Zorb Limited v Akers
[2014] NZHC 1756
•28 July 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-004461 [2014] NZHC 1756
BETWEEN ZORB LIMITED
Plaintiff
AND
ANDREW WILLIAM AKERS First Defendant (Discontinued)
DAVID AKERS
Second Defendant (Discountinued)CHRIS ROBERTS Third Defendant
HYPER INFLATION LIMITED Fourth Defendant (Discontinued)
OUTDOOR GRAVITY NZ LIMITED Fifth Defendant (Discontinued)
OUTDOOR GRAVITY INC Sixth Defendant
Hearing: 24 July 2014 Appearances:
Timothy Rainey and Samantha Ellis for the Plaintiff
No appearances for the Third and Sixth DefendantsJudgment:
28 July 2014
RESERVED JUDGMENT ON FORMAL PROOF OF MOORE J
This judgment was delivered by on 28 July 2014 at 4:00pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
ZORB LIMITED v AKERS & ORS [2014] NZHC 1756 [28 July 2014]
Introduction
[1] These proceedings were set down for a formal proof hearing in relation to the liability of the third and sixth defendants (“the defendants”). The proceedings in relation to the other defendants were discontinued on 24 February 2014.
[2] On 16 April 2014 the matter was called before me when the solicitor on the record for the third and sixth defendants obtained an order declaring that he cease acting.
[3] I set the matter down for a half day fixture and made timetabling orders in relation to the filing of evidence, the common bundle and the plaintiff’s opening and chronology. I also made orders directing that further communications with the defendants was to be via a nominated email address and directed that a copy of my Minute be sent to that address.
[4] Although they filed a statement of defence the defendants have not complied with the timetabling orders and it is plain they no longer propose to defend the claim.
[5] On 23 July 2014 the Court received an e-mailed memorandum purporting to be signed by the third defendant on behalf of the sixth defendant. It states:
In the interest of resolving this amicably, so that ALL parties can move
forward…
Chris Roberts and Outdoor Gravity would agree to the following:
- for a declaration that the statements made on the to in the statement of claim) are untrue;
- you will not repeat those statements on our website and any other material published in New Zealand;
- That Zorb Lmtd and its entities (subsidiaries) agree that ALL matters (in New Zealand, in the United States, around the world, contracts, past disagreements, everything) between Chris Roberts and Outdoor Gravity Inc are resolved and settled.
- Chris Roberts would see his US$100,000 ownership in Zorb Lmtd for
US$1000.
Dated at Sevierville, Tennessee USA this 21st day of July 2014.
Chris Roberts
OUTDOOR GRAVITY INC
[6] Assuming the provenance and authenticity is as indicated, the document amounts to a concession that the statements at the centre of this dispute were untrue and will not be repeated. Notwithstanding, Ms Ellis for the plaintiff requested that formal orders be made in accordance with the claim and that costs be awarded on a scale 2B basis.
[7] The plaintiff has filed comprehensive and helpful submissions and I record my gratitude to Ms Ellis for her considerable assistance.
The claim
[8] The plaintiff seeks only a determination in liability. There is no claim in damages.
[9] By reason of the settlement of the proceedings against the New Zealand parties, the only remaining causes of action against the defendants are:
(a) malicious falsehood (second cause of action);
(b) breach of s 9 of the Fair Trading Act 1986 (“the FTA”) (third cause of
action).
[10] The defendants have filed a statement of defence. They admit making the statements in question. They admit the statements were published.
Background
[11] The plaintiff, Zorb Limited (“Zorb”) is a New Zealand company which operates sites in New Zealand and elsewhere where, amongst other activities, an inflatable ball is rolled downhill with people inside it. Zorb is the owner of all
intellectual property associated with the business including New Zealand registered patents and trademarks. The Zorb concept was developed by the first defendant, Andrew Akers, and others. It was decided by the inventors and interested other parties to commercialise the invention. Zorb was founded by Craig Horrocks. The company was incorporated in 1995.
[12] David Akers, the second defendant, was the named inventor on one of the patents. He was employed by Zorb until dismissed in 2006.
[13] In 2006 the Andrew Akers resigned from Zorb.
[14] After leaving the company Andrew and David Akers assisted Chris Roberts, the third defendant, with the design and manufacture of a similar product called OGO. Chris Roberts was a former employee of Zorb, now living in the United States. In July 2008 Andrew Akers assisted Chris Roberts in creating the OGO website.
[15] In November 2009 Andrew and David Akers established Outdoor Gravity NZ Limited which is a direct competitor to Zorb producing products with compete with Zorb’s. Outdoor Gravity, the sixth defendant, is a company registered in Knoxville, Tennessee.
[16] In 2010 Outdoor Gravity published on its webpage a “history” about OGO. The claim is that this website contained falsehoods about Zorb and those connected with it, which found the claim in the tort of malicious falsehood. Additionally, it is claimed the false statements amount to a breach of s 9 of the Fair Trading Act 1986 (“FTA”) such that this Court should grant injunctive relief under s 41 or, alternatively, pursuant to its inherent jurisdiction to grant injunctive relief restraining the defendants from engaging in conduct which breaches the FTA.
Evidence
[17] The plaintiff has filed affidavits from Craig Horrocks, Raymond Stonelake
Neville Chandler, Page Horrocks.
[18] Craig Horrocks, in a detailed affidavit, described the background to Zorb and its involvement with the defendants and others. The affidavit attaches as exhibits various promotional material attributed to OGO including the website “history” referred to earlier. In particular, he explained why the statements made by OGO on its website are false. He referred to writing to Chris Roberts in June 2008 complaining about the misuse of Zorb’s company information. He said the website was modified but the “history” was left in place and still contains the statements complained. Raymond Stonelake is a shareholder and director of Zorb and confirmed the details contained in Craig Horrocks’ affidavit are correct. Neville Chandler, similarly, as a shareholder and director of Zorb is currently its chairman. He confirmed that the third amended statement of claim and Craig Horrocks’ affidavit are correct. Page Horrocks said she had been employed by Zorb for the last three years and until recently, was its chief executive officer. She confirmed the allegations as pleaded. In November 2012 she attended a trade show in Florida where she obtained a brochure from Outdoor Gravity NZ Limited. Amongst the material attached to her affidavit is an OGO Owner’s Guide which she claimed contains at least two misrepresentations which are consistent with those discussed elsewhere in this judgment.
Malicious falsehood
[19] The elements of injurious or malicious falsehood are as follows:1
(a) The false statements were made
This may be expressed or implied with its meaning determined by what the statement conveys to the ordinary reader.
(b) Publication
The false statement must be published to a third person.
1 For the elements of injurious or malicious falsehood see Taylor v Hyde [1918] NZLR 279, 282 per
Edwards J and Jorgensen v Jaggard [1917] GLR 68, 80 per Edwards J.
The plaintiff must prove that the statements were published maliciously. Malice may be inferred in a number of respects but in the context of the present case where the statement is self-evidently false, the defendant could not possibly have believed it. Furthermore, where the natural result of the statement is to cause damage and the defendant either knew or was reckless as to its correctness, the Court
will make a finding of malice.2
(d) Intent to cause pecuniary loss
Although the plaintiff is not seeking damages it follows that if the statement was made with the intention to cause pecuniary loss this will support an inference of malice.
Application of principles to the facts
[20] The malicious falsehood claimed in the second cause of action alleges the following particulars. I shall discuss each in turn.
(a) 1999 – Andrew provides Zorb-balls to Sea World, San Diego for
“Cirque de Mer” production by Imagination Entertainment
The plaintiff’s evidence is that the statement is untrue because Zorb globes were, in fact, supplied to Sea World by Zorb and not by Andrew Akers. Sea World remains an ongoing client of Zorb. Andrew Akers did not personally negotiate the sale. All negotiations were carried out on behalf of Zorb as the contracting party and in
Andrew Aker’s capacity as CEO and representative of Zorb.
2 The law on Torts in New Zealand page 724 footnote 186.
Again, the plaintiff ’s evidence is that this statement is untrue. Zorb invested and developed through its employees at the time the “Zylinder” concept. Craig Horrocks created the name “Zurf”.
(c) 2006 – Andrew and David leave original company frustrated by an increasingly corporate culture imposed by new regime controlling the company
The plaintiff’s evidence is that David Akers did not resign out of a sense of frustration but was dismissed for cause by Zorb. Andrew Akers’ explanation for resigning at the time was that he wanted to pursue alternative endeavours.
(d)Corporate dudes do what corporate dudes do and get VERY interested when the whole thing starts to make cash.
The plaintiff’s evidence is this statement is untrue. Zorb’s shareholders and directors have been involved with Zorb for several years. In some cases their involvement goes back to Zorb’s incorporation. The large proportion of the start up capital for the company was provided by Craig Horrocks. The “corporate dudes” referred to were interested in the project from the outset.
(e) Investors sell percentage of company to corporate dudes.
This too, the plaintiff says, is untrue because the shares were sold to personal acquaintances, friends and family of Andrew Akers and to the executives of Zorb including David Akers.
(f) Investors and people who actually do the work are forced out.
The plaintiff’s evidence is that this statement, too, is untrue. Andrew
Akers resigned from his role at Zorb and David Akers was dismissed
because he was not performing his duties to the required standards. The statement implies that those who remained at Zorb did not “actually do the work”. This, the plaintiff says, is untrue. It is completely false to assert that David and Andrew Akers were, alone, responsible for the invention, establishment and success of Zorb.
[21] The defendants have filed no evidence and thus the plaintiff ’s evidence is uncontradicted. Additionally, the e-mailed memorandum referred at [5] of this judgment suggests that the defendants accept that the statements were untrue and will not repeat them on their website or in other material published in New Zealand.
[22] Taken either individually or in the combination, I am the statements referred to above satisfy me on the balance of probabilities that each of the elements of malicious falsehood is proved for the following reasons:
(a) False statements were made
The evidence satisfies me that the statements made were false and demonstrably so. Read as a whole they convey that Andrew and David Akers, either individually or together, invented and developed the technology of Zorb balls and supplied them to Sea World when, in fact, it was the company. The statements also credit David Akers with inventing the Zurf when it was, in fact, developed by the company through its employees. The statements also falsely convey that Andrew and David Akers resigned from Zorb out of a sense of frustration at the way Zorb had been commercialised; the commercialisation drove those who had “actually done the work” (i.e. the investors and developers of the Zorb) out of the company. This is false. They left the company for other reasons. The “history” for the period 1995 to 2007 was that of Zorb’s and not OGO’s.
The talented, hardworking and innovative individuals had left Zorb leaving personnel, mostly comprised of the executive membership of
the company, who possessed none of the creative talent of those they had forced out and were motivated only by money.
(b) Publication
The false statements were published on the website at and were headed “History of OGO”.
(c) Malicious intent
The statements were made with malicious intent. The defendants, through their previous connection with Zorb, knew or must have known that the so-called “history” was not that of OGO’s, but rather was Zorb’s. They would have known this from their own, personal knowledge and involvement with Zorb.
(d) Intent to cause pecuniary loss
Furthermore, it is probable, in my view, that the statements were made with the intention to cause pecuniary loss through the promotion of OGO at the expense of Zorb. The statements were designed to convey that both the intellectual and spiritual origins of the Zorb had been overtaken by the avaricious and commercial interests of Zorb and its officers.
Decision
[23] I am satisfied, on balance, that the plaintiff has proved each of the required elements of the tort of malicious falsehood.
Claim for breach of s 9 of the FTA
[24] Section 3(1) of the FTA expressly extends the FTA’s application to conduct outside New Zealand by any person resident or carrying on business in New Zealand.
[25] Although the defendants are both based in the United States, the FTA applies because Outdoor Gravity New Zealand Limited is in direct competition with Zorb in New Zealand. Furthermore, Outdoor Gravity Inc operates in New Zealand through its website offering the same or similar products and services in New Zealand as Zorb.
[26] Section 9 of the FTA proscribes those in trade engaging in conduct that is misleading or deceptive or is likely to mislead or deceive.
[27] In order to establish a breach of s 9 the plaintiff is required to prove the following elements:
(a) the defendants were in trade;3 and
(b) the defendants engaged in conduct that was misleading and deceptive. [28] In this case the plaintiff submits that the misleading and deceptive conduct
was through the publication of the false statements discussed above.
[29] Given that the statements were published on OGO’s promotional website it is plain that the statements were made in the course of trade. Furthermore, the defendants admit this.4
[30] I have already found that the statements were untrue. It follows they are likely to mislead or deceive members of the public, potential customers, clients, investors and business partners of Zorb and the defendants.
Remedies
[31] The plaintiff seeks:
(a) a declaration that the statements are false and/or misleading and deceptive or likely to mislead or deceive; and
3 Trade means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply of goods or services under s 2 of the FTA.
4 Paragraph 52 of the second amended statement of defence.
(b)an injunction requiring the defendants to remove the remaining statements from the OGO website and restraining the defendants, their service contractors and agents, from repeating the statements (in any medium, including verbally); and
(c) costs.
[32] I have already determined that the plaintiff has satisfied me on the balance of probabilities that the statements particularised in the pleadings either individually or collectively prove the claim in malicious falsehood and I make a declaration to that effect in terms of the prayer for relief in the second cause of action contained in the
second amended statement of claim.5
Injunction
[33] The plaintiff seeks a permanent injunction restraining the defendants from engaging in conduct that would constitute a breach of s 9. Section 41 of the FTA provides the Court with the jurisdiction to grant an injunction as follows:
41Injunctions may be granted by court for contravention of Part 1, Part 2, Part 3, and Part 4
(1) The court may, on the application of the Commission or any other person, grant an injunction restraining a person from engaging in conduct that constitutes or would constitute any of the following—
(a) a contravention of any of the provisions of Parts 1 to
4:
(b) any attempt to contravene such a provision:
(c) aiding, abetting, counselling, or procuring any other person to contravene such a provision:
(d) inducing, or attempting to induce, any other person, whether by threats, promises or otherwise, to contravene such a provision:
(e) being in any way directly or indirectly, knowingly concerned in, or party to, the contravention by any other person of such a provision:
5 Page 19 of the second amended statement of claim.
(f) conspiring with any other person to contravene such a provision.
(2) The court may at any time rescind or vary an injunction granted under this section.
(3) Where an application is made to the court under this section for the grant of an injunction restraining a person from engaging in conduct of a particular kind the court may,—
(a) if it is satisfied that the person has engaged in conduct of that kind, grant an injunction restraining the person from engaging in conduct of that kind; or
(b) if in the opinion of the court it is desirable to do so, grant an interim injunction restraining the person from engaging in conduct of that kind,—
whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of that kind.
(4) Where an application is made to the court under this section for the grant of an injunction restraining a person from engaging in conduct of a particular kind, the court may,—
(a) if it appears to the court that, in the event that an injunction is not granted, it is likely that the person will engage in conduct of that kind, grant an injunction restraining the person from engaging in conduct of that kind; or
(b) if in the opinion of the court it is desirable to do so, grant an interim injunction restraining the person from engaging in conduct of that kind,—
whether or not the person has previously engaged in conduct of that kind and whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.
(5) If the Commission applies to the court for the grant of an interim injunction, the court must not, as a condition of granting an interim injunction, require the Commission to give an undertaking as to damages.
(6) However, in determining the Commission's application for the grant of an interim injunction, the court must not take into account that the Commission is not required to give an undertaking as to damages.
[34] I am satisfied that in terms of s 41(3) of the FTA that the defendants have engaged in conduct amounting to a breach of s 9 of the FTA and, accordingly, I grant an injunction restraining the defendants from engaging in such conduct and,
more particularly, continuing to make the statements complained of which are the subject matter of these proceedings. Furthermore, I make an order requiring the defendants to remove the remaining statements from the OGO website and restraining the defendants, their service contracts and agents, from repeating the statements (in any medium, including verbally).
Costs
[35] Ms Ellis advised me that the plaintiff seeks scale 2B costs which I order together with disbursements as fixed by the Registrar.
Moore J
Solicitors:
Rainey & Co, Auckland
Mr Godinet, Auckland
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