Global Kiwi NZ Limited v Fannin

[2013] NZHC 39

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2012-488-882 [2013] NZHC 39

BETWEEN  GLOBAL KIWI NZ LIMITED First Plaintiff

ANDJAKE BERNARD FANNIN Defendant

Hearing:         On the Papers

Judgment:      1 February 2013

JUDGMENT OF KATZ J

In accordance with r 11.5 High Court Rules

I direct the Registrar to endorse this judgment

with a delivery time of 10.30 a.m. on 1 February 2013.

Solicitors:           Henderson Reeves Connell, Whangarei – [e-mail]

GLOBAL KIWI NZ LIMITED V JAKE BERNARD FANNIN HC WHA CIV-2012-488-882 [1 February 2013]

Introduction

[1]      The   plaintiff,   Global   Kiwi   NZ   Limited   (“Global   Kiwi”)   has   issued proceedings against the defendant, Jake Fannin, alleging breaches of his duties as a director of Global Kiwi, breach of s 137 of the Companies Act 1993, breach of s 9 of the Fair Trading Act 1986, intentionally causing loss by unlawful means and passing off.   Global Kiwi has also filed an interlocutory application, on a without notice basis, seeking:

(a)       Various interim orders against the defendant, Jake Bernard Fannin;

and

(b)Freezing and ancillary orders against Global Diamonds Limited (a non-party to the proceedings).

Factual background

[2]      Global Kiwi operates a jewellery business in Whangarei.   Global Kiwi’s evidence is that, for the whole time it has traded, it has traded under the name “Global Diamonds”. The shareholders in Global Kiwi are:

(a)       Mr Trass (50.01%); (b)  Mr Fannin (25%); (c)         Mr Dinan (25%).

[3]      The sole director of Global Kiwi is currently Mr Barry Trass.   Mr Fannin

(who is Mr Trass’ son in law) was removed as a director on 21 January 2013.

[4]      Due to a breakdown in the relationship between Mr Fannin and Mr Trass, Mr Fannin allegedly resigned as an employee of Global Kiwi on 5 November 2012. Following his departure from Global Kiwi Mr Fannin has allegedly set up a competing business and misappropriated Global Kiwi property and business to himself personally or to his new business.  He has incorporated a company called

“Global Diamonds Limited” and is purporting to trade under the “Global Diamonds”

name.

[5]      Global Kiwi now seeks to recover certain company property which, it says, Mr Fannin has retained.  In particular, Global Kiwi seeks an injunction requiring Mr Fannin to return computer equipment and a mobile phone (together “the computer equipment”) to Global Kiwi.

[6]      In addition an injunction is sought that, until further order of the Court or until the Domain Name Commission determines who the proper registrant is, Mr Fannin  should  yield  up  control  of the  domain  names  globaldiamonds.co.nz  and diamond-rings.co.nz.

[7]      A freezing order is also sought against Global Diamonds Limited, together with ancillary orders to all New Zealand Banks who may hold accounts in the name of Global Diamonds Limited.

[8]      I will address each order sought in turn.

Interim injunction – computer equipment

[9]      The injunction principles are well known.   In this case there is clearly a serious question to be tried in relation to the computer equipment in Mr Fannin’s possession.  Indeed it appears from the evidence before the Court that Mr Fannin has acknowledged that the laptop is owned by the company.

[10]     I am also satisfied that the balance of convenience is in favour of granting interim relief requiring delivery up of the computer equipment to the plaintiff’s solicitor.  A strong case has been made out that they are company property and there is clearly a real risk that company information stored on the computer equipment may be (or has been) used to the company’s detriment.

[11]     I note the possibility that privileged, personal or other sensitive material

(unrelated to the matters before the Court) may also have been stored by Mr Fannin

on the computer equipment.  It is accordingly appropriate that Mr Fannin have the opportunity to apply to the Court if necessary regarding the appropriate approach to reviewing material on the laptop and deleting any material which is not company information.  Accordingly I prohibit any searching or review of the material on any of the electronic equipment until ten working days after sealed orders are served on him.

[12]     Given that interim orders are being made “without notice” to Mr Fannin, he is entitled to seek to vary or discharge the orders if he believes there are proper grounds to do so.   If such an application is made within ten working days after service of the orders on him, then the computer equipment is to remain in the possession of the plaintiff’s solicitor (and not be reviewed or searched) until further order of the Court.  If no such application is made within ten working days of service of the orders the computer equipment may be returned to the plaintiff.

Interim injunction – domain names

[13]     I am also satisfied that a serious question to be tried exists in relation to the passing  off  cause  of  action.      I  note,  however,  that  the  dispute  in  relation  to entitlement to the relevant domain names is currently before the Domain Names Commission.  It is anticipated there will be a determination within weeks.

[14]     If the defendant is entitled to ownership of the relevant domain names then the granting of the injunction sought would potentially cause loss to the defendant. On the other hand, if the plaintiff succeeds before the Domain Names Commission, then the plaintiff will have suffered loss for the period during which the defendant has  used  the  domain  names.    It  is  likely,  however,  that  damages  would  be  an adequate remedy for either party.

[15]     In my view the appropriate course therefore is for the status quo to continue until determination by the Domain Names Commission, particularly given that the application before me has been made on a “without notice” basis.  I therefore decline to grant an injunction in relation to the domain names.  The defendant needs to be aware however that if the Domain Names Commission finds against him he may

well be liable to the plaintiff in damages for any use of the domain names to generate business for himself or Global Diamonds Limited during the interim.

Freezing order

[16]     The information before the Court does not justify a freezing order against Global Diamonds Limited (a non-party to the proceedings).  The memorandum of counsel for the plaintiff notes that it is unknown whether Global Diamonds Limited has traded (as opposed to Mr Fannin personally).  Rather, it is inferred that it is likely that it has.  The plaintiff submits that, if Global Diamonds Limited has traded, there is a strong prima facie case that doing so constitutes passing off, breaches of Mr Fannin’s fiduciary and statutory duties as a director and would also constitute misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986.

[17]     Global Kiwi argues that in such circumstances it is likely that the plaintiff would be entitled to an account of profits from Global Diamonds Limited.  I note, however, that there is at this stage no specific cause of action against Global Diamonds Limited, seeking an account of profits or otherwise.  Presumably this is because there is currently insufficient information available to found such a claim.

[18]     Although in some cases it may be appropriate to make freezing orders against non-parties to proceedings, the evidence before the Court does not justify such an order at this stage.  For example, there is no evidence that Global Diamonds Limited even has a bank account, let alone that sums derived from the sale of property or business  misappropriated  from  Global  Kiwi  have  been  deposited  into  such  an account.  The real aim of the order sought appears to be to enable the plaintiff to contact all banks in New Zealand to find out whether Global Diamonds Limited has established a bank account yet or not.

[19]     On the facts before the Court I am not satisfied that a sufficient good arguable case has been established against Mr Fannin or Global Diamonds Limited which would justify the making of a freezing order against Global Diamonds Limited.

[20]     Further, neither counsel’s memorandum nor the supporting affidavits address the “risk of dissipation” in any meaningful way.  Establishing a risk of dissipation is central to the freezing order jurisdiction.   Even if there is no doubt as to the defendant’s liability, a freezing order will not be issued unless it can be established that there is a risk of dissipation of the relevant assets.

[21]     A freezing order is a draconian remedy, particularly given that it is typically granted without notice to the recipient.   Courts are appropriately cautious about granting such a remedy.  In this case sufficient grounds for such an order have not been made out.

Conclusion

[22]     I make the following orders:

(a)      The defendant is to deliver possession of any of the following items which he has in his power, possession or control to the process server on service of this order or, for those items not present on his person, to the offices of Henderson Reeves Connell Rishworth (96 Bank Street, Whangarei) within one working day of personal service of the order:

(i)       HP laptop 15.6 (serial number 5CB1401D3W);

(ii)      Docking station for laptop (serial number CNU144ZRNR); (iii)        Philips monitor for docking station/laptop;

(iv)     Samsung Galaxy tablet 10.1 (3G and WiFi); (v)          Acer Tablet;

(vi)     Company mobile phone. (together “the computer equipment”).

(b)The defendant is not to alter or delete any data from the computer equipment pending its delivery up.

(c)      The computer equipment is to be kept in the safe custody of Mr Jeremy Browne of Henderson Reeves Connell Rishworth for ten working  days  following  service  of  these  Court  orders  on  the defendant.  If an application to vary or discharge these orders is made within that period the computer equipment is to remain in the safe keeping  of  Henderson  Reeves  Connell  Rishworth  (and  not  be accessed or reviewed)  pending further order of the Court.    If the defendant does not apply to vary or discharge these orders during the ten working day period, the computer equipment may be returned to the plaintiff.

[23]     A copy of this judgment is to be served on the defendant, together with the

plaintiff’s injunction application and supporting affidavits and memoranda.

[24]     Costs are reserved.

Katz J