AMP Services (NZ) Limited v Visser
[2016] NZHC 134
•11 February 2016
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
CIV-2015-463-175 [2016] NZHC 134
BETWEEN AMP SERVICES (NZ) LIMITED
Plaintiff
AND
JOHN M VISSER
Defendant
Hearing: 3 February 2016 Counsel:
B Scott and J Graham for plaintiff
R Latton for defendantJudgment:
11 February 2016
JUDGMENT OF KATZ J
This judgment was delivered by me on 11 February 2016 at 2:00pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Chapman Tripp, Wellington
Mark Copeland Lawyer, Rotorua
Counsel: Rob Latton, Barrister, Auckland
AMP SERVICES (NZ) LIMITED v VISSER [2016] NZHC 134 [11 February 2016]
Introduction
[1] AMP Services (NZ) Limited (“AMP”) is a financial planning, insurance and investment firm. It alleges that the defendant, John Visser, is in breach of a restraint of trade provision that he agreed to when he sold his client book to AMP in June
2014. AMP seeks an interim injunction to compel Mr Visser to comply with the restraint provisions until its claims against him are heard and determined. The injunction application first came before Lang J on 18 December 2015.1 He granted an “interim interim” injunction on a Pickwick basis, until the matter could be fully heard.
[2] The key issue I must determine, having now heard fully from both parties, is whether the current injunction should continue and, if so, on what terms. This requires me to consider:2
(a) whether there is a serious question to be tried;
(b) whether the balance of convenience favours granting the injunction;
and
(c) whether, standing back and looking at all matters in the round, the overall justice of the case favours the grant of the injunction sought by AMP.
[3] I will consider each issue in turn, after outlining the factual background.
Factual background
[4] Mr Visser has had a longstanding relationship with AMP of over 30 years duration. Through his company, John Visser Financial Services Ltd (“JVFS”), he contracted to provide financial advisory services on AMP’s behalf. Over a number
of years he built up a large book of clients in the Rotorua region and further afield.
1 AMP Services (NZ) Ltd v Visser [2015] NZHC 3313.
2 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 141-142.
[5] AMP, JVFS, Mr Visser, and his wife (who was also a JVFS shareholder and director) entered into a sale and purchase agreement for Mr Visser’s financial advisory business on 5 June 2014. In broad terms, JVFS sold AMP its existing client book, including its goodwill and client servicing rights. The price mechanism under the sale and purchase agreement was calculated on the basis of a four year multiple of client revenues.
The contractual documentation
[6] The sale and purchase agreement included a four year non-compete and non-solicitation restraint of trade clause in the following terms:
13.1 Restraint of Trade – Vendor and Guarantors
As further consideration for the Purchaser agreeing to purchase the Assets from the Vendor on the terms contained in this Agreement, the Restrained Persons each undertake to the Purchaser that none of them will be paid for a period of 4 years from the Completion Date within New Zealand, except with the prior written consent of the Purchaser:
a Either directly or indirectly carry on or in any way assist or be interested in either alone or in partnership with or as manager, agent, director, trustee, financier, shareholder or employer of any person in any business similar to the Business, including offering any Financial Advisory Services to any prospective client or new client (“Restricted Business”); or
b either directly or indirectly, or whether through another company, business or contractual arrangement or on behalf of any other person or as a trustee or procure any third party to carry on the Restricted Business; or
c directly or indirectly for any Restrained Person or on behalf of or in conjunction with any person, solicit or entice any of the employees or contractors of the Purchaser to terminate their employment or independent contractor arrangements (as applicable) with the Purchaser.
13.2 Non-Solicitation of Clients
As further consideration for the Purchase agreeing to purchase the Assets from the Vendor on the terms of this Agreement, the Restrained Persons undertake to the Purchaser that no Restrained Person will for a period of 4 years from the Completion Date within New Zealand either directly or indirectly, or whether through another company, business or contractual arrangement or on behalf of any other person or as a trustee or procure any third party to:
a provide any Financial Advisory Services to any Client;
b attempt or encourage or persuade any Client to terminate or restrict their relations with AMP or (prior to transferring to the Purchaser) the Vendor;
c perform any work for or provide any services to any Client; or
d derive income from any revenue stream associated with any
Client;
except with the prior written consent of the Purchaser.
[7] “Client” is a defined term in the agreement, and essentially means any of the clients in the client book that JVFS sold to AMP, who were listed in a schedule to the agreement.
[8] Mr Visser therefore undertook not to solicit his former clients (“non-solicitation clause”) and not to offer any competing financial advisory services (“non-compete clause”) for a period of four years from the Completion Date.
[9] It was envisaged at the time of the sale and purchase agreement that the parties’ relationship would continue, albeit in a somewhat different form. Mr Visser would share office space in Rotorua with AMP’s in-house team and continue to operate as an AMP financial adviser, pursuant to terms set out in an Operating Charter. That charter provided that AMP was to have “sole sovereignty” over the existing customers and that JVFS’s client pool going forwards would be “existing non-client relationships”. AMP’s in-house staff in Rotorua were to have the core function of “Retention Cross-Sell – Up Sell” (for existing customers) while JVFS’s core function was to be “New Life APL sales”. The charter also recorded, however, that:
[T]here will be clients who have long standing relationships and request to deal with JVFS, equally some client situations are complex and known intimately by the adviser and client, thus AMP may request servicing on these from JVFS.
[10] The documentation therefore envisaged that Mr Visser’s role would be focussed on developing new clients, with AMP’s in-house staff focussing on the existing customer book, although it was recognised that in some cases AMP may wish to request Mr Visser to service an existing customer.
[11] The agency agreement between Mr Visser and AMP, as modified by a side letter entered into contemporaneously with the sale and purchase agreement, provided that JVFS would be entitled to receive initial commission in respect of new business it wrote for existing customers, provided that such business was “completed in accordance with clause 9.2 (d) of the Agency Agreement”. That clause required that Mr Visser:
Adhere to, and comply with the Customer Charter, which sets out the terms upon which John Visser Financial Services Limited may deal with the Customers, and includes a requirement that John Visser Financial Services Limited not contact or deal with any Existing Customers except with AMP’s prior consent.
(Emphasis added)
[12] The fact that Mr Visser’s ability to have an ongoing business relationship with his former clients was under the control of AMP was further reinforced by clause 10.1.b (iii) of the sale and purchase agreement. It provided that AMP may require Mr Visser to arrange a consultation meeting with any existing clients, at which AMP may confirm to the existing client:
That the Vendor [JVFS] will no longer be directly providing Financial
Advisory Services to the Client.
[13] The structure that was put in place therefore envisaged that Mr Visser’s new role would focus on developing new clients, with the existing client pool to be serviced by AMP’s in-house staff. Mr Visser’s ability to sell new products to his former clients (and receive commissions from those sales) was contractually dependent on AMP’s prior approval.
The breakdown of the relationship between Mr Visser and AMP
[14] In the months after the sale and purchase Mr Visser continued to sell new products to existing customers, without objection from AMP. After a transition period of about six months or so, however, AMP required Mr Visser to instead focus solely on the less lucrative work of developing new customers. Mr Visser took strong exception to this. He believed that AMP was in breach of contract and that he was entitled to continue to sell new products to existing customers. He believed that although he was not entitled to ongoing revenue streams from his former client base,
he was entitled to write new business for those clients, and to receive initial commissions accordingly. Counsel for Mr Visser conceded at the hearing before me, however, that Mr Visser’s understanding of the contractual arrangements was erroneous in this respect, and that Mr Visser did require AMP’s consent to write new business for existing customers. Given the contractual provisions I have outlined at [9] to [12] above, such a concession was clearly appropriate.
[15] To prevent Mr Visser from continuing to write new business for existing customers, AMP removed his access to its computer systems, including the existing customer database. Unfortunately, however, depriving Mr Visser of access to AMP’s computer systems did not only impact his ability to sell new products to his former clients. It also impacted his ability to develop new customer relationships, because his records relating to potential new leads were all contained within AMP’s databases. Although AMP undertook a process of working through its systems to try and isolate this information, so it could be made available to Mr Visser, that process had not been completed by the time of Mr Visser’s departure.
Mr Visser’s departure from AMP and new position
[16] Mr Visser resigned as an AMP advisor on 28 June 2015. Mr Visser advised AMP in writing at the time of his resignation that he would “not dishonour the agreement we made”.
[17] It appears that almost immediately, however, he began providing financial advisory services for Wilson & Associates, an independent financial advisory firm in Rotorua. Wilson & Associates offers products from companies competing with AMP, although it apparently also offers AMP products. Shortly before he left AMP, Mr Visser had transferred some of “his” AMP clients to his new employer, albeit these were new clients who did not form part of the existing client book he had sold to AMP.
[18] Mr Visser’s LinkedIn page lists himself as a registered financial advisor at
Wilson & Associates, and states that:
Local folk may think that I have retired but that is not so, I have joined Brent Hogg at Wilson and Associates in Rotorua still doing the same things offering advice, mortgages and insurance to anyone who wants my services. We will probably start up the old radio advert shortly to remind folk that I am still here and that I haven't retired.
[19] On 3 November 2015 Mr Visser emailed AMP, from Wilson & Associates, “on behalf of” two of the existing clients that JVFS had sold to AMP in 2014. He was seeking information on behalf of those clients, so that they could make an “informed decision” about whether or not to keep their AMP life policy. AMP was concerned at this development as it indicated, in their view, that Mr Visser was breaching both limbs of the restraint clause (the non-compete and non-solicitation provisions). Blair Vernon, the Director of Advice and Sales at AMP, stated in his affidavit that he was “worried that Mr Visser’s inadvertent disclosure that he was breaching his restraint was the tip of the iceberg”.
[20] Following an exchange of correspondence between AMP and Mr Visser (through his legal advisers) these proceedings were issued, and an interim injunction issued by Lang J (on a Pickwick basis) on 18 December 2015.
Is there a serious question to be tried?
[21] The first issue I must consider is whether there is a serious question to be tried that Mr Visser has breached the restraint clause in the sale and purchase agreement. This issue is fairly straightforward, as counsel for Mr Visser conceded that there is a serious question to be tried. Such a concession was clearly appropriate, in light of the evidence before the Court.
[22] The terms of the non-compete clause are clear. Mr Visser is prohibited from entering into a new business as a financial advisor anywhere in New Zealand for a period of four years from the Completion Date. Mr Visser has acknowledged that he is seeking new clients for an independent brokerage that competes with AMP. That is a breach of the non-compete clause. Indeed, Mr Visser does not seriously contend otherwise.
[23] Mr Visser does dispute, however, that he has breached the non-solicitation clause. He states in his evidence that he is only interested in pursuing new business, not any clients that he previously transferred to AMP. In light of the 3 November email I have referred to at [19] above, however, I am satisfied that there is a serious question to be tried that Mr Visser has breached the non-solicitation limb of the restraint clause. Whether this is the “tip of the iceberg,” as AMP fear, will only become apparent once discovery has been completed.
Does the balance of convenience favour granting the injunction?
[24] I now turn to consider where the balance of convenience lies. This involves deciding whether granting or refusing the interlocutory injunction would fairly allow the adjustment of the parties' rights in a way that accords with fairness and justice after the issues between the parties have been determined at trial.3
[25] The parties’ submissions in relation to the balance of convenience focussed mainly on issues relating to the relative strength of the parties’ cases and the adequacy of damages as a remedy.
[26] In terms of the relative strengths of the parties’ cases, AMP has an extremely strong claim that Mr Visser has breached the restraint clause, for the reasons I have outlined above. It is necessary to also consider, however, the strength of Mr Visser’s likely defences and counterclaims, as foreshadowed in his submissions and evidence.
[27] Mr Visser submitted that he was, in effect, forced to breach the restraint clause as a result of AMP’s own contractual breaches. He further submitted that the restraint clause is unreasonable and that there was no consideration for it. I will consider each of these arguments in turn, before turning to consider the adequacy of
damages as a remedy for AMP and Mr Visser respectively.
3 Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR 7.53.07].
AMP’s alleged contractual breaches
[28] In his evidence, Mr Visser alleged two key contractual breaches on the part of
AMP:
(a) it prevented him from selling new products to existing customers; and
(b) it cut off his access to AMP’s computer systems.
[29] In relation to the first alleged breach, Mr Visser says that, as part of his new role, it was always envisaged that he would be able to sell new products to existing customers, and receive commission on such sales. After a period of months, however, AMP informed him that he was not entitled to do so without its express consent, and deprived him of access to the AMP customer database. This had a dramatic impact on his ability to earn an income, forcing him to look for work elsewhere.
[30] At the hearing before me, however, counsel for Mr Visser conceded that Mr Visser’s understanding of his contractual entitlements was erroneous and that the contractual documentation provided that Mr Visser could only sell new products to existing customers with AMP’s consent. As I have already noted, given the contractual provisions I have outlined at [9] to [12] above, such a concession was appropriate. It would therefore appear that Mr Visser terminated his relationship with AMP in large part due to his mistaken belief that AMP was in breach of contract, when it in fact was not (or at least not in relation to this issue).
[31] The second alleged contractual breach by AMP is that it cut off Mr Visser’s access to its computer databases, which prevented him from effectively developing new client relationships.
[32] AMP’s position is that it was necessary to cut off Mr Visser’s access to its computer databases to prevent him from continuing to sell to his former clients, without AMP’s consent. AMP claims to have gone to considerable lengths to identify and separate out information regarding potential new client prospects, but it
appears that most of the relevant information had not yet been provided to Mr Visser at the time of his departure.
[33] In my view it is arguable that AMP breached its contractual obligations to Mr Visser by depriving him of access to its computer systems. Mr Visser’s argument that AMP’s actions in blocking his access to its computer systems justified or excused his own decision to breach the restraint clause, however, appears to be weak. If the parties had not been at an impasse regarding Mr Visser’s entitlement to sell new products to existing customers, it is likely that this issue could have been worked through and resolved. AMP says it was trying to isolate the relevant information in relation to potential new customers at the time of Mr Visser’s departure. Whether its efforts in that regard were adequate or not will be an issue for trial.
The enforceability of the restraint of trade clause
[34] I now turn to consider the strength of Mr Visser’s argument that the restraint
of trade clause is void and unenforceable.
[35] It is a longstanding feature of the common law that, for reasons of public policy, restraint of trade provisions are prima facie void and unenforceable. The party seeking to enforce a restraint of trade clause must establish that it is reasonable.4 The courts have drawn a distinction, however, between restraints of trade in an employment context (which tend to be viewed with considerable suspicion) and restraints of trade in the context of the sale and purchase of a
business, which are generally looked on more favourably.5
4 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington, 2015) at [13.9.1], cited with approval in Spicers Portfolio Management Ltd v Cunningham Financial Services Ltd [2014] NZHC 74 at [23].
5 Fletcher Aluminium Ltd v O’Sullivan [2001] 2 NZLR 731 (CA) at [28]; Brown v Brown [1980] 1
NZLR 484 (CA) at 488 and 502-503; Herbert Morris Ltd v Saxelby [1916] AC 688 (HL) at 701
– 702; Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 (HL) at 304 –305; Ryan v Mason [2012] NZHC 3105, (2012) 10 NZELR 174 at [53]; Helsby v Oliver [1999]
1 NZLR 77 (HC) at 83; Mason v Provident Clothing and Supply Co Ltd [1913] AC 724 (HL) at
737-738. See also the decision of the Supreme Court of Canada in Payette v Guay 2013 SCC 45, [2013] 3 SCR 95.
[36] In the leading New Zealand case of Brown v Brown, McMullin J stated that:6
It was argued on behalf of the respondents that the Court should not lightly interfere with the terms of a bargain which the parties had hammered out for themselves. The submission is one of some importance because, inevitably in any commercial transaction, the consideration moving from one party must be measured against that moving from the other and one party's willingness to make concessions may well depend on the benefits which he receives in return. It is not possible to say what the first respondent would have paid to the appellant if the latter had not been willing to give a 20 year covenant. The point has legal efficacy as well as practical importance because the freedom of a party to make his own bargain is well recognised.
[37] His Honour cited with approval the following statement of Lord Shaw of
Dunfermline in Herbert Morris Ltd v Saxelby:7
When a business is sold, the vendor, who, it may be, has inherited it or built it up, seeks to realize this piece of property, and obtains a purchaser upon a condition without which the whole transaction would be valueless. He sells, he himself agreeing not to compete; and the law upholds such a bargain, and declines to permit a vendor to derogate from his own grant. Public interest cannot be invoked to render such a bargain nugatory: to do so would be to use public interest for the destruction of property.
[38] McMullin J also cited with approval the following statement of Lord Morris of Borth-y-Gest in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd:8
The law lends its weight to uphold and enforce contracts freely entered into. The law does not allow a man to derogate from his grant. If someone has sold the goodwill of his business, some restraint to enable the purchaser to have that which he has bought may be recognised as reasonable. Some restraints to ensure the protection of confidential information may be similarly regarded. The law recognises that if business contracts are fairly made by parties who are on equal terms such parties should know their business best. If there has been no irregularity, the law does not mend or amend contracts merely for the relief of those for whom things have not turned out well.
[39] His Honour concluded that “Ultimately the decision must be whether, in the circumstances of the particular case, the restraint imposed is more than what is required, in the judgment of the Court, to protect the interests of the parties”. He noted that the onus of proving the reasonableness of the restraint may be more easily
satisfied “where the bargain has been made between free and competent parties and
6 At 502-503.
7 Herbert Morris Ltd v Saxelby, above n 5, at 713.
8 Esso Petroleum Co Ltd v [Harper’s] Garage (Stourport) Ltd, above n 5, at 304.
the background provides some commercial justification on both sides of the bargain”.9
[40] In Fletcher Aluminium Ltd v O’Sullivan, the Court of Appeal summarised the principles in Brown v Brown as follows:10
[42] The applicable principles were reviewed in the decision of this Court in Brown v Brown. That case involved the acquisition by one shareholder of the shares of his brother in a company with an established well drilling business. A covenant restraining the seller from competing with the company (modified as to area by the lower court) was upheld, though the duration was modified from 20 years to 12 years. What is clear from the judgments in that case is that it is no answer to a complaint of the unreasonableness of a covenant that it was agreed to by the covenantor, particularly in circumstances of imbalance in bargaining strength. But in commercial transactions involving willing vendor and willing purchaser of equal bargaining power and access to advice there is a reluctance to intervene by holding one term of the overall arrangement to be unreasonable. It is impossible to assess what a purchaser might have been prepared to pay if the restraint had not been included.
[41] At this stage of the proceedings at least, Mr Visser does not challenge the reasonableness of the non-solicitation limb of the restraint clause. He does, however, challenge the reasonableness of the non-compete limb of the clause. He submitted that the assets that AMP purchased, as set out in the sale and purchase agreement, were the “client servicing rights” for Mr Visser’s existing clients, and JVFS’s goodwill, interest and connection in those clients. The consideration for the sale was calculated on the basis of four years of revenue streams from the existing customers, plus $10 for goodwill.
[42] Given this contractual context, Mr Visser argued that the non-compete clause was unreasonable as, in effect, it was not directed to protecting the existing customers. That role is performed by the non-solicitation clause. The non-compete clause prevents Mr Visser competing for new customers and is therefore simply an anti-competitive provision.
[43] Mr Visser further submitted that there was no consideration for him providing the restraint of trade, as the monetary consideration set out in the agreement is
9 Brown v Brown, above n 5, at 503.
10 Fletcher Aluminium Ltd v O’Sullivan, above n 5, citing Brown v Brown, above n 5.
expressly allocated to (only) the purchase of the servicing rights for existing customers and the goodwill. There is no monetary consideration expressly linked to the restraint of trade clauses.
[44] Dealing with the consideration issue first, both limbs of the restraint clause commence with the words “as further consideration for the Purchaser agreeing to purchase the Assets from the Vendor on the terms contained in this Agreement, the Restrained Persons each undertake to the Purchaser…” The consideration for the restraint clause is accordingly AMP agreeing to purchase JVFS’s business. In my view that is a proper form of consideration. It may be inferred that if Mr Visser had refused to provide an undertaking not to compete, AMP may have simply refused to buy his business. Alternatively, it may have only been prepared to purchase it at a much lower price. As the Court of Appeal observed in Fletcher Aluminium, it is impossible to assess what a purchaser might have been prepared to pay if the
restraint had not been included.11
[45] In assessing the overall reasonableness of the non-compete clause, the “bargain” negotiated by the parties must be looked at in its totality, with reference to the contract as a whole and the broader factual matrix. The surrounding circumstances may help explain why the particular restraint obligations were required and undertaken. The ultimate resolution of such issues is obviously a matter for trial. For present purposes, however, it appears to be clearly arguable that the non-compete clause protects AMP’s legitimate interests in the business that it has purchased from JVFS. AMP may well have been incentivised, at least in part, to purchase JVFS’s business by the fact that Mr Visser, one of the most successful sales agents in the Bay of Plenty region, undertook not to compete against it for a limited period.
[46] In terms of the duration of the restraint, considering the depth of the relationships between Mr Visser and many of his clients, and his extensive connections to the Rotorua and wider community, a four year restraint is not clearly
unreasonable.
11 Fletcher Aluminium Ltd v O’Sullivan, above n 5, at [42].
[47] I do have some reservations, however, about the geographical scope of the non-compete clause, which is expressed to cover the whole of New Zealand. AMP may well establish at trial that such a requirement is reasonable, for example because of the institutional knowledge Mr Visser has acquired of AMP’s business and products, which would give him an unfair competitive advantage. On the other hand, it is clearly arguable that the legitimate interest that the non-compete clause protects is competition from Mr Visser in the geographical areas where he is already well established and has existing relationships and connections and a strong reputation in the marketplace. AMP may need a period to “catch up” before it can compete with Mr Visser on an even footing in such areas. Outside of such areas, however, the justification for the non-compete provision is arguably weaker and not necessary to protect the business that AMP purchased from Mr Visser (including the short to medium term development of that business).
Would damages be an adequate remedy?
[48] In considering where the balance of convenience lies, a significant factor is the ability of damages to provide an adequate remedy for either party.
[49] Mr Visser submitted that damages would be an adequate remedy for AMP. Essentially, if AMP were successful at trial the amount of commission that Mr Visser has earned while working in competition to AMP could be readily quantified and remitted to AMP.
[50] AMP submitted that such an analysis is unrealistic and simplistic. The restraints of trade protect AMP’s relationship with its clients, which are of unknown duration and value. The value of client relationships cannot be protected by damages claims. The loss of an existing client could not be readily quantified in monetary terms. As for Mr Visser’s solicitation of new clients, it would not be possible to ascertain which of those may have come to AMP absent Mr Visser’s endeavours, how long they would have stayed with AMP, what products they might have purchased over the years, and so on. Essentially, Mr Visser’s breach of the non-compete clause is likely to impact on AMP’s client book in a way that simply cannot be quantified. Further, there is a question mark over Mr Visser’s ability to
pay significant damages, although he does appear to have significant equity in his home.
[51] Equally, however, damages may be difficult to quantify in the event that Mr Visser ultimately prevails in the substantive proceedings. Mr Visser accepts that he is not entitled to solicit his former clients. Any assessment of damages would therefore need to focus on the likely “new” business he could have generated if not restrained by injunction from doing so. The new business he was able to generate both while at AMP and subsequently at Wilson & Associates (prior to an interim injunction being granted by Lang J) may provide a starting point for such an assessment, but the reality is that the quantification exercise is unlikely to be straightforward and significant expert and factual evidence will likely be required.
[52] The issue of adequacy of damages is therefore somewhat finely balanced. Both parties are likely to face significant (albeit not insurmountable) challenges in quantifying damages, although I suspect that Mr Visser may find the exercise somewhat more straightforward than AMP.
Conclusion on balance of convenience
[53] Mr Visser accepts (for present purposes at least) that the non-solicitation limb of the restraint clause is enforceable. Indeed he has offered an undertaking not to solicit his former clients.
[54] In relation to the non-compete limb of the restraint clause, Mr Visser does not contest that his acceptance of employment with Wilson & Associates breached that provision. He contends, however, that the Court should not grant an injunction to enforce the non-compete provision on various grounds, including that AMP is itself in breach of contract, that the non-compete clause is unreasonable, and that there was no consideration for it. For the reasons outlined above, I have concluded that:
(a) Mr Visser’s belief that AMP was in breach of contract because it would not allow him to sell new products to existing clients was erroneous, as counsel for Mr Visser now accepts.
(b)It is arguable that AMP breached contract by removing Mr Visser’s access to its computer systems. For present purposes, however, it is relevant that this action on the part of AMP appears to have been primarily aimed at preventing Mr Visser from continuing to sell new products to existing clients without AMP’s permission (in breach of contract). Further, issues relating to Mr Visser’s computer access do not appear to have been the key driver of Mr Visser’s decision to breach the non-compete clause by accepting a competing position. In the absence of more significant disputes between the parties (regarding Mr Visser’s entitlement to sell new products to existing clients) this issue would likely have been able to be resolved.
(c) Although the reasonableness of the non-compete provision will ultimately fall to be determined at the substantive trial, for present purposes it is strongly arguable that it protects AMP’s legitimate business interests pursuant to the sale and purchase agreement, save that its geographical reach may be too broad.
(d)The consideration for the restraint clause was AMP agreeing to enter into the sale and purchase agreement, as expressly noted in the restraint clause itself.
[55] In summary, the issue of adequacy of damages is fairly finely balanced between the parties. In terms of the relative strength of the parties’ cases, however, AMP has a strong claim that the restraint of trade clause has been breached by Mr Visser, and that it is enforceable in its terms (save possibly for the extent of the geographic reach of the non-compete clause). On the other hand, Mr Visser’s claims that the restraint is unenforceable, or that he was entitled to breach it due to AMP’s own breaches of contract, are relatively weak.
[56] In my view the relative strength of the parties’ cases is the decisive factor in this application. As a result, the balance of convenience favours the granting of an injunction.
Where does the overall justice lie?
[57] Finally, it is necessary to stand back and look at all matters in the round, in order to determine where the overall justice of the case lies.
[58] The terms of the restraint are clear. It was freely entered into, as part of the overall consideration for the sale and purchase of Mr Visser’s business. Both parties were legally represented and the restraint was the subject of express negotiation. Further, the restraint was imposed in the context of an agreement where Mr Visser could remain employed in his industry of choice, through AMP, for the full four year period of restraint if he chose to do so. In essence, the restraint clause provided protection against the possibility that the relationship between AMP and Mr Visser might break down within four years of the Completion Date. In that event, the restraint clause would protect AMP from Mr Visser soliciting his former clients, or setting up as a financial adviser in competition to AMP, during whatever remained of the four year restraint period at the time that the relationship between Mr Visser and AMP came to an end.
[59] Ultimately the relationship did break down. It appears that this was largely because AMP would not allow Mr Visser to continue to sell new products to existing customers, which Mr Visser (erroneously) believed to be a breach of contract on the part of AMP.
[60] Mr Visser took a calculated risk in terminating his contractual arrangements with AMP and breaching the non-compete limb of the restraint clause by accepting a position with a competitor. The restraint clause expressly acknowledges AMP’s entitlement to seek injunctive relief in such circumstances.
[61] Taking all of these matters into account, I am satisfied that the overall justice of the case favours granting an injunction. The scope of the injunction, however, should be as narrow as is reasonably required to protect AMP’s legitimate interests under the sale and purchase agreement. For the reasons I have noted above, I have some concerns that the geographic scope of the non-compete clause may be broader than strictly necessary (although ultimately that will be an issue for trial). I accordingly propose to include a geographic restriction on that aspect of the
injunctive relief. This will enable Mr Visser to potentially continue to earn a living in the period pending trial, albeit not within the geographic sphere in which he formerly operated.
[62] I requested supplementary submissions from the parties in respect of the geographic scope of the restraint. AMP proposed (without prejudice to its submission that the non-compete clause is enforceable as drafted) a geographical limitation restraint that would permit Mr Visser to operate as a financial adviser anywhere in New Zealand:
(a) south of a 15km radius of Palmerston North; and
(b) north of Warkworth.
[63] This proposal was based on AMP’s analysis of the client book that Mr Visser
sold to AMP in 2014.
[64] Mr Visser submitted, without prejudice to his primary position that any non- compete restraint would be unreasonable, that if a geographical limitation were to be imposed it should be limited to the city of Rotorua.
[65] The client book that was sold to AMP is annexed as Schedule 1 to the sale and purchase agreement. It is apparent from the document that Mr Visser’s client base extended far beyond Rotorua (and even into the South Island). I am therefore satisfied that the geographical restriction proposed by AMP is reasonable in all the circumstances.
Result
[66] The injunction application is granted. I order that, until further order of the Court, the defendant be restrained, whether acting alone, through his agents directly or indirectly or otherwise howsoever, from:
(a) undertaking any work for, being engaged by, or in the provision of services for, or soliciting or contacting directly or indirectly any
Client (as defined in the agreement for sale and purchase referred to in the plaintiff’s statement of claim) of the plaintiff without the plaintiff’s express written permission;
(b)undertaking any of the “Restricted Business” as defined in clause 13.1 of the agreement for sale and purchase referred to in the plaintiff ’s statement of claim, except (and without qualifying order (a) above) for persons located in the area of New Zealand that is south of a 15 km radius of Palmerston North and north of Warkworth.
[67] Costs are reserved, to be determined following the substantive determination of the proceedings.
Katz J
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