Leaders Hawkes Bay Limited v Pienaar

[2020] NZHC 3460

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV2020-441-000092

[2020] NZHC 3460

IN THE MATTER OF

a breach of contract

BETWEEN

LEADERS HAWKES BAY LIMITED

Applicant

AND

ROXANNE PIENAAR

Respondent

On the Papers
Judgment:	18 December 2020

JUDGMENT OF DOOGUE J

[1]    This is an application for an interim injunction. The applicant applies for orders that the respondent:

(a)surrender and/or return all of the applicant’s property, including all documents created, conceived, developed, or made during the course of her contract for service with the applicant, and all other intellectual property and confidential information; and

(b)be prohibited from using the applicant’s property, including all documents created, conceived, developed, or made during the course of her contract for service with the applicant, and all other intellectual property and confidential information.

[2]    The applicant is a limited liability company which operates a real estate agency in the Hawke’s Bay under the “Ray White” brand.

LEADERS HAWKES BAY LIMITED v PIENAAR [2020] NZHC 3460 [18 December 2020]

[3]    The respondent is a marketing manager currently engaged by Tremains Real Estate Limited (Tremains), and was previously engaged by the applicant.

[4]    In or about August 2019, the applicant engaged the respondent to provide marketing and branding services, which the respondent did through a company called The Brand Guardian Limited. The parties signed a contract for service. In November 2019, the applicant and the respondent entered into a confidentiality and non- disclosure agreement (the confidentiality agreement).

[5]    Between August 2019 and September 2020, the respondent provided various marketing and brand services to the applicant. The applicant says that in providing these marketing and brand services, the respondent used confidential information and intellectual property belonging to the applicant.

[6]    The respondent gave notice of termination of the contract for service on or about 28 September 2020, and the contract terminated on 30 September 2020.

[7]    On 1 October 2020, the respondent commenced work with Tremains. The applicant understands that the services that the respondent provides to Tremains are very similar to the services that she provided to the applicant.

[8]    By letter dated 28 September 2020, the applicant reminded the respondent that she was required to return all of the applicant’s property, including intellectual property and confidential information, on or before 30 September 2020.

[9]    The respondent failed or refused to return any of the applicant’s property, including intellectual property and confidential information, on termination of the contract for service.

The applicant’s case

[10]   In or around May 2020, the applicant engaged the respondent in the role of real estate marketing director and also employed the respondent’s husband as a real estate salesperson.

[11]   Although the respondent had marketing and branding experience, she did not have any real estate agency experience. Ms McDonald, the sole director and majority shareholder of the applicant, provided her with a range of documents belonging to the applicant to allow her to provide the agreed services to the applicant and its agents. Ms McDonald provided the respondent, by way of example, with a number of recruitment and listing presentation manuals that she had acquired over the years including:

(a)Ray White Head Office’s Recruitment and Listing Presentation Manual for Elite Level Agents;

(b)Ray White Damerell Group’s Recruitment and Listing Presentation Manual;

(c)Ray White’s social media playbook;

(d)Ray White Competition Creators’ Materials;

(e)Re/Max’s Recruitment and Listing Presentation Manual.

[12]   The manuals contained confidential information about real estate recruitment and marketing techniques.

[13]   Between August 2019 and September 2020, the respondent provided various marketing and brand services to the applicant’s real estate agents. In doing so, she used the applicant’s confidential information, including the manuals, and she created intellectual property which the applicant says became the applicant’s property. For example, the respondent presented a number of workshops on marketing from August 2019 onwards. The applicant says they consider those materials to be the applicant’s property, as at all material times the respondent was being paid by the applicant to create and develop the intellectual property for the applicant.

[14]   On 28 September 2020, the applicant’s solicitors wrote to the respondent on a range of matters but specifically referred to the need to return all confidential

information and the fact that the confidentiality obligations continued past termination.

[15]   The applicant says the respondent told Ms McDonald that she had opened a new folder in a Google drive and saved everything in there. None of the specific personalised documents created during the time the respondent provided services to the applicant were in the folder.

[16]   On 2 October 2020 the applicant’s lawyers received a letter from the law firm Brown and Bates on behalf of the respondent and her husband. The letter claimed that both the respondent and her husband had complied with their obligations to return “property and/or confidential information”.

[17]   On 12 October 2020 the applicant’s lawyers wrote again to Brown and Bates advising them that the applicant had become aware of confidential information being disclosed to Tremains’ agents. They also advised Brown and Bates that the applicant had become aware of information that suggested that the respondent was undertaking outside work during the time she was engaged by the applicant, in breach of clauses

12.1 and 12.2 of her contract for service.

[18]   The applicant’s lawyers wrote again to Brown and Bates on 16 October 2020, this time to ask the respondent to return the manuals immediately, or if she had left them in the applicant’s offices to advise where she had left them. On the same day, Brown and Bates wrote to the applicant indicating that the respondent and her husband did not retain any confidential information.

[19]   On 10 December 2020, Ms Vodanovich, an advisor to the applicant, had a training session booked at the Hawke’s Bay Business Hub, a shared working space for hire in Napier. When Ms Vodanovich was unpacking for her training, she noticed a workbook left by the previous booking. It was an almost exact copy of the material developed and used by the respondent for marketing training at Ray White. The respondent had just used the room to present to one of the Tremains sales teams.

[20]   On reviewing the workbook, it was immediately obvious to Ms McDonald that it was based on the applicant’s intellectual property and confidential information. On further examination it was clear that the documents were almost word for word identical. This is, the applicant says, proof of the respondent deliberately using the applicant’s materials in the course of her work for Tremains.

[21]   The applicant submits that if the application were to proceed on notice then that would cause undue delay and prejudice the position of the applicant, namely because:

(a)the respondent may take steps to conceal relevant documents and information and that the Christmas break would give her an extended period of time to do so;

(b)the respondent and Tremains would continue to benefit from the applicant’s intellectual property and confidential information;

(c)damages would be an inadequate or insufficient remedy because the manuals cannot be replaced, and it would be very difficult to recreate the materials that the respondent produced whilst working for the applicant;

(d)importantly, the respondent and Tremains would unfairly benefit from the respondent’s use of the intellectual property and confidential information.

The law: interim injunctions

[22]   Consideration of an application for an interim injunction focuses on three matters:1

(a)whether there is a serious question to be tried;

1      Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).

(b)the balance of convenience between the parties; and

(c)an assessment of the overall justice of the case.

Serious question to be tried

[23]   In determining whether there is a serious question to be tried, the New Zealand courts often follow the approach set out by Lush J in the Australian case Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd.2 That approach is to consider the applicable law, the facts put forward by each side and where the issues lie, and to assess whether there is a tenable resolution of the issues of law and fact on which the applicant could succeed.

Balance of convenience

[24]   The balance of convenience can also be described as “the balance of the risk of doing an injustice”.3 It is the “guiding principle” in granting an interim injunction.4 This stage requires the Court to balance the injustice or harm that may be caused to the applicant if an interim injunction is not granted and the applicant ultimately succeeds in gaining a permanent injunction, against the injustice or harm that may be caused to the respondents if an interim injunction is granted and the applicant ultimately fails to gain a permanent injunction. Although this inquiry is “broad and flexible”,5 the Courts usually consider factors such as:

(a)the adequacy of damages to both parties;

(b)preservation of the status quo;

(c)the relative strength of each parties’ case;

(d)the conduct of the parties; and

2      Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 at 31; Development Consultants Ltd v Lion Breweries Ltd [1981] 2 NZLR 258 (HC).

3      Cayne v Global Natural Resources plc [1984] 1 All ER 225 (CA) at 237; McLaughlin v McLaughlin [2019] NZHC 2597 at [37].

4      Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 337.

5      McLaughlin v McLaughlin, above n 3, at [38].

(e)the effect on innocent third parties.

Adequacy of damages for both parties

[25]In relation to the adequacy of damages, the House of Lords in

American Cyanamid held:6

… the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff’s undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.

[26]   Adequate compensation in this context is what is fair and just in the circumstances of the case, including consideration of intangible harm and the difficulty of assessing damages.7

[27]   In Shell (Petroleum Mining) Co Ltd v Todd Petroleum Mining Co Ltd the Court of Appeal said that “[c]ases to restrain breaches of contract are prime candidates for injunctive relief.”8

[28]   In relation to whether damages are an adequate remedy in cases involving a breach of a restraint of trade, I note Gault J’s comment in Mad Butcher Holdings Ltd v Standard 730 Ltd:9

6      American Cyanamid Co v Ethicon Ltd [1975] AC 396, [1975] 1 All ER 504 (HL) at 408.

7      Gilks v Marsh (1982) 1 NZCLC 95-063 at 6.

8      Shell (Petroleum Mining) Co Ltd v Todd Petroleum Mining Co Ltd [2007] NZCA 586, [2008] 2 NZLR 418 at [124].

9      Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [40].

Damages based on the defendants’ trading may be reasonably easily calculated, but that does not necessarily mean that damages would be an adequate remedy. As Holland J said in Linde Aktiengesellschaft v C W F Hamilton & Co Ltd, in normal events a party to a contract with a valid restraint of trade clause is entitled to have the clause enforced and damages would not often be regarded as an adequate remedy for loss of the plaintiff’s contractual rights.10

[29]   However, the difficulty in calculating damages must be considered both ways. In Western Work Boats Ltd v Kelly, in relation to the enforceability of a restraint of trade clause, the Court found it would be easier to calculate damages for the breach of the clause, than it would be to quantify the loss caused by an unjustified interim injunction.11 Damages were therefore considered an adequate remedy for the applicant, but less so for the respondent.

[30]   The House of Lords in American Cyanamid held that whether either party is in a position to pay damages is a factor to be considered when assessing the adequacy of damages.12 New Zealand courts have also considered the ability of parties to pay damages. Although ultimately declining to grant an interim injunction, the Court in Anvil Jewellery Ltd v Riva Ridge Holdings Ltd considered the ability of the parties to pay damages, in assessing the adequacy of damages.13 The Court had a “reservation” as to the adequacy of damages for the applicant, due to the potential inability of the respondents to pay an award of damages, in contrast with the applicant’s ability to pay damages.14 Had there been sufficient evidence of the respondents’ financial position, the Court  may  have  been  satisfied  damages  were  an  adequate  remedy.15  In  Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd, in finding the balance of convenience favoured the granting of an interim injunction, the Court found it was “significant” that the applicant was in a position pay substantial damages, while there was doubt about whether the respondent would be able to do so.16

10 Linde Aktiengesellschaft v C W F Hamilton & Co Ltd (1988) 3 TCLR 216 (HC) at 222. See also John Burrows, Jeremy Finn and Stephen Todd The Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 512.

11     Western Work Boats Ltd v Kelly [2016] NZHC 2577 at [28].

12     American Cyanamid Co v Ethicon Ltd, above n 6, at 408.

13     Anvil Jewellery Ltd v Riva Ridge Holdings Ltd [1987] 1 NZLR 35 at 42.

14     At 42.

15     At 42.

16     Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd HC Auckland CIV-2007-404-001438, 21 May 2007 at [86].

Relative strength of each party’s case

[31]   In finding where the balance of convenience lies, the strength of the plaintiff’s case is another factor to be considered. However, where a plaintiff has established there is a serious question to be tried, “the relative merits of the parties’ cases ought not to assume prominence in a consideration of where the balance of convenience lies.”17

[32]   There is an intrinsic limit to the examination of the merits of the argument based on affidavit evidence provided and the interlocutory nature of the application. As Lord Diplock observed:18

The extent to which the disadvantages to each party would be incapable of being compensated in damages in the event of his succeeding at the trial is always a significant factor in assessing where the balance of convenience lies; and if the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party's case as revealed by the affidavit evidence adduced on the hearing of the application. This, however, should be done only where it is apparent upon the facts disclosed by evidence as to which there is no credible dispute that the strength of one party's case is disproportionate to that of the other party. The court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party’s case.

The conduct of the parties

[33]   The applicant’s conduct can be relevant, as an injunction may be refused if the applicant does not come to the Court with clean hands, in such a way that would make the granting of an injunction unconscionable.19

[34]   A respondent’s conduct can also be an important consideration when assessing the balance of convenience, notably where a respondent has acted with its “eyes wide open”; in other words, while aware of the applicant’s right.20 In finding that the balance of convenience favoured the preservation of the status quo in New Zealand

17     Shotover Gorge Jet Boats Ltd v Marine Enterprises Ltd [1984] 2 NZLR 154 (HC) at 157.

18     American Cyanamid Co v Ethicon Ltd, above n 6, at 409.

19     Media Works NZ Ltd v Sky Television Network Ltd (2007) 74 IPR 205 (HC) at [106].

20     New Zealand Farmers' Co-operative Association of Canterbury Ltd v Farmers Trading Co Ltd

(1979) 1 TCLR 18 at 28.

Farmers' Co-operative Association of Canterbury Ltd v Farmers Trading Co Ltd, Chilwell J held:21

A defendant cannot create his own inconvenience and then have it taken into account in balancing the scales of convenience – at least not when he embarks upon questionable conduct with his eyes open.

Preservation of the status quo

[35]   A useful description of the approach to this consideration was provided by Lord Diplock in American Cyanamid:22

Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo. If the defendant is enjoined temporarily from doing something that he has not done before, the only effect of the interlocutory injunction in the event of his succeeding at the trial is to postpone the date at which he is able to embark upon a course of action which he has not previously found it necessary to undertake; whereas to interrupt him in the conduct of an established enterprise would cause much greater inconvenience to him since he would have to start again to establish it in the event of his succeeding at the trial.

[36]   The status quo has been referred to as “the last peaceable state between the parties”.23 However, I note there is some disagreement over when the status quo is to be assessed: before the alleged wrongdoing; or immediately before the commencement of proceedings.

Overall justice

[37]   This final stage requires the Court to “stand back from the case and consider where the overall justice of the case lies.”24 Although the balance of convenience will normally determine whether the Court should grant an interim injunction, a consideration of the overall justice may mean this is not so.25

21     At 28.

22     American Cyanamid Co v Ethicon Ltd, above n 6, at 408-409.

23     R & M Wright Ltd v Ellerslie Gateway Motels Ltd HC Wellington CP188-90, 11 July 1990 at 8.

24     Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd, above n 16, at [90].

25     McLaughlin v McLaughlin, above n 3, at [67].

Analysis

[38]   For the reasons identified at [21], I am satisfied that it is appropriate for this application to proceed without notice.

[39]I find there is clearly a serious question to be tried.

[40]   Turning to the balance of convenience, I find this favours the applicant. Although I acknowledge there may be some more complexities to the case than are apparent on the pleadings before me, I consider the case against the respondent is strong enough to warrant interim relief. The confidentiality agreement and the contract for service are plain on their face. Equally, the alleged breach points squarely at the respondent’s conduct. That conduct counts against the balance of convenience being weighed in her favour.

[41]   I am also satisfied that damages would not be an adequate remedy for the applicant. The applicant has provided an undertaking to comply with any order for payment of damages to compensate the respondent for any damage sustained through an interim injunction.

[42]   Counsel did not refer me to any arguments relating to the effect of this decision on any third parties, and I could see none that would obviously sway the balance of convenience either way.

[43]   Given I am satisfied that the applicant has a strong case and the respondent’s conduct appears to count against her, it is not necessary for me to consider the preservation of the status quo.

[44]   Finally, I find that the overall justice in this case favours the granting of interim relief. In particular, I note the respondent will still be able to work and operate her business, she simply cannot use the applicant’s property when doing so.

Conclusion

[45]   For the reasons given above, I am satisfied that the application for an interim injunction should be granted without notice.

Orders

[46]   The application for an interim injunction is granted, pending further order of the court, on the following terms:

(a)the respondent is required to return the applicant’s property, including all documents created, conceived, or developed during the course of her contract for service with the applicant; and

(b)the respondent is prohibited from using the applicant’s property, including all documents created, conceived, or developed during the course of her contract for service with the applicant.

[47]   The Registrar is  to allocate a case management conference no later than     20 working days after the date of the filing of any statement of defence.

[48]   The parties shall file memoranda for the first case management review no later than 15 days after any statement of defence is filed.

[49]Costs are reserved.

Doogue J