IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2013-425-000274 [2013] NZHC 2535

BETWEEN	COOKRIGHT FILTERING SERVICES LIMITED
Plaintiff	

AND	
THOMAS WAYNE WALLIS AND THOMAS SHAUN WALLIS
First Defendants

SALLY MAREE TILY AND ROSS TILY Second Defendants

PROFESSIONAL KITCHEN SERVICES (SOUTHLAND) LIMITED
Third Defendant	

Hearing:	23 September 2013	

Appearances:	
P D McKenzie QC for Plaintiff
B Nettleton for First Defendants
R Donnelly for Second and Third Defendants	

Judgment:	
27 September 2013	

JUDGMENT OF D GENDALL J

Introduction

[1]	In the application before the Court, the plaintiff has applied for an interim injunction against the second and third defendants, specifically:

...restraining these defendants and each of them from carrying on or being directly  or  indirectly  engaged  or  concerned  or  interested  whether  as principal, agent, director, employee or in any other way in any similar business to that of the plaintiff’s franchised operation within the Invercargill, Southland, or Central Otago territories or within 100 kilometres of those territories, including any internet use.

[2]	The application is opposed by the second and third defendants.

COOKRIGHT FILTERING SERVICES LIMITED v WALLIS [2013] NZHC 2535 [27 September 2013]

[3]       A similar application was commenced against the first defendants who in turn filed an appropriate undertaking in the terms sought in to the interim injunction.  The plaintiff informed the Court on 6 September 2013 that, on the basis of that undertaking, it was not pursuing the application for an injunction against the first defendants.

[4]       Accordingly, the hearing of this proceeding before me involved only the second  and  third  defendants  and  the  attendance  of  Mr  Nettleton  who  appeared initially for the first defendants was excused.

Factual background

[5]      The plaintiff is a franchisor conducting a nationwide franchise operation covering the provision of kitchen cleaning and other services for commercial organisations that cook using deep fryers.  This includes the cleaning of vats, the filtering  and  rejuvenation  of  cooking  oil  and  cleaning  agents  supplied  by  the plaintiff, and involving also the sale of replacement oil plus fat and the collection and  sale  of  waste  oil  and  other  products,  within  the  individual  “Cookright” franchised areas throughout New Zealand.

[6]       The first defendants (the Wallis partners) entered into “Cookright” franchise agreements with the plaintiff in relation to Invercargill, Southland and Central Otago territories until serious difficulties arose between them and the plaintiff concerning the way in which the Wallis partners were operating their franchises.  This included allegations as to the sale of competing non-Cookright products (Frigold and Chefade beef shortening).   The Wallis partners it seems claimed that the sale of these competing products was through a separate operation, Mainland Distributors, in which, as I understand it, the second defendants had some involvement.

[7]       Efforts to resolve the differences between the Wallis partners and the plaintiff were unsuccessful.  Early in 2012 notice was given to terminate their “Cookright” franchise agreements.  This resulted in earlier proceedings being issued in this Court with the plaintiff applying for interim orders, including an injunction to restrain the Wallis partners from carrying on a competing operation of the same kind as the franchised operation until the substantive proceedings had been determined.  Several

consent but in this Court Chisholm J declined to make an order restraining the carrying on of the Wallis partners’ business.   Instead the Wallis partners were permitted to continue to operate kitchen and vat cleaning services, provided that monthly reports were filed which disclosed the income received from such services. Later this was extended to include reports of earnings received through Mainland Distributors.

[8]       Settlement discussions then, it seems, took place between the Wallis partners and the plaintiff which led to a Deed of Settlement being entered into dated 3 June
2013 (the Settlement Deed).   Under the Settlement Deed consideration totalling

$70,000 was to be provided by the plaintiff to the Wallis partners in return for their handing over to the plaintiff their franchise operations in Invercargill, Southland and Central Otago territories.

[9]       The Settlement Deed also included clauses providing for what was described as “the smooth transition of the business operation” from the Wallis partners to the plaintiff.   This required steps to be taken, including provision of an agreed letter from the Wallis partners advising all clients within the territories who had services of the kind under the franchised operation that the plaintiff was assuming responsibility for provision of the services.  In addition, an agreed timetable was set out in relation to the transition of the business operation to the plaintiffs which provided for a takeover on 14 June 2013.

[10]     Evidence has been provided by the plaintiff which appears to show that in a large number of respects the Wallis partners frustrated any smooth transition of the business to the plaintiff.   This included in particular their failure to “forthwith” advise clients, by way of the agreed letter, of the transition under the Settlement Deed as required.

[11]     The plaintiff contends that these obstructive actions on the part of the Wallis partners provided time and opportunity to the second defendants to approach the various franchise clients to inform them of their intention to establish a competing operation.  It seems that on 4 June 2013 the plaintiff discovered when approaching

customers for the purposes of the handover which was due to take place shortly thereafter on 14 June 2013, that Ms Sally Tily, the first-named second defendant (Ms Tily) was already visiting customers and distributing a brochure advertising their  business  under  the  name  “Vat  2013”.    Significantly,  it  is  said,  the Wallis partners had earlier traded the franchises under the name “Vat Tech”.

[12]     The plaintiffs say that as a result the customers were confused as to which business was taking over the Wallis partners’ franchise arrangements and would now be servicing them.

[13]     On  5  July 2013  the  plaintiff  wrote  to  the Wallis  partners,  through  their solicitors, alleging a blatant breach of the Settlement Deed and requesting immediate compliance with the terms of the Deed.

[14]    On 12 July 2013, not having received any clear response from the Wallis partners, the plaintiffs, through their solicitors, gave notice to the Wallis partners holding them to be in breach of the terms of the Settlement Deed and cancelling the contract between the parties pursuant to the Contractual Remedies Act 1979.  The cancellation however was without prejudice to the Court order which had already been made.  The plaintiff also reserved all its rights to claim relief and compensation under ss 9 and 10 of the Contractual Remedies Act 1979.

[15]     The Wallis partners, by letter also dated 12 July 2013, denied breaches of the Settlement Deed and claimed that the business now being conducted by the second defendants had nothing to do with them.  The current proceedings were then filed in this Court by the plaintiff.

[16]     In the meantime, on 26 June 2013 the third defendant had been incorporated by the second defendants with the intention it seems of changing the operation of their new business to conduct it through the third defendant.

[17]     On 19 August 2013 both the second and third defendants filed a Notice of

Opposition to the current interim injunction application upon the following grounds:

of action brought by the plaintiff;

(b)	balance of convenience grounds; and

(c)	the overall justice of the case.

[18]     Those grounds of opposition raise the well established principles this Court is required to consider in the present application in terms of the decision in Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited1  and as outlined in McGechan on Procedure.2

[19]     On the issue as to the balance of convenience between the parties, this is often described as the balance of the risk of doing an injustice.  In determining where the balance of convenience lies the Court usually is to have 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

– see ABC Developmental Learning Centres (NZ) Limited v Artemis

Early Learning Limited.3

1	Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited [1985] 2 NZLR 129 (CA).
2	McGechan on Procedure HR 7.53.04 – 7.53.17.
3	ABC Developmental Learning Centres (NZ) Limited v Artemis Early Learning Limited  HC Christchurch CIV-2010-409-1198, 25 June 2010, French J.

The strength of the plaintiff’s case – serious question to be tried

[20]     Turning to consider the first issue noted at [17] above, in its statement of claim, the plaintiff advances four causes of action against the second and third defendants:

(a)	interference of contractual arrangements (second cause of action); (b)	conspiracy by the use of unlawful means (third cause of action); (c)	passing off (fourth cause of action); and
(d)	breach of the Fair Trading Act (fifth cause of action).

A        INTERFERENCE WITH CONTRACTUAL RELATIONS

[21]     A leading authority on the tort of inducing breach of contract is the House of Lords decision in OBG Limited v Allan.4    In this case the Court held generally that this tort required there to be conduct which induced a breach of contract.  The essential ingredients of the tort are:

(a)	there must be a legally enforceable contract in existence;

(b)	the defendant must have engaged in conduct which in fact induced a breach of contract;

(c)	the defendant must have known that his or her conduct would induce the breach;

(d)	the defendant’s conduct inducing the breach must have caused loss or damage to the plaintiff; and

(e)	the defence of justification may arise.

4	OBG Limited v Allan [2008] 1 AC 1.

[22]    In the present case I am satisfied that a legally enforceable contract is in existence, this being the Settlement Deed between the plaintiff and the Wallis partners.  The second and third defendants do claim in their Notice of Opposition that the Settlement Deed requires  (at  clause 4.11) that its terms  are to be kept “strictly confidential” and there is no evidence before the Court that the second and third defendants had any knowledge of this document.

[23]     Recently, however, the Court of Appeal held, in Diver v Loktronic Industries Limited5  that constructive knowledge of the Nelsonian kind, namely the subjective suspicion of sufficient strength that a contract existed (and a deliberate choice not to make  enquiries)  will  amount  to  knowledge  for  the  purposes  of  this  tort  (at paragraphs [44] to [48]).   In Diver v Loktronic Industries Limited the Court of Appeal referred with approval to the formulation in Emerald Construction Limited v Lowthian6  where the Court held that the knowledge requirement will be met where the party has the means of knowledge but deliberately disregards them or is indifferent or reckless.

[24]     On this aspect, I am satisfied on all the evidence before the Court that it is more likely than not that the the first-named second defendant, Ms Tily, has satisfied this knowledge requirement and through her the other second and third defendants. Her claims to the contrary in her affidavit evidence before the Court, in my view, lack credibility when the circumstances surrounding this whole matter are carefully examined.  For her to suggest that she did not know that the Settlement Deed existed whereby the plaintiff and the Wallis partners had entered into a settlement in relation to the proceeding between them and that this settlement involved the plaintiff taking over the Vat Tech customers previously serviced by the Wallis partners is clearly without foundation.

[25]     I reach this conclusion for the following reasons:

(a)	The evidence before the Court establishes that there was a previous close business relationship between the Wallis partners and Ms Tily

5	Diver v Loktronic Industries Limited [2012] 2 NZLR 388 (CA).
6	Emerald Construction Limited v Lowthian [1966] 1 All ER 1013 (CA).

and in particular that she shared a business relationship with them as a part  owner  and  operator  of  Mainland  Distributors,  run  essentially from the same venue as the Vat Tech business.

(b)	In the course of that business relationship there seems little doubt that Ms Tily assisted the Wallis partners to act in a clandestine manner in selling non-Cookright products and otherwise to engage in behaviour which was in breach of the franchise agreement;

(c)       The timing of Ms Tily’s commencement of her competing Vat 2013 operation, and her visits to previous Vat Tech clients of the Wallis partners ahead of approaches to those customers by the plaintiff, are entirely suspicious.   This is particularly the case when at the same time the first-named first defendant, Mr Wallis senior was involved arguably in delaying the informing of customers of the settlement and thereby obstructing steps towards a “smooth transition” of the customers to the plaintiff.  These are things he had covenanted to do in the Settlement Deed.

(d)	With  regard  to  these  matters  particularly,  I  draw  attention  to exhibit SCM34 attached to the 5 July 2013 affidavit of Mr Steven Craig McMullen filed on behalf of the plaintiffs.  This is a copy of a letter on Vat 2013 letterhead signed by Ms Tily around late May 2013 or early June 2013 and addressed to Vat Tech customers who she had just visited.  Operative parts of this letter from Ms Tily read:

Thank you

It was lovely to meet you on ...

Unfortunately my visits seem to have been poorly timed, as during them two clients that were on Cecil’s (Mr Chambers) list, Old Tom Wallis in most cases, hadn’t had a chance to call to explain his situation.   It appears that Cookright were a week ahead of themselves.  This caused some angst with many of the people I saw and I felt extremely sorry for the way things had transpired...

We would love to be able to offer our services... Please contact us by
Thursday 13 June if you would like to join us.

Vat  2013  letterhead  signed  by Ms Tily,  again  to  Vat Tech  clients

headed “Fresh Start, Familiar Faces!” which reads in part:

We would like to take this opportunity to introduce ourselves and hope that you will be able to join with us in what is finally, a new business  with  a  fresh  start.    Locally  owned  and  operated  with familiar faces; no franchise obligations with funds leaving the South and no contracts to sign locking you into long term agreements.

...After much consideration we seized upon the opportunity to start this business in order to continue on with a service that we see as a necessary part for any business that operates a commercial kitchen. We also believe that potential clients should be able to have a choice about who they wish to have maintain their assets...

Thanks  for  your  time  in  reading  this  letter  and  we  would  be delighted if you would come on board on 17 June 2013!

The tenor of these letters in my view is uncanny and would clearly in my view indicate that Ms Tily was well aware of the requirements in the Settlement Deed between the plaintiff and the Wallis’s (“it appears that Cookright were a week ahead of themselves”) and of the settlement arrangements for the plaintiff to acquire back the Vat Tech business  on  Friday  14  June  2013  (...come  on  board  on  17  June
2013”).

(f)	Vat 2013, the second defendant’s competing operation, from these letters to customers, was clearly aware of the timetable under the Deed of Settlement as noted above.

(g)	The  second  defendants  acknowledge  that  they  knew  the  Wallis partners were ceasing trading, an employee of the Wallis operation (Mr Chambers) was being made redundant and was available to work for Ms Tily.

[26]     Ms Tily’s affidavit filed in this matter suggests that she simply saw a business opportunity and took advantage of it.  This in my view is barely credible, given what I see as clear inside knowledge on her part of what was happening in relation to the Wallis partners and the plaintiff.  This would have enabled her with the assistance of

the Wallis partners to take the initiative, approach Vat Tech customers before the plaintiff had the opportunity to do so, and divert them to her new Vat 2013 operation.

[27]     The evidence before the Court would appear to support the view that the second defendants set up their Vat 2013 business with the active encouragement and support of Mr Wallis senior.  It seems also unlikely that the second defendants out of the blue would have decided to source new premises which they did at 45 Tyne Street, Invercargill, purchase a van, engage a previous employee of the Wallis partners, Mr Chambers, who was still at that time one of their employees, if they did not know that the Wallis partners had entered into the Settlement Deed with the plaintiff, the timing of the transitional arrangements under that settlement, and the fact that under the Settlement Deed the plaintiff would shortly be approaching the Wallis partners Vat Tech customers to take on the servicing of their contracts.

[28]     And,  the  use  of  the  name  for  the  new  business,  Vat  2013  also  seems uncannily close to the earlier name operated by the Wallis partners, Vat Tech.

[29]     As was found in the Emerald Construction decision, I conclude that Ms Tily either knew of the Settlement Deed and the arrangements required under it, or clearly had “the means of knowledge” of such a kind from which enquiries could and should have been made by her in this case.

Inducing breach of contract

[30]     As Todd: The Law of Torts in New Zealand7  notes, the Court have required that there be acts of encouragement or persuasion which brought about or provided a necessary link between the broken contract and the second and third defendants in cases of this type.

[31]     I am satisfied on all the evidence which is before the Court that Ms Tily at least on behalf of the second and third defendants has engaged in conduct which in fact induced a breach of contract here.  In particular it is more probable than not here
that Ms Tily’s encouragement and persuasion, in my view, provided the necessary

7	Todd: The Law of Torts in New Zealand (6th ed) at para 13.2.03.

In particular:

(a)       Ms Tily had an acknowledged close business relationship with the Wallis partners and it is said she had assisted them in the past (at least through Mainland Distributors) in conducting an operation which on a number of occasions was designed to avoid detection by the plaintiff and facilitate the breach by the Wallis defendants of their obligations under the franchise agreement.

(b)	The Wallis partners actively assisted the second defendants in setting up the Vat 2013 business.

(c)       Ms Tily admits in her affidavit filed in this proceeding that the second and third defendants saw a business opportunity and decided to make use of it.

(d)	The conduct of the Wallis partners in delaying and obstructing the “smooth transition” of customers to the plaintiff under the Settlement Deed is inexplicable apart from encouragement on the part of the second defendants to do so.  This would give the second defendants time to establish their business, visit clients of Vat Tech and introduce their Vat 2013 business before the plaintiff had an opportunity of doing so.  On the evidence before the Court, the breach by the Wallis partners of the Settlement Deed and the actions of the second defendants, as I see it, can arguably be seen as sufficiently entwined that the Court is entitled to find an operative inducement on the part of the second defendants here.

[32]	This requirement in my view is satisfied here.

The second defendants must have known that their conduct would induce the breach

[33]    On all the evidence which is before the Court I am satisfied here that this requirement is also satisfied.  The conduct of the second defendants and Ms Tily in particular and the supporting actions of the Wallis partners simply cannot be explained on any other reasonable basis than that the second defendants knew their intention of setting up a competing business was timed and arranged to give them an advantage  approaching  Vat  Tech  customers  with  the  clear  knowledge  that  their actions would encourage and induce the Wallis partners with whom Ms Tily had a close business relationship to breach the terms of the Settlement Deed in order to assist her.

The second defendants’ conduct inducing the breach caused loss or damage to the plaintiff

[34]     The plaintiff here has also done sufficient in my view to establish this.  The damage caused to the business of the plaintiff as a franchisor relates initially to the loss of potential customers and consequential loss of income and business generated by  those  customers.    In  addition,  and  in  particular  in  a  nation-wide  franchise operation like Cookright, the integrity and standing of that operation in relation to other  franchisees  is,  of  course,  critical.    The  actions  of  the  third  and  fourth defendants, as I see it, have potentially created a damaging loss of confidence and erosion of the plaintiff’s capacity to draw new replacement franchisees into the franchised operation.  A consequential loss to the plaintiff of up-front payments that it might otherwise expect to receive on sale of the three franchises in question would result.

[35]     Again, this aspect is satisfied here.

No defence of justification available in this case

[36]     The onus here is on the second and third defendants to establish justification. They state only that they were acting in their own business interests and that in reality it is the independent decision of Mr Chambers, an experienced and well- known operator in the industry, made redundant by Vat Tech, to accept employment

in their new Vat 2013 business which is the real reason for the plaintiff’s complaint here.  But, as I see it, there is no real evidence of these claims before the Court. And no substantial ground is put forward in the Notice of Opposition to support the existence of this defence.

[37]     I conclude therefore that the plaintiff has done sufficient at this early stage to show it is more likely than not that the first cause of action by way of interference with the contractual arrangement existing under the Settlement Deed is established and thus a serious question is available to be tried here.

B         CONSPIRACY BY THE USE OF UNLAWFUL MEANS

[38]     Turning now to the second tortious cause of action pleaded by the plaintiff here, the elements of this tort are:

(a)       the defendants must be parties to a common design with the intent to injure the plaintiff;

(b)	the common design is to be or is carried out by unlawful means and the facts that make the action unlawful must be known to the defendant;

(c)	the plaintiff must suffer loss as a result.

Common design with the intent to injure the plaintiff

[39]     On all the evidence which is before the Court, there is a reasonable argument in my view that the actions of the Wallis partners, considered along with those of the second  defendants  and  Ms Tily in  particular  here,  show  that  a common  design existed.  In particular I refer to:

(a)       The  Wallis  partners  appeared  to  assist  in  facilitating  the  second defendants in setting up their Vat 2013 business as I have noted above, by  amongst  other  things,  delaying  and  obstructing  the  smooth

transition  of  the  Vat  Tech  business  to  the  plaintiff  as  they  had contracted to do.

(b)	The Wallis partners also, it appears actively assisted in moving and supplying gear and product for the purposes of the business to the second defendant’s Vat 2013 premises in Tyne Street, Invercargill.

(c)       The  interlocking  nature  of  this  conduct  with  that  of  the  second defendants as I see it makes it significantly more probable than not that a common design existed to move customers to the Vat 2013 operation, to enable that business to advertise its services in advance and for visits to be made to Vat Tech customers before the plaintiff had any opportunity to do so.

(d)	A justified complaint exists on the part of the plaintiff in my view that as a result of this common design to injure it, the plaintiff ’s first opportunity to visit Vat Tech customers to invite them to continue with the Cookright franchise was effectively nullified.

[40]     The authorities make it clear that it is not necessary that a defendant’s sole or predominant purpose here be to injure the plaintiff.  An intention to injure together with other purposes will be sufficient – Todd:  The Law of Torts in New Zealand.8
An intention to harm is only necessary in the sense that the defendants knew that such damage would be a likely consequence of their planned actions and there need not be an activating motive to injure the plaintiff – ABC Development Learning Centres (NZ) Limited v Artemis Early Learning Centre Limited.   Even if overseas authority is followed, there needs to be a constructive intent derived from the fact “the defendant should have known that the injury to the plaintiff would ensue.”  In my view that test is also satisfied on the present facts.   There is a reasonable argument, as I see it, that the second defendants’ actions here were directed at the plaintiff in the sense that they sought to attract to themselves Vat Tech customers that

would likely be otherwise serviced by the plaintiff and they did this with the constructive intent referred to – on this see Todd: The Law of Torts in New Zealand.9

[41]     I am satisfied therefore that a common design existed here to effectively steal a march on the plaintiff with the clear intent of injuring it.

The use of unlawful means and loss suffered by the plaintiff

[42]     Here, the plaintiff contends the unlawful means referred to relate to the tort of interference with contractual relations outlined above.  In addition the plaintiff notes particularly its submission that the second and third defendants had knowledge of the Settlement Deed of at least a Nelsonian kind and had closed their minds to facts and sources of information  that with their association with the Wallis partners were clearly available to them.  These matters in my view are clearly arguable here.  In addition there can be no doubt that if the plaintiff is successful in maintaining its claim, it has suffered potential lost custom from Vat Tech customers from whom it was effectively deprived of the opportunity to visit and solicit.

[43]     In conclusion, I find also that this conspiracy by the use of unlawful means tort here is also made out to an arguable extent by the plaintiff.

C        PASSING OFF

[44]	The element of this tort are: (a)	misrepresentation;
(b)	made by a trader in the course of trade;

(c)	to prospective customers of the trader, or ultimate consumers of goods or services supplied by the trader;

(d)	which is calculated to injure the business or goodwill of another trader

(in the sense that this is a reasonably foreseeable consequence); and

9	Todd: The Law of Torts in New Zealand (6th ed) para 13.4.03(1).

(e)	which causes actual damage to the business or goodwill of the trader.

Misrepresentation

[45]     The misrepresentation submitted here is that the second defendants, by the use of their name Vat 2013 and the way in which they promoted their business, clearly represented that they had a connection with and were a successor of the Wallis partners’ previous business, trading under the name Vat Tech.  In my view, as noted above, the evidence before the Court and particularly that advanced on behalf of the plaintiff is sufficient to support this contention.

Made by a trader in the course of trading and made to prospective customers

[46]     These requirements are self evident here and effectively are unchallenged by the second and third defendants.

Calculated to injure the business or goodwill of another trader

[47]     In using the name “Vat” which had formed part of the name of the Wallis partners’ business, and in their intentional approaches to the customers of that business hastily in advance of approaches which it was known were to be made by the plaintiff, the second defendants knew that those customers who would otherwise be likely to seek their vat cleaning and kitchen services from the plaintiff would now be encouraged (or misled) to switch to the second and third defendants.  This was with the clear intention that this would impact on the plaintiff ’s business or goodwill in the sense that this impact was a reasonably foreseeable consequence of the second defendants’ actions.

[48]     The authorities are clear that the conduct in question here must be likely to injure the business or goodwill of another trader in the sense that this is a reasonable foreseeable consequence – Todd: The Law of Torts in New Zealand.10

[49]     On this aspect, the second and third defendants contend however that they had made it clear to potential customers that their business was a new business

making an fresh start.  Questions must be raised, as I see it, concerning this claim however, given first, the name chosen for the new business which may well be likely to deceive, secondly, the employment of Mr Chambers, an existing staff member of the Wallis partners and thirdly, from the evidence of the clear association which existed between Ms Tily and Mr Wallis senior in particular.  And this claim by the second and third defendants that they had made it clear to all that their business Vat 2013 was an entirely new business is of little moment here.   In my view, the matters noted above were clearly likely to deceive and in fact on the evidence they did deceive customers.

[50]     The later  change by the second  defendants  of  the name  of  the business following protest by the plaintiff must also in my view be seen as indicating some awareness that the use of the name Vat 2013 was in fact misleading.   But in any event any damage that was to occur had already been done by that time.

[51]     Again, there is sufficient before the Court to show that this tort of passing off is reasonably arguable on the part of the plaintiff here.

D        BREACH OF S 9 OF THE FAIR TRADING ACT 1986

[52]     Section 9 of the Fair Trading Act 1986 provides:

9	Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[53]     The elements of this cause of action as noted in Todd:  The Law of Torts in New  Zealand11   correspond  broadly to  those  that  are  required  to  be  satisfied  in relation to an action for passing off.  In particular:

(a)	The defendant must be acting “in trade”.

(b)	The defendant must engage in conduct that is misleading or deceptive.

In this respect a cause of action under s 9 is broader in scope than an

action in passing off or for misrepresentation.  A person “engages in

11	Todd: The Law of Torts in New Zealand (6th ed) at para 5.8.08

	conduct” by doing or refusing or omitting to do an act – s 2(2) Fair

Trading Act 1986.	Normally the conduct will contain or convey a	
	misrepresentation, but the scope of s 9 is wider in that any form of deceptive conduct is covered.	
	
(c)	
There need not be any intention to mislead.	
	
(d)	
The actions must have caused loss or damage to the plaintiff.	

[54]	
In	
my view, there is a reasonable argument open to the plaintiff here that all	
of these elements are satisfied on the basis of the evidence which is presently before the Court.  The matters noted above with respect to the passing off tort apply equally here.

[55]     In conclusion, I am satisfied that there is a serious question to be tried in relation to all of the causes of action relied on by the plaintiff here.  I am of the view that the threshold of “an arguable or serious question” to be tried required here is satisfied – see McGechan on Procedure12 and Lep International Limited v Hass.13

The balance of convenience

[56]     As noted at paragraph [17] above, the next matter to be considered relates to the balance of convenience.  This requires the Court to determine as between the respective positions of the parties how their rights can be adjusted in a way that causes fairness and justice – McGechan on Procedure.14

[57]     In my view it is clear that this is not a case where damages would be an adequate remedy for the plaintiff.   The future servicing of former customers of Vat Tech is at issue and the plaintiff’s right to have a reasonable opportunity to put its proposals to these parties.

[58]     On these aspects also, it is clear that the presence of the third defendant’s

operation in the three territories in question may well seriously inhibit the sale of

12	McGechan on Procedure at para HR 7.53.06(3)
13	Lep International Limited v Hass [1997] 2 TCLR 615.
14	McGechan on Procedure at para HR 7.53.07.

those territories to a new franchisee and this would have long term damage to the plaintiff’s franchise.  Similarly, it is said that the ongoing presence of the third defendant in these territories has a continuing damaging impact on the plaintiff’s franchise operation nationally.

[59]     Mr Donnelly, counsel for the second and third defendants, in his submissions emphasised that this balance of convenience argument was  a principal point on which those defendants opposed the present application.  On this, he noted that the issue before the Court essentially relates to the claimed harm which would be caused to the plaintiff as a national franchisor, versus the harm which might be caused to the local small third defendant operator of its just established business, if the injunction sought is granted.  If the third defendant was required to stop trading now it is said it would be hard for it to retrieve the situation and come back later in the event that any injunction was subsequently lifted.

[60]     Further, the third defendant contended that any harm that may have been caused to the plaintiff here would have already occurred and that the plaintiff’s national backing would minimise the impact of this.  No more harm, it is said, would arise from allowing the status quo to continue.

[61]     Finally, Mr Donnelly for the second and third defendants contended that the real harm, if any, which may have been caused to the plaintiff here has occurred only as a result of the actions of the Wallis partners, and not on the part of the second and third defendants.

[62]     In the present case, the plaintiff in the Settlement Deed reached with the Wallis partners sought and obtained the advantage, in return for the compensation it paid, of a first opportunity to approach Vat Tech customers to continue servicing them and thus a chance to avoid some degree of competition.  This was linked to the requirement  that  the  Wallis  partners  would  communicate  favourably  with  all Vat Tech customers to ensure the “smooth transition” of the business back to the plaintiff following settlement.

[63]     None of this, of course, would prevent the entry into this market of a genuine third party competitor.  Nevertheless, the plaintiff was obviously satisfied with the Wallis partners’ undertaking to endeavour to arrange a smooth transition and for the first opportunity to approach Vat Tech customers to invite their transfer.  As it transpired, all of this has became a lost opportunity for the plaintiff.  And, the authorities establish that damages cannot fully compensate for this – McGechan on
Procedure15 citing Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited.

[64]     In addition, it seems clear from the authorities that it is rare that damages would be regarded as an adequate remedy where there are allegations of a likelihood of confusion in trade and where loss of goodwill is an issue, which is the case here.

[65]     On this balance of convenience argument the Court is also entitled to have regard to the strength of the parties’ cases and to their conduct.  In the present case, as I see it, the second and third defendants initially commenced their new business under the name Vat 2013 on the basis that they were likely to know all of the relevant facts.   Given the association of Ms Tily with Mr Wallis senior, and the setting up assistance provided by the Wallis partnership, it is likely that the second defendants knew the general tenor, if not the detail, of the Settlement Deed that the plaintiff was expecting to take over the customers of the Wallis partners as part of the settlement reached.  Their claim that this was simply a “good business opportunity” in my view simply does not tell the full story.  The second defendants’ claim of lack of knowledge of the arrangements between the Wallis partners and the plaintiff as I have noted above is simply not credible on the basis of the evidence before the Court and, in any event, to the extent that they may not have known all of the facts, they chose to close their minds to what I see as the obvious.

[66]     In this case, the real complaint the plaintiff may have against the second and third defendants (as opposed to its complaint against the Wallis partners) must relate to its lost opportunity to introduce itself to the Vat Tech customers in a timely way once the Wallis partners had approached those customers with the agreed letter inviting a smooth transition of their business back to the Cookright franchise.  This
process was carefully crafted in some detail into the Settlement Deed.  In my view

15	McGechan on Procedure at para HR 7.53.08(2)(b) and (c).

this mischief can be met here by an appropriate injunction to some extent in the terms sought by the plaintiff but limited in time to a restricted period.   This will enable the plaintiff to make a fresh approach to former Vat Tech customers with or without the agreed letter and the plaintiff’s explanation of what has happened here to invite them to switch their business back to the Cookright franchise.  This process could be achieved in a relatively short period.  It is suggested that one month should be  sufficient  for  this  purpose,  a  time  period  originally  envisaged  under  the Settlement Deed.

[67]     There would be no doubt that such an injunction even for this limited period could have a possibly detrimental effect on the business of the third defendant, but effectively this would give those previous Vat Tech customers a power of free choice as to whose services they might engage in future.

[68]     Whilst this solution would not entirely place the plaintiff back in the position it would have been had the terms of the Settlement Deed been followed to the letter, as I see it this would give it a real opportunity to attract the business of those former Vat Tech customers.   This would of course be on the basis that in any event they were always free to contract with outside third parties when the Wallis partners arrangements came to an end.

[69]     It is clear that the plaintiff has provided an undertaking as to damages in this case.  Given the relatively short time that the second and third defendants have been operating their business, this undertaking in my view is of substance and would adequately compensate them were the substantive proceedings here not to be finally resolved in favour of the plaintiff.  It is my view however that the solution provided at paragraph [66] above is preferable to a longer term interim injunction which might be likely to have the effect of destroying all or most of the business of the second and third defendants.

[70]     In conclusion, I find that the balance of convenience here favours the plaintiff in the sense that an interim injunction should be granted, but for the limited period I have noted above.

The overall justice of the case

[71]     The final matter to be considered here is the overall justice of the case.  This in my view also favours the plaintiff for the reasons I have outlined above.  The relative strengths of the parties’ cases, on balance favours the plaintiff.  Similarly, the conduct of the parties in this case as I see it also must favour the plaintiff.  On this aspect, the second and third defendants as I have noted above, acknowledge that they embarked on their operation because of seeing an opportunity available to them on the cessation by the Wallis partners of their business and the redundancy of one of their employees. All the facts were such in my view to at least clearly put the second and third defendants on enquiry but they claim they chose not to enquire and then on the evidence before the Court chose to take advantage, it might be said improperly, of significant assistance provided by the Wallis partners in setting up their business.

[72]     In my view, this is a proper case for an interim injunction to be made but on the terms noted above which are more limited than those sought by the plaintiff here. To that extent, the plaintiff’s application succeeds.

Orders

[73]     An order is now made in the nature of an interim injunction directed to the second defendants and third defendant restraining these defendants and each of them for a period of just over one calendar month from the date of this judgment, expiring at 5 p.m. on 28 October 2013, from carrying on or being directly or indirectly engaged or concerned or interested whether as principal, agent, director, employee or in any other way in any similar business to that of the plaintiff’s franchised operation within the Invercargill, Southland or Central Otago territories including any internet use.

Costs

[74]     As to costs, the plaintiff has been largely successful in its present application and I see no reason why costs should not follow the event in the usual way.

[75]	Before me, however, no submissions were advanced by counsel with respect to costs.

[76]     Counsel are encouraged to liaise in an endeavour to resolve this issue of costs.   If costs are unable to be resolved between counsel, then they may file memoranda on costs sequentially and, in the absence of either party indicating that they wish to be heard on the issue, I will decide the question of costs based on all the material then before the Court.

........................................................
D Gendall J

Solicitors:
Macky Robertson, Auckland
Preston Russell Law, Invercargill