentia’s responses in its affidavits. There has been a further reply by Medtech to matters raised by Valentia as to the ease of compliance, which Valentia has not had the opportunity to respond to. However, only Valentia has the knowledge of its own systems. Medtech’s scepticism should be seen in the context of its acknowledgement when I made the orders that it could not be assured whether the orders could be complied with readily, in light of the fact that it did not know how Valentia operated.15

[44]   As to the materials the subject of the first part of the orders now sought, Valentia has provided undertakings to preserve this material. I do not consider that there is any basis for maintaining a preservation order which goes no further than the undertakings already given.

[45]   Having said that, Valentia has said it would consent to a discovery order but is opposed to discovery being done in a piecemeal way and in a way that is asymmetrical.

[46]   It seems to me appropriate to make an initial discovery order for the material that Valentia has undertaken to preserve. To meet its concern as to asymmetry, I make no timetable for compliance as that should be a matter which is dealt with more holistically as part of mutual discovery.

14     This was estimated at an excess of $600,000, although Medtech fairly said this figure was unsubstantiated.

15     Medtech Ltd v Valentia Technologies (NZ) Ltd, above n 1, at [19].

[47]   At the end of the hearing, I left the parties to converse as to whether a first tranche of discovery could now proceed with both Medtech and Valentia providing an initial tranche of documents, subject to appropriate confidentiality where applicable.

Result

[48]   I rescind the preservation orders. I make an order that Valentia is required to discover the material set out at paragraph [11] above. However, discovery of that material is to be provided in accordance with a timetable and on such other terms to be agreed by the parties or directed by the Court including that there is discovery proceeding from Medtech’s side in parallel.

[49]   I defer the issue of costs and whether they should be reserved until I have addressed Medtech’s interim injunction application as there was cost overlap.

Anderson J