EWP Sales Limited v Tibbitts
[2015] NZHC 619
•31 March 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-0488 [2015] NZHC 619
BETWEEN EWP SALES LIMITED
First Plaintiff
UP2IT ACCESS HIRE LIMITED Second Plaintiff
AND
TERRY TIBBITTS First Defendant
KAREN WILLIAMS Second Defendant
ELEVATED ACCESS NEW ZEALAND LIMITED
Third Defendant
Hearing: 25 March 2015 Appearances:
R Amaranathan for plaintiffs
B A Smith for DefendantsJudgment:
31 March 2015
JUDGMENT OF LANG J
[on application for interim injunction]
This judgment was delivered by me on 31 March at 2.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
EWP SALES LIMITED v TIBBITTS [2015] NZHC 619 [31 March 2015]
[1] The first defendant, Mr Tibbitts, was formerly an employee of both the plaintiffs in this proceeding. He ceased working for the second plaintiff, UP2IT Access Hire Limited (UP2IT) in April 2014. He was then made redundant by the first plaintiff, EWP Sales Limited (EWP), when it ceased to trade on 28 November
2014.
[2] Both plaintiffs were involved in businesses relating to elevated work platform machines. EWP sold such machines, and was also involved in training programmes relating to their use. UP2IT was involved in the hire and leasing of such machines. When EWP ceased to trade in November 2014, it sold its remaining stock of machines to UP2IT. UP2IT also took over the training programmes that EWP had formerly offered to customers.
The application for an interim injunction
[3] This proceeding is concerned with issues that have arisen after Mr Tibbitts was made redundant by EWP. These arise because the employment contracts that Mr Tibbitts entered into with the plaintiffs contained confidentiality provisions, as well as provisions prohibiting him from acquiring any interest in a business that competed with the plaintiffs for a period of twelve months after ceasing to be employed by them.
[4] The second defendant, Ms Williams, is Mr Tibbitt’s partner. She is the shareholder and director of the third defendant, Elevated Access New Zealand Limited (Elevated Access). Mr Tibbitts was responsible for incorporating Elevated Access on 1 December 2014, and he is currently employed by Elevated Access as its National Sales Manager. Elevated Access sells elevated work platform machines, and it also offers training programmes in respect of their use.
[5] Mr Tibbitts and Ms Williams accept that Mr Tibbitts breached his contractual obligations to the plaintiffs by soliciting work on behalf of Elevated Access from one of EWP’s clients. They have provided undertakings that they and Elevated Access will not take any steps, either directly or indirectly, to solicit work from the clients of
UP2IT until 16 April 2015, and will similarly not solicit work from EWP’s clients until 28 November 2015. Those are the dates upon which the restraint of trade provisions in Mr Tibbitts’ employment contracts will cease to have effect. In addition, Mr Tibbits and Ms Williams have agreed that the Court can make orders by consent to the same effect. I record that I made orders in those terms during the hearing on 25 March 2015.
[6] This does not satisfy the plaintiffs. They remain concerned that Elevated Access is operating in competition with them, and that this is assisting Mr Tibbitts to breach his contractual obligations to them. They seek an interim injunction preventing Elevated Access from continuing to act in that way.
[7] Elevated Access opposes the imposition of any restriction on its continued ability to trade.
Other issues
[8] The plaintiffs also maintain that Mr Tibbitts took confidential information belonging to them when he left EWP’s employment in November 2014. Mr Tibbitts accepts that he did this, but says that he did so in order to be able to prepare for a mediation that he attended with the plaintiffs in November 2014. He also accepts that he subsequently used some of this information to create a template for a sales order form now used by Elevated Access. He maintains, however, that he has not used the information for any other purpose in relation to the business operated by Elevated Access.
[9] Mr Tibbitts and Ms Williams have now filed affidavits confirming that they have deleted all the confidential information that Mr Tibbitts formerly held, and undertaking that neither they nor Elevated Access will hold or use any of that information in the future. I have also made orders to the same effect. It is therefore not necessary to refer to this issue again.
[10] Finally, the plaintiffs contend that Mr Tibbitts continues to own, and Elevated
Access continues to use, the domain name when it
belongs to the plaintiffs. They seek orders requiring Elevated Access to cease using the domain name, and requiring Mr Tibbitts to transfer it to them.
[11] This issue arises because Mr Tibbitts used a work computer to acquire this domain name on 7 March 2013 at a time when he was still working for both plaintiffs. He did so at the same time as he acquired another domain name on behalf of UP2IT.
[12] Mr Tibbitts has explained, however, that he is in the habit of acquiring domain names for his own purposes. He says that he paid for the domain name in question using his own funds, and that it therefore belongs to him. There is no suggestion or evidence that the domain name has ever been used by or on behalf of either of the plaintiffs.
[13] There is nothing to contradict Mr Tibbitts’ evidence on this point. I decline to
make any order in relation to the domain name.
Jurisdiction
[14] A preliminary issue arises in relation to whether this Court can become involved in what Mr Tibbitts describes as a dispute arising out of his relationship with his former employers. Section 161 of the Employment Relations Act 2000 (the Act) provides that the Employment Relations Authority (ERA) has exclusive jurisdiction to determine issues arising out of the relationship between employers and employees. Proceedings are already afoot before the Authority in relation to the employment relationship between EWP and Mr Tibbitts. For that reason the defendants contend that this Court should not assume jurisdiction in relation to the issues that the plaintiffs raise in this proceeding.
[15] Mr Tibbitts issued proceedings in the ERA in November 2014 seeking orders in respect of issues that remained unresolved following the termination of his employment. The ERA required EWP and Mr Tibbitts to undertake mediation in order to attempt to resolve these issues. The mediation produced a settlement agreement under s 149 of the Act, under which Mr Tibbitts reaffirmed that he was still bound by the confidentiality and restraint provisions in his employment
contracts. In January 2015 EWP applied to the ERA for orders requiring Mr Tibbitts to comply with those provisions. EWP’s application is due to be the subject of a hearing in the ERA on 19 and 20 May 2015.
[16] As both counsel acknowledge, the law is presently far from settled in relation to this issue. Decisions in this Court have reflected differing approaches.1 The decision of the Supreme Court in Beattie v Premier Events Ltd makes it clear, however, that a plaintiff may bring proceedings concurrently in both the employment jurisdiction and in the general jurisdiction of the civil courts.2
[17] In the present case I consider that this Court has jurisdiction to deal at least with the plaintiffs' claims so far as they relate to Elevated Access. As I understand the position, s 134 of the Act permits the ERA to impose a penalty on a party who incites or encourages another person to breach an employment contract. The Act does not give the ERA the power, however, to grant injunctive relief of the type that the plaintiffs now seek against Elevated Access. This is because the plaintiffs have never been in an employment relationship with Elevated Access.
[18] The plaintiffs' claims against Mr Tibbitts should be dealt with by the ERA, however, because they arise squarely out of the employment relationship and the ERA is already dealing with the proceeding that he filed. It is for the ERA to determine whether Mr Tibbitts should be forced to comply with the confidentiality and restraint provisions in his employment contracts as he agreed to do in the settlement agreement reached under s 149 of the Act.
Interim Injunction: relevant principles
[19] There is no dispute regarding the principles to be applied in this context. The applicant for an interim injunction must first show that there is a serious issue to be
tried. It must then demonstrate that the balance of convenience favours the granting
1 See eg Pain Management Systems (NZ) Ltd v McCallum HC Christchurch CP 72/01, 14 August
2001 at [22]-[23]; Transnet NZ Ltd v Dulhunty Power (NZ) Ltd [2007] ERNZ 379 (HC) at [24]; PropertyIQ NZ Ltd v Vicelich [2012] NZHC 2016 at [13]; Hibernian Catholic Benefit Society v Hagai [2014] NZHC 24 at [16]-[19].
2 Beattie v Premier Events Ltd [2014] NZSC 111 at [4]-[5].
of interim relief. This requires the Court to stand back at look at the overall justice of the case.3
Is there a serious issue to be tried?
[20] The employment contracts that Mr Tibbitts entered into with the plaintiffs each contained the following provision:
28.1The Employee shall not at any time during the term of this agreement and for a period of twelve months after the termination of employment with the Employer establish, purchase, or obtain an interest in, either directly or indirectly any business [sic] in relation in any way to the Employer within a radius of one hundred kilometres, without the express written consent of the Employer, provided that such consent shall not be unreasonably withheld. This clause does not preclude the Employee from working in a standard waged or salaried position in a similar business.
[21] The wording of the clause in its current form does not make sense, because it does not describe the type of business to which the clause is to apply. This omission is likely to have been a typographical error, but at some stage the wording of the clause will need to be rectified if it is to be enforced. All parties have proceeded to date, however, on the basis that the clause prevents Mr Tibbitts from acquiring, either directly or indirectly, any interest in a business that trades in competition with the plaintiffs. For present purposes I proceed on that basis as well.
[22] This question must be answered in favour of the plaintiffs. Although Elevated Access is a separate legal entity from Mr Tibbitts, it is a family business in every sense of the word. There can also be little doubt that Elevated Access would not exist but for the fact that Mr Tibbitts was prepared to apply his lengthy experience and industry knowledge for its benefit. Moreover, although he does not own shares in the company and is not a director, it must be arguable that he has acquired an indirect interest in the business by virtue of his relationship with Ms Williams. At the very least, the shares in the business are arguably relationship property in respect of which Mr Tibbitts would have an interest under the Property
(Relationships) Act 2006. His position with Elevated Access is also arguably not a
3 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (HC) at 142.
“standard waged or salaried position” of a type that would be permitted by the clause.
[23] I am therefore satisfied that Elevated Access is arguably causing or assisting
Mr Tibbitts to breach the restraint of trade provisions in his employment contracts.
Where does the balance of convenience lie?
[24] Several factors are relevant in this context. The first is that the ERA has not yet determined whether Mr Tibbitts should be forced to comply with the restraint of trade provisions in his employment contracts. That will presumably occur following the hearing to be held on 19 and 20 May 2015.
[25] Secondly, the restraint of trade so far as UP2IT is concerned expires on 16
April 2015. That is just over two weeks away, and the Easter break is about to commence. There would therefore be very little utility in making the order that UP2IT seeks.
[26] Thirdly, UP2IT is primarily involved in the hire of machinery. The only stock that it proposes to sell is that which it acquired from EWP when EWP ceased to trade in November 2014. Elevated Access, on the other hand, is not involved in the hire of machinery. Rather, it is involved in the sale of machinery and the provision of training programmes. For the most part, therefore, the business operated by Elevated Access is not in competition with that operated by UP2IT.
[27] Although UP2IT has now taken over the training programmes formerly offered by EWP, the plaintiffs' evidence confirms that this aspect of their business has only produced income of approximately $149,000 during the 2014/2015 year. Given that UP2IT’s total turnover for that year will be approximately $2,070,000, it receives just seven percent of its income from training programmes. It seems inherently unlikely that competition by Elevated Access in this particular field will be likely to cause UP2IT significant loss.
[28] In addition, it should not be difficult for damages to be calculated if they are subsequently found to be payable. UP2IT should be able to track any decline in
income between December 2014 and 16 April 2015. It should also not be difficult to ascertain the extent to which the business activities conducted by Elevated Access during this period are likely to have affected UP2IT’s income stream.
[29] The difficulty so far as EWP is concerned lies in the fact that it is no longer trading. For that reason it will not suffer any loss if Elevated Access continues to sell machinery and offer training programmes as EWP used to do. Although there may still be an element of goodwill associated with EWP’s name, there is no evidence that it seeks to maintain this for any reason.
[30] The position is therefore somewhat different to that which occurred in the case relied on by the plaintiff, Lanca Ltd v Readman.4 In that case the applicant had sold its business, including the goodwill, to a third party. It sought interim relief from the ERA preventing the respondents from continuing to trade in breach of restraint of trade provisions in their employment contracts. The ERA upheld the claim for interim relief in the following passage of its decision:
[50] I have accepted that Lanca – arguably, if not certainly – retained a legitimate proprietary interest in the trade and customer connections that it had established by its investment and endeavour in developing the Ash Air business. While it may have realised a current market value of that interest through the purchase price achieved in the sale, its ability to do so relied – again, arguably – in some part on having a means to protect the value of the property sold to the purchaser. That means was the ongoing effect of the restraint terms. If those terms were no longer enforceable, a significant portion of the business purchased by Atlas Copco (specifically, some of the goodwill) could be of substantially less value. In that way I considered it met the broad definition of the legitimate interest justifying protection given in Stenhouse Australia v Phillips:5
The employer’s claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation.
[31] In the present case the evidence suggests that UP2IT has bought EWP’s stock
and has taken over the training programmes that EWP formerly offered. There is no evidence, however, that EWP received any payment from UP2IT for the goodwill of
4 Lanca Ltd v Readman [2014] NZERA Auckland 4785520829, 20 November 2014.
5 Stenhouse Australia v Phillips [1974] AC 391 (PC).
the business that EWP formerly operated. In the absence of such evidence I do not consider that the Court should assist EWP to protect such residual proprietary interest as it may have retained in the restraint provisions.
[32] I have therefore concluded that the balance of convenience lies firmly in favour of Elevated Access, and that injunctive relief should not be granted against it.
Result
[33] The application for an interim injunction against Elevated Access is accordingly dismissed, as is the application to the extent that it relates to the domain name.
Costs
[34] My preliminary impression is that costs should lie where they fall. Although the plaintiffs succeeded in obtaining orders and undertakings in relation to Mr Tibbitts and Ms Williams, those parties will no doubt argue that these were offered at an early stage. In addition, the plaintiffs failed to obtain an injunction against Elevated Access, and they also failed in their bid to prevent Elevated Access from using the domain name. Both camps have therefore achieved a measure of success.
[35] Should any party hold a different view, counsel should file short memoranda (no more than five pages in length) no later than 21 days following delivery of this judgment and I will then deal with the issue of costs on the papers.
Next event
[36] Assuming the parties wish to continue with this proceeding, the next event will be a case management conference before an Associate Judge. The Registry should arrange for this to be held in late May 2015, by which stage the outcome of
the applications presently before the ERA will hopefully be known.
Lang J
Solicitors:
Rice Craig, Papakura
SBM Legal, Auckland
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