Internet Traders Ltd v Williams [2014] NZHC 3407 (23 December 2014)

Last Updated: 13 February 2015

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV 2014-470-158 [2014] NZHC 3407

BETWEEN	INTERNET TRADERS LTD AND ORS Plaintiffs
AND	NICOLE JEAN WILLIAMS AND ORS Defendants

Hearing:	16 December 2014
Counsel:	J P Temm and K Patterson for Plaintiffs R E Harrison QC for Defendants
Judgment:	23 December 2014

_{JUDGMENT OF HEATH J}

This judgment was delivered by me on 23 December 2014 at 1.30pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Ken Patterson, Tauranga

Abernathy Broatch law, Mount Maunganui

Counsel:

J Temm, Rotorua

_{R E Harrison QC, Auckland}

INTERNET TRADERS LTD AND ORS v WILLIAMS AND ORS [2014] NZHC 3407 [23 December 2014]

The application

[1] Mr John Heale, a pharmacist, and Ms Nicole Williams, a business woman, formed a fruitful professional relationship as long ago as September 1999. At that time, they identified a business opportunity, whereby medical supplies were to be purchased from wholesale suppliers in New Zealand and exported overseas. Their point of difference was that the business would be carried on over the Internet. That meant that the significant costs involved in commencing business and in acquiring assets in New Zealand, were set-off by the absence of any need for the business to carry stock.

[2] Two companies were incorporated to undertake the business venture; Internet Traders Ltd, on 15 September 1999, and IT Pharmaceutical Supplies Ltd (IT Pharmaceutical) on 17 September 1999. A written shareholders’ agreement (the Shareholders’ Agreement), dated 11 November 1999, was executed by trustees of trusts associated with Mr Heale and Ms Williams who were to hold shares in Internet Traders, as well as two other parties to whom no further reference needs to be made at this time.

[3] Mr Heale and Ms Williams were directors of each company. Ms Williams was employed as managing director of Internet Traders. Her labour was made available to IT Pharmaceutical, by a contractual arrangement between the two companies.

[4] The business relationship between Ms Williams and Mr Heale came to an abrupt end at 11.00am on 23 June 2014, when Ms Williams resigned her positions as directors of both companies and as an employee of Internet Traders.¹ She had given no prior warning to Mr Heale of her pending resignation. Up to that point, the business of IT Pharmaceutical was trading profitably. The acrimonious dispute that has arisen following Ms Williams resignations has led to the present proceeding.

[5] Internet Traders, IT Pharmaceutical and Mr Heale seek an interim injunction to restrain Ms Williams, and three companies associated with her, Glencove (2014)

¹ Ms Williams’ resignation letter of that date is set out at para [40] below.

Ltd (Glencove),² Tentacle Enterprises Ltd (Tentacle) and KiwiPharma Ltd from carrying on business in competition with them. On the evidence, only KiwiPharma seems to fall into the category of a competitor, at this time.

[6] The interim orders sought, all pending further orders of the Court, by Mr

Temm, for the plaintiffs are:

(a) Ms Williams, Glencove, Tentacle and KiwiPharma each cease to use confidential information of Internet Traders and IT Pharmaceutical.

(b) Ms Williams, Glencove, Tentacle and Kiwipharma not engage in or conduct any business in Tauranga or elsewhere in New Zealand involving the selling of medicine by wholesale, or pharmaceutical supplies for export, via the Internet or otherwise.

(c) Ms Williams, Glencove, Tentacle and Kiwipharma shall not contact any wholesale pharmaceutical suppliers of Internet Traders or IT Pharmaceutical, or any overseas pharmaceutical customers or clients of those companies.

(d) Ms Williams, Glencove, Tentacle and KiwiPharma, or any agent acting on their behalf, shall not hold or apply for a Ministry of Health medical licence to sell or export medicine overseas.

(e) Ms Williams, Glencove, Tentacle and KiwiPharma pay into Court sums allegedly misappropriated by Ms Williams on 16 May 2014 and

23 June 2014.³

(f) Ms Williams, Glencove, Tentacle and KiwiPharma provide a detailed accounting of all income revenue and sales, licences and agreements and all supplier agreements to the solicitors for the plaintiffs within 21

_{days of the date of the order.}

² _{Glencove was formerly called Casper47 Holdings Ltd. See para [30] below}

³ These payments total $169,564.30, together with an additional sum of $US204,041.81.

[7] The application for interim relief was first filed on 18 September 2014. It was originally scheduled for hearing on 30 October 2014. Through no fault of the parties, the application could not be heard on that day. An adjournment to 16

December 2014 was granted by Brown J, in light of new developments, including an application to join KiwiPharma as a defendant.⁴ Since then, an Amended Statement of Claim has been filed. A hearing date for the substantive proceeding has now been allocated: five days are available, starting on 9 March 2015.

[8] The application for an order prohibiting Ms Williams’ interests from applying for or holding a relevant medical licence⁵ is redundant. A licence was obtained around 9 October 2014, when competition commenced.

Background

[9] The Shareholders’ Agreement related solely to Internet Traders. The parties to it were the trustees of the Heale Family Trust (the Heale Trust), the trustees of the McArthur Williams Family Trust (the Williams Trust),⁶ jointly, the trustees of the Heale and Williams Trusts, and Abacus Internet and Mail Order Ltd. Mr Harrison QC, for Ms Williams’ interests, drew my attention to the fact that the named shareholders are no longer identical and there is no evidence of any novation. For that reason, I have decided not to comment on the merits of the claim that is based on the Shareholders’ Agreement. Future references to the Shareholders’ Agreement are designed solely to provide insight into the way in which the parties

intended to structure their business relationship.

[10] One of the Preambles to the Shareholders’ Agreement records that the shareholders of Internet Traders will incorporate a company to be called IT Pharmaceutical to carry on the business of a pharmacy. In order to comply with the requirements of the Pharmacy Act 1970, Mr Heale was to hold 75% of the shares in

_{that company, with Internet Traders owning the balance. Internet Traders was to}

⁴ Internet Traders Ltd v Williams HC Tauranga CIV-2014-470-158, 31 October 2014 (Minute of Brown J). An order joining KiwiPharma as fourth defendant to the proceeding was made by Brown J on 13 November 2014.

⁵ _{See para [6](d) above.}

⁶ At the time that the Shareholders’ Agreement was entered into on 11 November 1999;

“McArthur” was Ms Williams’ married name.

grant a licence to IT Pharmaceutical to use software and systems developed by it and to provide loan finance to enable establishment costs to be met. The Shareholders’ Agreement set out “the fundamental understandings basic to the administration, management and operation of [Internet Traders] and the business”. The shareholders made express provision for questions of confidentiality and “non competition” in their document.

[11] Ms Williams was responsible for the management of IT Pharmaceutical. Ms Williams was the main point of contact for both suppliers and customers. It was she, rather than Mr Heale, who developed the close business contacts required for a business such as this. The customer base was small. About 15 companies ordered products through IT Pharmaceutical, of which four provide 80% of the gross annual revenue; namely, Pacific Health Group (Vanuatu), Succeed Holdings Ltd, PharmaPal and United Pharmacies. Indeed, if Mr Heale were correct, the business with Pacific Health Group (Vanuatu) made up 50% of gross income.

[12] Up to the point at which Ms Williams resigned her positions as directors of both companies and employee of IT Pharmaceutical, the business was trading profitably. Over the last four years, IT Pharmaceutical has generated gross revenue of over $9 million. IT Pharmaceutical’s net profit exceeded $750,000 per annum, for the years ended 31 March 2012, 2013 and 2014.

[13] Mr Heale deposes that:

(a) The average monthly turnover for period April to October 2013 was

$780,393, but that has fallen to $371,021 for the same months in

2014.

(b) The average monthly turnover for the period 24 June 2013 to 31

October 2013 was $839,124, whereas for the comparable period this year it is $259,659.

The June to October 2014 period represents turnover since Ms Williams resigned on

23 June 2014. The decrease (in percentage terms) in turnover from the 2013 figures is about 70%.

Injunction: legal principles

[14] In Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd,⁷ the Court of Appeal revisited the principles to be applied when an interim injunction is sought. Delivering the judgment of the Court, Cooke J referred to the possible “over- mechanical following ... of the two-stage approach” enunciated in American Cyanamid Co v Ethicon Ltd.⁸ The Judge pointed to the need for a more flexible approach, as had been made clear in earlier decisions of the Court of Appeal.

[15] In setting out the appropriate test, Cooke J said:⁹

Whether there is a serious question to be tried and the balance of convenience are two broad questions providing an accepted framework for approaching these applications. As the NWL speeches bring out, the balance of convenience can have a very wide ambit. In any event the two heads are not exhaustive. Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question. At this final stage, if he has found the balance of convenience overwhelmingly or very clearly one way - as the Chief Justice did here - it will usually be right to be guided accordingly. But if the other rival considerations are still fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate. We use the word "usually" deliberately and do not attempt any more precise formula: an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.

Very often a prompt hearing of the action itself is preferable to an interlocutory injunction hearing. We hope that the business of the High Court in the various centres can be so organised that the parties in these cases can be offered early fixtures. ...

[16] I shall approach consideration of the application by marshalling relevant

considerations under the heads of “serious question to be tried” and “balance of convenience”, before determining what the overall interests of justice require.

⁷ _{Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] NZCA 70; [1985] 2 NZLR 129 (CA).}

⁸ _{American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 (HL).}

⁹ Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] NZCA 70; [1985] 2 NZLR 129 (CA) at 142.

The claims

[17] The claims brought by Internet Traders, IT Pharmaceutical and Mr Heale are manifold. In summary, they seek relief for: misuse of confidential information owned by either Internet Traders or IT Pharmaceutical for the purpose of carrying on competing against IT Pharmaceutical; tortious interference with the contractual relationship between IT Pharmaceutical and one of its suppliers, ProPharma, the regulatory authority (Ministry of Health) and two principal clients, PharmaPal and Pacific Health (Vanuatu); breach of the Shareholders’ Agreement; breach of directors’ duties (including those of a fiduciary nature) to both Internet Traders and IT Pharmaceutical; unfairly prejudicial conduct, under s 174 Companies Act 1993; and unjust enrichment.

[18] Approaching the claims uncluttered by the nature of the pleadings, Mr Heale accepts that Ms Williams was “critical to the [business] success of [IT Pharmaceutical] as she had developed the customer contacts and relationships”. Ms Williams’ unexpected departure has caused concern to Mr Heale because he believes that:

(a) Ms Williams endeavoured to buy out his interests in IT Pharmaceutical at an undervalue so that she could take control of the companies and benefit personally from the business activities; and

(b) When that proved impossible, Ms Williams embarked on a course of conduct, to her advantage and to his detriment, that was designed to strip IT Pharmaceutical of its ability to trade profitability.

[19] In the context of an interim injunction application, it is better that I say as little as possible about the merits of the respective claims. I focus solely on the allegation of breach of directors’ duties and the companion claim for breach of fiduciary obligations. I do not consider that interim relief would be justified on the other causes of action.

Directors’ duties – relevant legal principles

[20] In Benton v Priore,¹⁰ I expressed the view that Parliament did not intend to codify all directors’ duties within those articulated in ss 131–138 of the Companies Act 1993. Rather, those provisions should be seen as a restatement of basic duties, designed to promote accessibility to the law. The existence of co-extensive duties, at common law or in equity, is not negated by the statute. I take the same approach for the purposes of the present application.

[21] A director will be held liable for illegitimate profit making, if he or she were to divert to associated interests a business opportunity that should have been pursued, if at all, only for the benefit of the company. As Professor Watts QC observed in a recent text, this is “a very old part of the law applicable to a range of fiduciaries”.¹¹ While it is unclear whether the doctrine applies to all fiduciaries, it does include those who have a role in the management of another’s affairs. Whether it is applicable to those whose role is merely advisory is more doubtful.¹² The principle is based on the duties of a trustee not to benefit personally at the expense of a beneficiary.¹³

[22] There is no doubt that at the time Ms Williams was a director of both Internet Traders and IT Pharmaceutical, she occupied a fiduciary role in respect of each. For present purposes, the business that (it is argued) she sought to divert for personal benefit was that of IT Pharmaceutical. That is the plaintiff to which attention must be given.

[23] Internet Traders and IT Pharmaceutical allege that Ms Williams diverted more than a mere corporate opportunity; rather she affirmatively hijacked IT Pharmaceutical’s business for her own benefit, and to the detriment of those

_{companies and Mr Heale.}

¹⁰ _{Benton v Priore [2003] 1 NZLR 564 (HC) at para [46].}

¹¹ Watts Campbell and Hare, Company Law in New Zealand (LexisNexis Wellington 2011) at para

_14.4.

¹² _Ibid.

¹³ Ibid, citing Keech v Sandford [1726] EngR 954; (1726) 25 ER 223. See also Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371 (SCC) at 391, cited with approval in Pacifica Shipping Co Ltd v Anderson [1986] 2 NZLR 328 (HC) at 334; and Arataki Properties Ltd v Craig [1986] 2

NZLR 294 (CA); in particular at 298 (Cooke PO) and 301 (Somers J), with whom McMullin and

Casey JJ agreed.

[24] Ultimately, consideration will need to be given to whether there was any circumscription on Ms Williams’ ability to set up independently to pursue a business in competition, given the limited confidentiality and restraint of trade provisions contained in the Shareholders’ Agreement for Internet Traders. For present purposes, I proceed on the footing that the law will protect IT Pharmaceutical from breaches of

fiduciary duties of the type I have described.¹⁴

What happened?

[25] For the purpose of an interim injunction application, I must consider the best case that can be put forward by the plaintiffs on the basis of the evidence adduced. It is not my function to determine questions of credibility or reliability on an application of this type. Decisions such as that must await testing of the evidence, following a trial at which relevant witnesses will be subjected to cross-examination.

[26] Ms Williams points to innocent explanations for various activities of which Internet Traders, IT Pharmaceutical and Mr Heale complain. In substance, she says that she did not resign in order to use the knowledge acquired as a fiduciary of Internet Traders and IT Pharmaceuticals for her own benefit, but rather because she had become dissatisfied with her business relationship with Mr Heale and her inability to acquire shares associated with Mr Heale’s interests in the companies. In her first affidavit, Ms Williams asserted that, with the benefit of hindsight, her “resignations and immediate departure was something of an emotional reaction to problems that had been accumulating”.

[27] Mr Temm developed an argument from which a quite different view of relevant facts could be formed. He accepted that while many facts were not in dispute, inferences to be drawn from them separated the parties. In essence, the claim for breach of a director’s fiduciary duties is based on a series of steps taken by Ms Williams in the period leading up to, and immediately after, she resigned as a director of each company. It is a classic circumstantial case, in which the individual

_{strands of evidence may not carry much weight, but woven together they may.}

¹⁴ See para [21] above.

Ms Williams’ resignations: relevant events

[28] In April 2014, Ms Williams expressed an interest in acquiring shares owned by Mr Heale’s interests in Internet Traders, IT Pharmaceutical and another linked company, IT Veterinary Supplies Ltd. On 16 April 2014, Ms Williams sought a valuation from an accountant at KPMG. After some discussion about a potential conflict of interest, given that KPMG had acted for both Mr Heale’s and Ms Williams’ interests in the past, that firm undertook the valuation process.

[29] In early May 2014, Ms Williams offered to purchase Mr Heale’s interests in those companies for $820,000. That was not accepted. Subsequently, a Senior Business Advisory Manager at KPMG advised Ms Williams that the estimated value of the 50% stake held by Mr Heale’s interests was in the vicinity of $2.715 million to

$3.034 million. That advice was provided to Ms Williams on 19 May 2014. A copy of that valuation was not sent to Mr Heale.

[30] On 6 May 2014, a company called Greenstone Pharmaceuticals Ltd, a company in which Ms Williams had interests, sought a resource consent for work to be done at a property it had acquired at 24 Marsh Street, Tauranga. Ms Williams has given evidence that she intended to change IT Pharmaceutical’s name to Greenstone, for “re-branding” purposes following her “anticipated ... buy out”. The application stated that:

Resource consent is sought to establish and operate a pharmaceutical wholesale business in the existing commercial building, which is located at

24 Marsh Street, Tauranga.

The trading name of the company to establish and operate in the existing commercial premises was shown as “IT Pharmaceutical Supplies Ltd”. The application stated that the “company has been in operation for 12 years and currently operates out of a three bedroom flat in Tauranga”.

[31] Ms Williams gave evidence that one of the things that prompted her to leave was a decision by another worker, Ms Kate Church, to terminate her employment. Ms Williams, in an affidavit sworn on 17 October 2014, deposed that Ms Church had

“unexpectedly” given two week’s notice of resignation on 18 June 2014.¹⁵ An office for Ms Church is shown on the schematic plan annexed to the resource consent application made for the Marsh Street property. Mr Heale had no knowledge of the existence of the resource consent application, or the schematic drawing.

[32] Perhaps the most compelling evidence of a shift in position by Ms Williams can be found in her dealings with significant contacts of IT Pharmaceuticals in the period leading up to her resignation on 23 June 2014.

[33] On 16 May 2014, Ms Williams arranged for the sum of $80,000 to be transferred from IT Pharmaceuticals account with Westpac Bank to an account in the name of Aesculapian Trust. The Aesculapian Trust is a family trust associated with Ms Williams. She proffers an explanation to this effect: she paid the sum of $80,000 as an interim dividend from IT Pharmaceuticals, in respect of which a matching sum was to be paid to be the Heale Family Trust; that proved not to be feasible; on 20

June 2014, Ms Williams arranged for $50,000 to be transferred back to IT Pharmaceuticals and to pay an interim dividend of $50,000 to the Heale Family Trust; that meant that the Aesculapian Trust received an effective interim dividend of

$30,000, while the Heale Family Trust received $50,000. Ms Williams says that a subsequent “interim dividend”, paid to the Aesculapian Trust on 23 June 2014, “was intended to even out (in part) the disparity between two sets of interim dividend payments”. So far as the allegation is based on a distribution to shareholders, it was made without Mr Heale’s knowledge and no certificate was signed to confirm that IT

Pharmaceutical would satisfy the solvency test following any distribution.¹⁶

[34] On 14 June 2014, Ms Williams advised the Ministry of Health that “IT Pharmaceutical will not be seeking to renew [its licence to sell medicines by wholesale] as [it] will no longer have a responsible person on site”. The company

_{that operated from that site was ProPharma, a significant supplier.}¹⁷

¹⁵ _{Ms Church left the company on 3 July 2014.}

¹⁶ _{Companies Act 1993, s 52(2).}

¹⁷ See also para [41] below.

[35] On 18 June 2014, Ms Williams took steps to change the Post Office Box for IT Pharmaceuticals. New Zealand Post confirmed redirection arrangements in a letter sent to the new address on 26 June 2014.

[36] In the period leading up to 23 June 2014, Ms Williams engaged in the deletion of what “Mr Heale terms thousands of items of email correspondence from [the company’s] databases”. Ms Williams explanation is that the computer hardware used by IT Pharmaceutical was old and that she decided that the best way to free up capacity “was to deal with the 15 years or so of data that I had been hoarding”.

[37] One of the clients of IT Pharmaceutical was a Greek company, known as PharmaPal. IT Pharmaceutical held funds on trust for that company to pay accounts in New Zealand.

[38] Mr Raffi Palamoudian is the managing director of PharmaPal. He is based in Athens. He has provided a declaration which the parties have agreed should be regarded as evidence, for the purpose of the present application. He states that on the weekend of 21/22 June 2014 he received an email from Ms Williams in which “she said that she was resigning as managing director of [IT Pharmaceutical] on the coming Monday [23 June 2014] and would like to know what he would like to do with our accounts”. Three options were provided:

(a) Leave the money on account under the new directorship of IT Pharmaceutical

(b) Refund and transfer the funds to PharmaPal’s account in Greece

(c) Transfer the funds to an account to be managed by Ms Williams on trust for PharmaPal.

[39] On 22 June 2014, PharmaPal replied to Ms Williams advising that the funds totalling $38,903.50 should be transferred to an account in a New Zealand bank

_{under “Casper47 Holdings”, the previous name of Glencove.}¹⁸ _{On the same day, Ms}

¹⁸ See para [5] above and fn 1.

Williams wrote to Westpac Bank asking for the account to be set up and the moneys transferred. It is difficult to understand why Ms Williams would have asked PharmaPal to do that, if she had not intended to set up a business in competition and to attract PharmaPal as a customer. But, there may be an innocent explanation.

[40] Ms Williams letter of resignation was dated 23 June 2014 and provided to Mr

Heale on that day. She wrote:

Re resignation as Managing Director of IT Pharmaceutical Supplies Ltd and Internet Traders Ltd

In the first week of May I made you a very generous offer of $820,000 dollars cash; for the purchase of IT Traders Ltd, IT Pharmaeutical Supplies Ltd and IT Veterinary Supplies Ltd. You rejected this offer and in light of the changes in the market place I have had a rethink.

I have now decided to move on and am no longer interested in purchasing your shares.

1. I am writing to advise that I am resigning as Managing Director of

IT Pharmaceutical Supplies Ltd and Internet Traders Ltd as at 11am

23 June 2014.

2. I am resigning as a Director of Internet Traders Limited ad IT Pharmaceutical Supplies Ltd as at 11am 23 June 2014.

3. I am resigning as an employee of Internet Traders Ltd as at 11am 23

June 2014.

IT Pharmaceutical Supplies Ltd

I will advise the Ministry of Health that I will no longer be a Responsible

Person on the IT Pharmaceutical Supplies Ltd license from 11am 23 June

2014. You will find a full copy of the latest standard operating procedures

2013 approved by the Ministry for operational guidance.

I will advise LJ Hookers, that I have cancelled my lease, which now has 4 weeks left to run and could be vacated by 20 July 2014. I have let Tess at LJ Hookers know, that you will be in touch to take over the lease.

I will advise the Westpac Bank, Tauranga that you will be in contact to access the bank accounts and codes.

• Please be advised that all payments due 20^th of June are fully paid.

• Pharmapal 25 Account is held on trust by IT Pharmaceutical Supplies Ltd for Pharmapal, payments may be transferred when shipments complete.

• Please find attached a copy of the bank balances as at today’s date,

list of liabilities up until 23 June 2014.

I will advise all Suppliers that I am no longer a director or employee or managing director of the Co’s and that they should contact you with any account queries.

A suitable replacement will need to be found for Kate [Church] as she leaves on 3 July.

[41] On 23 June 2014, ProPharma also wrote to IT Pharmaceutical.¹⁹ Its letter was addressed to “The Directors” and started “Dear John and Nicole”, indicating that it had no prior knowledge of a pending resignation. The General Manager of ProPharma wrote:

I am writing to acknowledge receipt of your letter stating to the MOH stating that you will not be renewing the licence for IT Pharmaceutical Supplies (2013 W1131) site at 54 Carbine Road, Mt Wellington, Auckland. This facility is therefore no longer available for use by IT Pharmaceuticals.

I am given, from both directors, to understand that there is some disagreement between the managing director and director with regard to how the business is to be operated moving forward. This is of grave concern. Without knowing the details of this disagreement, and given the highly sensitive nature of exporting pharmaceuticals, and the associated compliance and debt risks, I have decided to suspend IT Pharmaceutical Supplies trading account with ProPharma effective immediately.

I will, of course, review this decision once the directors present sufficient evidence to suggest that this trading account presents no undue risk to ProPharma.

Please let me know if I can provide any further assistance. As requested please find attached the amounts outstanding as at 22^nd July 2014. We request full payment of these accounts as soon as possible please.

[42] On 23 June 2014, Ms Williams authorised payment of the following amounts from Internet Traders Ltd bank account:

(a) A sum of $38,061.98. This was paid to herself; Ms Williams says that this represented accrued holiday pay.

(b) A sum of $2,599.80, paid to Ms Church; Ms Williams says this also represented accrued holiday pay.²⁰

¹⁹ _{See also para [34] above.}

20. In her letter of resignation dated 23 June 2014, Ms Williams referred to Ms Church as leaving IT Pharmaceutical on 3 July 2014; see para [40] above..

(c) A sum of $38,903.50 which was paid from Internet Traders’ bank account to Casper47 Holdings Ltd; a company associated with Ms Williams which has since changed its name to Glencove.²¹

Other payments alleged to have been made by Ms Williams without proper authority have either been (at least for interim injunction purposes) explained satisfactorily, or there is no evidence to support the allegation.²²

[43] Ms Williams accepts that she applied for a Ministry of Health licence and commenced trading through KiwiPharma on 9 October 2014. Ms Church is now employed by that company, or some other entity associated with Ms Williams. In her first affidavit in this proceeding, Ms Williams stated boldly:

Unless restrained from doing so I will be involved in a new business venture that will compete with [IT Pharmaceutical]. Only time will tell who benefits and who loses as a consequence of that competition.

[44] There is other evidence to which I could refer. However, what I have already stated demonstrates a seriously arguable case that Ms Williams, on realising that the value of the shares she wished to acquire from Mr Heale’s interests was much greater than she anticipated, embarked upon a course of conduct designed to enable her to use IT Pharmaceutical’s business contacts as a springboard for her own venture, without advising Mr Heale of the steps she was taking. In my view, on those facts there is a seriously arguable case that Ms Williams breached her fiduciary duties as a director that were owed to IT Pharmaceuticals.

Balance of convenience

[45] Not all of Ms Williams’ new business venture is linked to suppliers or customers of IT Pharmaceutical. Some are, some are not. The most significant customer is Pacific Health Group (Vanuatu) in which interests associated with Mr Heale and Ms Williams held a 10% shareholding, for which they paid $1,263,500.

[46] Notwithstanding Mr Heale’s interest in the Vanuatu company, its managing director, Mr Kerry Bell, has given evidence that he had dealt with Ms Williams closely for some 14 years and reposes trust and confidence in her. He deposes to a telephone conversation with Ms Williams on 23 June 2014 in which she told him of her resignation. He says that he indicated to her that he would not deal with Mr Heale because he “neither trusted nor liked” him.

[47] It is clear that, since Ms Williams left the employment of Internet Traders and ceased to manage the business of IT Pharmaceutical, those companies have suffered significant downturns in their expected income.²³ For the period from 24 June 2013 to 31 October 2013 that loss has been calculated at $579,465. The unexpected nature of Ms Williams’ departure and her pre-resignation attempts to create a springboard for a new business (particularly through her personal contacts with established customers of IT Pharmaceutical), are capable of giving rise to an inference that the loss has been caused by Ms Williams action is.

[48] To balance that consideration, there is the indisputable fact that Ms Williams had personal relationships with PharmaPal and Pacific Health Group (Vanuatu), which Mr Heale did not. Given what may be difficulties in seeking to enforce the confidentiality and restraint of trade provisions of the Shareholders’ Agreement,²⁴

Mr Heale’s lack of day-to-day involvement in the business of IT Pharmaceutical was always going to cause problems if Ms Williams decided to leave.

[49] Mr Heale has now had a period of six months within which he could seek to recover business that has been lost. To the extent that he has not been able to persuade customers who (arguably) were forewarned of Ms Williams’ intended departure and (possibly) competition, it is unlikely that any injunction would improve the position. Two main customers in issue, PharmaPal and Pacific Health Group (Vanuatu), are run by people who are unlikely to want to trade with Mr Heale.

[50] Ms Williams appears to have assets from which any judgment could be satisfied, if a successful claim were brought against her for breach of her duties as a

director of (at least) IT Pharmaceutical. If a claim were pursued for breach of fiduciary duty a claim for an account of profits may be available, as an alternative to damages. There is a short time until the intended substantive hearing. That is to begin on 9 March 2014. Any interim relief that might be granted is offset by the availability of that early hearing date.

[51] I consider the balance of convenience favours Ms Williams’ interests.

Overall interests of justice

[52] I consider that, despite the existence of a seriously arguable claim, those factors which weigh in favour of Ms Williams interests to which I have referred in the context of my balance of convenience analysis, also militate against the grant of interim relief.

Result

[53] For those reasons, the application for interim relief is dismissed.

[54] I reserve costs. The Judge who hears evidence at trial will be able to determine to what extent Mr Heale’s allegations are made out, something that is likely to influence any decision on costs notwithstanding the success that Ms Williams’ interests have had on the present application.

On 16 December 2014, I made directions to ready the trial for hearing.²⁵ A telephone conference is to be held at 9am on 4 February 2015 for remaining trial directions to be made. If the hearing date of 9 March 2015 cannot be met for a reason associated with the conduct of Ms Williams’ interests, the plaintiffs could

_{renew an application for interim relief orally.}

_{P R Heath J}

_{Delivered at 1.30pm on 23 December 2014}

²⁵ Internet Traders Ltd v Williams HC Tauranga CIV-2014-470-158, 16 December 2014 at para [2].