Monnery v Parsons
[2022] NZHC 2401
•19 September 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-482
[2022] NZHC 2401
BETWEEN PAUL MARK MONNERY
First Plaintiff
PAUL MARK MONNERY and JULIE ANN MONNERY
Second Plaintiffs
AND
ANDREW GRAHAM PARSONS
First Defendant
JOHN MURREY CREIGHTON
Second Defendantcontinued …
Hearing: 14 September 2022 (by AVL) Appearances:
C R Carruthers KC and R L Fletcher for the Plaintiffs
P R W Chisnall and J D Haig for the First and Sixth Defendants J P Nolen for Second Defendant
D J Chishom KC and J D Ryan for Third, Seventh and Eighth Defendants
G Bogiatto for Fourth, Fifth and Ninth Defendants
Judgment:
19 September 2022
JUDGMENT OF ASSOCIATE JUDGE LESTER
MONNERY v PARSONS [2022] NZHC 2401 [19 September 2022]
AND BRUCE GORDON COPELAND
Third Defendant
AND KURT BREDENBECK
Fourth Defendant
AND MURRAY CHARLES PARSONS
Fifth Defendant
AND PUSH DEVELOPMENTS LIMITED
Sixth Defendant
AND SANDFIELD ASSOCIATES LIMITED
Seventh Defendant
AND SANDFIELD VENTURES LIMITED
Eighth Defendant
AND P K B INVESTMENTS LIMITED
Ninth Defendant
A shareholder dispute leads to the failure of their company
[1] Mr and Mrs Monnery were two of the original shareholders of Convendium Limited (Convendium) with Mr Monnery, between March and December 2006, becoming its sole director and manager.
[2] Convendium developed and marketed technology for operating cashless vending machines. The defendants in one form or another invested in Convendium. There was a falling out between the plaintiffs (the Monnerys) and the defendants, as a result of which Mr Monnery had no further involvement with Convendium and it failed.
[3] The Monnerys said the defendants individually or in one combination or another, took Convendium’s intellectual property in connection with the cashless payment system and used it for their own advantage. Convendium is in liquidation and has taken no part in this proceeding.
The Monnerys issue proceedings
[4] The Monnerys’ original statement of claim pleads economic torts against the defendants. The first cause of action is causing loss by unlawful means and the second, as an alternative cause of action, is conspiracy to injure economic interests.
[5] The Monnerys applied for discovery against the defendants seeking a number of documents including those relating to the defendants use of Convendium’s technology and financial records showing the income from those operations. The discovery application was dismissed by Associate Judge Johnston in a decision released on 26 October 2021.1 On 11 February 2022, Associate Judge Johnston fixed costs in respect of that application.2
The present applications
[6]On 10 March 2022, the Monnerys applied for the following orders:
(1)an order recalling the judgment of 26 October 2021 or in the alternative extending time and granting leave to the plaintiffs to appeal against that judgment; and
(2)granting leave to the plaintiffs to appeal against the costs judgment and staying execution of the costs award pending determination of the application for leave to appeal.
What the Monnerys say the Judge got wrong
[7] Mr Carruthers KC, counsel for the Monnerys, submitted Associate Judge Johnston misunderstood the Monnerys’ causes of action. In his decision, Associate Judge Johnston noted that on the current pleadings the Monnerys did not
1 Monnery v Parsons [2021] NZHC 2854. [Discovery Decision].
2 Monnery v Parsons [2022] NZHC 167. [Costs Decision].
assert they were the owners or have any interest in the intellectual property previously owned by Convendium. He said:3
[28] That being so, I am unable to see how any party other than Convendium (or its liquidators), can have standing to pursue remedies in relation to the usurpation of its intellectual property.
[8] Given Associate Judge Johnston concluded the Monnerys did not have standing to pursue their claim, he concluded that the additional documentation they sought was irrelevant. Essentially, the Court accepted the defendants’ arguments the Monnerys have no basis for asserting any proprietary interest in Convendium’s intellectual property and thus no standing to seek damages based on an account for profits made by the defendants from intellectual property the Monnerys did not own.
The essence of the Monnerys’ arguments
[9] The application seeking recall or leave to appeal, relies on the Judge having misunderstood the essence of the tort of causing loss by unlawful means. The unlawful means relied on is the misuse of Convendium’s confidential information and intellectual property by the defendants. The Monnerys submit the unlawful means claim does not require them to have an interest in Convendium’s intellectual property, in fact the Monnerys’ claim pre-supposes they do not own the intellectual property.
[10] In respect of the second cause of action, conspiracy to injure economic interests, the Monnerys focus on the damage the defendants’ misuse of the intellectual property and asserted conspiracy to exclude/dilute their economic interest in Convendium has caused them.
[11] Mr Carruthers submits the Monnerys in their respective capacities had an economic interest in Convendium; Mr Monnery by virtue of his employment and then Mr and Mrs Monnery by virtue of their shareholding. Mr Carruthers submits it is sufficient that the Monnerys have an economic interest in Convendium harmed by unlawful means by the defendants.
3 Discovery Decision, above n 1.
[12] Mr Carruthers submits unlawful means is established by the defendants using the intellectual property of Convendium not for its benefit but for their own. Mr Carruthers recognised the requirement that the defendants intended to cause loss to the Monnerys through the unlawful means and he submits that is demonstrated through the pleaded actions of the defendants.
[13] As to the second economic tort, it has the additional requirement of conspiracy which Mr Carruthers says is no more than an agreement between the defendants to injure the interests of the Monnerys.
Recall
[14] The application for recall relies on the third category identified in Horowhenua County v Nash (No. 2) as follows: “… and thirdly, where for some other very special reason justice requires that the judgment be recalled.”4
[15] The category “some other very special reason” is discussed in detail in McGechan on Procedure.5 The authors note that this ground does not extend to a challenge of any substantive findings of fact and law in the judgment, referring to Zhang v Yu.6 The authors note:7
In a case where the Court has misunderstood (or arguably misunderstood) a party’s submission that is a matter that is properly addressed on appeal: Cummins v Body Corporate 172108 [[2022] NZCA 153] at [14].
[16] The application for recall here says that it is brought on the grounds that the Court misunderstood the Monnerys’ claim.
[17] To answer this issue Mr Carruthers relied on the following paragraph from Justice Heath’s decision in Munro v Gladvale Farms Ltd.8
[14] In my view, a recall application must raise a material issue on which it would be unjust for the parties to be put to the cost and trouble of appeal, when the issue is one more appropriately addressed by the first-instance Judge.
4 Horowhenua County v Nash (No. 2) [1968] NZLR 632 at 633.
5 Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR11.9.01(5)].
6 Zhang v Yu [2020] NZCA 592 at [9].
7 At [HR11.9.01(5)].
8 Munro v Gladvale Farms Ltd [2017] NZHC 2692.
Such a situation will arise in cases in which a Judge acknowledges that he or she overlooked material factor in reaching a particular decision. Recall, in that situation, avoids the risk that an appeal might be allowed and remitted to the trial Judge for reconsideration of the point in issue, at unnecessary further cost to the parties. Such circumstances, in my judgment, constitute a “very special reason” for the exercising the recall judgment, to adopt the language employed by Wild CJ in Horowhenua County.
(footnotes omitted)
[18] In Patel v Dunbar the Court commented that Heath J’s decision in Munro may have expanded the circumstances in which the Court may consider recall.9 That the Judge respectfully agreed with Heath J’s conclusion that, where it is clear that the Court has misunderstood an important aspect of one of the party’s cases or overlooked an aspect of the evidence or argument, the parties should be able to invite the Court to recall the Judgment and consider the case in light of the alleged misunderstanding or factors that were overlooked.
[19] I do agree with Heath J’s observations as to when recall might be appropriate. However, before those principles can apply, I must be satisfied Associate Judge misunderstood an important aspect of the Monnerys’ case.
Did the Judge misunderstand the Monnerys’ case?
[20] The Judge dismissed the Monnerys’ application on the grounds the documents sought were irrelevant.
[21] Paragraph 4 of the submissions filed in support of the Monnerys’ application for discovery state:
The plaintiffs in their statement of claim seek damages or an account of profits made by the Parsons interests as a result of their unlawful use of the property of Convendium Ltd. This is the measure for the two economic torts relied on by the plaintiffs.
[22] In addition to the account of profits, the Monnerys sought judgment for quantified sums and in the alternative, an enquiry into damages. The manner in which the quantified damages were calculated was pleaded.
9 Patel v Dunbar [2021] NZHC 2634 at [11].
[23] Discovery was sought of the defendants’ trading information in support of the prayer for relief seeking an account of profits made by the defendants from the use of the software and associated intellectual property of Convendium.
[24] On my initial reading of the judgment I had thought the Judge had concluded the documents sought were irrelevant as it would be necessary for the Monnerys to show an ownership interest in the intellectual property in order to establish the torts pleaded, that is, liability. However, a review of the written submissions filed for the discovery application shows that the Judge did not, in my view, misunderstand the Monnerys’ case.
[25] Mr Chisnall’s submissions filed for the hearing before Associate Judge Johnston said:
21. The plaintiffs justify their request for financial information by referring to the prayer for relief in their statement of claim where they seek ‘an account of profits’ in the alternative to damages. However, at law, without a relevant proprietary interest or a proprietary tort, or in exceptional cases, where damages cannot be quantified, an account of profits or restitutionary award is not a remedy that can be obtained.
(footnotes omitted)
[26] Accordingly, the Judge decided the application for discovery on the basis that the documents sought by the Monnerys could not be relevant to the type of damages the Monnerys could claim – that is, quantum rather than liability.
[27] The starting point of the Monnerys claim is that Convendium was the owner of the intellectual property. The unlawful means relied on by the Monnerys for the economic tort is the defendants unlawfully taking and using that intellectual property. The immediate victim of that wrong is Convendium. The Monnerys, by their economic tort claims say the harm done to Convendium was also intended to harm them. However, the profits Convendium could have made from being able to continue to trade its intellectual property or to sell it would always belong to Convendium. The value of the Monnerys’ shares (one of the quantified categories of loss) cannot be equated with any loss of profits suffered by Convendium. That is because first, a shareholder has no ownership interest in the assets of their company
and second, to the extent the profits might flow through to a dividend, such cannot be equated with the value of the loss of profit.
[28] As the Monnerys have calculated other heads of loss, this was not an exceptional case where damages might be calculated on an account of profits or restitutionary basis.10
[29] In reply, Mr Carruthers submitted that the law may recognise a loss of profits as a measure of damages for economic torts, but the case before Associate Judge Johnston was not run on that basis.
[30] There is no evidence from an expert share valuer that access to (say) the first year of trading of the defendants with the benefit of the intellectual property would be relevant to the valuation of the shares in Convendium as it, for example, might indicate the income Convendium could have achieved from the intellectual property.
[31] Mr Chisnall submitted that in fact Convendium had been trading with the intellectual property for a number of years so the value of its shares could be calculated from Convendium’s own trading history.
[32] Accordingly, this was not a case of the Judge dismissing the application for discovery on the grounds that the Monnerys’ cause of action was itself untenable. The fundamental difficulty identified by the Judge was that the Monnerys could not quantify their own loss based on loss suffered by Convendium. Nor was there any other explanation as to how the documents sought were relevant to the Monnerys’ claim. The only relevance asserted was in relation to the quantification of the Monnerys’ loss on an account of profits basis.
10 It is only in exceptional cases such as where damages cannot otherwise be calculated that a plaintiff without a proprietary interest could seek an account of profits. See Stoke-on-Trent City Council v W & J Wass Ltd [1988] 3 All ER 394; Attorney General v Blake [2000] 4 All ER 385; Devenish Nutrition Ltd v Sanofi-Aventis [2009] 3 All ER 27. In Van Camp Chocolates Ltd v Aulsebrooks Ltd [1984] 1 NZLR 354 (CA) an injunction and an account of profits was ordered where the plaintiffs’ IP was wrongfully taken (emphasis added).
[33] Accordingly, I conclude there was no misunderstanding by the Associate Judge of the case before him warranting either recall or leave to appeal. It follows the application to recall and the alternative application for leave to appeal are dismissed.
Leave to appeal the costs judgment of 11 February 202211
[34] When considering leave, the Court is a “filtering mechanism”. A high threshold exists and the applicant must identify an arguable error of fact or law and the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value. The circumstances must warrant incurring further delay with the ultimate question being whether the interests of justice are served by granting leave.12
[35] The application for discovery was brought against four groups of defendants. Each ground is based on the inter-relationships of the defendants. Each group was separately represented resulting in four sets of scale costs. The Judge reduced costs by 20 per cent to reflect considerations raised by Mr Carruthers, resulting in a total order of $30,329.40 including disbursements.
The third, seventh and eighth defendants – the Sandfield defendants
[36] Mr Chishom KC, counsel for the third, seventh and eight defendants (Sandfield), submitted there could be no serious challenge to the Court’s exercising its discretion in directing the Monnerys to pay Sandfield’s costs given that the Monnerys abandoned their application against Sandfield in the early part of the hearing. As the abandonment came only at the hearing, counsel for Sandfield had prepared and travelled to Wellington for the hearing.
[37] I agree with Mr Chishom there can be no grounds for leave to be granted to appeal the costs award as it applies to the Sandfield defendants and I decline that application.
11 Costs Decision, above n 2.
12 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [9]-[14].
[38] Mr Carruthers disputed the three-quarters of a day claimed for the appearance at the hearing. He said the discovery application was concluded by the lunch break.
[39]In the costs judgment, Associate Judge Johnston recorded:13
It would appear to be agreed that if there is to be a costs award costs should be calculated on a 2B basis. The calculations carried out by the various defendant groups seeking costs are not challenged.
[40] The above statement was qualified later in the judgment when the Judge noted that Mr Carruthers:14
… questioned whether the defendants groups should proceed on the basis that the hearing occupied three quarters of a day (as it did). In my assessment, that would not be a sound basis for disallowing or reducing the costs claim by the defendants. The hearing occupied three quarters of a day. Counsel needed to be there.
[41] I have some sympathy for Mr Carruthers’ point that, if the first session in the afternoon was concerned only with the defendants’ applications which were adjourned, the Monnerys should not be subject to costs in respect of that quarter day. However, I remind myself of what is at stake on this point. The daily rate is $2,390. A quarter of a day is therefore $597.50. Less the 20 per cent deduction allowed by the Judge, the quarter day charge amounts to $478 which for four defendants is a total of
$1,912 in additional costs. Given the high threshold that exists in relation to granting leave for appeal and that the costs and delay of the appeal should warrant any arguable error being examined on appeal, I cannot find that a dispute over $1,912 in relation to the exercise of discretion justifies leave to appeal.
[42] One objective of the scale is to make costs predictable. Another related objective is that costs can be easily calculated. Associate Judge Johnston said that in his view it would be wrong for the Court to start trying to minutely analyse how much time was occupied in the argument for any one of the defendants.15 I do not see an error in his approach.
13 Costs Decision, above n 2, at [2].
14 At [8].
15 At [14].
[43] Accordingly, the award of costs and disbursements in favour of the Sandfield defendants totalling $8,294 is confirmed. There is no basis for the stay of enforcement of that costs award to be continued.
Balance of costs award – remaining defendants
[44] The total costs and disbursements awarded was $30,329.40 in respect of a hearing that lasted half a day. As I have said, of that just over $8,000 cannot be challenged.
[45] Mr Carruthers says the totality of the costs award is manifestly excessive for a half day hearing. As noted by Associate Judge Johnston in his costs decision, the level of costs is a consequence of the Monnerys having issued proceedings against nine defendants who were represented as four groups by separate counsel.
[46] Provided that scale costs do not exceed actual costs, as scale costs are deemed to be approximately two-thirds of a reasonable fee, an argument that an award of scale costs is manifestly excessive faces serious hurdles.
[47] At the end of the day, applications were brought against four groups of defendants which were dismissed. Costs followed the event at scale less 20 per cent. Mr Carruthers did not suggest what a proper costs outcome would be, only saying that all questions as to costs are discretionary and here the total level of costs was unreasonable. But as regards each defendant, that is not the case. I accept the total level of costs for a half day hearing is high but that is a consequence of the Monnerys’ making. The Monnerys were aware that the four groups of defendants were separately represented and different categories of documents were initially sought from each group of defendants. At the end of the day, Associate Judge Johnston’s approach to costs was, with respect, entirely conventional: costs followed the event at scale less 20 per cent to reflect the matters raised by Mr Carruthers. Whether such a deduction could have been 25 per cent or 33 per cent was a matter of judgment and discretion. Again, other than submitting the end result was too high, Mr Carruthers did not articulate the error of principle by the Judge.
[48] Accordingly, I am satisfied that the application for leave to appeal the costs judgment should be dismissed. It follows no question of stay of the costs judgment arises. Associate Judge Johnston had granted a temporary stay of enforcement of the costs judgment pending the determination of the leave application. That stay is lifted.
Costs on the present applications
[49] The Monnerys’ applications have been dismissed. I no reason why costs should not follow the event. Defendants’ counsel said they wish to be heard on the issue of increased costs.
[50] Costs memoranda of not more than five pages are to be filed by any of the defendants seeking increased costs within five working days of the date of this Judgment. If no costs submissions are filed by any party within five working days then the order of the Court is that each group of defendants is entitled to costs on a 2B basis.
Associate Judge Lester
Solicitors:
Woods Fletcher Associates, Wellington (for the Plaintiffs)
Macalister Mazengarb, Wellington (for First and Sixth Defendants) K3 Legal Limited, Auckland (for Second Defendant)
Claymore Partners, Auckland (for Third, Seventh and Eighth Defendants) George Bogiatto, Auckland (for Fourth, Fifth and Ninth Defendants)
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