Powerhouse Ventures Limited v Martin

[2019] NZHC 686

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-000083

[2019] NZHC 686

BETWEEN

POWERHOUSE VENTURES LIMITED

First Applicant

AND

SOLAR BRIGHT LIMITED

Second Applicant

AND

PATRICK MARTIN

First Respondent

AND

NICOLA JANE MARTIN

Second Respondent

Hearing:	19 February 2019
Appearances:	G E Slevin for Applicants P J Shamy for Respondents
Judgment:	3 April 2019

JUDGMENT OF DUNNINGHAM J

[1]    On 15 February 2018, Powerhouse Ventures Ltd (PVL) applied for an interim injunction, without notice, on behalf of itself and Solar Bright Ltd (SBL). The applicants claimed there had been a breach by the respondents of a Shareholders and Subscription Agreement (SSA) by transferring intellectual property that was owned by SBL to the first respondent. The interim injunction was sought to restrain the respondents from disposing of that property until the claim under the SSA was resolved through arbitration. That interim injunction was granted on 15 February 2018 by Davidson J.

POWERHOUSE VENTURES LIMITED v MARTIN [2019] NZHC 686 [3 April 2019]

[2]    The parties did not, however, go to arbitration. Instead, SBL has pursued the return of its intellectual property in related proceedings brought under s 141 Companies Act 1993, and in the Employment Relations Authority, but not in reliance on its rights under the SSA. Furthermore, PVL now applies to discontinue as an applicant in these proceedings.

[3]    The respondents have applied for the interim injunction to be rescinded, alleging false statements and non-disclosure by the applicants. They also say that it should be rescinded because no party has pursued their rights to have their dispute under the SSA resolved by arbitration, despite those disputes forming the basis for the interim injunction being granted.

[4]    The respondents do not oppose discontinuance by PVL, but take issue with the conditions on which PVL proposes to discontinue, saying it should also include the discharge of the interim injunction orders.

[5]At the hearing the essential issues for me to determine were:

(a)Should the interim injunction be rescinded for any of the reasons raised by the respondents, including because the applicants no longer intend to proceed to arbitration under the SSA?

(b)If an injunction remains in effect should the first applicant be granted leave to withdraw on the conditions set out in its applications, or on any other conditions?

[6]    However, in the period between these applications being heard, but before this judgment issued, SBL’s originating application under s 141 of the Companies Act 1993 (the Companies Act proceedings) was granted leave to proceed by way of an originating application,1 and was then determined in SBL’s favour.2 This has obvious consequences for the need to continue the interim injunction orders, as Osborne J determined that the transaction assigning the intellectual property to the

1      Solar Bright Ltd v Martin [2019] NZHC 300.

2      Solar Bright Ltd v Martin [2019] NZHC 447.

first respondent, Mr Martin, was validly avoided by SBL and he made orders requiring the property to be transferred back to SBL.

[7]    I sought responses from both parties on this development and the impact it had on these proceedings and the need for the relief sought. The decisions I have made on these applications reflect this subsequent development and the response received from the applicants.3

Background

[8]    SBL was incorporated by Patrick  Martin  and  Stephen  Wilson  in  December 2006 to develop a range of products and technologies which it sought to commercialise. Mr Martin’s wife, Nicola Martin, was appointed as a director in 2009 along with Mr Martin and Mr Wilson. The products SBL was developing included PATeye, a real time ice detection road warning system, and DATAeye technology which allowed the PATeye units to communicate with one another. A range of patents and associated trademarks relating to the PATeye and DATAeye technology were obtained.4

[9]    In October 2012, Powerhouse No. 3 Ltd Partnership, SBL, Mr and Mrs Martin and a number of other parties entered the SSA. The SSA recorded the terms on which the third parties were investing in SBL. PVL subsequently took an assignment of Powerhouse No. 3 Ltd Partnership’s interest in the SSA.

[10]   The terms of the SSA included that the agreement was conditional upon all relevant officers, employees, consultants and contractors (including all key persons) assigning to SBL all intellectual property linked to the business or proposed future business.

[11]   PVL and SBL say that the intellectual property, including the patents in the PATeye and DATAeye technology, then passed to SBL from Mr Martin, who had been responsible for developing the technology. Mr and Mrs Martin continued to be

3      Noting only the applicants filed a response.

4      I will refer to this technology as the “intellectual property”.

directors and employees of SBL and their employment agreement signed  in  October 2012 also stated that:5

Any trademark goodwill patent, design or copyright work, procedure, process, formula, method of production, invention or other discovery created by you during your employment relating to the business of Solar Bright Ltd or capable of being used or adapted for use by Solar Bright Ltd, must immediately be disclosed to Solar Bright Ltd and shall be the absolute property of Solar Bright Ltd.

[12]   PVL proceeded to invest funds in SBL in order to develop the DATeye and PATeye technology. As the lead investor in SBL, the SSA provided that PVL could appoint up to two directors to SBL. Furthermore, a majority of directors, including an investor director, was required to achieve a quorum. The SSA also provided that special shareholder approval was required for:6

(a)any major transaction or transaction involving the disposal of a material proportion of SBL’s assets which are integral to the operation of the business;

(b)any material change in the nature of SBL’s business; and

(c)any transaction between SBL and any director, officer or employee of SBL unless that transaction had been approved by unanimous resolution of all the directors, including at least one director who was not interested in the transaction.

[13]   Despite the promise of the technology, SBL was not able to achieve commercial  success.  PVL’s   appointed  director,  Stephen  Wilson,  resigned  on   18 April 2017. By late 2017, the first and second respondents were offering to sell SBL’s intellectual property to a Canadian business, ITG, for several million dollars. However, ITG did not accept the offer. By 5 December 2017, SBL was in a precarious financial position and Mrs Martin wrote to shareholders setting out a range of options

5      One issue of contention is that, without the independent director’s knowledge, a subsequent employment agreement was purported to be signed in 2015 which did not include this term.

6      At cl 8.14.

for how to deal with that, including that the Martins buy PVL’s shares in SBL or that SBL sell its intellectual property.

[14]   The Martins held a meeting on 19 December 2017 in which Mr Martin resigned as a director, effective the following day. The directors also resolved that “in lieu of back payment” they would arrange for the intellectual  property  to be assigned to  Mr Martin. The following day Mrs Martin passed a resolution approving the transaction and stating that it did not constitute a major transaction for the purposes of s 129 Companies Act 1993 and so shareholder approval was not required. She resigned as a director on 21 January 2018, leaving SBL with no directors.

[15]   When PVL discovered that the intellectual property had been transferred to Mr Martin, it commenced  this originating application for an interim injunction on  15 February 2018 in reliance on its rights under the SSA. The without notice application sought, in summary, to restrain the respondents from:

(a)breaching the SSA;

(b)dealing with, disposing of, encumbering, offering for sale or otherwise altering the intellectual property rights that were previously registered in the name of and owned by SBL or were developed by the first or second respondents; and

(c)using, copying, disseminating, commenting publicly or otherwise dealing with any information concerning the business and affairs of SBL, including its intellectual property rights, otherwise than as authorised by all parties to the SSA.

[16]   Subsequently, PVL appointed two directors to SBL, being Murray Spackman and John Walley. They sought to have the intellectual property restored as an SBL asset so they could proceed to realise its value and pay down creditors that were left when the Martins resigned as directors.

[17]   On receipt of the decision granting the interim injunction, the respondents sought to challenge it, first through an appeal which was subsequently abandoned, and then through an application to rescind the interim injunction.

[18]   By August 2018, the respondents were legally represented. At that stage, the parties were intending to go to arbitration and the application for rescission of the injunction was adjourned pending the outcome of that. It was also noted that there were employment related issues which were being dealt with in the Employment Court.

[19]   However, arbitration did not proceed. Instead, on 8 October 2018, the first applicant sought leave to discontinue these proceedings on the following conditions:

(a)Its undertaking to pay damages on behalf of itself and the second applicant shall remain in force while the second applicant remains under control of its current director(s); and

(b)It shall stand surety for the second applicant in respect of any costs it may be ordered to pay in this proceeding or in CIV-2018-409-000604 Solar Bright Ltd v Martin in respect of steps taken while the second applicant remains under control of its current director(s).

(c)It shall pay the respondents one set of costs on the opposed application for rescission of the injunction.

[20]   The supporting affidavit of Mr Yardley, the chairman and acting CEO of PVL, explained that at the time the injunction was sought, “SBL was unable to take any steps to recover its property because it had no directors. PVL was, however, under the arbitration clause in the SSA, and did so”. However, PVL’s view now was that whatever value the intellectual property had when it was transferred, it was likely to have been significantly eroded so, from PVL’s perspective, there was “simply no point in pursuing this matter any further”. The conditions it has proposed were intended to ensure that no party was disadvantaged by its discontinuances.

Should the injunction be rescinded?

[21]   The respondents’ submissions focused on the need to rescind the injunction because it was granted on the basis that there had been a breach of the SSA and the parties were going to arbitration to resolve it, but that was now no longer the case as

the applicants acknowledged. There was, therefore, simply no basis on which the injunction could be maintained. If the applicants wished to maintain an interim injunction they would need to seek one afresh in the relevant proceedings.

[22]   The applicants accept they do not intend to pursue rights under the SSA. Instead, SBL is pursuing its entitlement to ownership of the intellectual property in other proceedings. However, the reasons for granting the injunction apply with equal strength to the other proceedings on foot and it is in the interests of justice to maintain the injunction but vary it to confer ongoing protection to SBL in the other proceedings.

[23]   I accept that the reasons for granting the injunction apply with equal force to the other proceedings on foot and, but for subsequent developments, I would have continued the injunction for the purpose of protecting the status quo pending the outcome of the Companies Act proceedings. However, I consider the decisions in the Companies Act proceedings have entirely overtaken the parties’ submissions as it has now been determined that the intellectual property is to be transferred to SBL. For the same reason, the applicants’ stance that the injunction should be continued in reliance on the evidence before the Court as to the claims in the other proceedings, is moot.

[24]   The interim injunction was granted to ensure that the intellectual property was not disposed of, or its value eroded, while the legality of the transfer was being disputed.   That issue has now been resolved by the Companies Act proceedings.   Mr and Mrs Martin are required, by the orders made by Osborne J on 15 March 2019, to transfer all the intellectual property, including related patents and domain names, to SBL. While Mr Slevin, for the applicants, states that as at 28 March 2019 these orders have not yet been complied with, that does not change the position that the orders of Osborne J supersede the injunction orders.

[25]   The purpose of those orders was to ensure the full powers of the Court were available to enforce those orders and to sanction the respondents if they were in breach. The same sanctions are available in respect of non-compliance with the orders in the Companies Act proceedings as were available for a breach of the interim injunction orders would have been. This includes penalising the respondents for being in contempt of Court if they fail to comply with those orders.

[26]   While I accept there is still the possibility of an appeal of the decisions in the Companies Act proceedings (although one does not appear to have been filed yet), that does not act as a stay of the judgment. If a stay was sought it would inevitably be on terms that would protect SBL’s rights to have the property returned should it successfully defend the appeal.

[27]   Accordingly, solely because the orders of Osborne J have overtaken the need for the interim injunction orders to continue, those orders are discharged.

Should PVL be granted leave to discontinue?

[28]   The second issue is now moot as a consequence of my decision to discharge the interim injunction orders. As the applicants accepted, if the injunction was rescinded on the respondents’ application, the Court would not need to consider the application for leave to discontinue as rescission would bring this proceeding to an end. The application for leave to discontinue was only sought if the injunction remained in effect.

[29]   I agree that my order discharging the interim injunction has effectively brought the present application to an end. Only the issue of costs is left undetermined.

Result

[30]The interim injunction is discharged.

[31]   Costs on all issues in these proceedings are reserved. I note that while, superficially, the respondents have the achieved results they sought, that was not achieved on the grounds they advanced, and the outcome cannot be seen as a win for the respondents.

[32]   If costs can not be agreed, the parties seeking costs should file any memoranda within 20 working days. The parties opposing such an award should file a response within a further 10 working days.

[33]Costs will be determined on the papers unless I hear from counsel.

Solicitors:

G E Slevin, Barrister, Christchurch P J Shamy, Barrister, Christchurch