Saturn Portfolio Management Limited v Chamberlain
[2017] NZHC 1962
•16 August 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-001526 [2017] NZHC 1962
BETWEEN SATURN PORTFOLIO MANAGEMENT
LIMITED Plaintiff
AND
TONY CHAMBERLAIN First Defendant
GBPENSIONS INVESTMENTS LIMITED
Second Defendant
KINGSHIELD INVESTMENTS LIMITED
Third Defendant
LESTER LUEY Fourth Defendant
I-SELECT LIMITED Fifth Defendant
Hearing: 9, 15 and 16 August 2017 Appearances:
M Tingey and J Lethbridge for Plaintiff L Huang for First to Fourth Defendants A Murray for Fifth Defendant
Judgment:
16 August 2017
(ORAL) JUDGMENT OF WOOLFORD J
Solicitors/Counsel:
M Tingey / J Lethbridge, Auckland
L Huang, Auckland
A Murray, Auckland
SATURN PORTFOLIO MANAGEMENT LIMITED v CHAMBERLAIN & ORS [2017] NZHC 1962 [16 August 2017]
Introduction
[1] In a statement of claim filed on 14 July 2017, the plaintiff Saturn Portfolio Management Limited (Saturn) alleges a conspiracy between the fifth defendant i-Select Limited (i-Select) and a number of other individual and corporate defendants to commit unlawful acts relating to:
(a) a breach of a service contract between it and the first defendant, Tony Chamberlain;
(b) the misuse of the plaintiff’s confidential information; and
(c) a breach of the Financial Markets Conduct Act 2013 (the Act).
[2] Saturn also alleges a breach of a distribution and service agreement (the agreement) between it and i-Select. It alleges that i-Select:
(a) breached its obligations of confidence in relation to information relating to Saturn’s business and systems and confidential details relating to its clients by sharing it with the other defendants; and
(b)breached its obligations of good faith by purporting to terminate the agreement for the purpose of entering and following the arrangement with the other defendants.
[3] Finally, Saturn also alleges that i-Select sent an email on 20 June 2017 to an unknown number of people including existing Saturn clients making representations which were misleading or deceptive or likely to mislead or deceive. It seeks a declaration that i-Select breached the Act and damages for losses caused.
[4] On 30 June 2017 i-Select gave 90 days’ notice of its intention to terminate the agreement as it was entitled to do in terms of the agreement. On 14 August 2017 i-Select sent an email to those members of the i-Select scheme who used Saturn as an adviser advising them of the termination in order that they had sufficient time to choose a new adviser and arrange transfer to the new adviser.
[5] Saturn now seeks an interim injunction restraining i-Select from giving effect to the purported termination of the agreement and requiring retraction of the email sent to the members of the i-Select scheme who used Saturn as an adviser on
14 August 2017.
[6] Saturn alleges that the notice to terminate is invalid and ineffective and the email, if not retracted, would cause significant damage to it as it is likely to cause its clients to transfer to other advisers.
Factual and legal allegations
[7] The factual and legal allegations which underpin the application for an interim injunction are set out in the statement of claim. First, Saturn alleges that i-Select was advised of the agreement and/or arrangement between Mr Chamberlain and Mr Luey, GBPensions Limited (GBPensions) and Kingshield Investments Limited (Kingshield) to take all of the clients of Saturn for themselves and set up a competing company offering the same services.
[8] Secondly, Saturn alleges that in agreeing to provide information to Mr Chamberlain in those circumstances i-Select breached obligations of confidence owed to Saturn under clause 11.1 of the agreement which provides:
Confidentiality
11.1 No party shall reveal any information concerning this Agreement or its subject matter to any third party other than:
(a) as required by law or the rules of any applicable stock exchange; or
(b) in good faith and in proper furtherance of the objects of this
Agreement; or
(c) to its professional advisers, bankers, financial advisers, and financiers if those persons undertake to keep information disclosed confidential; or
(d) to any of its employees to whom it is necessary to disclose the information if that employee undertakes to keep the information confidential; or
(e) information already in the public domain; or
(f) as required by Chartered Accountants Australia and New Zealand (or its successor) as part of their quality assurance procedures; or
(g) as required by the Financial Markets Authority or any other regulator that any party to this Agreement is subject to.
[9] Thirdly, Saturn alleges that in agreeing to provide services to Kingshield and purporting to terminate the agreement, i-Select breached obligations of good faith owed to Saturn under the agreement. The relevant clauses of the agreement are 7.1 and 13.3:
Termination
7.1Either party may terminate this Agreement by giving the other party not less than ninety (90) days prior written notice of termination.
…
13.3 Good faith
The parties shall act in good faith towards each other in respect of all dealings or matters under, or in connection with, this Agreement.
[10] Finally, Saturn alleges that in terminating and then agreeing to withdraw the notice to terminate the agreement if Saturn sold its subsidiary, Saturn Invest New Zealand Limited (SINZ) to i-Select, i-Select further breached its obligations of good faith owed to Saturn under the agreement.
Discussion
[11] The first requirement for an interim injunction is the establishment of a serious question to be tried.
[12] The evidence of an alleged conspiracy between i-Select and the other individual and corporate defendants is set out in the affidavit of Saturn’s managing director, John McConnell, dated 14 July 2017. He states:
44. As already set above, Mr Chamberlain incorporated Kingshield on
18 January 2017 to set up in competition with Saturn. …
45.During a period during around April 2017 and June 2017 I believe that Mr Luey, acting in concert with Mr Chamberlain and i-Select, arranged for at least 128 clients to sign notices to Saturn terminating their Portfolio Management Agreements with Saturn and purporting
to require immediate transfer of the Client’s interests from Saturn to Kingshield. However, the Notices were not provided to Saturn at the time. …
46.In early May 2017 GBPensions wrote to an unknown number of Saturn clients to “introduce” Kingshield. … The opening paragraph of the letter states:
“Further to our recent conversation, I am writing to introduce Kingshield Investments Limited (Kingshield) as an investment portfolio manager, wholly owned by GBPensions and myself. Going forward, all new GBPensions’ clients who transfer a UK pension scheme to the i-Select Superannuation Scheme (QROPS) or invest other monies, will be guided and advised by Kingshield.”
47.This is clear evidence that Mr Chamberlain and GBPensions were engaged in a conspiracy for the following reasons:
(a) it refers to “recent” conversations with those clients showing that Mr Chamberlain had already been in contact with those Saturn clients;
(b) that Mr Chamberlain and GBPensions had agreed with i-Select to have Kingshield as the exclusive portfolio fund manager for its scheme; and
(c) that Kingshield was wholly owned by Mr Chamberlain and
GBPensions.
[13] In an affidavit in response dated 9 August 2017, the chief executive officer of i-Select, Christopher Heffernan, refutes any allegation of a conspiracy. He states that the i-Select scheme operates through 52 active agreements with financial advisers of which Saturn, GBPensions and Kingshield are but three. He says that i-Select does not prefer one adviser over another and there are no provisions within the agreements preventing the movement of members between advisers. i-Select does not have exclusive arrangements with any of its 52 advisers.
[14] Mr Heffernan stated:
11. We have had a distribution and service agreement with GBPensions since 8 February 2013 and they have arranged by far the largest amount of UK pension transfers to the i-Select Scheme.
12.GBPensions together with other affiliates (excluding Saturn) manages approximately 7.5% of the funds under management within the i-Select Scheme.
13.Saturn manages approximately 13.6% of the funds under management within the i-Select Scheme. It has always been our belief that all of these funds were introduced to Saturn by GBPensions and GBPensions retains an ongoing relationship with those members.
14.I-Select would interact with GBPensions almost on a daily basis regarding pension transfers, the transfer of funds within the i-Select Scheme and the taking of benefits. Daily contact and communication at an operational level is being falsely characterised as conspiracy.
[15] Mr Heffernan goes on to state:
20.In January 2017 GBPensions applied for a distribution and service agreement for Kingshield Limited. Tony advised that this company was going to deal with the portfolio management of new UK pension transfer members. There was no discussion about what this meant for the relationship between Saturn and GBPensions as we had still not seen the agreement between them.
21.There were no transfers to the i-Select scheme for management by Kingshield between January and June 2017 when the notices were issued to Saturn by some members of the i-Select scheme transferring their adviser relationship from Saturn onto Kingshield.
22.GBPensions at no point advised i-Select what action it proposed to take with regard to the clients it had referred to Saturn. There were indications that was some restructuring of its operations, but nothing explicit with regard to members within the existing arrangement between GBPensions and Saturn. It was considered that how each adviser carried out its business was of no concern of i-Select except to the extent that it met the requirements of the i-Select Scheme.
[16] Counsel for Saturn acknowledges that without discovery, unsurprisingly, Saturn at this stage has been unable to give further particulars. He submits that by their nature such arrangements would be kept secret from Saturn. Counsel submits, however, that significantly Tony Chamberlain and GBPensions have not sought to release the injunction over them which relies on the same allegations.
[17] Counsel also submits that the approach of i-Select since serving the purported notice of termination right up to the date of today’s hearing compounds and reinforces the bad faith actions of i-Select in terminating the agreement. This is said to include:
(a) declining to answer questions about whether Saturn clients could transfer out of the i-Select scheme to another scheme without fees being imposed;
(b)when questions were finally answered on 14 August 2017, knowing that Saturn had acted on the answers believing there was no impediment to a transfer, i-Select then advised it believed transfers could not take place for another reason; and
(c) putting unnecessary and arbitrary restrictions in place so that Saturn could not have an approved financial adviser to replace Mr Luey knowing that Mr Luey had acted against the interests of Saturn in breach of specific non-solicitation clauses in his contract with Saturn.
[18] I am, however, not persuaded that these factors either individually or cumulatively add to the case for the plaintiff. They are not evidence of a conspiracy but are matters which have arisen between two parties following the termination of the agreement between them. It seems to me that i-Select has been wary of Saturn who has an apparent conflict of interest because it has a duty under the agreement to promote, to some extent, the i-Select scheme while at the same time it offers a competing scheme through SINZ.
[19] I am therefore of the view that Mr McConnell’s belief that i-Select was acting in concert with Mr Chamberlain and Mr Luey in arranging for at least 128 clients to sign notices to Saturn terminating their portfolio management agreements with Saturn is without sufficient factual foundation. Mr McConnell does not offer any evidence in the form of either contemporaneous documentation or witness statements of a conspiracy between i-Select and other individual or corporate defendants.
[20] In that regard, I accept the evidence of Mr Heffernan. He confirmed i-Select’s neutrality when he emailed Mr McConnell on 23 June 2017 as follows:
None of the actions of Tony and Lester was of our design or making. What Tony does at a business level has nothing to do with us and we have not been a party to it. As far as I can see, this is a matter between you and Tony, and I still do not wish to be involved.
[21] Counsel for Saturn challenged Mr Heffernan’s neutrality and pointed to an email dated 20 June 2017 he sent to members of the i-Select scheme who used Saturn as an adviser. Mr Heffernan stated that the i-Select scheme combined with the service that GBPensions was offering was in his view superior to the only alternative offering. This email was, however, in response to an email sent to the same clients two days earlier on 18 June 2017 by Saturn which advised them that a large number of clients have given notice of their wish to move from Saturn to Kingshield. In those circumstances Saturn advised their clients of a significant reduction in its fees and then set out three options for them, the first of which was a transfer from i-Select to the SINZ scheme. The other two were for clients to remain with the i-Select scheme with either Saturn or Kingshield as advisers. Various fee comparisons were also set out in a table. Mr Heffernan was concerned about the Saturn email which he thought misrepresented the fee structure and breached the relevant legislation. It had also put the SINZ scheme as the first option which was in conflict, so he thought, with Saturn’s obligation to promote the i-Select scheme under the agreement that it had signed with i-Select. In my view the comments by Mr Heffernan have to be seen in this context. They were only made after the dispute had arisen between Saturn and Mr Chamberlain.
[22] Following the issue of the termination notice, Mr McConnell spoke with Mr Heffernan. Mr McConnell says in his affidavit that in his discussions with Mr Heffernan he confirmed that Saturn understood i-Select to be a neutral party. However, he goes on to say that the fact that i-Select was not a neutral party became apparent to him the following week when i-Select sent an email to Saturn offering to purchase the scheme managed by the subsidiary SINZ for $225,000, which is considerably less than market value according to Mr McConnell.
[23] I am of the view, however, that this offer did not convert i-Select into a conspirator. Mr Heffernan explains that in conversations with Mr McConnell, Mr McConnell told him that Saturn would consider an offer from i-Select and confirmed their agreement that the two matters (termination of the agreement and sale of SINZ) could not be linked. It seems clear that the offer to purchase SINZ was in order to remove a potential conflict of interest for i-Select.
[24] In the factual circumstances as explained by Mr Heffernan, I am of the view that there is not a serious question to be tried as to the involvement of i-Select in the alleged conspiracy involving the other individual and corporate defendants. There is also, in my view, no evidence of a breach of a duty of confidentiality imposed by clause 11.1 of the agreement through an agreement by i-Select to provide information to Mr Chamberlain. Mr McConnell again does not offer any evidence in the form of either contemporaneous documentation or witness statements to substantiate the allegations of a breach of clause 11.1. Again I am of the view that there is not a serious question to be tried.
[25] As to the allegation that i-Select breached its duty of good faith when it gave
90 days’ notice of its intention to cancel the agreement with Saturn, I accept the submissions of counsel for i-Select that the contractual requirement of good faith in the agreement does not apply to the clearly defined right to terminate without cause.
[26] In TSG Building Services Plc v South Anglia Housing Ltd the parties entered a four year contract for TSG to provide gas servicing and associated work covering approximately 5,500 properties owned by SAH.1 Clause 1 stated:
The [parties] shall work together and individually in the spirit of trust, fairness and mutual co-operation for the benefit of the Term Programme, within the scope of their agreed roles, expertise and responsibilities as stated in the Partnering Documents … and in all matters governed by the Partnering Contract they shall act reasonably and without delay.
[27] The Partnering Objects included “trust, fairness, mutual co-operation, dedication to agreed common goals and an understanding of each other’s expectations and values”.
[28] The court refused to interpret these terms as restricting a separate clause in the contract entitling either party to terminate the contract on three months’ notice. Indeed the existence of the expressed standards of behaviour persuaded the court that it should not imply a more general duty of good faith applying to the right to terminate. The judge stated:2
I do not consider that there was as such an implied term of good faith in the Contract. The parties had gone as far as they wanted in expressing terms in Clause 1.1 about how they were to work together in a spirit of “trust, fairness and mutual co-operation” and to act reasonably. Even if there was some implied term of good faith, it would not and could not circumscribe or restrict what the parties had expressly agreed in Clause 13.3, which was to the effect that either of them for no, good or bad reason could terminate at any time before the term of four years was completed. That is the risk that each voluntarily undertook when it entered into the Contract, even though, doubtless, initially each may have thought, hoped and assumed that the contract would run its full term.
[29] In the present case, the good faith clause requires the parties to act in good faith towards each other in respect of all dealings or matters under, or in connection with, the agreement. The right to terminate is, however, unilateral. There are no dealings with the other party. Termination is not a matter under the agreement. It brings it to an end. Nor is termination connected with the agreement. It no longer exists.
[30] The clause is clear and concise. It is not subject to any conditions or restrictions. Reasons are not required. I am therefore of the view that the right to terminate the agreement is not subject to the good faith clause.
[31] Even if I am wrong in this conclusion, Saturn in my view has not explained how and in what way i-Select was required to act in good faith when exercising the clear right of termination without cause. When Mr Heffernan gave notice of termination he in fact provided reasons. He himself referred to the good faith clause in the agreement as well as the requirements in paragraphs 5 and 6 of Schedule 1 which required Saturn not to make improper use of information in order to gain an advantage and asserted that Saturn’s solicitation of i-Select members for the SINZ
scheme in the email of 18 June 2017 was a fairly clear breach of both of those provisions.
[32] Furthermore, Mr Heffernan’s assessment of the commercial arrangements was such that it was unlikely that Saturn would make any further introductions to the i-Select scheme as it had its own scheme. Those reasons have not been the focus of detailed challenge by Saturn. Counsel have not alleged that the reasons given are untrue or constitute a lack of good faith in some way.
[33] Given that, in my view, there is not a serious question to be tried, it is unnecessary to consider the balance of convenience or the interests of justice. However, I do note that the damage to Saturn may already have occurred through the sending of the email by i-Select on 14 August 2017 advising clients of the termination of the agreement with Saturn. When I commented to counsel that the horse had bolted, counsel acknowledged that the stable door was open and some steps had been taken.
[34] The court is of course reluctant to grant a mandatory injunction such as the order now sought by Saturn that i-Select retract the email. It may consider it if i-Select was at fault. However, on balance, I do not think that i-Select is to blame. The application for an injunction was adjourned part heard on 9 August 2017 and counsel gave an undertaking that an email would not be sent until Saturn’s application for an injunction was in effect resolved.
[35] Counsel for Saturn has submitted that the undertaking was given in a much more detailed and particular manner. It was, however, not formally recorded and although in my discussions with counsel for i-Select I had before me an email from the Public Trust with a certain form of words I did myself consider that those particular words constituted part of the undertaking given by counsel.
[36] In a memorandum filed in court and served on the other parties on 14 August
2017, counsel for Saturn stated:
As a result of information provided by i-Select for the first time today, it appears that Saturn is able to transfer its clients to a new provider other than
i-Select without the clients being charged a fee of 2.5 to 3% of their fund to transfer, which would have commercially prohibited them transferring. On that basis Saturn will seek to transfer its existing clients to a new provider and does not maintain its application for an injunction previously sought.
[37] Upon receipt of that advice i-Select sent an email to clients advising them of the termination of the agreement with Saturn. Counsel for i-Select then filed and served a memorandum in which she acknowledged receiving the memorandum of counsel for Saturn. Counsel also sought increased or indemnity costs against Saturn in respect of the application for an injunction, which she clearly thought was at an end. She then commented that i-Select was concerned about Saturn’s suggestion that it intended to transfer members of the i-Select scheme to another provider without the consent of those members. This was said to be inconsistent with Saturn’s position as an independent adviser to the members of the i-Select scheme and contrary to its obligations under the agreement. Counsel indicated she would be writing to Saturn about these issues and i-Select may have to apply for its own injunction to prevent a wholesale transfer in the manner proposed by Saturn.
[38] Counsel for Saturn took exception to this advice and stated in a further memorandum filed and served on 14 August 2017 that the effect of the position adopted in the i-Select memorandum was that it was necessary for Saturn to maintain its application for an injunction. Counsel submitted that without an injunction restraining the enforcement of an invalid termination Saturn would lose the remainder of its clients.
[39] Also under the heading of balance of convenience I therefore have regard to the fact that two days ago, on 14 August 2017, Saturn considered it unnecessary to proceed with the application for an injunction because it had been confirmed that Saturn was able to offer advice to clients about transfer to a new scheme without cost. Counsel for i-Select has confirmed that remains the case. Saturn says, however, that the situation has changed dramatically by the email sent by i-Select to clients on 14 August 2017 advising them of the termination of the agreement with Saturn. Saturn says the email is in disparaging terms. Counsel submits that the clear inference is that Saturn must have done something wrong for the agreement to be terminated. I have reviewed the email and I am not ready to draw such an inference.
[40] Finally, under the heading of the overall interest of justice I am of the view that an interim injunction should normally only be granted where a permanent injunction would be available. Here there is a clear and concise right, in my view, to terminate on notice without cause. A permanent injunction restraining i-Select from ever exercising its right to terminate is not available.
[41] In all those circumstances the application for an interim injunction by Saturn is dismissed.
[42] Costs are to be reserved. If the parties are unable to agree, counsel should file memoranda for consideration and decision by the court.
Woolford J
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