Spicers Portfolio Management Limited v Cunningham Financial Services Limited

[2014] NZHC 74

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2013-441-428 [2014] NZHC 74

BETWEEN  SPICERS PORTFOLIO MANAGEMENT LIMITED

Plaintiff

ANDCUNNINGHAM FINANCIAL SERVICES LIMITED

First Defendant

LESLIE JAMES CUNNINGHAM Second Defendant

FORSYTH BARR LIMITED Third Defendant

Hearing:                   29 January 2014 (Heard at Wellington)

Counsel:                  B A Scott and J W J Graham for plaintiff

P B Churchman QC for defendants

Judgment:                5 February 2014

RESERVED JUDGMENT OF DOBSON J

[1]      In  this  proceeding,  the  plaintiff  (Spicers)  seeks  to  enforce  provisions imposing various forms of restraint of trade on the second defendant, who formerly provided contracted services for Spicers by means of the first defendant company which he controls (collectively referred to as Mr Cunningham).  Mr Cunningham is now working with the third defendant (Forsyth Barr).  Although Mr Churchman QC was  appearing for all  defendants,  Forsyth  Barr’s  position  is  not  relevant  in  the present context.

[2]      The proceedings were filed on 18 December 2013. An application for interim injunction, initially filed without notice, was considered on a Pickwick basis by

SPICERS PORTFOLIO MANAGEMENT LTD v CUNNINGHAM FINANCIAL SERVICES LTD [2014] NZHC 74 [5 February 2014]

Collins J   on   19 December   2013.      The   Court   granted   an   order   prohibiting Mr Cunningham  from  soliciting  former  Spicers’  clients  or  providing  financial services for such clients. That order expires at 12 noon on 7 February 2014.

[3]      There has been movement in the position of both parties since 19 December

2013.    To  understand  the  context  in  which  I  heard  the  present  argument,  it  is necessary to provide a little more background to the factual circumstances.

Factual background

[4]      Mr Cunningham has been involved in the insurance and financial advisory business for a lengthy period.  From 1984, he was an insurance agent contracted to National Mutual working in Hawke’s Bay, and from the early 1990s decreased his involvement in insurance and increased his involvement in investment advice.   In

2002, he sold the investment part of his then business to Spicers and left the investment advisory industry for a period of time.  He was approached by Spicers in

2006 and became employed by them in that year, initially generating new business for Spicers and subsequently both generating and managing investment advisory business for clients.  He presently has the status of an authorised financial adviser (AFA) under the Financial Advisers Act 2008.

[5]      In  2009,  Spicers initiated  a change in  the contractual  arrangements  with Mr Cunningham so that he ceased being an employee and became an independent contractor,  contracting  through  his  company that  is  the  first  defendant  in  these proceedings.

[6]      The 2009 contract included two provisions that purported to impose forms of restraint of trade on Mr Cunningham. They were in the following terms:

10.      Consequences of Termination

10.1In  the  event  that  Spicers  terminates  this  agreement  pursuant  to clauses 4.3 or 4.6 or the Contractor terminates this agreement for any reason  the  Contractor  (including  the  Adviser  and  any  of  its Employees or Agents) shall not undertake any work for, be engaged by, or in the provision of services for, or solicit or contact either directly or indirectly any Client, without the express prior written permission of Spicers, for a period of at least 6 months following the Termination Date, either on his/her/its own account or through any

person, firm or company which is directly or indirectly associated with the Contractor including the Adviser or any of Its Employees or Agents.

…

11.      Ownership of Clients

11.1      The Contractor  and the Adviser acknowledge  and  agree  that the Clients and goodwill associated with the Clients are the property of Spicers and remain so following termination of this Agreement.  The Contractor and the Adviser acknowledge and agree that the appointment  to  provide  products  and  services  (including  any financial planning, investment, mortgage, or insurance advice or services) to the Clients and the right to a revenue share in respect of the Clients exists only during the term of this Agreement and warrant and acknowledge that they will not continue to:

(a)       Contact or attempt to contact the Clients whether directly or indirectly,  personally  or  on  behalf  of  any  other  person; and/or

(b)       Whether directly or indirectly, personally or on behalf of any other period (sic), attempt to encourage or persuade the Clients to terminate or restrict their relations with Spicers; and/or

(c)       Perform any work for or provide any services to the Clients, whether directly or indirectly, personally or on behalf of any other person; and/or

(d)      Derive income from any revenue stream associated with the

Clients

or do anything which is in any way prohibited by this Agreement or any other agreement, following termination of this Agreement.

For the purposes of the contract, Mr Cunningham’s company was “the Contractor”

and he was “the Adviser”.

[7]      The contract has a footer endorsement “Contractor Agreement © Spicers Portfolio Management Limited 2009”.  Although counsel were not definitive about it, it is a reasonable inference that the provisions of the contract were treated by Spicers as relatively standard to regulate its arrangements with those who provided advisory services on its behalf.

[8]      Mr Cunningham gave 30 days’ notice of his resignation on 14 August 2013. He met with Mr White, the managing director of Spicers, and another representative

on  20 August  2013,  and  it  was  agreed  that  his  contract  would  terminate  on

13 September 2013. At that meeting, Mr Cunningham indicated that he had received advice to the effect that parts (at least) of the restraint of trade provisions were unenforceable.

[9]      On  the  day  of  Mr Cunningham’s  departure  from  Spicers,  their  solicitors wrote to him, emphasising the full extent of the restraint of trade obligations as stated in the contract.   The letter asserted that “the restraints are reasonable and enforceable to protect Spicers’ business from unfair competition”, and there was no concession that any aspect might be held to be unenforceable.

[10]     Thereafter, between the end of October and mid December 2013, five former clients of Spicers wrote to Spicers conveying requests that management of their investments be transferred to Mr Cunningham in his new role at Forsyth Barr.

[11]     In Mr White’s first affidavit sworn in support of the application for interim injunction on 18 December 2013, he acknowledged that some clients had asked to withdraw   their   funds   from   Spicers   in   favour   of   obtaining   services   from Mr Cunningham, but that that was “a normal attrition rate for clients … not initially entirely out of the expected range”.  He continued:1

However, over the past few weeks (and as recently as 11 December 2013), with increasing frequency, it has come to my attention that Mr Cunningham appears to have been extremely active in approaching Spicers’ clients and securing them for himself. … The situation has suddenly become extremely serious.

[12]     In Mr Cunningham’s affidavit in opposition to the application for interim injunction,  sworn  on   23 January  2014,  he  emphatically  rejected  Mr White’s characterisation  of  his  conduct.     Mr Cunningham  acknowledged  the  entirely unsolicited initiatives by the five former clients of Spicers who had written to that firm, and also volunteered details of two further clients who had initiated contact with him.  He also disputed that there had been any change in either his conduct or

that of former clients of Spicers during December that could ever justify a view for

1      Affidavit of Christopher James White, 18 December 2013, at [18] and [19].

Spicers that the situation had changed, so that it had become serious and urgent when the proceedings were filed.

[13]     Mr Cunningham acknowledged that he had undertaken limited dealings with former Spicers’ clients who initiated requests for him to provide advice to them, and that he had changed his initial view that all aspects of the restraint of trade provisions were unenforceable.  His affidavit included an undertaking to comply with the “no dealing” restraint in cl 10.1 for six months up to 13 March 2014.   However, he maintained his stance that the perpetual restraint in clause 11.1 of the contract purporting to prevent his soliciting business from former and existing Spicers’ clients after 13 March 2014 was unenforceable.

[14]     Mr Cunningham’s point was that the former Spicers’ clients who had initiated contact with him did so relatively regularly over the period between his departure and the swearing of Mr White’s first affidavit.  He emphatically rejected the notion that he was actively soliciting former or existing clients, or that there had been any change in his conduct in the most recent period to which Mr White referred as creating a serious and urgent situation in December 2013.

[15]     Mr White’s affidavit in reply sought to justify the claims of urgency and seriousness in general terms, but did not provide any specific rebuttal.  I challenged Mr Scott as to the basis on which Spicers could still maintain the concerns described by Mr White, in the face of what appeared to be full disclosure by Mr Cunningham in his affidavit of the extent of any contact that had occurred, and Mr Cunningham’s denials  of the  conduct  attributed  to  him  by Mr White in  his  first  affidavit.    In response, Mr Scott submitted that Mr Cunningham had to be lying.  There is no basis for that imputation.   At least until there is cross-examination of the participants, Spicers  is  unable  to  raise  credible  grounds  for  doubting  the  apparently  full explanation of his conduct provided by Mr Cunningham in his affidavit.

[16]     Mr Cunningham stated that there had been important changes affecting the nature of Spicers’ business in Hawke’s Bay that led to his terminating his contract with Spicers.  Spicers had previously been owned by Axa, but the purchase of Axa by AMP  in  March  2011  led  to  what  Mr Cunningham  perceived  as  significant

changes in Spicers’ business.  Mr Cunningham considered that the changes required to conform to ownership by AMP were detrimental to the services offered to clients, and he cited the departure earlier in 2013 of the two other AFAs that had represented Spicers in Hawke’s Bay as symptomatic.  Mr Cunningham suggested that the rate of attrition of Spicers’ former clients caused by the departure of those other representatives was significant.  It was apparent to Mr Cunningham that those other former representatives were positively seeking business from former Spicers’ clients and, to his knowledge, Spicers had done nothing to challenge their activities.

[17]     Of the five former Spicers’ clients who had written to Spicers requesting to transfer  the  management  of  their  investments  to  Mr Cunningham,  one  did  not stipulate the length of personal relationship with Mr Cunningham.  However, of the four others, one client referred to there being a six year connection and the other three relationships were all of longer than 20 years’ duration.   It is a reasonable inference that more long-standing clients of Mr Cunningham’s will have remained with him because they were happy with the service he provided.   It follows that, whether encouraged to do so by him or not, they would be among the Spicers’ clients most likely to follow him elsewhere.

[18]     There was no evidence of the terms on which Mr Cunningham sold his then business  to  Spicers  in  2002.    No  separate  consideration  was  paid  for  Spicers acquiring “ownership” of clients that had come to Spicers because of prior personal dealings with Mr Cunningham, in the 2009 contract.  Instead, cl 10.3 specified that the consideration for the restraint in cl 10.1 was Mr Cunningham’s remuneration package, and the access he gained to Spicers’ proprietary information.

[19]     From  Spicers’ perspective,  its  change  in  position  since  first  challenging Mr Cunningham was to concede that the terms of the wider constraint in cl 11.1 of the contract were unlikely to be upheld as a reasonable restraint of trade.   In an amended statement of claim filed on 21 January 2014, Spicers added an alternative pleading to the effect that if cl 11 was not reasonable and enforceable, then Spicers was entitled to have it modified under s 8(1)(b) of the Illegal Contracts Act 1970 into a form that was pleaded in a schedule to the amended statement of claim.  On the basis of that alternative, Spicers sought an extension of the interim injunction to

protect Spicers’ entitlement, until trial, to enforce a restraint on terms other than those specified in the existing contract.

[20]     The modifications sought would reduce the restraint in cl 11 by limiting its duration to two years from termination, and the scope of the restraint to preventing Mr Cunningham from any form of active solicitation of former Spicers’ clients.  In argument, counsel referred to the six month restraint in cl 10 as the “no dealing” restraint, and the proposed amended terms of cl 11 as the “no solicitation” restriction. This was on the basis that the “no dealing” included not responding to requests made by clients, whereas that would be permissible under a “no solicitation” restriction that only prevented Mr Cunningham taking positive initiatives to get business from Spicers’ clients.

Presently relevant issues

[21]     Counsel  were agreed  that  the conventional  test  for an  interim  injunction should apply in this case.  That involves consideration of whether there is a serious question to be tried and, if so, whether the balance of convenience favours granting the injunction sought.   The decision should only then be made standing back and looking at the matters in the round, to determine whether the overall justice of the case favours the grant of the injunction sought.2

[22]     Mr Cunningham’s   undertaking   adequately   addresses   the   “no   dealing” restraint as imposed by cl 10.1 of the contract.  To the extent that he initially treated himself as not bound by the “no dealing” restraint, and provided some services for a number of former Spicers’ clients who approached him to do so, he appears to be vulnerable  to  a  monetary  claim  on  whatever  basis  Spicers  might  subsequently contend for.   On the evidence thus far, that would appear to involve a relatively modest amount.

[23]     Provisions in restraint of trade are presumptively unreasonable and the onus is on the party seeking to enforce them to make out that they are reasonable.3    A

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

3      John  Burrows,  Jeremy  Finn  and  Stephen  Todd  Law  of  Contract  in  New Zealand  (4th   ed, LexisNexis, Wellington, 2012) at [13.9.1], citing Brown v Brown [1980] 1 NZLR 484 (CA).

party seeking to enforce a restraint of trade has to establish that its scope, nature and duration are reasonably necessary to protect that party’s legitimate interests. There is little prospect of Spicers discharging that onus in respect of the original form of cl 11.

[24]     The issue therefore is whether there is a serious question to be tried that Spicers  would   obtain   relief  under  the   Illegal   Contracts  Act   to   have  cl 11 retrospectively altered in the “no solicitation” terms.  Is there a serious question to be tried  that  Spicers  is  entitled  to  an  order  varying  the  scope  of  the  restraint  it previously contended for in cl 11, so that it can enforce against Mr Cunningham a restraint for two years on his soliciting business from Spicers’ clients?

[25]     The  reasonableness  of  the  extent  of  restraints  are  recognised  as  being inherently case-specific.4   Nonetheless, Mr Scott argued that there was a serious case for such a modified restraint by analogy with a range of decided cases.  He relied particularly on Ryan v Mason,5 Mike Pero (New Zealand) Ltd v Exact Solutions Ltd 6 and Dhanapala v Jackson.7

[26]     In Ryan, a provincial law firm sought to enforce restraints after the defendant left a position as a salaried partner with the firm that had purported to impose a ban on practice within a geographical area for a period of five years.  That restraint was held unreasonable but a non-solicitation clause was enforced for a period of two years.

[27]     In Mike Pero, Miller J granted an interim injunction to restrain the defendant from carrying on business as a mortgage broker within 15 kilometres of any existing or new office of the plaintiff.  The injunction covered the Nelson area, extending as far as Richmond but not to the greater Tasman district.  The injunction was granted on terms requiring the substantive issues to be readied promptly for substantive trial. The issue at the interim injunction hearing appears to have focused on whether in

fact a contract including restraint of trade provisions had been completed, rather than

4      Law of Contract in New Zealand, above n 3, at [13.9.8(c)].

5      Ryan v Mason [2012] NZHC 3105, (2012) 10 NZELR 174.

6      Mike Pero (New Zealand) Ltd v Exact Solutions Ltd HC Wellington CIV-2007-442-66, 17 April

2007.

7      Dhanapala v Jackson (1999) 9 TCLR 67 (HC).

the reasonableness of them. The restraint contended for was for a two year period, in circumstances  where  there  was  a  suggestion  that  the  defendant  had  joined  the relevant business for a short period, had learned significant aspects of its business, and then left to start in competition.

[28]     In Dhanapala, a medical doctor practising as a general practitioner entered into a consultancy agreement with another doctor to relieve difficulties created for the plaintiff doctor  by disciplinary orders.   The agreement  between  the doctors included a provision restraining the defendant doctor from working in a similar business  within  a 10 kilometre radius  of the employing doctor’s  premises  for a period of five years after termination of the contract.  In the circumstances of that case, the Court held that a reasonable period of restraint would be two years and upheld the clause in that amended form to injunct the defendant doctor.

[29]     Mr Churchman disputed that these cases were appropriate analogies.  He also argued that earlier cases cited in support of Spicers’ argument reflected a recognition of  longer  restraints  than  are  currently upheld  as  being  necessary to  protect  the restraining party’s interests.

[30]     The relationship developed between doctors and lawyers and their clients on the one hand, and that between financial advisers and clients on the other, reflect different considerations, and potentially at least different circumstances of trust and reliance.

[31]     Mr Cunningham  stated  in  his  affidavit  that  when  he  commenced  his association with Spicers in 2006, the Havelock North office was losing between 25 and 28 per cent of its clients each year.  Implicitly that is an observed rate of “churn” in  the  sense  that  the  business  would  hope  to  replace  the  clients  it  lost  with comparable numbers of new clients.  Although Mr Cunningham deposed to having reduced the rate of loss, he stated that it had climbed to 30 per cent per year since the takeover of Axa by AMP in 2011.

[32]     In his reply affidavit, Mr White for Spicers comments that Mr Cunningham:

… paints of picture of Spicers bleeding clients in the Hawke’s Bay region. While Mr Cunningham exaggerates, Spicers has indeed lost some clients in this region recently.

[33]     Mr White does not directly dispute the statistics cited by Mr Cunningham. Even if they are “exaggerated”, a churn of say 15 per cent per annum appears likely to be a substantially larger turnover of clients than would be expected in a provincial legal or medical practice.

[34]     The relevant terms of Spicers’ 2009 contract  are designed to protect  the intellectual property involved in Spicers’ organisation of its investment advisory businesses throughout the country. A relevant distinction can be drawn in preventing misuse of that accumulated intellectual property in respect of a newcomer who had no experience in the industry before joining Spicers, and therefore obviously no individual client contacts, and an established financial adviser with an independent personal reputation that preceded his period of work for Spicers.

[35]     It is likely that, in any substantive analysis of the circumstances of this case, it would be relevant that many of the clients who have positively initiated a move in following Mr Cunningham, or those likely to be receptive to an invitation from him to do so, will have had relevant contact with him prior to the period in which he worked for Spicers, and also prior to completion by the parties of the 2009 contract. The 2009 contract stipulated that Spicers “owned” the clients and goodwill attaching to them.  However, at least for those clients with whom Mr Cunningham had a pre- existing relationship, he has not used the springboard of Spicers’ business structures to build a rapport with such clients.

[36]     Mr Churchman criticised the contradictions or inconsistencies between the restraints provided for in cls 10 and 11 of the 2009 contract.  In cases of uncertainty, the interpretation adopted should be that least favourable to Spicers as the party seeking to enforce a restraint.8   This rather missed the point of Spicers’ argument, in

that they did not seek to enforce cl 11 on anything like its present terms.  The contest

8      Citing Richmastery Ltd v Richmastery (Central) Ltd HC Tauranga CIV-2005-470-951, 24 May

2006 at [26].

had moved on and involved the propositions that Spicers would get an order under s 8 of the Illegal Contracts Act to enforce their proposed amended form of cl 11.

[37]     At a superficial level, Mr Churchman remains correct in that cl 10 restrains Mr Cunningham  for  a  period  of  six  months  from  soliciting  Spicers’ clients  or undertaking any dealings with them.   Then under the proposed amended form of cl 11, he would be restrained from part of that same activity (soliciting) for Spicers’ clients, for the longer period of two years.

[38]     Mr Scott disputed that these provisions were contradictory or inconsistent. Rather, he characterised them as overlapping in the sense that cl 10, which addresses the consequences of termination, imposes a restraint for six months from termination on a range of activities including active solicitation of Spicers’ clients.  Then cl 11, which addresses the ownership of Spicers’ clients, would supplement the specific consequences  of termination  with  a separate (or “overlapping”) commitment  by Mr Cunningham to continue recognising Spicers’ ownership of the clients they had whilst he was with them, by restraining him from soliciting such clients for a period of two  years from  the  date he left  Spicers.   This  constitutes  at  least  a tenable argument that the provisions would be reconcilable to an extent that would not require  the  Court  to  strike  down  the  restraint  of  a  longer  period  as  being contradictory or inconsistent.

[39]     Mr Churchman  argued  that  the  six  months’  duration  of  the  no  dealing restraint demonstrated that that was the period of time Spicers would need to protect the on-going links with their clients after Mr Cunningham’s departure.   It would follow that Spicers could not make out the necessity for any longer period than six months, in relation to the modified non-solicitation restraint.  There is some force in that argument, but  I am not satisfied that it would be decisive.   From Spicers’ perspective, it is one thing to prevent a former adviser from accepting a request from a Spicers’ client to provide financial advice, and quite another to stop such an adviser taking the initiative to contact clients of Spicers and persuade them to do so. Nonetheless, Spicers would have to meet the argument that if they treated six months as  sufficient  time  to  sure  up  a  new  personal  relationship  with  clients  who Mr Cunningham would be precluded from responding to, it ought also to be enough

to similarly sure up relationships with those that Spicers might be vulnerable to losing if Mr Cunningham took steps to solicit them.

[40]     By and large, the judicial considerations of whether a lesser restraint than originally contended for is necessary to protect that contracting party’s legitimate interests do not attribute relevance to any view the Court takes to relatively how unreasonable the original restraint stipulated for was.   However, those seeking modification of grossly unreasonable provisions may face a more difficult task, for reasons including the inference that the grossly unreasonable nature of the original restraint suggestions a real inequality of bargaining power at the time the restraints were agreed to.

[41]     In  the  present  circumstances,  I  consider  that  Spicers’ attempt  to  enforce broadly expressed prohibitions in perpetuity is likely to make it more difficult for it to obtain relief to recast the restraint within what are now claimed to be reasonable bounds.  The Court should not be seen to be condoning any practice of contracting parties stipulating for draconian restraints on the basis that the Court will come to their rescue on a fallback position to modify the contract after the event, by way of a lesser restraint to the extent that one can then be made out as being necessary.

[42]     An additional non-solicitation restraint, for a further period of 18 months beyond the six month non-dealing restraint, would represent a meaningful restraint for three times longer than the recognised restraint, after that had expired.  I am not satisfied  that  there  is  a  serious  question  to  be  tried  for  enforcement  of  such  a restraint.

[43]     Mr Churchman argued that if I reached this point, that was an end of the matter because Spicers have now nailed their (new) colours to the mast, advancing a case on the basis of the reasonableness of such a two year restraint.  That narrow view of the issue overlooks the prospect of there being sufficient merit in a further alteration to Spicers’ proposal for a modified form of the non-solicitation restraint.  If Spicers  were  to  succeed  on  an  argument  that  their  legitimate  interests  were necessarily separately protected in relation to non-solicitation, compared with non- dealing, then the issue would arise as to what additional period beyond the initial six

months was necessary.   Mr Scott cited the reasoning in Ryan as recognising the prospect  (in  the  context  of  a  solicitor  leaving  a  provincial  firm)  that  a  non- solicitation restraint might be justified for a longer period than a non-trading restraint.9   Conceivably, the Court could find that Spicers’ interests were necessarily protected by an additional non-solicitation clause that lasted for nine or 12 months from Mr Cunningham’s departure.

[44]     Therefore on a broader basis than Mr Churchman urged it should be assessed, there may be a serious question to be tried that an additional restraint for a period, say, up to an additional six months might be made out.  It was not expressed in those terms on Spicers’ behalf.

[45]     On the basis the case was argued for Spicers, there is no serious question to be tried and it would be unnecessary to undertake subsequent consideration of the issues for an interim injunction.   On the broader basis, if a modified form of a serious  question  was  recognised  for trial,  then  an assessment  of the balance of convenience would be necessary.  It is unrealistic to suggest that the matter could be prepared   for   substantive   trial,   and   a   trial   determined,   within   six   months. Accordingly, an important aspect of assessing the balance of convenience would be the recognition that the contingent prospect for an additional restraint would be unlikely to be substantively determined before the term of such restraint expired.

[46]     Imposing  a  non-solicitation  restraint  on  Mr Cunningham  from  14 March

2014 until trial would prevent Mr Cunningham initiating contact with those he acted for whilst at Spicers after the six month period in which Spicers will have had an opportunity  to  persuade  those  clients  that  another  adviser  with  their  firm  is preferable to a change to Mr Cunningham.   In an area such as Hawke’s Bay, that constraint  could  be  expected  to  materially  affect  Mr Cunningham’s  business opportunities.

[47]     From Spicers’ perspective, extension of such an injunction would prolong the

opportunity they have to recommit clients who might otherwise be vulnerable to persuasion by Mr Cunningham that they should follow him to his new firm.   As

9      Ryan v Mason, n 5 above, at [82].

Mr Scott described the intellectual property component of what Spicers seeks to protect, it relates to their systems for processing clients’ needs in relation to their investments, rather than features that make Spicers’ services more attractive on an individual basis for the particular clients who may be vulnerable to solicitation by Mr Cunningham.     Mr Scott  conceded  that  the  value  of  Spicers’  confidential information about its systems and products would lessen over a period of time after an adviser left, as the state of that body of knowledge became stale and was incrementally updated or replaced.

[48]     If Mr Cunningham is restrained, there is no way of reasonably projecting what success rate he would otherwise have had if he was free to solicit former clients who have remained with Spicers.  From Spicers’ perspective, if they do not have the benefit of the additional non-solicitation restraint until trial, it will be possible to identify  the  former  Spicers’  clients  who  have  left  their  firm  and  gone  to Mr Cunningham during the period of, say, an additional six months from 13 March

2014 or whatever other period they might subsequently establish as the necessary length of a reasonable restraint.  As Mr Churchman submitted, within that category of clients it is reasonable to expect that were they to be subpoenaed, they would give truthful evidence as to whether their move from Spicers was entirely a matter of their own initiative, or whether they were encouraged to do so by being solicited by Mr Cunningham or on his behalf.

[49]   Although uncertainties arise on both scenarios, a relevant factor in my assessment of the balance of convenience would be the prospect of establishing and quantifying loss more easily for Spicers if a further injunction is not ordered, than in quantifying Mr Cunningham’s  loss  if  he is  restrained until  trial  and  Spicers are subsequently unsuccessful in making out a modified form of cl 11 that enforced non- solicitation for a period greater than six months.

[50]     Mr Churchman   also   argued   that   Spicers’   delay   in   commencing   the proceedings and seeking interim orders should be fatal against the grant of any further orders.  Mr Cunningham had left Spicers in September 2013, following the departure  of  at  least  two  other  financial  advisers  from  Spicers  in  the  previous

12 months.   To  the best  of  Mr Cunningham’s  knowledge,  Spicers had  made no

attempt to restrain the activities of those other former Spicers’ advisers in any way, and  he  had  observed  them  actively  soliciting  Spicers’  clients.     Contrary  to Mr White’s claims of dramatic change in the mode of his behaviour creating urgency and seriousness to the issue, Mr Cunningham deposed that his conduct had been consistent  throughout  the  period  since  he  left  Spicers,  and  that  former  Spicers’ clients initiating contact with him had done so at relatively regular intervals throughout the whole of the period since his departure.

[51]     Mr Churchman characterised this as Spicers having “sat on their hands” for three months, and then claimed urgent relief in the pre-Christmas week when there were limited opportunities for an appropriate response.

[52]     I am not satisfied that delay is a factor that ought to be taken into account against Spicers in the circumstances of this case.   It is understandable that they would not commit to the expense and potential adverse publicity involved in Court proceedings against a former adviser, and might responsibly monitor the situation for some time before seeking the Court’s assistance.   More relevantly, on the facts, Mr Cunningham’s initial conduct is now accepted as a breach of the six month no dealing restraint, which at first he treated as not binding on him.  Mr Cunningham’s subsequent recognition that he would abide by the six month no dealing restraint is a form of justification for Spicers’ proceedings and, in the circumstances of this case, is sufficient to remove what might otherwise have been a relevant criticism of delay in their commencement.

[53]     In all the circumstances, I am not persuaded that the balance of convenience favours any further injunction on the contingent basis that Spicers have a serious question to be tried for an extended restraint, notwithstanding the absence of a serious question for the presently proposed modified form of such non-solicitation restraint for two years.

[54]     In this case, that evaluation encompasses all the factors that might influence

an outcome on the third stage of “standing back”.

[55]     Accordingly, the existing order which will expire on 7 February 2014 will not be extended.  In respect of the restraint in cl 10 of the 2009 contract, it is sufficient for Spicers to rely on the undertaking that Mr Cunningham has given to comply.

[56]     In other respects, the application is dismissed.

[57]     On a superficial assessment, the defendants have successfully opposed the present application and ought therefore to be entitled to costs.  However, steps on the present application were well advanced when Mr Cunningham changed his position by providing the undertaking that obviated the need to argue for continuation of a restraint under cl 10 of the 2009 contract.  In those circumstances, I am not minded to make any order as to costs.

Dobson J

Solicitors:

Chapman Tripp, Wellington for plaintiff

Carlile Dowling, Napier for defendants