About Health Supplements Ltd v Charnley HC Auckland CIV-2011-404-4585 [2011] NZHC 950 (22 August 2011)

Last Updated: 9 September 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2011-404-4585}

BETWEEN ABOUT HEALTH SUPPLEMENTS LTD First Plaintiff

AND DANIEL FRANKLIN KING Second Plaintiff

AND ELENA TIRI CHARNLEY Defendant

Hearing: 22 August 2011

Appearances: M Lloyd for Plaintiffs

S Armstrong and K Baxter for Defendant

Judgment: 22 August 2011

(ORAL) JUDGMENT OF LANG J

_{[on application for amendment of interim orders]}

ABOUT HEALTH SUPPLEMENTS LTD V CHARNLEY HC AK CIV-2011-404-4585 22 August 2011

[1] On 11 August 2011, Wylie J granted interim injunctive orders by consent. One aspect of the orders was left open for further argument. This issue arises out of paragraph [1](f) of the orders as sealed, which provided as follows:

[An order] [p]rohibiting the defendant from advertising, claiming or knowingly implying, in the course of trade and in competition with the first plaintiff, that she created, developed or formulated re-v plus or that she has any association with or connection to the first plaintiff and/or res v plus.

[2] The plaintiffs wish to add to these orders the words “or has had” after the words “she has” at the end of the fourth line. They consider this is necessary to prevent the defendant from using her previous association with the first plaintiff to promote her products and/or present business.

Background

[3] The second plaintiff and the defendant were formerly equal shareholders in the first plaintiff. During the course of their business relationship they successfully marketed a product named resveratrol as a health supplement. Eventually, however, irreconcilable differences arose between them and they agreed to go their separate ways.

[4] In October 2010 they attended a mediation. This resulted in a deed of settlement dated 14 October 2010, under which the second plaintiff acquired the shares then owned by the defendant in the first plaintiff. In consideration for the transfer of shares, the second plaintiff paid the defendant a substantial sum of money.

[5] The deed of settlement permitted the plaintiffs to retain exclusive use of all items of intellectual property owned by the first plaintiff. The operative clauses of the deed provided as follows:

Intellectual property

14. The parties agree that the intellectual property owned by About Health is listed in Schedule 1.
    

15. Mr King and About Health will be entitled to use on an exclusive

basis, all of About Health’s intellectual property as set out in Schedule

1, and Ms Lopez agrees not to use any such intellectual property.

The issue

[6] The present proceeding has arisen because the second plaintiff believes that the defendant has been breaching the terms of the agreement by using words and phrases associated with the first plaintiff’s business in advertising campaigns she has conducted after being released from a restraint of trade in or about April 2011.

[7] The issue that I am now required to determine is whether the defendant should be permitted in the future to refer to the fact of her previous involvement with the first plaintiff. She wishes to be able to answer truthfully when people ask her directly about her previous business experience. The plaintiffs’ concern is that the defendant may seize the opportunity to use her past association with the first plaintiff to promote the products sold by her present business. They believe that use of the first plaintiff’s name in that context amounts to a use of the first plaintiff’s intellectual property in breach of the terms of the deed of settlement.

Decision

[8] To some extent the defendant’s concerns are met by the fact that, as presently worded, order 1(f) relates only to acts of the defendant that arise “in the course of trade and in competition with the first plaintiff”. Statements that she might make in the course of personal discussions with friends or family, for example, will not be made in the context of trade and/or competition with the first plaintiff. For that reason they will not be caught by the order.

[9] A grey area may arise, however, in circumstances where third parties legitimately ask the defendant to clarify the status of her current and past relationship with the first plaintiff.

[10] I consider that the dividing line in this context should be imposed at the point where the defendant is asked directly by a third party about her current and/or her past relationship with the first plaintiff. Where that occurs, she ought to be able to answer truthfully, and in a manner that cannot be said to be misleading. For that reason she should be permitted in such a situation to disclaim any present association

with the first plaintiff, but not necessarily the fact that she formerly had an association with it.

[11] The defendant would cross the line, however, is if she was to engage in a positive advertising or internet campaign in which she featured her former association with the first plaintiff as a positive assertion. Her use of the first plaintiff’s name in those circumstances would arguably amount to a breach of the deed of settlement. It could amount to a use of the first plaintiff’s name to promote her present business.

[12] Where, however, the defendant receives enquiries from potential customers who ask her directly about her current status and/or her association with the first plaintiff, she should be permitted to disclaim any present involvement with the plaintiff and to confirm that she is unable to comment on either the first plaintiff’s business or its products. There should be no difficulty for the defendant in determining where the line falls. She has already demonstrated in an email exchange that is before the Court that she understands that concept.

[13] There may be other situations in which the defendant is arguably acting “in trade”, and is asked by a third party for information that would divulge her past association with the first plaintiff for reasons unconnected with the promotion of her present business. An example might be where she went to a bank or financial institution to seek a loan for her business, and the bank or institution asked her to provide a resume of her business experience. In that situation, too, she ought to be able to answer honestly and in a manner that is not misleading. The plaintiff accepts that, although this type of situation would arguably occur “in trade”, nevertheless it would fall outside the spirit of the deed of settlement. The deed is directed to prohibiting the defendant from using the first plaintiff’s name in circumstances that might assist the promotion of the defendant’s present business.

[14] Further situations may arise in which the defendant is unsure as to whether she would cross the line by using the first plaintiff’s name. In such situations she should in the first instance, through her counsel, seek the consent of the first plaintiff to her proposed actions. Should the first plaintiff refuse its consent in circumstances

that the defendant considers to be unreasonable, she should be permitted to have

recourse to the Court so that the first plaintiff’s stance could be reviewed by a Judge.

Order

[15] Order 1(f) is to be amended in the manner suggested by the plaintiffs. The words “or has had” are to be added to the fourth line of the order after the words “she has”. I reserve leave to both parties to apply further on 24 hours notice should any issue arise in respect of the implementation of order 1(f) as amended.

Costs

[16] I recognise that both parties had legitimate concerns that needed to be addressed in the context of the present application. For that reason costs are to lie

_{where they fall.}

Lang J

Solicitors:

Philip Schmidt, Auckland

Russell McVeagh, Auckland

Counsel:

M Lloyd, Auckland