Shannon v Lowy
[2019] NZHC 3067
•25 November 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1381
[2019] NZHC 3067
UNDER Sections 164 and 174 of the Companies Act 1993 BETWEEN
ROSS ELLWOOD SHANNON
First Plaintiff
ROSS ELLWOOD SHANNON, RUTH SHANNON and the SHANNON TRUSTEE
COMPANY LIMITED as trustees of the SHANNON FAMILY TRUST
Second PlaintiffsJONNY SHANNON
Third Plaintiff
AND
JONATHAN DAVID LOWY
First Defendant
Continued over page
Hearing: 20 November 2019 Appearances:
P C Murray for the plaintiffs
The first and second defendants in person
Judgment:
25 November 2019
JUDGMENT OF PALMER J
The judgment was delivered by me on 25 November 2019 at 3.00pm.
Pursuant to Rule 11.5 of the High Court Rules
……………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
P C Murray, Barrister, Auckland
SHANNON v LOWY [2019] NZHC 3067 [25 November 2019]
GRANT ANDREW SARGENT
Second Defendant
RIPETIME LIMITED
Third Defendant
Context and application
[1] The plaintiffs are shareholders, and some are also directors, of the third defendant, Ripetime Ltd. Mr Jonathan Lowy and Mr Grant Sargent, the first and second defendants, are involved in another company, Salvo Ltd. They were, and they say they are, also Ripetime directors, though their current status is disputed. Mr Lowy was a founder of Ripetime. The plaintiffs claim Mr Lowy and Mr Sargent have misappropriated confidential information from Ripetime, are using that information and other Ripetime intellectual property to compete with Ripetime and have prevented the Ripetime board from carrying on business.
[2] On 12 July 2019, Lang J granted the plaintiffs interim orders, without notice, preventing Mr Lowy and Mr Sargent from holding a Ripetime board meeting on 12 July 2019 and any further board meetings and preventing them from accessing Ripetime’s bank account. Mr Lowy and Mr Sargent say those orders prevented them from doing things they did not want to do anyway.
[3] A hearing of the plaintiffs’ application for further interim orders is scheduled for 14 February 2020. In the meantime, the plaintiffs apply for further interim interim orders until then:
(a)An interim interim injunction preventing Mr Lowy and Mr Sargent, and any other company associated with them other than Ripetime, pending the outcome of the proceeding, from directly or indirectly approaching, soliciting or dealing with any person who has been in contact with Ripetime as a customer or potential customer during the last 12 months, including: IBM; Bion; Hazel; East Pack; Zespri; Turners & Growers; CutriFruit; Seeka; Starta Fresh; and Pace International.
(b)An interim interim injunction preventing Mr Lowy and Mr Sargent, and any other company associated with them other than Ripetime, from directly or indirectly engaging in any business that competes in any material respect with the software, hardware and/or services which Ripetime has developed or has been in the process of developing, pending the outcome of this proceeding or further order of the Court.
(c)An order that, pending the outcome of the proceeding or further order of the Court, a meeting of Ripetime’s board will be quorate without Mr Lowy and Mr Sargent attending the meeting.
Should I grant the further interim interim orders?
[4] Rule 7.53 of the High Court Rules 2016 entitles a party to a proceeding to apply for an interlocutory injunction if certain conditions are fulfilled. The court must examine whether there is a serious question to be tried, consider the balance of convenience on the parties, pay particular attention to whether damages would be an adequate remedy, and assess the overall justice of the position.1
[5] Mr Murray, for the plaintiffs, initially submitted the further interim interim orders are required urgently because Mr Lowy and Mr Sargent are causing irreparable harm to the plaintiffs and Ripetime and they have refused to provide undertakings to preserve the position pending the outcome of the proceeding. He submitted damages would not be an adequate remedy because it is notoriously difficult to quantify and prove damages resulting from an intellectual property claim. He singled out Mr Lowy’s and Mr Sargent’s dealings, through Salvo, with Hazel. Hazel is an international company with which Ripetime had a relationship and which has now shifted work to Salvo.
[6] Mr Lowy, speaking on behalf of himself and Mr Sargent, provided a clear and compelling outline of the nature of the technology he and Mr Sargent are deploying through Salvo and its distinction from that of Ripetime. In essence, as I understand it, he says:
(a)Ripetime’s product is world-leading technology he developed that is extremely sensitive in evaluating and predicting the maturation of apples and other fruit and vegetables. Ripetime’s shareholder agreement was deliberately narrowly drawn, by him, to focus on the development and marketing of that technology.
1 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].
(b)Salvo develops and markets a variety of products that do not include Ripetime’s product. For example, Hazel makes a smoke-like product that retards maturation of fruit and vegetables. Salvo has developed a device that measures the application of Hazel’s otherwise invisible product, so Hazel can assure customers it has been applied. Salvo is making 15 such devices for Hazel, for around $150,000, through the unique combination of off-the-shelf components and quite without the extreme sensitivity of Ripetime’s product.
(c)Salvo is not competing with Ripetime. They offer unrelated products used for unrelated purposes. Accordingly, when Hazel asked for a product similar to that offered by Ripetime, Salvo referred Hazel to Ripetime. But if Salvo were to be prevented from selling its services and developing its own, distinctive, products to Hazel and the other companies (which Mr Lowy says are existing Salvo customers he introduced to Ripetime), Salvo’s business would be destroyed.
(d)Mr Lowy and Mr Sargent now offer to undertake to the Court that they and Salvo and any company associated with them (other than Ripetime) will not compete with Ripetime, if Ripetime keeps to the scope of business provided for in its shareholder agreement.
[7] This information about the nature of Salvo’s products was new for Mr Murray, as was the offer of an undertaking. He responsibly advised that if the undertaking is equivalent to what the plaintiffs seek, he cannot oppose it.
[8] On the basis of Mr Lowy’s explanation of the nature of the technology and products offered by Salvo, and its distinguishing characteristics to that of Ripetime, and on the basis of his and Mr Sargent’s undertaking to the Court, I am not persuaded the interim interim orders sought by the plaintiffs are justified. I have some doubt about the question to be tried. On the basis of the information before me, I consider the balance of convenience favours not granting the orders sought at [3](a) and [3](b) above. Damages seems likely to be an adequate remedy. I note the explanation provided by Mr Lowy will need to be the subject of succinct and clear affidavit
evidence in order to be taken into account at the February 2020 hearing. I also accept Mr Lowy’s and Mr Sargent’s undertaking to the Court, breach of which may constitute contempt of court.
[9] However, I do grant the order sought at paragraph [3](c) above. Mr Lowy and Mr Sargent say they have no intention of disrupting board meetings, they are in the minority anyway and they do not oppose the order other than out of principle. As Mr Murray points out, that order does not prevent them attending board meetings, it just prevents them from rendering a meeting inquorate by not attending.
Palmer J