FUEL ESPRESSO LIMITED V HSIEH CA CA88/07

FUEL ESPRESSO LIMITED V HSIEH CA CA88/07 9 March 2007IN THE COURT OF APPEAL OF NEW ZEALAND CA88/07 [2007] NZCA 58BETWEEN FUEL ESPRESSO LIMITED Applicant AND VICTOR (CHI-HUAN) HSIEH Respondent Hearing: 8 March 2007 Court: Hammond, O'Regan and Arnold JJ Counsel: P J Cullen for Applicant R M Crotty and C A Harold for Respondent Judgment: 9 March 2007 at 12 pmJUDGMENT OF THE COURT A Leave to appeal is granted. B The appeal is allowed. C There will be an injunction in the terms sought by the applicant in [23]. D The costs orders in the Employment Court are set aside. In that Court Fuel will have costs in a sum of $1,000 and disbursements. E In this Court the applicant will have costs of $2,000 and usual disbursements.REASONS OF THE COURT(Given by Hammond J)Table of ContentsPara NoIntroduction [1]The facts [6]The judgment in the Employment Court [12]Consideration [16]The balance of convenience [21]The injunction sought [23]Conclusion [24]Introduction[1] We have before us an application for leave to appeal to this Court from a decision of the Employment Court delivered on 19 February 2007 by Judge Shaw. [2] The applicant, Fuel Espresso Limited ("Fuel") applied for an interim injunction against the respondent, who is a former employee of Fuel. Fuel sought orders that Mr Hsieh cease working for or operating a coffee cart named "Beangrinding" situated outside the Telecom Centre in Tory Street, Wellington until on or after 7 April 2007. The basis of the claim is that Mr Hsieh is alleged to have breached a restraint of trade clause in his employment agreement. [3] The Employment Court granted urgency. It heard the application at short notice. The Judge was not at all impressed with Mr Hsieh's actions, but felt obliged to dismiss the application on the footing that no consideration had been given for the restraint of trade. It was therefore said to be unenforceable. [4] Mr Cullen says the Judge was wrong as a matter of law on that point. Leave is sought to appeal, and for the appeal to be determined as a matter of urgency. From Fuel's point of view the difficulty is that this was a short-term restraint, which now has only a month to run. If Fuel is unable to obtain an interim injunction the damages will be very hard – indeed probably impossible – to calculate. And damages are not really the relief which is sought.[5] The question whether there was consideration for an agreement is undoubtedly a question of law. It is capable of being dealt with very shortly. The issue raised is of general importance, and the justice of the case requires that, as we do, we grant leave and deal with the merits of the appeal now.The facts[6] Fuel operates ten small espresso outlets throughout Wellington City. It employs baristas to make and sell coffee from these outlets, from beans which it has imported and roasted. Training programmes are offered to employees. There is a vulnerability to the business in employees setting up in competition, once they have learned the trade and Fuel's modus operandi. [7] Mr Hsieh began employment with Fuel on 7 November 2005, at Holland Street, where Fuel has its factory. The Employment Court Judge described his agreement as a "reasonably standard agreement", providing for all the usual matters, including training and salary. [8] Materially, clause 20 of the agreement is a restraint of trade provision:As a Barista you will have access to how the Employer runs the business and provides a competitive product. In order to protect the business you may not for three months following the termination of your employment:• Work in a competing espresso bar/café or coffee company within a 100 metre radius of an [sic] Fuel operation; and/or• Set up a similar competing business within a 5-kilometre radius of an existing Fuel operation. This restraint of trade shall apply to all of New Zealand and continue for three months from your last day of duty. You agree that this restraint is reasonable and necessary to protect the Fuel's business interests.[9] Mr Hsieh resigned his employment on 7 January 2007. After his resignation he started at Beangrinding on 15 January 2007. Mr Hsieh operates through a company called Formosa Mansion Limited, which leases the coffee cart off Beangrinding Limited for a licence fee of $2,800 plus GST a month. Mr Hsieh works as the barista. His partner sells the coffee direct to customers.[10] The Beangrinding cart is 70 metres from the Holland Street premises of Fuel. It is therefore well inside the area covered by the restraint of trade. [11] There is evidence from Mr Ponnapa of Fuel that customers from Fuel have gone over to Beangrinding. His evidence is based partly on personal observation and partly on hearsay (from his customers). Mr Hsieh says he does not believe he stole any customers.The judgment in the Employment Court[12] The Judge adopted an orthodox approach to the issue of whether there should be an interim injunction: she asked whether there was a serious question to be determined, and if so, where the balance of convenience then lay. [13] As to the first issue, the Judge considered that in terms of its breadth the clause is not too wide; and she concluded that Fuel has a proprietary interest to be protected. [14] The Judge considered that extra consideration is a prerequisite for an enforceable restraint of trade. The Judge then said, "This consideration can either be set out expressly, in other words an amount of dollars is expressly being paid to buy the restraint of trade from the employee, or it can be by extrinsic evidence, or, thirdly, it can be reasonably inferred from the agreement." The Judge said there was no express provision, neither could she draw any appropriate inference. Accordingly, in her view, no arguable issue of law had been raised to support an injunction, in that there was no consideration for the restraint of trade provision. [15] On the balance of convenience, the Judge said that there "is a very fine balance in this [case]".Consideration[16] The essence of the Judge's view was that, if a person is going to be the subject of a restraint of trade, there must be what the Judge termed an "extrapayment" for that restraint, over and above the consideration for the underlying employment agreement. [17] The Judge appears to have relied on M A Watson Electrical v Kelling [1993] 1 ERNZ 9 for that proposition. However, as Mr Cullen rightly observed, on the facts of that case, what was involved there was a subsequent variation to an employment agreement, and by reason of the particular facts of that case, at the point in time when it was sought to enforce the restraint of trade, there was no consideration. Hence this is just an illustration of the familiar point that a variation of an agreement requires consideration, just as much as the initial agreement does. [18] What we are dealing with here is the initial (and only) agreement of the parties. The traditional definition of consideration requires that there be "something of value" which must be given, and that consideration is either some detriment to the promisee or some benefit to the promisor. But the law does not enquire into the adequacy of the consideration, nor, as the Judge seems to have thought, does it require an extra "premium" for a restraint of trade clause. It is also a very well settled principle of contract law that even mutual promises can be consideration for each other. As Treitel (9ed) Contract at 66 puts it:A person who makes a commercial promise expects to have to perform it correspondingly, one who receives such a promise expects it to be kept. These expectations can properly be called a detriment and a benefit and they satisfy the requirement of consideration in the case of mutual promises.[19] The Judge was accordingly wrong as a matter of law. Not only was there an arguable case for consideration; in this instance, there was consideration. [20] We accept that the issue of adequacy of consideration may be relevant to the question whether a restraint of trade is reasonable. However, that is not an issue in the present case.The balance of convenience[21] It is very difficult to see how this case can be, as the Judge saw it to be: a "finely balanced" one. The restraint is plainly reasonable. Agreements are made tobe kept. Mr Hsieh was employed and trained, but then left in face of a clear contractual provision preventing him from doing what he has done. In the absence of an interim injunction, any relief to Fuel will, in the time-honoured phrase, be nugatory. This is a clear case for an interlocutory injunction. [22] It may be that on other, and much more extreme facts, a low salary set against a harsh restraint would be relevant to the exercise of the Court's discretion, but that sort of fact-pattern does not arise in this case.The injunction sought[23] The applicant now seeks only an interim injunction that Mr Hsieh be ordered to cease work, forthwith, at the Beangrinding outlet in Tory Street Wellington until after 7 April 2007.Conclusion[24] Accordingly: (a) Leave to appeal is granted. (b) The appeal is allowed. (c) There will be an injunction in the terms sought by the applicant. (d) The costs orders in the Employment Court are set aside. In that Court Fuel will have costs in a sum of $1,000 and disbursements. (e) In this Court, the applicant will have costs of $2,000 and usual disbursements.Solicitors: Cullen - The Employment Law Firm, for Applicant Rainey Collins, Wellington for Respondent