Team Group Realty Limited t/a Harcourts Paremata v Cardno
[2024] NZHC 553
•14 March 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2024-485-123
[2024] NZHC 553
BETWEEN TEAM GROUP REALTY LIMITED
TRADING AS HARCOURTS PAREMATA
Plaintiff/ApplicantAND
MARTIN CARDNO
First Defendant/Respondent
AND
TANYA DAVIES
Second Defendant/Respondent
AND
HOLLY WILLIAMS
Third Defendant/Respondent
AND
RALPH KINDL
Fourth Defendant/Respondent
AND
TONY FITZSIMONS
Fifth Defendant/Respondent
Hearing: 7 March 2024 Counsel:
G Cain and L Clark for Plaintiff/Applicant
T L Clarke and F J Cuncannon for Defendants/Respondents
Judgment:
14 March 2024
JUDGMENT OF ISAC J
[Application for interim injunction]
TEAM GROUP REALTY LIMITED TRADING AS HARCOURTS PAREMATA v CARDNO [2024] NZHC 553 [14 March 2024]
Introduction
[1] The applicant, Team Group Realty Ltd, operates the Harcourts real estate franchise in the Paremata and Porirua areas of greater Wellington (Harcourts). Until recently, the respondents were engaged by Harcourts as real estate agents and its sales manager.
[2] In December 2023, the respondents all resigned within a matter of days of each other. Five weeks later a rival real estate agency, Bayleys, opened a new office in the area. All five respondents began advertising and marketing as newly engaged agents for Bayleys.
[3] On 30 January 2024, Bayleys listed its first property for sale. Within a few weeks, Bayleys had listed seven properties which had been appraised by the first four respondents while they were agents working with Harcourts.
[4] On 9 February 2024, Harcourts wrote to the respondents seeking undertakings that they would comply with non-competition, confidentiality and non-solicitation obligations contained within their various independent contract agreements. When those undertakings were not forthcoming, Harcourts filed an on-notice application for an interim injunction.
[5] Justice Churchman made timetabling directions on 26 February 2024,1 and directed an urgent hearing of the application. Having heard from the parties on 4 March 2024, I reserved my decision.
[6] I have reached the clear view it is appropriate to grant the application for an interim injunction restraining the first to fourth respondents from continuing to operate in breach of their obligations to Harcourts. My reasons follow.
1 Team Group Realty v Cardno HC Wellington CIV-485-123, 26 February 2024 (Minute of Churchman J) at [13].
Interim injunctions to enforce restraints of trade
[7] The approach to consideration of interim injunctions is well settled.2 Such applications should be determined by assessing:3
(a)whether there is a serious question to be tried;
(b)the balance of convenience; and
(c)where the overall justice lies.
[8] At the interlocutory stage the Court is not required to resolve conflicts of evidence or resolve difficult questions of law requiring detailed argument and mature considerations.4
[9] Contractual provisions that constitute a restraint of trade are prima facie void and therefore unenforceable. Nevertheless, where a party seeking to enforce the provision establishes that the restriction is reasonable, it may be enforced.5 Reasonableness is assessed at the time of the contract.6 The first enquiry is whether the applicant has “an interest which in all the circumstances was protected”.7
[10] A further consideration is whether the restraint is reasonable in light of the public interest. This inquiry is concerned to ensure that the restraint is properly
2 See Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344, [2020] NZCCLR 29 at [24].
3 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142, as cited in Intellihub v Genesis Energy, above n 2, at [23]. See also NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12].
4 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 407; Villa Maria Wines Ltd v Montana Wines Ltd [1984] NZLR 4 22 (CA) at 425 and Health Club Brands Ltd v Colven [2013] NZHC 428 at [9].
5 Skids Programme Management Ltd v McNeill [2012] NZCA 314, [2013] 1 NZLR 1 at [36], citing Blacker v New Zealand Rugby Football League (Inc) [1968] NZLR 547 (CA) and Brown v Brown [1980] 1 NZLR 484 (CA), following Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 (HL).
6 Mike Pero (New Zealand) Ltd v Heath [2015] NZHC 2040 at [39], citing Washworld Corporation (Leases) Ltd v Reid (1998) 8 TCLR 372 (HC) at 385.
7 Skids Programme Management Ltd v McNeill , above n 5, at [41], citing Mike Pero (New Zealand) Ltd v Exact Solutions Ltd HC Wellington CIV-2007-442-66, 1 April 2007 at [22]; Video Ezy International (NZ) Ltd v Cameron (2004) 8 NZBLC 101,550 (HC); Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 8 TCLR 612 (HC) at [275]; and Washworld Corporation (Leases) Ltd v Reid, above n 6, at 385.
referable to the protection of interests which the law regards as legitimate.8 Generally, if the restraint is properly limited, it will not be contrary to the public interest to give effect to it.9 As Moore J observed,10 the policy interest underpinning this principle is that the market for goods and services should not be distorted by the unreasonable diminution of consumer choice arising from private restrictions on those willing to offer their goods and services to the market. This is likely to lead to monopolies and negative economic consequences.
[11] Where the grant of an interim injunction will have the practical effect of becoming a final judgment or putting an end to an action, the Court should bear in mind that it does so without permitting the defendant the right of trial. In such cases, the Court should be slow to decide the entire contest between the parties on what is in effect a summary basis.11
[12] The Court also has a power to delete, modify or decline to enforce restraints of trade. Section 83 of the Contracts and Commercial Law Act 2017 (CCLA) provides:
83 Restraints of trade
(1)The court may, if a provision of a contract constitutes an unreasonable restraint of trade,—
(a)delete the provision and give effect to the contract as amended; or
(b)modify the provision so that, at the time the contract was entered into, the provision as modified would have been reasonable, and give effect to the contract as modified; or
8 Washworld Corp (Leases) Ltd v Reid, above n 6, at 383. In Skids Programme Management Ltd v McNeill, above n 5, at [51]-[52], the Court of Appeal noted that more recent decisions have revealed little sympathy for sweeping public interest claims. Nevertheless, the Court also observed that “in some respects, the franchise situation may be more akin to that of an employment contract than to that of a vendor by purchaser contract. Unlike the position in a vendor/purchaser context where the grantor of the restraint of trade received a sum of money from the grantee, the grantor for the restraint of trade clause in a franchise context has in fact paid money itself to the grantee, rather than receiving money. The grantor provides a restraint of trade clause as part of its endeavour to obtain a source income from the franchise, just as an employee provides a restraint of trade for the opportunity to earn income from employment.”
9 Washworld Corp (Leases) Ltd v Reid, above n 6, at 385.
10 Mike Pero (New Zealand) Ltd v Heath, above n 6, at [34].
11 In Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd above n 3, at 138, Davison CJ referred to the Court of Appeal of England and Wales’ decision in Cayne v Global Natural Resources Plc [1984] 1 All ER 225. Kerr LJ noted at 236 that if the position in that case were viewed as an application for summary judgment that it would be clear beyond argument that Global must be entitled to a full trial, and in that context, it would be wholly wrong to decide the case summarily.
(c)decline to enforce the contract if the deletion or modification of the provision would so alter the bargain between the parties that it would be unreasonable to allow the contract to stand.
[13] There are differing views in the High Court as to the appropriateness of the Court exercising a power under s 83 (or its predecessor s 8 of the Illegal Contracts Act 1970) at the interlocutory stage. For example, in Grigg Auto Sales v ACP Media Ltd,12 the High Court accepted that the District Court had the power to consider whether to modify a restraint in the context of an interim injunction.13 However, in two subsequent decisions of this Court, doubt has been cast on the appropriateness of exercising the power at an interlocutory stage. First, in Deacon Holdings Ltd v Colenso Holdings Ltd,14 Smellie J considered it was inappropriate to exercise the power before trial. A similar view was expressed by Moore J in Mike Pero (New Zealand) Ltd v Heath,15 where His Honour noted:
[53] Even if a Court or an arbitrator ultimately determines that the restraints extend beyond what is reasonable the remedies for an adjustment may be made under s 8 of the Illegal Contracts Act 1970. That is a question to be addressed at the substantive phase of the dispute when there is a more comprehensive body of evidence; not at an interlocutory stage.
[14] There are undoubtedly difficulties for a court wishing to exercise a broad statutory power to modify terms of a contract before trial. A better view may be to consider the reasonableness of the restraint and the likely need for modification as a factor informing the interests of justice and the extent of relief if granted.
Background
The parties
[15] The applicant company operates four Harcourts franchises covering much of the lower North Island. The Paremata office provides services to the area from Tawa to Pukerua Bay.
12 Grigg Auto Sales v ACP Media Ltd HC Wellington CIV-2003-485-932, 5 June 2003, per Ronald Young J.
13 At [32].
14 Deacon Holdings Ltd v Colenso Holdings Ltd HC Auckland CP 125-SW00, 12 April 2000 at [21].
15 Mike Pero (New Zealand) Ltd v Heath, above n 6, at [53].
[16] Prior to 30 January 2024, when Bayleys opened its Paremata office, there were three other major real estate companies operating in Harcourts’ area. Data indicates Harcourts enjoyed the greatest market share. The average market share between December 2022 and January 2024 was 50 per cent. Harcourts’ market share was 65 per cent in July 2023 and 67 per cent in September 2023. It was still high in October and November, at approximately 50 per cent, but began to tail off in December—when the fifth respondent, Mr Tony Fitzsimons—resigned. In January 2024, Harcourts’ market share was down to 36 per cent, the lowest it had been over the two-year period, which coincides with the period when the respondents left Harcourts.
[17] Harcourts employs a sales manager. The manager is responsible for supervising three “sales teams” (who are led by a senior real estate agent), as well as individual salespeople. The individual salespeople outside the teams do not market themselves alongside other salespeople, and operate independently. They typically require more support from the sales manager as a result.
[18] Mr Fitzsimons was originally employed by Harcourts on 11 June 2015 to act as its sales manager on a fixed term contract. The fixed term was renewed, and after its expiry, until his resignation, it appears he continued to work for the company on the same terms and conditions.
[19] The four other respondents, Mr Martin Cardno, Ms Tanya Davis, Mr Ralph Kindl and Ms Holly Williams, were each independent contractors engaged as individual salespeople by Harcourts. All four began between February 2020 and February 2022, and had varying degrees of previous experience. Mr Cardno has over 20 years working with a range of firms. By contrast, Ms Davis, Mr Kindl and Ms Williams are relative newcomers with only a few years’ experience.
[20] Agents are paid on a commission basis, calculated by reference to the fees payable to Harcourts by a vendor on the unconditional sale of a property. The agency and the agents split the commission in agreed proportions. Some of the commission is in turn payable by Harcourts to a national franchise.
Confidential information, leads, appraisals and listings
[21] A central point of controversy between the parties relates to the scope of Harcourts’ confidential information.
[22] In reply affidavits of Martin Ritchie and Vanessa Balfour on behalf of the applicant, Harcourts contends that “client leads” are the confidential information of the business and the respondents are not at liberty to use that information on leaving.
[23] Their evidence is that a real estate agent will commonly have a “pipeline” of work. The pipeline begins with client leads. These are potential vendors whom the agent or the real estate agency know are interested in selling a property. Agents prospect client leads in the hope of securing a listing agreement. The first step of such marketing usually involves producing a market appraisal for the property owner. In preparing the appraisal, the agent is likely to have recourse to their own knowledge of the local market as well as other information held by an agency or available through it. Once an agent has provided an appraisal, they will seek to negotiate a listing agreement, which commonly provides the real estate agency (Harcourts) with the exclusive right to market and sell the property for a fixed period.
[24] Ultimately, not all leads will result in a listing, and not all listings will result in sale of the property and a commission. It follows that the pipeline which begins with client leads narrows at each step of the process.
[25] Much of the information relating to potential leads will be obtained through the work of individual salespeople rather than the agency. The agents develop networks and connections within a market, which they are able to draw on to secure new listings. Harcourts provided a private database platform for its agents, and its evidence is that it required agents to log information relating to potential leads within its system. Client information commonly retained includes not only the client’s name and contact details but also the listing fee that might have been agreed and information personal to the client including:
(a)whether they are price sensitive (and if so, at what level); and
(b)personal and family information relevant to marketing to them in the future.
[26] While Harcourts claims client leads are the confidential information of the business, and therefore subject to restraints on use if an agent leaves the agency, the respondents’ case is that leads are either personal to an agent, and therefore the property of the agent, or they are “agency leads”, derived from and through Harcourts. The respondents’ position is that agent leads are not Harcourts’ confidential property, and they are at liberty to use it on termination of their individual contracts.
[27] Similarly, the respondents argue that only a listing—that is, where a client has entered into a listing agreement with Harcourts—is confidential information, or subject to contractual restrictions. They say that they have not taken any listings from Harcourts, and listings they might have generated in their new relationship with Bayleys built on personal connections and leads they obtained while engaged with Harcourts are theirs to enjoy free from interference from the applicant.
[28] In addition to information on client leads and listings, Harcourts’ evidence is that the respondents were privy to other sensitive and confidential commercial information derived from their engagement with Harcourts. This includes Harcourts’ pricing information in relation to setting commissions, as well as advertising and sundry costs charged by Harcourts as part of a listing agreement. On behalf of Harcourts, Mr Cain submitted that this pricing information, including the level of discretion in relation to fixing commissions, provides the respondents with a distinct commercial advantage in the market. Now that they have left Harcourts, they are able to use Harcourts’ pricing information to determine a price point at which they might be able to secure a listing on behalf of Bayleys.
The business relationships come to an end
[29] In early December 2023, Mr Ritchie, Harcourts’ Chief Executive, had a discussion with Mr Fitzsimons about his plans for the future. Mr Fitzsimons confirmed that he would be leaving Harcourts but did not know where he would be working. Mr Fitzsimons then gave notice of his resignation on 8 December 2023.
Rather than work out his notice period, Harcourts preferred to end his employment immediately and paid him out.
[30] Mr Fitzsimons returned his work laptop and telephone after a “factory reset” had been performed. Mr Fitzsimons says that he did so because both devices contained personal information, but he acknowledges that a better course would have been to return the devices while asking Harcourts to protect and delete any sensitive information. Mr Fitzsimons did not return any other property to Harcourts, including hard copy or electronic information previously held about Harcourts’ business.
[31] In addition, Harcourts’ evidence is that Mr Fitzsimmons preferred to keep a manual record of information about tenders in a red notebook. Mr Ritchie deposes that the red notebook is likely to contain full details of the tenders Mr Fitzsimons or the four other respondents were involved in, including key conditions, vendor and purchaser names, the salesperson representing them, property details including the price the vendor is seeking, as well as the value of the competing bids that had been received for the property. Mr Ritchie also deposes that the information in Mr Fitzsimons’ red book is highly sensitive and would be very valuable to Mr Fitzsimons and the agents in their work at Bayleys, because they could use it to more effectively market to Harcourts clients. In response, Mr Fitzsimmons deposes that the red notebook is in fact a black personal diary, which he used to record “certain information about tenders because I was not familiar with [Harcourts’] spreadsheets when I first joined…”. He says he is happy to make his diary available for Harcourts to inspect and that he has removed “any personal information”.
[32]Following Mr Fitzsimons’ resignation on 8 December:
(a)Ms Davis resigned on 22 December 2023;
(b)Ms Williams resigned the same day;
(c)Mr Cardno resigned two days later, on Christmas Eve;
(d)Mr Kindl resigned on 27 December 2023.
[33] Harcourts’ evidence indicates that on departing the respondents did not return any information relating to leads, appraisals or client contacts. Typically, Mr Ritchie would expect a working agent to have several leads that have not yet materialised into a listing, and this information is required to be passed on to Harcourts so that it can be followed up with the view to converting it into a listing.
[34] On 26 January 2024 Mr Cardno and Ms Williams changed their profiles so that they were now identified as working for Bayleys. This was the first time Mr Ritchie and Harcourts became aware they had joined Bayleys.
[35] On 30 January 2024, Mr Ritchie became aware the Bayleys website had added a page for a new “Paremata office”. That office is situated 300 metres from Harcourts’ premises. The website also indicated that Mr Cardno, Ms Davis, Ms Williams and Mr Kindl together with Mr Fitzsimons had become agents and sales manager respectively of the new Bayleys Paremata office.
[36] This discovery led Harcourts to write to each of the respondents on 9 February 2023 seeking undertakings that they would comply with the obligations set out in their individual contracts. This included obligations not to compete in some cases as well as restrictions on the use of confidential information. A response was requested by 14 February 2024. On 14 February the respondents advised Harcourts that they would be seeking legal advice and would respond in due course.
[37] In the meantime, Bayleys began listing properties in Harcourts’ market area (Paremata to Tawa).
[38] Mr Cardno, Ms Davis, Ms Williams and Mr Kindl each listed a property for sale within the first three days of the opening of Bayleys’ office. The evidence for the parties also indicates that the time it takes to develop a lead into a listing is commonly 30 to 60 days. The obvious inference, which the respondents do not shy away from, is that to list properties for Bayleys so quickly the respondents must have converted leads obtained while working with Harcourts.
[39] The evidence also clearly establishes that seven of the nine properties listed by the respondents since moving to Bayleys were the subject of written appraisals they had completed while working for Harcourts, using Harcourts systems, and leads otherwise obtained by them while engaged by Harcourts.
[40] In addition to the speed with which the respondents have been able to begin listing properties are the following relevant facts, none of which are in issue:
(a)an email containing a LIM report was sent by one of Bayleys’ new vendors to Mr Fitzsimons at his old Harcourts email address on 24 January 2024. This sale is apparently being managed by Mr Kindl for Bayleys. While Mr Fitzsimons deposes that the vendor is a friend of his wife, and he passed the lead to Mr Kindl, a strong inference that may be drawn is that Bayleys’ vendor had been dealing with Mr Fitzsimons while he was still employed by Harcourts;
(b)on 21 December 2023, the day before Ms Williams resigned, she downloaded a CSV file comprising part of her Harcourts client database, containing 98 contacts. Ms Williams deposes she did so as part of an intended mailout as she had not at that stage decided to leave Harcourts. I am unable to accept that explanation, even on the papers;
(c)similarly, over a month earlier, Mr Kindl downloaded a CSV file of part of his Harcourts client database, comprising 811 contacts. Once more, he did so without the knowledge of or consent of Harcourts;
(d)in addition, Bayleys uploaded an article to their website stating that the respondents would be using their “local insight”, “combined network of qualified purchasers”, and the “strength of their established presence and exhaustive networks”. In other words, the respondents were marketing themselves as having knowledge of, experience in, and important contacts within Harcourts’ market.
Contract terms
[41] The relevant terms of the first four respondents’ independent contractor agreements (agreements) are in some material respects different.
Mr Cardno
[42] Clause 29 of Mr Cardno’s agreement contained what Harcourts described as a 90 day non-solicitation obligation. It provides:
29.RESTRAINT ON COMPETITION
29.1The salesperson shall not for a period of 90 days after the termination of this agreement either on the salesperson’s own account or as a consultant to or a partner, agent, trustee, employee, shareholder, member or director of any other person, company or business directly or indirectly solicit or entice in competition with the company the custom of any person, business or organisation who has at any time during the term of the salesperson’s employment with the company received the services of the company or who has been listed as a prospective client of the company or is employed by the company or is engaged by the company as an Independent Contractor.
29.2Any breach of this provision by the salesperson shall entitle the company to forfeit and retain as liquidated damages any commission due to the salesperson.
[43] In addition, cl 18 of Mr Cardno’s agreement provided that he would not at any time:
… either directly or indirectly utilise or divulge to any person any knowledge or information, which you may acquire or may have already acquired concerning the business affairs, operating methods, know-how, strategic plans, property, customers, clients or principals of the Company or the business.
[44] At cl 19 of the agreement, Mr Cardno accepted that all listings he obtained during the term of the agreement would remain the property of the company. In addition, he agreed that upon termination, he would not:
… directly or indirectly encourage or entice any vendors who have listed property with the Company to withdraw any of those listings from the Company, or take or refrain from taking any step that would or might have that effect.
[45] It follows Mr Cardno’s agreement did not contain a non-competition clause, and the non-solicitation obligation subsists for 90 days.
[46]Finally, cl 21 of the agreement provides that:
Client databases used or compiled by you during the term of this agreement shall be the property of the Company, provided that this clause shall apply only to those databases or those parts of databases containing business contacts (as opposed to those databases or those parts of databases containing your family and friends).
Ms Davis, Ms Williams and Mr Kindl
[47] The relevant agreements between Harcourts and Ms Davis, Ms Williams and Mr Kindl are in largely identical terms. They contained restraints of trade provisions as well as terms relating to confidentiality and non-solicitation.
[48] Clause 21 deals with ownership and use of Harcourts’ confidential information in these terms:
21.CONFIDENTIALTY
21.1Except in the proper performance of Your duties during the term of this Agreement, You shall not at any time either directly or indirectly utilise or divulge to any person any knowledge or information, which You may acquire or may have already acquired concerning the business affairs, operating methods, trade secrets, know-how, strategic plans, property, customers, clients or principals of the Company or the business. You shall use Your best endeavours to prevent the publication disclosure or utilisation of such information by others. This restriction shall apply equally after the termination of this Agreement as during the term of it.
[49]Clause 29 sets out the terms dealing with non-solicitation and restraint of trade:
29. RESTRAINTS
…
29.3Non-Solicitation
29.3.1You acknowledge and agree with the Company that You shall not for a period of six (6) months after the termination of this Agreement:
29.3.1.1canvas or solicit in competition with the Company the custom of any person or entity in Paremata who has at any
time during the period of this Agreement been a client or supplier of the Company; or
29.3.1.2employ, or offer employment, or cause employment to be offered, to any person or entity that at any time during the period of six (6) months before such termination shall have been an employee or contractor of the Company.
29.3.2You acknowledge and agree that Your remuneration, as set out in Schedule A to this Agreement, has a specific component, which is being paid to You as consideration and compensation for You entering into this non-solicitation provision.
29.4Restraint of Trade
29.4.1You knowledge and agree with the Company that You shall not, for a period of six (6) months after the termination of this Agreement; either alone or as an employee, contractor or the like, directly or indirectly carry on or be engaged or concerned in any business, which competes with any aspect of the business of the Company and which is located in the Porirua area.
29.4.2You also acknowledge that:
(a)the prohibitions and restrictions contained in this clause are reasonable and necessary to protect the goodwill of the Company;
(b)Your remuneration, as set out in Schedule A to this Agreement, has a specific component, which is being paid to You in compensation and consideration for You entering into this restraint of trade provision; and
(c)the prohibitions and restrictions contained in this clause are for the benefit of the Company and its successors and assigns who are the legal owners of the Company and that the benefit of such prohibitions and restrictions may be assigned with the goodwill of the Company.
[50] The non-solicitation and restraint of trade clauses for Ms Davies (and in particular cls 29.3.2 and 29.4.2(b)) contain acknowledgments by the agent that the restraints are warranted by reference to a remuneration “set out in schedule A”. While there is no doubt Ms Davies received remuneration under the agreements, there is no schedule A attached to them. The other two agents; Mr Kindl and Ms Williams’ agreements refer to remuneration “set out in Clause 12”.
[51] There are also differences between the non-competition clauses’ description of the relevant market area. Ms Davis’ agreement prohibits competition within the “Porirua area”. By contrast, Ms Williams and Mr Kindl’s agreements describe the relevant area as the “Tawa to Pukerua Bay area”.
Serious issue to be tried?
The case for the parties
[52] Based on the evidence, Harcourts submits there is a serious question to be tried in terms of the following claims:
(a)that Mr Cardno and Mr Kindl breached their obligations in relation to the provision of notice;
(b)Mr Cardno, Ms Davis, Ms Williams and Mr Kindl breached their obligations in relation to confidential information, return of Company property and non-solicitation;
(c)Ms Davis, Ms Williams and Mr Kindl breached their six-month non- competition obligations; and
(d)Mr Cardno’s breaches of his obligations (including breach of confidence) mean that he should be restrained on a “springboard” basis.
[53] In response, Mr Clarke for the respondents submits Harcourts has not overcome the relatively low hurdle of establishing a reasonably arguable case.16
[54] First, it is said the applicant has not identified with any specificity the confidential information which the respondents have allegedly misused or which could support an enforceable restraint of trade.
16 Plumpton v Terry [2015] NZHC 1089 citing Harvest Bakeries Ltd v Klissers Farmhouse Bakeries Ltd, above n 3. See also Andrew Beck Principles of Civil Procedure (2012, Brookers Ltd, Wellington) at 164.
[55] In support of this argument, the respondents point to the terms of their agreements, which appear to focus protections on listings rather than leads or other forms of confidential information. Mr Clarke argues that the evidence suggests that agent leads are beyond the scope of Harcourts’ proprietary interests and, in effect, are the property of the agents to use as they wish. Moreover, the respondents did not receive payment of commission or any other remuneration for their time and effort generating leads. Their only remuneration was derived from the unconditional sale of property. Generating leads does not require particular skill; they consist of relatively basic information (identifying the property, the name of the owner and their contact details), and this contrasts with trade secrets and other information which has been held to be proprietary information capable of protection by law.
[56] Mr Clarke also argues that Harcourts took no steps to protect the respondents’ leads. For instance, they did not require the respondents to enter leads into a customer database or require them to complete a leavers check list before leaving the agency. While there is some limited information that may have been taken by some agents (Mr Cardno’s historical appraisals; Mr Kindl’s and Ms William’s CSV files, and Mr Fitzsimons personal diary), the respondents have not retained any information which might be characterised as confidential information. Regardless, they have offered to return or destroy what documentary or electronic material they may have.
[57] In relation to the non-solicitation restrictions in the agreements, the respondents argue that the relevant restraints are limited to soliciting “clients” of the applicants, not prospective clients. The wording of the relevant clauses does not expressly include leads or prospective clients. And, as explained already, a lead will not become a client until converted into a listing.
[58] In relation to the relevant non-competition clauses, the respondents argue they are not enforceable for a number of reasons:
(a)First, restraint of trade clauses cannot be used to protect against competition per se. They are only enforceable where they protect “trade secrets and other confidential information”. As Harcourts has been
unable to identify any confidential information, the restraint of trade clauses are contrary to public policy and unenforceable.
(b)Second, non-competition clauses only extend to the protection of goodwill in cases involving the sale and purchase of a business. The necessary business interest does not arise in this case, which is more akin to an employment case. The respondents seek to distinguish the judgment of this Court in Redcoats Ltd v Day on the basis that the defendant real estate agent in that case was not only an agent but also one of the shareholders (or owners) of the plaintiff company.17
(c)Mr Ritchie’s evidence that the restraint of trade clauses are intended to protect Harcourts’ goodwill for the period of time it takes to recruit and promote new agents to replace the respondents is hollow given the agreements provide for termination after one weeks’ notice.
(d)A six-month non-competition clause is excessive and unreasonable. This is especially so given that Mr Cardno, the most established agent in the relevant market is not subject to any restraint, while the most junior agents, who are most vulnerable to abuse of power, are subject to six-month restraints.
[59] Finally, in relation to Mr Cardno, Harcourts seeks a “springboard” injunction. Mr Cain argues that Mr Cardno ought to be restrained from using Harcourts confidential information for a period equivalent to the time advantage he will achieve by using its confidential information to springboard into the market on Bayleys’ behalf. In response, Mr Clarke argues that springboard injunctions are only available where a defendant has acted unlawfully. In his submission, there is no basis on which to reach that conclusion in relation to Mr Cardno, and there is no basis on which he should be enjoined.
17 Redcoats Ltd v Day & Anor [2023] NZHC 1502.
Consideration
[60] I am clearly satisfied that Harcourts has established a serious question to be tried in relation to the following issues:
(a)Mr Cardno, Ms Davis, Ms Williams and Mr Kindl’s use of Harcourts’ confidential information;
(b)Ms Davis, Ms Williams and Mr Kindl’s failure to comply with the restraints of trade provisions of their agreements; and
(c)Mr Cardno’s use of confidential information derived from his engagement as Harcourts’ agent and the springboard it has provided to both himself and Bayleys.
[61] First, it is seriously arguable that the unique combination of knowledge of a potential client coupled with information suggesting that individual or business is in the market to buy or sell property, is confidential information subject to the confidentiality provisions of the relevant agreements. But even if I were wrong in that view, Harcourts’ second cause of action against the first four respondents is a common law claim for breach of confidence. That claim is seriously arguable on the evidence.
[62] Second, the evidence clearly satisfies me that the first four respondents have used leads obtained while subject to obligations of confidence to Harcourts in generating listings for Bayleys. I am reinforced in this conclusion by the conduct of Mr Kindl and Ms Williams, who downloaded client contact details from Harcourts’ database in circumstances that prima facie suggest they could have done so to promote their new role as agents for Bayleys. And Mr Fitzsimmons and Mr Cardno accept that they have may have retained relevant information (old appraisals and a personal diary) which they have offered to return or destroy. This conduct gives rise to a serious question to be tried concerning use of Harcourts’ confidential information, as well the
breach of the restraint of trade provisions in Ms Williams, Ms Davis and Mr Kindls’ agreements.18
[63] Nor do I consider at this interlocutory stage that the drafting of the confidentiality, non-solicitation and non-competition clauses exclude the prospect that Harcourts may succeed at trial. A long term relational contract can be viewed as a commitment to a joint endeavour. Interpreting the agreements to give effect to the parties’ long-term commercial intentions might ultimately succeed at trial. Regardless, the confidentiality clauses in all four agreements make it clear that the agents are not to use “any knowledge or information” which they may have acquired concerning “property, customers, clients or principals of the Company or the business”. It is plainly arguable that the language is sufficiently broad to encompass client leads obtained from the respondents’ work with Harcourts.19
[64] Finally, I am not persuaded by Mr Clarke’s argument at this interlocutory stage that the non-competition clauses do not protect Harcourts’ goodwill or that they are unreasonable in their effect. It is seriously arguable that the relevant clauses are directed to the legitimate protection of Harcourts existing goodwill. The hiatus in sales activity brought about by the non-competition clauses is both temporary and limited to Harcourts’ market area. It is also seriously arguable that the relevant restraints of trade are designed to ensure confidential information gained by an agent while in Harcourts’ service will be sufficiently stale by the time the agent re-enters the market to ensure they do not derive an unfair advantage at Harcourts’ expense.
[65] Finally, there is a question of Mr Cardno’s position. He is not subject to a restraint of trade. However, on the evidence it is seriously arguable he has derived an advantage (and with him Bayleys) as a result of his potential use of Harcourts confidential information. In particular, the undisputed evidence is that two of
18 Additionally, the timing of Mr Fitzsimons’ resignation, swiftly followed by the remaining respondents, the opening of Bayleys office and the rapid listing of properties also give rise to the possibility of a coordinated move to Bayleys and the potential that it might gain a market advantage and good will at Harcourts’ expense.
19 Interpreting the relevant clauses in the manner suggested by the respondents is likely to render the relevant provisions commercially worthless for a real estate agency such as Harcourts. That is because an agent intending to leave an agency would be incentivised to “bank” their leads in order to exploit them at a new agency. Nor would I be inclined to accept that an agency has no interest in confidential information—client leads—necessary to generate listings.
Mr Cardno’s listings came from leads developed during his engagement with Harcourts. This is consistent with Mr Ritchie’s evidence in reply, that of the listings posted by Bayleys Paremata, all but one has come from leads obtained by the respondents while working for Harcourts. It follows that I am also satisfied there is a serious question to be tried whether Mr Cardno has used Harcourts confidential information to provide himself (and Bayleys) with an unlawful market advantage. Whether it is appropriate to grant an injunction against him, on this basis, is a matter I return to later.
Balance of convenience
[66] Next it is necessary to consider the effect of granting an interim injunction on the respondents, and to balance that against the effect of refusing to do so on the applicant. This is commonly described as “the balance of the risk of doing an injustice”.20 It has been described as the “guiding principle” in granting an interim injunction.21 Although the enquiry is flexible,22 the Court will commonly consider:
(a)the adequacy of damages to both sides;
(b)preservation of the status quo;
(c)relative strength of each parties’ case;
(d)the conduct of the parties; and
(e)the effect on innocent third parties.
[67] In this case, the adequacy of damages on both sides is a neutral factor. It may be possible to calculate Harcourts’ losses by reference to reduction in commission income (or by reference to commissions generated by the respondents using leads obtained while engaged with Harcourts), and therefore quantification may not be a difficult exercise.
20 Cayne v Global Natural Resources Plc, above n 11 at 237; McLaughlin v McLaughlin [2019] NZHC 2597 at [37].
21 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 337.
22 McLaughlin v McLaughlin, above n 20, at [38].
[68] However, as Gault J noted in Mad Butcher Holdings Ltd v Standard 730 Ltd, it is wrong to equate ease of calculation of loss with the adequacy of damages as a remedy.23 A party to a contract with a valid restraint of trade clause is entitled to have the clause enforced and damages would not often be regarded as an adequate remedy for loss of the plaintiff’s contractual rights.24
[69] The determinative factors in this case are the relative strengths of the parties’ cases, the conduct of the respondents, and the risk that without interim relief, Harcourts’ claim to contractual rights will be rendered worthless.
[70] It must be assumed that each of the first four respondents knew the terms of their agreements with Harcourts, and the existence for at least three of them of a clause restraining their ability to work within Harcourts’ market for a period of six months if their agreement came to an end. Similarly, Mr Cardno can be taken to have understood the restrictions on use of confidential information, including leads, that he had obtained while engaged by Harcourts.
[71] In my view, there is strength in Mr Cain’s submission, based on a clear line of authority, that the court will not generally permit a defendant to take advantage of a difficulty it has created for itself. In my assessment, Harcourts has a strong claim. The respondents’ do not deny the material facts. Their case is largely based on what I consider a benign view of their conduct and an optimistic interpretation of the agreements. While an interim injunction might be felt keenly by some or all of the respondents, they are business people and can be expected to have planned for the risk given the terms of the agreements and their decision to leave Harcourts to compete in the same market for another agency.
[72] I am also not persuaded that the balance of convenience favours the respondents as a result of allegations of a “toxic” working environment or bullying. The relevance of those claims in the context of the terms of the agreements is a matter for trial.
23 Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [40].
24 At [40].
[73] I am also not satisfied that the potential impact on third parties—vendors who have listed properties with Bayleys—is sufficient to shift the balance of convenience. As Mr Cain submitted, there is no restriction on Bayleys competing within Harcourts market using other agents. It can, if it wishes, introduce agents from out of the area to continue its business and to manage those listings the respondents have already secured.
Overall interests of justice
[74] Finally, I must stand back and consider the overall interests of justice. Having done so, I am clearly satisfied it is appropriate to grant Harcourts’ application.
[75] Based on the evidence, there is a tenable narrative available for trial to support the contention that there has been a co-ordinated movement of an entire sales team and their manager from an established market participant to a new entrant. The value and advantage to be gained by Bayleys is obvious. The respondents are also at liberty to work as real estate agents in the rest of the greater Wellington area.
[76]I am therefore satisfied that an interim injunction should issue.
Conclusion and orders concerning the first through fourth respondent
[77] The final question is the nature of the orders that ought to be made. The principal relief, in my view, is an order giving effect to the restraints of trade. Doing so will, in large part, address Harcourts’ interests in confidential information and protection against solicitation.
[78] A question remains as to the duration of the relevant restraints. Three of the four respondents are subject to a six-month restraint of trade. The most experienced agent is not subject to a contractual restraint at all.
[79] Having given the matter careful consideration, and in particular the least restrictive outcome called for by the interests of justice, I have concluded that the appropriate term of the injunction is for three months from the date of this Judgment. This is because:
(a)The evidence indicates most leads are developed into listings within a three-month window. It is possible that a six-month restraint could be found to be unreasonable at trial accordingly.
(b)Mr Cardno, the most experienced agent, is not subject to a restraint of trade provision in his contract, and the more junior agents are subject to a six-month restriction according to their contracts.
(c)After three months, most of the confidential information in issue between the parties will be stale, and the respondents will be competing on an even footing with Harcourts.
[80]I therefore make the following orders:
(a)an order is made against the first through fourth respondents restraining them from undertaking any business or employment which directly or indirectly competes with that of the applicant within the Tawa to Pukerua Bay area, as identified on the map in the appendix to this judgment;
(b)I also make an interim order requiring the first through fourth respondents to comply with their obligations relating to the applicant’s confidential information and property, and in particular to return and/or destroy any confidential information belonging to the applicant, and to return any other property belonging to the applicant.
Relief against the fifth respondent—Mr Fitzsimons
[81] Harcourts seeks an order against Mr Fitzsimons—on the basis he has received Harcourts’ confidential information from the four other respondents—requiring him to produce an affidavit detailing the confidential information he has received from them, including any additional information relating to the property described in paras [21], [23], [25], [26] and [32](b)(iii) of the statement of claim. A further order is sought requiring Mr Fitzsimmons to return to Harcourts or destroy any property or confidential information he has received from any of the four respondents.
[82] In response, Mr Fitzsimons through his counsel argues that the Court has no jurisdiction to provide Harcourt with the relief it seeks. In particular, s 161 of the Employment Relations Act 2000 provides that the Employment Relations Authority has exclusive jurisdiction in relation to any employment problem that might exist.
[83] While there is evidence that Mr Kindl may have shared information relating to a former Harcourts lead with Mr Fitzsimons, I am not satisfied that is a sufficient basis on which to consider there is a seriously arguable case that Mr Fitzsimons has received other information subject to obligations of confidence from the four other respondents. In any event, even if he had received information, he would not be permitted to use it, or pass it to other Bayleys agents, given the injunction which has issued.
[84] In the circumstances, I am not persuaded that it is appropriate to make the orders sought against Mr Fitzsimons. Should Harcourts consider it has a claim against him arising from an employment relationship, that is a matter it can pursue before the Authority.
Costs
[85] Given Harcourts has been successful, my preliminary view is that it ought to be awarded costs on a 2B basis. I would certify for second counsel.
[86] I would encourage the parties to reach agreement on costs but will reserve leave to apply. However, if costs applications are pursued that are unsuccessful, I am likely to award costs in relation to the application against the unsuccessful party.
[87] Leave is reserved for any party on 48 hours’ notice to apply to this Court to set aside the order made here against it. Leave is also reserved to Harcourts to modify these orders as required.
Isac J
Solicitors:
Dentons Kensington Swan, Wellington for Plaintiff/Applicant Cuncannon, Wellington for Defendants/Respondents
Appendix
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