Sequent International Limited v New Generation China Limited HC Auckland CIV 2008-404-004761

[2008] NZHC 2527

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-404-004761

BETWEEN  SEQUENT INTERNATIONAL LIMITED Plaintiff

ANDNEW GENERATION CHINA LIMITED First Defendant

ANDSTEWART PING LEE Second Defendant

Hearing:         13 August 2008

Appearances: D S McGill for the Plaintiff

G J Kohler for the Defendants

Judgment:      26 August 2008 at 12:30pm

(RESERVED) JUDGMENT OF ANDREWS J [Plaintiff’s application for interim injunction orders]

This judgment was delivered by me on 26 August 2008 at 12:30pm

pursuant to r 540(4) of the High Court Rules.

………………………………………………….

Registrar / Deputy Registrar

Solicitors:

Duncan Cotterill, PO Box 5, Christchurch

Lawler & Co, PO Box 105212, Auckland
Counsel:

G J Kohler, PO Box 4338, Auckland

Copy to:

Duncan Cotterill, PO Box 5326, Wellesley St, Auckland 1001

SEQUENT INTL LTD V NEW GENERATION CHINA LTD AND ANOR HC AK CIV 2008-404-004761  26

August 2008

The proceeding

[1]      Sequent International Limited (Sequent) has applied for injunction orders against New General China Limited (NG China) and one of its directors, Mr Stewart Ping  Lee.    Sequent’s  application  was  filed  on  25  July  2008,  accompanied  by affidavits by its Managing Director Mr David Craig, and its Business Manager Mr David Sanders.   A draft statement of claim was filed, and an undertaking as to damages.

[2]      NG China and Mr Lee filed a notice of opposition on 8 August 2008, together with affidavits by Mr Lee and Mr Luke Webster.

[3]      An affidavit in reply by Mr Craig was filed on 12 August 2008.

Background

[4]      Sequent has for some  years had a business relationship with  NG  China. Sequent has used NG China to manufacture, or source the manufacture of, products supplied by Sequent to its customers.   Sequent has also had NG China prepare quotes in relation to projects on which Sequent was, in turn, providing quotes to its customers.

[5]      Between late August 2007 and the end of March 2008 Sequent employed Mr Webster as a Project Co-ordinator.   In the course of his employment he had contact with Mr Lee and NG China.  Mr Webster gave notice of his resignation from Sequent by an email to Mr Craig on 12 March 2008.  He said he had been offered a position heading up the Overseas Missions and Youth Ministry for his Church.   It was accepted by counsel that Mr Webster left Sequent on or about 31 March 2008.

[6]      In early July 2008 Sequent became aware that Mr Webster had joined NG China, and had been in contact with a prospective customer of Sequent.  Of concern to Sequent was that material sent by Mr Webster to the customer included a list of projects NG China was said to have been involved with.  The list included the supply

of a merchandising stand designed by Sequent for its client Pepsi Asia, for an Asian supermarket Carrefour, in which NG China had had no involvement.

[7]      Sequent then undertook an investigation of Mr Webster’s email traffic during his time at Sequent.   Mr Craig referred in his affidavit to 10 items sent by Mr Webster between 12 February and 28 March 2008.  These included an email from Mr Craig to Mr Webster, forwarded to Mr Lee on 18 March 2008, and copied to “[email protected]”.   Mr Craig’s evidence was that his email contained information on Sequent’s supply chain, which was the exclusive intellectual property of Sequent.

[8]      Mr Craig also referred to emails sent by Mr Webster to Mr Lee between 20 and 27 March 2008, forwarding US supplier prices and Sequent proposals (in which NG China had no involvement) and a list of prospective customers of Sequent. Mr Craig then referred to two specific projects in which, he said, NG China has entered into dealings with Sequent’s customers, in breach of the terms of agreements between Sequent and NG China.  Mr Craig said that these agreements provided that the intellectual property in the product concerned belonged to Sequent and its customer, and that NG China was not to have any dealings with the product except through Sequent.  The two projects referred to were the “Prostate Brachy Needle” project and the “Methven Maia Showerhead Packaging” project.

[9]      Further, Mr Craig has located on NG China’s website drawings prepared by Sequent and provided to NG China for pricing purposes only, not authorised to be used by NG China for any other purpose.

[10]     The last matter referred to by Mr Craig was that a number of Sequent’s signed contracts with customers and suppliers have gone missing, as have signed contracts between Sequent and New Generation.  He records that while Mr Webster was employed at Sequent he had charge of retaining signed copies of agreements with NG China.   Further, Mr Craig said that Mr Webster’s signed employment contract has also gone missing.

Application for interim injunction orders

[11]     Sequent’s application for interim orders is on the grounds that its business will be irreparably harmed by NG China retaining and using its documents, that its business dealings with customers are hampered by the fact that it no longer holds originals and copies of contracts now in the possession of NG China, and that NG China now has the potential to benefit from the use of Sequent’s images and from misrepresenting that it was involved in certain of Sequent’s projects.

[12]     The interim orders sought by Sequent against NG China may be summarised as follows:

a)       Orders that NG China provide to Sequent all originals and copies of contracts between Sequent and third parties, all originals and copies of documents provided to NG China and/or Mr  Lee  by Mr Webster between 27 August 2007 and 31 March 2008, and all images it holds showing the “Methven Maia Showerhead Packaging” and “Pepsi Carrefour Supermarket” projects.   In each case the order is sought with reference to documents and images whether in electronic or hard copy form.

b)Orders restraining NG China from representing that it was involved in the “Pepsi Carrefour Supermarket” project and from using any documents or images relating to that project.

c)       Orders requiring NG China to give undertakings that electronic copies of the documents and images have been permanently deleted and that none of the information provided by Mr Webster will be used or passed on;  and

d)Orders  requiring  NG  China  to  keep  a  full  accounting  of  monies received in relation to the “Methven Maia Showerhead Packaging” and “Prostate Brachy Needle” projects.

[13]     Similar  orders  are  sought  against  Mr  Lee.    Further  orders  requiring  the removal of images from the NG China website were not pursued at the hearings. The Court understands that those images have been removed from the website.

[14]     The draft statement of claim alleges five causes of action:   misleading and deceptive conduct under s 9 of the Fair Trading Act 1986, breach of contract (three causes of  action), and misuse of  confidential  information.    Substantive  relief  is sought by way of permanent injunctions and accounts of profits.

[15]     Proceedings have been issued against Mr Webster in the Employment Court.

[16]     NG China’s opposition to the application is on the grounds that Sequent has not satisfied the threshold of a serious question to be tried, that the balance of convenience does not favour interim orders, and that damages would be an adequate remedy  if  Sequent  succeeded  at  trial.    Affidavits  in  support  of  NG  China’s opposition have been sworn by Mr Lee and Mr Webster.  In essence, Mr Webster denies any sinister motive in emailing material to NG China.  He says he has been working part-time for NG China since he resigned from Sequent.

[17]     Mr Lee lists 32 projects in which, he said, Sequent had sought input from NG China for research, sourcing and quoting.    He said  only two  had  resulted  in  a manufacturing agreement.

[18]     Mr Lee denies that there was any overarching agreement between Sequent and NG China, or that there were specific agreements in relation to the “Prostate Brachy Needle” or “Methven Maia Showerhead Packaging” projects.  With respect to the former, he said that the customer had asked NG China to deal directly with him rather than through Sequent.  As to the latter project, he said that NG China had signed a contract with the customer but currently had no on-going or outstanding orders.

[19]     Mr Lee also denied that NG China had received any documents or images from Mr Webster.  He acknowledged that NG China had used an image of the “Pepsi Carrefour Supermarket” stand and that it had not been involved in that particular

project.   However, he said, NG China had been involved with Sequent in other projects for Pepsi Asia, and was entitled to say so.

[20]     In his affidavit in reply Mr Craig reaffirmed the contents of his first affidavit.

Is there a serious question to be tried?

[21]     On behalf of Sequent Mr McGill submitted that there is a serious question to be tried in relation to:

a)        Whether  NG  China  has  breached  an  exclusivity  agreement  with

Sequent;

b)Whether NG China and/or Mr Lee have engaged in misleading and deceptive conduct in the use of images in NG China’s promotional material;  and

c)       Whether NG China and/or Mr Lee had retained or used confidential information belonging to Sequent, wrongfully provided by Mr Webster.

[22]     Mr  McGill  submitted  that  there  was  “strong  prima  facie  evidence”  for

Sequent’s case in the affidavits filed on its behalf.

[23]     On behalf of NG China and Mr Lee, Mr Kohler submitted that Sequent had not established a serious question to be tried.  His submission was based first on the fact that Sequent has not filed a statement of claim, and the determination of a “serious question” could not be made on the basis of a draft statement of claim.

[24]     I do not accept that submission.  The first stage of the two-step test as set out in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd1 and American Cynamid Co v Ethicon Ltd2 is simply that there is a serious question to be tried.  That is what the Court is to determine.   The application may set out the serious question in a

formal statement of claim, that complies with the relevant High Court Rules as to form and specificity, but that is not a requirement.  This part of the test has also been expressed as being that the plaintiff has “a real prospect” of obtaining a permanent injunction3  and as that the plaintiff has demonstrated “a tenable combination of resolutions of the issues of law and fact on which the plaintiffs could succeed”.4

[25]     I accept that how the applicant sets out the claimed serious question may depend on the information to hand at the time the application is made.  I also accept Mr McGill’s submission that without certain documents that Sequent alleges are wrongfully held by NG China, a formal statement of claim cannot be filed.

[26]     Mr Kohler’s second argument was that, in any event, the Court could not find that there is a serious question to be tried.

[27]     Mr Kohler went through each of the causes of action set out in the draft statement of claim and submitted that none of them could succeed.  That argument rests upon a Court accepting the case for NG China and Mr Lee and, in some cases, Sequent not making necessary amendments to the draft statement of claim before filing.  Having considered those matters I am satisfied that Sequent has established that there is a serious question to be tried.

Where does the balance of convenience lie?

[28]     Mr McGill submitted that the “relatively light touch” nature of the orders sought, the irreparable harm being suffered by Sequent, and the minimal harm to NG China  if  Sequent  were  ultimately  unsuccessful  tipped  the  balance  in  Sequent’s favour.

[29]     Mr McGill noted that, in seeking orders for keeping accounts of dealings, Sequent did not seek to restrain NG China from having contact with or contracting with the parties concerned with the “Prostate Brachy Needle” or “Methven Maia Showerhead Packaging” projects.  There would be no interference with NG China’s business.  Nor, he submitted, was Sequent requiring anything onerous of NG China

in seeking orders for the return of contracts between Sequent and third parties, and other Sequent documents and images.  He submitted that these do not belong to NG China or Mr Lee, and they have no right to have possession of them.

[30]     On the other side of the balance, he submitted, Sequent will be irreparably harmed if the orders are not made, in that NG China and Mr Lee will remain in possession of material that puts NG China at a significant advantage over Sequent in the marketplace.  Further, he submitted that Sequent’s reputation is being irreparably harmed by NG China claiming credit for projects in fact undertaken by Sequent.

[31]     In  light  of  the  fact  that  the  interim  orders  sought  by  Sequent  include mandatory injunction orders, Mr Kohler urged caution.  He submitted that in such cases an injunction ought only to be granted in special circumstances, and that a clear case is required.   That submission is a reference to the judgment of Lord

Mustill in Locabail International Finance Ltd v Agroexport5.  At p 663 Lord Mustill

cited as the correct test where a mandatory injunction is sought the following from

Halsbury’s Laws:6

A mandatory injunction can be granted on an interlocutory application as well as at the hearing, but, in the absence of special circumstances, it will not normally be granted.  However, if the case is clear and one which the Court thinks ought to  be decided  at once,  or if the act  done  is a  simple  and summary one which can be easily remedied, or if the defendant attempted to steal a march on the plaintiff … a mandatory injunction will be granted on an interlocutory application.

[32]     Mr Kohler further submitted that an injunction must be restricted to what is necessary for the proper protection of the party seeking it, up to trial.   The orders Sequent seeks are not necessary, he submitted, as it will obtain copies of any documents held by NG China and Mr Lee through the discovery process.  Further, he submitted that NG China and Mr Lee do not in fact have the documents Sequent alleges they have.  He also submitted that NG China has voluntarily removed from its website images Sequent objected to, and that NG China’s normal accounting records relating to its dealings with relevant third parties will be available to Sequent through the discovery process.

[33]     On the basis of those submissions, Mr Kohler submitted that this was not a case where any orders sought by Sequent should be made.

[34]     Further,   he   submitted   that   the   orders   sought   were   unduly   onerous, unnecessary and oppressive.  He submitted that the Court could not make an order requiring undertakings to be given.

[35]     The  fact  that  some  of  the  orders  sought  are  in  the  form  of  mandatory injunctions is not the end of the matter.   Those orders simply seek the return of documents which belong to Sequent.   The documents  referred  to  are  Sequent’s signed originals of various contracts.  If NG China or Mr Lee has them, they have no right to them and it is a simple matter to return them.   In terms of the Halsbury’s comments referred to above, it is a simple summary matter that can easily be remedied.

[36]     My assessment of the balance of convenience comes down to an assessment of the balance of the risk of doing an injustice.  I have concluded that, in relation to some of the orders sought, the risk of doing an injustice is greater if orders are not made than if they are.  However, addressing the risk does not require making all of the orders sought.

Result

[37]     I set out below the general terms of orders that are appropriate:

a)       An affidavit is to be filed and served on behalf of NG China and Mr Lee listing all documents or images provided to NG China and/or Mr Lee by Mr Webster, whether electronically or in hard copy form, between 12 and 31 March 2008.

b)The originals of any contracts between Sequent and third parties held by NG China and/or Mr Lee and/or Mr Webster are to be provided to Sequent.

c)       NG China is restrained from representing, suggesting or inferring to any person that it was involved in any way with the “Pepsi Carrefour Supermarket” project, pending further order of the Court.

d)NG China is restrained  from using in  any way the documents  or images referred to in a) above, except for the purposes of this proceeding, pending further order of the Court.

[38]     The precise terms of the orders should be able to be agreed between the parties.  “NG China” is intended to include its servants and agents, including Mr Lee and Mr Webster.  It is also intended that orders a) and b) are to be complied with within seven days of the date of this judgment.

[39]     Sequent is to file a statement of claim, in proper form, within three weeks of the date of this judgment.  The proceeding is then to be listed before an Associate Judge in the normal manner.

[40]     Costs are reserved.

Andrews J