IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE	
CIV-2019-488-5
[2019] NZHC 699	

BETWEEN	MAD BUTCHER HOLDINGS LIMITED
Plaintiff	
AND	STANDARD 730 LIMITED
First Defendant

ROBERT GEOFFREY WIGHTMAN
Second Defendant

ROBERT GEOFFREY WIGHTMAN, PETER WILLIAM BYERS and IAN
RICHARD WIGHTMAN in their capacities as trustees of the ROB WIGHTMAN FAMILY TRUST
Third Defendants	

Hearing:	3 April 2019
(Heard at Auckland)	
Appearances:	S M Hunter and C Harris for the Plaintiff
M D O’Brien QC and L E Mannis for the Defendants	
Judgment:	4 April 2019	

JUDGMENT OF GAULT J
(Application for leave to appeal interlocutory order and stay)

This judgment was delivered by me on 4 April 2019 at 2:30 p.m. pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar

……………………………………

Solicitors / Counsel:
Mr S M Hunter, Barrister, Shortland Chambers, Auckland
Ms C Harris (plaintiff’s instructing solicitor), Jackson Russell Lawyers, Auckland
Mr M D O’Brien QC and Ms L E Mannis, Barristers, Richmond Chambers, Auckland Mr J Doughty (defendants’ instructing solicitor), Hawk Legal & Advisory, Auckland

MAD BUTCHER HOLDINGS LTD v STANDARD 730 LTD [2019] NZHC 699 [4 April 2019]

[1]	The plaintiff (MBH) commenced proceedings in January 2019 alleging breach of the restraint in a Mad Butcher franchise agreement that expired on 4 January 2019. MBH applied for an interim injunction restraining the defendants from operating a retail butcher business within the defined geographic area in Whangarei.

[2]	By judgment dated 27 March 2019,1 I granted the application for an interim injunction, conditional on security being provided in a form acceptable to the Registrar. Security was confirmed by the Registrar on 2 April 2019.

[3]	In the meantime, the defendants filed an application for leave to appeal my interlocutory judgment to the Court of Appeal and for a stay. The application is opposed by MBH.

[4]	The defendants’ application was referred to me on 2 April 2019. Given the urgency, I convened a telephone conference at short notice to arrange a hearing on    3 April and granted a stay of my judgment for 24 hours until the hearing.

Background and judgment

[5]	The factual background to the  proceeding  is  set  out  in  my  judgment  of 27 March 2019. I do not repeat it here.

[6]	My reasons for granting an interim injunction may be summarised as follows:

(a)	The  defendants  accepted  there  is  a  serious  question  to  be  tried.  I considered that MBH has a strongly arguable claim that it has enforceable contractual provisions (cl 22 of the franchise agreement and cl 3 of the guarantee) which restrain the defendants from engaging in a retail butchery shop in the existing premises.

(b)	I accepted that MBH’s lost opportunity to re-establish a franchise in Whangarei would be difficult to quantify. Damage to goodwill in franchise cases, and in intellectual property cases generally, is often

1	Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589.

difficult to measure. I was not satisfied that damages would be an adequate remedy for MBH.

(c)	While an interim injunction would have harsh consequences for the defendants, I considered damages were more likely to be an adequate remedy for the defendants than for MBH.

(d)	I considered that the relative strengths of the parties’ claims and the doubt as to whether damages would be an adequate remedy for MBH weighed in favour of interim relief.

(e)	I found that Mr Wightman had proceeded with his eyes open, which was a relevant factor.

(f)	I concluded that the balance of convenience and overall justice favoured interim relief.

Approach to leave to appeal

[7]	There is no dispute that leave is required in accordance with s 56(3) of the Senior Courts Act 2016. In Finewood Upholstery Ltd v Vaughan, Fitzgerald J characterised the leave requirement as a “filtering mechanism” to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings. Fitzgerald J recognised the following considerations as relevant:2

(a)	A high threshold exists. An applicant should raise an arguable error of law or fact.

(b)	The alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential importance.

2	Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [9]-[14]. See also Li v Chief Executive, Ministry of Business, Innovation and Employment [2018] NZHC 1171.

(c)	Leave should only be granted where the circumstances warrant incurring further delay.

(d)	Ultimately, the Court on an application for leave should stand back and assess, in a pragmatic and realistic way, whether the interests of justice are served by granting leave.

[8]	The Court of Appeal referred to Finewood in Ngai Te Hapu Inc v Bay of Plenty Regional Council.3 Like Fitzgerald J, the Court of Appeal referred to the similar leave requirement under the former Commercial List.4 The Court declined to provide definitive guidance on the applicable principles in that case but agreed that leave should only be granted where the significance or implications of an arguable error of fact or law, either for the particular case or for the applicant or as a matter of precedent, warrants the further delay which the appeal process would involve.5

[9]	Mr O’Brien QC for the defendants referred to a spectrum and submitted that an interlocutory injunction decision, even if it did not finally determine the outcome of the proceeding, was nearer that end of the spectrum in terms of importance.

Approach to stay

[10]	The starting point is that a successful party is entitled to the fruits of its judgment. An appellant who seeks to stop this must show why the usual consequences should not follow. The Court balances the competing rights of the party who has obtained judgment against the need to preserve the appellant’s position in the event the appeal succeeds. Factors include whether appeal rights would be rendered nugatory, the apparent strength of the appeal, whether the successful party will be injuriously affected by the stay, and the overall balance of convenience. The Court

3	Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [12].
4	At [16]-[17] referring to Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [12].
5	At [17].

exercises its discretion in a manner which, balancing all the factors, best meets the overall justice of the case.6

Grounds of appeal and for stay

[11]	The grounds upon which the defendants seek leave to appeal and a stay may be summarised as follows:

(a)	The injunction will have immediate and significant consequences for the defendants and employees. In submissions Mr O’Brien emphasised that it will close down the business, although he accepts it will not determine the proceeding in the sense that the defendants can proceed to trial and at least claim damages if they succeed.

(b)	It would impact adversely on customers and suppliers.

(c)	A stay pending appeal ought not to cause any immediate loss to MBH.

(d)	To ameliorate any possible or potential loss to MBH, the first and second defendants offer an undertaking (with certain provisos) to cease operation in the existing premises if and when MBH establishes a new franchise operation in new premises in Whangarei and not open any competing operation within the restraint area or period. Following the hearing, the undertaking has been amended this morning so that the provisos are that the franchisee has entered into a standard franchise agreement, a copy or reasonable confirmation of it is provided to the first and second defendants and they are given two weeks’ notice of the intended commencement of the new store.

6	Greymouth Petroleum Holdings Ltd v Empresa Nacional del Petroleo [2017] NZCA 397 at [10]; Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 (CA) at [11]; Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (CA); Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA); and Philip Morris (NZ) Ltd v Liggett & Myers Tobacco Co (NZ) Ltd [1977] 2 NZLR 41 (CA).

(e)	There are reasonable grounds of appeal:

(i)	Clause 22 of the franchise agreement applies only where MBH is ready, willing and able to establish a franchise store, the operation of which would be impeded by the defendants continuing to trade.

(ii)	The no competition covenants in cl 22 are cartel provisions within ss 30 and 31 of the Commerce Act 1986 such that they must be reasonably necessary for the purpose of the collaborative activity to be lawful and are not (a point not previously argued).

(iii)	The restraint is to be scrutinised at the date of the agreement and at the date of its intended application.

(iv)	The goodwill relied on by MBH is not made out on the evidence.

(v)	Given the lack of steps taken by MBH, it has no legitimate interest to protect through the application of the cl 22 covenants.

(vi)	MBH’s failure to take any steps prior to or immediately before termination to establish a Mad Butcher store in Whangarei precludes or weighs heavily against any entitlement to enforce the cl 22 covenants.

(vii)	There is no damage to the goodwill of MBH’s brand for the reasons identified and/or given MBH’s current reputation.

(viii)	MBH is not currently suffering any other damage and is not likely to suffer any damage, at least in the immediate future, and damages are therefore likely to be an adequate remedy.

(ix)	The balance of convenience and overall justice favour the defendants.

(f)	The defendants undertake to prosecute an appeal expeditiously and make appropriate applications under the fast-track procedure regime.

Grounds of opposition

[12]	MBH opposes the application for leave and a stay, on the following grounds:

(a)	The leave requirement for interlocutory appeals serves as a “filtering mechanism” to ensure that valuable court time is not consumed with unmeritorious appeals.

(b)	The defendants do not identify any arguable error of law. They simply relist the factors they say tip the balance of convenience in their favour, which have already been rejected by the Court.

(c)	The Court gave due and appropriate consideration to the consequences of an injunction for the defendants and for the first defendant’s employees and suppliers. The Court considered and rejected the defendants’ arguments that their continued trading is not causing detriment to MBH. The defendants repeat their arguments but do not identify any error in the Court’s assessment.

(d)	The grant of an interim injunction involves the exercise of a discretion. The defendants did not dispute that there is a serious question to be tried. The weighing of the balance of convenience is a matter for the High Court and an appeal is not an opportunity to relitigate this. The defendants have not identified any error of principle or irrelevant consideration that makes the decision amenable to appeal.

(e)	None of the defendants’ proposed grounds of appeal is tenable:

(i)	The defendants’ argument that the plaintiff must be ready, willing and able to establish a franchise store requires judicial re-writing of the agreement. It is directly contrary to Winkelmann J’s decision in Health Club Brands Ltd v Colven Botany Ltd.7

(ii)	The defendants’ argument under the Commerce Act 1986 was not raised in argument and is wrong. There is a large body of authority – cited at [19] footnote 6 of the judgment – upholding restraint of trade clauses in the franchise context.

(iii)	The defendant’s argument that the restraint’s legitimacy must be reassessed at the date of its intended application is contrary to multiple authorities, as set out at footnote 4 of the Court’s decision. These authorities have previously been considered and endorsed by the Court of Appeal in Skids Programme Management Ltd v McNeill.8

(iv)	The proposition that a well-known brand, such as Mad Butcher, has goodwill – regardless of its precise value – that may be protected through a restraint of trade is well-established and uncontroversial.

(v)	The defendants’ remaining grounds of appeal go to the balance of convenience and are matters that were duly considered by the Court in the exercise of the discretion.

(f)	The defendants have not raised any novel issue appropriate for consideration by the Court of Appeal.

7	Health Club Brands Ltd v Colven Botany Ltd [2013] NZHC 428.
8	Skids Programme Management Ltd v McNeill [2012] NZCA 314, [2013] 1 NZLR 1 at [41].

(g)	Further delay in the enforcement of MBH’s contractual rights will cause it prejudice which is not justified in the circumstances.

(h)	The undertaking proposed in the schedule to the defendants’ application does not ameliorate the loss to MBH.

(i)	For the reasons given by the Court in granting the injunction, a stay should be refused.

(j)	The defendants have had a week since the judgment to organise their affairs in anticipation of the Court’s order taking effect. No further delay is appropriate.

Leave to appeal

[13]	I am conscious that I am being asked to review the correctness of my own decision. I have sought to identify an arguable error with the benefit of experienced counsel on both sides, one respectfully asserting an arguable error and the other firmly rejecting it. The easier course might simply be to accept the alleged errors must be arguable but that would not be the correct approach. I must assess whether there is an arguable error. In doing so, I am conscious that, if I decline leave and it is sought from the Court of Appeal, that Court may wish to have my reasons for considering whether they should address the alleged errors in the context of interim relief in this case.

[14]	I have not identified an arguable error. I briefly set out my reasons in relation to each alleged ground. A preliminary observation is that, except for the new Commerce Act ground, the grounds are essentially matters that I considered in my judgment.

[15]	In relation to the primary argument that cl 22 applies only where MBH is ready, willing and able to establish a franchise store, the operation of which would be impeded by the defendants continuing to trade,9 Mr O’Brien submitted that contractual interpretation is essentially a question of law (albeit involving assessment of factual

9	Para [11](e)(i) above.

matrix in some cases). In that sense, my view that MBH has a strong argument or strongly arguable claim under cl 22 was evaluative but, in circumstances where the defendants accepted there was a serious question to be tried, the relevance of my view at the interim stage was as a factor in my assessment of the balance of convenience and overall justice. This involved the exercise of discretion where the appeal threshold is higher.10 It became common ground in the hearing that, applying the approach in May v May,11 the arguable error had to be put in terms that my balance of convenience and overall justice assessment was plainly wrong (as there was no suggestion of acting on a wrong principle, failing to take account some relevant matter or taking account of some irrelevant matter). I agreed to interpret the grounds of appeal as alleging my assessment was plainly wrong.

[16]	Mr Hunter for MBH submitted there is a body of settled law on restraints of trade in this franchising area and it could not possibly be said the approach was plainly wrong. He submitted that cl 22 is a common clause in four parts and there is no basis to read in  the  defendants’ ready,  willing  and  able  qualification.  It  would  make cl 22.1(d) redundant. He relied, for example, on the decision of Winkelmann J in Health Club Brands Ltd v Colven Botany Ltd where, like here, there was not a franchisee in the area but the plaintiff was looking to establish one.12

[17]	Mr Hunter described the alleged error as such a weak proposition that, in any event, would not change the balance of convenience. He noted that if the defendants’ cl 22 argument were correct, MBH would not have a serious question to be tried, which had been conceded.

[18]	In relation to cl 22, I do not consider there is an arguable error that my view of the strength of MBH’s claim (relevant for balance of convenience purposes) was plainly wrong. My view was that MBH has a strong argument based on the plain meaning of cl 22.13 I have not identified an arguable error in that view.

10	NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]-[13].
11	May v May (1982) 1 NZFLR 165 (CA) at 169-170. See also Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32].
12	Health Club Brands Ltd v Colven Botany Ltd [2013] NZHC 428 at [25].
13	Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [20]-[24].

[19]	In relation to the new Commerce Act ground,14 Mr O’Brien submitted it at least reinforced the approach in restraint of trade cases. I agree with Mr Hunter that the cartel provisions in the Commerce Act do not change what is ‘reasonably necessary’ to protect a legitimate interest according to the settled law in the restraint of trade cases, noting that the Act expressly accommodates the common law restraint of trade doctrine in s 7. In any event, this new ground could only amount to an error if it altered the balance of convenience and overall justice assessment. I do not consider it raises an arguable error.

[20]	I do  not  consider  the  argument  that  the  restraint  is  to  be  scrutinised  (for legitimate interest, reasonableness and enforceability) also at the date of its intended application raises an arguable error.15 As Mr Hunter submitted, this is contrary to authorities including the Court of Appeal decision in Brown v Brown cited in my judgment.16

[21]	In relation to goodwill and adequacy of damages,17  Mr O’Brien submitted     I was plainly wrong to consider it weighed in favour of interim relief without balancing against that an argument that there was a lack of goodwill. Re-reading this section of my judgment does not indicate that my conclusion that I was not satisfied that damages would be an adequate remedy for MBH was arguably plainly wrong.18

[22]	I do not consider that the application raises an arguable error in relation to my treatment of the defendants’ delay argument in the balance of convenience.19

[23]	More generally, the defendants submit I was arguably plainly wrong to consider the balance of convenience  and  overall  justice  favoured  interim relief.20  I have not identified an arguable error here.

14	Para [11](e)(ii) above.
15	Paras [11](e)(iii) and [11](e)(v) above.
16	Brown v Brown [1980] 1 NZLR 484 (CA) at 491, cited in Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [25].
17	Paras [11](e)(iv), [11](e)(vii) and [11](e)(viii) above.
18	Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [40]-[48].
19	Para [11](e)(vi) above; Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [60].
20	Para [11](e)(ix) above.

[24]	Accordingly, I have not identified an arguable error (that my decision was plainly wrong) which the Court of Appeal should address in the context of interim relief in this case.

[25]	Turning to the importance of the alleged errors, I accept that the interim injunction is of importance to the defendants, given the acknowledged harsh consequences. Mr O’Brien went further and submitted the matter generally is of general or public importance by reference to an Australian Parliamentary inquiry into franchising and the defendants’ lack of profit (reflecting the pleading of an implied term that the business would be maintained to allow franchisees to make a reasonable profit). That implied term argument is not included in the grounds of appeal. I do not consider that the alleged errors are of general or public importance, except perhaps for the cl 22 and Commerce Act arguments. If arguable, they would appear to have wider implications for settled restraint of trade cases, but if anything that reinforces my view that they are not arguable.

[26]	Each party referred to delay. Leave should only be granted where the circumstances warrant incurring further delay. I consider the relevant delay in this leave context is delay in the progress of the proceeding. It is common ground that the proceeding will not be delayed by an appeal – discovery and next steps can and should proceed in any event. This assumes counsel are correct that an appeal hearing within two months is possible. On that basis, this factor does not weigh against granting leave. It would be different if an appeal threatened the proposed priority fixture.

[27]	In a wider delay sense, Mr O’Brien submitted that MBH is not in a position to set up a franchise operation in Whangarei, which I should take into account in the interests of overall justice. I do not consider that is a separate material factor in relation to leave. Mr Hunter suggested I should take into account delay in a broader sense too
– that the defendants brought about the situation after the expiry of the franchise agreement and have been trading for three months. He submitted that I have already heard and rejected the defendants’ arguments that they should be permitted to trade through to trial, that I have found that damages are more likely to be an adequate remedy for the defendants than for MBH, and there is nothing in the circumstances to

justify a further delay while the defendants pursue a weak appeal. However, I do not consider that is a separate material factor in relation to leave either.

[28]	Mr O’Brien also submitted I should take into account the undertaking offered, at least in relation to overall justice. Mr Hunter did not accept the undertaking ameliorated the harm to MBH. He characterised it as re-writing the bargain between the parties. I do not consider the undertaking now offered should have a bearing on whether I grant leave to appeal.

[29]	I do take into account the defendants’ acknowledgement that, despite the consequences for its business, the interim injunction will not be determinative of the proceeding, and that the defendants have the benefit of MBH’s undertaking as to damages and security paid into Court of $300,000.

[30]	Standing back, I have not identified arguable errors that I consider the Court of Appeal should address in the context of interim relief in this case. I accept that the interim injunction is of importance to the defendants, given the acknowledged harsh consequences. I also accept that delay to the proceeding does not weigh against granting leave (assuming an early appeal hearing). However, in the absence of arguable error, I do not consider the interests of justice are best served by granting leave. For these reasons, leave to appeal is declined.

Stay

[31]	I turn to the application for a stay. I have declined leave to appeal but in case leave were to be granted by the Court of Appeal, I first consider whether the appeal would be rendered nugatory if a stay were not granted. The defendants submit the appeal would be rendered nugatory in the sense that they would have had to cease trading to comply with the interim injunction in the meantime even though they would be free to resume trading if the Court of Appeal were to allow the appeal, at least pending trial. This is a harsh consequence as I have previously acknowledged but even if it were considered to render the appeal nugatory (which I doubt) that is not a determinative factor.21 As indicated, the defendants accept the injunction will not

21	Keung v GBR Investment Ltd [2010] NZCA 396 [2012] NZAR 17 (CA) at [10]-[11].

determine the proceeding in the sense that they can proceed to trial and at least claim damages if they succeed. Also, if the Court of Appeal were to grant leave to appeal, it could revisit the need for a stay pending appeal taking into account its different view of the apparent strength of the appeal.

[32]	The next relevant factor is the harm to MBH if a stay is granted. Mr O’Brien submitted this was limited as MBH is not in any position to open a franchise operation and in any event the damage (which is denied) would be adequately remedied by an award of damages.   I have already considered and not accepted these arguments.      I consider a stay may well further compromise MBH’s opportunity to re-establish, which will be difficult to quantify.

[33]	Mr O’Brien also submitted I should take into account that a stay would have little impact on MBH because of the undertaking offered. I do not consider the undertaking removes the harm MBH claims to be suffering, by reason of the defendants’ ongoing trading, while MBH seeks to re-establish.

[34]	Mr Hunter submitted that any prejudice to the defendants can be addressed through damages, relying on Bigola Enterprises Ltd v Dymocks Franchise Systems (NSW) Pty Ltd.22 As indicated, MBH has provided an undertaking as to damages and now paid security into Court of $300,000.

[35]	I have also already considered the argument regarding the effect on third parties. I do not consider it weighs in favour on a stay.

[36]	Mr O’Brien submitted the proposed appeal raises a novel question about the interpretation of non-competition covenants in franchise agreements, but he acknowledged that the novelty or importance of the questions was not particularly a factor in relation to a stay. I agree. Also, for the reasons already given, I do not consider there is a particular public importance or interest in the proceeding favouring a stay.

22	Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (CA).

[37]	Balancing the competing right of MBH to its judgment, my assessment of appeal prospects and whether MBH will be injuriously affected by the stay against the need to preserve the defendants’ position in the event an appeal proceeds and succeeds, including the impact of the interim injunction in the meantime, I consider the overall balance of convenience and interests of justice do not favour a stay. For these reasons, I decline to grant a stay pending any application to the Court of Appeal for leave to appeal.

[38]	In the alternative, the defendants seek a stay for two weeks from the date on which security was posted to enable them to arrange an orderly cessation. Mr Hunter was not in a position to consent but noted that MBH had been willing at the injunction hearing to agree to a period of three days for the defendants to sell existing stock and minimise waste. A three-day period should suffice for this purpose without causing much further prejudice to MBH. The defendants have now had over a week since my judgment. Security was confirmed on 2 April. The interim stay will expire three days after the date of this judgment.

Costs

[39]	The parties did not address costs. I consider MBH should be entitled to costs on a 2B basis and reasonable disbursements. If costs cannot be agreed, counsel may address costs in the timetabling memoranda.

Result

[40]	The application for leave to appeal is dismissed.

[41]	The interim stay is to expire three days after the date of this judgment.

Gault J