SHANNON v LOWY [2019] NZHC 3067

SHANNON v LOWY [2019] NZHC 3067 [25 November 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-1381[2019] NZHC 3067UNDER Sections 164 and 174 of the Companies Act1993BETWEEN ROSS ELLWOOD SHANNONFirst PlaintiffROSS ELLWOOD SHANNON, RUTHSHANNON and the SHANNON TRUSTEECOMPANY LIMITED as trustees of theSHANNON FAMILY TRUSTSecond PlaintiffsJONNY SHANNONThird PlaintiffAND JONATHAN DAVID LOWYFirst DefendantContinued over pageHearing: 20 November 2019Appearances: P C Murray for the plaintiffsThe first and second defendants in personJudgment: 25 November 2019JUDGMENT OF PALMER JThe judgment was delivered by me on 25 November 2019 at 3.00pm.Pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarCounsel/Solicitors:P C Murray, Barrister, AucklandGRANT ANDREW SARGENTSecond DefendantRIPETIME LIMITEDThird DefendantContext and application[1] The plaintiffs are shareholders, and some are also directors, of the thirddefendant, Ripetime Ltd. Mr Jonathan Lowy and Mr Grant Sargent, the first andsecond defendants, are involved in another company, Salvo Ltd. They were, and theysay they are, also Ripetime directors, though their current status is disputed. Mr Lowywas a founder of Ripetime. The plaintiffs claim Mr Lowy and Mr Sargent havemisappropriated confidential information from Ripetime, are using that informationand other Ripetime intellectual property to compete with Ripetime and have preventedthe 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 12July 2019 and any further board meetings and preventing them from accessingRipetime's bank account. Mr Lowy and Mr Sargent say those orders prevented themfrom doing things they did not want to do anyway.[3] A hearing of the plaintiffs' application for further interim orders is scheduledfor 14 February 2020. In the meantime, the plaintiffs apply for further interim interimorders until then:(a) An interim interim injunction preventing Mr Lowy and Mr Sargent, andany other company associated with them other than Ripetime, pendingthe outcome of the proceeding, from directly or indirectly approaching,soliciting or dealing with any person who has been in contact withRipetime 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, andany other company associated with them other than Ripetime, fromdirectly or indirectly engaging in any business that competes in anymaterial respect with the software, hardware and/or services whichRipetime 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 orderof the Court, a meeting of Ripetime's board will be quorate withoutMr 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 applyfor an interlocutory injunction if certain conditions are fulfilled. The court mustexamine whether there is a serious question to be tried, consider the balance ofconvenience on the parties, pay particular attention to whether damages would be anadequate remedy, and assess the overall justice of the position.1[5] Mr Murray, for the plaintiffs, initially submitted the further interim interimorders are required urgently because Mr Lowy and Mr Sargent are causing irreparableharm to the plaintiffs and Ripetime and they have refused to provide undertakings topreserve the position pending the outcome of the proceeding. He submitted damageswould not be an adequate remedy because it is notoriously difficult to quantify andprove damages resulting from an intellectual property claim. He singled outMr Lowy's and Mr Sargent's dealings, through Salvo, with Hazel. Hazel is aninternational company with which Ripetime had a relationship and which has nowshifted work to Salvo.[6] Mr Lowy, speaking on behalf of himself and Mr Sargent, provided a clear andcompelling outline of the nature of the technology he and Mr Sargent are deployingthrough 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 isextremely sensitive in evaluating and predicting the maturation ofapples and other fruit and vegetables. Ripetime's shareholderagreement was deliberately narrowly drawn, by him, to focus on thedevelopment and marketing of that technology.1 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; CabcoGroup Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].(b) Salvo develops and markets a variety of products that do not includeRipetime's product. For example, Hazel makes a smoke-like productthat retards maturation of fruit and vegetables. Salvo has developed adevice that measures the application of Hazel's otherwise invisibleproduct, so Hazel can assure customers it has been applied. Salvo ismaking 15 such devices for Hazel, for around $150,000, through theunique combination of off-the-shelf components and quite without theextreme sensitivity of Ripetime's product.(c) Salvo is not competing with Ripetime. They offer unrelated productsused for unrelated purposes. Accordingly, when Hazel asked for aproduct similar to that offered by Ripetime, Salvo referred Hazel toRipetime. But if Salvo were to be prevented from selling its servicesand developing its own, distinctive, products to Hazel and the othercompanies (which Mr Lowy says are existing Salvo customers heintroduced to Ripetime), Salvo's business would be destroyed.(d) Mr Lowy and Mr Sargent now offer to undertake to the Court that theyand Salvo and any company associated with them (other than Ripetime)will not compete with Ripetime, if Ripetime keeps to the scope ofbusiness 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 isequivalent to what the plaintiffs seek, he cannot oppose it.[8] On the basis of Mr Lowy's explanation of the nature of the technology andproducts 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 persuadedthe interim interim orders sought by the plaintiffs are justified. I have some doubtabout the question to be tried. On the basis of the information before me, I considerthe 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 explanationprovided by Mr Lowy will need to be the subject of succinct and clear affidavitevidence in order to be taken into account at the February 2020 hearing. I also acceptMr Lowy's and Mr Sargent's undertaking to the Court, breach of which may constitutecontempt of court.[9] However, I do grant the order sought at paragraph [3](c) above. Mr Lowy andMr Sargent say they have no intention of disrupting board meetings, they are in theminority anyway and they do not oppose the order other than out of principle. AsMr Murray points out, that order does not prevent them attending board meetings, itjust prevents them from rendering a meeting inquorate by not attending.Palmer J