Ngati Tama Custodian Trustee Ltd v Phillips
[2019] NZCA 647
•13 December 2019 at 11 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA160/2018 [2019] NZCA 647 |
| BETWEEN | NGATI TAMA CUSTODIAN TRUSTEE LIMITED |
| AND | DAVID WILLIAM PHILLIPS |
| Hearing: | 26 November 2018 |
Court: | Williams, Peters and Gendall JJ |
Counsel: | D M Hughes and L A Player-Bishop for Appellant |
Judgment: | 13 December 2019 at 11 am |
JUDGMENT OF THE COURT
A The appeal is allowed.
BSummary judgment is granted to the appellant in terms of its application.
CThe respondent must pay the appellant costs in accordance with cl 4.1 of the settlement deed.
____________________________________________________________________
REASONS OF THE COURT
(Given by Williams J)
Introduction
Between 2009 and 2013, the parties in this appeal were engaged in litigation over the failure of a software start-up in which they had each invested substantial capital. They settled the litigation in early 2013 and executed a deed of settlement on 5 March that year. The deed provided that the respondent, David Phillips, agreed to discontinue the proceedings and to bring no further claims against the appellant, Ngāti Tama Custodian Trustee Ltd (Ngāti Tama), in relation to “the Dispute”.
Three years later in May and October 2016, Mr Phillips sent notices of “breach and infringement of copyright” to Ngāti Tama. They related to certain software and intellectual property rights in relation to the start-up he claimed had been acquired by various companies now controlled by him. Ngāti Tama responded by bringing summary judgment proceedings against Mr Phillips. Ngāti Tama claimed these notices breached the deed of settlement.
In the High Court, Courtney J dismissed the application for summary judgment.[1] Ngāti Tama now appeals. The sole issue in the appeal is whether the claims made by Mr Phillips in his notices are covered by the deed of settlement.
The facts
[1]Ngāti Tama Custodian Trustee Ltd v Phillips [2018] NZHC 304 [HC judgment].
Though the issue before us is narrow in the sense that it only relates to the construction of the deed of settlement, it is necessary to summarise the lengthy factual narrative that is the setting for the dispute and the proceedings referred to in the deed. That background assists in establishing what the deed purported to settle.
MyVirtualHome start-up
MyVirtualHome (MVH) is a software product. It allows users to create and manipulate on-screen a 3D image of any proposed or existing house design. It also integrates that capability with information about relevant products, services and prices for the construction or renovation projects reflected virtually on-screen. MVH was created by an Australian company called Creative Designer Software Pty Ltd (CDS). The software was built to run on the top of generic game development software called Auran Jet. Auran Jet was developed by the Auran group of companies[2] and licenced to CDS by Auran Technologies Pty Ltd in 2002.
[2]Auran Holdings Ltd, Auran Technologies Pty Ltd and Auran Developments Pty Ltd.
CDS was wholly owned by MyVirtualHome International Ltd (MVHI). CDS granted MVHI an exclusive licence to market and distribute MVH worldwide except for Australia, Russia and the CIS countries.[3] MVHI was effectively controlled by Mr Phillips. He was between 2006 and 2010 (and is since 2014) sole director of Open Group Ltd, which had in turn acquired a majority stake in MVHI in 2005. Ngāti Tama invested in the venture by purchasing minority stakes in both Open Group and MVHI. By October 2007, it had paid AUD 3,500,000 for a 10 per cent stake in MVHI and AUD 1,000,000 for about nine per cent of Open Group. This structure is illustrated as follows:
[3]Commonwealth of Independent States: the former Soviet Union States. The exclusive licence for Australia was held by MyVirtualHome Australia Pty Ltd and the licence for Russia and the CIS countries was held by Open Group Ltd.
MVHI then advanced CDS more than NZD 10,000,000 to complete development of the MVH software. MVHI secured its advances by way of a charge over CDS’s assets. By 30 June 2008, MVHI had a combined debt and equity investment in CDS of some NZD 15,600,000.
Ngāti Tama injects more funds
Despite this level of investment, the sole director of CDS and MVHI, Rodney Martin, reached the view in August 2008 that CDS lacked sufficient funds to complete the development of MVH. It faced the prospect of laying off software designers, a step which would effectively spell the end of the project. By this stage Ngāti Tama and Mr Phillips had fallen out. Ngāti Tama had come to the view that Mr Phillips was a major cause of the lack of timely progress within budget. It wanted him removed from his leadership role. Ngāti Tama agreed to provide further funding but only on condition that Mr Phillips be removed from his long-standing roles as key consultant to MVHI and CDS and de facto chief executive of the MVH project.
Mr Martin promulgated formal resolutions terminating Mr Phillips’ consultancy with both companies and prohibiting him from direct contact with company personnel other than Mr Martin himself. Mr Martin’s view was that this reset was necessary to save the project.
Ngāti Tama also required security for its further advances. Again, through Mr Martin, CDS and MVHI agreed to provide such security. CDS entered into a general security agreement (GSA) with Ngāti Tama on 24 December 2008. The GSA also contained a guarantee by MVHI. MVHI then executed a deed of priority by which the company ceded the priority of its security to Ngāti Tama. The amount secured by the Ngāti Tama GSA was AUD 1,740,000.
Receiverships
On 11 June 2009 Open Group, (relying on its own GSA over MVHI’s assets) appointed a receiver to MVHI.
On 25 June 2009 Ngāti Tama placed CDS in receivership in reliance on its GSA. Four months later, CDS’s receiver cancelled MVHI’s exclusive licence to market and distribute MVH and subsequently prepared CDS for sale as a going concern.
Consolidated proceedings
In November 2009, MVHI sued Ngāti Tama and Mr Martin. This was the CIV‑2009-443-548 proceeding. MVHI claimed the Ngāti Tama GSA was either invalid or second in priority to that of MVHI. Central to MVHI’s case was the argument that Mr Martin had breached his duties as a director of MVHI when he granted the Ngāti Tama security and priority. By doing this, MVHI argued, Mr Martin wrongfully favoured his own interests at the expense of MVHI’s.
In separate proceedings, Open Group and Mr Phillips also sued Ngāti Tama. This was the CIV-2010‑404-2197 proceeding. Ngāti Tama, it was claimed, had breached its contract with, and fiduciary obligations to, Open Group.
These separate proceedings were eventually consolidated.
Asset sales
In December 2009, the receiver was directed by the High Court to sell CDS’s business and/or assets and to pay the proceeds into court pending resolution of the consolidated proceeding.[4] In July 2010, CDS’s assets were sold to what is now Homesoft Group Pty Ltd (Homesoft), a company in which Ngāti Tama had interests. CDS was liquidated.
[4]Ngāti Tama Custodian Trustee Ltd v My Virtual Home International Ltd (in rec) HC Auckland CIV-2009-404-7584, 17 December 2009 (Allan J).
Ngāti Tama then applied to place MVHI in liquidation. Ten minutes before the application was to be heard by Heath J, MVHI’s receiver sold all of MVHI’s assets to KGB Ltd (a company controlled by Mr Phillips). The receiver advised the Court at the commencement of the hearing that he had done this at the request of Open Group, MVHI’s secured creditor. The agreement for sale and purchase dated 6 September 2010 provided the consideration was as follows:
A cash sum of NZD 9,000 being paid and received today, together with an agreed consideration that Open Group Limited will forgive as part of the terms and agreement [sic] included in this contract of sale and purchase, a sum of NZD 1,241,000 of the secured monies now claimed to be owed to it by MVHI under the GSA registered number 2002/4119.
In an oral judgment delivered on the same day, Heath J appointed liquidators to MVHI and requested that they investigate the propriety of the sale to KGB.[5] The liquidators reported a month later that the sale, although ill-conceived, was valid and binding. They took no further action in relation to the sale itself, although the dispute involving what assets were actually owned by MVHI remained as an aspect of the consolidated proceedings.
Preliminary questions
[5]Ngāti Tama Custodian Trustee Ltd v My Virtual Home International Ltd HC Auckland CIV-2009-404-7584, 6 September 2010.
The consolidated proceedings continued. On 27 October 2010, following a series of interlocutory hearings, Heath J set three preliminary questions “to be determined promptly”.[6] Heath J’s view (echoed by the receivers) was that any remaining value in CDS and MVHI, in particular the MVH software, could be quickly lost by lengthy litigation before the “true owner” of the underlying assets in dispute got an opportunity to realise that value.[7] In substance, the three questions were as follows:[8]
(a)What entity owned the Auran Jet source code, as at 24 December 2008 (that is, the date of the Ngāti Tama GSA)?
(b)Were the GSA, the deed of subordination of debt and the guarantee entered into lawfully on 24 December 2008? In other words, are they valid documents?
(c)If Ngāti Tama validly appointed receivers to CDS pursuant to the GSA, was CDS entitled to terminate the licence (on the basis of notice given on 7 July 2009) to use (non Auran) software of MVHI and/or Open Group on 28 October 2009?
[6]My Virtual Home International Ltd (in rec) and (in liq) v Ngāti Tama Custodian Trustee Ltd HC Auckland CIV-2009-443-548, 29 November 2010 at [3].
[7]At [3].
[8]At [4].
The parties agreed and advised the Court by memorandum that they would not appeal the judgment in relation to these questions.
After a five-day hearing, Venning J provided the following answers on 3 August 2011:[9]
(a)The Auran Jet source code was not owned by one entity. Rather, a copy of the code was owned by Auran Technologies Ltd, and a copy was jointly owned by MVHI and CDS.
(b)The security granted by CDS to Ngāti Tama (containing the guarantee by MVHI) and the deed of priority executed by MVHI on 24 December 2008 were valid and effective.
(c)Receivers of CDS were validly appointed and CDS was entitled to terminate the licence granted to MVHI and/or Open Group to use MVH software (other than the Auran Jet source code).
[9]MyVirtualHome International Ltd (in rec and in liq) v Ngāti Tama Custodian Trustee Ltd HC Auckland CIV-2009-443-548 consolidated with CIV-2010-404-2197, 3 August 2011 [Venning J judgment] at [161].
In short, Ngāti Tama was substantially successful. That said, Venning J made clear that the answers did not necessarily end the proceedings. He said:
[162] The above answers leave a number of unanswered questions such as whether the receiver obtained the best possible price for the My Virtual Home software, and whether the liquidators of MVHI may have claims against one or more parties/entities. Those matters are, however, not before the Court at this time.
Mr Phillips then appealed. This Court struck out the appeal, relying on the “no appeal” agreement referred to at [20] above.[10] Mr Phillips’ separate appeal in relation to Venning J’s costs order was dismissed.[11] Ngāti Tama then pursued the costs award, which led to settlement discussions facilitated by Associate Judge Sargisson.
[10]Phillips v Ngāti Tama Custodian Trustee Ltd [2011] NZCA 650 [CA judgment] at [41(a)].
[11]At [41(b)].
On 14 December 2012, all plaintiffs except for Mr Phillips himself were struck out of the consolidated proceedings.
The settlement
On 5 March 2013, Mr Phillips and Ngāti Tama settled the consolidated proceedings and executed a deed of settlement. The key terms for the purposes of this appeal are as follows:
3.1 Full and final settlement
aMr Phillips agrees to discontinue the Consolidated Proceedings, and the Ngati Tama Parties agree not to seek scale costs of the Consolidated Proceedings in full and final settlement of the Dispute and the Consolidated Proceedings.
bMr Phillips, Open Group and MVH will not have any further claims (whether known or unknown) against the Ngāti Tama Parties or Mr Morton in relation to the Dispute, the Consolidated Proceeding, or any other matter howsoever arising out of the Consolidated Proceeding or the Dispute.
cNgāti Tama will forgive its $1,000,000 AUD investment in Open Group by transferring its 9% shareholding to a party nominated by Open Group, on the basis the transfer does not breach the terms of the Takeovers Code.
dOwnership of the assets of MVHI are to be in accordance with the judgment of Justice Venning on 3 August 2011…
3.2 Absolute bar
This Deed may be pleaded as a full and complete defence by the parties to any claim commenced, continued, or taken by another party to this Deed or on its behalf to any of the matters referred to in this Deed.
3.3 Notice of Discontinuance
The parties shall file a notice of discontinuance (at the Auckland High Court) discontinuing the Consolidated Proceeding as soon as practicable upon signing this Deed.
…
4.1 Costs
Mr Phillips agrees to pay on demand all reasonable costs (including legal costs on a solicitor/client basis) and expenses incurred in connection with any enforcement or attempted enforcement of this Deed by the Ngāti Tama Parties.
In short, Mr Phillips agreed not to bring any further claims against Ngāti Tama in relation to “the Dispute”, the “Consolidated Proceedings”, or “any other matter howsoever arising” out of either of those terms. Ngāti Tama agreed not to seek scale costs and to relinquish its share in Open Group.
The notices
In May 2016, three years after the deed of settlement, Mr Phillips on behalf of himself and Open Group sent Ngāti Tama and Homesoft a “Notice of Breach & Infringement of Copyright”. The notice alleged that Ngāti Tama and Homesoft had taken and rebranded MVH “software and IP and business systems and/or designs”, which MVHI owned and sold before being liquidated. The notice alleged that Ngāti Tama and Homesoft continued to market and utilise such IP and systems as a new product which they now called “OIGY”. That, the notice alleged, breached the rights of the true owners, Mr Phillips and Open Group.
Ngāti Tama replied by issuing these summary judgment proceedings.
In September, Mr Phillips retracted the May notice of breach and advised its recipients that neither he nor Open Group in fact owned the rights referred to in the notice. Then on 4 October, he issued a second notice on behalf of Hambletonian Ltd, a company of which he was sole director. The notice repeated Mr Phillips’ claim that OIGY was a rebranded continuation of MVH. He now asserted that Hambletonian owned the relevant property rights in the rebranded product. Specifically, the notice provided:
IP and copyright of all MVH software business systems and/or designs and/or network platforms and/or communication systems and/or 3D library and/or software applications and/or the MVH website and more, have been since around mid 2005 clearly and publicly been [sic] owned by My Virtual Home International Limited (‘MVHI’).
Mr Phillips alleged that Open Group, “via its subsidiary” MVH Group Ltd, had acquired the MVHI assets and on‑sold these to Hambletonian and Mr Phillips “around January 2012”. Mr Phillips then transferred his personal interests in the assets to Hambletonian “[a]round September 2016”, leaving Hambletonian as the sole owner of the claimed interests.
Judgment appealed
Before Courtney J,[12] Mr Phillips argued that the notices he issued were directed towards “the business systems IP”. He argued this IP was validly sold to KGB by MVHI’s receivers three years before the settlement and so was not captured by the deed.
[12]HC judgment, above n 1, at [31].
The Judge found that Ngāti Tama had failed to show Mr Phillips lacked an arguable defence because “the available material indicates that the business systems IP were not subject to the deed of settlement”.[13] The reference at cl 3.1(d) of the deed to Venning J’s decision was important, she considered. Venning J made it clear that his judgment related only to some of MVHI’s assets. This meant that the provision in cl 3.1(d) that “[o]wnership of the assets of MVHI are to be in accordance with the judgment of Justice Venning on 3 August 2011” did not resolve all matters in relation to MVHI. Rather, by the date of settlement, it was quite clear that MVHI’s receiver had sold its assets “including the business systems IP” to KGB.[14] It was also known, the Judge found, that MVHI’s liquidators regarded the sale as binding and no parties took any steps to set it aside. This meant that by the time of the settlement, MVHI’s ownership of the MVH business system IP was not a live issue between the parties. The Judge concluded:
[37] On the documents before me, therefore, the business systems IP was, as from September 2010, the property of KGB (or any assignee). It follows that any assertion by or on behalf of KGB or its assignee of rights in the business systems IP does not amount to a breach of the deed of settlement. It is possible that there may be an argument that the notices have the impliedly asserted claims beyond the business systems IP but I do not consider that sufficiently clear to determine on a summary judgment application.
Submissions
[13] At [34].
[14]At [36].
Ngāti Tama submits that any business systems IP in relation to MVH was included in the March 2013 settlement either because MVHI had no more than a licence from its true owner CDS with respect to that IP, or, in the alternative, the ownership of that IP was in dispute in the consolidated proceedings. Ngāti Tama highlighted the following points:
(a)The 2005 licence provided that the business systems IP belonged to CDS and any additional documentation generated by MVHI after grant of the licence had to be returned to CDS.
(b)Prior to the year of settlement, CDS’s receiver explicitly rejected MVHI’s claim that it (MVHI) owned the business systems IP.
(c)Both MVHI and CDS claimed the business systems IP in the consolidated proceedings.
(d)After the 6 September 2010 sale, MVHI’s liquidators accepted that the company’s claim to the business systems IP fell to be resolved by the courts in due course and accepted further that MVHI’s value would be “de minimis” if the Ngāti Tama GSA had priority over the Open Group GSA.
(e)Venning J’s judgment in relation to the three preliminary questions accepted that MVHI owned no MVH related assets, and both that Judge and the Court of Appeal confirmed that the answers given to the preliminary questions did not resolve all issues raised by the consolidated proceedings. Unresolved issues included, it was submitted, the business systems IP issues.
(f)Finally, cl 3 of the deed of settlement confirmed that the consolidated proceedings were entirely settled in respect of all issues raised in them.
Mr Phillips supported Courtney J’s judgment and reasoning. He argued that ownership of the MVH business systems IP was never an issue in the proceedings and so was not the subject of the 2013 deed of settlement. Rather, the dispute which began in late 2008/early 2009 related to:
(a)rights over the MVH software;
(b)ownership of Auran Jet;
(c)the priority of Ngāti Tama’s GSA over MVHI’s assets;
(d)the cancellation by CDS’ receiver of that company’s licence to MVHI;
(e)the effective dismissal of Mr Phillips and his exclusion from MVH generally in August 2008; and
(f)the breach by Ngāti Tama of its funding agreement with Open Group in relation to MVHI.
The consolidated proceedings, it was argued, were therefore quite specific. The MVHI proceeding against Ngāti Tama and Mr Martin (2009-443-548) challenged the validity and priority of the Ngāti Tama GSA. Its three causes of action related to:
(a)Mr Martin’s receipt of benefits by breach of fiduciary duty to MVHI;
(b)Ngāti Tama’s facilitation of that breach; and
(c)Mr Martin’s lack of authority to agree as a director of CDS to the Ngāti Tama GSA and as director of MVHI to that company’s guarantee over CDS’s obligations and the MVHI deed of priority.
The proceeding by Open Group and Mr Phillips against Ngāti Tama (CIV‑2010‑404‑2197) raised the following five causes of action:
(a)breach by Ngāti Tama of its contract with Open Group over the funding of MVH;
(b)breach by Ngāti Tama of its fiduciary obligations to Open Group;
(c)inducing Mr Martin to breach the Open Group GSA with MVHI by asking Mr Martin to terminate the MVHI priority security over CDS;
(d)breach by Ngāti Tama of its fiduciary obligations to Mr Phillips; and
(e)inducing Mr Martin to breach MVHI’s “consultancy engagement” with Mr Phillips and to exclude Mr Phillips from all his previous roles in MVHI and CDS.
Mr Phillips accepted that this statement of claim referred to the alleged improper use of MVHI intellectual property including its business systems IP but, he submitted, this was not the core of the dispute and no relief was sought in respect of it. It could therefore be set aside as no more than context.
It was submitted that Ngāti Tama was well aware that MVHI’s assets had been sold to KGB, and on‑sold to Hambletonian. The on‑sale was necessary, Mr Phillips explained, in order for Open Group to meet its costs liability arising from the judgment of Venning J. Mr Phillips submitted that it was significant Ngāti Tama took no steps to prevent or challenge either sale. He further submitted that the true position was reflected in the Ngāti Tama Advisory Committee report to Te Rūnanga o Ngāti Tama in October 2012.
The Advisory Committee, headed by Richard Batley, had been appointed by Ngāti Tama to assist the tribe to retrieve its position following the loss of almost all of its capital in the MVH project. Following a discussion with Greg White of Ngāti Tama, the Committee recommended that the tribe should “exit” MVH because of the uncertainty about its ultimate success as an enterprise, even if the product was finally developed. A factor in that uncertainty was that Mr Phillips “still had IP rights”, although their nature was not described.
All the forgoing matters taken into account, Mr Phillips submitted that Courtney J was correct in concluding that the business systems IP was not in dispute in the consolidated proceedings. It was therefore not the subject of the 2013 deed of settlement and Mr Phillips was entitled on behalf of the current owner, Hambletonian, to take steps to protect its position.
Applicable summary judgment principles
The applicable principles for summary judgment are not in dispute. As this Court said in Krukzeiner v Hanover Finance Ltd:[15]
(a)The question is whether the defendant has no defence to the claim and the Court must be left without any real doubt or uncertainty.
(b)The onus is on the plaintiff, but where the plaintiff’s evidence sufficiently shows there is no defence, the defendant must respond if the application is to be defeated.
(c)Conflicts of evidence ought generally not to be resolved in a summary judgment application, but the Court may take a robust approach and need not accept uncritically evidence that inherently lacks credibility.
[15]Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
Where, as here, the central issue is the proper construction of a contract, the focus must be on the meaning the relevant provisions would convey to a reasonable person with all the background knowledge then reasonably available to the parties at the time they entered into it.[16] The factual matrix in which the contract is situated is therefore relevant. That raises the question of whether it will be appropriate on a summary judgment application for the Court to reach a concluded view on the meaning of the contract when the facts have not been fully tested.
[16]Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
The existence of a factual dispute does not always preclude the Court from entering summary judgment in a contract claim, but caution is required. The Court must be satisfied that resolution of the factual dispute is “not necessary to provide the Court with such contextual background as is necessary to resolve the claim”.[17] In other words, summary judgment may be appropriate where, on an objective assessment, the interpretation contended for is plainly the correct one regardless of the factual dispute.[18]
[17]Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [29].
[18]For an example of a case where the factual dispute was material to the interpretation of the contract and could not be resolved on summary judgment, see Ferrer-Aza v NZONE Race Management Ltd [2016] NZHC 885. Each party argued their interpretation was supported by industry practice.
On appeal in summary judgment proceedings, this Court is at no particular disadvantage in comparison to the High Court. This Court may assess the evidence and documentation for itself and come to its own conclusion.
The issue
The issue to be determined is the proper interpretation of cl 3.1(b) of the deed of settlement. It provides that Mr Phillips shall not have any further claims against Ngāti Tama in relation to “the Dispute, the Consolidated Proceeding, or any other matter howsoever arising out of the Consolidated Proceeding or the Dispute”. So, the question is, does this cover any claim in relation to MVHI’s business systems IP now allegedly owned by Hambletonian?
Here we emphasise that we need not resolve who had the best claim to MVH’s business systems IP. Rather, the settlement deed will apply to the present claim if the parties were in dispute over the ownership of the business systems IP when the settlement was reached in March 2013.
What is the MVH business systems IP?
To determine whether the settlement agreement covered the business systems IP, it is necessary to identify what the business systems IP actually is.
For the purposes of this appeal, Mr Phillips accepted that he was unable to challenge CDS’s ownership of the MVH software now held by Homesoft. He accepted also that he could not challenge Venning J’s findings with respect to the ownership of Auran Jet and the validity of CDS’s cancellation of the MVHI licence. Similarly, the settlement meant no claim could be mounted with respect to the MVH name and logo.
What the “business systems IP” comes down to is contained in a 20-page document entitled Potential Income Streams: Visionary Considerations. It is dated August 2008 and was generated by MVHI. Copyright is expressly claimed by MVHI on the face of the document in the US style. In short, the document is a high-level marketing plan and value estimate for worldwide monetisation of the MVH product. It contains strategies for developing multiple income streams from the MVH product and identified additional areas and products that could be developed around that core product. It then set out potential market capitalisation and share values for MVHI in the future. Insofar as any business systems IP existed, it related to this document.
On this basis, Mr Phillips argued that all rights to monetise MVH belonged to MVHI and are now owned by Hambletonian. He then pointed to a March 2013 document created by Homesoft entitled MyVirtualHome ‘Pay for Use’ Business Plan. The document runs to 83 pages. It too identifies potential markets, business platforms and additional products. In addition, it sets out expected staffing and budgeting requirements. Annexed to it are spreadsheets including sales projections.
Mr Phillips’ argument is that this document demonstrates Homesoft has taken the 2008 potential income streams document and built on it in breach of Hambletonian’s IP.
Clause 3.1(b) in context
Business systems IP and the licence
The arrangement provided by the licence CDS granted to MVHI was that CDS would allow MVHI to use CDS’s software for the purpose of monetising it. It did not transfer to MVHI any ownership rights in the software. The IP in the associated “Documentation” as defined in the licence also belonged to CDS.
But neither the software nor the documentation included the business systems IP. The licence granted MVHI a non-transferrable perpetual right to commercialise “MyVirtualHome”, which is exhaustively defined as the software package only. Similarly, the “Documentation”, which MVH also only had a right to use, is exhaustively defined as:
… operating manuals and other printed materials including users’ manuals, programming manuals, modification manuals, flow charts, drawings and software listings which are designed to assist or supplement the understanding or application of MyVirtualHome; …
This too does not refer to documentation in relation to business systems. Rather, its focus is documents relating to the software itself.
“Confidential Information”, on the other hand, clearly did cover business systems. It included:
(b)any marketing, sales, pricing and other financial documents (including trading results, policies, procedures, price lists, reports, customer or supply lists; [and]
(c)any information relating to future plans for development of the MyVirtualHome in the Territory…
Under the licence, MVHI was obligated to keep this information confidential and secure, and not use CDS’s confidential information in any other business without CDS’s consent. On termination of the agreement, MVHI was obliged to return to CDS all documents relating to MVH, including the “Confidential Information”.
Significantly, however, such information could be owned by either party. “Confidential Information” is defined to mean “any information belonging to the other Party, which is confidential”. In other words, MVHI was obligated to keep the information (including the business systems IP) secret and return it to CDS on termination of the licence, regardless of whether or not it owned it. The two companies were thus locked together: MVHI could create its own intellectual property in the context of its role as marketer and distributer of MVH, but it could not use that IP to compete with CDS or in a manner not agreed to by CDS.
This structure made sense given the parent/subsidiary relationship between the two companies at the time, and the fact that CDS (an Australian company) had received product development grants for MVH from that country. The split in their roles only became significant when the shareholders fell out over the basis upon which Ngāti Tama would provide additional capital, and different receivers were appointed to MVHI and CDS.
This division is reflected in the exchanges in July 2009 between the respective receivers of MVHI and CDS. By letter of 7 July 2009 to CDS’s receiver, MVHI’s receiver claimed ownership of the MVH website, 3D model library, business systems, network platform and media channels. The reply of 24 July 2009 from CDS’s receiver noted he had not sighted any signed contracts or documents to establish such ownership. In the absence of such documentation, he rejected MVHI’s claim.
By this stage, therefore, there was a disagreement between the companies over ownership of the MVH business systems IP.
Business systems IP and the consolidated proceedings
This disagreement continued into the two sets of proceedings that followed later that year and early the following year. It is necessary only to mention the claim by Open Group and Mr Phillips (CIV-2010-404-2197). As we have noted, that claim focused on an alleged breach of a 7 July 2008 funding agreement between Ngāti Tama and Open Group. This breach, it was argued, triggered the receiverships which in turn caused the plaintiffs to entertain “serious concerns about whether the CDS receiver is purporting to sell some assets owned by MVHI”.
While no direct allegation of theft was made in relation to the possible sale of the business system IP, the relief sought generally in the claim included an enquiry into damages for losses including those associated with “[t]he conduct of the defendant and the CDS receiver”. There can be no question that if the claim had gone to trial, the plaintiffs would have sought to establish that CDS had converted MVHI’s business systems IP and, if established, that this had caused the loss of revenue streams arising from the planned monetisation strategies.
Ngāti Tama’s statement of defence of 26 May 2010 accordingly denied that the July 2008 document was a final contract, denied that CDS was selling MVHI business system IP and denied MVHI owned any such IP.
Meanwhile, the 6 September 2010 sale of MVHI’s assets to KGB specifically purported to transfer “MVHI’s exclusively owned copyright over the MVH Software worldwide business, communication, marketing and Net Work Platform systems”.[19] The agreement also purported to transfer ownership of the MVH website and MVH names, brands, logos and goodwill.
[19]The type-written agreement was executed after 6 September 2010 to reflect what was described in that document as “the handwritten sale and purchase agreement (with additional verbal assurances agreed between the parties)” said to have been signed on that day.
These issues were not settled by the Venning J judgment, which only dealt with ownership of the source code, priority of the Ngāti Tama GSA and the validity of the MVH licence termination. Thus, as Arnold J in the Court of Appeal noted,[20] a claim for damages remained at large — a claim which, as we have said, would inevitably follow from an inquiry into the losses suffered.
[20]CA judgment, above n 10, at [3].
Further, in his unsuccessful appeal to the Court of Appeal, Mr Phillips filed a document described as “Statement of Claim supporting Judicial Review Application and Motion by Third Plaintiff David William Phillips”. It was received in the Court of Appeal on the 15 September 2011, two months before the hearing in that Court. It contained a lengthy series of complaints about judicial bias, breach of natural justice and mistakes of fact and law arising from the hearing before Venning J.
Paragraph 140 of the document is important. There Mr Phillips referred to the MVH business systems IP alleging once again that CDS had no right to them. He submitted that clarification of the question of ownership was a key issue in the consolidated proceedings. The paragraph provided:
These assets/property rights were owned by MVHI and NOT by CDS. Thereby any attempt by the CDS receiver or others to cancel the licenses granted by CDS to Open Group Ltd (and/or to MVHI) meant the overall MVH Group system and application in any license territory became chaotic, with no one being able lawfully to use the MVH software. This is the present dilemma facing the MVH Group and all parties to this proceeding and J Venning [sic] has done nothing to alleviate this dilemma, which the Third Plaintiff thought was a primary purpose of the preliminary hearing. If so, such purpose has failed to have been achieved by way of this preliminary hearing, with lawful chaos still remaining, and lawful application of the MVH software still undetermined.
(Emphasis added).
Thus, by this stage, the issue of the ownership of the business systems IP was clearly still unresolved. If Mr Phillips could establish that CDS had indeed sold assets formerly belonging to MVHI, this would inevitably have been an aspect of the losses claimed by Open Group and Mr Phillips. The action of CDS’s receiver in this respect was made possible, it could be argued, by Ngāti Tama’s breach of the July 2008 funding agreement which triggered the receiverships. As noted, paragraph 71(e) of the CIV-2010-404-2197 statement of claim alleged that the conduct of Ngāti Tama and CDS’s receiver, and the exclusion of Mr Phillips and Open Group, had caused substantial harm to the MVH business. This had led Open Group and Mr Phillips to irretrievably lose their entire investment.
Business systems IP and the settlement negotiations
Negotiations proceeded after Mr Phillips’ appeal was dismissed. Annexed to one of Mr Phillips’ affidavits in this proceeding was a letter dated 3 May 2012 from Isabel Hutchinson (director with Mr Phillips of Open Group between 2010 and 2014) to Richard Batley (chair of the Ngāti Tama Advisory Committee). It referred to a proposed without prejudice settlement that had been discussed the previous day. Ms Hutchinson offered a further alternative to that which had been discussed. In short, it was proposed that Ngāti Tama would give up any claim to “business systems” and each party would go its own way. The proposal set out why it was that MVHI owned the business systems IP and that there had been no challenge to that by Ngāti Tama. It alleged that Homesoft had “purported to convert/steal this copyright in 2010 and was put on notice to desist”. Open Group threatened future legal action unless the matter was resolved satisfactorily. Plainly this issue was still in play during the negotiations leading to the 2013 settlement.
Conclusion
We have rehearsed at some length the evidence that points to the objectively ascertainable context within which the deed, and particularly cl 3.1, must be construed. That context leaves no room for doubt that the consolidated proceedings included a challenge to CDS’s treatment of business systems IP that did not belong to it. Much of the evidence for this is found in documents generated by Mr Phillips or his interests and adduced in this proceeding by him.
To summarise, by the time of the settlement negotiations in 2012, Mr Phillips’ earlier fear that the business systems IP might have been stolen by CDS had hardened into a firm accusation that CDS had unlawfully sold the business systems IP to Homesoft. Further, and contrary to the submission of Mr Phillips, relief was sought with respect to that alleged theft. The plaintiffs sought damages equal to losses arising from the failure of CDS, which must have included the alleged sale by CDS of what Ngāti Tama said was MVHI’s key asset — its monetisation strategy.
As noted, cl 3.1(b) of the settlement deed provides that Mr Phillips will not bring any further claims (known or unknown) against Ngāti Tama in relation to the dispute, the consolidated proceeding or any matter “howsoever arising out of” them. The claim to business systems IP did form part of the consolidated proceedings, was specifically raised in Mr Phillips’ additional pleading before the Court of Appeal and was plainly still live in the negotiations that led to the settlement.
The fact that following withdrawal of the May 2016 notice, the claim reflected in the October 2016 notice was not strictly that of Mr Phillips or Open Group is of no significance. Clause 3.2 provides that the deed will be a complete defence to any claim made by or on behalf of any party to it. The Hambletonian claim is on behalf of Mr Phillips (who, as its sole director, controls that company) in the sense intended by that clause. The parties cannot have intended that the deed’s effect could be avoided by conveniently vesting the right to claim in a separate company which is controlled by Mr Phillips as its sole director, and owned by a family trust of which he is a trustee (but not, he says, a beneficiary).
Result
The appeal must be allowed accordingly.
Summary judgment is granted to the appellant in terms of its application.
The respondent must pay the appellant costs in accordance with cl 4.1 of the settlement deed.
Solicitors:
Anthony Harper, Auckland for Appellant
Denham Bramwell, Auckland for Respondent
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