Mike Pero (New Zealand) Limited v Krishna [2018] NZHC 40 (1 February 2018)

Last Updated: 29 July 2019

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-001508 [2018] NZHC 40

UNDER	Article 9 of Schedule 1 of the Arbitration Act 1996
AND	Parts 7 and 19 of the High Court Rules
BETWEEN	MIKE PERO (NEW ZEALAND) LIMITED Applicant
AND	KRISH KRISHNA AND VEENA ROHINI KRISHNA First Respondents MORTGAGE SUITE LIMITED Second Respondent

Hearing:	17 November 2017
Appearances:	S Barker and J Maltby for the Applicant K M Quinn and C Pearce for the Respondents
Judgment:	1 February 2018

JUDGMENT OF VAN BOHEMEN J

This judgment was delivered by me on 1 February 2018 at 4.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors

Buddle Findlay, Wellington

Heimsath Alexander, Auckland (J Heimsath) Counsel

K M Quinn, Auckland C Pearce, Auckland

MIKE PERO (NEW ZEALAND) LIMITED v KRISHNA [2018] NZHC [1 February 2018]

Introduction

[1] The applicant, Mike Pero (New Zealand) Ltd (MPNZ) has applied for arrest and contempt orders against Krish Krishna for an alleged breach of interim orders (Interim Orders) made by Hinton J on 3 July 2015 enforcing a restraint (Restraint) against Mr Krishna from engaging in the business of mortgage broking in the Auckland region to which Mr Krishna was subject under a Franchise Agreement (Franchise Agreement) he had previously made with MPNZ.

[2] This is MPNZ’s second application for arrest and contempt orders against Mr Krishna for an alleged breach of the Interim Orders. The first application was dismissed by Faire J on 10 June 2016.

[3] The alleged breach giving rise to the current application occurred on the last day of the two-year duration of the Restraint as it applied in the Auckland region and took place in the context of a phone call to Mr Krishna initiated by a private investigator retained on behalf of MPNZ and who purported to be a potential customer looking for mortgage broking advice in Auckland.

[4] In its application, MPNZ sought the arrest of Mr Krishna so he could be brought before the Court and appropriately sanctioned. MPNZ also sought discovery of all the business-related documents of Mr Krishna and the second respondent created since 30 June 2015 to enable MPNZ and the Court to assess the extent of the respondents’ compliance with the Interim Orders and take any necessary steps in response.

Background

[5] In February 2000, Mr Krishna became a mortgage broker with MPNZ under the umbrella of Epsom Finance Consultants Ltd and, from 2005, under Mortgage Suite Ltd, the second respondent. On 20 October 2010, the parties entered into the Franchise Agreement under which MPNZ was the franchisor, Mortgage Suite the franchisee, and Mr Krishna and his wife, Veena Rohini Krishna, jointly the first respondents, were covenantors. Mr Krishna is the sole director of Mortgage Suite. Mr and Mrs Krishna are Mortgage Suite’s only shareholders.
[6] On 30 March 2015, Mr Krishna notified MPNZ that he would not be renewing the Franchise Agreement. The effect of that notification was to bring the Franchise Agreement to an end on 30 June 2015.

[7] The Restraint is set out in Schedule 7 of the Franchise Agreement. The relevant provisions of the Restraint are:

The Franchisee and the Covenantors severally covenant that they shall not for the period specified in Schedule A following the expiration or termination of the franchise agreement ... within the area specified in Schedule A:

(a) directly or indirectly canvass, solicit or attempt to solicit, serve or act for any customer of the Business; or

(b) ...

(c) ...

(d) be concerned or interested in any capacity whatsoever in any business conducted in competition with the business of the Franchisor (or its other franchisees) where such business relates to the provision of mortgage broking and Related Services.

[8] Under Schedule A to Schedule 7 of the Franchise Agreement, the Restraint applied to the whole of New Zealand for six months and to the Auckland City region (following the merger of the territorial authorities making up Auckland City) for two years.

[9] Under Clause 1.1 of the Franchise Agreement, “Related Services” was defined to mean:

... those services of a type similar to and related to mortgage broking. Included within this definition and without limitation and by way of example only, personal finance, loan refixes, loan top ups and debt consolidation.

[10] The Franchise Agreement did not define “mortgage broking”.

[11] Under Clause 31.1 of the Franchise Agreement, the parties to the Agreement agreed not to commence any court proceedings relating to any dispute arising out of the agreement (including any dispute as to the validity of the agreement) unless they had complied with the subsequent paragraphs of Clause 31 which set out processes of conciliation, mediation and arbitration.
[12] On 20 April 2015, Mr Krishna (together with other former franchisees of MPNZ) filed proceedings seeking a declaration that the Restraint was not enforceable.

[13] On 28 May 2015, MPNZ filed an appearance objecting to jurisdiction on the basis that the declaratory proceedings violated the compulsory dispute settlement procedures in Clause 31 of the Franchise Agreement.

[14] On 2 July 2015, after MPNZ and Mr Krishna had not been able to agree on the terms of undertakings regarding Mr Krishna’s ability to engage in mortgage broking activities pending resolution of their dispute over the Restraint, MPNZ made an originating application without notice for urgent injunctive and ancillary orders to prevent Mr Krishna (and the other former MPNZ franchisees) from operating as mortgage brokers in breach of the Restraint.

[15] On 3 July 2015, Hinton J made the Interim Orders. Paragraph 3 of the Interim Orders provided:

3. The following orders were made:

(a) That pending resolution of all disputes between the parties, the respondents ... are restrained from:

(i) taking any steps in breach of the obligations that the respondents owe to MPNZ under or in connection with a franchise agreement between MPNZ and Franchisor and the second respondent as Franchisee dated 20 October 2010 (Franchise Agreement), and in particular (without limitation) that the respondents are restrained from:

(1) commencing or continuing any business or being concerned or interested in any capacity whatsoever in any business conducted in competition with the business of the Franchisor (or its other franchisees) where such business relates to the provision of mortgage broking and Related Services, or otherwise in competition with MPNZ.

[16] On 28 January 2016, after the expiry of the New Zealand-wide application of the Restraint under the Franchise Agreement, MPNZ applied for orders that Mr Krishna was in contempt for breach of the Interim Orders. MPNZ alleged
Mr Krishna had advertised himself as a provider of financial and mortgage services in Auckland and was manipulating MPNZ’s customer database. Mr Krishna denied those allegations and, in turn, applied to vary or rescind the Interim Orders on the grounds they were wider than the restrictions in the Franchise Agreement.

[17] In his judgment of 10 June 2016, Faire J first considered various preliminary matters including an application by MPNZ to cross-examine Mr Krishna. His Honour declined that application on the grounds that special circumstances did not exist to justify the cross-examination of Mr Krishna in terms of r 7.28 of the High Court Rules 2016.¹

[18] Faire J declined Mr Krishna’s application to vary or rescind the Interim Orders for lack of jurisdiction on the basis that only the Court of Appeal, on appeal, can rescind orders made on an originating application, notwithstanding the fact the orders had been termed “Interim Orders”.

[19] On MPNZ’s substantive application, Faire J commented on the scope of the Interim Orders as they related to the Restraint. In particular, he stated:

[53] ... At first glance the Orders do appear wider than the Restraint as there is no geographical or temporal limit specifically stated in the Orders. However, this interpretation would be contrary to the intentions of all concerned. The geographical and temporal limits of the Restraint must apply correspondingly to the Orders.

[20] Faire J also stated:

[54] Additionally, I note that while the words “commencing or continuing any business [conducted in competition]” are not found in the Restraint itself, they go no wider than the Restraint which prohibits the respondents from being “concerned or interested in any capacity whatsoever in any business [conducted in competition]” which would include any activity which falls under the above provisions of the Order.

[21] Faire J went on to dismiss the MPNZ application on the basis that the facts did not support findings that Mr Krishna had breached the terms of the Restraint.

¹ Mike Pero (New Zealand) Ltd v Krishna [2016] NZHC 1255, (2016) 14 NZELR 244.

The current application

[22] On Friday, 30 June 2017, the last day of the Restraint as it applied in the Auckland region, Mr Krishna received a phone call from a man who identified himself as John Lambert. The caller was in fact Graham Aylett, a private investigator engaged by MPNZ through its solicitors.

[23] In his affidavit dated 30 July 2017, Mr Aylett described the purpose of his call as follows:

MPNZ wanted to know whether Mr Krishna had been providing mortgage services in breach of the restraint of trade. MPNZ was particularly interested in finding out whether Mr Krishna had been providing mortgage services in Auckland.

According to this evidence, therefore, the intended purpose of the call was to establish whether Mr Krishna had been complying with the terms of the Restraint.

[24] The transcript of the telephone conversation between Mr Aylett and Mr Krishna was attached to Mr Aylett’s affidavit. The bulk of the conversation was focused on whether Mr Krishna could provide “Mr Lambert” with mortgage services in a future, on-going, sense. The only aspects of the call that can be said to bear on Mr Krishna’s behaviour up to that date were:

(a) Mr Lambert’s emphasis that he lived in Auckland and had property in Auckland and was looking to purchase a couple of rental units “in the city” and, in answer to Mr Lambert’s question whether that was something Mr Krishna could help him with, Mr Krishna’s reply, “Yes, that is my forte.”

(b) Mr Krishna’s assertions that he had bargaining power with banks “because of the volume of loans we produce”.

(c) In response to Mr Lambert’s inquiry as to whether Mr Krishna had been “doing this for some time”, Mr Krishna’s statement, “Yes, I have been doing this for 17 years,” and Mr Krishna’s further statement that, “Before I was a corporate banker for the ANZ and Westpac and for the
last 17 years I have been rated as one of the top 5 brokers in the country in terms of volume of business we produce.”

(d) Mr Lambert’s inquiry about where Mr Krishna was based and Mr Krishna’s reply that, “I am mobile but actually at the moment I have an office at home ... .”

[25] While there was some disingenuousness to Mr Krishna’s remarks, nothing in the above exchange could be taken as establishing that, prior to the phone call, Mr Krishna had been providing mortgage broking services in Auckland in breach of the Restraint and Interim Orders.

[26] The rest of the conversation related to the financial resources that Mr Lambert had at his disposal for the proposed purchase following a question from Mr Lambert about the information Mr Krishna would need from him. Mr Krishna asked Mr Lambert with whom he banked, whether he had much equity in his current properties and where things stood with his 2017 financial records. They also discussed when Mr Lambert and Mr Krishna might meet the following week. Later that day, Mr Krishna sent an email to the address provided to him by “Mr Lambert” setting out the information Mr Krishna would require to obtain a bank loan for Mr Lambert.

Preliminary matters: applications for leave

[27] Before hearing submissions on MPNZ’s substantive application, I considered two preliminary applications by MPNZ:

(a) An application for leave to bring a second application for contempt, given that MPNZ had failed in a previous application for contempt based on Mr Krishna’s alleged non-compliance with the Interim Orders; and

(b) An application to cross-examine Mr Krishna on his affidavit sworn on 23 August 2017.

Application for leave to bring second application for contempt

[28] Rule 7.52 of the High Court Rules provides that a party who fails on an interlocutory application must not apply again for the same or a similar order without first obtaining the leave of a Judge. The Rule also provides that a Judge may grant leave only in special circumstances.

[29] Mr Barker for MPNZ said there were the following special circumstances in this case:

(a) MPNZ did not seek to re-litigate issues determined in the first application; the two applications concerned different prohibitions in the Interim Orders and the Restraint.

(b) The facts at issue in the second application arose after determination of the first application.

(c) MPNZ was not asking the Court to reconsider any of the legal or factual determinations made by Faire J.

(d) The Interim Orders were final orders imposing on-going obligations on Mr Krishna and it must be open to MPNZ to come back to court to enforce the Interim Orders following another separate suspected breach.

[30] Mr Quinn for Mr Krishna opposed the application for leave. He agreed that the second application concerned a different set of facts but said it did not follow that leave should be granted. He disagreed with Mr Barker’s assertion that the second application dealt with different prohibitions in the Interim Orders.

[31] Mr Quinn said that while the facts were not the same, they were similar and he argued that the second application was a further attempt by MPNZ to harass Mr Krishna. He referred to the evidence in Mr Krishna’s affidavit sworn on 18 February 2016 in opposition to the first application, and in Mr Krishna’s affidavit of 23 August 2017, sworn in opposition to the second application, about previous
efforts by MPNZ to establish breaches of the Interim Orders and said that one purpose of r 7.52 was to stop people being harassed by successive applications and put to unnecessary cost.

Application for leave to cross-examine Mr Krishna

[32] MPNZ applied for leave to cross-examine Mr Krishna on his affidavit in opposition to MPNZ’s second contempt application. Under High Court r 7.28, a judge may in special circumstances order the attendance for cross-examination of a person who has made an affidavit in opposition to an interlocutory application.

[33] In his submissions, Mr Barker cited decisions where leave had been granted, particularly in alleged cases of contempt; for example, Divett v Skeates,² Queen Elizabeth the Second National Trust v Netherland Holding Ltd³ and Zhang v King David Investments Ltd (in liq).⁴

[34] Mr Barker also submitted that:

(a) There was a dispute over whether Mr Krishna knew his conduct amounted to contempt;

(b) There were inconsistencies in Mr Krishna’s evidence that could only by tested by cross-examination;

(c) Because the application was an action to enforce a final order, MPNZ would not have a later opportunity to cross-examine in this proceeding;

(d) MPNZ sought only to cross-examine Mr Krishna about two disputed issues of fact: his business activities during the period of the restraint and his understanding of the terms of the Interim Orders.

² Divett v Skeates [2010] NZHC 258; (2010) 19 PRNZ 653 (HC).

³ Queen Elizabeth the Second National Trust v Netherland Holding Ltd [2014] NZHC 291.

⁴ Zhang v King David Investments Ltd (in liq) [2016] NZHC 3018.

[35] Mr Quinn for Mr Krishna opposed the application on the basis that the application dealt with a narrow set of facts flowing from the phone call between “Mr Lambert” and Mr Krishna, that the transcript of that call was in evidence and that there were no other facts in evidence about Mr Krishna’s activities during the period of the restraint. Accordingly, the application to cross-examine Mr Krishna was really an attempt to put before the court additional matters not raised in the application.

Decisions on applications for leave

[36] I ruled that leave should be granted to bring the second contempt application but that there were no special circumstances that warranted leave being granted to cross-examine Mr Krishna.

[37] My decision to grant leave to bring the second contempt application flowed from the fact, as found by Faire J in his decision on the first application, that the Interim Orders, despite their name, are final orders. Accordingly, applications regarding their enforcement are not interlocutory applications in the usual sense because there is no further hearing to determine the issues in dispute between the parties. Those matters will be dealt with in the arbitration which, I was informed, is proceeding.

[38] While I accepted Mr Quinn’s argument that one purpose of r 7.52 is to ensure that parties to litigation are not subjected to unnecessary cost by repeat applications, the situation is different in this case. Absent leave being granted, there would be no opportunity to address the substance of the issue at a main hearing – as would be the case if leave were not granted for a normal interlocutory application. I was satisfied this amounted to special circumstances for the purposes of r 7.52.

[39] I declined the application to cross-examine Mr Krishna because I agreed with Mr Quinn’s submission that the contempt application was based on a narrow set of facts and centred on the phone call between “Mr Lambert” and Mr Krishna, the transcript of which was in evidence before the Court. Mr Barker acknowledged he wished to use the cross-examination to question Mr Krishna more broadly on his business activities during the period of the restraint. However, in his oral
submissions, Mr Barker stated that “this application is concerned entirely with the events of 30 June 2017.” This is also how the substantive application was cast. I saw no reason, therefore, for the Court to allow a broadening of the scope of the inquiry through cross-examination.

Legal principles relevant to substantive application

[40] Drawing on decisions by the Supreme Court in Siemer v Solicitor-General,⁵ Pankhurst J in Solicitor-General v Krieger⁶ and Palmer J in Zhang v King David Investments Ltd (in liq),⁷ Mr Barker and Mr Quinn agreed that an applicant for contempt based on reach of court orders must establish that:

(a) The terms of the order were clear and unambiguous;

(b) The respondent had knowledge and proper notice of the terms of the order;

(c) The respondent had acted in breach of that order;

(d) The respondent’s conduct was deliberate in the sense that he or she deliberately or wilfully acted in a manner that breached the order.

[41] I agree those are the relevant principles. They accord with what is stated in the Report of the Law Commission on Reforming the Law of Contempt of Court on what an applicant seeking to enforce a civil judgment must prove.⁸ As the Law Commission’s Report also recorded, proof must be to the criminal standard of beyond reasonable doubt because a person’s liberty may be affected – a point both counsel also accepted.

[42] It is also important to bear in mind the context and purpose of contempt. As stated by McGrath J in Siemer v Solicitor-General:⁹

⁵ Siemer v Solicitor-General [2010] NZSC 54, [2010] 3 NZLR 767.

⁶ Solicitor-General v Krieger [2014] NZHC 172.

⁷ Zhang v King David Investments Ltd (in liq) [2016] NZHC 3018 (HC).

8. Law Commission Reforming the Law of Contempt of Court: A Modern Statute (NZLC R140, 2017) at [5.23].

⁹ At [27].

The law of contempt does not, of course, exist to protect the dignity of judges but to protect the public interest in the due administration of justice by an impartial court.

The public interest dimension to the law of contempt is fundamental. I return to this aspect below.

Contentions of the parties on the substantive application

[43] There was no dispute that Mr Krishna was aware of the terms of the order. Nor was it suggested that Mr Krishna’s actions in the telephone conversation with “Mr Lambert” and in his subsequent email were not deliberate. The key points of disagreement were:

(a) Whether the terms of the orders were clear and unambiguous;

(b) Whether Mr Krishna had acted in breach of the order; and

(c) If Mr Krishna had acted in breach of the order, whether any penalty should be imposed.

[44] Mr Barker for MPNZ said that in the phone conversation and in his subsequent email, Mr Krishna had breached the Interim Orders in the following respects:

(a) Mr Krishna had spoken to and emailed a prospective customer in Auckland City during the period of the Restraint;

(b) In response to Mr Krishna’s assertion that he (Mr Krishna) would not have begun providing mortgage services until he had reviewed the requested documentation (that is, after the expiry of the restraint):

(i) That does not reflect the business of mortgage broking which begins at the first contact, according to the evidence in an affidavit dated 30 August 2017 of Sheikhil Khan, a current
franchisee of MPNZ who operates as a mortgage broker in Auckland;

(ii) Mr Krishna received financial and other business information from “Mr Lambert” within the period of the Restraint that was directly relevant to the provision of mortgage services;

(iii) It would be inconsistent with the purpose of the Restraint, which Mr Barker said was to protect MPNZ’s proprietary business interests, to interpret the Restraint narrowly, in effect, to exclude actions leading up to the provision of mortgage broking services.

[45] In terms of penalty, Mr Barker in his oral submissions did not pursue the propositions in MPNZ’s application and in his written synopsis that the Court should order Mr Krishan’s arrest and that Mr Krishna either be imprisoned for three months or ordered to pay a fine of $5,000. Rather, he contended only for the fine of $5,000 which he said was comparable to fines imposed in similar cases such as Solicitor- General v Krieger,¹⁰ and sought an order that Mr Krishna pay indemnity costs to MPNZ.

[46] Mr Quinn for Mr Krishna said:

(a) Mr Krishna’s conduct did not amount to a breach of the Interim Orders because the terms of the Interim Orders were not clear and unambiguous and, in any event, Mr Krishna had not breached their terms;

(b) If there had been a breach, it was a purely technical breach that resulted in no damage to MPNZ and had been induced by MPNZ and based on evidence obtained as a result of MPNZ’s deliberate entrapment of Mr Krishna;

¹⁰ Solicitor-General v Krieger [2014] NZHC 172.

(c) While Mr Quinn accepted there was no need for MPNZ to establish that Mr Krishna intended to breach the Interim Orders, intent was highly relevant to the question of what sanction the court might impose. He said the circumstances of the present case were “light years” away from cases in which imprisonment had been ordered or even seriously contemplated and were not comparable to the facts in Solicitor-General v Krieger¹¹ where a fine of $5,000 had been imposed.

[47] Mr Quinn also said that the bringing of the application and the extreme sanctions sought by MPNZ represented a disproportionate response to a trivial set of facts and that, even if there had been a breach of the Interim Orders, no penalty should be imposed on Mr Krishna and that MPNZ should be ordered to pay indemnity costs to Mr Krishna.

Discussion

[48] The first question for determination is whether the terms of the Interim Orders are clear and unambiguous. The relevant provision was paragraph 3(a)(1) of the Interim Orders which restrained Mr Krishna from:

commencing or continuing any business or being concerned or interested in any capacity whatsoever in any business conducted in competition with the business of the Franchisor (or its other franchisees) where such business relates to the provision of mortgage broking and Related Services, or otherwise in competition with MPNZ.

[49] As noted above, Faire J found that the words “commencing or continuing” in this paragraph go no wider than the Restraint which prohibits Mr Krishna from being “concerned or interested in any capacity whatsoever” in any business conducted in competition with MPNZ. In that sense, the words “commencing or continuing” are redundant because paragraph 3(a)(1) of the Interim Orders themselves go on to use the same words (“concerned or interested in any capacity whatsoever”) as are in clause 1(d) of the Restraint. In this application, therefore, we are not concerned with any mismatch between the language of the Interim Orders and that of the Restraint.

¹¹ Solicitor-General v Krieger [2014] NZHC 172.

[50] Mr Quinn said the language in paragraph 3(a)(1) of the Interim Orders and clause 1(d) of the Restraint was neither clear nor unambiguous because:

(a) The Interim Orders and the Restraint did not define precisely what acts were prohibited – as was said to be required of interlocutory injunctions by Lord Nicholls in Attorney-General v Punch Ltd;¹²

(b) The language of the Interim Orders and the Restraint presupposed the existence of a business relating to mortgage broking and Related Services being conducted in Auckland in competition with MPNZ and in which Mr Krishna was in some capacity concerned or interested;

(c) Mr Krishna’s conversation with “Mr Lambert” did not establish the existence of a business being carried on in Auckland in competition with MPNZ at that time or any earlier time.

[51] I do not accept those submissions. The language of the Interim Orders and the Restraint, while broad, is straightforward and should have been well understood by Mr Krishna. It precluded Mr Krishna from being concerned or interested in commercial activities relating to the provision of mortgage broking and Related Services in Auckland during the period of the Restraint. The words “or otherwise in competition with MPNZ” are largely superfluous and, in any event, no point has been taken regarding their application in the present case. I do not regard the word “business” as importing a requirement of an existing business enterprise. In the context of the Interim Orders and the Restraint, the word simply connotes the sense of commercial activity.

[52] Accordingly, I consider the terms of the Interim Orders are clear and unambiguous. The question then is whether Mr Krishna breached the terms of the Interim Orders and the Restraint.

[53] While I can understand why Mr Krishna might have thought, or wanted to think, it was acceptable for him to have a preliminary conversation on the last day of

¹² Attorney-General v Punch Ltd [2002] UKHL 50, [2003] 1 AC 1046 at [35].

the Restraint about how he might provide mortgage broking services the following week when the Restraint no longer applied, the Restraint and Interim Orders cover a wider field than simply providing mortgage broking services. They cover “being concerned or interested in any capacity whatsoever” in any business relating to the provision of mortgage broking and Related Services. Having a discussion, albeit a preliminary discussion, with a prospective client about how Mr Krishna might provide mortgage broking services after the Restraint had expired is within the breadth of the language of Restraint and the Interim Orders. The fact that Mr Krishna might not have intended to breach the Restraint and Interim Orders does not mean his actions were not deliberate – as Mr Quinn properly accepted.

[54] The call with “Mr Lambert” took place during the period of the Restraint as it applied to Auckland. There can be little doubt that Mr Krishna was looking to engage on a commercial basis with “Mr Lambert” who was looking for mortgage broking advice in relation to properties in Auckland. The same applies to Mr Krishna’s follow up email. In continuing the conversation with “Mr Lambert” and in sending the email, Mr Krishna breached the broad and strict terms of the Restraint and the Interim Orders by being concerned or interested in the provision of mortgage broking in Auckland, even if the actual provision of mortgage broking advice was to take place the following week after the Restraint had expired. I reach those conclusions without regard to the evidence of Mr Khan about the importance of first contacts in developing a mortgage broking relationship, which I consider to be peripheral to the issue of whether Mr Krishna breached the terms of the Interim Orders.

[55] Mr Quinn argued that even if there had been a breach of the Interim Orders, MPNZ could not succeed because it had itself procured the breach and was therefore itself in contempt of court and could not rely on that breach on the basis of the principle ex turpi causa non oritur actio – which can be loosely translated as meaning no action can arise as a result of illegal or dishonourable conduct. He also argued that the evidence of the breach had been obtained as a result of entrapment and should be excluded on the same basis as equivalent evidence in criminal proceedings given the penal nature of contempt proceedings.
[56] While, as I discuss below, MPNZ’s conduct in the circumstances that led to Mr Krishna’s breach of the Interim Orders is relevant to the questions of penalty and costs, MPNZ’s conduct cannot be classed as illegal or dishonourable. I do not accept, therefore, that MPNZ is precluded from succeeding on the basis of the principle ex turpi causa non oritur actio.

[57] I am reluctant to import concepts of entrapment into a proceeding to enforce a court order which has traditionally been termed a “civil” rather than “criminal” contempt. While the Law Commission has recommended doing away with the distinction and has noted that in New Zealand law civil and criminal contempt are now almost indistinguishable,¹³ the Court of Appeal has recently confirmed that the distinction remains.¹⁴ I also acknowledge that, following the decision of the Supreme Court in Siemer v Solicitor-General,¹⁵ procedural protections applicable in criminal cases and the protections in the New Zealand Bill of Rights Act 1990 can also apply in civil contempt cases. However, for the purposes of this proceeding, it is sufficient to take account of the matters that may raise issues of entrapment when considering penalty and costs.

[58] My conclusion, therefore, is that Mr Krishna was in contempt of Court in his discussions with Mr Lambert on 30 June 2017 and that this has been established to the criminal standard of beyond reasonable doubt. However, I am satisfied the contempt was a technical and non-serious, indeed minor, breach of the Interim Orders. I base that conclusion on the following considerations:

(a) The breach was technical as it went to the legal detail of the Interim Orders rather than their intent or purpose. As Mr Barker said in his submissions, the purpose of the Restraint was to protect MPNZ’s legitimate proprietary interests in its business and that of its franchisees. The interests of MPNZ and its franchisees were not adversely affected by the breach – first, because there was no actual client and, secondly, because even if “Mr Lambert” had been a

13. Law Commission Reforming the Law of Contempt of Court: A Modern Statute (NZLC R140, 2017) at [5.26-5.31].

¹⁴ Young v Zhang [2017] NZCA 622 at [43].

¹⁵ Siemer v Solicitor-General [2010] NZSC 54, [2010] 3 NZLR 767.

genuine client, it is difficult to accept that a preliminary conversation with Mr Krishna on the last day of the Restraint would have any material bearing on those interests. I do not accept Mr Barker’s contention that the breach would compromise the ability of an MPNZ franchisee to set itself up free from competition with an experienced player.

(b) In addition to being technical, the breach was minor, not only because it did not and could not have caused damage to MPNZ’s interests (because “Mr Lambert” was a fictitious prospective client), but also because it concerned only “Mr Lambert’s” wish to invest in a future sense in some properties in Auckland after the Restraint would have ended. Despite Mr Aylett’s evidence that the real purpose of the call was to find out whether Mr Krishna had been providing mortgage services in breach of the Restraint, the phone conversation produced no evidence to support that conclusion.

(c) The breach came about as a result of the phone call initiated by “Mr Lambert” at the behest of MPNZ. In the absence of other evidence to demonstrate Mr Krishna had been breaching or was inclined to breach the Restraint, I do not accept Mr Barker’s submission that MPNZ merely provided the opportunity for the breach. This particular breach would not have occurred but for the phone call. In that respect, MPNZ’s actions procured the breach, whether or not those actions amounted to entrapment.

[59] The question is what should follow in terms of penalty, if any, in these circumstances.

[60] The Law Commission conveniently summarised the task of the Court as follows:¹⁶

¹⁶ At [5.69].

In determining the appropriate penalty, the court should consider the nature and gravity of the non-compliance or breach and should consider any relevant mitigating or aggravating factors relating to the person.

In other words, the fact of a breach itself is not sufficient to warrant a penalty. The circumstances of the breach are critical in determining whether or not there should be a penalty and, if so, the nature of the penalty.

[61] As I have found, there was a breach but it was technical, minor and brought about as a consequence of the actions of the applicant. I was not referred to any New Zealand decisions where these three elements were present. The closest comparators, and they are not especially close, are:

(a) Malevez v Knox,¹⁷ where Wild CJ found there had been contempt but imposed no fine against a company director who, under commercial pressure, had agreed to the disposal of company assets in breach of an undertaking he had made not to dispose of any such assets pending the outcome of litigation.

(b) Lockwood v Group Ltd v Small,¹⁸ where Allan J dismissed the application for contempt because, although the respondent had taken deliberate actions in breach of an injunction, the arbitration agreement that provided the foundation for the injunction had been spent.

(c) Blomfield v Slater,¹⁹ where Asher J imposed a fine of $500 for a series of minor but not technical breaches of undertakings made in the context of on-going defamation proceedings.

[62] These are decisions where the Court either dismissed the application for contempt or imposed no penalty or a minor penalty because of the nature of the breach or the conduct of the defendant. They suggest strongly that either no penalty should be imposed in the present case or, at worst, only a minor penalty imposed.

¹⁷ Malevez v Knox [1977] 1 NZLR 463 (HC).

¹⁸ Lockwood Group v Small HC Auckland CIV-2009-404-1019, 21 April 2010.

¹⁹ Blomfield v Slater [2015] NZHC 2239.

[63] However, these decisions did not involve circumstances where the behaviour of the applicant was a significant factor in bringing about the contempt. While in Malevez, Wild CJ rejected a submission that the application for contempt orders had been instituted for an ulterior purpose or improper motive or was an abuse of process, the Chief Justice did not say what the consequences would have been in such circumstances.

[64] Mr Quinn referred me to a line of English authorities where applications for committal – i.e. arrest – were made on the basis of alleged contempt for breaches of court orders but where the courts not only rejected the orders sought but imposed costs on the applicants because they considered the applications not to have been made for the purposes for which committal and contempt orders should be made.

[65] Mr Quinn made particular reference to Sectorguard v Dienne,²⁰ where Briggs J, in the Chancery Division of the High Court of Justice, considered what should be done in circumstances where it was asserted not only that a committal application had been made for an improper purpose – namely to pursue a vendetta against one of the defendants – but had also been motivated by racial prejudice and where the applicants had had no regard to the fact that performance of one of the undertakings said to have been breached was impossible.

[66] In his judgment, Briggs J made important observations about the public purpose of committal and contempt proceedings:

15. ... It is well settled that proceedings for contempt of court for which permission has to be obtained under [Civil Procedure Rule] 32.14(2) are public law proceedings, so that when considering whether to give permission for contempt proceedings to be taken in any particular case the court must have regard to the public interest alone: see KJM Superbikes Ltd v Hinton [2008] EWCA Civ 1280 per Moore-Bick LJ at paragraphs 9 and 16. ... The court must consider, without prejudging the application on its merits, whether the alleged contempt is of sufficient gravity to warrant such punishment, not least because, “If the courts are seen to treat serious examples of false evidence as of little importance, they run the risk of encouraging witnesses to regard the statement of truth as a mere formality”: (paragraph 23). Against that, “There is an obvious need to guard carefully against the risk of allowing vindictive litigants to

²⁰ Sectorguard v Dienne [2009] EWHC 2693 (Ch).

use such proceedings to harass persons against whom they have a grievance, whether justified or not ...” (paragraph 17).

...

44. It is now well established, in the light of the new culture introduced by the [Civil Procedure Rules], and in particular with the requirements of proportionality referred to in CPR 1.1(2) as part of the overriding objective, that it is an abuse of process to pursue litigation where the value to the litigant of a successful outcome is so small as to make the exercise pointless, viewed against the expenditure of court time and the parties’ time and money engaged by the undertaking ... .

...

46. It has long been established that the pursuit of committal proceedings which leads merely to the establishment of a purely technical contempt, rather than something of sufficient gravity to justify the imposition of a serious penalty, may lead to the applicant having to pay the respondent’s costs.

[67] Applying these principles to the facts of the case before him, Briggs J concluded that the committal application had no real prospect of success and that the application had more likely than not been prosecuted for reasons other than the legitimate motive of seeking enforcement of an undertaking or bringing to the court’s attention a serious rather than a purely technical contempt and he struck out the relevant parts of the proceeding.

[68] The observations of Briggs J in Sectorguard v Dienne were applied in Public Joint Stock Company Vseukrainskyi Aktionernyi Bank v Maksimov²¹ by Hamblen J, sitting in the Queen’s Bench Division Commercial Court, where the Judge considered the appropriate costs order to be made following his earlier decision to reject most of the grounds on which the Bank had sought the arrest and imprisonment of Mr Maksimov for contempt of court for breaching worldwide freezing orders. Hamblen J noted that, apart from one ground admitted by Mr Maksimov, the Bank had succeeded on only one ground relating to the disclosure of assets of certain companies controlled by Mr Maksimov. His Honour considered that a “technical contempt” because the Bank had received disclosure of the company assets through Mr Maksimov’s own asset disclosure, even if there had not

21. Public Joint Stock Company Vseukrainskyi Aktionernyi Bank v Maksimov [2014] EWHC 4370 (QB).

been a separate disclosure statement by those companies. Hamblen J also noted the very considerable costs incurred by the Bank and Mr Maksimov in the litigation, most of which related to grounds on which the Bank’s claims had been rejected, as well as the considerable amount of court time taken up by the proceeding. He also noted the “striking absence of any real identified prejudice to the Bank” flowing from the alleged contempt.

[69] In reaching his decision on how costs should be allocated, Hamblen J quoted at some length from the judgment of Briggs J in Sectorguard, including the comments set out at [66] above. Hamblen J then stated:

22. I respectfully endorse those comments. An increasing amount of this court’s time is being taken up with contempt applications. Claimants should give careful consideration to proportionality in relation to the bringing and continuance of such proceedings. In appropriate cases respondents should give consideration to applying to strike out such applications for abuse of process. The court should be astute to detect when contempt proceedings are not being pursued for legitimate aims. Adverse costs orders may follow where claimants bring disproportionate contempt applications.

23. There is no application to strike out for abuse of process in this case. Nor is this a case where the contempt application had no real prospect of success. However, it is a case in which the pursuit of the proceedings has merely led to the establishment of a technical contempt rather than something to justify the imposition of a serious penalty.

Hamblen J went on to order the Bank to pay 80 per cent of Mr Maksimov’s costs.

[70] Hamblen J also referred in his judgment to the earlier decision of Jacob J in Adam Phones Ltd v Goldschmidt²² where the defendant had deliberately taken actions contrary to a court order under the mistaken belief those actions were required by the order. In that decision, Jacobs J made the following observations about applications for contempt where the breach is based on a technical application of the relevant Court order:²³

I think, therefore, that there are cases in which even if a technical breach is proved and the respondent has mens rea, the court will none the less dismiss the application with costs in favour of the respondent. Contempt

²² Adam Phones Ltd v Goldschmidt [1999] 4 All ER 486 (Ch).

²³ At 495.

proceedings seek the imprisonment of the respondent. For any such proceeding to be instituted there must be something more involved than a mere technicality. ...

...

It seems to me that in considering what to do about costs where a technical but non-blameworthy contempt is proved, the court should consider whether the bringing of the application was at all appropriate. In particular, if the application is wholly a disproportionate response to a trivial or blameless breach of an order then the court should dismiss the application with costs.

[71] I agree with Mr Quinn that the approach taken by the English Courts on these matters should also apply in New Zealand. While New Zealand may not have the same number of contempt proceedings as seems to have been the case in England and Wales, I consider that approach is directly applicable to New Zealand’s circumstances and reflects the public interest nature of contempt proceedings, whether brought in England or in New Zealand.

[72] The English decisions demonstrate there are a number of aspects to the public interest dimension of the law of contempt. The aspect most often cited in New Zealand as well as in England is contained in the statement quoted above from McGrath J in Siemer – the need for the courts to ensure their decisions are upheld in order to maintain public confidence in the administration of justice.²⁴ Mr Barker understandably emphasised this aspect in his submissions and the related considerations of deterrence and motivating compliance with court orders. However, as noted by Briggs J in Sectorguard, another aspect of maintaining public confidence in the administration of justice is ensuring that the public processes of the courts are not used to pursue private ends that go beyond upholding Court orders or where the cost and time of pursing contempt proceedings are not warranted having regard to the gravity of the matters at issue and the other demands on Court resources.

[73] I acknowledge that in the Sectorguard and Maksimov decisions, Briggs and Hamblen JJ were guided by the policy of the United Kingdom’s Civil Procedure Rules 1998, especially the objective set out in CPR 1.1. That provides:

²⁴ Siemer v Solicitor-General [2010] NZSC 54, [2010] 3 NZLR 767 at [26]–[27].

The overriding objective

1.1 (1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.

(2) Dealing with a case justly includes, so far as is practicable—

(a) ensuring that the parties are on an equal footing;

(b) saving expense;

(c) dealing with the case in ways which are proportionate—

(i) to the amount of money involved;

(ii) to the importance of the case;

(iii) to the complexity of the issues; and

(iv) to the financial position of each party;

(d) ensuring that it is dealt with expeditiously and fairly; and

(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.

[74] While CPR 1.1 is a more elaborated statement than r 1.2 in the New Zealand High Court Rules, the New Zealand rule covers much the same ground. It provides:

1.2 Objective

The objective of these rules is to secure the just, speedy, and inexpensive determination of any proceeding or interlocutory application.

The additional detail in CPR 1.1 explains what is encompassed by the words “just, speedy, and inexpensive” in the HCR 1.2. Accordingly, there is no reason not to apply in New Zealand decisions of the English courts that draw on CPR 1.1.

[75] For these reasons, I consider that when deciding applications for contempt based on a breach of court orders, New Zealand courts should also have regard to the nature and gravity of any breach and the proportionality of the breach in relation to the prejudice to the applicant, the seriousness of any penalty and the demands on court time.
[76] As I have found, while there was a breach of the Interim Orders by Mr Krishna, that breach was technical, minor and procured by the actions of MPNZ. On that basis alone, it would accord with the decisions in Sectorguard, Maksimov and Goldschmidt to dismiss MPNZ’s application and to order costs in favour of Mr Krishna. Moreover, the circumstances of the application suggest that MPNZ was concerned less with upholding the law and more with trying to use the power of the Court to punish Mr Krishna on the last day it had leverage over him. While I do not suggest MPNZ’s motivations in bringing this application were in the same league as those of the applicants in Sectorguard, Maksimov, or Goldschmidt in terms of the animus that those applicants bore towards the respective alleged contemnors in those cases, there was nonetheless the strong flavour that, as in those cases, MPNZ was looking to use the contempt process to pursue a private dispute with Mr Krishna and seized upon the minor technical breach of the Interim Orders to do so. I do not consider the application was an appropriate use of the contempt process or of the Court’s time and resources.

[77] Accordingly, consistently with the Sectorguard, Maksimov, or Goldschmidt decisions, I consider that, despite the technical contempt by Mr Krishna, this is a case where the application for contempt should be dismissed and costs awarded in favour of Mr Krishna.

[78] However, I do not consider that indemnity costs should be awarded. Given the terms and history of the Interim Orders and the Restraint, it was most unwise of Mr Krishna to have continued the call and to have followed up with the email to Mr Lambert, even if those actions took place on the last day of the Restraint. In that sense, Mr Krishna was a contributor to the continuation of this dispute.

Result

[79] The application is dismissed.
[80] Costs are awarded in favour of Mr Krishna on a 2B basis. If the parties cannot agree costs, they may file memoranda of no more than five pages each.








van Bohemen J