Spicers Portfolio Management Limited v Wilmac Financial Services Limited
[2015] NZHC 34
•27 January 2015
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV2015-412-000007 [2015] NZHC 34
BETWEEN SPICERS PORTFOLIO MANAGEMENT
LIMITED Plaintiff
AND
WILMAC FINANCIAL SERVICES LIMITED
First Defendant
BRENT WILSON Second Defendant
HUGH FRANCIS MCINTYRE Third Defendant
Hearing: 22 January 2015 Counsel:
JWJ Graham for Plaintiff
Judgment:
27 January 2015
JUDGMENT OF WHATA J
Introduction
[1] Spicers Portfolio Management Limited (Spicers) sought an urgent ex parte interim injunction seeking the delivery up of client property, including client records. The immediate alleged background is that the parties entered into a franchise agreement and associated agreement involving the promotion and sale of Spicers’ products by Wilmac Financial Services Limited (Wilmac). The agreement has been terminated but it is claimed that the defendants refuse to hand over the client records
in breach of various clauses of the agreements.
SPICERS PORTFOLIO MANAGEMENT LIMITED v WILMAC FINANCIAL SERVICES LIMITED [2015] NZHC 34 [27 January 2015]
[2] I convened an urgent conference, foreshadowing to counsel for the plaintiff that the best I could reasonably do on an ex parte basis was to make an order requiring the defendants to provide copies of the relevant information. Following the conference I then resolved to make an order to that effect (with compliance required within five working days), together with an order requiring preservation of the client property and granting leave to each of the defendants to seek to have my orders set aside on three working days notice. I also directed that the substantive proceedings be set down for an urgent hearing. The following judgment records my reasons for these orders.
Background
[3] Mr Christopher James White, managing director of Spicers, provided affidavit evidence in support of the application. He exhibits two agreements, a franchise agreement dated 1 November 2010 (the Contract) and a franchise advisers agreement dated November 2009 (the SNA Agreement). It appears that Spicers did not execute the Contract or the SNA Agreement, but Mr White states that it considers that it is bound by them. Spicers claim that under the Contract Wilmac was granted the exclusive right to carry out Spicers’ financial advisory business in the Central Otago Lakes District. It further claims that the first and second defendants (Mr Wilson and Mr McIntyre) were named as advisers. The SNA Agreement is said to record (in short) that Messrs Wilson and McIntyre are contractors to Spicers for the purpose of an agency to promote Spicers products and services.
The Contract
[4] For present purposes, the salient terms of the Contract are recorded below.
BACKGROUND
ASpicers carries on business throughout New Zealand under the valuable trade names “Spicers” and “Spicers Portfolio Management” as financial planners and investment advisers and has knowledge and expertise of such.
B Spicers has exclusive rights to use the name “Spicers” in relation to
its business.
CSpicers wishes to appoint the Franchisee to promote and sell its products and services and to provide investment and financial
planning advice in the Locality and the Franchisee wishes to accept appointment and to carry on such business as a Spicers Portfolio Management Franchisee.
D The Contractor and the Adviser have agreed to carry out certain of
the Franchisee’s obligations under this Agreement.
AGREEMENT
1 Definitions
1.1“Business” means the business of promoting, selling and delivering the Products and Services using the Spicers Portfolio Management System for the purposes of giving financial planning and investment advice carried out by the Franchisee in exercise of the rights granted in terms of this agreement.
1.2“Client/s” means those individuals, firms, associations, trusts or corporations contracted to Spicers who have used or are using any of Spicers advisory or investment services resulting in income attributable to Spicers, or who have been contacted by the Franchisee or the Contractor or the Adviser in the previous twelve months and to whom the use of Spicers services has been proposed either for themselves or another.
1.3“Confidential Information” means information which is designated as such by Spicers or which is information not otherwise publicly available including without limitation, Spicers manuals, investment research, guidelines, marketing material, marketing strategies, administration materials, information technology, CRM materials, Client lists, Client investments or financial information, prospect lists, referrer lists, mode of operation, financial status, business initiatives and the terms of this Agreement.
…
1.9“Products and Services” means the Spicers financial investment, planning and insurance products and services and all other such products and services made available to the Franchisee, including Connect and Optima products and services.
1.10 “Termination Date” means the date on which this Agreement is
terminated.
…
1.12“Spicers Portfolio Management System” means and includes the methods of promotion, selling and management used in or in connection with the sale of the Products and Services to Clients as set out in the Spicers Portfolio Management Manual including the Client Services Manual, the Marketing & Product Manual and the Investment Manual.
…
3 Appointment
3.1 Spicers appoints the Franchisee as its sole representative in the
Locality and grants to the Franchisee in respect of the Locality: (a) the exclusive right to carry out the Business;
(b) the exclusive right in the conduct of the business to trade by reference to the name “Spicers Portfolio Management”, to trade and advertise as an authorised representative of Spicers and as a member of Spicers Portfolio Management;
(c) the benefit of Spicers investment and management knowledge and experience in the promotion and sale of the Products and Services; and
(d) all other rights and benefits accruing to the Franchisee by virtue of this Agreement.
…
3.6The Franchisee warrants and acknowledges that at the commencement date specified in Schedule 1 and for the period of the term of this Agreement that the Franchisee (including the Contractor, the Adviser and any Employee or Agent) is not bound by or subject to a covenant of restraint of trade and is free to perform the obligations in this Agreement.
…
3.8Except as expressly provided in clause 3.7 above, neither the Franchisee nor the Contractor shall assign its rights and obligations pursuant to this Agreement without the prior written consent of Spicers, nor shall the Franchisee or the Contractor permit vicarious performance of its obligations under this Agreement.
3.9The Franchisee and the Contractor shall not, and shall warrant that neither the Adviser nor any other Employee or Agent shall, advertise, promote or otherwise deal in financial planning or investment or insurance advice or services or act as agent for any third party in respect of the same except in relation to the Products and Services or those products and services approved in writing by Spicers. Client requirements may from time to time dictate use of third party services. Prior to engaging any such third party services the Franchisee must obtain Spicer’s consent (not to be unreasonably withheld). The Franchisee protects (on demand) Spicers from any liability associated with those third party services.
…
3.10 …
(d) Except as expressly permitted under this Agreement none of the Franchisee, the Contractor and the Adviser shall at any
time use the name SPICERS as its trading name or as part of its corporate name without the prior approval of Spicers.
…
4.7From the date of any notice given by Spicers for the purposes of clause 4.2 until the breach or failure has been remedied, the Franchisee shall not promote or have any contact with Clients in respect of the Products and Services on its own behalf or for a third party or otherwise promote or sell similar products and services during the period of the notice unless with the prior approval of Spicers.
…
6 The Franchisee’s and Adviser’s Duties and Responsibilities
6.1The Franchisee, the Contractor and Adviser shall, and shall warrant that any other Employee or Agent who advises on or is otherwise involved with the provision of Products and Services shall:
(a) Promote and sell the Products and Services in the Locality and act generally so as to enhance and expand the businesses of Spicers and the Franchisee.
…
(d) Collect, retain and record full and accurate information of and concerning any Client or matter in respect of which financial or investment advice is sought.
…
(k) Observe the copyright and confidentiality of the Confidential Information and obtain prior written approval from Spicers before distributing, disposing of, or otherwise dealing with any part or parts of the Confidential Information.
…
(o) Comply with Spicers’ reasonable directions and instructions in relation to the performance of the Services and any and all obligations under this Agreement.
[5] The Contract also contemplates that business plans will be produced on an annual basis (cl 7) and that the franchisee shall be entitled to revenue sharing (cl 8). Clause 9 sets out the procedure for termination and cl 10 provides for the consequences of termination. In particular, cl 10.4 states:
10.4 Following termination of this Agreement for whatever reason the
Franchisee and the Contractor shall and shall procure that the
Adviser and any other Employees or Agents who have provided
Services to Spicers, pursuant to this Agreement shall:
(a) Provide sufficient evidence and information to Spicers that they have not retained any client lists, prospect lists or referrer lists, or copies in any form or such information and confirm that this is the confidential information and property of Spicers and that they have no right to retain or use it other than expressly provided in this Agreement.
(b) Provide sufficient evidence and information to Spicers that they have ceased to be a Trustee of any and all trusts that they were associated with in their capacity as Franchisee, Contractor, Adviser, Employee or Agent, for Spicers, and that they will not be reappointed to those Trusts and will not continue to receive information regarding the Trusts or the Clients.
(c) Immediately cease providing services to the Clients, cease holding out himself/herself/itself as agent of Spicers, cease use of the Spicers name, logo or brand names and cease to use and return to Spicers any items and materials provided to the Franchisee by Spicers for the purposes of this Agreement.
[6] Clauses 11 and 12 the reinforce obligations of fidelity and confidentiality. Clause 11.1, for example, states:
11.1 The Franchisee, 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 or expiry of this Agreement. The Franchisee, Contractor and the Adviser hold the right to service the clients 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, 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 of the type provided by Spicers to the Clients, whether directly or indirectly, personally or on behalf of any other person; and/or
(d) Derive income from any revenue stream of the type derived by Spicers associated with the Clients
or do anything which is in any way prohibited by this Agreement or any other agreement, following termination or expiry of this Agreement.
The SNA Agreement
[7] The SNA Agreement appoints an independent contractor to promote and sell
Spicers’ products. To this effect clause 3.1 states:
3.1Spicers appoints the Contractor as its non-exclusive agent to promote the Products and Services in the Locality, and the Contractor accepts such appointment, on the terms and conditions set out in this Agreement. The Contractor acknowledges that in consideration for the services provided by the Contractor under this appointment Spicers will pay the Contractor a revenue share on the terms set out in clause 8. The Contractor acknowledges that the Contractor does not acquire a legal or equitable interest in any Clients or any goodwill associated with Clients, by virtue of the Contractor’s appointment.
[8] Clause 3.2 includes the following acknowledgement:
3.2The Contractor acknowledges that on appointment the Contractor receives rights to a revenue share only. The Contractor acknowledges that upon termination of this Agreement the Contractor has no right to deal with the revenue share other than as set out in clause 10.4. Clients and the goodwill associated with the Clients are the property of Spicers and remain so following termination of this Agreement.
[9] Clause 11.1 states:
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, 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.
[10] Clauses 12 also provides for transfer of clients after termination. In particular cls 12.1 and 12.2 state:
12.1If this Agreement has not been terminated pursuant to material breaches under clauses 4.3 or 4.6(d), (e), (g), (h), (i), (j), (k) or (l) then the Contractor may transfer its right to a revenue stream in respect of all or any Clients under this Agreement to another contractor approved by Spicers in accordance with this clause 12.
12.2The Contractor must notify Spicers in writing of its wish to transfer the rights to a revenue share in respect of all or any Clients under this Agreement.
[11] Like the Contract, the SNA Agreement also confirms that Spicers' client information is to remain confidential.
[12] The SNA Agreement does not specify the Contractor, but Mr McIntyre appears to have executed the agreement on behalf of the contractor and Mr Wilson has signed the agreement as the designated adviser.
Termination
[13] Mr White avers that in October 2014 the defendants wrote to Spicers seeking to terminate the agreements with formal notice given on 10 December 2014. It appears that the parties could not agree on the transfer of the contract to another provider as contemplated at cl 12 of the SNA Agreement. Mr White then says that the agreements were terminated by mutual agreement on 15 January 2015. Mr White notes however that the defendants are refusing to deliver up to Spicers' client property and files, being confidential client information. Email correspondence dated 19 December 2014 is attached to Mr White’s affidavit suggesting that Spicers had sought all client records but that Mr Wilson needed satisfying that Spicers would hold the record in accordance with relevant rules and regulations. There is also
correspondence from Mr McIntyre stating that “we have not yet resolved our position on the transfer of records.” On 8 January 2015 Mr McIntyre indicated that it was unlikely that all client records would be returned. Mr White then says that Spicers then made a formal demand for delivery up of client records through solicitors. A without prejudice response was received.
Interim injunction sought
[14] Spicers’ seeks the following orders:
1.1the defendants must within two working days deliver up to the plaintiff all Client property and files (related to any “Clients” as defined in the Contract and SNA Agreement between the parties);
1.2the proceeding be served promptly on the defendants together with a copy of this order;
1.3 the defendants have leave to apply to set aside or vary the orders on
7 days’ notice to the plaintiff;
1.4 the costs of this application be reserved.
[15] The central basis for the orders is that that the defendants are converting Spicers’ property to their use, and that there is no harm to them from the grant of the orders. An undertaking as to damages was also provided.
[16] In a minute dated 22 January 2015 I indicated to Mr Graham for the plaintiff that I did not consider that there was sufficient urgency to warrant the orders sought on an ex parte basis, and that an order requiring production of a copy of the client property should suffice pending a substantive hearing. Mr Graham responded with the following suggested orders:
3.1The defendants are required, until further order of the Court, either: (a) To deliver up to the plaintiff within 2 working days all Client
property and files (related to any “Clients” as defined in the
Contract or SNA Agreement between the parties); or
(b) To:
(i) deliver up to the plaintiff within 2 working days accurate copies of all Client property and files (related to any “Clients” as defined in the Contract or SNA Agreement between the parties); and
(ii) deliver up, to an independent stakeholder agreed by the parties, within 2 working days all Client property and files (related to any “Clients” as defined in the Contract or SNA Agreement between the parties) and confirm such delivery to the Court by memorandum within the same period;
3.2the proceeding be served promptly on the defendants together with a copy of this order;
3.3 the defendants have leave to apply to set aside or vary the orders on
7 days’ notice to the plaintiff;
3.4 the costs of the application be reserved; and
3.5 the matter be scheduled a half day inter partes hearing at the Court’s
first opportunity.
Assessment
[17] I adopt the orthodox two pronged test for interim injunctions, namely:1
(a) there must be a serious issue to be tried; and
(b)I must be satisfied that the balance of convenience lies with the grant of the injunction.
[18] It transpires that I considered I was able to deal with the application summarily, though not in terms of the orders sought.
Serious Issue
[19] I immediately observe that based on both or either of the agreements, it is seriously arguable that Spicers retained its interests in client information. Given their significance, I repeat the last sentence of clause 3.2 and opening sentence of cl 11.1 of the SNA Agreement namely:
3.2… Clients and the goodwill associated with the Clients are the property of Spicers and remain so following termination of this Agreement.
…
1 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
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.
[20] Given this clear statement of position I have little trouble in finding that Spicers enjoys a seriously arguable case for access to and retention of client files and information. For a similar reason I consider that Spicers quite properly seeks to be able to properly manage its client portfolio previously subject to the Contract and the SNA Agreement for obvious commercial but also for regulatory reasons.
Balance of convenience
[21] While that is so, this is an ex parte application and I am concerned that if I grant the interim injunction as sought, I will effectively dispose of the substantive proceedings in favour of the plaintiff without hearing from the defendants. From the available correspondence I can see that the defendants have concerns about their regulatory obligations to the clients subject to the SNA Agreement and appear to have a commercial claim that they seek to have resolved prior the transfer of client files. I also gather from the correspondence attached to Mr White’s affidavit that a process for client transfer is already in play, as envisaged by the SNA Agreement. I have also noted that Mr McIntyre denied that he is subject to the Contract. Furthermore, in terms of the SNA Agreement, sch 6 contemplates arbitration. Mr Graham did not address the significance of this clause (and its mirror clause at the fourth schedule of the Contract). In these circumstances I am not prepared to effectively make final orders in favour of the plaintiff without hearing from the defendants.
[22] Against this background, the most I was prepared to on an ex parte basis is place Spicers in the position of being able to manage their client portfolio subject to the Contract and the SNA Agreement if that proves necessary, pending the resolution of the substantive proceedings, by way of a copy of the records being made available to Spicers within five working days. I consider that the agreements provide a clear and proper basis for this course. I also understand from counsel that this was one solution offered by the defendants as a holding position, though it appears that this offer was later withdrawn because of practical difficulties. Given this last issue, as well as the prospect of substantive matters being raised, I also granted leave to the
defendants to seek to have these orders set aside on three working days’ notice. That, in my view, is where the proper balance of interests lies.
[23] As to the type of orders, the plaintiff ’s concerns about management of clients, and regulatory compliance justify orders requiring that a copy of all client files subject to the Contract and the SNA Agreement be made available to Spicers within five working days. I do not consider that it is sufficient to force Spicers to rely on damages to remedy any issues that may arise from Spicers current incapacity to manage its clients. Any concerns that the defendants may have can be remedied (if necessary) by granting them leave to have my orders reversed on three working days’ notice.
[24] The following orders were made accordingly:
(a) The first, second and third defendants are to provide copies of all client property and files, as defined by the Contract and the SNA Agreement, to the plaintiff within five working days;
(b)The first, second and third defendants must preserve all of the client property and files, as defined by the Contract and the SNA Agreement;
(c) The substantive proceedings are to be set down for an urgent hearing;
and
(d) Leave is granted to each of the defendants to seek to set aside these
orders on three working days’ notice.
[25] On reflection I consider that the suggestions made by the plaintiff as to service are appropriate and a telephone conference should be convened as soon as practicable.
Solicitors:
Chapman Tripp, Auckland
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