Powernet Limited v Arthur

[2022] NZHC 395

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2022-425-11

[2022] NZHC 395

BETWEEN

POWERNET LIMITED

Plaintiff

AND

JOSHUA GRANT ARTHUR

First Defendant

AND

APPLIED INTELLIGENCE LIMITED

Second Defendant

Hearing:	On the papers
Appearances:	A D G Hitchcock for Plaintiff
Judgment:	8 March 2022

JUDGMENT OF DUNNINGHAM J

This judgment was delivered by me on 8 March 2022 at 4.50 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

[1]                 The plaintiff, Powernet Ltd (Powernet), applies without notice for a freezing order.

POWERNET LIMITED v ARTHUR [2022] NZHC 395 [8 March 2022]

The claim

[2]                 Powernet is a duly incorporated company and is an electricity supplier. It is suing its former employee, the first defendant, Joshua Grant Arthur, and the second defendant, Applied Intelligence Ltd (AIL), a duly incorporated company set up and owned by Mr Grant and his wife, for improperly charging Powernet through the mechanism of AIL, for inspection work Mr Grant was required to do as an employee.

[3]                 The mechanism by which Mr Arthur is said to have wrongfully invoiced Powernet is more fully set out in the affidavits of Justin Peterson, the chief operating officer of Powernet; Danny Leonard, who at the relevant time was a distribution manager with Powernet; David Seath, who was a forensic accountant at Deloittes; Hannah Otene, who was the office manager at Te Anau Earthworks Ltd (TEW); and Gregory Buzzard, who was the chief financial officer for Powernet Ltd.

[4]                 In summary, those affidavits explain that TEW has been undertaking civil contracting work for Powernet and invoicing that company. Purchase orders for the work done by TEW were raised and then normally signed off by Mr Arthur under his project manager delegated financial authority. Powernet alleges that Mr Arthur has been undertaking pre and post earthing inspections, which he was expected to carry out as part of his duties as an employee of Powernet, through his company AIL (trading under the name Structural Innovations), and then rendering invoices to TEW from AIL. Powernet then paid TEW for the invoices rendered to TEW which, unknown to Powernet, included invoices from AIL. Indeed, Mr Arthur expressly asked Ms Otene at TEW not to include reference to Structural Innovations on the invoices TEW rendered to Powernet.

[5]                 The affidavits also disclose that Mr Arthur had discussed with Powernet the possibility of doing work for it through a separate entity, but Powernet’s evidence is that proposal was considered contrary to Powernet’s code of conduct and its conflict of interest policy and was never proceeded with. In any event, as Mr Leonard confirms, the discussions did not involve contracting out pre and post site inspections which is what Mr Arthur is alleged to have done.

[6]                 The total sum invoiced by AIL and paid via TEW’s invoicing of Powernet, is alleged to be just over $440,000.

The orders sought

[7]                 Freezing orders are sought in respect of the assets of the first and second defendants in the following terms:

(a)a freezing order to restrain the first and second defendants from moving the assets from New Zealand or from disposing of, dealing with, or diminishing the value of the assets set out in Annexure A to this application.

The jurisdiction to make freezing orders

[8]                 Powernet applies for an order under s 32.2 High Court Rules 2016. The primary requirements for the making of a freezing order are:1

(a)a good arguable case on the substantive claim;

(b)assets to which the order can apply; and

(c)a real risk that the respondent will dissipate or dispose of those assets.

[9]                 The Court must look at the overall justice of the case, balancing the need to protect the applicant so as to ensure any judgment is not rendered barren against the prejudice or hardship to the respondent.

Discussion

[10]              On the evidence filed by Powernet, it has a good arguable case on its substantive claim. There is evidence that the defendants have invoiced TEW which has passed on those costs to Powernet through its monthly invoicing for work which

1      Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.

Powernet says should have been completed by Mr Arthur as part of his employment duties.

[11]              There are assets to which the order can apply as listed in Annexure A to the interlocutory application for freezing orders dated 7 March 2022. These include real estate owned by Mr Arthur jointly with his wife (who also has an interest in AIL), as well as a property in Tapanui owned with other individuals as tenants in common and equal shares, along with various motor vehicles and other chattels.

[12]              In terms of whether there is a real risk of disposal of assets, I accept, as the plaintiff’s memorandum of counsel points out, that this requirement is less straightforward, as it can be difficult to provide affirmative proof of a likelihood of dissipation. However, an applicant must at least be able to point to circumstances from which “a prudent sensible commercial [person] can properly infer a danger of default”, and such a test was said by Young J in that case to be “not unduly exacting”.2

[13]              In this regard, Mr Hitchcock says that a prudent and sensible commercial person could properly infer a danger of default because:

(a)Mr Arthur had on two occasions requested permission to undertake aspects of earthing work for Powernet through an independent company but was specifically advised that was not acceptable on both occasions;

(b)what is alleged is a conscious and deliberate fraud subsequent to those requests by using an independent company to undertake and effectively charge Powernet for carrying out part of his employment obligation in respect of earthing work;

(c)there are a significant number of valuable and apparently unencumbered assets;

2      Raukura Moana Fisheries Ltd v The Ship Irina Zharkikh [2001] 2 NZLR 801 at [122].

(d)a number of those assets would be attractive on the market and easily able to be sold, or hidden, or disposed of, in some way.

[14]              I accept that given the allegations of covert and deceitful behaviour, the risk of dissipation of assets is heightened in this case.  I  also note, from  the email  dated  18 July 2019 annexed as exhibit D to the affidavit of Justin Peterson, that Mr Arthur has worked overseas in the past. This adds to the overall picture that there is a risk of assets being cashed up and taken overseas or otherwise dissipated, particularly given the size of the claim against the defendants.

[15]              Given that the without notice injunction will be of limited duration as it can be reassessed on an on notice basis in due course, I consider the overall justice of the case and the balancing of interests favours the plaintiff.

Order

[16]There is an order in terms of the application. Costs are reserved.

[17]I direct as follows:

(a)the plaintiff is to effect service upon the defendants promptly;

(b)the   proceeding    is    adjourned   for    a    telephone    conference    on 11 April 2022 at 3.00 pm; and

(c)the freezing order will have no effect after that date unless it is continued or renewed on that date.

Solicitors:
AWS Legal, Invercargill