Property Brokers Limited v Hastings McLeod Real Estate Limited
[2020] NZHC 271
•26 February 2020
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
I TE KŌTI MATUA O AOTEAROA TE TIHI-O-MARU ROHE
CIV-2019-4176-000041
[2020] NZHC 271
BETWEEN PROPERTY BROKERS LIMITED
First Plaintiff
PROPERTY BROKERS (CANTERBURY) LIMITED
Second PlaintiffPROPERTY BROKERS (WEST COAST) LIMITED
Third Plaintiff
AND
HASTINGS MCLEOD REAL ESTATE LIMITED
First Defendant
JAMES CLARK MCLEOD
Second Defendant
Hearing: 19 February 2020 Appearances:
A Brown QC and S Jeffs for Plaintiffs J Johnson and W Porter for Defendants
Judgment:
26 February 2020
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie On 26 February 2020 at 12.30pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Fitzherbert Rowe, Palmerston North/A Brown QC, Auckland Wynn Williams, Auckland
PROPERTY BROKERS LTD v HASTINGS MCLEOD REAL ESTATE LTD [2020] NZHC 271 [26 February 2020]
Introduction
[1] Property Brokers Limited (PBL) and its subsidiaries, Property Brokers (Canterbury) Limited and Property Brokers (West Coast) Limited, have commenced proceedings against Hastings McLeod Real Estate Limited (HMREL) and its director and ultimate owner, Mr Clark McLeod (Mr McLeod).
[2] Pending trial, PBL and its co-plaintiffs seek an interim injunction to restrain HMREL and Mr McLeod from advertising, promoting, operating or franchising licenced real estate, property management and valuer services in Canterbury and North Otago under or by reference to the trade name Hastings McLeod or any other trademark confusingly or deceptively similar to Hastings McLeod. They also seek to restrain Mr McLeod from transferring, using or making available for use by HMREL the domain names – and (the domain names).
[3] The application for an interim injunction is opposed by HMREL and Mr McLeod.
Factual background
[4] The real estate agency business known as Hastings McLeod was founded by the late Colin McLeod and John Hastings in 1974. HML was incorporated on 3 February 1982, originally under the name Hastings McLeod Real Estate Limited. In 2004, it changed its name to HML. Its main office was in Ashburton. It had branches in Timaru and Waimate. It subsequently expanded and set up additional branches in Geraldine, Rangiora, Rolleston, Leeston and Oamaru.
[5] The late Mr McLeod died in 2002. At the time, his family trust was the majority shareholder in HML. The family trust sold its shares to three agents who were then working for the company – Paul Cunneen, Christopher Murdoch and Hamish Niles – and to the manager of one of its branch offices, Graeme Wills. The family trust reserved the right to buy back 15 per cent of the shares in the company for Mr McLeod.
[6] Mr McLeod began working for HML in 2004. In early 2007, he advised the shareholders that he wished to go into the business and the McLeod Family Trust triggered the buyback provision. Mr McLeod became a shareholder and a director of the company on 1 September 2007. Either personally or through associated entities, he came to hold 20 per cent of the share capital in HML.
[7] There were at all relevant times four directors – Mr Cunneen, Mr Murdoch, Mr Niles and Mr McLeod.
[8] It is common ground that over the years the name Hastings McLeod became well known in and around Ashburton. The plaintiffs say that the trading name also became well known elsewhere in the Canterbury and North Otago areas. They say that HML had strong relationships with clients and professional advisors in both areas and that it was well-known and respected in the areas in which it traded. Mr Cuneen says that it was “number one” in terms of rural sales in its catchment area. The defendants deny the extent to which the name became well known. Mr McLeod says that the brand was not particularly strong outside Ashburton itself.
[9] It also seems to be common ground that the real estate market changed over the years. Dairy intensification brought new owners into the mid Canterbury and North Otago areas. Many had no previous association with HML and some had existing relationships with national real estate brands, such as Bayleys, PGG and Wrightsons. No doubt because of its strong local reputation, approaches were made to HML’s directors, in an endeavour to persuade them to sell HML’s business. The directors (and shareholders) of HML resisted these approaches because they wanted to grow internally. To do so, HML needed to gain greater visibility and modernise its branding. To this end, in 2009, Mr Cunneen raised the possibility of HML entering into a franchise agreement with PBL with Tim Mordaunt, the founder and owner of PBL.
[10] PBL was a privately-owned and long established real estate business. It operated out of Palmerston North. Either directly, or through franchisees, it provided real estate and property management services, particularly in the North Island,
focusing on provincial towns. It serviced all real estate sectors – residential, lifestyle, rural, commercial and industrial.
[11] Mr Cuneen hoped that HML might be able to use the PBL brand, in conjunction with the HML brand, to give the impression that HML was a lot bigger than was in fact the case. He hoped that this would help the directors and shareholders of HML grow their business.
[12] PBL and HML entered into a franchise agreement. It commenced on 1 January 2010, and expired on 31 December 2014, but the terms of the agreement permitted an extension to either 31 December 2019 or 31 December 2024. It is common ground that the agreement was extended to 31 December 2019. Under the franchise agreement, PBL granted, and HML accepted, the right to operate a real estate agency under the business name “Hastings McLeod Limited trading as Property Brokers” (cl
2.1.1 and item 1 in the Schedule). The agreement required HML to use PBL’s name, logos and trademarks (cl 2.1.2). The agreement stated that, except as otherwise required by law, HML was to conduct the business only under the business name (cl 5.6.1). PBL acknowledged that the Hastings McLeod name was and at all times remained the exclusive property of HML, and that it did not acquire any rights to use that name under the franchise agreement (cl 5.6.4).
[13] Notwithstanding these provisions, there is a dispute between the parties as to the extent to which the Hastings McLeod name was used between January 2010 and August 2019 and whether any goodwill attached to the name by September/October 2019. I return to this dispute below.
[14] In July 2018, Mr Mordaunt, on behalf of PBL, made an offer to purchase HML’s businesses – both its own business and the businesses of two associated real estate companies trading on the West Coast. Mr McLeod did not wish to sell the businesses to PBL. The other directors and shareholders were in favour of a sale. Various terms were proposed in an attempt to appease Mr McLeod, including a covenant that PBL would not itself use the name Hastings McLeod. Mr McLeod was still reluctant to sell and ultimately the offer was withdrawn by PBL.
[15] Given Mr McLeod’s opposition to a sale, the other directors/shareholders, after taking legal advice, amended HML’s constitution to allow for a sale with 75 per cent shareholder approval.
[16] Also in July 2018, Mr McLeod registered the domain names in his own name. He did not advise his fellow directors that he was taking this step. Nor did he seek their permission to do so.
[17] The franchise agreement was due to come to an end on 31 December 2019, and PBL was required to advise in advance any changes it proposed in any renewed agreement. The franchise agreement was, in some respects, out of step with other franchise agreements operated by PBL and it felt that it was necessary to change the terms of any new agreement if it was to continue with the franchise. It put various proposals to HML in this regard. During the ensuing negotiations, Mr Mordaunt put PBL’s offer to purchase HML’s business (and the businesses of the two West Coast associates) back on the table. This time the offer was accepted, although Mr McLeod was still opposed to the sale. An agreement for the sale and purchase of the businesses was entered into on 9 August 2019. PBL agreed to purchase the businesses for $4.5 million.
[18] The description of the businesses being sold given in the agreement was as follows:
The businesses of the vendors comprising real estate sales, agency and rental property management.
The vendors were identified as HML and its associated West Coast companies, BV Arthur Limited and Buller Real Estate Limited. The business was defined (cl 1.4(4)) as “the business of the vendors comprising Real Estate Sales agency and Rental Property Management”. The name of the business was given as “[HML], BV Arthur Ltd and Buller Real Estate Ltd trading as Property Brokers”. Relevantly, the agreement went on to provide as follows:
20.1For the avoidance of doubt it is acknowledged that the property transferred includes the complete businesses of all three vendor companies as one business as a going concern …
20.2Notwithstanding anything else the property to be transferred … under this Agreement includes for example, these parts of the business …
(a)Websites, marketing contacts, email addresses, telephone numbers and intellectual property rights of the vendor in relation to the business including rights under any trading agreement.
…
(e)Business goodwill of the three vendor companies (including for completeness those companies’ rights to use the trading name Property Brokers). To secure this covenant to the purchaser, the vendor companies agree that they will not use those names for any trading purpose from the date of settlement for the purpose of trading or any purpose other than the processes required for the companies to be wound up and removed from the Companies Office register, such companies will promptly change their names so that any ongoing activities of those companies have no apparent or public connection to the businesses transferred under this agreement.
(f)In addition to the covenants in the above subclause, the purchaser agrees that notwithstanding that it will receive the business goodwill in the name Hastings McLeod, it will not use the name Hastings McLeod (or any part of it) as a trading name from the date of settlement, and the purchaser and vendor companies agree that from the date of settlement they will not use as a trading name, any name which is similar to Hastings McLeod as to cause confusion in the marketplace about the identity of the service provider.
[19] The agreement for sale and purchase was conditional. All of the conditions were fulfilled. The agreement was settled on 30 August 2019.
[20] Two days later, on 2 September 2019, HMREL was incorporated. Mr McLeod was its sole director.
[21] On 21 September 2019, a newspaper circulating in the Ashburton area – the Ashburton Guardian – ran an article headed “Old Real Estate Name Set to Return”. It asserted that the Hastings McLeod real estate business was about to be “reborn” and that Mr McLeod would be hanging “the Hastings McLeod shingle up again”. Mr McLeod was quoted as saying that he saw the new business “as being a continuation of what [his late father, Colin McLeod] and John [Hastings] established”. Mr McLeod was also quoted as saying that he saw the new business as being “an opportunity to bring the business back into the family”.
[22] On 24 September 2019, PBL’s solicitors wrote to HMREL and Mr McLeod asserting that PBL had acquired all rights and goodwill in the trading name Hastings McLeod, that HMREL and Mr and Mrs McLeod were intending to provide the same services as PBL, and that the use of the name would be injurious to PBL and cause it damage. They requested an undertaking that HMREL and Mr and Mrs McLeod desist from any use of the name Hastings McLeod, and change the name of HMREL so that it did not incorporate the name Hastings McLeod or anything confusingly similar to that trading name.
[23] On 1 October 2019, HMREL’s and Mr and Mrs McLeod’s solicitors responded. They asserted that the allegations made by PBL’s solicitors were wrong and requested that they be withdrawn. It was claimed that HMREL and Mr and Mrs McLeod were using the name Hastings McLeod for their new business because of its connection with Mr McLeod’s family and its history, that they used distinctive red and white branding, that they did not use any aspect of PBL’s name or branding, and that the name Hastings McLeod had not been used as a trading name or brand in connection with a real estate business for around 10 years. It was said that the name Hastings McLeod had nothing to do with PBL’s business. It was further said that there was no goodwill in the name Hastings McLeod. It was noted that the agreement for sale and purchase prevented PBL from using the name and it was claimed that it was therefore impossible for PBL to assert that the goodwill in its business had any connection with the name Hastings McLeod, or that there was any potential for the public to be confused or misled.
[24]HMREL’s website went live on 18 October 2019. It stated as follows:
Built on the dream of two men, Colin McLeod and John Hastings, the real estate company Hastings McLeod became an iconic name in real estate in mid- Canterbury.
Today that company is seeing new life in the hands of the second generation of one of those families …
[25] In addition, on 19 October 2019, HMREL circulated a four-page advertising flyer with the Ashburton Guardian. The flyer announced the opening of the new business. It repeated the above and then stated as follows:
Clark [McLeod] and wife Susie aim to breathe new life into the historic name which was established over more than 45 years ago by the late Colin and his business partner John.
It continued:
There’s a new shingle hanging on Havelock Street, but it’s a shingle that tells a story of a business with a long history.
In years gone by the name Hastings McLeod Real Estate has been stamped across thousands of sale and purchase agreements for homes, businesses and farms around the Ashburton district.
That name tells the story of two families, two men, Colin McLeod and John Hastings, who broke new ground in property sales in the district.
Today the son of one of those founders, Clark McLeod is bringing the name back to the industry and bringing the concept of family back into real estate company ownership.
After the Hastings McLeod name being out of use for a period, timely circumstances lead (sic) to Clark and wife Susie McLeod launching their own real estate business.
Mr McLeod was attributed with the following:
I see this as being a continuation of what [D]ad and John established. We want to be absolutely local.
The flyer went on:
As soon as word was out the Hastings McLeod brand was back, the phone calls started, Clark said.
The following was also attributed to Mr McLeod:
I’ve been overwhelmed by the support and we’re looking forward to the opportunity to work with the community. I’m going to be in real estate for a long time, our family has always been in real estate and this is an opportunity to bring the business back into the family.
[26] At much the same time, an article was published on HMREL’s Facebook page. It asserted:
Launching the latest in local real estate, Hastings McLeod, the name you all know and trust – is now back!
Readers were referred to the Ashburton Guardian promotional flyer noted above.
[27] On 31 October 2019, PBL’s solicitors wrote again to HMREL’s and Mr and Mrs McLeod’s solicitors. It was asserted afresh that the name Hastings McLeod had been used as a trade name or brand. Reference was made to the franchise agreement. It was accepted that the primary focus had been on the PBL brand, but it was claimed that, in practice, there had been ongoing use of the name Hastings McLeod in conjunction with the name PBL, to maintain continuity and goodwill in the Hastings McLeod name. References were made to the Yellow Page listings in Ashburton, Timaru and Oamaru, all of which referred to Hastings McLeod. There was a reference to the website for PBL’s Ashburton branch, to real estate listings on Trade Me, and to various other websites, all of which referred to “Property Brokers Hastings McLeod”. It was argued that there was ongoing goodwill in the name Hastings McLeod, and it was asserted that the fact that HMREL and Mr and Mrs McLeod were seeking to use the name Hastings McLeod as part of their trading name was a clear indication of the ongoing value of the name. Undertakings were again requested.
[28] HMREL’s and Mr McLeod’s solicitors replied on 7 November 2019. They requested clarification of PBL’s stance in relation to cl 20.2(f) in the sale and purchase agreement (see above at [18]). PBL’s solicitors replied on 11 November 2019, repeating their client’s position in this regard. HMREL’s solicitors replied on 13 November 2019, reiterating their clients’ view that there was no longer any goodwill in the name Hastings McLeod. The requested undertakings were not given.
[29] The proceedings were issued on 20 December 2019, some five weeks after the letter from HMREL’s solicitors of 30 November 2019.
The substantive proceedings
[30]In the substantive proceedings, PBL and its subsidiaries assert that:
(a)they acquired the businesses of HML and its associated companies;
(b)under the agreement for sale and purchase, they acquired HML’s and the associated companies’ assets – both tangible and intangible;
(c)the intangible assets included rights, licences and benefits owned or used by HML and the associated companies, including all intellectual property rights and interests including trade and domain names;
(d)they acquired HML’s and the associated companies’ goodwill;
(e)while they agreed not to trade as Hastings McLeod, they retained, as part of their acquisition of HML’s goodwill, the rights to:
(i)refer to the acquired businesses as Hastings McLeod;
(ii)refer to the name Hastings McLeod and the Hastings McLeod business as being an antecedent or predecessor business of their business;
(iii)take advantage of the ongoing goodwill flowing from the name Hastings McLeod and the recognition that the name carries in Canterbury and North Otago;
(iv)seek to ensure that clients of HML who are familiar with the Hastings McLeod name transfer their business to them; and
(v)stop third parties from using or acquiring rights to the name Hastings McLeod.
(f)the defendants’ actions in incorporating HMREL, and in commencing business in Ashburton as a real estate agency under the name Hastings McLeod, are misleading or deceptive conduct, contrary to s 9 of the Fair Trading Act 1986;
(g)the defendants’ actions constitute the tort of passing off;
(h)relevant members of the public are, or are likely to be, confused or deceived into dealing with the defendants, believing that their real estate services:
(i)are associated with, or are a successor to, the Hastings McLeod companies and the businesses that they have dealt with in the past; or
(ii)are owned or operated by the plaintiffs; or
(iii)are associated with, licensed by, endorsed by or connected with the plaintiffs.
(i)on 29 July 2018, Mr Clark McLeod registered the domain names in his own name, using his home address and his personal email address;
(j)Mr McLeod had no personal right to register the domain names in his own name and he was at all times obliged to hold them in trust for HML;
(k)all goodwill and rights attached to the domain names belonged to HML and were acquired by them pursuant to the sale and purchase agreement.
They seek a permanent injunction to restrain the defendants from using the name and trademark Hastings McLeod. A constructive trust is asserted in relation to the domain names, and they seek a declaration that Mr McLeod holds those names in trust for the second plaintiff, as PBL’s nominee. An injunction is sought to restrain Mr McLeod from transferring, using or making available for use by HMREL the domain names, as well as an order requiring Mr McLeod to transfer the domain names to the second plaintiff.
[31]The defendants have yet to file a statement of defence.
The Courts’ approach to interim injunction applications
[32] The Courts’ approach to interim injunctions is well settled. An applicant must first establish that there is a serious question to be tried – that is, that his or her claim is not vexatious or frivolous. Next, the balance of convenience must be considered.
This requires consideration of the impact on the parties of granting or refusing to make the order sought. Finally, an assessment of the overall justice of the position is required.1
[33] In considering the second and third stages, the question is whether refusing the injunction would be harder on an applicant who succeeds at trial, than would granting it be on an ultimately successful defendant.2 The Court looks at the adequacy of damages as an alternative remedy, whether the status quo should be preserved, whether there are uncompensatable advantages to either party, and the relative strength of the parties’ cases.3
[34] It has been suggested that, in passing off cases, the strength of an applicant’s case must “weigh heavily” because the consequences of granting an interim injunction can be permanent and, in some cases, extreme.4
(a)Serious question to be tried – Fair Trading Act and passing off
[35] Breach of the Fair Trading Act and passing off are distinct but similar causes of action.
[36] Section 9 of the Fair Trading Act provides that no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[37] The date which the Court uses in its assessment is the date of the conduct complained of.5 There must be a misrepresentation before liability can arise,6 although intention to deceive is not required.7 If conduct is misleading or deceptive, or likely to misled or deceive, and in trade, there is no need to show that any person has been
1 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); Eng Mee Yong v Letchumanan [1980] AC 331 (PC).
2 Roman Catholic Bishop of the Diocese of Auckland v Boynton [2018] NZHC 2636 at [14].
3 Wellington International Airport Ltd v Air New Zealand, HC Wellington CIV-2007-485-1756, 30 July 2008 at [6]-[14]; And see A C Beck and others, McGechan on Procedure, Thompson Reuters, Vol 1 para HR 7.53.04
4 DB Breweries Ltd v Lion Nathan Ltd (2007) 12 TCLR 25 (HC) at [16]-[17].
5 Prudential Building and Investment Society of Canterbury v Prudential Assurance Co [1988] 2 NZLR 653 (CA) at 659.
6 Unilever New Zealand Ltd v Cerebos Greggs Ltd (1994) 6 TCLR 187 (CA) at 193.
7 Taylor Bros Ltd v Taylors Textile Services Ltd (1987) 2 TCLR 415 (HC) at 4413.
misled or deceived.8 If a defendant adopts a trading name there will be no misrepresentation unless the name has already acquired a reputation amongst a class of consumers as denoting the goods or services of another trader, so that members of that class will be likely mistakenly to infer that the goods or services are connected with the business of that other trader.9 Goodwill in a name can survive for a period even though the name has not been actively used. It can dissipate over time. Whether it has is ultimately a question of fact.10
[38] Here, it was accepted that the defendants are in trade. It was also common ground that the relevant date is at or about 18/19 October 2019, when the defendants started trading by using one of the domain names and publishing the promotional flyer announcing that they were commencing business in Ashburton as a real estate agency under the name Hastings McLeod.
[39] As noted above, there is a dispute as to whether there was any goodwill attached to the name Hastings McLeod as at October 2018.
[40] The plaintiffs say that there was goodwill in the name as at October 2018. They say that the name Hastings McLeod was consistently used by HML from 1982 onwards, and that it continued to be used even after HML entered into the franchise agreement with PBL in 2010. Both Mr Cunneen and Mr Murdoch say that a conscious decision was made to continue using the Hastings McLeod name after the franchise agreement came into force. Mr McLeod accepts that this was initially true, and he acknowledges that HML may initially have had goodwill in the name Hastings McLeod. He says however that the goodwill that was associated with the name was progressively subsumed by the name Property Brokers after the franchise agreement was entered into and that it had been lost by the time PBL purchased HML’s businesses.
8 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 (FCAFC) at 197-200.
9 Bonz Group (Pty) v Cooke (1996) 7 TCLR 206 (CA) at 210; Neumegen v Neumegen & Co [1998] 3 NZLR 310 (CA) at 317.
10 Reckitt & Colman Products Ltd v Borden [1990] RPC 341 (HL) at [406]; Neumegen v Neumegen, above n 5 at 317.
[41] All accept that there was a legal requirement that HML use its name on documents and materials as the registered licensee.11 It appears from the various exhibits adduced in evidence by both the plaintiffs and the defendants that the name Hastings McLeod was used over the period 2010-2019 in both advertising and promotional materials, as well as in legal documents, e.g. agency agreements. The evidence also suggests that many HML staff answered the phone using the name “Property Brokers Hastings McLeod”. Some say that they were instructed not to refer to Hastings McLeod – others that there was no such instruction and that they used the name throughout. There is no dispute that the name Property Brokers was also used extensively, along with its banner and colours. The evidence however suggests that very commonly, both names were used. Sometimes the name Hastings McLeod was more prominent that the name Property Brokers. More often it was less prominent and on occasion it appears it was omitted altogether.
[42] Perhaps the most compelling evidence is from Murray Young, a long time agent employed by HML, and now Area Manager of the Ashburton branch of PBL. He says that HML advertised extensively in a publication known as the Mid Canterbury Realty (the Realty). He says that the Realty was distributed at least 48 weeks per year to around 15,300 households. He says that the name Hastings McLeod was larger and more prominent in advertisements in the Realty than Property Brokers’ name. He also says that HML advertised in a number of other local publications – for example, the Selwyn and Ashburton Outlook, the Ashburton Guardian Property and Lifestyle lift-out, and on the front page of the Ashburton Guardian. He says that all of the advertisements featured the name Hastings McLeod, sometimes in large font and sometimes in smaller font. It appears both from his affidavit and from the exhibits he attaches, that such advertising was continued right up until the sale of HML’s business in August 2019.
[43] The name Hastings McLeod also seems, on the available documents, to have been used on promotional materials, such as calendars, at the Ashburton A & P Show, on the company van, on pencil cases, on event displays, on the business shopfront, in flyers and marketing plans, on business cards, on signage and the like.
11 Real Estate Agents Act 2008, s 121(2).
[44] It is noteworthy that the defendants in pitching their new business, have referred extensively to the “iconic” nature of the name Hastings McLeod.
[45] While PBL undertook in the agreement for sale and purchase not to use the name Hastings McLeod, it appears from the evidence before the Court (both from PBL as purchaser and from the directors of HML – other than Mr McLeod – as vendor) that this was part of the negotiating tactic adopted to try and persuade Mr McLeod to sell. PBL agreed that it would not use the name Hastings McLeod; HML agreed that it would not use the name so as to cause confusion in the marketplace. PBL acquired, pursuant to the sale and purchase agreement, the name Hastings McLeod. It is also arguable that they acquired the right to take advantage of the ongoing business goodwill that flows from that name (albeit without trading under the name), and the rights to seek to ensure that clients of HML who were familiar with the Hastings McLeod name transfer their business to it, and to stop third parties from using or acquiring rights to the name Hastings McLeod. I note that before me, the defendants did not argue to the contrary.
[46] In my judgment, there is a serious question to be tried that there was goodwill attaching to the name Hastings McLeod and that that goodwill was still subsisting as at October 2019.
[47] Are the defendants’ actions in using the name Hastings McLeod misleading and deceptive or are they likely to mislead and deceive?
[48] The defendants’ promotional material shows a clear intent to have the public believe that their newly launched company is the successor to HML. That assertion is incorrect, as Mr Johnson for the defendants, acknowledged.
[49] While intention is not a requirement of a breach of the Fair Trading Act, where intention is demonstrated, it can be a relevant factor going to the nature of a defendants’ conduct, the likelihood of deception and the balance of convenience.12
12 Specsavers International Healthcare Ltd v ASDA Stores Ltd [2012] EWCA CIV24, [2012] FSR 19.
[50] The test under s 9 is whether there is a real risk of confusion. An objective approach is taken. It is not necessary to show that confusion is more probable than not. It is however necessary to show that confusion is more than a mere possibility. The concept is captured by the idea that something is likely if it could well happen.13 If conduct objectively has the capacity to mislead or deceive the hypothetical reasonable person, there can be a breach of s 9.14
[51] Arguably, in my view, the defendants’ actions are misleading and deceptive. On the face of it, they have adopted a business name belonging to PBL and they are representing to the public that their new business is a continuation of the business purchased by PBL.
[52] The defendants say that any risk of confusion is negligible. First, it is said that Mr McLeod is dealing principally with existing clients who value their personal relationship with him. They rely on affidavits filed by some of those clients who corroborate this. Secondly, they say that the Ashburton community is generally aware of relevant changes within the local real estate market. Thirdly, they say that prospective customers are likely to do their homework before making the significant decision to buy or sell a property. Fourthly, they argue that the branding of the two entities – HMREL and PBL – is clearly different. PBL uses blue branding whereas HMREL uses red branding. Fifthly, they say that PBL has been located in the same premises for some eight years, and that it is unlikely, in a small town such as Ashburton, that persons will visit the offices of HMREL thinking them to be PBL’s offices.
[53] I doubt the assertion implicitly made by Mr McLeod that his new business is intended to be limited to pre-existing clients. The extensive advertising by HMREL contradicts that claim. It seems reasonably clear that Mr McLeod wants to attract new business to HMREL. I also doubt that the Ashburton community is generally aware of the changes. While evidence has been adduced in this regard from a Mr Taverndale, there is no proper basis for his assertion. Nor is there any evidence to show that prospective customers are likely to do “their homework” before picking their real
13 Airport Rentals Ltd v Airport Car Rentals (Southern) Ltd (1995) 6 TCLR 664 (HC) at 667.
14 Red Eagle Corporation v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
estate agent. Rather, the available evidence suggests that word of mouth recommendations are important. Many years can elapse before a member of the public enters into a fresh real estate transaction. Prospective customers are likely to remember the name of the agency – particularly where it is well “iconic” – rather than the name of the particular sales agent they dealt with in the past. The evidence suggests that it is important for real estate agencies to establish an initial contact with potential, and that real estate agencies place considerable weight on converting initial enquiries into agreements to list. It is agreements to list and the resulting sales which convert into agency commissions. The evidence also suggests that where potential customers have received a recommendation to use Hastings McLeod, or they remember the name of the agency, they will likely look for the firm’s contact details under the name Hastings McLeod in order to get in touch with the business. A Google search for Hastings McLeod leads, in the first instance, to HMREL, because Mr McLeod has registered the domain names. Internet searches using the search engines Bing and Yahoo produce the same result. The evidence also establishes that directory searches of both the Yellow and White Pages in the telephone directory now have HMREL as the lead result. Use of these resources will lead most enquirers looking for Hastings McLeod to HMREL in the first instance. While HMREL and PBL use different coloured branding, vendors who have been recommended to use Hastings McLeod, and who do a Google or directory search to find the Hastings McLeod business, may not recall or be aware of the colours used or may not place any weight on the colours advertising the business. The evidence also suggests that many potential customers first make contact by telephone rather than come direct to the business premises.
[54] In my judgment, there is a serious question to be tried as to whether or not the defendants’ actions are misleading and deceptive or are likely to mislead and deceive.
[55]I deal briefly with the second cause of action – passing off.
[56] To establish a passing off, a plaintiff must establish a misrepresentation, made by a trader in the course of trade, to prospective customers, which is calculated to
injure the business or goodwill of another trader, and which causes actual damage or will probably do so.15
[57] The Fair Trading Act provisions are broader than the tort, but in this case, the analysis which I undertook in relation to the first cause of action – breach of the Fair Trading Act – applies in large part to the tort of passing off. Again, there is, in my view, a serious question to be tried as to whether or not the defendants’ actions are such as to render them liable for passing off their fledgling business as being that of the plaintiffs.
(b)Serious question to be tried – the domain names – constructive trust
[58] There is no dispute that Mr McLeod registered the domain names on 29 July 2018 in his own name and using his personal address and email address for the purpose. It is also accepted that he did not advise his fellow HML directors and that they did not consent to Mr McLeod registering the domain names in his own name.
[59] It is trite law that directors, as a general principle, owe fiduciary duties to their companies. They have an obligation not to profit personally from their position as directors and not to allow a conflict of interest to arise between their duties as directors and their own self interest.16 It also appears that a domain name is property.17
[60] In my judgment, there is again a serious question to be tried that Mr McLeod breached the fiduciary duties he owed HML by registering the domain names in his personal name. It is arguable – even strongly arguable – that in registering the domain names in his personal name, he was acquiring property to which he had no entitlement, and that he is now seeking to exploit the domain names by allowing them to be used by his own company, HMREL. Arguably, Mr McLeod has pursued his own interests, despite HML’s entitlement to the domain names.
15 Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] AC 731 (HL) at 742 per Lord Diplock; and see 755-756 per Lord Fraser; Reckitt & Coleman Products Ltd v Borden Inc [1990] 1 WLR 491 (HL) at 499; And in New Zealand, Dominion Rent A Car Ltd v Budget Rent A Car System (1970) Ltd [1987] 2 NZLR 395 (CA) at 421 and 424.
16 Pacifica Shipping Co Ltd v Andersen [1986] 2 NZLR 328 (HC) at 333 to 335; Holden v Architectural Finishes Ltd [1996] 7 NZCLC 260,976 (HC).
17 James Mellor and others – Kerly’s Law of Trade Marks and Trade Names, Thompson Reuters, 16th ed, at [28-004].
[61] The defendants argue that it is “ambitious” to assert that Mr McLeod was breaching his fiduciary duties. They note that the evidence suggests that HML’s board decided to relinquish a similar domain name it held some nine years earlier. They argue that the domain name had no significance to HML’s brand, and that the directors had no interest in reverting to the Hastings McLeod name.
[62] It is irrelevant to a breach of fiduciary duties in such circumstances that the company could have taken the opportunity for itself,18 and, regardless, where the wrongful profiting takes the form of the acquisition by a defendant of identifiable assets, the Court can declare that the defendant holds the assets on trust for the company.19
[63] In my judgment, there is a serious question to be tried as to whether or not the defendants’ actions are misleading and deceiving members of the public.
(c)Serious question to be tried – summary
[64] I am satisfied that there is a serious question to be tried in relation to each of the three causes of action advanced by the plaintiffs.
(d)The balance of convenience
[65] This is the guiding principle in relation to the grant of an interlocutory injunction.20
[66]I deal first with the adequacy of damages as an alternative remedy.
[67] If the plaintiffs succeed at trial, they could in theory be adequately compensated by an award of damages for the loss they would have sustained as a result of the defendants continuing to do that which the plaintiffs ultimately enjoin. However, there is likely to be considerable difficulty in computing damages, and the
18 Bhullar v Bhullar [2003] EWCA at 27 to 31 and 36 to 39; G E Smith Ltd v Smith [1952] NZLR 470 (SC); FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UK SC 45, [2015] AC 250 at 14, 36, 40 and 45.
19 P Watts, Directors Powers and Duties, 2nd ed, LexisNexis, Wellington 2015 at 208; FHR European Ventures LLP v Cedar Capital Partners LLC, above n 17 at [7].
20 Eng Mee Yong v Letchumanan, above n 1 at 337.
Courts have acknowledged that damages will rarely be an adequate remedy where there are allegations of a likelihood of confusion in trade.21 This is because a loss of goodwill is not readily measurable, and often damages for the loss will be difficult to estimate and inadequate.22
[68] The defendants assert that it would be a relatively simple exercise for the plaintiffs to work out if any of the defendants’ customers previously had a relationship with the plaintiffs. He says that the plaintiffs would have to ask each customer if they were confused as to who they thought they were dealing with.
[69] In theory, if Mr McLeod’s assertion is correct, but I do not consider that it fully deals with the situation. The expert evidence from Ms Alexander outlines the importance to a real estate agency of initial phone calls or visits from potential vendors who have heard of the agency or had it recommended to them. She emphasised the importance of trying to convert these calls or visits into an agreement to list a property with the agency. She commented that, if the newcomer business is using the same trade name as the established business, there must be a serious risk of ongoing and future business being lost by the owner of the established business. If the situation continues for many months, there will likely be ongoing loss and damage which would be almost impossible to work out. There was similar evidence from Mr Murdoch.
[70] Arguably, every phone call to or contact with HMREL which was intended to be to HML, and that is missed by PBL, is a potential loss to the plaintiffs. Further, if the staff at HMREL do a poor job or fail to sign up a potential customer, or if they annoy a customer or are incompetent, or if they fail to respond to a message, there is a potential loss to PBL. It is not just sales missed, but also opportunities for rentals, evaluations and appraisals that are relevant. There is a potential loss of business for the plaintiffs from all sources. In my judgment, there is no realistic way in which all potential contacts could be checked, and by which resulting losses could be calculated.
21 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (HC) at 139; appeal dismissed, at 140-142.
22 Sutton v The House of Running Ltd [1979] 2 NZLR 750 (HC) at 755.
[71] There is an additional difficulty for the defendants. They have provided no evidence to show that they have any ability to pay any damages that might ultimately be awarded against them if they fail at trial. In contrast, the plaintiffs have filed an undertaking as to damages, and produced evidence which makes it very clear that they have the ability to meet any award which might ultimately be made against them in the event that it transpires that the interlocutory injunction should not have been granted.
[72] This leads into a related issue – namely, the time and expenditure incurred by the defendants in establishing their new business. They claim that they have expended significant time and costs and that requiring a name change at this stage would be a major disruption to their fledging business.
[73] I do not accept this submission. The defendants commenced their new business and incurred the expenses involved with their eyes open. On 24 September 2019, three days after the initial publicity, and almost a month before HMREL commenced business, the plaintiffs’ solicitors wrote to the defendants setting out their position and seeking undertakings. The defendants chose to continue with their plans notwithstanding that warning. Mr McLeod was a director and shareholder of HML, and he worked in its business. He knew or ought to have known of the ongoing use of the name Hastings McLeod by HML. His earlier registration of the domain names suggests that he had the plan to use the name Hastings McLeod from an early stage. This is not a case where the defendants were ignorant of the facts, or where they incurred expenses and only came to know of the plaintiffs’ position some time thereafter. In any event the expenditure which the defendants incurred is relatively modest compared to the potential losses to PBL’s business in the event that HMREL is allowed to continue using the name Hastings McLeod through until trial. The evidence suggests that HMREL’s branding costs were in the vicinity of $47,000. There will of course be costs incurred in rebranding the business. There is no estimate of these costs, but even if they are doubled, the resulting liability to PBL, in the event it fails at trial, is readily able to be met in accordance with the undertaking as to damages.
[74] It is also noteworthy that the defendants already have an alternative and operating website – namely, That separate website could be used by HMREL immediately.
[75] The public interest is also relevant to the balance of convenience in this case. The Fair Trading Act is consumer protection legislation. In my judgment, the public interest favours the grant of an interim injunction, to prevent members of the public from being misled into dealing with HMREL thinking it is the successor of HML.
[76] The status quo also falls for consideration. In my judgment, the status quo in this case is the state that existed after the sale of HML’s business to PBL, and before the defendants began using the Hastings McLeod trading name.
[77] The defendants did submit that the plaintiffs have been guilty of delay. I do not consider that there is anything in this point. The response from the defendants’ solicitors on 13 November 2019 dismissed the plaintiffs’ complaint, asserted that there was no longer goodwill in the name Hastings McLeod, and said that the defendants considered the matter to be at an end. Proceedings were issued five weeks later. I do not consider that the claim to delay is sustainable on the facts.
[78] Finally, I have considered the relative strength of the parties’ cases. It favours the granting of an interlocutory injunction in the present case.
(e)The overall justice of the case
[79] As a check, I have considered the overall justice of the case. For the reasons I have set out, I am satisfied that an interlocutory injunction is appropriate.
Result
[80] I acknowledge that the defendants will need some time to comply. Mr Brown QC, for the plaintiffs, suggested that two to three weeks should be ample time for the defendants to re-brand their new business. Mr Johnson suggested that the defendants require six to nine weeks. I have considered the steps which the defendants would be required to take. They will need to change the domain names – that appears to be a
relatively straightforward exercise although it may take a short time. They will need to reprint relevant materials – for example, sale and purchase agreements and agency agreements. That again would not appear to be a major exercise. They will need to change their name on their advertising materials. I accept that there will be some lead in time in this regard. They will also need to change their website and redesign it. They will need to change their signage.
[81] In my judgment, a period of 20 working days from the date of this judgment is ample time for the defendants to comply with the following orders.
[82]Accordingly, I order as follows:
(a)An order is made restraining the defendants (whether by their directors, servants, agents, associated or subsidiary companies or otherwise howsoever) from advertising, promoting, operating or franchising licenced real estate, property management and valuer services in Canterbury and North Otago under or by reference to the trade name Hastings McLeod or any other trade name confusingly or deceptively similar to Hastings McLeod;
(b)Restraining the second defendant (whether by himself or otherwise howsoever) from transferring, using or making available for use by the first defendant (or any other person) the Hastings McLeod domain names;
(c)Such orders are to come into effect on the day 20 working days after the date of release of this judgment.
Costs
[83] The plaintiffs are entitled to their reasonable costs and disbursements as against the defendants. In this regard, I direct as follows:
(a)any application for costs and disbursements if to be made by way of memorandum, to be filed within 10 working days of the date of this judgment;
(b)any response is to be filed by way of memorandum, to be filed within a further 10 working days.
I will then deal with costs and disbursements on the papers, unless I require the assistance of counsel.
Wylie J
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