SILICH & ORS v WHITE & ORS [2019] NZHC 103

SILICH & ORS v WHITE & ORS [2019] NZHC 103 [7 February 2019]IN THE HIGH COURT OF NEW ZEALANDNEW PLYMOUTH REGISTRYI TE KŌTI MATUA O AOTEAROANGĀMOTU ROHECIV2017-443-17[2019] NZHC 103BETWEEN PAUL SILICH, LARRY CROW, CONRADO'CARROLL and PATRICIA O'CARROLLas four of the current trustees of the TeRunanga o Ngati Tama TrustFirst PlaintiffsAND NGATI TAMA CUSTODIAN TRUSTEELIMITEDSecond PlaintiffHOMESOFT GROUP PTY LIMITEDThird PlaintiffSITU SYSTEMS PTY LIMITEDFourth PlaintiffLISA WHITEFirst DefendantTAHUATA WHITESecond DefendantADRIAN WHITEThird DefendantALLEN WHITEFourth DefendantDENISE TINNEYFifth DefendantHearing: 21 August 2018Appearances: W C Pyke for PlaintiffsJudgment: 21 August 2018Reasons: 7 February 2019REASONS JUDGMENT OF DUFFY JThis reasons judgment was delivered by me on 7 February 2019 at 4.00 pm pursuant toRule 11.5 of the High Court Rules.Registrar/ Deputy RegistrarSolicitors/Counsel:Simpson Legal, AucklandW C Pyke, Barrister, Auckland[1] The first plaintiffs (the Ngati Tama trustees) are four out of seven of the trusteesof the Te Runganga o Ngati Tama Trust (TRONT). The second plaintiff, Ngati TamaCustodian Trustee Limited (Ngati Tama), is an incorporated company and is thecustodian trustee of TRONT. The third plaintiff, Homesoft Group Pty Limited(Homesoft), is a company incorporated in Australia which owns the rights in relationto the My Virtual Homes software (MVH software), which enables the design of a"3D virtual home" and markets that software to consumers. Ngati Tama is thecustodian trustee of TRONT and an 82 per cent shareholder in Homesoft. The fourthplaintiff, Situ Systems Pty Limited (Situ), is a company incorporated in Australiawhich licenses the MVH software for business use.[2] The proceeding is for claims of breach of confidence and causing loss byunlawful means.[3] The plaintiffs have resolved their dispute with the first, second and thirddefendants. The fourth and fifth defendants are beneficiaries of TRONT along withother members of the Ngati Tama iwi. These defendants were served with thisproceeding. They have taken no steps in the proceeding. Accordingly, the plaintiffsseek judgment by way of formal proof against them.[4] I am satisfied that the fourth defendant was properly served with theproceedings.[5] The fifth defendant lives overseas. She was served by substituted servicefollowing a direction from Hinton J on 6 October 2017.[6] No-one expressly addressed the issue regarding service of an overseasdefendant. Rule 6.27 of the High Court Rules provides that proceedings may be servedon a defendant outside New Zealand without leave when: (a) a claim is made in tort;and (b) any act or omission responsible for damage was done or occurred in NewZealand; or (c) the damage was sustained in New Zealand.[7] The claim for causing loss by unlawful means is a claim in tort. The claim forbreach of confidence is based in equity. However, it is now well settled that for r 6.27to apply it is enough if one of the causes of action qualifies under that rule.1Accordingly, in terms of r 6.27 it was not necessary for the plaintiffs to obtain leaveof the Court to serve the fifth plaintiff overseas. I am satisfied that the fifth defendanthas been properly served in accordance with the directions given by Hinton J.[8] Despite the failure of the defendants to oppose the claims against them, thisCourt must assess the merits of the claim before it can be satisfied that judgment canbe entered against the defendants; this is made clear by the Court of Appeal in Khan vShariff:2We do not however agree with a further submission that because the claimproceeded by way of formal proof, a simple assertion by Dr Sahu Khan as tothe correctness of the contents of the statement of claim was sufficient to provehis claims. The Court must still satisfy itself regarding the plaintiff's evidencein much the same way as if the proceeding had gone to trial. It is not the casethat allegations of fact made in a statement of claim are deemed to be admitted.Facts[9] Gregory Lane is one of the directors of Homesoft and the chief executive ofHomesoft and Situ. He has provided an affidavit in support of the plaintiffs' case. Theaffidavit evidence establishes that a confidential report of the plaintiffs (the Lanereport), which was prepared by Mr Lane, on or about 10 February 2016 has unlawfullycome into the hands of the defendants. The Lane report outlines the performance ofthe third plaintiff; this report includes sales projections and refers to contracts withcustomers or potential customers. Included here are: (a) CSR Limited (CSR) whichis a commercial entity based in Australia and New Zealand that is already a valuablecustomer of Situ; and (b) Caroma, which is a wholesaler of bathroom products inAustralia and New Zealand, that is a potential valuable customer of Situ.[10] The plaintiffs contend the Lane Report was issued in confidence. It has aconfidential watermark and states on the inside cover:This report is strictly confidential. Please do not distribute. The contents ofthis report could damage ongoing business dealings if made public and1 See Bomac Laboratories Ltd v F Hoffman-La Roche Ltd (2002) 7 NZBLC 103 (HC) at 627; andBaxter v RMC Group plc [2003] 1 NZLR 304 (HC).2 Khan v Shariff [2018] NZCA 583; see also Ferreira v Stockinger [2015] NZHC 2916 at [35];Neumayer v Kapiti Coast District Council [2013] NZHC 1106 at [8]; and Chen v Zhong HCAuckland CIV-2010-404-1995, 14 November 2011 at [39].persons viewing this document are kindly asked to limit distribution to boardmembers only.This reference to board members means the Ngati Tama Trustees, being Paul Silich,Larry Crow, Conrad O'Carroll and Patricia O'Carroll, Lisa White, Tahuata White andAdrian White.[11] On 7 May 2016, Mr Lane e-mailed the Ngati Tama trustees following a phonecall which he received in relation to the MVH software. The e-mail outlined a businessplan for Homesoft and Situ and included references to the CSR and Caromaopportunities. This information was commercially sensitive and confidential toTRONT.[12] The fourth and fifth defendants appear to have obtained a copy of the LaneReport as well as the information contained in Mr Lane's e-mail of 7 May 2016. Theplaintiffs cannot account for how this occurred as the fourth and fifth defendants arenot trustees of TRONT. The plaintiffs believe a copy of the Lane Report was providedto the fourth and fifth defendants by one of the other defendants.[13] Since the fourth and fifth defendants have been in receipt of TRONT'sconfidential information the following has occurred: First, the fourth defendant hascontacted Mr Lane and Paul Condon the co-chief executive of Homesoft and Situ anddemanded they provide the fourth defendant with certain information in relation to thethird and fourth plaintiffs. The fourth defendant has further said that if the requestedinformation is not provided there will be "dire consequences". Second, the fifthdefendant has similarly contacted Mr Lane and made similar threats if her request isnot acceded to. Third, on 29 March 2017 the fourth defendant contacted Mr Laneagain asserting that if a satisfactory response was not forthcoming by a certain datethe fourth defendant would contact CSR and Caroma detailing the "abysmalmanagement" of Homesoft and Situ.[14] To date neither the fourth nor fifth defendants have outlined what the alleged"abysmal management" might be.[15] Mr Lane expresses concerns that if the fourth defendant proceeds with thethreatened communications, either CSR or Caroma will terminate their businessrelationships with Homesoft and Situ. Of particular concern is the fact that Situ is astart-up company that has no goodwill or existing business reputation that wouldotherwise allow it to combat the bad publicity that might flow from the fourthdefendant's threatened action. Accordingly, Mr Lane is of the view that unless thefourth defendant is restrained from communicating with the existing and potentialclients of Homesoft and Situ those companies will suffer irreparable financial harm.[16] Mr Lane also details four other companies that offer Homesoft and Situ soundbusiness opportunities. He is concerned that bad publicity might deter thosecompanies from proceeding to deal with Homesoft and Situ.[17] While the fourth defendant is the person who is primarily responsible for thethreats, there is evidence to show that he has disclosed this information to the fifthdefendant and that she is similarly inclined to carry out the threats.Causes of actionBreach of confidence[18] It is a well-established equitable principle that a person who receivesinformation in confidence must not take unfair advantage of it.3 The Court willintervene where:(a) Information is of a confidential nature;(b) Information was communicated in circumstances importing anobligation of confidence; and(c) The defendant has made or will make an unauthorised disclosure or useof that information.3 A B Consolidated Ltd v Europe Strength Food Co Pty Ltd [1978] 2 NZLR 515 (CA).[19] The obligation of confidence does not require a contractual relationship.Where a third-party is acting unconscionably in acquiring or using confidentialinformation equity will assist.4 Relevant factors to consider include:(a) The nature of the information;(b) The state of knowledge of the acquirer of the confidential information;(c) The extent of any breach;(d) What kind of detriment has resulted or might result to the parties; and(e) The degree of culpability of the third-party acquirer and discloser.[20] In determining whether a third-party is liable for use of confidentialinformation, the most critical factor will be the state of the defendant's knowledge.Either wilful blindness or actual knowledge of a breach of confidence will be sufficientto render a third-party liable in breach of confidence.5Causing loss by unlawful means[21] There is a cause of action for causing loss by unlawful means where there hasbeen deliberate and wrongful interference with the actions of a third-party in whichthe plaintiff has an economic interest, coupled with the intention thereby to cause lossto the plaintiff.6 This statement of the essential characteristics of this tort was acceptedby the Court of Appeal in Dyver v Loktronic Industries Limited.7[22] First, it must be shown that the defendant's conduct/interference was deliberateand performed with the intention to cause loss to the plaintiffs, as opposed to anintention to improve one's own financial position.84 Hunt v A [2008] 1 NZLR 368 (CA) at [92]-[94].5 See above, n 3.6 OBG Ltd v Allen [2007] UKHL 21, [2008] 1 AC 1 at [47].7 Diver v Loktronic Industries Ltd [2012] NZCA 131, [2012] NZLR 388.8 OGB Limited v Allan [2007] UKHL 21, [2008] 1 AC 1.[23] The intention to cause loss does not necessarily have to be the sole orpredominate motivation; it is sufficient if such an intention was a contributing causeof the conduct.9[24] Second, it must be established that the loss resulted from unlawful conduct.The unlawful conduct cannot be merely incidental. There must be a causative linkbetween the illegal conduct and the loss suffered.10Perpetual injunctions[25] If satisfied that the plaintiffs have actionable claims for breach of confidenceor causing loss by unlawful means, the Court must then go on to consider whether itis appropriate to grant perpetual injunctions against the fourth and fifth defendants.[26] The Court has a wide discretion to grant injunctive relief where it is just to doso in all the circumstances.Analysis[27] I am satisfied that in relation to the action for breach of confidence the plaintiffshave made out a prima facie case for relief against the fourth defendant. Theuncontested evidence is sufficient to establish that: (a) the subject information has theessential characteristics of confidential information; (b) the plaintiffs have notauthorised the release of this confidential information to either the fourth or the fifthdefendant; (c) the fourth and fifth defendants either will or may in the future releasethe confidential information to diverse persons which will be to the detriment of theplaintiffs.[28] To date, the release or threatened release of the confidential information hasbeen averted by the interim relief granted by Ellis J.11 I am satisfied that the plaintiffsare entitled to maintain the confidentiality of their information and that a perpetual9 Van Camp Chocolates Ltd v Aulsebrooks Ltd [1984] 1 NZLR 354 (CA).10 At 360.11 The available evidence points this way and there is no evidence to suggest anything to the contrary.injunction, (on the same terms as the interim relief) against the fourth defendant willachieve this result.[29] I am satisfied that the same level of risk which applies to the actions of thefourth defendant also applies to the fifth defendant. However, she resides in the UnitedStates of America. The plaintiffs have not outlined for me how a perpetual injunctionissued in this country might be enforced against a defendant who resides overseas,particularly when the breach might be enacted overseas. This question is affected byprivate international law, particularly the scope of this Court's civil jurisdiction toenforce injunctions outside New Zealand. Injunctions are a discretionary remedy. Inprinciple, the Court will not make orders when circumstances render them futilebecause such orders are incapable of enforcement.[30] Regarding the fifth defendant, I propose to grant the plaintiffs leave to filefurther submissions on the question of whether it is appropriate to grant an injunctionagainst the fifth defendant given that she resides outside New Zealand.[31] The plaintiffs have not established their claim for interference by unlawfulmeans. There is insufficient evidence to prove that it is more probable than not thateither defendant has acted deliberately and with the intention to cause any of theplaintiffs loss. It is equally open to infer from the available evidence that the fourthand fifth defendants are for their own reasons unhappy with the governance ofTRONT, particularly in relation to the commercial activities of Homesoft and Situ aswell as other planned commercial ventures in which the plaintiffs may engage.Actions motivated by negative beliefs and understandings about how TRONT is beingmanaged by its trustees and how the other plaintiffs are conducting their commercialactivities in relation to TRONT's interests may be misguided and potentially if notactually detrimental to the plaintiffs. However, such conduct is at best either recklessor negligent. It cannot be equated with an intention to harm the plaintiffs. Indeed,such conduct is more likely to be driven by the belief that it is the plaintiffs who arecausing harm to TRONT rather than the other way around.Result[32] The plaintiffs have established their first cause of action.[33] Accordingly, they are entitled to a perpetual injunction against the fourthdefendant on the following terms:The fourth defendant is restrained from communicating either directly orindirectly by whatever means possible with any customer or potential customerof Homesoft or Situ, including in particular CSR Limited and Caroma.[34] The plaintiffs have leave to file further submissions on the question of whetherit is appropriate for this Court to grant a perpetual injunction against the fifth defendantgiven she resides overseas[35] The plaintiffs have failed to establish their second cause of action; accordingly,on this cause of action I grant judgment to the fourth and fifth defendants.[36] Leave is reserved for the plaintiffs to file a memorandum as to costs in relationto this formal proof.Duffy J