Powerhouse Ventures Ltd v Martin
[2018] NZHC 1787
•19 July 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000083
[2018] NZHC 1787
UNDER Article 9 of Schedule 1 of the Arbitration Act 1996 AND
Parts 7 and 19 of the High Court Rules
BETWEEN
POWERHOUSE VENTURES LTD
First Applicant
SOLAR BRIGHT LIMITED
Second ApplicantAND
PATRICK MARTIN
First Respondent
NICOLA JANE MARTIN
Second Respondent
Hearing: 18 July 2018 Appearances:
B McKinnon for First Applicant (leave to withdraw) G Slevin for First and Second Applicant
N J Martin in person for Respondents
Judgment:
19 July 2018
JUDGMENT OF VENNING J
This judgment was delivered by me on 19 July 2018 at 9.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel: Buddle Findlay, Wellington
G Slevin, Christchurch
Copy to: Respondents
POWERHOUSE VENTURES LTD v MARTIN [2018] NZHC 1787 [19 July 2018]
Introduction
[1] On 15 February 2018, on a without notice application brought by Powerhouse Ventures Ltd (PVL) and Solar Bright Ltd (SBL), the Court granted an interim injunction. The injunction was against Patrick Martin and Nicola Martin in the following terms:
That pending further order of the Court, the first and second respondents (including their employees and agents) are restrained from:
(a)taking any steps in breach of obligations that the first and second respondents owe PVL under or in connection with a Subscription and Shareholders’ Agreement and subsequent amendments approved by all shareholders (SSA);
(b)(dealing with, disposing of, encumbering, offering for sale, or altering, the intellectual property (IP) rights and any associated registrations of patents, trademarks and domain names, revenues or proceeds of the PATeye and DATAeye IP and any other such IP rights held by or on their behalf that were previously registered in the name of and owned by Solar Bright or were developed by the first and/or second respondents at any time after 15 December 2006 (being the date of incorporation of SBL);
(c)using, copying disseminating, commenting publicly or otherwise dealing with any information concerning the business and affairs of Solar Bright, including its IP rights, in connection with the performance of the first and second respondents’ responsibilities as shareholders, (former) directors and or (former) employees of Solar Bright (Confidential Information), otherwise than as authorised by all parties to the SSA; and from disclosing the content of this application and its related documents to any other parties other than for the purposes of obtaining legal advice.
[2] Following service of the injunctive orders Mr and Mrs Martin filed an appeal with the Court of Appeal. That appeal was subsequently abandoned. Ms Martin has now (on 16 July) filed papers on behalf of herself and Mr Martin seeking, as a matter of urgency, to set aside the injunction orders.
Representation
[3] PVL and SBL were originally represented by Buddle Findlay and Mr Barker of that firm. On 26 March 2018 there was a change in representation for SBL. Mr Shingleton of Waimak Law (2017) Ltd entered on record for SBL. Mr Slevin was counsel instructed. On 17 July 2018 Mr Barker sought leave for him and his firm to
be removed as solicitor on record for PVL. On 18 July 2018 a notice of change of representation for PVL was filed confirming the solicitor for PVL is now Rachel Triplow (in house counsel) of Powerhouse Ventures Ltd. Counsel was again Mr Slevin. I formally granted leave to Mr Barker and Buddle Findlay to withdraw.
[4] Mrs Martin appeared for herself and Mr Martin in support of the application to rescind the interim injunction orders.
Procedural issues
[5] Unfortunately the Court was not able to substantively deal with the application to rescind the interim injunction orders because Mrs Martin had not served the application to rescind the injunction and the supporting affidavit on PVL or SBL’s solicitors.
[6] Nevertheless, because of the urgency of the situation as explained to me by Mrs Martin I heard limited argument on the matter. I am told the urgency arises because of the need to renew a patent for the intellectual property referred to in the injunctive orders.
Background
[7] SBL, a company initially incorporated by Mr Martin and another, developed a range of products and technologies which it sought to commercialise. The products included PATeye, a real time ice detection road warning system, and DATAeye technology which allowed the PATeye units to communicate with one another. Mr Martin had been responsible for the development of the intellectual property in the products. A range of patents and associated trade marks relating to the PATeye and DATAeye technology were held.
[8] In October 2012 Powerhouse No 3 Ltd Partnership, SBL, Mr and Mrs Martin and a number of other parties entered a Subscription and Shareholders’ Agreement (SSA) to record the investment of the third parties in SBL and the terms upon which the investment was to be made. PVL later took an assignment of Powerhouse No 3 Ltd Partnership’s interest in the SSA.
[9] 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 (in a form acceptable to the investors) all intellectual property linked to the business or proposed future business.
[10] PVL and SBL say that the intellectual property including the patents in the PATeye and DATAeye technology accordingly passed to SBL from Mr Martin, who had been responsible for developing the technology.
[11] Unfortunately, despite the promise in the PATeye and DATAeye technology, SBL has not been commercially successful. On the information before the Court it appears the only value SBL may have is the intellectual property in the PATeye and DATAeye intellectual property.
[12] No doubt due to the lack of commercial success by SBL, the relationship between the Martins and the other investors, particularly the parties behind PVL, deteriorated. It deteriorated to such an extent that PVL and SBL brought the without notice application for injunction on 15 February 2018. In support of the application for injunction PVL raised the following points:
(a)Mr and Mrs Martin had recently resigned as directors of SBL;
(b)on 20 December 2017 Mrs Martin on behalf of SBL had resolved to sell the PATeye patents and associated trade marks to Mr Martin for
$55,381.64 representing allegedly unpaid wages owing to Mr and Mrs Martin by SBL;
(c)subsequently Mr and Mrs Martin had directed the Intellectual Property Office of New Zealand (IPONZ) to update the register to represent the change in ownership of the PATeye and DATAeye patents to Mr Martin;
(d)when PVL became aware of the transfer they immediately wrote to Mr and Mrs Martin requiring the transaction be unwound. Mr and Mrs
Martin took no steps to return the PATeye and DATAeye patents to SBL.
[13] Mr Whitham, the Chief Financial Officer of PVL noted that the transfer of the intellectual property to Mr Martin for $55,381 had occurred at a time when Mr and Mrs Martin had sought to purchase PVL’s shareholding in SBL (or alternatively to sell their shareholding) to PVL at prices which valued SBL at approximately NZD2 million. Alternatively they had sought to sell the SBL’s intellectual property to a Canadian business for between $5.35 and $8 million.
[14] SBL does not accept that the transfer of the PATeye and DATAeye patents to Mr Martin in December 2017 was valid. It took steps to set the resolution aside under s 141 of the Companies Act 1993. Nevertheless the records of the IPONZ record the patents as in Mr Martin’s name.
[15] Mrs Martin advised the Court that the DATAeye patents had lapsed on 23 March 2018 and, on her understanding were now not capable of reinstatement.1 The PATeye patent lapsed on 7 July but Mrs Martin has been advised by a patent attorney that it could be renewed provided it is renewed by Friday of this week, hence the urgency of the hearing before the Court.
[16] The present situation of SBL does not appear promising. An unsigned record of a meeting of SBL held on 22 June 2018 records that the shareholders voted:
(a)not to fund an action to return the PATeye IP under the control of SBL;
(b)to abandon the option proposed by Mr Slevin;
(c)to request a creditor or the Inland Revenue to take action that will liquidate the company.
[17]The notes go on to record:
1 It is for the parties to take appropriate advice about but I note that s 21 of the Patents Act 2013 enables a patentee to request renewal be extended up to six months after the expiry date. Alternatively there is the possibility of applying for restoration of a patent under s 117 of the Act.
The directors received advice on 22nd June from James & Wells giving costs for renewing the Pateye patents for countries that require renewal by 5 July 2018.
Costs as follows Canadian Patent 2884053
$1050
Chinese Patent 2012900007202
$1350
European Patent 2753762
$3500
New Zealand Patent 595342
$371.45 (incl GST).
The directors recommend that the $1438 showing in an ANZ bank account would be best used to renew the NZ and Canadian patents to try and preserve IP value for the liquidator. …
[18] Mrs Martin explained that she had brought this application seeking to rescind the injunction as a matter of urgency to enable her and Mr Martin to take steps to renew the PATeye patent. She considered they were prevented from doing so because of the existing injunction. She and Mr Martin also wanted to set aside the injunction generally.
[19] As Mrs Martin had failed to serve the papers on PVL and SBL Mr Slevin had not seen the application nor Mrs Martin’s affidavit in support with its annexures. In the circumstances it was not possible to deal substantively with the application to rescind the interim injunction. However, after hearing from Mrs Martin and Mr Slevin it appeared clear to me that, whatever disputes there may be between PVL, SBL and Mr and Mrs Martin and wherever the merits of the disputes might lie, it was in the interests of all parties for the PATeye patent to be renewed (and if it was at all possible for the DATAeye patent to be renewed (albeit belatedly)).
[20] The intellectual property is the only valuable asset of SBL (if it is ultimately found to be SBL’s property).2 If the patent is not renewed, PVL will have lost its investment and, as noted SBL, may well shortly be placed into liquidation by a creditor, (although Mr Slevin indicated that the Inland Revenue was not proposing to do so).
2 I do not overlook Mrs Martin’s submission that the patents are worthless without Mr Martin’s involvement but that cannot be resolved today.
[21] From Mr and Mrs Martin’s point of view, the intellectual property in the PATeye technology is a valuable asset worth preserving, particularly if they are ultimately successful and the intellectual property is held to be their property.
[22] There may be further complications. Mr Slevin advised that SBL also relies on the provisions of an employment agreement pursuant to which Mr Martin agreed to assign and transfer the intellectual property to SBL. Apparently Mr and Mrs Martin signed later complementary employment agreements which did not contain such a clause. If Mr Martin has breached the agreements that may raise employment issues which may need to be dealt with in the Employment Court. Further, the parties to the SSA agreed to go to arbitration. As yet the parties have not gone to arbitration.
[23] As an interim measure and without prejudice to either parties’ ultimate substantive rights the sensible solution is to enable the PATeye patent to be renewed on the basis of the advice Mrs Martin has apparently received from a patent attorney. Steps should also be taken to retrieve the position of the DATAeye patent if that is at all possible.
[24] During the hearing the issue of who should pay for the renewal arose. I had contemplated making an order the patent be renewed, leaving it to the parties to resolve that issue. But such an order might be ineffective as it could not be enforced. On balance I consider that, as the patent is currently held in Mr Martin’s name, he should pay for the renewal of the patent. That would be without prejudice to the ultimate substantive rights in the patent.
Result/orders
[25] I make an order varying the existing interim injunction to the extent that Mr Martin is permitted to apply for renewal of the PATeye (and DATAeye) patents in New Zealand and overseas in his name.
[26]Mr Martin is to pay the costs of renewal of the patents in the first instance.
[27] Mrs Martin is to forthwith copy and serve her application and accompanying affidavit on PVL and SBL.
[28] Mrs Martin’s application to rescind the interim injunction is otherwise adjourned to 6 August 2018 at 11.45 am for review and further direction. It may be that by that date the parties may have agreed on a more productive way to resolve their disputes (for example by arbitration in accordance with the SSA). If so they may file a joint memorandum and the call can be vacated.
[29]Costs reserved.
Venning J
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