Finewood Upholstery Ltd v Vaughan - [2017] NZHC 1195

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2017-404-633 [2017] NZHC 1195

BETWEEN
FINEWOOD UPHOLSTERY LIMITED

Plaintiff

AND

FLETCHER HEYWOOD VAUGHAN Defendant

Hearing: 22 May 2017

Counsel:

ZG Kennedy and MD Toulmin for plaintiff
DM Salmon and AW McDonald for defendant

Judgment:

2 June 2017

JUDGMENT OF FITZGERALD J [As to application for interim injunction]

This judgment was delivered by me on 2 June 2017 at 4 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors: MinterEllisonRuddWatts, Auckland
LeeSalmonLong, Auckland

Finewood Upholstery Limited v Vaughan [2017] NZHC 1195 [2 June 2017]

Introduction

[1] The plaintiff (“Finewood”) is the manufacturing and logistics arm of a corporate group of companies involved in the research, design, manufacture and distribution of commercial furniture.

[2] The defendant (“Mr Vaughan”) is a sculptor and furniture designer who personally trades under the brand “Fletcher Systems”.

[3] In 2015, Finewood and Mr Vaughan entered into a five year (plus five-year renewal) Licensing, Manufacture and Distribution Agreement (“Agreement”). Unfortunately, within the first 18 months of the Agreement, various issues arose. Relations have soured. Ultimately, in February 2017 Mr Vaughan sent a letter purporting to terminate the Agreement. Finewood disputes that the termination is valid. It commenced these proceedings and seeks interim relief pending trial, preventing Mr Vaughan from taking any action inconsistent with the terms of the Agreement.

Factual background

[4] The parties have had a relatively lengthy relationship, doing business together since 2003. Until entering into the Agreement, Mr Vaughan prepared new product designs, which he supplied to Finewood for engineering and manufacture. Mr Vaughan would then solicit orders for his products, which Finewood manufactured for delivery direct to the client.

[5] By mid-2015, the parties decided to formalise their business relationship by entering into the Agreement. Pursuant to the Agreement, Mr Vaughan granted Finewood a licence in respect of the intellectual property in the entire catalogue of furniture and product designs of Fletcher Systems, as well as the “Fletcher Systems” brand itself (the “Licenced IP”). In return, Finewood agreed to pay Mr Vaughan a royalty (once a certain threshold of sales of products incorporating the Licenced IP had been achieved). Finewood also agreed not to develop any products, designs or intellectual property that would compete with Fletcher Systems products. The Agreement is also one of exclusivity, in that Mr Vaughan agreed that, while the

Agreement is on foot, he would not grant any licence or appoint any other third person as the manufacturer, supplier and distributor of products incorporating the Fletcher System designs.

[6] The Agreement also obliges Mr Vaughan to design at least one new product range per calendar year, and to assist in design and sales support, including attending meetings when clients request help creating new or amending existing designs. In return for this aspect of Mr Vaughan’s obligations, Finewood is to pay a consultant’s fee of $90,000 per annum. I further outline the terms of the Agreement below at [41]-[43].

[7] Unfortunately, and as noted, issues have arisen…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] NZHC 1195
Decision Date: 2 June 2017

CaseChat Overview and Summary

Finewood Upholstery Limited sought an interim injunction preventing Fletcher Heywood Vaughan from taking any action inconsistent with the terms of their five-year Licensing, Manufacture and Distribution Agreement. The court had to decide whether there was a real prospect of Finewood succeeding in its claim that Vaughan's purported termination of the Agreement was unlawful and whether specific performance or a prohibitory injunction would be ordered. The court concluded that while there was a serious question to be tried on the merits, it was unlikely that Finewood would obtain an order for specific performance or a final prohibitory injunction at trial. The court also found that Finewood had not demonstrated a substantial risk of suffering loss to the degree advanced by its managing director. Therefore, the application for interim relief was declined, and Vaughan was entitled to costs.

Orders