Parsons v O'Connor

[2020] NZHC 226

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-265

[2020] NZHC 226

BETWEEN

MICHAEL KENNETH PARSONS

First Applicant

GREEN SHOOTS HOLDINGS LIMITED AS TRUSTEES OF THE GREEN SHOOTS LIFESTYLE AND EDUCATION TRUST

Second Applicant

AND

PAUL MICHAEL O’CONNOR AND BHW TRUSTEE 2017 LIMITED AS TRUSTEES OF THE O’CONNOR FAMILY TRUST

First Respondent

PAUL MICHAEL O’CONNOR

Second Respondent

SALLY JANE CAREY AND ANDY FOX AS TRUSTEES OF THE FOX CUB TRUST

Third Respondent

…/cont

Hearing:	20 February 2020
Appearances:	C Pendleton for the Applicants
Judgment:	20 February 2020

ORAL JUDGMENT OF GORDON J

Solicitors:           Turner Hopkins, Auckland

PARSONS v O’CONNOR [2020] NZHC 226 [20 February 2020]

SALLY JANE CAREY

Fourth Respondent

DATAMINE LIMITED
Fifth Respondent

[1]    This is an application by Michael Parsons and Green Shoots Holdings Ltd (Green Shoots) for an interim injunction on a without notice basis which was heard in the course of the Duty Judge List today.

[2]    The application was filed on 19 February 2020 along with an affidavit of    Mr Parsons in support, sworn 18 February 2020, an undertaking as to damages signed by Mr Parsons on his own behalf and on behalf of Green Shoots together with a statement of claim.

[3]    A brief factual summary is as follows. Mr Parsons is a director and shareholder of Green Shoots. Prior to his current employment he was employed by the fifth respondent, Datamine Ltd (Datamine) in two different positions before becoming Managing Director around April 2011.

[4]    The first respondent is a shareholder of Datamine; the second respondent is a director and shareholder of Datamine; the third respondent is a shareholder of Datamine and the fourth respondent is a director and shareholder of Datamine.

[5]    On 13 November 2019, solicitors acting for Datamine and the second and fourth respondents wrote to Mr Parsons claiming he was breaching the restraint of trade clause in the 2019 Shareholders’ Deed because of his new employment. The letter alleged the breach of restraint constituted a material breach pursuant to the 2019 Shareholders’ Deed. Mr Parsons strongly denies those allegations. The parties’ position on the dispute is set out in correspondence between the solicitors annexed to Mr Parsons’ affidavit.

[6]    On 3 February 2020, Mr Parsons and Green Shoots received notices that the first and third respondents had purchased all of the shares of Mr Parsons and Green Shoots by purporting to invoke a default provision in cl 4.1 of the 2019 Shareholders’ Deed. The purchase price was at a significantly reduced value.

[7]    The position of Mr Parsons and Green Shoots is that in doing so the respondents have breached the terms of the 2019 Shareholders’ Deed.

[8]    The position of Mr Parsons and Green Shoots is that there is a real risk that, unless restrained, the respondents may on-sell shares rightfully owned by Mr Parsons and Green Shoots to a third party. This could significantly prejudice the applicants’ available remedies in the substantive proceeding and would significantly increase the legal costs of the substantive proceeding unnecessarily by a third party being joined.

[9]    With the shares having been sold, Mr Parsons and Green Shoots have lost their shareholder rights including: to assert their rights as shareholders in any decision- making; entitlement to any dividends or distributions; to inspect company books, accounts and relevant company information; to continue the dispute resolution process under cl 17 of the 2019 Shareholders’ Deed; to sell their shares at fair value and to remain as shareholders for an indeterminate time as the shares may increase in value.

Without notice applications

[10]   Rule 7.46 of the High Court Rules provides for interim injunctions without notice. I am required to determine whether the application can properly be dealt with without notice. To that end I am required to be satisfied that:

(a)Requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant; or

(b)The application affects only the applicant; or

(c)The application relates to a routine matter; or

(d)An enactment expressly prohibits the application to be made without serving notice of the application; or

(e)The interests of justice require the application to be determined without serving notice of the application.

[11]   If the Court decides that the application can be dealt with on a without notice basis, the Court may make the orders sought or another order the Judge thinks is just in the circumstances or dismiss the application. If the Court determines the application

should be dealt with on notice, the Judge may give directions as to service and adjourn the determination of the application until it has been served.

[12]   I am satisfied that there is a justified basis for granting orders on a without notice basis. The evidence of Mr Parsons satisfies me that requiring the applicant to proceed on notice would cause prejudice to the applicant, in particular, because the shares are readily able to be further sold.

Principles in relation to interlocutory injunctions

[13]   A three-stage approach is required. I must decide whether there is a serious question to be tried in the proceeding and, if there is, where the balance of convenience lies. Within the latter examination, there will be a focus on the adequacy of damages as a remedy available to the applicants.

[14]   Finally, the decision whether to grant an interim injunction must be taken in the context of the overall justice of the case.1

Serious question to be tried

[15]   This involves a consideration of whether there is a seriously arguable case that the respondents have breached the 2019 Shareholders’ Deed by:

(a)Giving the notices to the applicants pursuant to cl 14.1 on 3 February 2020 when they were not contractually entitled to do so; and

(b)Purchasing the applicants’ shares pursuant to cl 14.1 on 3 February 2020 when they were not contractually entitled to do so.

[16]   This involves a consideration of cl 14 and also cl 17 of the Shareholders’ Deed which is annexed to the affidavit of Mr Parsons.

[17]   Clause 14.1 is subject to cl 17. Clause 17 requires the parties, in the event of a dispute, to firstly attempt to resolve the dispute by good faith negotiation between

1      Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).

the parties (cl 17.1). If those negotiations are not successful, then any party may require that the dispute be submitted for mediation (cl 17.2).

[18]   Under cl 17.3 no party may require any arbitration or issue any legal proceedings (other than for urgent interlocutory relief) in respect of any such dispute unless that party has first taken all reasonable steps to comply with cls 17.1 and 17.2.

[19]   Ms Pendleton, appearing today for Mr Parsons and Green Shoots, submits that cl 17 has not been complied with because the parties were in the process of negotiation but had not yet proposed to proceed to mediation. Until the respondents have taken all reasonable steps to go to mediation to attempt to resolve the dispute, the respondents were not entitled, under cl 14.1 of the 2019 Shareholders’ Deed, to give the notices to the applicants.

[20]   I accept that there is a seriously arguable case that the respondents were not contractually entitled to trigger cl 14.1 on the basis that it was subject to cl 17.

Balance of convenience

[21]   I accept that damages would not be an adequate remedy for Mr Parsons and Green Shoots. In his affidavit, Mr Parsons compares the net asset value that was applied in the notices for the purposes of the purchase price, with an estimated fair market value based on the assessed price for the sale of Datamine. This results in a substantial loss to Mr Parsons and Green Shoots.

[22]There is also the loss of the rights referred to in [9] above.

[23]   Reinstatement as shareholders would enable the applicants to be involved in possible future events, including:

(a)Mediation pursuant to cl 17;

(b)Possible sale of shares to an existing shareholder for an unknown negotiated price;

(c)Proceeds from a possible sale of Datamine or its assets to a third party;

(d)Remaining as shareholders as the shares increase in value over time by an unknown quantity for an unknown period of time; and

(e)Receiving    unknown    dividend   pay    outs    whilst    remaining    as shareholders.

[24]   As far as potential losses for the respondents if the injunction were to be granted, I accept Ms Pendleton’s submission that there is no obvious foreseeable loss to the respondents.

[25]   The return of shares to the applicants would not preclude the other shareholders and directors of the company from proceeding with the sale of their shares or the sale of the company or assets, as the applicants hold a minority shareholding of 9.1 per cent which is insufficient to preclude any majority shareholder decision-making.

Overall justice

[26]   I am satisfied that the overall justice weighs in favour of the granting of the orders sought. It preserves the applicants’ position as shareholders pending resolution of the dispute either by way of mediation under cl 17 or by determination of the substantive issues in this Court.

Orders

[27]   I make orders in terms of draft orders 3, 5, 6 and 7 as annexed to the interlocutory application of 19 February 2020. I do not consider it is necessary to make an order in terms of draft order 4. Order number 5 provides the respondents with the ability to apply to the Court to vary or discharge the orders.

[28]   I list the application for mention  in  the  Duty Judge  List  on  Wednesday 26 February 2020 at 10 am. I further direct that the applicants serve a copy of the

proceedings, this judgment and the consequential sealed order forthwith on the respondents.

Gordon J