The Carpet Barn Hamilton Limited v Jobe - [2017] NZHC 2608

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA
KIRIKIRIROA ROHE

CIV-2017-419-168 [2017] NZHC 2608

IN THE MATTER
of an appeal against the decision of the

District Court at Hamilton

BETWEEN

THE CARPET BARN - HAMILTON - LIMITED

Appellant

AND

BIANCA HELGA MARIA JOBE Respondent

Hearing: 29 August 2017

Counsel:

M D Branch and K F Shaw for Appellant
T M Braun and L H Hunt for Respondent

Judgment:

25 October 2017

JUDGMENT OF BREWER J

This judgment was delivered by me on 25 October 2017 at 4:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Harkness Henry (Hamilton) for Appellant
Whitfield Braun (Hamilton) for Respondent

THE CARPET BARN HAMILTON LTD v JOBE [2017] NZHC 2608 [25 October 2017]

Introduction

[1] The appellant (“Carpet Barn”) appeals a refusal by Judge RLB Spear1 to grant it an interim injunction restraining Ms Jobe from:

(a) soliciting or diverting any clients, customers or employees of Carpet

Barn; and

(b) being concerned with any business that is in competition with Carpet

Barn including, without limitation, Flooring Design Ltd.

[2] In brief, Ms Jobe used to be employed by Carpet Barn as a sales manager. She is now employed by Flooring Design Ltd (“Flooring Design”) as a business manager. Flooring Design competes with Carpet Barn. Carpet Barn does not want Ms Jobe to assist Flooring Design with such competition. It brought its application for interim injunction in reliance on a shareholders’ agreement to which Ms Jobe is party and which prohibits Ms Jobe from assisting a competitor such as Flooring Design.

[3] Ms Jobe’s response has been that the provisions of the shareholders’ agreement upon which Carpet Barn relies are unenforceable because they are unreasonable.

Background

[4] Ms Jobe began working for Carpet Barn in 1999 when she was 21 years old. Her employment agreement (signed by Ms Jobe on 25 February 2014)2 provided for a three months non-competition period within a radius of 50 km from Carpet Barn’s premises.3

[5] Carpet Barn is controlled by Mr Josephus Lenssen as the sole director and controller of the majority of its shares. In 2014, shares in Carpet Barn were offered

1      The Carpet Barn Hamilton Ltd v Jobe [2017] NZDC 9711.
2      Ms Jobe had not previously entered into any formal employment agreement with Carpet Barn.
3      There is no issue over Ms Jobe’s compliance with the employment agreement. She commenced
her employment at Flooring Design after the three months non-competition period expired.

to Ms Jobe and four other employees. They all accepted the offer having first obtained independent legal advice. In summary, the purchase price of the shares was calculated in accordance with a formula which did not include a discount on fair value. However, the purchase price was to be settled by way of an interest-free loan which was repayable by the application of dividends (net of tax). Any outstanding balance, up to $100,000, would be paid on the fifth anniversary of the settlement date.

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] NZHC 2608
Decision Date: 25 October 2017

CaseChat Overview and Summary

In this case, The Carpet Barn Hamilton Limited, trading as The Carpet Barn (“Carpet Barn”), brought an appeal against a decision of the District Court, which refused the appellant an interim injunction against Ms Bianca Jobe. The injunction sought to restrain Ms Jobe from: (a) soliciting or diverting any clients, customers, or employees of Carpet Barn; and (b) being involved in any business that competed with Carpet Barn, including Flooring Design Ltd. Ms Jobe used to be employed by Carpet Barn as a sales manager and is now employed by Flooring Design as a business manager, a company that competes with Carpet Barn. Carpet Barn argues that Ms Jobe is in breach of a shareholders’ agreement prohibiting her from assisting a competitor such as Flooring Design. Ms Jobe contends that the provisions of the shareholders’ agreement upon which Carpet Barn relies are unenforceable as they are unreasonable.

The legal issues the court had to decide included whether Judge Spear erred in the exercise of his discretion in refusing the interim injunction and whether the restraint in the shareholders’ agreement was reasonable. The court found that the restraint in the shareholders’ agreement was reasonable as it was negotiated as part of an arm's length commercial agreement, Ms Jobe had independent legal advice, and it was commercially advantageous to her. The court also found that Judge Spear erred in concluding that damages would be an adequate remedy for Carpet Barn if it succeeded in its substantive proceeding. The court further found that Judge Spear erred in deciding that Ms Jobe's refusal to provide an undertaking not to breach the obligations in respect of which enforcement action was being taken should not be held against her. The court found that Ms Jobe's failure to attempt to sell her shares to third parties weighed on the balance of convenience. The court decided that the overall interests of justice required it to allow the appeal and grant the interim interlocutory orders on terms that would encourage as short a period of interim restraint as possible. Leave was reserved to Ms Jobe to make an application to rescind or vary the restraint. Costs were reserved.

Orders