Gordon v Christensen - [2022] NZCA 130

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA148/2021
[2022] NZCA 130

BETWEEN	TIMOTHY PAUL GORDON AND ANGELA GORDON First Appellants ALUMINATE SOLUTIONS LIMITED Second Appellant
AND	TONY CHRISTENSEN AND ROSALIND MARY CHRISTENSEN AS TRUSTEES OF THE CHRISTENSEN FAMILY TRUST First Respondents WOODY ROBERT PURDOM, LEANNE GILLIAN RUBY CLOUGH AND PROFESSIONAL TRUSTEE SERVICES 2019 LIMITED AS TRUSTEES OF THE PURDOM FAMILY TRUST Second Respondents

Hearing:	12 October 2021
Court:	Kós P, Clifford and Gilbert JJ
Counsel:	E St John and S P Maloney for Appellants P Amaranathan for Respondents
Judgment:	12 April 2022 at 11 am
Reissued:	28 April 2022

JUDGMENT OF THE COURT

AThe appeal is allowed.
BThe injunction is discharged.
CThe respondents must pay the appellants one set of costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Kós P)

Table of Contents

Para No

Background

What each business does

Issues on appeal
Issue 1: Did the Judge err in his approach to construction of the clause?

Submissions
Discussion

Issue 2: Was ASL in the same or a substantially similar business as TSIL?

Submissions
Discussion

(1) Enlarged business?

(2) “Namely”

(3) “Systems”

(4) Competition

(5) Vendors deploying their particular knowledge and connections

Conclusion

Result

[2]
[10]
[14]

[16]
[18]
[20]

[22]
[25]
[32]
[33]
[34]
[35]
[43]

[56]
[61]
[62]

This appeal concerns the scope of a restraint of trade clause. The clause prevents the vendors engaging in a business that is “the same or substantially similar to” the business sold to the purchasers — “namely the manufacture, . . . distribution … of … partitioning systems or door systems” — for a period of three years. The Judge held the vendors’ new business did so and granted the purchasers an injunction restraining the vendors from being involved in activities along the same lines as the restraint, and more specifically from being involved in their new business, until after 6 December 2022.[1] The vendors appeal.

Background

[1]Christensen v Gordon [2021] NZHC 490 [Judgment appealed] at [41].

Mr and Mrs Gordon (the vendors) sold their majority shareholding in Trans‑Space Industries Ltd (TSIL), to the family trusts of Mr and Mrs Christensen, and Mr Purdom and Ms Clough (the purchasers).[2] The sale agreement was entered in November 2019, and settlement occurred the following month.
[2]Mrs Gordon died just prior to the hearing of this appeal. The appeal was continued by her executor.
The Judge described TSIL’s business in these terms:[3]
[TSIL] manufactures, imports, sells, and installs distributed partitioning systems or door systems. These systems are usually installed in office‑buildings to partition space into offices — including walls, windows, and doors. They are often purchased at the recommendation of building contractors, quantity surveyors, and architects who design fit-outs.
[3]Judgment appealed, above n 1, at [3].
The vendors had owned their shares since 2012. Mr Gordon was the managing director; both he and Mrs Gordon were intimately involved in the business.…

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.

Continue reading Gordon v Christensen

Details

AGLC: Gordon v Christensen [2022] NZCA 130
Case: [2022] NZCA 130
Decision Date: 12 April 2022 at 11 am

CaseChat Overview and Summary

The appeal is between the vendors of a business, who have breached a restraint of trade clause, and the purchasers who seek to enforce it. The vendors' new business, which supplies components rather than complete partitioning systems, does not breach the restraint. The Court of Appeal allowed the appeal and discharged the injunction against the vendors. The purchasers must pay the vendors' costs.

The restraint of trade clause in the sale agreement prevents the vendors from being involved in any business that is the "same or substantially similar to" the manufacture, importation, distribution or installation of partitioning systems or door systems. The purchasers sought an injunction to restrain the vendors from being involved in their new business, which supplies components for such systems, until after 6 December 2022. The Judge granted the injunction.

The vendors appealed. Their main arguments were that the Judge erred in his approach to construction of the clause, and that their new business was not the same or substantially similar to the business sold to the purchasers. The Court of Appeal allowed the appeal.

The Court of Appeal agreed with the Judge's approach to construction of the clause. The clause must be construed objectively by reference to the words used, in the context of the contract as a whole. The purpose of the restraint is to protect the purchasers' legitimate proprietary interest, which must be no wider than necessary.

The Court of Appeal found that the vendors' new business was not the same or substantially similar to the business sold to the purchasers. The new business supplies components rather than complete systems, and operates at a different level of the industry. It does not compete with the purchasers, and there is no evidence of the vendors deploying their knowledge and connections to compete unfairly. The restraint clause does not cover the vendors' new business activity.

Orders