Ngati Tama Custodian Trustee Ltd v Phillips
[2018] NZHC 304
•2 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-001317
[2018] NZHC 304
BETWEEN NGATI TAMA CUSTODIAN TRUSTEE LIMITED
Plaintiff
AND
DAVID WILLIAM PHILLIPS
Respondent
Hearing: 2 February 2017 and 7 February 2018 Appearances:
J R Billington QC and J James for Plaintiff Respondent in Person
Judgment:
2 March 2018
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 2 March 2018 at 11.00 am
pursuant to R 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………
NGATI TAMA CUSTODIAN TRUSTEE LTD v PHILLIPS [2018] NZHC 304 [2 March 2018]
Introduction
[1] In a deed executed in March 2013, Ngati Tama Custodian Trustee Ltd and its associated parties settled a dispute with David Phillips and his associated parties relating to a company, My Virtual Home International Ltd (MVHI) in which both groups were shareholders. The dispute had been the subject of proceedings brought under CIV-2009-443-548 and CIV-2010-404-2197 which were later consolidated. In the deed of settlement Mr Phillips agreed that he would not assert any claim against Ngati Tama in relation to the dispute, the consolidated proceedings or any matter arising out of them. In 2016 Mr Phillips and a company he controls, Hambletonian Ltd, issued notices requiring Ngati Tama to cease its use of certain intellectual property that they asserted belonged to them. Ngati Tama claims that these notices breached the settlement agreement.
[2] In this proceeding Ngati Tama seeks a declaration that Mr Phillips is prohibited from commencing any proceeding against it or any other party to the deed “in relation to the MVH system proceedings or any other matter arising out of the MVH system proceedings”, an order for specific performance requiring him to comply with the terms of the settlement deed and orders prohibiting him from communicating to any third party that he has claims against Ngati Tama in relation to the intellectual property associated with a software system known as the MVH system.
[3] Ngati Tama has applied for summary judgment. In October 2016, pending determination of the summary judgment application, Muir J made an interim order prohibiting Mr Phillips from asserting, in any capacity, that he or Hambletonian has claims against Ngati Tama with respect to intellectual property associated with the MyVirtualHome system (MVH).
[4] Mr Phillips opposes the summary judgment application on the grounds that (1) the subject matter of the notices did not fall within the ambit of the settlement deed and (2) that the notices did not constitute the assertion of any claim and therefore did not amount to a breach of the deed of settlement. It is unnecessary to deal with the second ground in any detail. It is clear that the notices had the effect of asserting
claims against Ngati Tama. The only real issue is whether the subject matter of the notices falls within the ambit of the deed of settlement.
[5] The applicable principles are not in issue, having been summarised by the Court of Appeal in Krukzeiner v Hanover Finance Ltd:1
(a)The question on a summary judgment application is whether the defendant has no defence to the claim – that there is no real question to be tried.2 The Court must be left without any real doubt or uncertainty.
(b)The onus is on the plaintiff, but where its evidence sufficiently shows there is no defence, the defendant must respond if the application is to be defeated.3
(c)The Court will not normally resolve conflicts of evidence but, on the other hand, need not accept, uncritically, evidence that is inherently lacking in credibility.4 The Court may take a robust and realistic approach where the facts warrant it.5
Background
The origins of the dispute
[6] The MVH programme allows users to create a three-dimensional image of a proposed house design and can also be used more broadly to provide information about products, services and prices. MVH was developed by an Australian company, Creative Designer Software Pty Ltd (CDS). In 2007 CDS was wholly owned by MVHI. The shareholders of MVHI were Open Group (the major shareholder) and Ngati Tama.
1 Krukzeiner v Hanover Finance Ltd [2008] NZCA 187, (2008) PRNZ 162 at [26]–[27].
2 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
3 MacLean v Stewart (1997) 11 PRNZ 66 (CA) at 69.
4 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
5 Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA) at 85–86.
[7] CDS had granted an exclusive license to MVHI to market and distribute the software worldwide except in Russia, countries forming part of the former Soviet Union (the CIS countries) and Australia. The licence for Russia and the CIS countries was held by Open Group, and the licence for Australia by My Virtual Home Australia Pty Ltd.
[8] Mr Phillips was engaged as a consultant to MVHI and maintains that he effectively created the network platforms, business systems information, communication systems, income stream systems and the My Virtual Home website, all of which would be needed to monetise the MVH software. I refer to these collectively as the “business systems IP”. Reference to these systems appears in MVHI shareholders’ reports accompanied by the assertion “© Copyright 2007 MyVirtualHome International Ltd”.
[9] Open Group and Ngati Tama both put significant funds into MVHI for the development of the software. In 2007 CDS granted a charge by way of a general security agreement (GSA) to MVHI over all its assets (the first CDS security). MVHI, in turn, granted Open Group a charge over its assets by way of a GSA (the MVHI security). The assets secured by the MVHI security would include the benefit of the first CDS security.
[10] During 2008 the relationship between Open Group/Mr Phillips and Ngati Tama deteriorated. There were efforts made to terminate Mr Phillips’ involvement in the group. CDS’ sole director, Rodney Martin, granted a new charge by way of a GSA in favour of Ngati Tama (the second CDS security). Then, in his capacity as director of MVHI, he ceded the priority held by MVHI under the first CDS security in favour of the second CDS security held by Ngati Tama. Self-evidently, this adversely affected the value of the MVHI security held by Open Group. The resulting dispute led to the receivership and liquidation of both CDS and MVHI and to litigation between Open Group and Ngati Tama.
Receivership of MVHI and commencement of proceedings
[11] In June 2009 Open Group appointed a receiver to MVHI and began negotiating for the purchase of MVHI’s assets. Also in June 2009, Ngati Tama appointed receivers
to CDS. In a letter dated 24 July 2009, the receiver of CDS, Gavin Morton, wrote to the receiver of MVHI, Rodney Stewart, on a number of matters, including the licence to use the MVH software and the business systems IP:
With regard to the Intellectual Property Licence between MVHI and CDS, I refer to my letter of 7 July 2009. For the reasons stated in that letter, MVHI is in material breach of its obligations under the licence agreement. If MVHI fails to remedy such breach within the time period specified then CDS intends to immediately terminate the licence agreement. The matters raised in your letter of 7 July 2009 do not remedy those breaches. In particular, given David Phillips’ previous inability to commercialise and generate revenue from MyVirtualHome and the grounds upon which his consultancy agreement with MVHI was terminated, CDS has no confidence in his ability to fulfil the obligation of MVHI under the licence agreement. Therefore, pending resolution of these matters, CDS will refrain from delivering version 2 of the MyVirtualHome software to MVHI.
I have not sighted any signed contracts or documents that establish that MVHI owns the MyVirtualHome software website, 3D model library, the worldwide copyright for the business systems, network platform and media channels on which MyVirtualHome is commercialised or the Auran Jet technology. Please provide supporting documents and signed agreements to substantiate those allegations. In the absence of such documentation the ownership claims raised by MVHI are not accepted.
[12] In November 2009, MVHI (by Open Group/David Phillips) commenced the proceedings under CIV-2009-443-548 against Ngati Tama and Mr Martin for declarations that the second CDS security was invalid or that the first CDS security took priority over it. Numerous other allegations were also made, including breach of fiduciary duty, breaches of copyright and defamation.
[13] In April 2010, Open Group/Mr Phillips brought the proceedings under CIV- 2010-404-2197 against Ngati Tama alleging, among many other things, that Ngati Tama had appointed a receiver to CDS without any legal right to do so and that, by advertising the My Virtual Home business as a going concern, the CDS receiver was purporting to sell assets belonging to MVHI and Open Group, including:
(a)MVH business and communication systems and the MVH business Network Platform which are publicly declared as being copyright owned by MVHI, being a position agreed to by the defendant on 4 June 2008; and
(b)MVHI work web site; and
(c)Auran Jet Engine, which is referred by CDS in the MVHI and first plaintiff’s licence with CDS as being:
“the 3D technology owned by Auran Technologies Property Ltd which forms part of MVH software”.
In 2006 MVH purchase that core Auran Jet Engine technology as it relates to any home design use from Auran Technologies Property Ltd; and
(d)MVHI’s itellectual property licence granted by CDS to MVHI by way of the founding 2005 contracts and by was of the separate 2005 and 2006 licensee contracts …
[14] Ngati Tama subsequently applied to have MVHI placed in liquidation. That application came before Heath J on 6 September 2010. The application was opposed (presumably at the behest of Mr Phillips/Open Group). That same day the parties received a letter from MVHI’s receiver, Rodney Stewart, advising of the sale of all the MVHI assets to KGB Ltd, a company controlled by Mr Phillips, and a copy of the sale and purchase agreement, both of which were provided to Heath J.
[15] In his letter Mr Stewart referred to his efforts to obtain a sale of the assets of the MVH group as one complete project, but having been prevented from doing so by those associated with Ngati Tama. He recorded that Open Group, MVHI’s only secured creditor, had asked him to sell the assets to its nominated buyer under its GSA and that, after 12 months and in the absence of firm buyer interest from any other party, he had accepted the offer made by Open Group.
[16] The sale and purchase agreement identified specific MVHI assets that were the subject of the sale. They were said to include “all of the MVHI tangible and intangible assets and also all rights attaching thereto or arising therefrom”. They specifically included:
1.1MVHI exclusive 100 per cent ownership of the Auran Jet Games engine for all MVH software related uses and all Home Design uses worldwide;
1.2MVHI’s 50 per cent ownership of the Auran Jet Games engine for all non-MVH software related uses and all non-home design uses worldwide;
1.3The source code for MVH Software known as versions 1.3 and 1.6;
1.4MVHI’s licences and/or the right to distribute and market and sub- licence MVH Software worldwide, excluding only Australia and Russia/CIS;
1.5MVHI’s exclusively owned copyright over the MVH Software worldwide business communication, marketing and Net Work Platform systems …
[17] Heath J was very concerned at the sale of the company’s assets by the receiver at a time when, to the receiver’s knowledge, there was an application before the Court. Referring to the sale and purchase agreement, Heath J said: 6
… What becomes clear from that document is that all assets of My Virtual Home have been sold to a company called KGB Ltd on the basis of a cheque paid this morning in the sum of $9,000 …
While there are terms in the agreement to suggest that it might be unwound in certain circumstances, the mere fact that the receiver has been prepared to enter into an agreement of that type means that I am not prepared to trust him with the administration of this company without the appointment of a liquidator who is in a position to investigate the affairs of Mr Virtual Home and to scrutinise actions taken on behalf of the charge-holder, in the context of the interest of other creditors of that company.
[18] Heath J made an order appointing liquidators to MVHI and directed them to report by 6 October 2010. In their report, the liquidators expressed the view that the sale was both ill-considered and ill-conceived but nevertheless concluded that it was a binding sale:
We … consider that the sale of the business and assets of MVHI by [the receiver] to be legally binding … We have discussed the sale of the business and assets owned by MVHI to KGB with MVHI’s Receiver and have little doubt that it was ill-considered and ill-conceived.
The Receiver has the obligation to achieve the best price reasonably obtainable at the time of sale for the business and assets of MVHI. Ultimately in addressing matters before it, the court will determine whether or not MVHI has, or had, in fact little of [sic] no assets to sell or rather as argued by the Receiver MVHI does have a parcel of assets which through no fault of its own are no longer under the Company’s direct control. Should the latter situation be deemed to be the case, as Liquidators, we will have further questions for the Receiver around his sale to KGB.
[19] The liquidators took no further steps in relation to the sale of the MVHI assets to KGB.
6 Ngati Tama Custodian Trustee Ltd v My Virtual Home International Ltd HC Auckland CIV-2009- 404-007584, 6 September 2010 at [30] and [33].
[20] In 2014 Mr Stewart gave notice of the end of the receivership and provided his report, which canvassed the history leading up to the sale of the MVHI assets to KGB including the following:
Around 3 September 2010, despite MVHI objection, the CDS assets (inclusive of an MVH going concern business) was sold to a Brisbane based subsidiary of Ngati Tama, with Greg White as its director.
[Open Group], in response, approached MVHI/MVHI receiver to buy all the MVHI assets. The MVHI assets were sold to an [Open Group] subsidiary on 6 September 2010 (to KGB Limited) and an immediate notice was given to Ngati Tama and those associated to it and to another possible buyer of MVH Group assets. Each of these parties were advised they could have re-assigned to them for value the MVHI assets. As a part of the contract or [sic] sale to [Open Group], MVHI was to benefit by any on-sale value upside. None of those parties, including Ngati Tama, came back to the MVHI receiver expressing any interest in buying those MVHI assets at any price.
On 6 September 2012 the NZ High Court, on petition of Ngati Tama, ordered a liquidator be appointed to MVHI, and asked the liquidator to investigate the sale of MVHI assets to [Open Group]. The MVHI liquidator interviewed myself and others in MVHI and [Open Group], but in the event decided not to take any action to try to reverse my sale of MVHI assets to [Open Group].
(emphasis added)
Determination of preliminary questions
[21] Notwithstanding the sale to KGB and the fact that no steps were taken to set it aside, ownership of at least some of the MVHI assets remained a live issue. In 2011 Venning J determined preliminary questions about the ownership of the Auran Jet source code, the validity of CDS’ termination of the MVH licence and the validity of the CDS second security and its priority over the first CDS security.7
[22] The first question was “what entity owned the Auran Jet engine source code as at 24 December 2008?”. The Auran jet engine source code was owned by an unrelated company, Auran Holdings Ltd, and enabled the MVH software to run in conjunction with its current operating system. It was licensed to MVHI. Venning J found that MVHI did not own the Auran Jet source code but that MVHI and CDS owned a copy of the source code jointly. The effect of the decision was that MVHI could not have sold the Auran Jet source code (or a copy) to KGB. But that did not affect MVHI’s
7 MyVirtualHome International (in rec and in liq) v Ngati Tama Custodian Trustee Ltd HC Auckland CIV-2009-443-548, 3 August 2011.
right to sell other assets. I accept Mr Phillips’ submission that Venning J’s decision regarding Auran is not relevant to the status of the business systems IP.
[23] The second question was “[w]ere the two debentures, deed of subordination of debt and guarantee entered into lawfully on 24 December 2008? In other words, are they valid documents?” This question related to the validity of the second CDS security granted by CDS in favour of Ngati Tama and the deed of priority by which MVHI ceded its priority to the first CDS security. Venning J considered that both documents were valid. Neither affected ownership of MVHI’s assets which were the subject of the sale to KGB.
[24] The third question related to the termination by CDS of the software licence, and Venning J held that CDS was entitled to terminate it. This question did not affect ownership of the MVHI assets.
[25]Venning J concluded by observing that:8
[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.
The Deed of Settlement
[26] The deed recorded the appointment by Open Group of a receiver to MVHI, the commencement of the proceedings under CIV-2009-443-548, the subsequent proceedings by Open Group against Ngati Tama under CIV-2010-404-2197, the consolidation of the proceedings, the fact that the consolidated proceedings were ongoing and the fact of Venning J’s decision. It recorded that:
The Consolidated Proceedings are ongoing with a number of interlocutory applications (Dispute).
[27] The deed provided that Mr Phillips would discontinue the consolidated proceedings and that:
8 At [162].
Mr Phillips, Open Group and MVH will not have any further claims (whether known or unknown) against the Ngati 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.
Ngati 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 that the transfer does not breach the terms of the Takeovers Code.
Ownership of the assets of MVHI are to be in accordance with the judgment of Justice Venning on 3 August 2011 …
The alleged breaches of the deed of settlement
[28] On 18 May 2016, Mr Phillips emailed certain individuals associated with Ngati Tama attaching a “notice of breach and infringement of copyright”. This lengthy document opened as follows:
Please receive this NOTICE a warning and a formal request from David William Phillips and NZ registered company Open Group Limited to each named recipient to cease and desist from alleged breach and/or infringement and/or conversion and/or theft with regard to the alleged breach and infringement and conversion and theft of My Virtual Home IP and COPYRIGHT and property rights, from the copyright and property right owners, who are both David William Phillips and NZ registered company Open Group Ltd.
This is a serious matter and we urge you to take this notice to your legal advisors and to also take heed of all matters set out herein.
Breach or Infringement or conversion or theft of copyright and property rights can become a criminal matter, with all the offices of the entity/entities causing the breach liable to civil and criminal prosecution.
[29] The notice then referred to “OIGY software”, copyright in which had been claimed by Homesoft Pty Ltd and continued:
However, the fact is that OIGY is a look-alike copy of the My Virtual Home (MVH) software and IP and business systems and/or designs; whereby the IP and copyright of MVH business systems and/or designs are clearly not owned by Homesoft or OIGY, and never were owned by Homesoft or OIGY.
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 web site and more, have been since around mid-2005 clearly and publicly been owned by My Virtual Home International Ltd (‘MVHI’).
MVHI has since been liquidated by the hand/request of Ngati Tama and its then leader Greg White. However, before liquidation, MVHI sold for consideration and in a process approved by court appointed MVHI
liquidators, all its then exclusive ownership of MVH IP and copyright, including but not limited to, MVH software business systems and network platforms and communication systems and software applications and the MVH website.
Ngati Tama then tried (unsuccessfully) to liquidate Open Group Ltd and/or bankrupt David W Phillips, them being the new owners of this MVH IP and copyright. It is these new owners of the MVH IP and copyright who send this notice and rely on their valuable ownership rights …
The senders of this notice also reserve all rights to civil damage recovery and to criminal prosecution (starting private criminal prosecutions themselves if need be) against anyone or any entity breaching or infringing or
converting or stealing or using its MVH IP or copyright, as we allege by way of this notice that OIGY and Home Soft are now illegally doing, with Ngati Tama approval.
(emphasis added)
[30] In October 2016 a new, similar notice was issued, this time in the name of Hambletonian Ltd, advising that:
However, the fact is that OIGY is a look-alike copy of the My Virtual Home (MVH) software and IP and business systems and/or IP/copyrighted designs; whereby the IP and copyright of MVH business systems and/or designs are not owned by Homesoft or OIGY, but by is [sic] Hambletonian Limited and the foundation Auran Jet/MVH software engine is jointly owned by HOMESOFT and Hambletonian Limited.
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 owned by My Virtual Home International Ltd (‘MVHI’).
MVHI has since been liquidated by the hand/request of Ngati Tama and its then leader Greg White. However, before liquidation, MVHI sold (via its Receiver) for cash and other consideration and in a process later approved by court appointed MVHI liquidators, all its then exclusive ownership of MVH assets, IP and copyright, including but not limited to, MVH software business systems and network platforms and communication systems and software applications and the MVH website and the designs inherent in the MVHI potential income flow statement. MVHI’s purchaser also later acquired joint ownership of the MVH software machine, by way of the Venning decision.
Ngati Tama tried (unsuccessfully) to liquidate Open Group Ltd (“OGL”) and/or to bankrupt David W Phillips in 2010/2012. OGL via its subsidiary MVH Group Limited was the new owner of these ex MVHI assets and IP and copyright in the period September 2010 – January 2012. OGL, via its subsidiary MVH Group Limited then on-sold these ex-MVHI assets and IP and copyright to Hambletonian Limited and David W Phillips around January 2012. The new owners of the ex MVH assets and IP and copyright sent a prior notice, but David W Phillips and OGL each withdrew that notice on
5 September 2016. Around September 2016 Hambletonian Limited acquired the minority of the ex-MVHI assets that had before then been owned by David W Phillips. Hambletonian Limited is now the sole owner of all the ex MVHI assets and I-P and copyright.
(emphasis added)
The summary judgment application
[31] Mr Phillips says that the notices that are the subject of the summary judgment application are directed towards the business systems IP. He maintains that since the intellectual property in the business systems IP was owned by MVHI and sold to KGB before the deed of settlement was entered into it is not captured by it. Therefore the notices do not breach the deed of settlement.
[32] Ngati Tama argue that the assertions contained in the notices mirror those contained in the pleadings and therefore arise out of the consolidated proceedings that were settled by the deed of settlement. As a result, the business systems IP are captured by the deed, Mr Phillips has no further claim to them and the notices amount to a breach of the deed.
[33] The ambit of the deed of settlement is a question of interpretation to be undertaken in accordance with the usual principles of contractual interpretation.9 In particular, the deed is to be interpreted against the relevant factual background known to the parties at the time.
[34] The circumstances in which the deed of settlement was entered into are not entirely clear to me, which is not surprising; the allegations in the pleadings show the extent and complexity of the breakdown in the relationship between the two groups. In addition, in the context of the summary judgment application both parties raise questions of credibility. It is possible that in the context of a trial a different picture would emerge. At this stage, however, Ngati Tama has failed to show that Mr Phillips has no defence to the claim against him because the available material indicates that the business systems IP were not subject to the deed of settlement.
9 See Firm PI 1 v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]– [64].
[35] Under the terms of the deed of settlement the ambit of the “dispute” being settled is not circumscribed by the pleadings but, rather, by the “proceedings”. In my opinion the parties’ intention evident from the deed was to settle the issues that were still live as at the date of settlement; that is obvious from the fact that the parties took Venning J’s decision into account at the date of the deed. However, the issues determined by Venning J related to only some of the MVHI assets. Thus, the wording of the deed that “[ownership of the assets of MVHI are to be in accordance with the judgment of Justice Venning on 3 August 2011 …” leaves uncertain what the parties intended in relation to assets not determined by Venning J.
[36] The status of the business systems IP was not determined by Venning J. But at the date of settlement all parties knew that MVHI’s receiver had sold its assets, including the business systems IP, to KGB. All parties knew that the liquidators of MVH regarded that sale as binding. All parties knew that no steps had been taken to set aside that sale. Self-evidently, Venning J’s decision had that effect in relation to the Auran Jet source code and the MVH licence but I do not consider that it affected the other assets that had been the subject of the sale. As a result, it does not appear that ownership of the business systems IP was still live between the parties. There is no basis for thinking that the parties intended, by the settlement, to alter the ownership of those assets. Had that been the intention, there would, at least, have been some mechanism agreed on for the transfer of the assets from KGB.
[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.
Result
[38]The application for summary judgment is dismissed.
[39]Muir J’s interim injunction of 11 October 2016 is discharged.
[40] The parties may address the issue of costs by memorandum filed on behalf of Mr Phillips within 14 days and on behalf of Ngati Tama within 21 days, with any reply by Mr Phillips within 28 days.
P Courtney J
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