ABC Developmental Learning Centres (NZ) Limited v Artemis Early Learning Limited HC Christchurch CIV 2010-409-1198
[2010] NZHC 1089
•25 June 2010
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2010-409-001198
BETWEEN ABC DEVELOPMENTAL LEARNING CENTRES (NZ) LIMITED
Plaintiff
ANDARTEMIS EARLY LEARNING LIMITED
First Defendant
ANDCHRISTOPHER NIGEL THORNLEY Second Defendant
Hearing: 24 June 2010
Appearances: Z Kennedy & I Rosic for Plaintiff
G Downing for Defendants
Judgment: 25 June 2010
ORAL JUDGMENT OF HON. JUSTICE FRENCH
Introduction
[1] This coming Monday, 28 June 2010, the first defendant, Artemis Early Learning Limited, is planning to open a new childcare centre in Blenheim. The plaintiff, ABC Developmental Learning Centres (NZ) Limited, has applied for an interim injunction to stop that happening.
Factual background
[2] ABC carries on the business of operating childcare centres. It has 127 childcare centres around New Zealand, and employs 1500 permanent and casual
staff.
ABC DEVELOPMENTAL LEARNING CENTRES (NZ) LIMITED V ARTEMIS EARLY LEARNING LIMITED AND ANOR HC CHCH CIV-2010-409-001198 25 June 2010
[3] Four of its childcare centres are located in Blenheim, including one located in
Colemans Road called ABC Springlands.
[4] ABC purchased the Springlands centre from a company by the name of Springlands Early Learning Centre Limited in 2007. One of the directors of Springlands Early Learning Centre Limited was the second defendant, Mr Thornley.
[5] There were two separate sale agreements: one for the sale of the business, and the other for the sale of the land and buildings.
[6] The plaintiff was not actually a party to the agreement for the sale of the land and buildings, because they were sold to another ABC entity for the sum of $1.69m.
[7] The plaintiff was however a party to the contract for the sale and purchase of the business. The price paid under the contract for the sale and purchase of the business was $1.31m, of which $1.11m represented goodwill.
[8] The total cost of acquiring the Springlands centre to the ABC group was therefore in the region of $3m plus GST.
[9] The sale and purchase agreement for the business contained a restraint of trade clause and was conditional on the vendor’s directors entering into a deed of covenant of restraint of trade. The deed, which the directors including Mr Thornley signed, was to the following effect:
2. Mutual covenants
2.1 Shareholder, Directors and Vendor Covenants
The Shareholder, the Directors and the Vendor covenant and agree with the Purchaser that in consideration of the Purchase Price payable pursuant to the business Contract the Shareholder, the Directors and the Vendor will not during the Restraint of Trade Period either directly or indirectly carry or be interested either alone or in partnership with or as manager, agent, director, shareholder or employee of any other person in any business similar to that carried on in the Business Premises within the Restraint Area.
2.2 The parties to this Deed agree that the:
• Restraint of Trade Period is 3 years;
• Restraint Area is 10 kilometres from the Business Premises;
and
• Business Premises are the Childcare Centre at 11 Colemans
Road, Blenheim.
3. Solicitation
3.1Without the prior consent of the Purchaser, the Vendor, the Directors and the Shareholder shall not, either directly or indirectly for the duration of the Restraint Period and within the Restraint Area:
(a) directly or indirectly approach or solicit any employee of the child care centre operating from the business premises for the purpose of offering them employment in any capacity whatsoever; or
(b) directly market to or approach parents of children presently enrolled at the child care centre operating from the business premises.
…
6. Severance
If any part of this Deed is invalid or unenforceable:
(a)the court has the power to modify that part to the extent necessary to make it enforceable; and
(b)the rest of the deed will, in any event, remain in full force and effect.
[10] The purported effect of the restraint of trade covenant in so far as Mr
Thornley was concerned was that he was purportedly restrained from:
a) either directly or indirectly carrying on or being interested in any business similar to that carried on by ABC Springlands within a ten- kilometre radius until 8 February 2011; and,
b)approaching or soliciting staff employed at ABC Springlands, or marketing to parents whose children were enrolled at ABC Springlands, until 8 February 2011.
[11] Like ABC, Artemis carries on the business of owning and operating childcare centres. Artemis was incorporated on 24 October 2008. Company records show Mr Thornley as being a director and shareholder of Artemis from its incorporation.
There are two other directors, one of whom is the managing director, Mr Noordijk. Currently, Artemis owns childcare centres in Masterton, Wellington, Richmond and Invercargill, in addition to the centre which it intends to open in Blenheim on Monday.
[12] The centre which Artemis plans to open on Monday was built between
December 2009 and the beginning of June 2010. The land was acquired in October
2009 and is situated in Redwood Street, which is only three kilometres from ABC Springlands.
[13] On 4 March 2010 an article appeared in the local newspaper, the Marlborough Express. The article stated that Artemis’s new centre was to cater for up to 75 children. Mr Thornley is mentioned in the article, and described as the company director in charge of development. The article attributes the following statements to him:
Company director in charge of development, Chris Thornley, said construction began in December.
The 92 and 78.6-square metre showrooms would be completed by the end of the month, he said.
Nelson-based Bays Joinery would occupy one, while the tenant for the other was still being finalised.
The 443sqm childcare centre will have four play rooms, three sleep rooms, a reception and staff offices, storerooms, a change room, a kitchen, toilets and a laundry, as well as two outdoor play areas.
The recruitment process to hire 12 to 14 full-time equivalent staff was starting within the next week, Mr Thornley said.
Although the national early childhood teacher shortage had "steadily improved", he said he was not expecting recruitment to be easy.
"It is always difficult to get good, qualified staff in childcare, but the biggest problem is that the volume of applicants is lower than what you may get in other fields.
"In saying that, it does seem to be getting slightly better."
Artemis had built several early childhood centres around the country and still owned centres in Masterton, Wellington, Christchurch, Richmond and Invercargill, which were all run individually, said Mr Thornley.
[14] Also in March 2010, Artemis advertised for staff for its new centre, and interviews took place.
[15] ABC’s senior management did not find out about the new development and the involvement of Mr Thornley until 9 April 2010. By that time Mr Thornley had resigned his directorship of Artemis (on the day before, 8 April), and on 13 April he sold his shareholding to Mr Noordijk.
[16] In May, four staff members employed at ABC’s Blenheim centres handed in their resignation and advised ABC they were leaving to join Artemis’s new childcare centre. Of the four resigning staff members, two were qualified teachers employed at the Springlands centre.
[17] On 12 May an advertisement appeared in the local newspaper inviting enrolments for Artemis’s new Redwood Street childcare centre.
[18] Later that same month, on 27 May, ABC’s lawyers wrote to Mr Thornley and Artemis. The letter advised that ABC considered Mr Thornley to have breached the restraint of trade deed, and threatened to issue proceedings seeking an injunction preventing Artemis and Mr Thornley from soliciting ABC’s staff and opening the new childcare centre until the conclusion of the restraint period.
[19] Unfortunately, the letter to Artemis was returned undelivered and had to be re-sent, only reaching the current directors of Artemis in early-June.
[20] Mr Thornley was willing to give an undertaking:
Until 8 February 2011 he will not own or operate a childcare centre within
10 in my submission of 11 Coleman’s Road, Blenheim, nor be a Director or
Shareholder of a company that owns or operates such a childcare centre, nor be a partner in a partnership that owns or operates such a childcare centre, nor be an employee of such company or partnership.
Until 8 February 2011 he will not solicit any employee of ABC Learning
Centres (NZ) Limited’s childcare centre at 11 Coleman’s Road, Blenheim.
Until 8 February 2011 he will not approach parents of children presently enrolled at ABC Springlands childcare centre.
[21] Artemis was also prepared to give an undertaking in the following terms:
Until 8 February 2011 it will not solicit any employee of [ABC’s] childcare centre at 11 Coleman’s Road, Blenheim. Artemis will continue to be able to advertise for employees in the usual fashion, but will not be able to solicit [ABC]’s employees.
[22] These undertakings, however, did not satisfy ABC, and accordingly it went ahead and filed these proceedings.
[23] The statement of claim pleads the following causes of action:
i) As against Mr Thornley – breach of contract.
ii) As against Artemis – the tort of inducing breach of contract.
iii)As against both Artemis and Mr Thornley – the tort of conspiracy by unlawful means.
[24] The remedies sought are a permanent injunction restraining the opening of the centre until the expiration of the restraint of trade period and an inquiry into damages.
[25] Obviously, the substantive proceeding will not be able to be heard before the opening. Accordingly, ABC filed an application for interim orders:
i)That pending further order of the Court, an interim injunction does issue restraining the first defendant from:
1. Opening and operating the first defendant’s childcare centre at 25-
27A Redwood Street, Blenheim, until the expiration of the restraint of trade period on 8 February 2011;
2. Awarding the costs of and incidental to this application to the plaintiff.
ii)That pending further order of the Court, an interim injunction does issue restraining the second defendant from:
1. being directly or indirectly involved with any business which owns and operates childcare centres or similar businesses within a
10 kilometre radius of the plaintiff’s childcare centre at 11
Colemans Road, Blenheim (the Springlands centre) until the expiration of the restraint period on 8 February 2011;
2. directly or indirectly approaching or soliciting any employee of the Springlands centre for the purpose of offering them employment in any capacity whatsoever, until the expiration of the restraint period on 8 February 2011, unless the plaintiff’s consent is obtained;
3. directly marketing to or approaching parents of children presently enrolled at the Springlands centre until the expiration of the restraint period on 8 February 2011, unless the plaintiff’s consent is obtained;
4. awarding the costs of and incidental to this application to the plaintiff.
[26] The application is strongly opposed by Artemis, Artemis filing affidavit evidence from Mr Thornley and Mr Noordijk.
[27] Their affidavits say that Mr Thornley’s involvement was limited to development of land and buildings. It is claimed he was not and never has been involved in operational matters, and in particular has not been involved with the running or operation of any of the childcare centres. It was Mr Noordijk who placed the advertisements for staff recruitment and enrolment, and who conducted the interviews.
Principles relating to the granting of interim injunctions
[28] It is well established that in considering an application for an interim injunction, the Court should have regard to:
a) Whether the plaintiff can show there is a serious question to be tried. b) The balance of convenience between the parties.
c) The overall justice of the case.
[29] The balance of convenience has often been described as the balance of the risk of doing an injustice. The Court is required to balance the injustice that will be caused to ABC if Artemis’s childcare centre is allowed to open, as against the injustice to Artemis if its childcare centre is prevented from opening by an injunction which is later discharged.
[30] In determining where the balance of convenience lies, the factors to which the Court usually has regard are:
a) The adequacy of damages for both parties. b) The status quo.
c) The relative circumstances of the case.
d) The relative strength of each party’s case. e) The effect on innocent third parties.
f) The conduct of the litigants.
Discussion
The strength of ABC’s case
[31] Mr Downing, for Artemis, acknowledges there is a serious question to be tried, but submits that ABC’s substantive case is weak. In support of that submission, he advanced the following arguments:
i)Correctly interpreted, the restraint against carrying on or having an interest in a competing childcare business required there to be an operational competing business in existence. The wording of the restraint, in his submission, was not apt to cover purely preparatory steps. Purchase of land and the commencement of construction does not constitute the carrying on of a childcare business. For the purposes of the restraint, there was not a business in existence until the staff commenced working. Only then did the restraint bite.
ii)The non-solicitation restraint did operate prior to staff commencing work, but there was no evidence Mr Thornley had breached that clause.
iii)In any event, the restraint was unreasonable and therefore unenforceable.
iv)There being no legally enforceable contract and/or breach, neither of the two tortious actions are sustainable.
v) Other components of the tortious actions were not made out. [32] I accept that restraint of trade covenants are to be construed strictly.
[33] However, in my view Mr Downing’s interpretation (that cl 2.1 applies to an operational business only) does not make commercial sense, and seems contrary to the natural and ordinary meaning of the words.
[34] To be intimately involved as both a shareholder and a director in the establishment and development of a business would be normally understood as having an interest in that business. There is compelling evidence that Mr Thornley was closely involved with all aspects of the development, including its anticipated problems with staff recruitment. He was the only Artemis director who lived near Blenheim, and he must have had intimate knowledge and experience of the Blenheim childcare market as a result of his involvement with Springlands. It is highly likely that he was instrumental in the decision to enter the Blenheim market.
[35] I accept ABC’s submission that to read down the clause so as to limit it to an operating childcare centre would be to defeat its purpose and the protection it was intended to afford. Directors are included in the restraint precisely because they have an intimate knowledge of the business being sold and the local market, as well as the expertise, experience and business relationships, all of which enables them to establish a competing operation which necessarily devalues the goodwill of the business sold and makes them what has been described in the case law as an especially dangerous competitor.
[36] I also disagree with Mr Downing’s submission that there was no evidence of
Mr Thornley breaching the non-solicitation provision.
[37] Mr Thornley made comments to a reporter promoting the centre. He knew his comments would be published in a newspaper whose readership included staff at Springlands and parents of children enrolled there. Further, while he may not have personally placed the advertisements, he was still a director and/or shareholder in Artemis at the time the advertisements were placed and when ABC Springlands staff responded to the advertisements and were interviewed. He clearly therefore can be said to have indirectly approached them.
Reasonableness of the restraint
[38] Although it is obviously not possible for me to reach a concluded view at this early stage, I am satisfied applying the principles in Brown v Brown [1980] 1 NZLR
484 (CA) that ABC is on strong ground when it contends the restraint imposed on
Mr Thornley was reasonable and went no further than was required to protect the goodwill adequately.
[39] This was a significant commercial transaction entered into by competent parties at arm’s length, each with equal bargaining strength, each being legally represented. On anyone’s view of it, ABC paid a large sum for goodwill and clearly had a legitimate interest in ensuring that its substantial investment in the Springlands centre was not eroded by competition from the vendor or the vendor’s directors.
[40] The justification for the length of the restraint is that the sale and purchase of an operating childcare centre involves the sale of existing enrolments, which have a duration of between three and five years until children reach primary school age. As for geographical extent, the fact the restraint encompasses the whole of Blenheim simply reflects the small size of that town.
[41] Mr Downing also raised an issue regarding the reasonableness of the clause which purports to prevent Mr Thornley from raising a defence that damages are an adequate remedy. I accept, as indeed does ABC itself, that this clause cannot be binding. It may also be ultimately held to be contrary to public policy. However even if that were to be the case, it is a clause that is severable, and it would not operate to invalidate the entire restraint of trade covenant.
[42] My conclusion is that on the basis of the information presented to date, the case in contract against Mr Thornley appears a strong one.
[43] The evidence also raises the possibility of a continuing breach. Neither Mr Thornley nor Mr Noordijk have provided any details whatsoever of the sale transaction whereby Mr Thornley transferred his shares. This, plus the fact that various family members of Mr Thornley continue to hold shares in Artemis, gives rise to understandable suspicions on the part of ABC.
The two tortious actions
Inducing breach of contract
[44] It was common ground that the leading authority on the tort of inducing breach of contract is the House of Lords decision of OBG Ltd v Allan [2008] 1 AC 1, and that the ingredients of the tort are:
i) There must be a legally enforceable contract in existence.
ii)The defendant must have engaged in conduct which in fact induced a breach of the contract.
iii)The defendant must have known that his or her conduct would induce the breach.
iv)The defendant’s conduct inducing the breach must have caused loss or damage to the plaintiff.
v) The defence of justification may arise.
[45] I have already discussed the issue of whether there is a legally enforceable contract in existence.
[46] As regards the requirement that a defendant must have engaged in conduct which in fact induced a breach, Mr Downing submitted that a distinction needs to be made between Artemis’s conduct and Mr Thornley’s conduct. He contended that even if Mr Thornley has breached his contractual obligations (which is denied), Artemis has not done anything which has induced Mr Thornley to commit those breaches.
[47] I disagree with that analysis.
[48] In my view, it is highly arguable that Artemis can be said to have procured and appointed Mr Thornley to become directly involved in the development and
establishment of the Redwood Street centre, thereby inducing him to breach his restraint. While he was still subject to the restraint, Artemis – of which he was a director and shareholder – undertook the development and establishment of the childcare centre and approached Springlands staff.
[49] As regards the issue of Artemis’s knowledge, Mr Downing accepted that Artemis would be fixed with Mr Thornley’s knowledge of the existence of the restraint although, he suggested, not its terms.
[50] Significantly, Mr Noordijk’s affidavit is conspicuously silent about his knowledge of the existence of the restraint, its terms and his understanding of those terms. Mr Thornley’s affidavit is also completely silent on the question of whether he ever consciously averted to the restraint. Mr Downing suggested that Mr Thornley’s withdrawal from Artemis in April 2010 showed a consciousness of the restraint and Mr Thornley’s understanding of it. However, I am unable to accept that submission when Mr Thornley himself gives a quite different reason for his April departure. He says in his affidavit that the reason he withdrew from Artemis was because he wanted to pursue other interests.
[51] Even if the defendants did not know of the terms of the restraint, they could still arguably be liable for acting with reckless indifference or wilful blindness. At this stage, on the information before me I consider it is highly arguable that Artemis must have known its conduct would induce a breach, and that its conduct has caused loss.
Tort of conspiracy by unlawful means
[52] A combination of persons causing damage to a plaintiff is an actionable conspiracy if the acts done pursuant to the combination would have been actionable if done by one person alone.
[53] The elements of this tort are:
a) The defendants must be parties to a common design.
b)The common design agreed upon is to be, or is, carried out by unlawful means.
c) The defendants must know of the facts which would make the action unlawful.
d)the defendants must intend, by carrying out the common design, to injure the plaintiff.
e) The defendant must take steps in furtherance of the common design. f) The plaintiff must suffer loss as a result.
[54] There is evidence that Artemis and Mr Thornley were parties to a common design – namely to establish, develop and operate the Redwood Street childcare centre.
[55] Further, the existence of an action in breach of contract is sufficient to constitute unlawful means, the means being Mr Thornley’s breaches of the restraint of trade covenant, breaches which were arguably known to be such by both defendants.
[56] As regards the fourth element, Mr Downing submitted that any injury to ABC must simply be an incidental result of the common design, and therefore there could be any liability in this tort. He argued it was not enough the defendants may have known that injury would be an incidental consequence of carrying out the plan.
[57] That submission is, however, contrary to a passage in a decision of Fisher J:
[99] Although some aspects of unlawful act conspiracy remain unsettled, it appears that the participants must intend to cause harm to the plaintiff, but only in the sense that they knew that damage to the plaintiff was a likely consequence of their planned actions. It is not necessary that harm to the plaintiff be the participants' primary purpose: Lonrho plc v Fayed [1992] 1
AC 448, 463-468; Lintas, supra; McIntyre v Bianchi [1992] 3 ERNZ 1057 at
1098 contra Dellabarca v Northern Storemen and Packers Union [1989] 2
NZLR 734. However, it seems that intention to injure the plaintiff must be a concurrent or a subsidiary purpose, which in practice seems unlikely to differ substantially from the question whether the defendants knew that
injury to the plaintiff was a likely consequence of their planned actions. In this respect purpose must be distinguished from motive. It is not necessary that injury to the plaintiff be the actuating motive if it is known to be an incidental consequence of carrying out the plan: Swann v Secureland Mortgage Investments Nominees Limited [1992] 2 NZLR 144, 147.
(MESB Berhad v Lu HC Auckland CL12/98, 16 June 2000)
[58] It follows from all of the above that I accept ABC has demonstrated that there is more than a serious question to be tried, and that it does have what appears to be a strong case.
Adequacy of damages
[59] Each party claimed they would suffer significant losses were they to be unsuccessful. In my view, both parties overstated the extent of their likely losses.
Artemis’s estimated loss should injunction be granted
[60] Artemis contends that the order sought would result in it suffering substantial harm and damage, estimated at over $500,000. This is said to comprise:
Finance costs $57,633.33 Costs of employing staff for an eight-month period
$226,916.00
Costs of operating the centre for an eight-month period
$13,171.82
Total trading profit for the period June 2010-February 2011
$50,111.00
Long-term loss
$204,000.00
[61] However, if the centre were closed, there would not be eight months’ cost of operating it. Nor would Artemis be required to continue employing staff for an eight-month period when there was no work for them to do. Salary costs are likely to be only for the period of notice. I do, however, accept that closure may expose Artemis to the risk of personal grievances, especially on the grounds of procedural fairness.
[62] I also accept there will be loss associated with a deferral of the start date, and that it is not a complete answer to say Artemis will eventually be able to make up the lost time. I accept, too, that Artemis will suffer some damage to its reputation if forced to postpone its opening until next year.
[63] ABC contends that if the injunction is granted, but is later shown to be unjustified, the loss that will be caused to Artemis as a result of the delay is quantifiable and can be adequately compensated by an award of damages. It has provided an undertaking as to damages.
[64] Artemis has questioned the worth of that undertaking, because ABC’s parent company is in receivership in Australia.
[65] However, the evidence is that the New Zealand subsidiary is trading profitably and estimates a significant trading surplus of $5.5m for the year ending June 2010. Documentary evidence verifying that claim has been provided to the Court and to counsel.
ABC’s estimated loss if injunction not granted
[66] ABC claim they will suffer loss in excess of $1m.
[67] First, ABC submits the opening of Artemis’s childcare centre will impact on ABC’s staffing levels and child occupancy. Ministry of Education funding is tied to staffing levels, and the argument is that commonly children go with a teacher when the teacher changes centres. The nett loss on account of these factors is estimated to be $175,000 per annum for Springlands, and $145,000 per annum for ABC’s other childcare centres in Blenheim.
[68] Secondly, ABC contends that in addition to those losses, which it acknowledges are quantifiable, refusal of the injunction will cause a loss of goodwill and jeopardise its sale process.
[69] ABC says the next eight months are a particularly critical period for its company because it is attempting to sell all of its centres, including the Springlands
centre. It claims that the opening of the Redwood Street centre will have an immediate effect on its profitability, which will in turn impact on its sale value. It estimates the total valuation loss being in the order of $1.04m.
[70] ABC also claims Artemis’s opening is likely to result in a reduction in new enrolments, which could potentially threaten the viability of Springlands and ultimately the other Blenheim centres.
[71] ABC questions the ability of Artemis to meet a damages claim in this order.
[72] I accept there is authority for the proposition that loss cannot be easily calculated where the refusal of an injunction will cause damage to goodwill. I also accept there is authority for the proposition that where it is sought to enforce a restraint of trade provision, damages may not be an adequate remedy because the party seeking enforcement will be losing the advantage of the freedom from competition for which it contracted and paid significant money. Not only is the assessment of damages said to be difficult, there can be a sense in which damages can never fully compensate for lost opportunity.
[73] Clauses 5.1 and 5.2 of the restraint of trade covenant could be seen as an expression of that principle.
[74] All of that, however, has to be tempered against the fact that unlike other cases involving harm to goodwill, we are only concerned here with an eight-month period, so that the difficulties normally associated with assessment of damages will not be as great.
[75] Then, there is the added point that even if the injunction is issued, a prospective purchaser of the ABC centres is still going to be well aware of the fact a competitor is about to open in February, and that is likely to impact on the valuation in any event.
[76] It also must be debatable whether ABC is entitled to claim losses suffered by its other Blenheim centres. There is no information before me as to when these other
centres were acquired, or what was in the contemplation of the parties at the time the
Springlands restraint was signed.
Conduct of the litigants – delay
[77] Artemis submits there was delay in this case such as should deprive ABC of its remedy.
[78] ABC was aware of the situation by 9 April, but there was no communication with Artemis and its directors until 27 May. Artemis contends that in the intervening period it made some significant commitments.
[79] I am not satisfied the delay was of such significance as should deprive ABC of a remedy. It is not a situation of a plaintiff standing by acquiescing in what the other party is doing. ABC is not guilty of any disqualifying conduct. Further, there is evidence that Artemis was fully committed to its position anyway by April 2010.
Innocent third parties
[80] The fact that innocent third parties may be detrimentally affected by the grant of an interim injunction is usually a significant factor. In this case, the innocent third parties are the children who have enrolled at the new childcare centre, and the staff who have been employed and are likely to lose their jobs if the opening is deferred for eight months.
[81] There are seven staff, six teachers and one administrator in that position and there are 27 children and their families who will be affected. The 27 children were enrolled between 20 April and 24 June – five children being enrolled yesterday. The effect of closure on these innocent third parties has weighed heavily on me, even allowing for the fact that there is evidence of vacancies elsewhere in Blenheim.
Overall justice
[82] Under this heading, Mr Kennedy strongly submitted it is in the interests of justice that the defendants should not be permitted to benefit from their own wrong.
He said there had been a complete disregard of ABC’s rights and that the defendants had created their own inconvenience which they then presented to the Court. Mr Kennedy submitted that ABC deserved to have the benefit of the protection of its business for which it had contracted and paid valuable consideration.
[83] I have considerable sympathy for those views. On the evidence currently before me, there appears to have been a flagrant breach of the restraint of trade covenant. I also consider that Messrs Thornley and Noordijk have been less than forthcoming in their evidence. I refer in particular to their failure to disclose the details of the sale of Mr Thornley’s shares and their failure to address the issue of their knowledge and understanding of the restraint of trade covenant.
[84] On the other hand, there is the fact of the innocent third parties; the fact that the period at issue is only eight months and that the usual difficulties of assessing damages do not apply with the same force as they do in other cases; there is the fact that in my assessment ABC has overstated the extent of its potential losses, and then there is the factor that the status quo, while it may favour ABC, is of limited importance.
[85] As will be readily apparent, I have found this a particularly difficult decision to make.
[86] After weighing up the competing interests and considering all of the factors I have identified above, I have decided by the narrowest of margins not to grant an injunction. However, that decision will only stand if the defendants comply with the following directions:
i)The undertakings they have signed are to remain in force until further order of the Court.
ii)Until further order of the Court, Artemis is to provide the Court on a monthly basis with the following information relating to the operation of its Redwood Street centre:
1. Its staffing levels at Redwood Street for the month.
2. The number of any new enrolments for the month.
3. Whether any of the new enrolments are transferees from
ABC Springlands.
4. Its profit and loss statement in respect of the Redwood
Street centre for the month.
This information is to be provided to counsel for ABC each month on the giving of the usual counsel’s undertaking that this information will not be disclosed to ABC.
iii)Leave is reserved for either party to apply to the Court should implementation of these directions cause any unforeseen practical difficulties.
[87] The defendants need to understand that they have come perilously close to an injunction being issued against them. The only basis on which I have been prepared to stay my hand is on the basis of compliance with the directions.
Costs
[88] My provisional view is that costs should be reserved. However, if the parties wish to make submissions on costs then they are to file a memorandum within ten working days. I will then make an order on the papers.
Solicitors:
Minter Ellison Rudd Watts, Auckland
McFadden, McMeeken, Phillips, Nelson
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