Superthrill Jet Sprint Limited v Coggan

[2019] NZHC 494

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2840

[2019] NZHC 494

BETWEEN

SUPERTHRILLER JET SPRINT LIMITED

Plaintiff

AND

MARK REGINALD COGGAN

Defendant

On the papers

Appearances:

AF Drake and DJ Pine for the Plaintiff/Applicant

MR Coggan representing himself as Defendant/Respondent

Judgment:

21 March 2019

JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 21 March 2019 at 11.00 am Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

SUPERTHRILLER JET SPRINT LIMITED v COGGAN [2019] NZHC 494 [21 March 2019]

Introduction

[1]    Superthriller Jet Sprint Limited (Superthriller or the Company) operates a drive-yourself jet boating experience located on a purpose-built lake at Colin Dale Motorsport Park in Wiri, Auckland. When it was founded in 1981, as Coggan & Williams Limited, it specialised in the manufacturing of jet units for jet boat engines. The defendant/respondent, Mr Mark Coggan, appears on the pleadings to have been the sole shareholder and director of that company. It is alleged that Coggan & Williams designed and arranged for the third-party manufacture of 100 horsepower jet sprint boats using the Coggan & Williams jet units. In 2006, Mr Coggan sold one- third of the shares in Coggan & Williams to each of Ms Teresa Farac-Ciprian and Mr Danny Chan, while retaining one-third of the shares himself.

[2]    In 2016 Coggan & Williams changed its name to Superthriller and designed and constructed the purpose-built race circuit where individuals or teams can race the Superthriller jet boats.

[3]    It is alleged that the key aspects of the shareholder agreement between the purchasers, Ms Farac-Ciprian and Mr Chan, and Mr Coggan were that:

(a)Ms Farac-Ciprian and Mr Chan would each contribute $300,000 to the Company as a loan for working capital;

(b)Mr Coggan would assign $591,750 as capital to the Company in consideration for the value of intellectual property and a restraint of trade;

(c)Mr Coggan would assign a capital loan of $300,000 on the terms that it was unsecured, non-interest bearing and had no rights for call up by the lender (loan A); and

(d)Mr Coggan assigned a further capital loan of $291,750 on the terms that it was unsecured, non-interest bearing and had no rights for call up by the lender (loan B).

[4]    Subsequently, Superthriller agreed to pay Mr Coggan $4,500 per month in lieu of salary against the value of loan B, to the terminal value of $250,000 although it is pleaded without explanation that a total of $41,750 was to be paid.

[5]    The plaintiffs allege that prior to Ms Farac-Ciprian and Mr Chan becoming shareholders, Mr Coggan informed them that the first four jet boats manufactured for the business would use a General Motors motor that had already been purchased, but that further boats would require a new engine. Mr Coggan is alleged to have informed Ms Farac-Ciprian and Mr Chan that he had already identified a new engine, the Moller Engine that could be “marinized” (which I assume means made fit for purpose) for

$10,000.

[6]    It is said the parties agreed to allocate to themselves certain roles within the business, with Mr Coggan being assigned the role of obtaining necessary consents for the operation of Superthriller, overseeing the construction of the venue and developing and maintaining the boats. Ms Farac-Ciprian and Mr Chan were to market the Company and commercialise the concept. Ms Farac-Ciprian was appointed a director of the Company.

[7]    It is said that the Company suffered setbacks prior to opening the jet boat park and that the business relationships  between  Mr Coggan,  on  the  one  hand,  and  Ms Farac-Ciprian and Mr Chan, on the other, became strained. It is alleged that between April 2017 and January 2018, Mr Coggan failed or refused to engage with the operation and development of the business and that he undermined the reputation of Mr Chan and Ms Farac-Ciprian to third-party suppliers.

[8]    On or about 11 January 2018, Mr Coggan notified Superthriller of his intention to sell his one-third shareholding in the Company for $656,000, being equivalent to

$32.62 per share. On 10 April 2018, Ms Farac-Ciprian wrote to Mr Coggan declining to purchase his shareholding at that price but offering to purchase his shares at $4.59 a share. The offer was not accepted and Mr Coggan resigned as a director, leaving Ms Farac-Ciprian as the sole director of the Company.

[9]    The plaintiffs allege that at the time of his resignation, Mr Coggan held a substantial amount of Company property, including a Company computer; important spare parts for the boats and jet units; plans, moulds, dies, and manuals for the engine. It is said this property is vital to the continued operation of the Superthriller jet boats. Further, it is alleged that on or around 7 November 2018, Mr Coggan held himself out as an agent of Superthriller and collected important plans from a third-party supplier belonging to Superthriller. The plaintiffs allege that they have, both personally and through counsel, demanded that Mr Coggan must return the Company property but that Mr Coggan has refused and has consistently denied Superthriller the ability to exercise its property rights over the property he holds.

[10]   Against this background, the plaintiffs sue Mr Coggan in conversion and seek, as substantive relief, an order requiring Mr Coggan to surrender to Superthriller all of the property belonging to the Company which he currently holds in his possession. As a second cause of action, the plaintiffs  allege misrepresentation in  that, it  is said, Mr Coggan misrepresented the cost of developing the Moller engine and other development costs for the business and the jet sprint boats. They seek damages and an inquiry.

[11]   On 21 December 2018, Superthriller filed a without notice interim interlocutory application  for  a  mandatory  injunction,  seeking  orders  directing  Mr Coggan to return all property belonging to Superthriller then in his possession, and an order restraining him from destroying, using, copying, transmitting, transferring, altering, deleting or defacing any property belonging to the Company. Duffy J directed that Mr Coggan should be served.

[12]   The matter was subsequently set down for hearing before me at 10.00 am on 21 February 2019. In the meantime, Mr Coggan swore and filed an affidavit responding to the plaintiffs’ claims for interim relief. He did not deny that he was in possession of property belonging to Superthriller. Instead, he addressed assertions by the plaintiffs in the affidavits filed in support of the interlocutory application as to the significance of the property for the operation of the plaintiffs’ business and matters related to the dispute over his shareholding and loans.

[13]   On 18 February 2019, Mr Coggan sent an email to the Registrar attaching a report from a doctor stating that Mr Coggan had been under the doctor’s care since   8 January 2019 and that he was  suffering  from  severe  anxiety  and  depression.  Mr Coggan requested that the hearing should take place by telephone because his health and his financial position precluded his travelling from Pukekohe, where he lives, to the Court.

[14]   On the morning of 21 February 2019, shortly before the proceeding was due to be called for hearing, Mr Coggan informed the Registrar that he was unable to attend the Court because of ill health. He acknowledged that there was nothing he could add to the written material he had filed and said that he would await and abide by the Court’s decisions on the interlocutory application.

[15]   When Mr Drake and Mr Pine, counsel for Superthriller, appeared at the hearing I indicated to them that I did not consider it would be appropriate to engage in any discussion about the merits of the plaintiffs’ and Mr Coggan’s respective positions and said that the Court would deal with the application for an injunction on the papers.    I pointed out to counsel, however, that I considered that, if the Court held that relief should be granted, the draft orders filed by the plaintiff were too vague to be clearly understood and enforced.

[16]The draft sought orders that Mr Coggan was to:

(a)surrender to Superthriller’s director all property currently in his possession, power, or control but belonging to Superthriller or its director upon the service of the order; and

(b)not to destroy, use, copy, transmit, transfer, alter, delete, or deface any property belonging to Superthriller.

[17]   I directed counsel by Minute to provide an affidavit making a more specific allegation of the nature of the property which the plaintiff considered was improperly held by Mr Coggan. That would enable a more specific order to be made, if the Court

should decide that an order was appropriate. Mr Coggan was served with a copy of the Minute.

[18]   Without obtaining the leave of the Court, Mr Coggan filed with the Court an affidavit which he sought to have read in further response to the plaintiffs’ allegations. The affidavit, dated 28 February 2019, does not address the principal points at issue in the interlocutory proceeding, namely, whether Mr Coggan remains in possession of property belonging to the Company to which he is not entitled, and the nature of the orders sought on an interim, mandatory basis. Mr Coggan did not obtain the Court’s leave to file the affidavit, but he is representing himself and I would have allowed it in in the interests of fairness if it had contained material information. The content, however, is irrelevant to the matters I am required to determine in the interlocutory proceeding. I put the unauthorised affidavit to one side.

[19]   On 25 February 2019, the plaintiffs filed an affidavit by Ms Farac-Ciprian responding to the Court’s direction that the relief sought should be specified more clearly. A schedule of property which the plaintiff says is held by Mr Coggan without authority and which the Company requires to conduct its operation is attached to the affidavit. Also attached, as Schedule B, is a list of dies, plans, moulds and casts which it is alleged were produced for Superthriller by Sika Technologies Limited and which Mr Coggan is said to have uplifted from that supplier without authority.

[20]   On 26 February 2019, Mr Coggan filed a further  affidavit  responding  to  Ms Farac-Ciprian’s  affidavit  of  15 February   2019   but   not   the   affidavit   of  25 February 2019.    On   5 March 2019,   he   filed   a   further   affidavit   dated     28 February 2019 which, again, referred to matters purportedly related to the substantive issues between the parties but not to the particular allegations regarding the property which it is said he has retained improperly. I note that when referring to Company property in his possession, Mr Coggan has confined himself to alleging that the Company does not need it in order to conduct its operations but does not assert any right by which he has retained its possession or control. I have not found it necessary or appropriate to consider the two latest affidavits.

Interim relief

[21]   The principles applying to the grant of interim relief are well-settled.1 To succeed in their application for interim relief, the plaintiffs must establish that:

(a)there is a serious question to be tried;

(b)the balance of convenience favours the granting of the injunction; and

(c)the overall justice favours the plaintiffs.

[22]   The essence of the latter two inquiries is to undertake an assessment of the effect of refusing the injunction on a plaintiff who succeeds at trial, compared to the effect of granting it on the successful defendant. Really, it is a question of considering the balance of inconvenience and what is fairest by reference to the relative strengths of the cases, the preservation of the status quo, the uncompensable disadvantages to either party and the adequacy of damages as a remedy.2

Discussion

[23]   Before establishing its claim in conversion, the plaintiff must first prove that it has a right to immediate possession of the property allegedly converted.3 There are then three substantive elements to the tort, as laid out by Lord Nicholls in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5):4

(a)First, the defendant’s conduct must be inconsistent with the rights of the owner or another person entitled to possession.

(b)Second, the conduct must be deliberate.

1      NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).

2      Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756, 30 July 2008 at [6]-[14].

3      Carey v Smith [2013] NZHC 2291, (2013) 10 NZBLC 99-713 at [52].

4      Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) [2002] UKHL 19, [2002] 2 AC 883 at [39]; adopted in Glenmorgan Farm Ltd (in rec and in liq) v New Zealand Bloodstock Leasing Ltd [2011] NZCA 672, [2012] 1 NZLR 555 at [26].

(c)Third, the conduct must be so extensive an encroachment on the owner’s rights as to exclude him or her from possession of the goods; mere unauthorised retention will not suffice.

[24]   The essential feature of the tort, as suggested by Lord Steyn, is the denial by the defendant of the plaintiff’s possessory interest or title in the goods.5

[25]   I am satisfied on the evidence that there is a good arguable case that Mr Coggan is in possession of the property listed by Ms Farac-Ciprian in her affidavit. He maintains this possession despite being requested to return it to the Company on a number of occasions. Such possession, if proved, would necessarily be inconsistent with Superthriller’s property rights. Moreover, Mr Coggan does not dispute that he is retaining possession of the property intentionally. Rather, as I have said, he argues that the return of the property in his possession is not strictly necessary for the proper functioning of the Company.

[26]   I am further satisfied that, on the face of it, Mr Coggan does not appear to have a right to retain the property.  He has not suggested otherwise.  It is irrelevant that  Mr Coggan thinks that the Company does not need the property; that decision is not his to make.

[27]   That brings me to the final element of conversion: whether Mr Coggan could be said to be excluding the Company from possession of the property or whether he is merely retaining possession of it in an unauthorised way. I am satisfied that the plaintiff has demonstrated that it has an arguable case on this point. While the property is in Mr Coggan’s custody to the exclusion of the plaintiff, Superthriller cannot access, use or otherwise exercise ownership of it. Unsuccessful requests for its return have been made. Mr Coggan’s conduct and unwavering position have meant that Superthriller has been denied the right to exercise its proprietary rights over the property.

5      Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) at [119].

[28]   I find there is sufficient evidence to justify a conclusion that the tort of conversion may well be proved at trial. I am satisfied, therefore that the plaintiff has demonstrated that it has an arguable case and that there is a serious question to be tried.

[29]   As for the balance of convenience, this clearly falls in favour of the plaintiffs, even though the effect of the order will be to grant to the plaintiff part of the substantive relief it seeks. Mr Coggan has not offered any evidence to indicate how the forced return of the property to the plaintiff might cause him to suffer loss or prejudice. On the other hand, refusing the relief will add to the financial strain the company is already suffering.

[30]   Superthriller has given an undertaking as to damages. If it is held in due course that Mr Coggan has not retained the property improperly, compelling the property’s return to Superthriller at this stage may be adequately remedied by an award of damages to him if any loss can be proved. Conversely, an award of damages in due course will not adequately meet the plaintiff’s’ current needs given the unique significance and value of the property to its business models. It follows that I also consider the overall justice of the case to be in the plaintiff’s favour.

Result

[31]The grant of an interim injunction is justified.

Orders

[32]   Mr Coggan shall surrender to Superthriller’s director immediately upon demand, all property belonging to Superthriller or its director that is currently in his possession, power or control; including but not limited to the following property:

(a)All plans, dies, moulds and casts, as well as any other designs belonging to the Company such as moulds for seats, including –

(i)Manifold – Main, part number 4001;

(ii)Exhaust Outlet/Muffler;

(iii)The following Couplings:

1.   Engine End, part number 3010;

2.   Jackshaft Fitting, part number 3012;

(iv)The following Sand Castings:

1.   Intake, part number 2143;

2.   Pick Up, part number 2171;

3.   Pump, part number 2181;

4.   Wear Ring Outer, part number 2251;

5.   Steer # 100 Single, part number 2221;

6.   Reverse Mk V, part number 2191;

7.   Brg Hse, part number 2028;

8.   Bg Hs Cover, part number 2029;

9.   Spanner, part number 2141;

10.   Joiner Roll Cage, loose;

11.   Roll cage Feet A, loose;

12.   Roll cage Feet B, loose;

(b)Keys and remotes for any equipment, alarms or properties;

(c)A laptop computer, namely an HP ProBook, Serial Number 5C5411RF6;

(d)Jet unit parts;

(e)Stators;

(f)Hoses and water tubes;

(g)Seals, wear rings and O rings;

(h)Studs, nuts and screws;

(i)Pumps, including water pumps, fuel pumps, hoses, pipes, tubes and nozzles;

(j)Impeller nuts;

(k)Shafts;

(l)Bearings and bearing houses;

(m)Bushes;

(n)Spacers;

(o)Cables;

(p)Signwriting, including decals, stickers, designs, and signwriting parts;

(q)Steering parts, including linkages, bushes, wheels and steering helms;

(r)Reverse parts, including linkages, bushes, springs, plates, levers and cables;

(s)Throttle parts, including linkages, plates, cables and pedals;

(t)Engine parts, including manifolds, flywheels, exhaust parts, couplings and covers;

(u)Safety equipment, including roll bars, side bars and harnesses;

(v)Batteries;

(w)Instrument dials, including cables and linkages;

(x)Ignition switches;

(y)Fuel parts, including pumps, tanks, filters and safety shutoff; and

(z)Plans, drawings, manuals, contracts, documents and computer files, including documents for the Agreement to Licence Land and the Recreation Licence, the cut file for the hull of the SuperThriller jetsprint boat, plans and drawings of the current and proposed lake venues.

[33]   Mr Coggan shall not to destroy, use, copy, transmit, transfer, alter, delete or deface any of the property referred to at [32] prior to its delivery to the plaintiff.

Costs

[34]   The rules about payment of costs by one party to another are contained in Part 14 of the High Court Rules 2016.6 The plaintiff having succeeded in its claim for interim relief, the primary rule is that it is entitled to costs.7 Any application for costs shall be made by memorandum filed and served not later than 19 April 2019. Any reply memorandum shall be filed and served not later than 10 May 2019. Costs shall be determined on the papers unless the Court directs otherwise.

………………………..

Toogood J

6      A copy of the Rules is available free online at

Court Rules 2016, r 14.2(1)(a).