Consult Recruitment Limited v Lloyd
[2025] NZHC 230
•20 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2025-404-000276
[2025] NZHC 230
UNDER the High Court Rules 2016 IN THE MATTER
of a claim for breach of contract
BETWEEN
CONSULT RECRUITMENT LIMITED
Applicant
AND
RICHARD ALBERT LLOYD
Respondent
Hearing: 20 February 2025 Appearances:
A T Grant and A M Kamphorst for Applicant
H Waalkens KC and S R Courtney for Defendant
Judgment:
20 February 2025
REDACTED ORAL JUDGMENT OF VENNING J
Solicitors: Kiely Thompson Caisley, Auckland
Wotton Kearney, Wellington
Counsel: A T Grant, Auckland
H Waalkens KC, Auckland
CONSULT RECRUITMENT LIMITED v LLOYD [2025] NZHC 230 [20 February 2025]
[1] Consult Recruitment Limited (Consult) seeks an injunction preventing Richard Lloyd from continuing to work at Tribe Recruitment Limited (Tribe), or for any person or entity that competes with or is in the same business of Consult until 1 April 2025.
Background
[2] Consult is a recruitment firm. It assists clients to fill staffing needs in a range of industries and at a range of levels up to and including senior management.
[3] In March 2020 Consult purchased the business and assets of a competitor in the New Zealand recruitment market, Halo Consulting Limited (Halo). Mr Lloyd was one of Halo’s directors and a 42.5 per cent shareholder in the company. The agreement for sale and purchase (ASP) was negotiated between the parties and finalised following legal advice on both sides. The ASP provided for the purchase price to be paid out over an “earn-out” period with the last instalment to be paid following settlement of the financial year ended 31 March 2023’s accounts and calculations of EBIT of Halo’s business for that period. It also provided for an adjustment of the figures if a key employee was no longer employed by Consult and was a “bad leaver” as defined. The ASP identified Mr Lloyd as a key employee and contemplated that he would work for a period at Consult after the sale of Halo’s business.
[4] Relevantly for present purposes the parties entered a restraint of trade clause in the following terms:
21.1In consideration of the Purchaser entering into this Agreement and in order to protect the Business and the Purchaser's business, the Vendor, the Covenantors and the Shareholders each jointly and severally covenant with the Purchaser that none of them will (save in respect of any employment or consultancy with the Purchaser (or any Related Company)), without the consent of the Purchaser, at any time during the Restraint Period:
21.1.1Carry on or be engaged, employed or interested in whether directly or indirectly and whether alone or jointly with any other person and whether as agent, manager, consultant, contractor, employee, shareholder or director or in any other capacity in any business the same as or similar to or which competes with the Business or the Purchaser's business;
21.1.2Solicit or obtain or attempt to solicit or obtain or accept the custom of any person who at any time during the period of three years preceding the commencement of the Restraint
Period had been a customer of the Business or the Purchaser's business or during the Restraint Period becomes a customer of the Business or the Purchaser's business, for any business the same as or similar to or which competes with the Business or the Purchaser's business;
21.1.3Use their knowledge or influence in relation to any person who at any time during the period of three years preceding the commencement of the Restraint Period has or, during the Restraint Period becomes, a customer of the Business or the Purchaser's business or who has contracted with or had dealings with the Business or the Purchaser's business;
21.1.4Interfere with the relationship between the Business or the Purchaser's business and its customers, employees or suppliers;
21.1.5Induce or attempt to induce any employee of the Business or the Purchaser’s business to leave his or her employment with the Business or the Purchaser’s business or to enter into employment with any other person;
21.1.6Directly or indirectly assist, whether financially or otherwise, or deal with any person carrying on any business the same as or similar to the Business or the Purchaser’s business; or
21.1.7At any time disclose or use Confidential Information of which they became possessed while an officer, shareholder or employee of or consultant to the Vendor.
[5] Completion (as defined) in the ASP took place and the parties conducted themselves in accordance with the agreement for a number of years. Mr Lloyd was employed as manager of Consult’s IT and Digital recruitment team. He was paid a salary of [REDACTED] a year. In round figures he also received [REDACTED] for his shareholding in Halo.
[6] However, in March 2022, (a year before the end of the earn out period), Mr Lloyd advised that he wished to leave his position with Consult.1 Consult responded with a letter of 29 March 2022 consenting to Mr Lloyd’s proposed resignation and confirming he would not be considered a “bad leaver” subject to a number of points, one of which was an acknowledgement that Mr Lloyd would continue to be bound by the terms of the ASP and in particular the restraint clause. Mr Lloyd countersigned
1 Mr Lloyd’s letter of resignation is dated 30 August 2022 but refers to his resignation being effective from 14 April 2022 (or earlier). The date of 30 August 2022 is clearly an error.
the letter confirming that he understood and agreed to be bound by the terms of the letter. He ultimately left the employment of Consult on or about 14 April 2022.
[7] Despite that, Mr Lloyd then took up employment with Tribe on 4 June 2024, although nine months remained at that time to run under the restraint in the ASP. Although Mr Lloyd had asked to be released from the restraint, in April 2024, the evidence of Paul Cameron, a director of Consult, is that it only became aware that Mr Lloyd had been employed by Tribe in January 2025. These proceedings followed.
[8]Consult relies on the restraint of trade and seeks to enforce it.
[9] Mr Lloyd opposes the application for interim injunction. His grounds of opposition are:
(a)the restraint is unreasonable and unenforceable, including as to its duration;
(b)Consult has already had the benefit of Mr Lloyd’s strict compliance with the terms of restraint for a period of in excess of two years since his employment with Consult ended;
(c)there has been no material damage caused to Consult and its business as a result of his employment at Tribe;
(d)there is no evidence Consult will suffer damage in the remaining time prior to 31 March 2025 when the restraint will expire; and
(e)there is no evidence of Mr Lloyd taking business away from Consult to Tribe.
[10] Mr Lloyd says he is willing to confirm he will not take any steps to solicit clients of the plaintiff and/or cause damage to it and its business. He has provided an undertaking to the Court to that effect and in some detail.
[11] Finally, and in any event, it is Mr Lloyd’s case that damages would be an adequate remedy.
Applicable principles
[12]The Court of Appeal confirmed in Commerce Commission v Viagogo AG that:2
The principles that govern the grant of interim injunctions under r 7.53 and the court's inherent jurisdiction are well settled. The court will usually adopt a two-stage approach. The first inquiry is whether there is a serious question to be tried. If that threshold is met, the court moves on to consider whether the balance of convenience favours granting or refusing relief. But as this Court observed in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, considerations are marshalled under these (non-exhaustive) heads as “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.”
Preliminary issue
[13] Although it was not provided for in the pre-trial directions of Gault J, Mr Lloyd has sought to adduce further evidence from himself and James Brooke, a director of Tribe. Mr Grant confirmed Consult formally objects to that evidence.
[14] Normally, there is no right of reply to reply evidence, and for good reason. Mr Waalkens KC sought to justify the further evidence in this case, by submitting the reply evidence of Mr Cameron raised new issues, particularly as to the reduction in income suffered by Consult, and the reason for that. Mr Cameron also provided details of what he said was Mr Lloyd’s contact with Consult’s employees, also in breach of the restraint clause.
[15] In the case of Mr Lloyd’s further affidavit in reply, he refers to a general drop in profitability of recruitment agencies generally and responds to the points made by Mr Cameron as to Mr Lloyd’s contact with the Consult employees.
[16] Mr Brooke refers to the general decline in the EBIT in the recruitment industry over the last financial year and the recent year and then goes on to give further
2 Commerce Commission v Viagogo AG [2019] NZCA 472 at [30] (footnotes omitted).
evidence that Mr Lloyd has not caused work to flow to Tribe from Consult and purports to give his experience of earn out clauses and restraints in the recruitment industry.
[17] In this case I accept that the refence in Mr Cameron’s affidavit to the detail of Mr Lloyd’s contact with Consult employees was new and was not strictly in reply. I will read that aspect of Mr Lloyd’s further affidavit. Further, the evidence particularly that of Mr Brooke that the recruitment industry generally has suffered a significant downturn is in response to the detail only provided in Mr Cameron’s affidavit in reply. Again, I will allow that aspect of the evidence, although there is of course a question of weight that it should be given.
[18] To the extent Mr Brooke purports to give evidence Mr Lloyd has not influenced Consult’s clients, and his experience of earn out clauses and restraints in the industry, it is objectionable as a mixture of submission and evidence which, if admissible, should properly have been given initially, not in response to Mr Cameron’s evidence in reply and I rule that evidence out.
Serious question
[19] The wording of the restraint of trade cl 21 is clear. Mr Lloyd covenanted during that, during the restraint period he would not, inter alia, be employed in any business the same as or similar to or which competed with the business of Consult. He also covenanted not to use his knowledge or influence in relation to any person who was or became a customer of Consult. The restraint period was defined as five years from the completion date which in turn was defined as 31 March 2020. Mr Lloyd therefore covenanted not to be employed by a competitor of Consult before 31 March 2025. Despite that, Mr Lloyd acknowledges he is employed by Tribe, which is a competitor of Consult and that they have clients in common, and he has been employed there since June 2024.
[20] Although effectively accepting there was a serious question to be tried as to the terms of the restraint clause Mr Waalkens did submit on behalf of Mr Lloyd that the restraint clause is unenforceable as it was unreasonable. If struck down as unreasonable, then there would be no serious question to be tried. Mr Waalkens
referred to the case of Brown v Brown,3 and the general principle that a covenant in restraint of trade is prima facie void as contrary to public interest and that it is, in this case, for Consult to show the terms of the restraint are no wider than reasonably required.
[21] Mr Lloyd does not accept that a restraint of more than two years after the sale of business or the cessation of his employment with Consult could ever be reasonable in the recruitment industry. Mr Waalkens noted that the earn out period was to run for three years so that the remaining restraint would have only been for two years (if Mr Lloyd had remained employed by Consult during the full earn out period). He emphasised that Mr Lloyd had worked with Consult until mid-April 2022.
[22] Mr Lloyd says the “bad leaver” provisions effectively tied him to Consult but he considers that he, and before him, Mr Alistair Shorten, was essentially compelled and forced to leave Consult’s employment before the three year earn out period expired.
[23] I am unable to accept the proposition advanced on behalf of Mr Lloyd that the period of restraint was unreasonable. First, as Mr Grant submits, this was a vendor restraint expressly exchanged for consideration in the context of the sale of a business for a substantial sum ([REDACTED]). The point was made as long ago as in the 1913 case of the House of Lords, Mason v Provident Clothing and Supply Co Ltd by Lord Shaw referring to the previous language of Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co that:4
There is obviously more freedom of contract between buyer and seller than between master and servant or between an employer and a person seeking employment.” And …much greater room for allowing, as between buyer and seller, a larger scope for freedom of contract and a correspondingly large restraint in freedom of trade, than there is for allowing a restraint of the opportunity for labour in a contract between master and servant or an employer and an applicant for work.
3 Brown v Brown (1981) NZLR 484.
4 Mason v Provident Clothing and Supply Co Ltd [1913] AC 724 at 734, citing Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC at 565.
[24] The same point has recently been made by Asher J in the case of Cambridge News Ltd v Mark Media Co Ltd.5
[25] Further, the learned authors of Burrows, Finn and Todd, Contract Law in New Zealand note that restraints on the vendor of a business are more readily upheld than employee restraints.6
[26] Next, and in any event, comparisons with other cases or situations are of limited value. The issue is the principle. In this case the restraint clause was negotiated by two separate commercial entities over a period months. There is no suggestion other than that they were of equal bargaining power and both had the assistance of legal counsel.
[27] It is also relevant that the restraint clause did not prevent Mr Lloyd from working. He was able to work but was not able to work for a competitor. Ultimately, he chose to leave Consult’s employment. Mr Lloyd says in his affidavit that it was effectively a constructive dismissal. But that is quite contrary to the terms of the correspondence he wrote at the time. In an email of 16 March 2022 he said amongst other things:
Firstly, I would like to reiterate that I am not unhappy at work. I continue to get great satisfaction from seeing the great job the team do every day. I do, however, feel in a state of limbo. I don't really see where I fit naturally in the current set up and what opportunities exist for me in the future.
And later in the same email:
As I have previously acknowledged, I understand that the board, and yourself as CEO, have every right to take the business in the direction you best see fit. In all honesty it has been challenging to make the transition to the space where the business is not ‘mine’ anymore and this has led me to think about what’s next in my life (personal and professional) and assessing my options for the future.
[28] Then in the communication in which he advised he was leaving effective from 14 April 2022 he said, amongst other things:
5 Cambridge News Ltd v Mark Media Co Ltd [2016] NZHC 1326 at [21].
6 Burrows, Finn and Todd, Contract Law in New Zealand, 7th ed at 14.9.9. See also Taylor v Rotowax Trading Ltd [1988] 1 NZLR 674 (CA).
Thank you for opportunity to work for Consult, despite the challenges that the Covid epidemic has posed us, it has been a pleasure to be part of such a robust business that I am sure will have continued success & I wish the organisation all the best for the future.
[29] Further, at the time he left the employment of Consult Mr Lloyd co-signed Mr Savage’s letter, confirming the terms upon which he would not be considered a “bad leaver”, and by doing so effectively accepting further consideration from Consult in exchange for the reaffirmation of the restraint at that time.
[30] On the argument advanced by Mr Lloyd that two years is the maximum period of restraint he would have been able to leave Consult’s employment at any time and would only have been subject to a restraint for two years after leaving.
[31] Finally, the nature of the industry is based on relationships which are important. As Mr Cameron confirmed in his first affidavit:
6.… the recruitment industry in which Consult operates is a highly people and relationship-based business. Firms like Consult and its New Zealand competitors rely heavily on the goodwill of their people and the relationships they form with businesses and individuals in the market.
7.A good recruiter’s “client base” tends to be extremely loyal to them if the recruiter gets results, and the firm for which that recruiter works often values that client base loyalty extremely highly as a means of generating revenue.
[32] In relation to that I note that Mr Lloyd has confirmed that the clients he has worked with at Tribe, while pre-existing clients of Tribe, other than two ([REDACTED]) who had previous client contact with, none were clients he had worked with when at Consult or Halo.
[33] The next and perhaps principal point taken by Mr Lloyd is that Consult has not sustained any loss as a consequence of his employment with Tribe. Mr Lloyd’s initial evidence in opposition was that he is confident his employment with Tribe has not had any impact on Consult. The common clients were not people he had worked with previously and that no damage had been caused by his work at Tribe.
[34] Mr Cameron then deposed in reply there was a pattern of recent and heavy revenue loss to Consult among clients who also work with Mr Lloyd at Tribe. In 2024 Consult suffered a [REDACTED] drop in revenue among four clients in particular who operate a panel structure with Consult and Tribe and from whom Mr Lloyd accepts work. As noted, Mr Brooke says Tribe has itself suffered a similar downturn in EBIT generally and the recruitment industry generally has sustained a downturn over the last two years. That may be so, but at this stage, the evidence taken overall satisfies me that Consult has sustained and will continue to sustain loss, which may be difficult to quantify, as a consequence of Mr Lloyd’s continued employment with Tribe.
[35] Tribe is one of Consult's chief competitors in the Auckland market with a similar number of staff and an office in close proximity. The two regularly compete for clients many of whom use both firms in a panel structure. While the clients Consult and Tribe have in common may have been clients of Tribe before Mr Lloyd was employed by it, the point is that Mr Lloyd’s experience in the industry generally will provide an advantage to Tribe when dealing with those clients. As Mr Grant submitted his presence may tip the scales in Tribe’s favour on a particular appointment.
[36] In the circumstances, I do not consider it necessary to engage in the debate whether in breach of cls 21.1.4 and 21.1.5 of the ASP Mr Lloyd arguably influenced two Consult employees to leave Consult and, in the case of one to go directly to Tribe.
[37] Consult satisfies the Court there is a serious question to be tried that Mr Lloyd has breached the terms of the restraint in the ASP by accepting employment with Tribe in 2024 and that it will sustain ongoing loss as a consequence.
Balance of convenience
Damages – an adequate remedy?
[38] Where damages will be an adequate remedy then that can weigh against the grant of an interim injunction. Mr Lloyd says he will be in a financial position to pay any damages that may ultimately be awarded against him in this case.
[39] In this case, damages will be difficult to assess. It will be difficult for Consult to identify with any precision the loss caused by Mr Lloyd’s breach of the restraint provision. But I accept the damage is real. The market shift of work from Consult to Tribe will be difficult to redress. In any event it is not for Consult to prove damages to the trial standard at this stage. The proceeding is at a very early stage in the process with discovery, interrogatories and evidence yet to be filed.
[40] On the evidence Tribe and Consult have a number of clients in common. In his work for Tribe Mr Lloyd is apparently doing similar work to that which he did at Halo. Mr Cameron’s evidence of a [REDACTED] drop in revenue in relation to the particular clients that they share is before the Court. Mr Brooke’s evidence of a drop in income is in general terms.
[41] For those reasons I do not consider damages would be an adequate remedy in the present case.
[42] As to the undertaking proffered by Mr Lloyd to the Court, Mr Waalkens referred to the case of Propellor Property Investments Ltd where the Court had accepted an undertaking as of primary importance on the balance of convenience. As I read the proposed undertaking by Mr Lloyd in this case I do not consider that it advances his case. First, it does not address cl 21.1 of the restraint and is effectively an attempt to rewrite the existing restraint clause. Next, as noted, Mr Lloyd has, despite his agreement to the terms of the restraint in the ASP and subsequent acknowledgement and affirmation when leaving the employment of Consult that he would comply with it, he has failed to do so.
[43] While the period remaining under the restraint of six weeks is a relatively limited period on the balance of the evidence which I accept, Consult has sustained damages, albeit difficult to quantify, and it will continue to do so if Mr Lloyd remains employed by Tribe for that six-week period.
[44] Against that Mr Lloyd says if the injunction is granted he and his wife will suffer financial loss. However it will be limited. He is apparently on a salary of [REDACTED]. Even if he took six weeks leave without pay that would only equate
to approximately [REDACTED]. Mr Lloyd’s wife is on a salary of [REDACTED] and on Mr Lloyd’s own statement of asset position he and his wife have substantial equity in their assets. There is no suggestion Tribe would not keep his position open, which confirms his importance to it.
[45] I accept the balance of convenience favours enforcement of the restraint that Mr Lloyd agreed to.
Interests of justice overall
[46] I consider the interests of justice support holding Mr Lloyd to the bargain he made and for which he has received significant consideration. It is also relevant that it appears Mr Lloyd kept his involvement with Tribe from Consult. Certainly, he did not expressly disclose it.
[47] Consult cannot be criticised for sitting on its rights. I accept Mr Cameron’s evidence that Mr Lloyd’s employment with Tribe only recently came to the attention of Consult and it issued these proceedings on learning of that. While Mr Lloyd did set out his position in mid-2024, namely that he did not consider himself to be bound by the restraint, he did not mention the possibility of employment with Tribe, and further, even by reference to the notes of the telephone discussion Mr Lloyd refers to, he would have been left in no doubt that Consult intended to enforce its rights. Consult had made its position clear. If Mr Lloyd wanted to revise the agreement he had made then the onus was on him to take steps to do so.
Result
[48] For the above reasons the Court is satisfied there is a serious question to be tried, that the balance of convenience and interests of justice favour the applicant Consult and that damages will not be an adequate remedy.
[49] Accordingly, there will be an interim injunction in terms I accordance with the orders at 1(b) of the interlocutory application filed by the plaintiff.
[50]Costs should follow the event.
[51] Consult is to file and serve a memorandum within five working days and Mr Lloyd is to file and serve a memorandum in response five working days following. I will deal then with the issue of costs on the papers.
Venning J
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