Nuwave Software Ltd v Objective Corporation Solutions NZ Ltd
[2022] NZHC 2511
•30 September 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2022-485-398
[2022] NZHC 2511
BETWEEN NUWAVE SOFTWARE LIMITED
Plaintiff
AND
OBJECTIVE CORPORATION SOLUTIONS NZ LIMITED
Defendant
Hearing: 28 September 2022 Appearances:
A S Olney and A C Singleton for the Plaintiff
J H Stevens and L J Hardcastle for the Defendant
Judgment:
30 September 2022
JUDGMENT OF PALMER J
Solicitors/Counsel
A S Olney, Barrister, Wellington Bell Gully, Wellington
NUWAVE SOFTWARE LIMITED v OBJECTIVE CORPORATION SOLUTIONS NZ LIMITED [2022] NZHC
2511 [30 September 2022]
What happened?
[1] In 2016, Nuwave Software Ltd (Nuwave), the plaintiff, entered a joint venture with Master Business Systems Ltd (MBS) through a jointly and equally owned company, GoCouncil Ltd (GoCouncil). MBS offered a product, GoGet, which Councils used to process applications for building consents. Nuwave had expertise in the development of online portals. The joint venture company, GoCouncil, provides bundled software to building consent authorities that enables building consent applications to be both lodged and processed digitally (an end-to-end solution). The primary competing end-to-end package was AlphaOne.
[2] In March 2017, GoCouncil succeeded in tendering to develop and provide a portal, the Simpli portal, for applicants and councils on behalf of around 20 building consent authorities. The Simpli portal integrates with MBS’s GoGet processing product. So a number of GoCouncil’s clients are also, separately, clients of MBS.
[3] Around June 2016, the directors of GoCouncil, from Nuwave and MBS, signed a shareholders’ agreement (the Agreement) and, in October 2016, approved a constitution. It provides that the primary objects are maximise the value of GoCouncil and grow the business of providing online web-portal services consistent with the relevant business plan. Business plans were developed over the course of strategy meetings and generally recorded in the minutes of those meetings and in emails. A formal document was never attached to the Agreement. Relevantly, cl 15 of the Agreement provides:
15NON-SOLICITATION
15.1Non-solicitation: Each Shareholder undertakes not to directly or indirectly without the previous consent in writing of the Company approach any existing clients or employees of the Company to leave the mploy or custom of the Company at any time during which the Shareholder (or any party over which they have a Controlling Interest) is a Shareholder, and for a further period of 24 months after ceasing to be a Shareholder.
15.2Approved exclusion: The restrictions in this clause 15 shall not apply if the Key Person obtains the prior written consent of the Board (which must have the support on the same basis as set out in clause 6.1) to the activity or solicitation.
15.3Restrictions Reasonable: The parties acknowledge that the restrictions set out in this clause 15 are reasonable and necessary in order to protect the goodwill in and know-how of the Company.
15.4Survival: This clause 15 will survive termination of this Agreement.
[4] From December 2017 to August 2018, the directors of Nuwave and MBS as well as the CEO of MBS negotiated a further document entitled Partnership Goals and Principles. Relevantly, the sixth principle provides:
6.Neither Nuwave nor MBS will compete with GoCouncil whilst in their ownership, any GoCouncil development or strategy that could be deemed to be in competition to Nuwave or MBS will be tabled, discussed and agreed to on a case-by-case basis.
[5] Schedule 2 of the document lists, amongst the intellectual property contributed to the joint venture by MBS, “[e]xisting customer base (being the existing GoGet client base and the knowledge of those sites)”. Appendix B, which was adopted by the directors in October 2017, outlined the evolution of the joint venture, which included MBS’s desire to offer a portal service to complement its back-end consenting system.
[6] In April 2019, Objective Corporation Solutions NZ Ltd (Objective NZ) acquired the companies offering AlphaOne. In October 2019, Objective Corporation, the Australian parent company of Objective NZ, entered into a share and purchase agreement for all the shares in MBS. That acquisition was completed on 29 November 2019. From around February 2020, Objective NZ embarked on a strategy of developing its own end-to-end building consent processing application, Objective Build, shifting clients to that product and winding down the GoCouncil joint venture. Nuwave thought Objective NZ was aware of the shareholder’s agreement but it appears that was not the case
[7] Objective Corporation did not apply for clearance from the Commerce Commission for its acquisition of MBS. The Commission opened an investigation in May 2020. The Commission and Objective Corporation reached a settlement which I approved in the High Court in July 2022.1 Objective Corporation accepted it had
1 Commerce Commission v Objective Corporation Ltd [2022] NZHC 1864.
contravened s 47 of the Commerce Act 1986 in acquiring shares where the acquisition would have or would be likely to have the effect of substantially lessening competition in a market. The parties agreed that Objective Corporation should face a fine of $1.54 million. The Commission did not pursue divestment because it considered the risk of an unsuccessful divestment, which might interrupt the supply of support and maintenance services to building consent authorities, too high.2 I accepted divestment was not practically feasible.3
[8] Nuwave has issued proceedings against Objective NZ for several alleged breaches of the Agreement and oppressive conduct under s 174 of the Companies Act 1993. Nuwave seeks damages and an injunction lasting until 24 months after Objective NZ ceases to be a shareholder. Nuwave is contemplating whether to add competition law claims. In the meantime, Nuwave applies for an interim injunction prohibiting Objective NZ, until further order of the Court, from directly or indirectly approaching any of 24 specified existing GoCouncil clients, or any future clients of advised to Objective NZ, to leave the custom of GoCouncil. Nuwave provides an undertaking as to damages.
Submissions
[9] Mr Olney, for Nuwave, submits there is a serious question to be tried. The risks for Nuwave of not granting relief outweigh the risks for Objective NZ of granting relief. Damages are not an adequate remedy. Injunctive relief supports the preservation of the status quo while the substantive dispute is determined. The delay by Nuwave in bringing proceedings was initially because it awaited the commencement of negotiations with Objective NZ to address the obligations created by the Agreement, and then because it awaited the outcome of the Commerce Commission’s investigation. Objective NZ’s solicitation of clients, and gutting of the joint venture, is part of a broader anti-competitive strategy.
[10] Ms Stevens, for Objective NZ, submits that this is an eleventh-hour attempt to limit Objective NZ from promoting Objective Build. All the 24 building consent
2 At [10].
3 At [11].
authorities identified by Nuwave are also supplied with GoGet by Objective NZ under separate contracts and they are not, contractually, clients of GoCouncil. Objective NZ’s position is that there is no serious question to be tried because the Agreement is not enforceable and subsequent conduct makes clear it was never intended to be binding. Nuwave unduly delayed bringing what it says are urgent proceedings, which is fatal to its application. Damages, for the impact on GoCouncil’s value, would be calculable. An injunction would put Nuwave in a better position than it is in now. It would also result in significant reputational and business impact on Objective NZ if it has to stop engaging with 24 customers. Objective NZ also raises questions about the workability and certainty of the injunction and the sufficiency of Nuwave’s undertaking as to damages. The Commerce Act penalties are irrelevant to the application.
Should an interim injunction be granted?
[11] Under r 7.53 of the High Court Rules 2016, to grant an interim injunction the Court must examine whether there is a serious question to be tried, consider the balance of convenience for the parties, pay particular attention to whether damages would be an adequate remedy, and assess the overall justice of the position.4
[12] On the face of the documentary evidence before me, I am satisfied there is a serious question to be tried. Issues about whether the parties intended to be bound by the Agreement, the implications of their subsequent conduct, the effect of imperfections in the documentation, and the effect of delay in bringing the proceedings will no doubt be explored at trial. That is a purpose of a trial. At this stage, none of these factors mean there is not a serious question to be tried.
[13] Mr Tony Walls, the Executive Chairman and Chief Executive Officer of Objective Corporation and a director of Objective Corporation and Objective NZ is concerned that cl 15 is anti-competitive. However, in the context of the acquisition of a business where parties with relatively equal bargaining power have negotiated
4 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].
commercially at arms’ length, the courts are reluctant to hold such clauses void.5 In any case the implications of that point, too, would no doubt be traversed at trial.
[14] I am satisfied that the balance of convenience favours Nuwave. If GoCouncil’s clients are enticed away, it is likely to have a negative effect on GoCouncil’s business. It is conceivable that, with a fixed-cost business model to which the number of clients is relevant, the effect could extend to GoCouncil’s viability. That could have consequent effects on the competitiveness of the market for end-to-end solutions for lodging and processing building consent applications. For Objective NZ, the effects are largely a matter of potential delay in being able to market actively to all potential clients. And, in any case, Objective NZ receives 50 per cent of the value captured by GoCouncil through its share of the joint venture.
[15] I do not agree that the loss to Nuwave is easily calculated, if it succeeds in it substantive proceeding. Calculating the damages would depend on identifying exactly which clients left for what reasons and how long they would otherwise have stayed. It would likely be difficult to get clients that move from one product to another to return to GoCouncil due to the practical realities associated with the industry.
[16] I consider the proposed injunction is relatively narrow and discrete, focussed on specified actions in relation to 24 specified clients. But I do not consider the terms of the injunction should allow Nuwave to add further clients to the list at will. That requires an application to the Court. The prohibited behaviour, directly or indirectly approaching clients to leave GoCouncil’s custom, is also sufficiently clear. As Mr Olney submits, it is the solicitation of clients to leave GoCouncil and use Objective NZ’s product instead that would be the problem. Selling or developing other products or continuing established conversations based on a previous solicitation does not transgress the order. The terms of the injunction do not prevent Objective NZ from continuing to engage with its own clients about existing contractual relationships or prevent a client making its own inquiries of Objective NZ.
[17] As required, an undertaking has been provided as to costs. Objective NZ has raised a query as to the sufficiency of that undertaking. Mr Olney’s response is that
5 Fletcher Aluminium Ltd v O’Sullivan [2001] 2 NZLR 731 (CA) at [42].
the narrowness of the injunction will mean any costs will be limited and that Nuwave has business revenue sufficient to support the undertaking. That is not a particularly satisfactory response. When a question is raised about sufficiency of an undertaking, it should be met by evidence.6 I direct Nuwave to file an affidavit within 10 working days regarding the sufficiency of its undertaking.
[18] Overall, I am satisfied that the injunction is consistent with the interests of justice in preserving the positions of the parties. In that regard, it is not irrelevant that the conduct to be enjoined flows from a business strategy which appears to be founded on Objective Corporation’s illegal conduct in acquiring MBS, where that had or was likely to have the effective of substantially lessening competition.
Result
[19]I order that:
(a)Objective NZ, until further order of the Court, is prohibited from directly or indirectly approaching any of 24 entities, referred to in Attachment A of the statement of claim, to leave the custom of GoCouncil.
(b)Nuwave will file an affidavit within 10 working days regarding the sufficiency of its undertaking.
(c)leave is reserved for either party to apply to discharge or vary the order on five working days’ notice; and
(d)costs for the application are awarded on a 2B basis to Nuwave.
Palmer J
6 Cowan v Cowan [2021] NZCA 463 at [12]–[15]; and see Jireh Holdings Ltd v Porchester Ltd HC Auckland M1466/02, 18 December 2002 at [32]; Sanson v Energy Products Ltd (2010) 20 PRNZ 16 (HC) at [40]; and Yang v DH and PM Ltd [2019] NZHC 953 at [23].
3
5
0