Spicers Portifolio Management Limited v Cunningham Financial Services Limited

[2013] NZHC 3523

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2013-441-000428 [2013] NZHC 3523

BETWEEN  SPICERS PORTFOLIO MANAGEMENT LIMITED

Plaintiff

ANDCUNNINGHAM FINANCIAL SERVICES LIMITED

First Defendant

LESLIE JAMES CUNNINGHAM Second Defendant

FORSYTH BARR LIMITED Third Defendant

Hearing:                   19 December 2013 (at Wellington) Counsel:     B A Scott and B J Murphy for Plaintiff

P B Churchman QC for Defendants

Judgment:                19 December 2013

JUDGMENT OF COLLINS J

Introduction

[1]      This judgment explains why I have granted an interim injunction restraining Mr   Cunningham   and   his   company,   Cunningham   Financial   Services   Ltd (Cunningham Financial) from soliciting or trading on behalf of any clients of Spicers Portfolio Management Ltd (Spicers) without Spicers’ consent.

Background

[2]      Mr   Cunningham   is   the   principal   of   Cunningham   Financial.      Until

13 September 2013 Cunningham Financial was engaged by Spicers as a financial adviser.   Cunningham Financial provided financial services and provided Spicers’

SPICERS PORTFOLIO MANAGEMENT LIMITED v CUNNINGHAM FINANCIAL SERVICES LIMITED [2013] NZHC 3523 [19 December 2013]

products and services to clients in the Hawke’s Bay region.  On 13 September 2013

the agreement between Cunningham Financial and Spicers came to an end.

[3]      Mr Cunningham is now associated with Forsyth Barr Ltd (Forsyth) which also provides financial services to clients in the Hawke’s Bay area and other parts of New Zealand.

[4]      The   agreement   between   Cunningham   Financial   and   Spicers   is   dated

28 August 2009 (the agreement).

[5]      Clause 10.1 of the agreement provides that Cunningham Financial would not undertake any work for, be engaged by, or provide services for, or solicit or contact directly or indirectly any of Spicers’ clients without the express written permission of Spicers,  for  a  period  of  at  least  six  months  following  the  termination  of  the agreement.

[6]      In his affidavit filed in support of the application Mr White, the Managing

Director of Spicers explains:1

... 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.       Since Mr Cunningham’s   resignation   letter,   there   have   been   22   investment portfolios closed with a total value of over $4.7m.   These figures exclude portfolios closed due to personal circumstances and/or transfers to other identified  advisers/providers.     This  is  an  unusually  high  number  of investment portfolio closures.

In the first ten working days of December 2013, Spicers has experienced 3 portfolio closures with a total value of $863k.

...

In my opinion, Mr Cunningham is simply acting in flagrant disregard of his contractual obligations in the hopes that the Christmas and new year period will intervene before Spicers can take any action, by which time the damage may already have been done.

[7]      Mr White annexed to his affidavit letters from five clients dated 29 October,

20 November, 21 November and 11 December 2013 (one letter was not dated) which contained instructions to Spicers to transfer their portfolios to Mr Cunningham.

[8]      Spicers  sought  an  undertaking  from  Mr  Cunningham  and  Cunningham Financial    that    they   would    desist    from    engaging   with    Spicers’   clients. Mr Cunningham has not given the undertaking sought by Spicers and has said that he has not:

... approached any former clients of Spicers.   A number of clients have contacted me without any solicitation on my part, at which point I explained that I was subject to a restraint of trade provision.  In some instances, clients expressed a strong desire to move their accounts regardless of the restraint of trade, and, in such instances, I suggested that they contact Spicers to see what could be arranged.   I have subsequently learned that most of these clients indicated, when withdrawing their accounts from Spicers, that the account would be coming to me.   In my opinion, this indication from the clients, and the fact that these transfers were not drawn to my attention as being allegedly in breach prior to Monday of this week, meant that Spicers knew full well that the clients were transferring to me, and chose to allow me to deal with them.

I confirm that  apart  from in  the  instance  referred to  above,  I have  not accepted or undertaken any work for any of my former Spicers clients, and, I confirm that I am aware of my obligations not to solicit work from them for a period of six months.

However, while I accept the period of non-solicitation of six months and undertake to comply with this obligation, my view is that the non-dealing part of clause 10.1 is prima facie void and is not enforceable.  In any event, Spicers conduct in condoning the transfers knowing that the accounts were coming to me, means that they cannot rely on clause 10.1 before the Court.

Is there a serious question to be tried?

[9]      Contractual provisions that constitute a restraint of trade are prima facie void and  therefore unenforceable.    However,  where  the party seeking  to  enforce  the restraint provision establishes that the restraint is reasonable, it may be enforceable.2

[10]     In the present case Cunningham Financial does not take issue with the non- solicitation provision of cl 10.1 of the agreement.  It is clear from Mr Cunningham’s letter that  he does  take  issue with  the non-trading provisions  of cl  10.1  of the

agreement.  Thus, the principal issue is whether there is a serious question about the enforceability of the non-trading provision of cl 10.1 of the agreement.

[11]    I have reached the view that there is a serious question as to whether Cunningham Financial have breached the non-trading portion of cl 10.1 of the agreement and whether that part of the agreement is in fact enforceable.   I have reached this conclusion because the parties clearly agreed at the time the agreement was executed that Cunningham Financial would not trade on behalf of Spicers’ clients for a period of at least six months following the termination of the agreement. There is, in my opinion, a serious question to be determined about whether this part of the agreement is enforceable and whether or not Cunningham Financial should be required to adhere to its obligations.

Balance of convenience

[12]     The balance of convenience strongly favours preservation of the status quo until issues about the enforceability of cl 10.1 of the agreement can be resolved. However,  the  balance  of  convenience  argument  has  its  limitations.     In  my assessment, it would be wrong to allow any interim injunction to last longer than the expiration of the six month period referred to in cl 10.1 of the agreement.  For this reason I propose limiting the duration of the interim injunction.

Overall justice of the case

[13]     I have assessed whether or not the overall justice of the case favours the granting of an interim injunction.  I believe that it is in the interests of both Spicers, and all defendants for the issues that have been raised by this proceeding to be properly ventilated and examined. This requires the issuing of an interim injunction.

Conclusion

[14]     For these reasons I have granted the interim injunction sought by Spicers. However, the interim injunction will expire at noon on 7 February 2014 unless extended  by  order  of  this  Court.    The  interim  injunction  will  apply  only  to Mr Cunningham and Cunningham Financial.

D B Collins J

Solicitors:

Chapman Tripp, Wellington for Plaintiff