PROPELLOR PROPERTY INVESTMENTS LIMITED v TREVOR WAYNE MOORE [2015] NZHC 863

PROPELLOR PROPERTY INVESTMENTS LIMITED v TREVOR WAYNE MOORE [2015] NZHC 863 [29 April 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-000456[2015] NZHC 863BETWEEN PROPELLOR PROPERTYINVESTMENTS LIMITEDApplicantAND TREVOR WAYNE MOOREFirst RespondentMICHAEL RICHARD HACKETTSecond RespondentHearing: 16 April 2015Appearances: S Gazley for ApplicantMC Donovan for RespondentsJudgment: 29 April 2015JUDGMENT OF WOOLFORD J[On Application for Interim Injunction]This judgment is delivered by me on Wednesday, 29 April 2015 at 3.00 pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarSolicitors/Counsel: Steindle Williams Legal, AucklandM Donovan, AucklandIntroduction[1] In proceedings filed on 11 March 2015, the applicant, Propellor Property Investments Limited (Propellor), seeks a permanent injunction and damages against the respondents, Trevor Wayne Moore and Michael Richard Hackett. Mr Moore and Mr Hackett are two former independent contractors who terminated their contractswith Propellor by giving the requisite one month's notice on 24 and 27 December2014. Their contracts had a 12 month restraint of trade clause. Propellor alleges that Mr Moore and Mr Hackett are in breach of that clause because they are acting in competition with Propellor through their current employment as independent contractors to Positive Real Estate (NZ) Limited (Positive Education) and Positive Real Estate Sales Limited (Positive Real Estate) respectively.[2] Propellor now seeks an interim injunction, prior to the hearing of their substantive claim, restraining Mr Moore and Mr Hackett from working for the Positive companies on the basis that they are in continuing breach of the restraint of trade clause and that the substantive proceedings will not be heard for many months.Factual background[3] Propellor provides property investment advice to its clients and recommends certain promoted investment properties. Propellor does not charge a fee to its clients for property investment advice, but earns a commission for introducing a purchaser to the vendor of the promoted investment properties (often a residential property developer). Its focus is therefore very much on securing sales of property.[4] Mr Moore was an independent contractor to Propellor providing the services of a senior mentor and property strategist pursuant to an Independent Service Agreement dated 5 October 2013. Mr Hackett was also an independent contractor to Propellor providing the services of a senior investment consultant pursuant to an Independent Service Agreement dated 29 April 2014. The agreements were in similar form. Both contained a restraint of trade clause in the following terms:10. Restraint of tradeThe Contractor agrees that for a period of 12 months following the termination of their contract for whatever reason, they shall not, either personally, or as an employee, consultant or agent for any other entity or employer, carry on business in competition with the Company within New Zealand.[5] Both agreements also contained clauses relating to the protection of Propellor's intellectual property and the confidentiality of information relating to the company's business. In particular, the agreements provided that after termination forwhatever reason neither party would attempt to solicit, divert, appropriate to themselves or any other competing business, any existing clients of the other party.1[6] On 24 and 27 December 2014, Mr Moore and Mr Hackett gave the requisiteone month's notice to terminate their respective agreements. Mr Moore says he started working for Positive Education on 26 January 2015. Mr Hackett says he started work for Positive Real Estate on 27 January 2015. The two companies are complementary. Positive Education runs seminars giving overviews of property investment and describing how Positive Education can teach people to build a long- term property portfolio. At the end of seminars, attendees are offered a one-on-one session and/or an invitation to attend a monthly group meeting with existing clients. At the one-on-one session, or after the group meeting, attendees are invited to join a lifetime mentoring programme for a fee of $9,995. About 90% of PositiveEducation's revenue is the one-off fee that clients pay to join the lifetime mentoring programme. Other sources of revenue for Positive Education come from referral payments received from firms to whom property coaches refer clients for such things as financing, accounting, insurance, property management and real estate assistance.[7] Positive Real Estate is a licensed real estate agency under the Real Estate Agents Act 2008 and generates its revenue from marketing fees and sale commissions paid by vendors. Positive Real Estate sells properties to clients of Positive Education, clients of third party providers and clients who respond to advertisements of their listings in the open market. It advertises its properties1 Clause 8.4.through digital and print based advertising channels as well as seminars attended by Positive Education customers and others referred by third parties.Application for interim injunction[8] In the application for an interim injunction, Propellor seeks orders that Mr Moore and Mr Hackett:(a) Be restrained from carrying on as a contractor or by any other means providing services to Positive Education or Positive Real Estate in competition with Propellor for 12 months from 24 January 2015.(b) Be restrained from either personally, or as an employee, consultant or agent for any other entity or employer, carrying on business in competition with Propellor in New Zealand for 12 months from 24 January 2015.(c) Return to Propellor all information relating to Propellor's business gained in their dealings with Propellor that is confidential or which should reasonably be assumed to be confidential.(d) Be restrained from attempted to solicit, divert or appropriate to themselves or any other competing business, any existing clients of Propellor.(e) Deliver to Propellor full records, documents, plans, letters, papers and material of any description (including all copies or extracts from the same) within their possession or control relating to the affairs of Propellor.[9] Both Mr Moore and Mr Hackett have sworn affidavits in which they have undertaken:(a) That all confidential information and intellectual property (as defined in their Independent Contractor Agreement with Propellor) has been either returned to Propellor or deleted or destroyed.(b) That they will not use any confidential information or intellectual property of Propellor.(c) That until 24 January 2016, they will not attempt to solicit, divert or appropriate for themselves or any business in competition to Propellor, any clients of Propellor, or any property developers they had dealings with while working for Propellor.[10] Counsel for Propellor acknowledges the undertakings and notes that the only remaining issues are whether Mr Moore and Mr Hackett can each continue to carry on business as a contractor to Positive Education or Positive Real Estate in competition to Propellor and whether Propellor is entitled to damages for both Mr Moore and Mr Hackett's breach of their agreements. Counsel submits that damages will be determined in the course of the substantive proceedings, meaning that the only issue for this Court to consider on the application for an interim injunction, is the restraint of trade.Principles of interim injunctions[11] The principles relating to interim injunctions are well settled. The Court must consider whether there is a serious question to be tried in the proceedings and where the balance of convenience lies. As stated by Cooke J in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd:2Whether 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 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 balanceof convenience overwhelmingly or very clearly one way it will usually beright to be guided accordingly.2 Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited [1985] 2 NZLR 129.Serious question to be tried[12] Counsel for Mr Moore and Mr Hackett submits that that Propellor does not have a seriously arguable case that the restraint of trade clauses in the agreements are enforceable because:(a) There is no proprietary interest in need of protection;(b) Mr Moore and Mr Hackett are not acting in competition; and(c) Propellor may be trading unlawfully.[13] On the other hand, counsel for Propellor submits that:(a) A specific proprietary interest is not necessarily required. The restraint is plainly reasonable. Agreements are meant to be kept.(b) Both Positive Education and Positive Real Estate are direct competitors of Propellor, which offers property investment advice and guides investors to a stock list of suitable properties;(c) Propellor is not trading unlawfully, having received approval from the Real Estate Agents Authority to the way in which it operates.Balance of convenience[14] Counsel for Mr Moore and Mr Hackett submits that the balance of convenience lies in his clients' favour because:(a) Mr Moore and Mr Hackett have been transparent in their dealings with Propellor.(b) Their undertakings give Propellor adequate protection.(c) Damages would be an adequate remedy for Propellor.(d) Damages would be an inadequate remedy for Mr Moore and Mr Hackett.(e) The worth of Propellor's undertaking as to damages is questionable.(f) Third parties such as the Positive companies would be adversely affected if the injunction is granted.(g) Propellor's substantive claim can be determined quickly through thearbitration process.(h) An interim injunction would have an adverse affect on Mr Moore and Mr Hackett in that they would then be prevented from earning a living in the profession of their choosing.[15] On the other hand, counsel for Propellor submits:(a) Mr Moore and Mr Hackett have been less than transparent in their dealings with Propellor.(b) Their undertakings provide no comfort to Propellor in terms of restraint.(c) Damages would be difficult to quantify if the Court found in favour of Propellor.(d) Any losses by Mr Moore and Mr Hackett could be easily quantified by looking to the amount they could expect to earn over the period of restraint by comparison with their Propellor commissions or the amount earned by staff in the same role at the Positive companies.(e) Propellor's undertaking as to damages is supported by evidence of thecompany's turnover in the last financial year.(f) The only third party to suffer from an enforceable restraint would be Positive companies, but they hired Mr Moore and Mr Hackett with their eyes open.(g) Propellor's substantive claim is not a "dispute" capable of arbitrationunder its agreements with Mr Moore and Mr Hackett and therefore relief will have to be sought through the Court process, which will take some time.(h) The fact that Mr Moore and Mr Hackett may be prevented from earning a living in their chosen profession is common across all restraint of trade clauses and is not determinative.Discussion[16] The first question to be considered is whether there exists a serious question to be tried in relation to this restraint of trade claim. In my view, the answer to this question is yes.[17] For a restraint of trade to be valid, it must be reasonable and there must be a proprietary interest requiring protection which goes beyond the purpose of limiting mere competition.3 This must then be demonstrated to meet a standard of a serious question to be tried.[18] The affidavit evidence of Ms Connors (a principal and senior property strategist at Propellor) explains the basis of Propellor's proprietary claim. Most relevantly, she suggests that Mr Moore and Mr Hackett were the core of Propellor'spresence in the Auckland area, and given that, Propellor invested significant time and money in training Mr Moore and Mr Hackett, and in advertising them asPropellor's representatives in Auckland.[19] The investment in training and advertising supports the existence of a proprietal interest sufficient to sustain a breach of restraint of trade claim. The claimed interest is not just about limiting competition, but is based on protecting the3 Dhanapala v Jackson (1999) 9 TCLR 67 at 93.reputation and branding of Propellor, through protecting the investment that Propellor made in associating itself and it's business with Mr Moore and Mr Hackett. There are evident links between the Propellor business in Auckland and Mr Moore and Mr Hackett personally to support the basis of a restraint of trade claim.[20] To support an action for breach of a restraint of trade agreement, the Court must further consider whether the parties are acting in competition with each other. Here, despite the arguments of Mr Moore and Mr Hackett, I consider that through Positive Education and Positive Real Estate, the parties appear to be in competition as the companies are rivals for investors in new property developments. The target clients that each seeks to attract are substantively the same types of individuals, because each business targets and develops new property investors in order to profit– in various ways – from those investors' subsequent property purchases. Although,as Mr Moore and Mr Hackett have sought to argue, each company's strategies andoverall approach to harnessing the profit from these investors differ to some extent they seem to be in competition to obtain the same potential clients. Clients who engage with Positive Education/Positive Real Estate services are unlikely to engagewith Propellor's services, and vice versa.[21] As Propellor has a proprietary interest that could sustain a restraint of trade clause, and the parties appear to be in competition with each other, there is prima facie a serious question to be tried in relation to the restraint of trade clause.[22] Finally on the issue of a serious question to be tried, despite the allegations made by Messrs Moore and Hackett, it has not been proven that Propellor is in fact acting unlawfully. Propellor's business evidently has some similarities to real estate work, but no actual breach of the Real Estate Agents Act 2008 is demonstrated on the facts. The evidence from both sides is, in fact, not overly disparate: both acknowledge that the work undertaken by Propellor has some similarities to realestate agent work, with Ms Connors' affidavit claiming that it was within the scopeof the legislation and that the Real Estate Agents Authority had taken no issue with it. Although Mr Moore and Mr Hackett have sought to draw parallels between the types of work they carried out and the work of a real estate agent, more would be necessary to show Propellor is acting unlawfully and to demonstrate the effect of thaton the legitimacy of the restraint of trade clauses. The allegation does not overcome my earlier assessment that these facts present a serious case to be tried.[23] Given this finding, I now consider where the overall balance of convenience lies. This question focuses on whether one party will be overwhelmingly or clearly most inconvenienced if an interim injunction is granted or refused.4 Overall, I am of the view that the balance of convenience favours Mr Moore and Mr Hackett, despite the case against them, and leans ultimately against allowing an interim injunction for the following reasons.[24] Firstly, I consider that the undertakings must be taken at face value. Mr Moore and Mr Hackett have committed to not attempting to solicit, divert or appropriate any clients or property developer relationships that they had withPropellor clients, as well as toward keeping Propellor's confidential information private. There is no reason that these promises, which have been signed and witnessed and entered as affidavits to the Court, should not be considered to be legitimate. Moreover, if evidence can be provided that the undertakings were not upheld, and Mr Moore and Mr Hatchett are found to have breached the restraint of trade clauses, it may increase their liability in damages.[25] There has also been no evidence provided of substantive damage to Propellor through loss of sales or in any other tangible way. This implies that, although Mr Moore and Mr Hackett's actions may have had some effect on the business of Propellor, the impact is not particularly direct or extensive. It will therefore not unduly inconvenience Propellor for Mr Moore and Mr Hatchett to continue in their current employment, which is unlikely to cause any losses which cannot be subsequently remedied through damages.[26] Conversely, Mr Moore and Mr Hatchett require a steady income. Not having an income from their contracts with the Positive companies will directly inconvenience them in a way which may prejudice their ability to engage with these proceedings. Neither is in a position to support themselves if they are unable to work until the end of this proceeding. The inconvenience of not being able to pay4 Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited [1985] 2 NZLR 140.monthly bills and having a steady income, even if subsequently remedied by a damages claim, will be significant. Although both parties will, due to the commission nature of their work, have some difficulty showing the specific quantification of their losses over a certain period it is only Mr Moore and Mr Hackett who will suffer directly and immediately if they are precluded from working, and in a way which will be difficult to rectify in damages. While this is a feature which is common to all restraint of trade clauses, it is also a reason that restraint of trade clauses have strict requirements in order to be upheld, and that theassessment of where the 'balance of convenience' and 'interests of justice' lie ininterim injunction applications are particularly important.[27] Finally, arbitration is available in terms of the agreements entered into between the parties, which remain binding despite the termination of the agreements that they lie within.5 Despite the contention that the only clauses which "survive"the termination of an agreement for any reason are those stated in the agreement, s 6 of the Arbitration Act makes Schedule 1 of that Act binding on all arbitrations taking place in New Zealand. This means that the provisions in art 16(1), as they were not specifically excluded, apply so as to make the arbitration clause valid.[28] Under arbitration, the matter can be dealt with promptly. This is another factor in favour of not granting an injunction. There is no need for the court to intervene on an interim basis where a matter is likely to be resolved quickly at a more substantive hearing.6[29] Standing back and assessing where the overall justice in the matter lies, I am of the view that Mr Moore and Mr Hackett should not be restrained from continuing their employment while the outcome of these proceedings is determined. The status quo should be preserved.5 Arbitration Act 1996, Schedule 1, art 16(1).6 Green Acres Franchise Group v Reube [2014] NZHC 402 at [43]; TMA Group of Companies v Coleman HC Auckland CIV-2011-404-3208, 22 July 2011.Conclusion[30] In summary, although there is a serious issue to be tried, the balance of the convenience weighs against allowing an interim injunction four months into a 12 month period within which Mr Moore and Mr Hackett are restrained from working for a competitor. I decline to grant the relief sought by way of interim injunction. Costs are payable by Propellor on a 2B basis for this application..Woolford J