GREENFIELDS INTERNET LIMITED v RURAL NETWORKS LIMITED [2019] NZHC 645

GREENFIELDS INTERNET LIMITED v RURAL NETWORKS LIMITED [2019] NZHC 645 [29 March 2019]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYI TE KŌTI MATUA O AOTEAROAŌTEPOTI ROHECIV-2019-412-000004[2019] NZHC 645BETWEEN GREENFIELDS INTERNET LIMITEDFirst PlaintiffAND RURAL NETWORKS LIMITEDSecond PlaintiffAND RURAL NETWORKS SOUTH ISLANDLIMITEDFirst DefendantAND CENTRAL LAKES INTERNETCOMPANY LIMITEDSecond DefendantHearing: 28 March 2019Appearances: A Barker QC and J Moss for PlaintiffsB Nevell and S Carter for DefendantsJudgment: 29 March 2019JUDGMENT OF DUNNINGHAM J[1] The plaintiffs, Greenfields Internet Ltd (GIL) and Rural Networks Ltd (RNL),have commenced proceedings against the defendants Rural Networks South Island Ltd(RNSIL) and Central Lakes Internet Company Ltd (CLICL) alleging:(a) breach of an implied term of contract against RNSIL for terminatingthe agreement between the parties without giving reasonable notice;and(b) breach of confidence against RNSIL and CLICL for unlawfullycopying and using RNL intellectual property to build new infrastructureto support customers of CLICL and by using GIL customer details to"directly poach" GIL customers.[2] In their statement of claim dated 7 February 2019, the plaintiffs sought an orderfor an interim injunction restraining RNSIL until 31 March 2019 from terminating theinternet connection it provides to GIL and from interfering with the transition of clientsby GIL off the RNSIL infrastructure. They also sought an order for a permanentinjunction restraining the defendants from:(a) using any confidential information or intellectual property obtained andlearned during the business relationship between the parties; and(b) directly or indirectly approaching GIL's customers except foradvertising their services to the general public.[3] The plaintiffs also made a without notice application for interim injunctionorders to the same effect on 30 January 2019. While I initially made orders on theplaintiffs' application to preserve the status quo, after hearing from the parties on8 March 2019, I issued decisions on 15 and 20 March 2019 declining the interiminjunction orders sought.1 My primary reason for declining the interim injunction wasthat I considered each of the claims could be addressed by an award of damages ifsuccessful.[4] Matters went into abeyance for a short period. However, on 22 March 2019,GIL applied for:a stay of the judgment of Dunningham J dated 20 March 2019 in respect ofthe first two issues (network and approach of GIL customers) until the matterhas been heard on appeal or further orders.[5] The grounds on which the order was sought were:1 Greenfields Internet Ltd v Rural Networks South Island Ltd [2019] NZHC 465 (the resultsjudgment) and [2019] NZHC 504 (the reasons judgment).(a) GIL has filed a notice of appeal with the Court of Appeal seeking anurgent fast track appeal. GIL has sought an appeal hearing in the nexttwo to three weeks.(b) The appeal will be rendered nugatory and GIL is likely to suffer asubstantial miscarriage of justice and irreparable harm if the judgmentis not stayed.[6] The position became more complicated when, on 25 March 2019, the Court ofAppeal advised that it was unable to accept GIL's appeal for filing. Sections 56(3) and56(4) of the Senior Courts Act 2016 required the plaintiffs to obtain leave to appealfrom the High Court before the matter could be heard by the Court of Appeal.[7] In a telephone conference convened with the parties on the same day, I said Iwould hear the application for leave to appeal promptly. I also made an interim orderrestraining the defendants from directly, or via a third party, approaching any of GIL'scustomers until the plaintiffs' application for leave to appeal was heard anddetermined. In practical terms that also prevented termination of the network servicesto those customers because the defendants had agreed not to withdraw services to anyGIL customer until they were transitioned onto an alternate internet service provider.The application for leave[8] The plaintiffs seek to appeal those parts of my decision where I declined togrant an interim injunction:(a) restraining RNSIL from turning off the wholesale network to GIL; and(b) restraining RNSIL and CLICL from directly or indirectly approachingGIL's customers.[9] The plaintiffs also seek a stay of the judgment as it relates to those issues anda reinstatement of the interim orders initially made on a without notice basis in respectof those issues, pending the hearing of their appeal.Principles governing the grant of leave to appeal[10] The requirement for leave to appeal is found in s 56 of the Senior Courts Act2016. That section does not give the Court express guidance as to the circumstancesin which leave to appeal should be granted. The issues have been considered in thedecision of Fitzgerald J in Finewood Upholstery Ltd v Vaughan, where she identifiedthe following three relevant considerations when granting leave to appeal:2(a) A high threshold exists for the granting of leave. An allegation oferror of law or fact is generally insufficient. A plaintiff should raisean arguable error.(b) Leave should only be granted where the circumstances warrantincurring further delay.(c) The alleged error should be of general or public importance thatrequires determination, or otherwise be of sufficient importance to theapplicant to outweigh the lack of any general or precedentialimportance.[11] As the plaintiffs submitted, in the decision of Li v Chief Executive, Ministry ofBusiness, Innovation and Employment, a further and more important considerationwas identified, which is the extent to which the decision on the interlocutoryapplication determines the substantive rights of the parties.3 That is reflected in thefollowing statement of principles applying to applications for leave which Palmer Jsets out in Li:4Pulling all these strands together, I consider the text, purpose, context and caselaw of s 56 suggests an application to appeal an interlocutory decision unders 56(3) is likely to be granted if:(a) the appeal is not likely to be overtaken by the substantive hearing orcannot otherwise be considered as effectively in the context of anappeal of the substantive decision; or(b) the appellant is likely to be prejudiced by a postponement to thesubstantive appeal; or(c) the appeal may be dispositive of the case in law or as a practicalmatter;and2 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [9].3 Li v Chief Executive, Ministry of Business, Innovation and Employment [2018] NZHC 1171.4 At [21]-[22].(d) the arguments in the appeal are capable of bone fide and seriousargument; and(e) the issue on appeal concerns a decision of sufficient significance tothe parties or a question of law or general principle of sufficientimportance as to outweigh the cost and delay of the appeal.More pithily, perhaps, an application to appeal an interlocutory decision unders 56(3) is likely to be granted where (a) there is good reason to consider itbefore, or separately to, the substantive appeal; and (b) it is sufficientlymeritorious in substance and relates to a sufficiently important issue as tooutweigh the cost and delay of appeal.[12] In my view, there is no material divergence in these respective statements oflaw. The principles identified by Palmer J are simply a more detailed exposition ofthe principle that the alleged error be of sufficient importance to the plaintiff tooutweigh any lack of general or precedential importance and of the principle that thecircumstance warrant incurring further delay. Accordingly, I agree that where thedecision finally determines any aspect of the claim by either party, that would almostinevitably mean that leave to appeal should be granted. That is consistent with the factthat s 56(4) dispenses with the need to seek leave where the order or decision strikesout or dismisses the whole or part of a proceeding, claim or defence or grants summaryjudgment.SubmissionsThe plaintiffs' submissions[13] The plaintiffs' primary position is that the judgment has finally determinedtheir rights in respect of both issues. They claim that the refusal of the injunctioneffectively determines that a notice period to 15 March 2019 is a reasonable noticeperiod. It also makes it pointless for GIL to obtain an order at trial that RNSIL andCLICL should not be able to approach customers. Once the approaches have beenmade, then whatever damage was feared will be done.[14] The plaintiffs also submit that there are the following arguable errors of factand law in this Court's decision on the interim injunction:55 These do not exactly replicate the errors in the notice of appeal which the plaintiffs sought to fileon 22 March but are taken to be the grounds of appeal which the plaintiffs now seek to advance.(a) The Court erred when it effectively determined that a reasonable noticeperiod was to 31 January 2009, and at worst to 15 March 2009, withoutdetermining the purpose for which notice was required. That wascritical as what is reasonable will depend on the purpose of the noticeperiod.(b) The Court erred in its tentative determination that GIL agreed to atermination date of 31 January 2019 and they say, in any event, GIL didnot receive a "clear run in bringing the business to a close during thatperiod" because of the alleged hacking of the network on17 January 2019, which meant it could not continue an orderly transferof clients during that period, which justified an extension of the period.(c) The Court erred when it concluded that damages were an adequateremedy. A figure that the plaintiffs proposed for the sale of a residentialcustomer is not the same thing as losses that might flow from"destruction of a business". In any event, GIL only proposed selling itsresidential customers not its commercial customers.(d) The Court erred by failing to consider whether damages were anadequate remedy for RNSIL and CLICL in determining where thebalance of convenience lay.(e) In respect of the interim injunction restraining RNSIL and CLICL fromdirectly or indirectly approaching GIL's customers, it says the Courterred in determining this issue solely on the basis of arguments overconfidentiality, because if a reasonable period of time extended past15 March 2019, then it would be implicit in that decision that CLICLwould not be free to approach GIL's customers.[15] The plaintiffs say that these matters mean it has an arguable case on appeal,but its key submission is that the judgment has determined the primary issue in thiscase, which is whether it should have a longer notice period for termination of RNSIL'sservices in which it can manage its clients into new arrangements on alternative fixedwireless access (FWA) infrastructure to that of RNSIL without unfair competitionfrom the defendants. Given that the judgment has "finally determined its rights inrespect of these issues" that, alone, should dictate the grant of leave. Any detrimentto RNSIL is minimal and can be addressed through damages. Furthermore, there isunlikely to be any significant delay in terms of the proceeding itself, and there is ampletime for an appeal particularly if it is brought on with urgency.The defendants' submissions[16] The defendants point out that the main issue on appeal is whether I erred indeciding that damages were a suitable remedy for the plaintiffs' claims. If thatconclusion could not reasonably be said to be wrong (and a bare allegation of error isnot enough), then the threshold for leave to be granted has not been made.[17] In this case, the reasons I gave for my decision were:(a) The loss of residential customers could readily be compensated for indamages, noting that GIL was prepared to sell those clients to thedefendants for $1,000 each prior to the arrangement being terminated.(b) There is no reason to doubt that the loss of commercial clients couldnot similarly be assessed as to their value as customers to GIL.(c) Even if the defendants obtained all of the remaining clients, that wouldnot mean the end of GIL as a business as it still has its main business inthe North Island. It has also already erected some parallel infrastructurein the South Island and transitioned approximately 20 customers to thatnetwork.The defendants say that my reasoning is correct and an alternate position is notreasonably arguable so leave to appeal should not be allowed.[18] Similarly, the suggestion that there is damage to GIL's reputation or goodwillthrough the loss of these customers does not meet the threshold of an arguable case tobe heard. The damage to the plaintiffs' business reputation derives from the risk ofthe defendants precipitously terminating GIL's clients' internet connection, beforetheir transition to a new network provider. The defendants have, both in submissionsand in practice, demonstrated that they will not take steps to turn the network off to aGIL customer without an alternative provider having been arranged. The defendantswill ensure that CLICL is available to be an alternative provider so that no customersare left without an internet connection or left feeling they have been let down by GIL.In those circumstances, where the GIL business will continue to operate both in theNorth Island and with customers they have already transitioned to new infrastructurein the South Island, any allegation that there will be damage to GIL's reputation orgoodwill has an insufficient basis to reach the threshold of being an arguable casesufficient to grant leave to appeal.[19] In effect, if damages remain a suitable remedy and GIL has no arguable casethat such determination was wrong, then leave to appeal must be declined.[20] Similarly, in respect of the reasonable notice period issue, it is submitted thereare no real prospects of success for an appeal on that point. The plaintiffs agreed to atermination date of 31 January 2019, then set 31 March 2019 as the notice date in theirpleadings. An appeal which now argues for a significantly greater notice period hasno reasonable prospect of success.[21] The defendants accept that the considerations of delay are of little relevance inthe current case where the substantive proceedings are at an early stage. However,they say that in the current case, a high threshold for the granting of leave to appeal isrequired to ensure that the appeal process itself is not being used by the appellants tocause delay, not in the substantive proceeding, but in the ability to enjoy the fruits ofthe interim judgment. Here, the defendants say I should take account of the fact theplaintiffs are seeking to gain a commercial advantage, irrespective of the ultimateoutcome of the appeal. GIL has said it was seeking "as long as possible in order toreplicate as much of the FWA infrastructure as possible" and in the defendants'submission, this is the true purpose of filing this appeal, and reflects on the bona fidesof the appeal.[22] In terms of the general or precedential importance of the issues on appeal, ortheir importance to the plaintiffs, the defendants point out that whether or not damagesare a suitable remedy falls to be determined on the particular facts of the case and thereis no real general or public importance, or precedential value, to a further appeal onthat point.[23] With respect to the importance of the appeal to the plaintiffs, the defendantssay it really only relates to the retention of 100 or so clients who are still with GIL asan internet service provider but who will likely be transitioned away in the terminationprocess. A decision to decline leave to appeal would not therefore spell the end of GILas a business, nor would it preclude GIL from competing with CLICL for other clientsin the Central Otago or South Island regions.[24] In these circumstances, the importance to the plaintiffs cannot be said to be socrucial that a serious injustice would occur if leave to appeal was not granted.Furthermore, putting this into perspective, at a high watermark of $1,000 per client,the plaintiffs will suffer a loss of $100,000 and the legal fees involved in the proposedappeal ought to be balanced against that.[25] In summary, the defendants say the plaintiffs cannot satisfy the threshold of areasonably arguable case that my decision was wrong in fact or law when I determinedthat damages were a suitable remedy for the plaintiffs. The appellants also cannotsatisfy the high threshold required in respect of the determination that an agreementhad been reached to the 31 January 2019 termination date. There is no real risk ofreputational damage or loss of goodwill to the appeal. Furthermore, given the longdelays since the notice of termination was first issued, the appellants have already hada greater period of notice than they originally requested, or that they agreed to. Finally,in the defendants' submission, the real goal here is to give the appellants further timeto build their FWA infrastructure in the South Island, rather than to right a judicialerror.Discussion[26] The starting point is whether there are arguable errors in the decision. Thethreshold is not high although, of course, a bare allegation is generally insufficient. InLi the threshold was described as an error that was "capable of bona fide and seriousargument".6 In my view, the primary issue which meets this threshold is the issue ofwhether damages are an appropriate remedy for the plaintiffs, if the injunctions are notgranted. In my view, all other matters flow from that, as it was on that basis that Ideclined the interim injunctions sought.[27] Accepting that this issue is capable of serious and bona fide argument, then theissue is whether other relevant considerations warrant leave being granted to pursuethis issue on appeal.[28] I do not consider that the issue can strictly be regarded as dispositive of theplaintiffs' substantive rights. What it does is preclude a particular remedy which issought by the plaintiffs rather than to close off their substantive right to argue therehas been a breach of an implied term or a misuse of confidential information. Forexample, the plaintiffs allege that it was an implied term of the contract that reasonablenotice would be given to GIL in the event of termination. The relief it sought was firstan interim injunction until 31 March 2019 restraining RNSIL from terminating theinternet connection it provides to GIL and (presumably in the alternative) damages ina sum to be quantified after discovery and on expert evidence.[29] My decision on the interim injunction did not prevent GIL from pursuing thatclaim and, if vindicated, from being awarded damages representing the losses it hadsuffered as a result of breach of that contract. What it did do was close off the optionof the injunction continuing until 31 March 2019, or such later date as GIL now saysit should have.[30] The fact that the pleadings only sought an injunction to 31 March 2019 wouldnormally be a powerful factor against granting leave, as the practical effect of what issought by the plaintiffs is at least a two month extension to that date. However,Mr Barker argued that the plaintiffs were now seeking a longer termination period.The evidence he relied on for this was the evidence of Mr Hurst, in his affidavit of20 February 2017, where he explained that, contrary to the plaintiffs' expectations,RNSIL would not sell GIL the equipment on the customer's premises (the CPE). That6 Li v Chief Executive, Ministry of Business, Innovation and Employment, above n 3, at [2].was not anticipated at 7 February 2019 when the statement of claim was filed. Theconsequence of that was that it would take "on average about 1.5 hours per client toreplace and reconfigure the CPE as compared with about five minutes if the existingCPE is used". Mr Hurst says "now that GIL is forced to transfer each of the clients onthe slow process, GIL seeks longer than the 31 March 2019 time period first sought",although he adds "hopefully all of the clients are transferred by that date and longer isnot required".[31] Given the plaintiffs now argue that a longer termination period is reasonablethan that set out in the 7 February pleadings, I accept that the date of 31 March 2019,which will be spent before the appeal is heard, is not determinative of the issue ofleave.[32] I accept that the alleged errors are not of general or public importance. Theyare very much factual questions which are confined to the circumstances in whichthese two parties find themselves. The real issue is whether they are of sufficientimportance to the parties, in particular the plaintiffs, that they should be allowed toargue them regardless of any delay which is involved.[33] Here, the defendants responsibly accepted that given the early stage of theproceedings, and the plaintiffs' proposal to seek an urgent hearing of the appeal, therewas no real delay to the proceedings. However, they did urge me to see the applicationfor leave to appeal as intended to achieve a tactical advantage for the plaintiffs throughfurther delay, to give them further time to set up a competing wholesale FWA network,which they said should be taken into account as pointing against leave being granted.[34] As I said in my earlier decision, I am conscious that both parties stand to gaincommercial advantages depending on the decisions made in this Court. I am alsoconscious of the acrimony which has built up between the parties during the course ofthe payment disputes, the notice of termination being given and then this litigation.Indeed, both parties candidly acknowledged that matters had reached the stage of"trench warfare", albeit each saying that the shots were coming from the other party.In such circumstances, I consider I must be careful not to attribute blame or decidewhich party is more "worthy" when I am dealing with matters at an interlocutory stage.This is not a case where one party is so obviously more blameless or blameworthythan the other party that it should be a factor in my decision on the application forleave.[35] I also take note that the willingness of the parties to put such resources into theloss or gain of what appears to be around 100 clients suggests there may be matters atstake which go beyond a simple valuation of the clients lost by one or gained by theother and which can be assessed at leisure in the resulting proceedings.[36] Finally, and importantly, the application for leave to appeal is being advancedon the basis that the appeal would be sought to be heard urgently, with the expectationthat it would be on in six weeks. In my view, this is a critical factor in granting leaveto appeal as I consider that no irreparable harm will be occasioned to the defendantsin that period, while the plaintiffs test whether the interim injunction orders they stillpursue should have been granted.Result[37] Accordingly, for the reasons set out above, I have decided, albeit by a finemargin, to grant leave to the plaintiffs to appeal my judgment dated 20 March 2019. Ido so on the basis that the appeal will be applied for and heard with urgency. If thatposition changes, I reserve leave to the parties to revert to this Court.[38] That leads to the question of whether I should grant what is, in effect, a stay onaspects of my 20 March judgment and reinstate the relevant interim injunction orders.In this regard, it was agreed that the range of factors set out in Keung v GBR InvestmentLtd were relevant.7[39] In my view, the most compelling ground for granting the stay sought is that theappeal would be rendered nugatory without it. The whole point of the appeal is topreserve the plaintiffs' right to an interim injunction pending the hearing anddisposition of the appeal. There is no other factor which in my view displaces this7 Keung v GBR Investment Ltd [2010] NZCA 396 at [11].consideration. Accordingly, the interim orders which were in place prior to mydecisions of 15 and 20 March are reinstated with the following modifications:(a) The order restraining RNSIL and CLICL from using RNL's towerdesigns is not reinstated.(b) The defendants must file an amended statement of claim no later than5 April 2019 specifying the termination date for the reasonable periodof termination.(c) The interim injunction order restraining RNSIL from terminating theprovision of network services to existing GIL clients will endure to thatdate, or such earlier date as this Court orders, but no longer.Costs[40] Costs are reserved.Solicitors:Andrew Lewis Law, AucklandJ Moss, Barrister, ChristchurchGuest Carter Law Limited, Dunedin