International Cargo Express 2013 Limited
[2015] NZHC 674
•9 April 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2775 [2015] NZHC 674
BETWEEN INTERNATIONAL CARGO EXPRESS
2013 LIMITED Plaintiff
AND
PETER FURLONG First Defendant
SUPPLY CHAIN SOLUTIONS (NZ) LIMITED
Second Defendant
Hearing: 25 March 2015 Appearances:
S M Dwight and P J van Keulen for Plaintiff
C T Patterson for First Defendant
B R Webster for Second DefendantJudgment:
9 April 2015
JUDGMENT OF M PETERS J
This judgment was delivered by Justice M Peters on 9 April 2015 at 3 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Solicitors: Cavell Leitch, Christchurch
Morgan Coakle, Auckland
Counsel: C T Patterson, Auckland
E J Grove, Auckland
INTERNATIONAL CARGO EXPRESS (2013) LIMITED v FURLONG [2015] NZHC 674 [9 April 2015]
[1] The Plaintiff (“New ICE”) seeks an interim injunction to restrain the First Defendant, Mr Peter Furlong, from continuing employment with the Second Defendant (“Supply Chain”) pending determination of this proceeding.
[2] The case for New ICE is that Mr Furlong’s employment puts him in breach of a restraint of trade in clause 2 of a Deed of Covenant between Mr Furlong and New ICE dated 26 July 2013 (“restraint” and “Deed of Covenant”).
[3] To succeed on this application New ICE is required to establish:
(a) that there is a serious issue to be tried as to whether Mr Furlong may be in breach of the restraint, leaving aside any issue which might arise as to whether or not the restraint is reasonable; and
(b) that the balance of convenience lies in favour of New ICE.
[4] For reasons set out below I am not satisfied that New ICE has established a serious question to be tried. In particular, on the affidavit evidence filed in respect of the application I am not satisfied that Mr Furlong is in breach of the restraint. It may be, of course, that the evidence and submissions at trial lead to a different conclusion on this issue.
Background
[5] The affidavit evidence before me was given by Ms C M Paulsen, the chief operating officer of New ICE;1 Mr Furlong;2 and by witnesses for Supply Chain, some of whom are employed by Supply Chain and other who are in the relevant industry. I have taken the background information which follows from these affidavits.
[6] The restraint was given pursuant to an agreement for sale and purchase of assets dated 22 May 2013, between International Cargo Express (Auckland) Limited
1 Affidavits of C M Paulsen sworn 22 October 2014, 28 November 2014 and 4 March 2015 respectively.
2 Affidavit of P J Furlong sworn 13 November 2014.
(“ICE Auckland”) as vendor and Mr B E Paulsen or nominee as purchaser
(“agreement”).
[7] Mr Paulsen subsequently nominated New ICE as purchaser under the agreement.
[8] The agreement was one of three agreements for sale and purchase entered into by Mr Paulsen at about this time. The vendors under the other two agreements were other “ICE” companies, being International Cargo Express (Perishables) Limited and International Cargo Express Limited. These two companies, together with ICE Auckland, have been referred to as “Old ICE” and I shall refer to them likewise.
[9] The agreement was prepared on the REINZ/ADLS Fourth Edition 2008(2) form. In summary, clause 7.1 of the form binds the vendor, ICE Auckland, from being interested in:3
7.1 … any business similar to the business within the radius from the
premises stated on the front page of this agreement.
[10] The reference to “the business” in this part of clause 7.1 is a reference to
ICE Auckland.
[11] Mr Furlong was a director of ICE Auckland at the time of sale. As such clause 7.2 of the agreement required that he enter into a deed of covenant with the purchaser binding himself to “like effect”, that is like effect to clause 7.1 of the agreement.
[12] Clause 7.2 provides:4
7.2If the vendor is an incorporated company it will on or before the possession date procure … its directors … to enter into a deed of covenant with the purchaser binding themselves to like effect, such deed of covenant to be prepared by and at the expense of the purchaser and tendered to the vendor or the vendor’s lawyer for execution a reasonable time before settlement.
3 Agreement for Sale and Purchase of a Business dated 23 May 2013 at [7.1].
4 At [7.2].
[13] Hence the Deed of Covenant to which I have referred.
[14] Clause 2.1 of the Deed, ie the restraint, provides:5
2.1In consideration of the Purchaser, at the request of the Covenantors, entering into the Agreement, the Covenantors agree with the Purchaser that they will not, either jointly or severally, during the period of 3 years from the possession date specified in the Agreement, in Auckland, either directly or indirectly carry on or be interested either alone or in partnership with or as manager, agent, director, shareholder, financier or employee of any other person or company in any business similar to that being sold in the Agreement.
[15] The reference to the “Agreement” in the restraint is a reference to the agreement, ie between ICE Auckland and Mr Paulsen or nominee dated 22 May
2013.
Similar
[16] It is common ground that Mr Furlong would be in breach of the restraint if the business of Supply Chain is “similar” to the business of ICE Auckland. A determination of this issue requires a comparison between the business of Supply Chain and the business of ICE Auckland (in my view as ICE Auckland was at the time of sale, and not subsequent to purchase) and then an assessment of whether the two are similar.
[17] I did not receive submissions as to when a business is “similar” to another for the purposes of the restraint. No doubt, however, the intention of clauses 7.1 and 7.2 of the agreement and of the restraint is to ensure that a principal of the vendor company does not compete with their former business, and thereby diminish the value of the purchaser’s acquisition.
ICE Auckland
[18] Much of the evidence for New ICE did not confine itself to comparing the business of Supply Chain with that of ICE Auckland. A substantial proportion of
Ms Paulsen’s first affidavit addresses what she considers are the similarities between
5 Deed of Covenant in Restraint of Trade dated 26 July 2013 at [2.1].
the businesses conducted by Old ICE, by New ICE and by Supply Chain. That is a broader issue than that raised by the terms of the restraint and so I have disregarded anything which does not relate specifically to the Supply Chain/ICE Auckland businesses.
[19] What does appear from Ms Paulsen’s evidence is that ICE Auckland operated an Auckland based “dry goods” business,6 that it carried on business as an international freight forwarder with storage and warehousing capability and function,7 and that it offered some “3PL” services to customers.8 Mr Rodney Giles of Contract Warehousing Limited, who has sworn an affidavit for Supply Chain, describes 3PL as:9
The 3PL industry is involved in the everyday management of stock pertaining to individual companies and their specific requirements. This includes the receipting in of the stock, the warehousing, management and stock controls of that stock, the picking and packing of the same and then delivery in the right quantities, right condition at the right time as directed by the principal client.
[20] Mr Furlong also gives evidence as to the nature of the ICE Auckland business. Mr Furlong has an interest in the outcome of this application and I have borne that in mind in considering his evidence. However, Mr Furlong’s account is that ICE Auckland was solely an international freight forwarder, providing services to effect the import and export of freight, including arranging customs clearances, with goods then delivered directly to the customer or uplifted by the customer from the ICE Auckland warehouse. Mr Furlong’s evidence is that, subject to two exceptions, the extent of the warehousing that ICE Auckland offered was the storage of imported goods for a brief period if a customer were unable to take immediate delivery and to store outgoing goods pending export. ICE Auckland arranged national delivery of international freight, after it had cleared customs, but did not supply “typical 3PL services”. Mr Furlong’s description of 3PL services is similar to
that of Mr Giles.
6 Affidavit of C M Paulsen sworn 22 October 2014 at [48].
7 Second Affidavit of C M Paulsen sworn 28 November 2014 at [11].
8 At [13].
9 Affidavit of R H Giles sworn 12 November 2014 at [5].
Supply Chain
[21] The gist of the evidence for the Defendants is that Supply Chain’s business is fundamentally different from that carried on by ICE Auckland.
[22] A founder of Supply Chain and its managing director, Mr Bradley Lindsay, has sworn a lengthy and detailed affidavit describing Supply Chain’s business.10
From this affidavit it appears that a fundamental difference between the two businesses is that Supply Chain does not provide international freight forwarding services and, Mr Lindsay says, it has no interest in doing so. Mr Lindsay’s evidence is that if a customer requires such a service, Supply Chain recommends a third party freight forwarder, including ICE Auckland from time to time.
[23] Mr Lindsay’s disclaimer of any wish to provide international freight forwarding arises (on his evidence) from a position he had with a third party for several years in the early 2000s. Mr Lindsay’s role was to sell international freight forwarding services, something which he came to realise was not his forte. Mr Lindsay was, however, interested in 3PL and this interest led to his founding Supply Chain.
[24] Mr Lindsay describes Supply Chain’s “core business” as contract warehousing and distribution, with special expertise in the “pick, pack and despatch end of the 3PL continuum”.11 His evidence is that Supply Chain:
(a) Manages more than one million stock keeping units, keeping records of size, colour, style, weight, pack size, arrival date and serial numbers for more than 100 importers/distributors and retailers.12 It is apparent from the detailed content of Mr Lindsay’s affidavit that Supply Chain provides full inventory management services for many large enterprises, such as Briscoes, Mitre 10, Bunnings,
The Warehouse and Noel Leeming.
10 Affidavit of B S Lindsay sworn 12 November 2014.
11 At [34].
12 At [36].
(b)Has recently expanded to offer ever more sophisticated inventory management systems, including 4PL and 5PL.13 4PL is the provision of 3PL services but with “back office” and “customer services” solutions including call centre capability. 5PL is solely concerned with digital information and computer applications.
(c) Employed Mr Furlong for his management skills, and not his expertise in international freight forwarding expertise.14 Indeed Mr Furlong’s evidence is that he has taken a substantial drop in income because he is required to learn the “3PL” business, in which he is a novice.15
[25] Mr Furlong’s evidence is that Supply Chain has:16
three huge warehouses full of racking with over 25,000 pallet positions and one hundred staff all working on sorting goods for domestic distribution to clients’ customers.
[26] By way of contrast, Mr Furlong’s says that ICE Auckland has a “medium sized warehouse with very little racking”. Mr Furlong estimates “two hundred pallet positions and a maximum of ten staff organising freight either inwards or outwards for the purpose of international freight forwarding”.17
[27] Supply Chain also relies on evidence from others in the trade. One such affidavit is from Mr Alan Win, the managing director of Middlebank Consulting Group and a non executive director of Supply Chain.18 Mr Win has more than
35 years experience in logistics and supply chain management industries. He describes ICE Auckland as an international freight forwarder, says that Supply Chain has made a deliberate decision not to offer that service, and says that he considers it “bizarre” to suggest that Supply Chain and ICE Auckland/New ICE compete for the
same type of business.
13 Affidavit of B S Lindsay, above n 10, at [41] to [46].
14 At [62] and [63]
15 Affidavit of P J Furlong, above n 2, at [2].
16 At [11].
17 At [11].
18 Affidavit of A G Win sworn 11 November 2014.
[28] Likewise Mr Brent Forbes, a manager at Balance Cargo, a division of Scales Logistics Limited and a former employee of one of the Old ICE business.19 The gist of Mr Forbes’ evidence is that it is “ridiculous” to suggest that Supply Chain competes with ICE Auckland.
[29] Ms Paulsen refers to New ICE offering some 3PL services – admittedly not on the scale or at the advanced level provided by Supply Chain. Ms Paulsen also emphasises that both businesses are capable of offering services similar to the other, even if to date they have not done so. I do not accept that a capacity to offer a service, whether alone or with a third party, is sufficient to make two businesses similar for the purposes of the restraint.
Conclusion
[30] For these reasons I am not persuaded that there is a serious issue to be tried as to whether the business of Supply Chain is similar to the business of ICE Auckland, and that is a prerequisite to a breach of the restraint. Given the view I have reached it is unnecessary to consider where the balance of convenience lies.
[31] As I have said, it may be that a different picture emerges at trial. In the meantime, however, I dismiss this application. The Defendants are entitled to costs on a 2B basis with disbursements, to be fixed by the Registrar in the event of dispute.
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M Peters J
19 Affidavit of B J Forbes sworn 11 November 2014.
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