Moda Systems America LLC v Guardian Bandsaws Limited
[2020] NZHC 1737
•17 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-950
[2020] NZHC 1737
BETWEEN MODA SYSTEMS AMERICA LLC
First Plaintiff
RICHARD GUYON NEWCOMBE
Second PlaintiffAND
GUARDIAN BANDSAWS LIMITED
Defendant
Hearing: 9 July 2020 Appearances:
JEM Lethbridge and C W Gambrill for the Plaintiffs K Quinn and S A Rankin for the Defendant
Judgment:
17 July 2020
JUDGMENT OF GAULT J
This judgment was delivered by me on 17 July 2020 at 11:00 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Ms JEM Lethbridge and Mr C W Gambrill, Martelli McKegg, Auckland Mr K Quinn and Mr S A Rankin, Barristers, Auckland
Ms A Hansen (defendant’s instructing solicitor), Heimsath Alexander, Auckland
MODA SYSTEMS AMERICA LLC v GUARDIAN BANDSAWS LTD [2020] NZHC 1737 [17 July 2020]
[1] The plaintiffs, Moda Systems America LLC (Moda US) and its managing director, Mr Newcombe, seek an interim injunction restraining the defendant, Guardian Bandsaws Ltd (GBL), from selling or attempting to sell certain products to customers of Moda US in the United States of America, Canada and Mexico, and from using confidential information as defined in a distributor agreement between the parties dated 28 June 2018, other than in accordance with the terms of the agreement.
[2] Moda US filed proceedings with an application for interlocutory injunction on Friday, 26 June 2020 on a without notice basis claiming urgency because of a dispute relating to Moda US’s right of renewal of the distributor agreement due to expire on 27 June 2020. Van Bohemen J accepted there was a serious issue to be tried and that the balance of convenience favoured preserving the status quo until Monday, 29 June 2020. Accordingly, he made an interim order on the papers.
[3] The matter was then called in the Duty Judge list on 29 June 2020 on a Pickwick basis. Gordon J varied the interim orders by consent to apply until the inter partes hearing of the plaintiff’s application on 9 July 2020. Gordon J refused to make further variations to the interim orders as sought by Mr Quinn for GBL.
Factual background
[4] Moda US is a wholly owned subsidiary of Moda Systems NZ Ltd (Moda NZ). Mr Newcombe is the sole director of Moda NZ as well as the managing director of Moda US.
[5] Following success with his earlier meat packaging business, Mr Newcombe incorporated Moda NZ in 2015 to market and sell automated packaging solutions for meat plants globally leveraging relationships he had previously established, and then he incorporated Moda US in June 2017 to sell and support New Zealand manufactured meat packaging equipment to the North American market. Moda US’s customer base comprises over 85 per cent of the North American meat industry.
[6] GBL is a New Zealand manufacturer of bandsaws. It is a subsidiary of KanDo Holdings Ltd. GBL was incorporated in 2017 following development of the Guardian bandsaw for the meat proceeding industry by a multidisciplinary team at the KanDo
group. The Guardian bandsaw combines unprecedented safety outcomes and a comprehensive information reporting system. In summary, the Guardian machines include four cameras positioned to provide a zone of protection around the blade by detecting the operator’s blue gloves. Upon detection, the blade, which is a continuous blade wrapped around two spindles, is stopped in milliseconds as a result of the combination of movement of one spindle to take the tension off and a braking mechanism. This system is safer and involves less blade wear.
[7] After initial dealings involving trials of GBL machines at customer plants in North America from late 2017 in contemplation of a distribution arrangement, the parties entered into a distributor agreement dated 28 June 2018 agreeing that Moda US would distribute GBL’s bandsaws in the United States of America, Canada and Mexico. As a result of the agreement, GBL has supplied a range of models of bandsaws for sale by Moda US, primarily to the North American meat industry. Both before and after entering the distributor agreement, GBL also received website-based enquiries directly from potential customers.
[8] The relationship between GBL and Moda US deteriorated in December 2019 when GBL’s new CEO, Mr Walkinshaw, accused Moda US of breaching the distributor agreement. GBL alleged that Moda US had misrepresented a Guardian bandsaw to Cargill, a major US customer, as a “Moda” saw and that Moda US was procuring parts from other suppliers instead of GBL. Moda US claims that Mr Walkinshaw has been planning direct contact with US customers since early 2019, even before he commenced his role at GBL. Mr Walkinshaw was employed at another distributor, Argus, until April 2019.
[9] In any event, GBL acknowledges that it has been selling directly into the North American market. GBL advised Moda US by letter dated 29 May 2020 that it intends to establish a subsidiary in North America for the purpose of allowing more direct contact with businesses that purchase its equipment.
[10] The dispute came to a head in the lead up to expiry of the initial two-year term of the distributor agreement in June 2020. Moda US gave notice to renew, but did so on the basis that the agreement was exclusive as a consequence of Moda US meeting
its year one sales targets. GBL responded advising that Moda US was in default and not entitled to renew the agreement. Thus, there is a dispute as to whether the distributor agreement became exclusive after 12 months – in June 2019 – and also whether GBL is committed to a renewal of the agreement following expiry of the initial two-year term.
Interim relief sought
[11] The plaintiffs have filed a second amended application for interlocutory injunction dated 1 July 2020 further varying the terms of the interim restraining order sought to:
1.1.1Selling, or attempting to sell, any Products1 in the Territory2 to:
(a)Any of the entities listed in the Schedule;3 or
(b)Any Customers;4 and
(c)Any person which is a related entity to any entity referred to in items (a) or (b) above.
1.1.2Using any “Confidential Information”, as defined in the Distributor Agreement dated 28 June 2018, other than in accordance with the terms of the Distributor Agreement.
1.2Nothing in this Order shall prohibit, inhibit or interfere with normal communications between GBL and Customers and Moda US and Customers in the Territory relating to safety matters, the provision and implementation of software updates and/or the general maintenance or updating of the bandsaws, or any other after-sales service and support in respect of existing bandsaws already sold into the Territory, in the manner that occurs under the Distributor Agreement. This includes direct contact between GBL and Customers in relation to matters set out in this paragraph.
1 Guardian bandsaw models 400R, 400L, 600R, 600L, 600XL, 300R and 300L and any other model of bandsaws supplied by Guardian Bandsaws to Moda Systems; and Consumables and Spares for the bandsaw models described above.
2 United States of America, Canada and Mexico.
3 Tyson, Cargill, Smithfield, National Beef, Hormel, Washington Beef, Nicholas Meats, Greater Omaha Packing, Johns Manville Corporation; Bombardier Recreational Products, Seaboard/Triumph Foods, Quality Pork Processors, New Angus, Caviness.
4 Persons who Purchase the Products from the Distributor (Moda US).
Approach to interim injunctions
[12] It is well settled that on an application for an interim injunction the Court addresses:5
(a)whether the plaintiff can show there is a serious question to be tried;
(b)where the balance of convenience lies; and
(c)where the overall justice lies.
[13]As the House of Lords held in American Cyanamid Co v Ethicon Ltd:6
It is no part of the Court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations.
[14] Nevertheless, the parties have filed 14 affidavits between them taking issue with each other’s conduct in multiple respects. I will focus on what I consider to be the relevant issues at the interim injunction stage.
Serious question to be tried
The plaintiffs have pleaded four causes of action:
(a)breach of confidence;
(b)breach of the distributor agreement; alternatively
(c)estoppel; and
(d)rectification of the distributor agreement.
5 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142; and
American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).
6 At 407. See also Villa Maria Wines Ltd v Montana Wines Ltd [1984] NZLR 422 (CA) at 425; and
Health Club Brands Ltd v Colven Botany Ltd [2013] NZHC 428 at [9].
[16] For the purposes of the interim injunction application, the plaintiffs rely on the first two causes of action. As in the parties’ submissions, it is convenient to deal with them in reverse order.
Breach of the distributor agreement
[17] Ms Lethbridge, for the plaintiffs, submits that there is a serious question to be tried in relation to exclusivity and the right of renewal under the distributor agreement. As to exclusivity, clause 2.1 of the agreement states:
Appointment Non-Exclusive: Guardian Bandsaws may sell and may appoint any other person to sell the Products in the Territory during the Term. After 12 months, the non-exclusivity will be reviewed in relation to the agreed sales targets and the appointment in the Territory may be changed to exclusive by mutual agreement of the parties in writing.
[18] The plaintiffs’ contention under this cause of action depends on the effect of the second sentence, which was added following discussion about exclusivity between Mr Newcombe and Mr Brown on behalf of GBL. Ms Lethbridge submits that notwithstanding its plain words requiring review and mutual agreement, extrinsic evidence indicates that, if the agreed sales targets were met, the parties intended “a transfer to an exclusive agreement after the 12 months”. Those were Mr Brown’s words in the covering email sent to Mr Newcombe on 11 May 2018 attaching the amended version of the agreement including the added sentence. Ms Lethbridge submits the reference in the covering email to this change (and others) indicates the effect of the intended amendment.
[19] While there is no real dispute as to the Court’s approach to contractual interpretation, Ms Lethbridge emphasises the commercial setting and the structure of the bargain, whereas Mr Quinn emphasises the plain and ordinary meaning.7 Mr Quinn submits that the plain meaning is that a change to exclusivity requires mutual agreement in writing – those words are of primary effect in the second sentence. That has not occurred. Mr Quinn submits there is no serious question to be tried in relation to the claim to exclusivity.
7 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [63]. See also Malthouse Ltd v Rangatira Ltd [2018] NZCA 621 at [18]-[24]; and Focus Construction Interiors Ltd v Spaceworks Design Group Ltd [2020] NZCA 269 at [29].
[20] Ms Lethbridge submits that the affidavits, including from experts, indicate that the commercial setting points to exclusivity. New entrants like GBL need market expertise as contacts are key and relationships are proprietary. GBL needed an experienced North American distributor and was attracted to Moda US. The amendments made to the draft agreement in May 2018 reduced the sales targets and intended for the agreement to become exclusive after 12 months if they were met.
[21] On the face of the clause, non-exclusivity would be reviewed in relation to the agreed sales targets after 12 months but a move to exclusivity required mutual agreement in writing. Mr Brown’s 11 May 2018 email is consistent with a transfer to an exclusive agreement after 12 months if the agreed sales targets were met, but it does not rule out the need for mutual agreement. As Mr Quinn submitted, it could merely be Mr Brown’s shorthand refence to the amended clause. On the other hand, the Court will likely seek to give the second sentence some meaning so that is more than an unenforceable agreement to agree. Mr Quinn submits that it has the effect of ensuring certainty by avoiding argument that the agreement may be varied other than in writing. I consider it does at least require that non-exclusivity be reviewed in relation to the agreed sales targets after 12 months.
[22] Ms Lethbridge also submits there are indicators in the post-contract conduct that support Moda US’s position on exclusivity. In February 2019, Mr Melville stated in an email to GBL that the distribution agreement needed to be amended to appoint Moda US the exclusive North American distributor, saying we “have surely demonstrated our market reach, sales ability and commitment by now”.
[23]Mr Brown replied saying:
The non-exclusive term is scheduled to be reviewed 12 months from the commencement date of the Distributor Agreement ( 28 June 2018). To date Moda have sold 27 saws including the three demo saws. This exceeds the first-year sales target of 25 and we absolutely recognise and value the contribution Moda has made to the Guardian product. We do need, however, to mutually improve the communication between our companies and with our customers. We are fully committed to a long-term relationship with Moda.
[24] This exchange is consistent with the reference in the clause to a review after 12 months in relation to the agreed sales targets but also does not preclude the need for mutual agreement.
[25] Ms Lethbridge also relied on Mr Walkinshaw’s subsequent conduct as indicating GBL believed the clause required exclusivity. Mr Walkinshaw acknowledged that when the issue was initially raised with him at a trade conference in Germany in May 2019, his immediate response was to “kick for touch”. When Mr Melville followed up by email on 10 June 2019, Mr Walkinshaw replied saying he needed to familiarise himself with the agreement, there will be quite a few things that need to be discussed and asking if Mr Newcombe would be available to meet.
[26] In relation to the dispute that arose in December 2019, Mr Walkinshaw has not adequately explained why he did not pass on to Moda US that Cargill had retracted the “Moda saw” allegation, especially before Moda US apologised to customers, but that is an issue for trial. I take the same approach in relation to GBL’s subsequent explanations. I do not consider the post-contract conduct relied on at this stage assists with interpretation of the clause.
[27] As Mr Quinn submitted, the plaintiffs’ reliance on an implied term of good faith appears unlikely to assist. Mr Quinn accepted this is a ‘relational’ contract – where the parties are committed to collaborating with each other, typically on a long- term basis, in ways which respect the spirit and objectives of their venture.8 But he submitted there remains doubt as to whether such a term would be implied in New Zealand law and, in any event, a term will not be implied where it is inconsistent with an express term.
[28] I doubt the 11 May 2018 email is sufficient to raise a serious question to be tried in relation to exclusivity given the terms of the amended clause it attached. The email’s opening sentence before the list of key changes refers to attaching the “latest iteration” of the distributor agreement. But, as indicated, it is no part of the Court’s function at this stage to resolve conflicts of evidence on affidavit. There is a conflict of evidence between Mr Newcombe and Mr Brown about their 27 April 2018
8 Sheikh Tahnoon Al Nehayan v Kent [2018] EWHC 333 (Comm) at [167].
meeting which preceded that email. While it seems unlikely that whatever they discussed and agreed at that meeting would materially change the plain meaning of the clause, requiring mutual agreement in writing for exclusivity, that is an issue for trial. I am also conscious that the plaintiffs plead estoppel and rectification in the alternative.
[29] As mentioned, clause 2.1 at least requires that non-exclusivity be reviewed in relation to the agreed sales targets after 12 months. It is common ground that the agreed sales target of 25 bandsaws in year one was met. As Mr Quinn submitted, review does not necessarily imply consultation – though he acknowledged an expectation that GBL would communicate its decision. But there is no evidence that GBL reviewed non-exclusivity after 12 months as required. The evidence indicates GBL delayed disclosing its true position to Moda US. Mr Quinn submits that GBL’s evidence addressed the case advanced by Moda US and thus there is a ‘hole in the evidence’ in relation to review. He also submits that the recent meeting in May 2020 amounts to a review, whereas Ms Lethbridge submits that even at that meeting GBL left the position up in the air. In any event, it is clear GBL does not agree to exclusivity. Mr Quinn submits that a breach of the review obligation does not support an injunction and may not even give rise to damages.
[30] For these reasons, I conclude that the plaintiffs have shown there is a serious question to be tried in relation to breach of clause 2.1 of the distributor agreement.
[31]As to renewal after the initial term of two years, clause 3.2 states:
3.2 Renewal: If the Distributor is not in default of the terms of this Agreement on the expiry of the Initial Term (or expiry of any renewed term), the Distributor shall be entitled as of right to renew the term of this agreement for an additional term as set out in Schedule 1.
[32] In response to Moda US’s renewal notice, GBL said that Moda US was in default and therefore was not entitled to renew. However, Mr Quinn advised that GBL accepts that the agreement remains on foot, so it is unnecessary to confirm that there is a serious question to be tried in relation to the plaintiffs’ right of renewal irrespective of the exclusivity dispute.
Breach of confidence
[33]In relation to confidential information, the distributor agreement states:
11.CONFIDENTIAL INFORMATION
11.1Obligations of Receiver: A party receiving Confidential Information (“Receiver”) from the other party (“Provider”) must:
(a)take all action necessary to maintain the confidential nature of the Confidential Information; and
(b)not, without the prior written consent of the Provider:
(i)disclose any of the Confidential Information to any person other than its Representatives on a “needs to know” basis;
(ii)use or disclose any of the Confidential Information for any purpose other than fulfilling its obligations under this Agreement; or
(iii)reproduce any of the Confidential Information without the prior written consent of the Provider.
11.2Disclosure by Receiver: Before disclosing any of the Confidential Information to any of its Representatives, the Receiver must:
(a)ensure that each of its Representatives to whom the Confidential Information is to be disclosed is made fully aware of the confidential nature of all Confidential Information prior to obtaining access to the Confidential Information; and
(b)if reasonably requested by the Provider, cause that person to sign a confidentiality deed in the form required by the Provider.
11.3Return of Confidential Information: If requested by the Provider, the Receiver must return to the Provider any or all of the Confidential Information supplied by the Provider.
11.4Damages inadequate: The parties acknowledge that monetary damages alone would not be adequate compensation for a breach of the obligations imposed on them under this clause 11 and a disclosing party is entitled to seek an injunction from a Court of competent jurisdiction on a breach or threatened breach of this clause 11.
[34]In the agreement, “Confidential Information” is defined:
Confidential Information means in relation to a party (“Provider”), all information relating to the business, technology or other affairs of:
(a)the Provider;
(b)any Related Company of the Provider; or
(c) a third party to whom a Provider owes an obligation of confidentiality; including:
(d)information which is designated or indicated as being the proprietary or confidential information of the Provider, any of its Related Companies or a third party which a Provider is required to keep confidential; and
(e)trade secrets or information which is capable of protection at law or equity as confidential information;
whether that information was disclosed:
(f)orally, in writing or in electronic or machine-readable form;
(g)before, on or after the date of this Agreement; or
(h)by the Provider, any of its Representatives, any of its Related Companies, any Representatives of its Related Companies or by any third person,
but excludes the Excluded Information.
[35]“Excluded Information” is also defined:
Excluded Information means in relation to a Provider, information:
(a)which is in or becomes part of the public domain otherwise than through breach of this Agreement or an obligation of confidence owed to the Provider;
(b)which the party receiving the information (“Receiver”) can prove by contemporaneous written documentation was already known to it at the time of disclosure by the Provider or its Representatives (unless such knowledge arose from disclosure of information in breach of an obligation of confidentiality); or
(c)which the Receiver acquires from a third party entitled to disclose it.
[36] Moda US pleads that it has provided to GBL, and GBL has misused, confidential information relating to its customers including:
(a)contact details and personal information of individuals responsible for customer purchase decisions;
(b)customer saw operations;
(c)customer budgets, purchasing cycles, rate of return requirements and other factors relevant to capital expenditure approval;
(d)customer development plans; and
(e)customer needs.
[37] The alleged instances of misuse relate to communications with Mr Walkinshaw in 2019 before he became CEO of GBL, and more recently communications with three US customers.
[38] GBL submits that any information which has been provided by Moda US during the course of the ‘agency’ is not confidential. GBL disputes the confidentiality of the identity of the customers and the fact they are interested in purchasing a new generation of safety bandsaws. While accepting that other information relating to customers could have the necessary quality of confidence, GBL disputes that Moda US has in fact provided such confidential information to GBL. Mr Quinn submits there is no evidence of this.
[39] The plaintiffs acknowledge that some customer information – such as a list of names of large meat processing companies – is in the public domain and not confidential, but Ms Lethbridge submits there is evidence that Moda US has provided confidential information to GBL. She also submits that any information in the claimed categories that GBL obtains arising from the distribution agreement is caught. In effect, Moda US claims that if it introduces a customer to GBL, information about that customer that is not in the public domain is confidential information under the distributor agreement. Ms Lethbridge accepts that GBL can have contact with customers for technical purposes but not otherwise. That would be leveraging Moda US’s relationships using information obtained for one purpose (supporting Moda US sales) for another purpose (direct sales). She relies on Sheikh Tahnoon Al Nehayan v Kent where the English Commercial Court found that while the defendant did not owe fiduciary duties to his joint venturer, the ‘relational’ contract involved an
implied duty of good faith.9 Ms Lethbridge seeks a springboard injunction, relying on this Court’s decision in Bradford Trust Ltd v Paul Edward Roebeck Ltd.10 That case similarly required a distinction between customer details and client contact details on the one hand and other confidential information more clearly entitled to protection on the other. Venning J granted a springboard injunction in respect of the former category only for a limited period.11
[40] Here, it is necessary to decide whether there is confidential information to be protected before applying the springboard doctrine. I consider the confidentiality obligation is not as broad as Moda US contends. While not all information about customers or potential customers is confidential, I accept that there may well be customer information in the categories claimed that has the necessary quality of confidence. But such information will only be within the scope of the confidentiality obligation in the distributor agreement if it is provided by Moda US to GBL. If GBL receives confidential information directly from a customer or potential customer, during a site visit or otherwise, GBL’s confidentiality obligation would be to that customer. Thus, it does not necessarily follow that because GBL is communicating directly with customers in North America, it must be breaching confidentiality.
[41] Perhaps given the broader scope of confidentiality contended for, Moda US has adduced little evidence of specific confidential information it has provided to GBL. Mr Walkinshaw says Moda US has only provided GBL two customer spreadsheets. They contain little that appears confidential. But, at least in general terms, Moda US’s evidence asserts that it has provided confidential information to GBL. Mr Newcombe refers to details provided when an order is placed with GBL – the customer identity and location of the plant where the machine is going. Various emails from Moda US to GBL are also attached to the affidavits but I am not in a position to identify what specific information in them is confidential. In addition, there was debate about a bandsaw marketing document displaying both Moda and Guardian logos, which each claimed as its own document. It appears GBL sent it to Mr Walkinshaw and Mr Walkinshaw said he would “Argus-ise it” in May 2018. I am
9 Sheikh Tahnoon Al Nehayan v Kent [2018] EWHC 333 (Comm) at [167], [174]-[175].
10 Bradford Trust Ltd v Paul Edward Roebeck Ltd HC Auckland CIV 2006-404-007111, 7 December 2006.
11 At [62]-[65] and [81].
not in a position to determine the provenance of this document on this application, which in any event was disclosed by GBL before the distributor agreement was entered.
[42] While the evidence of specific confidential information provided to GBL is thin, given the likelihood that there is customer information in the categories claimed that has the necessary quality of confidence and that some has been provided to GBL, I consider there is a serious question to be tried in relation to confidential information.
Balance of convenience
[43] The balance of convenience involves balancing the risk of injustice to each party — deciding whether granting or refusing an injunction is the course which, after substantive determination, would best allow the adjustment of the rights of the parties in a way that accords with fairness and justice.12
Adequacy of damages
[44] A key consideration is the adequacy of damages for each party. I consider that in this case it is necessary to consider adequacy of damages separately in relation to the two orders sought.
[45] In relation to exclusivity and the order restraining GBL from selling or attempting to sell product, Ms Lethbridge acknowledges that profit on lost sales could be calculated but submits Moda US will also suffer damage to goodwill which cannot be adequately quantified, that is loss of reputation as a result of GBL dealing directly with Moda US’s customers pending trial. Ms Lethbridge relies on Water Guard NZ Ltd v New Zealand Milk Corporation,13 where Asher J found that assessing a distributor’s damages would be a difficult task and granted an interim injunction. I note that case involved an exclusive distributor disputing a purported termination. Ms Lethbridge also points out that GBL has recently increased its prices to Moda US. She submits that if an injunction is not granted, the value of the contract will be lost.
12 Congoleum Corporation v Poly-Flor Products (NZ) Ltd [1979] 2 NZLR 560 (CA) at 571; and
Mansfield v Bilkey [2016] NZHC 752 at [7].
13 Water Guard NZ Ltd v New Zealand Milk Corporation [2014] NZHC 3389 at [33]-[34] and [43].
[46] I consider that Moda US can be adequately compensated for lost sales if interim relief is not granted. GBL has undertaken to advise Moda US of purchase orders received within five working days and pay into trust NZ$15,000 per bandsaw or 15 per cent of the value of consumables or spares. This undertaking applies to both 300mm and 400mm bandsaws. However, I accept that Moda US’s damages for loss of goodwill would be difficult to quantify.
[47] Turning to whether damages would be an adequate remedy for GBL if the order restraining GBL from selling or attempting to sell product is granted until trial, Ms Lethbridge notes that GBL will only be restrained in relation to the specified customers and that Moda US will continue to pursue them. Nevertheless, I accept that damages for loss of goodwill would be similarly difficult for GBL to quantify. Mr Quinn submits this is more obvious for GBL because the relationship has broken down and an injunction would mean that, until trial, GBL is not represented in the way it wants in the North American market, whereas Moda US will be operating in the market anyway given its other products.
[48] As Mr Quinn submitted, there is no reason to assume that GBL will not act rationally in its own commercial interests. The same applies to Moda US – acting to harm GBL’s product reputation would be contrary to Moda US’s own commercial interests. In relation to the order restraining GBL from selling or attempting to sell product, I conclude that damage to goodwill will be difficult for either party to quantify. Given the nature of the exclusivity dispute, the effect on goodwill or reputation until trial for Moda US is that of having GBL cut across its customer relationships, whereas the effect for GBL is that of having to leave its North American sales efforts in the hands of Moda US. Changing the scope of the interim relief, for example by excluding those customers who have approached GBL directly, would merely adjust the balance of harm one way or the other to a limited extent. I do not consider the damage to goodwill of one party can be clearly weighed above the other.
[49] In relation to an order restraining misuse of confidential information, Ms Lethbridge submits that damages would not be an adequate remedy for Moda US, relying on the acknowledgement in the distributor agreement that monetary damages alone would not be adequate compensation for a breach of the confidential information
obligations and affidavits from two industry experts. Mr Olsen says that the packaging industry generally and the meat industry more specifically is built on relationships, which are commercially sensitive and confidential, and the value is difficult if not impossible to measure in dollar terms. Mr Shook also says that relationships in the meat equipment industry are considered trade secrets and kept as highly proprietary information.
[50] I accept that damages would not be an adequate remedy for Moda US. It would be difficult to quantify loss resulting from breaches of confidence. On the other hand, given the dispute as to what information is confidential to Moda US, there is some force in Mr Quinn’s submission that the breach of confidence claim is being used to support the exclusivity claim. It may be possible to address this by refining the scope of any interim order. Ms Lethbridge acknowledges it is necessary to recast the terms of the order sought. I return to this and address the issue of adequacy of damages for GBL below.
[51] Finally, GBL questioned the value of the plaintiffs’ undertaking as to damages but I am not in a position to draw an adverse inference weighing against an interim injunction.
Status quo
[52] Ms Lethbridge submits the status quo favours the plaintiffs as GBL is not selling directly other than in low numbers, whereas Mr Quinn emphasises that GBL is already selling directly and sometimes following direct contact from customers – which at the very least any interim order should exclude.
[53] Preserving the status quo may be a relevant factor in favour of interim relief in the balance of convenience, particularly when other factors are evenly balanced. Ordinarily, the status quo means the position prevailing when the defendant embarked upon the activity sought to be restrained. In that sense, the status quo favours the plaintiffs. On the other hand, this case could be characterised as the plaintiffs seeking a mandatory injunction in relation to the claimed transfer from non-exclusive to
exclusive distributor. Interim mandatory injunctions are rare.14 I do not consider the status quo is a strong factor in this case.
Strength of the claims
[54] Mr Quinn submits that even if there is a serious question, the plaintiffs have a very weak case and this weighs against an interim injunction. The relative strength of the parties’ cases is a relevant factor in the balance of convenience where it can appropriately be ascertained, bearing in mind the limit of the Court’s function at the interim stage referred to above at [13]. Here, I consider that the plain meaning of clause 2.1, my view as to the scope of the confidentiality obligation and the lack of evidence of specific confidential information provided to GBL weigh against an interim injunction.
Conduct
[55] The conduct of a defendant can be an important factor.15 This is sometimes described as acting with ‘eyes wide open’. It was a factor in Klissers.16 But, as Gilbert J said in Mansfield v Bilkey,17 there is a distinction between a defendant seeking to avoid relief on the basis of inconvenience when it has deliberately wronged and a defendant who has proceeded in the face of opposition but genuinely believing it is acting within its rights. A plaintiff’s conduct can also be relevant to injunctive relief.18
[56] Each party submitted that the conduct of the other was relevant to interim relief. Ms Lethbridge relied on Mr Walkinshaw’s conduct as mentioned, which she submitted was not in good faith. In relation to exclusivity, even though I have indicated it appears that GBL failed to review after 12 months as required by clause
2.1 and delayed disclosing to Moda US its true position, these are issues for trial and do not justify an adverse inference as to wrongdoing at this stage. In relation to the dispute in December 2019, as indicated Mr Walkinshaw has not adequately explained
14 Soft-Tech International Pty Ltd v Ball (1990) 3 PRNZ 683.
15 See for example Mansfield v Bilkey [2016] NZHC 752 at [26].
16 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 141.
17 Mansfield v Bilkey [2016] NZHC 752 at [29]. See also Christensen v Gordon [2020] NZHC 1486.
18 Linde AG v CWF Hamilton & Co Ltd (1988) 3 TCLR 216.
why he did not pass on to Moda US that Cargill had retracted the “Moda saw” allegation, especially before Moda US apologised to customers, but again that is an issue for trial rather than one justifying an adverse inference as to his conduct at this stage.
[57] I draw no inference in relation to the outstanding request for mediation. Mediation is to be encouraged but it is premature to infer that GBL refuses to engage in accordance with the dispute resolution clause in the distributor agreement.
[58] Mr Quinn criticises Moda US’s initial application on a without notice basis. Ms Lethbridge made clear to the Judge that GBL wanted to be served and the Court chose to make an interim interim order pending a call in the Monday Duty Judge list. While without notice injunction applications should be exceptional, and issues as to costs or in relation to a plaintiff’s undertaking as to damages may arise where without notice applications are not justified, I do not consider there is a conduct issue here relevant to the question of further interim relief.
[59] Mr Quinn was also critical of Mr Melville’s communication to Cargill dated 29 June 2020 but did not suggest I could infer from it that Moda US was acting in bad faith. He submits it is still relevant to harm in the balance of convenience. I consider this is addressed by the variation to the interim interim order made at the hearing.
Conclusion on balance of convenience
[60] In relation to exclusivity, I consider that damages should be an adequate remedy for the plaintiffs in relation to lost sales but not in relation to damage to goodwill. But that is offset as damages will not be an adequate remedy for harm to GBL’s goodwill either. Taking into account the plain meaning of clause 2.1, the balance of convenience is against an interim injunction restraining GBL from selling or attempting to sell its products directly to customers in North America.
[61] In relation to breach of confidence, I accept that damages would not be an adequate remedy for Moda US. But my view as to the scope of the confidentiality obligation and the lack of evidence of specific confidential information provided to
GBL weighs against an interim injunction. An order in the terms sought would also beg the question as to the scope of the claimed confidential information.
[62] However, Moda US and Mr Newcombe are entitled to expect GBL not to misuse their confidential information. I consider the balance of convenience favours granting a narrower interim injunction limited to confidential information GBL has received from Moda US or Mr Newcombe so as to exclude information GBL has received directly from a customer or potential customer for the reasons given above at [40]. Such an interim injunction would protect the plaintiffs against injury by violation of their right to confidentiality (insofar as I consider it arguable) for which they could not be adequately compensated in damages. Also, if GBL is correct that it has received no such confidential information from Moda US or Mr Newcombe, the interim order will not prevent it from exercising its legal rights and so it will suffer no injury for which it could not be adequately compensated under the plaintiffs’ undertaking.
[63] I am conscious that given the lack of evidence of breach of confidence, an interim order may not be necessary. However, having found there is a serious question to be tried in relation to the categories of information claimed and that damages would not be an adequate remedy for the plaintiffs, I do not consider that I should place undue weight on the perceived lack of strength of the breach of confidence claim indicated by the current evidence and refuse to grant the narrow interim relief described with its limited effect.
Overall justice
[64] Stepping back, in relation to the exclusivity issue, I consider that overall justice weighs against an interim injunction that prevents GBL from selling or attempting to sell its products directly to customers in North America. The balance of convenience and overall justice do not favour giving Moda US exclusive distributor status pending trial.
[65] In relation to confidentiality, as indicated, Moda US and Mr Newcombe are entitled to expect GBL not to misuse their confidential information. For the reasons stated in my conclusion on balance of convenience, I consider that overall justice is also best served by granting an interim injunction in the narrow terms described.
Result
[66] I make an interim order until trial or further order of the Court restraining the defendant from using any “Confidential Information”, as defined in the distributor agreement dated 28 June 2018, that is within the categories pleaded in paragraph 27 of the statement of claim and that the defendant has received from the plaintiffs, other than in accordance with the terms of the distributor agreement.
[67]The application for interlocutory injunction is otherwise dismissed.
[68] Given the result, it may be appropriate for costs to lie where they fall. If costs cannot be agreed, I will receive brief memoranda (not exceeding three pages) within 15 working days and determine costs on the papers.
Gault J
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