Tyre Collection Services Limited v Le Roy
[2016] NZHC 403
•10 March 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000060 [2016] NZHC 403
BETWEEN TYRE COLLECTION SERVICES
LIMITED Plaintiff
AND
MICHAEL BENNY LE ROY First Defendant
AND
JAMISON INVESTMENTS LIMITED Second Defendant
AND
TYRE RECYCLING SERVICES NEW ZEALAND LIMITED Third Defendant
Hearing: 8 March 2016 Appearances:
M S Henderson and G A Biggs for the Plaintiff
D J Ballantyne for the First, Second and Third DefendantsJudgment:
10 March 2016
JUDGMENT OF DUNNINGHAM J
[1] The plaintiff applies for an interim injunction:
(a) restraining the first and second defendants from having anything to do with tyre recycling or tyre collections on their own behalf, or on behalf of another party, for a period of three years from 26 January
2016 or until such further order of the Court, within the South Island of New Zealand; and
(b)restraining the third defendant from aiding, abetting, counselling or assisting the first and second defendants in that activity.
TYRE COLLECTION SERVICES LIMITED v LE ROY [2016] NZHC 403 [10 March 2016]
[2] The plaintiff also seeks an interim injunction restraining the defendants from disclosing or using any of the plaintiff ’s confidential information, including, but not limited to, its pricing and client database.
[3] The issues to be determined are:
(a) whether an interim injunction order should be granted, having regard to the claims made by the plaintiff and the balance of convenience; and
(b) if such an order is to be granted, on what terms should that be?
Factual background
[4] The plaintiff, Tyre Collections Services Limited (TCSL), is a tyre collection and recycling company based in Rolleston, Canterbury.
[5] The first defendant, Michael Benny Le Roy, is the sole director and shareholder of the second defendant, Jamison Investments Limited (“JIL”), which was engaged by TCSL to collect used tyres on its behalf.
[6] The third defendant is a company which was incorporated in November 2015. It is also in the business of collecting used tyres and its sole director and shareholder is Mr Le Roy’s stepdaughter.
[7] TCSL collects “end of life” tyres from throughout the South Island. The tyres are brought to a processing and storage yard in Rolleston from where most are baled and exported overseas where the rubber is “repurposed”, but others are delivered for reuse on farms, primarily in the Canterbury area. Although the tyre collection industry itself is unregulated, there are regulations which cover the storage and export of tyres and TCSL explains that it has worked hard on getting its processes correct and establishing a good name and positive relationships with its customers.
[8] In early 2014, Mr Shackleton, TCSL’s director, decided to engage an independent contractor to assist with the tyre collection work. He advertised and was approached by Mr Le Roy. Mr Le Roy set up a company, JIL, to undertake this work for TCSL. They entered a short-term contract, from 14 April 2014 to
25 July 2014 (the April contract), whereby JIL was contracted to collect tyres on behalf of TCSL and bring them back to Rolleston for processing or direct to farms in the Canterbury area. During that period JIL would lease TCSL’s truck, a
2008 Mitsubishi Fuso. The April contract envisaged that JIL would have the option of purchasing the truck for $90,000 plus GST, and if it did, then “upon settlement, a new three year contract will be supplied to JIL by TCSL”.
[9] At the outset of the relationship Mr Shackleton explained TCSL’s “confidential company processes” to Mr Le Roy, including how it recorded the tyre collections using a docket system, how the tyres were graded and baled off at the back of its trucks and how they were processed then for storage and export. Mr Le Roy was also advised of TCSL’s individual customers’ particular requirements and was expressly required under the contract to treat TCSL’s customers “with respect” as “TCSL had spent many years building up those valuable relationships”.
[10] Mr Shackleton also explained TCSL’s pricing structure for customers to Mr Le Roy. His evidence is that “this is particularly confidential because our industry is cut throat. … Rates that we charge our customers are particularly important as customers can move for cheaper rates, and managers at customers stores (such as tyre retailers) can change, meaning we constantly need to work on our customer relations”.
[11] JIL subsequently purchased TCSL’s truck and a new contract was entered into on 26 July 2014 (the July contract). Like the April contract, this contract was drafted by Mr Shackleton without legal advice or assistance. The July contract covered much the same material as the April contract, but relevantly, included provisions as to the three year term of the contract, and as to a restraint of trade that would apply in certain circumstances. Those provisions read as follows:
Contract Term
TCS offer JIL a three year contract dated from 26/7/14.
After the three year term as long as both parties are happy the contract will be renewed.
Termination of Contract
If JIL wish to end their contract with TCS at any time, a 3 month written notice period must be worked out unless otherwise agreed by both parties in writing.
At this point, both JIL and Michael Benny Le Roy agree to a trade of restraint (sic) that they will not enter into anything to do with tyre recycling or tyre collections on their own behalf or on behalf of another party for the period of three years from termination date.
[12] A further term of the July contract offered JIL or JIL’s owner a first right of refusal should the owners of TCSL wish to sell the business and, in that case, “the owners of TCS will agree to the same terms of restraint of trade as above”.
[13] Mr Shackleton says it was also agreed that any and all confidential information given by TCSL to Mr Le Roy or JIL would be treated with confidence and only be used for TCSL’s purposes. For example, he annexes an email that he supplied to Mr Le Roy on 19 November 2014 which sets out TCSL’s rates (which varied as to type of tyre and point of collection) and says, in the covering email, that they are “to be treated as confidential”. Mr Shackleton said to Mr Le Roy, and to TCSL’s other drivers, many times that such information needed to be kept private and strictly confidential. If any customers ever had concerns about the rates, they were to direct those concerns to Mr Shackleton, rather than to address them themselves.
[14] Mr Shackleton says that JIL did not abide by the terms of the July contract. There were problems with the counting and grading of tyres and there were dockets for the tyres collected which did not tally with the volume of tyres that were actually in the truck. He also complained about JIL’s lack of professional behaviour in dealing with TCSL’s customers and failing to collect tyres on time or not being available to collect them. As a result of these issues, Mr Le Roy and Mr Shackleton met in July 2015 to discuss these issues with Mr Le Roy’s lawyer. Mr Shackleton
says that although Mr Le Roy agreed to comply with the terms of the July contract at that meeting, that was not what eventuated.
[15] It appears that at some point in 2015, JIL commenced another contract, carrying freight for TNL Freight. While that work did not compete with TCSL’s tyre collection business, Mr Shackleton says it did compromise JIL’s tyre collection work and made it difficult to ensure that the customer collections were being made. JIL was meant to be available full time for collections and, although it was offered more collection runs, JIL did not take them. The further employees TCSL took on during
2015 were for new customers as Mr Le Roy could not service those as their collection days clashed with other customers. However, it appears Mr Le Roy saw this as a breach of JIL’s contractual right to an exclusive contract with TCSL.
[16] Matters came to a head when, on 21 January 2016, Mr Shackleton was informed by one of TCSL’s other drivers, Jeremy Daly, that he had seen a business card for a company called Tyre Recycling Service New Zealand Limited that was left on the counter of one of TCSL’s customers, Budget Tyres, in Christchurch. Mr Daly photographed the business card and sent it to Mr Shackleton. It had the name Mike and a cell-phone number hand written on it. Mr Shackleton recognised the handwriting and the phone number as belonging to Mr Le Roy.
[17] Mr Shackleton had not heard of a company of that name. When he checked the Companies Office website he found a company, Tyre Recycling Services New Zealand Limited (TRSNZL), had been incorporated on 26 November 2015. The sole director and shareholder was Melodie Anne Merrie Clark, who was the daughter of Mr Le Roy’s wife. TRSNZL had also set up a website which Mr Shackleton says offered services which are “exactly the type of business that TCSL carries out and is directly in competition [with it]”. He rang the firm’s contact number and he recognised the voice on the answering machine as Mr Le Roy’s.
[18] Once Mr Shackleton had satisfied himself that Mr Le Roy was involved with TRSNZL, he took the view that Mr Le Roy and JIL were in breach of the July agreement and he decided to terminate that agreement. On 26 January 2016 he prepared a letter informing JIL and Mr Le Roy of this. However, he first spoke to
Mr Le Roy to see what he had to say about this business. Mr Le Roy denied any knowledge of the business or of knowing Melodie Anne Merrie Clark, despite the fact she is Mr Le Roy’s stepdaughter. At this point, Mr Shackleton handed Mr Le Roy the letter terminating the July contract. This letter was followed up with a letter from TCSL’s lawyers to Mr Le Roy and JIL claiming that their actions in setting up the rival business were a significant breach of the contract, justifying immediate termination, particularly given they were using TCSL’s confidential information to assist the new company, TRSNZL, and to undercut TCSL.
[19] JIL’s solicitors responded shortly afterwards, arguing that the termination was, in fact, repudiation under s 7(2) of the Contractual Remedies Act 1979 and, in turn, JIL was cancelling the contract and would be seeking damages for breach of contract, in addition to what it said was already owed.
[20] Mr Shackleton says that, since the termination of the July contract, Mr Le Roy no longer denies that he is competing via TRSNZL. Mr Le Roy has also left voice messages on Mr Shackleton’s phone threatening to make life difficult for Mr Shackleton, saying he was targeting TCSL’s business specifically and not that of one of its competitors, Andrew Dick. The recorded messages urge Mr Shackleton not to pursue legal action against JIL and Mr Le Roy, saying “So I would stop this shit if I was you cause I will start squeezing real fucking hard mate and you won’t know what I will do. I haven’t even started yet”, and “if I was you I would just fucking back off. Tyre cunt and I going to fucker bash you son. I won’t need force I will just use the people I know. And you can take this to your lawyer – do what you fucking want to”.
[21] Only three days after Mr Shackleton cancelled the contract with JIL, he was sent a text message containing a photograph of a TRSNZL truck with new curtain signage on it for its business. Mr Shackleton’s evidence is that, in his experience, it would take at least four weeks for sign writers to make that type of curtain signage, so it must have been commissioned well before cancellation.
[22] Mr Le Roy has subsequently been actively targeting TCSL’s customers on
TRSNZL’s behalf. For example, one of TCSL’s customers, Bridgestone in Lincoln,
said it had been approached by Mr Le Roy and offered prices which are clearly designed to undercut those of TCSL. Another TCSL customer, Tyre General in Blenheim, provided evidence that Mr Le Roy had invoiced them in JIL’s name, despite the fact that it was after the contract had been cancelled and that TCSL had already invoiced that customer directly for the work. Mr Shackleton has also been told by TCSL customers that Mr Le Roy was still using the TCSL truck for tyre collections allowing it to appear as if he was still collecting for TCSL.
[23] Mr Shackleton says that at least two of its clients have been lost so far, namely Advantage Tyres and Tyres To Go, and it is likely that TCSL has lost other customers because TRSNZL is offering discounted rates on those offered by TCSL. Mr Shackleton says that “ours is a volume industry and we need a lot of tyres to fill the 10 to 15 containers we export every month. Every customer counts and is critical”.
The evidence as to the need for an interim injunction
[24] Mr Shackleton’s evidence is that if Mr Le Roy and his related companies are not stopped from competing with TCSL, and from using TCSL’s confidential information as to its customer base, contacts, processes and the individual requirements of customers and the rates charged to them, TCSL’s business will be irreparably damaged. He also says that it would be difficult, if not impossible, to quantify what the overall loss of profits would be to TCSL, particularly as the number of tyres it collects from customers can vary greatly from day to day and can be influenced by a variety of circumstances, including economic conditions.
[25] Furthermore, even if they could be quantified, Mr Shackleton is concerned that Mr Le Roy would not be in a position to pay damages to TCSL in the future. He points to the fact that when he first discussed entering a contract with him, Mr Le Roy disclosed he had been discharged from bankruptcy in 2013. Mr Shackleton has searched Mr Le Roy’s name on the New Zealand Land Registry and cannot find that he owns any property. Another company of his, Le Roy Investments Limited, was liquidated in 2009. He says TCSL is, however, in a sound financial position and he annexes a profit and loss statement from the Xero
accounting system used by TCSL, to show a significant net profit for the period
1 April 2015 to 1 January 2016.
[26] Mr Le Roy has also provided affidavit evidence. He acknowledges that his company, JIL is contracted by TRSNZL to manage the collection of tyres from its customers. However, in respect of the allegations made by TCSL, he says there is nothing special about TCSL or what they do and “no personal or confidential information was given to me”. He says he does not recall receiving the email of November 2015 attaching the TCSL price list which was described as confidential, and says it “must have been deleted”. He says that, as instructed, when he received any query about pricing, he would simply forward that on to Mr Shackleton. In terms of customer lists, he says “all tyre retailers in the South Island can easily be found in the phone book or online”.
[27] In terms of the restraint of trade, he denies that it was specifically discussed and agreed that the restraint would operate both during the term of the contract and after it. He said the restraint of trade was not discussed at all and he understood it to only apply if JIL cancelled the contract, on notice, within the three year period. He said that signing a restraint of trade which would last for three years after the contract ended, regardless of the circumstances, would make his investment in the truck pointless.
[28] He denies that JIL breached the terms of the July contract during 2015, but says that the relationship was strained because “TCSL had employed staff to collect tyres on the profitable runs in breach of its exclusive contract with JIL”. Mr Le Roy’s confirms is that JIL is contracted to TRSNZL and it “is in JIL’s interest to see TRSNZL succeed; particularly now JIL no longer has a contract with TCSL to collect tyres”.
[29] He says he has not used TCSL’s confidential pricing information. Instead, TRSNZL’s pricing is based on the costs of providing its services with a mark-up. He explains the invoice to Tyre General in Blenheim was for tyres that remained on JIL’s truck when he was ordered off TCSL’s premises by Mr Shackleton on the morning of 26 January 2016. He says the companies which have left TCSL to
become customers of TRSNZL, have done so because they “did not like dealing with
Mr Shackleton”.
[30] Mr Le Roy says that he has a counterclaim against TCSL as the July agreement was entered into in the expectation that Mr Shackleton would sell TCSL’s business to JIL and that the collection contract was exclusive. He says when TCSL contracted two additional people to collect tyres on the most profitable routes in and around Christchurch that JIL had previously collected, it reduced JIL’s workload from full time to less than three days a week. As a consequence JIL will be filing a claim for damages arising from TCSL breaching the exclusive collection contract, as well as to recover the sum of $19,181.52 for work completed in December 2015 and January 2016 which he has not been paid for by TCSL. He considers his claims against TCSL would significantly exceed any claim by TCSL against him and JIL.
[31] The defendants resist the application for an interim injunction on the basis that:
(a) TCSL wrongfully repudiated the July contract;
(b)that the restraint of trade is not binding in the circumstances that have arisen; and
(c) no confidential information has been imparted or used.
Principles relating to interim injunctions
[32] The principles relating to interim injunctions are well understood. I must be satisfied that:1
(a) there is a serious question to be tried in the proceeding; and
(b) the balance of convenience favours the grant of the relief sought.
1 American Cyanamid v Ethicon Ltd [1975] AC 396.
[33] Those two questions are not, however, exhaustive. In every case the Judge has to finally stand back and ask where the overall justice of the case lies.2
Is there a serious question to be tried?
[34] Although the plaintiff claims under six causes of action (which include claims of breaches of s 9 of the Fair Trading Act and of interference with contractual relations between the plaintiff and its customers), the plaintiff relies on the alleged breach of the restraint of trade, and of an implied term to maintain confidentiality of the plaintiff’s information, as underpinning its right to an interim injunction.
Breach of a restraint of trade?
[35] The primary allegation is that there has been a breach of a restraint of trade. While the plaintiff acknowledges the restraint in the July contract is not precisely drafted, it says it was clearly intended to apply for a three year time period following termination, whether by the defendants’ election to terminate during the contract, or because the termination resulted from the defendants’ breach of contract. In support of this the plaintiff says the object that the parties had in view is important in construing the meaning of the words of restraint that are used. Here, it would be nonsensical from a business perspective to consider the restraint could apply only if the defendants expressly sought to terminate the contract, but not where the termination eventuated because the first and second defendants unlawfully set up
competition to the plaintiff.3
[36] While acknowledging that, prima facie, restraints of trade are unenforceable, the plaintiff points out that the Courts regularly give effect to them if they are reasonable. Here the plaintiff argues the restraint is reasonable because:
(a) the first and second defendants were supplied with detailed
knowledge of the plaintiff’s customers, its customer contacts, its pricing and its processes;
2 Klissers Farmhouse Bakeries Ltd and Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA).
3 Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526; 1 All ER 1227.
(b)the first and second defendants were the “face of the plaintiff collecting tyres” and were able to build up relationships with the plaintiff’s customers as a result;
(c) pricing is important in this industry and the plaintiff was entitled to protect its pricing information;
(d)while the geographical area is wide, the plaintiff collected tyres throughout the South Island so it was reasonable to extend the restraint that far;
(e) similarly, the three year duration was reflective of the above factors;
(f) the tyre collection industry is a “niche market” so loss of customers
could have a disastrous effect on the plaintiff; and
(g)there was no inequality of bargaining power such as would disentitle the plaintiff from enforcing the restraint.
[37] The defendants, however, say that the contract was drafted by the plaintiff and should be interpreted strictly. They say there was no express restraint of trade that applied during the term of the contract, nor one that applied after the expiry of the three year term of the contract, or if the plaintiff terminated the contract. Equally, there can be no implied restraint of trade in any of those circumstances, as such would simply fail the terms for an implied term of contract.
[38] The defendants submit that the circumstances surrounding the signing of the contract also support a strict reading of the restraint provision. In particular, given that JIL was purchasing the plaintiff’s sole tyre collection truck, and investing in a three year contract for what, it says, was an exclusive contract for collection of the plaintiff’s customers’ tyres, it should not then be subject to a restraint of trade which would mean it could not use that truck for the collection of tyres in competition with the plaintiff, if the plaintiff terminated the contract or was in breach of it.
Discussion
[39] In my view, it is clearly arguable that the restraint should be read as applying at the point of termination, whether because JIL voluntarily elects to terminate the contract or because the contract is terminated as a result of the defendants’ breach. I take into account that the contract was not drafted by lawyers and there is imprecision in the language used. Nevertheless, in interpreting the contract, the Court must consider what meaning the document would convey to a reasonable person who is fully informed of the context and factual background in which the
contract was made.4 In the circumstances of a commercial contract such as this, that
approach would usually favour an interpretation which achieves business common sense over one that flouts it.5
[40] While I make no final finding on this (as that is a matter for the substantive hearing), I consider it is open to read the restraint of trade in the July contract as applying in the circumstances which have arisen. Given the obvious purpose of the restraint, to ensure information gained and relationships developed in the course of carrying out the contract are not used to assist the defendants to unfairly compete with the plaintiff, it would be illogical to apply the restraint when the contractor is upfront about its desire to terminate the contract, but not if it hides that intention and simply sets up in competition with the plaintiff.
Use of confidential information
[41] The plaintiff says that it provided a range of confidential information to the defendants, including information about the plaintiff’s customers and contact people, the plaintiff’s processes and its pricing. All this confidential information has been used to allow the defendants to “springboard themselves into the tyre collection industry” without having to research and develop this information for themselves
through trial and error.
4 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444 at [19].
5 Investor Compensation Scheme Ltd v West Bromwich Building Society (No. 1) [1998] 1 WLR
396; [1998] 1 All ER 98 at 115 citing Antaios Cia Naviera SA v Salen Rederierna AB [1985] AC
191;[1984] 3 All ER 229 at 233.
[42] The defendants deny the confidential nature of the information that was imparted to them about TCSL’s business, saying that it is a simple operation which involved no specialised knowledge, and much of the information imparted was readily found in the public arena (for example, tyre sellers can be found in the Yellow Pages).
[43] The defendants also say that they do not object to an order restraining them from using any confidential information, but of course they deny that any of the information they received, or hold, qualifies as such. They also say that, had the plaintiff wished any information be kept confidential, then that should have been an express term of the agreement.
Discussion
[44] I accept there is a serious question to be tried as the pricing information, being confidential. It is clear that the plaintiff had developed a range of prices for the different clients in different locations and for different types of tyres. By having access to this information, the defendants are in a far better position than any other competitor in terms of competing with, and undercutting the plaintiff’s business. They could not have got this information but for the relationship with the plaintiff and there is evidence to support the plaintiff ’s claim that it provided it on a confidential basis.
[45] There is also an argument that the client list is confidential. The evidence suggests that the defendants are only targeting the plaintiff’s clients. They only know who these are through the contractual relationship JIL has had with TCSL, and it is with those clients that the defendants are equipped with knowledge to compete unfairly with JIL.
[46] In my assessment therefore, the first threshold test is satisfied. There is a serious question to be tried and I must go on to consider where the balance of convenience lies.
The balance of convenience
[47] In determining the balance of convenience, the Court usually has regard to the following factors:
(a) the adequacy of damages for both parties; (b) the status quo;
(c) the relative circumstances of the case;
(d) the relative strength of each party’s case; (e) the effect on innocent third parties; and (f) the conduct of the litigants.
[48] I consider these factors insofar as they are said by the parties to apply in the present circumstances.
Adequacy of damages
[49] The plaintiff argues that damages would not adequately compensate the plaintiff if the interim injunction was not granted. The plaintiff notes that the third defendant is continuing to use a truck with the plaintiff’s branding on it for tyre collections which raises the likelihood of confusion in trade and the Courts have acknowledged that damages will rarely be an adequate remedy in such cases.6
Furthermore, the Courts have been willing to grant injunctions in so called
“springboard cases” such as this, in order to remove the advantage of a head start
that a person has gained through unlawful activities.
[50] In this case, there is evidence that the defendants embarked on a deliberate and secretive strategy of setting up a company in late 2015 in competition to the plaintiff, with the express purpose of damaging the plaintiff’s business. The fact is
that this was done through the vehicle of the third defendant and in Mr Le Roy’s stepdaughter’s name, and that Mr Le Roy initially denied it, gives credence to the plaintiff’s assertion that Mr Le Roy knew that these actions contravened obligations he had to the plaintiff.
[51] The plaintiff relies on these factors support its claim that damages would not be an adequate remedy. As was said in BDM Grange Ltd v Parker, the courts:7
Tend to be vigilant in ensuring, where there has been a serious breach of the type I have described, that downstream benefits do not flow to a party as a result of that party’s unlawfulness. This observation additionally applies to an assessment of damages as a remedy, it being very difficult to quantify losses which might flow from departing customers and matters of that sort”.
[52] On a related point, Mr Henderson, for the plaintiff, points out that the plaintiff has provided an undertaking as to damages, along with financial information to demonstrate it is in a financial position to meet that undertaking, if necessary. In contrast, no information is given as to the solvency of the defendants and the first defendant has previously been bankrupted and does not own any property in his own name. Thus, the defendants’ ability to meet any award of damages is questionable and raises further doubt as to the adequacy of damages as a remedy.
[53] For the defendants, Mr Ballantyne argues that the plaintiff’s ability to meet its undertaking as to damages is as a consequence of the plaintiff breaching its obligations to the second defendant to provide it with an exclusive contract and instead employing others to reduce costs to the plaintiff. He also asserts that the fact the plaintiff allowed the second defendant to obtain contracting work from a third party, TNL freight, during the course of the contract to “maximise the use of its tyre collection truck” was to “wrongfully induce the second defendant’s breach” (albeit the breach is denied), so the plaintiff should be “estopped from relying on the current alleged breach of the restraint of trade to cancel the contract”.
[54] In any event he says, if the plaintiff suffers damage prior to the substantive hearing, that can be recovered by an award of damages or by recapturing its market share if a final restraining order is imposed.
[55] Having considered these submissions I accept that damages will be difficult to assess if the plaintiff succeeds in its substantive claims and this risk is compounded by the uncertainty as to the defendants’ means to meet an award of damages. This is a factor favouring the grant of an injunction.
Preservation of the status quo
[56] The plaintiff claims reliance on the accepted view that when the factors are evenly balanced, then the prudent course is to preserve the status quo. The plaintiff argues that as the third defendant has only just begun trading, and is not an established enterprise, the status quo is best represented by protecting the position where the defendants are not trading in competition with the plaintiff.
[57] However, in my view this is not a case where that situation accurately represents the status quo. The defendants are underway with their business, they have purchased at least one further truck, and have borrowed money to do so. The injunction sought will not, therefore, preserve the status quo. However, this is a neutral factor in my consideration.
The relative circumstances of the case
[58] Further factors put forward to resist an interim injunction include that the application is tactical and is designed to ensure that the second defendant will not be in a position to advance its claims against the plaintiff, including its summary judgment claim for monies outstanding under the contract, which, it says, is approximately $19,000.8 The defendants argue that at least the undisputed amount of this sum should be paid to the second defendant by the plaintiff as a condition of any interim order if granted.
[59] In my view the second defendant’s interests are fairly protected by the undisputed sum being held on trust while the plaintiff’s claims against it are pursued.
These factors do not persuade me that an interim injunction should be determined.
8 Which the sum of approximately $14,800 is not disputed by the plaintiff and is placed in a
solicitor’s trust account pending resolution of the various disputes.
The relative strength of each party’s case
[60] The plaintiff submits that, while there is a limit to the extent a court can examine the merits of the party’s competing positions where there are conflicting affidavits, the defendants’ claim that the July contract provided it with an exclusive right to collect the plaintiff’s tyres and therefore was the party in breach, is not supported anywhere in the contract, whereas the plaintiff’s claims against the defendants are supported on the evidence.
[61] Equally the suggestion that JIL was not under an obligation not to compete with TCSL during the course of the contract is implausible.
[62] I accept that it is difficult to make anything other than the most broad brush assessment of the relative strength of each party’s case on the basis of untested and competing affidavit evidence. Nevertheless, I have already found the plaintiff’s claims on issues relevant to the injunction to be arguable. The second defendant’s claim that it had an exclusive contract, is not obviously substantiated on the evidence. If it can substantiate its claim that work was diverted away from it to new employees of TCSL, that may well be in breach of at least an implied term of the contract. However, it seems to me to have little bearing on the claims which give rise to the application for an interim injunction. It is no more than a counterclaim to be considered alongside the plaintiff’s claim for damages, and does not in my view, assist the defendant in resisting the application.
Effect on third parties
[63] The defendants point out that an interim injunction will have the effect of a final injunction on the defendants. The first and second defendants will be unable to contract to the third defendant and the third defendant will therefore be unable to meet its current obligation under its collection contracts. The defendants also make a passing reference to “employees” of TSRNZL, although the evidence clearly identifies that JIL is the “sole contractor” to undertake TSRNZL’s business and no information is given about who the employees are or what their role is.
[64] However, I am not satisfied from the evidence that any genuine third parties will be affected. The customers have alternative tyre recycling businesses they can go to, whether it is the plaintiff’s or a competitor’s business, as the evidence is that there are three other competitors in the South Island.
[65] There is also no evidence that anyone beyond persons related to Mr Le Roy are involved in or employed by, the business of TRSNZL. In any event, I must balance that against the potential effects on TCSL’s employees, if that business is subject to unfair competition using confidential information to gain an advantage in the market place. Thus, there is nothing in the consideration of this factor that points against granting an interim injunction.
The conduct of the litigants
[66] Finally, the plaintiff points to the actions of the first defendant in sending threatening phone messages as a further factor to take into account in deciding where both the balance of convenience, and the overall justice of the case lie.
[67] I also take account of the fact that the plaintiff has acted immediately to bring its claim, whereas the claim Mr Le Roy says JIL has relate to allegations TCSL breached obligations to JIL in mid 2015.
[68] These are factors which favours the application being granted.
Overall justice of the case
[69] Much the same arguments as are raised in relation to the balance of convenience issues are raised in the plaintiff’s and defendants’ argument that the overall justice of the case lies against the granting of an interim injunction. In particular, the plaintiff emphasises the defendants’ conduct including the threats made to the plaintiff, as supporting the grant of the injunction.
[70] The defendants in turn say that the Court should take into account that the purpose of the proceedings is “not to protect the plaintiff’s confidential information but its market position against competition, and that is not a legitimate interest to be
protected by the plaintiff”. Its customers should be free to trade with suppliers of their choice, and the disputes between the parties should proceed to a substantive hearing in the normal way.
[71] These considerations do not materially change the result I have come to after considering where the balance of convenience lies.
Outcome
[72] Having weighed up the competing interests, and considering all of the factors I have discussed above, I have decided that an interim injunction should be granted. I consider that there is a serious question to be tried that the defendants’ actions in setting up a competing business, while JIL was still contracted to TCSL, was in breach of express and implied terms of the contract and involved the unlawful use of confidential information.
[73] The imposition of a restraint of trade in such circumstances is, on the face of it, reasonably required to ensure that a competing business could not springboard off the knowledge it gained during the course of the contract, and to advantage it in setting up in competition to the plaintiff.
[74] While the defendants claim adverse financial consequences because of their investment in the trucks required for the business, these trucks are able to be used for other freight work (as was done during the term of the TCSL contract), or can be sold. In any event, this was a risk the defendants took when deciding to compete with TCSL in the circumstances disclosed. It is not a factor which in my view, outweighs the plaintiff ’s right to interim relief.
[75] I do however, have genuine doubts as to whether a three year term was reasonable. That seems longer than can be justified having regard to the interests sought to be protected. However, given that litigation is underway, and is likely to also involve a counterclaim by the first and second defendants, that is an issue which can be resolved in the substantive litigation and need not be addressed here. However, for this reason, the terms of the injunction will not confirm the three year period, but will simply restrain the first, second and third defendants in the way
sought, until further order of the Court, and while the substantive litigation is being diligently pursued.
[76] While the defendants have said they will consent to an order restraining them from using any confidential information, that concession lacks any substance when they also deny that any information they have received is confidential. For that reason, I propose to specify the information they are not to make use of, for the avoidance of doubt.
[77] I have considered the defendants’ request, that if an interim injunction is made, it should be made on the basis that the sum of $14,820.71 which the plaintiff accepts is owed under the contract for work completed during December 2015 and January 2016, is released. However, I have decided not to require that. The plaintiff asserts a set-off and/or counterclaim for damages which exceeds the amount owed. It seems to me, therefore, that all matters relating to payment claims between the parties should be determined in the ensuing litigation.
[78] Taking into account all these matters, the following orders are made:
(a) The first and second defendants are restrained from having anything to do with tyre recycling or tyre collections on their own behalf, or on behalf of another party, within the South Island until further order of the Court.
(b)The third defendant is restrained from aiding, abetting, counselling or assisting the first and second defendants in carrying out any of the activities which are the subject of the first restraining order.
(c) The first and second defendants are prohibited from disclosing or
using the plaintiff ’s pricing information and client database;
(d)leave is reserved to the defendants to apply to the Court to vary or rescind these orders at any time after six months from the date of this judgment if it considers there has been a material change of
circumstances warranting review of the orders, including if the plaintiff is not diligently pursuing the substantive claims in these proceedings;
[79] The plaintiff is entitled to costs. My preliminary view is that 2B costs are justified. However, if the parties cannot agree on costs, then memoranda, limited to five pages, may be filed within 20 working days of receipt of this judgment. Any memoranda in reply is to be filed within a further five working days. Costs will be determined on the papers.
Solicitors:
Corcoran French, Christchurch
Canterbury Legal, Christchurch
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