Flax Design Group Limited v Chow HC Wellington CIV-2011-485-1564 [2011] NZHC 907 (12 August 2011)

Last Updated: 23 August 2011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

_{CIV-2011-485-1564}

BETWEEN FLAX DESIGN GROUP LIMITED Plaintiff

AND KA-MING (MICHAEL) CHOW First Defendant

AND KA-YU (JOHN) CHOW Second Defendant

AND PORTFOLIO (NZ) LIMITED Third Defendant

Counsel: K P Sullivan for Plaintiff

Judgment: 12 August 2011

INTERIM JUDGMENT OF THE HON JUSTICE KÓS (Interim injunction – without notice)

[1] The plaintiff, Flax Design Group Limited, applies for an interim injunction against the first and second defendants, Michael and John Chow, on a without notice basis. The application follows the unilateral termination by the Chows of a joint venture agreement between the foregoing parties. The third defendant, Portfolio (NZ) Limited, was established as the joint venture vehicle.

[2] Flax is owned by a Mr White and a Ms Vanesse. They are architects or designers by profession. The Chow brothers are property investors.

[3] The joint venture was entered in May 2011 and provided for Portfolio to perform certain architectural and project management services for companies owned by the Chows. Portfolio was to be held two thirds by the Chows and one third by Flax. Flax’s shares were not to be issued to it until it had paid three instalments of

_{capital, each of $44,444. Flax has paid the first two instalments (totalling almost}

FLAX DESIGN GROUP LIMITED v CHOW HC WN CIV-2011-485-1564 12 August 2011

$89,000). The last instalment was due to be paid on 8 August. Flax says it was and is ready, willing and able to pay that third instalment. But on 1 August 2011 the Chows are said to have arrived at the offices of Portfolio and cancelled the joint venture agreement, terminating Mr White’s contract as chief executive of Portfolio and the employment contracts of all its staff.

[4] There had been some correspondence between the parties concerning disagreement as to direction (in particular as to whether Portfolio should sub-lease space from one of the Chow companies at a rental level some 50 per cent higher than had been budgeted for). But it appears the termination of the joint venture by the Chows came without notice and without significant prior discussion. Of course at this stage I have not heard what the Chows have to say, but that is the impression clearly given by the correspondence exhibited to the affidavits of Mr White and Ms Vanesse.

[5] On 8 August 2011 Breaden McCardle Chubb, Flax’s solicitors, wrote to the Chows objecting to their actions in terminating the joint venture, Mr White’s employment and that of the other staff members of Portfolio. The letter sought undertakings that the bank account moneys of Portfolio be left undrawn until resolution of the dispute. The letter concluded:

We look forward to hearing from you or your lawyers as a matter of urgency but by 5.00 pm Tuesday 9 August 2011. If a satisfactory response is not received we reserve all our clients’ rights and remedies to take action, including seeking interim relief without reference to you.

[6] No response has been received by Breaden McCardle Chubb.

[7] I note the following further matters exhibited in evidence before me:

(a) on the last occasion Mr White had access to the bank accounts of Portfolio, it held some $220,000 in cash. It is to be expected that a significant part of that is the $89,000 capital contribution made by Flax;

(b) Portfolio would appear to be a substantial creditor of companies owned by the Chows for design work undertaken by Portfolio on Chow properties since formation of the joint venture. Mr White calculates the amount owing as something in excess of $125,000;

(c) one of the Chows’ companies, Chow Group Limited, is the subject of a current liquidation application, although I do not place particular weight on that fact; and

(d) the Chows are presently the sole directors of Portfolio, and hold all shares in it (subject, of course, to their obligation to transfer shares on payment of the third instalment by Flax). So they alone control Portfolio and its assets.

Decision

[8] In these circumstances I am satisfied that there is, by a narrow margin, a justified basis for granting orders on a without notice basis.

[9] I am mindful that:

(a) a seriously arguable case of breach of contract is demonstrated on the papers;

(b) the apparent unilateral action by the Chows in terminating the whole suite of contractual arrangements (including of non-party staff members) raises a necessary concern as to what further action they might take in their capacity as persons holding the funds, shares and governance powers of the joint venture company;

(c) the balance of convenience favours preserving the status quo, while providing leave to apply to vary these orders at short notice;

(d) an undertaking as to damages has been furnished by Flax.

[10] Orders are therefore made as follows:

(i) Restraining the defendants from dealing with or disposing of the assets of Portfolio, until further order of the Court.

(ii) Restraining the defendants from making payments from the bank accounts of Portfolio except for the payments due to Nicholas Leko Architects Ltd, Studio B 52, Dezign IT 2004 Ltd, Braden Jennings, Flax Design Group Ltd, Telstraclear and Inland Revenue, until further order of the Court.

(iii) Restraining the first and second defendants in their capacity as directors and shareholders from exercising any powers on behalf of Portfolio required to be exercised by resolution of directors or shareholders, until further order of the Court.

(iv) Requiring the application, orders made and other papers to be served forthwith on the defendants.

(v) Listing the application for hearing, on notice, in the Judge’s List on

Monday 22 August 2011 at 10.00 am.

(vi) Reserving leave to apply to vary these orders on 48 hours’ notice.

Stephen Kós J

Solicitors:

Breaden McCardle Chubb, Paraparaumu for Plaintiff