Marshment v Sheppard Industries Ltd
 NZEMPC 98
IN THE EMPLOYMENT COURT AUCKLAND
In The Matter Of a challenge to a determination of the Employment Relations Authority
Kathryn Beck and Richard Upton, Counsel for Plaintiff
Timothy Allan, Counsel for Defendant
Challenge to a determination of the Employment Relations Authority. Plaintiff, who had a restraint of trade in his employment contract went to work for a rival company — the former employer sought an interlocutory injunction enforcing a contractual restraint against competitive economic activity — whether there was an arguable case of breach; whether on consideration of the balance of convenience and overall justice, the interlocutory injunction granted by the Employment Relations Authority should be set aside.
Held: (1). S Ltd had an arguable case of breach of contractual restraint by M. He was working for a competitor in the same areas as S Ltd and within the six month period of ending his employment at S Ltd. This was contrary to the express words of the restraint he agreed to in 2005. A section of the 2005 employment agreement signed by M acknowledged the reasonableness of the restraint and the opportunity he was offered and confirmed to have taken independent legal advice about it. S Ltd met the first test for an interlocutory injunction — there was an arguable case for breach of employment agreement and for a “permanent” injunction for the unexpired portion of the restraint.
(2). S Ltd focused on the breach committed by M resulting in continued financial loss to it. The remedy of an interlocutory injunction was future looking; a concluded discrete breach would be a matter for damages not an interlocutory injunction. There was dispute over M soliciting for S Inc the business of a particular cycle retailer. There were fundamental factual disputes that meant it was unlikely S Ltd would succeed in a damages claim in respect of that business against M. M's financial circumstances were such that he could meet an award of damages and S Inc agreed to lodge a cash bond in New Zealand in support of M. Contrary to the ERA conclusion the balance of convenience favoured M's position.
(3). In terms of overall justice S Ltd delayed inexplicably in seeking interlocutory injunctive relief against M. Though it was submitted that it would have been unreasonable for S Ltd to have issued proceedings before M began work for S Inc, this was rejected. M informed S Ltd promptly of both his intention to work for S Inc and his refusal to agree to abide by his restraint. S Ltd retained all the significant benefits of the restraint when M was put on garden leave following his resignation but the restraint only officially started at the expiry of M's notice. S Ltd had several concurrent proceedings in the High Court but the ERA did not consider it relevant that M's circumstances could be seen as part of a broader commercial battle between S Ltd and S Inc. The ERA did not appear to have considered S Ltd's arguably inconsistent treatment of another former and more senior employee who went to work for S Inc by agreement between S Ltd and S Inc even though subject to the same restraint as M. These were all relevant matters in the exercise of the ERA's and the Court's discretion whether to restrain M by injunction. The discretionary factors favoured a refusal of interim interlocutory relief. M's challenge to the ERA's determination granting an interlocutory injunction was allowed and an order for interlocutory injunction as sought by S Ltd was declined.
It was only in the current hearing that S Ltd provided an undertaking as to damages. The failure of S Ltd to provide an undertaking as to damages in support of its application for interim injunctive orders in the ERA should have been fatal to its claim to those orders.
This judgment decides Adam Marshment's challenge to the determination of the Employment Relations Authority. It granted Sheppard Industries Limited (SIL) an interlocutory injunction enforcing a contractual restraint against competitive economic activity until the Authority can investigate and determine SIL's claim of breach of that restraint by Mr Marshment.
The Authority issued its determination granting the injunction on 2 July 2010, 1 following an investigation meeting held on 28 June 2010. Mr Marshment was then within a week of a planned overseas trip with his new employer to an important sales exhibition in the USA and regarded the terms of the Authority'sinjunctive order as precluding him from doing so. Mr Marshment applied for a very urgent hearing of his challenge and although the Court was in a position to grant this, the company's concessions about the effect of the Authority's injunctive order (as recorded in a minute issued on 7 July 2010) permitted the plaintiff to travel to the sales exhibition and return to New Zealand before the hearing of this challenge.
The Employment Relations Authority has scheduled its investigation meeting to begin on 5 and 6 August 2010 although, realistically, its determination may not be delivered for at least several weeks after that. The restraint in Mr Marshment's employment agreement with the defendant was for six months which will, in any event, expire in late September 2010.
Although this is a challenge to the Authority's determination, that was given almost one month ago and the subject matter of the proceeding is dynamic. If nothing else, the restraint has run in force for another month and its expiry according to the contract is that much closer. It would be artificial, therefore, to freeze frame completely the relevant facts as at the date of the Authority's investigation meeting, 28 June 2010.
This challenge has been determined on the basis of the affidavits that were before the Authority together with some brief updating evidence about relevant circumstances since the Authority's investigation meeting in late June. That direction was made because, although a hearing by challenge de novo, this is also akin to an appeal against the Authority's decision to grant interim relief.
This being a challenge by hearing de novo, I address the same three questions as did the Authority:
1. Whether the (now) defendant had an arguable case of breach of the parties' employment agreement and, if so, whether the company had an arguable case for a “permanent” injunction for the unexpired portion of the restraint;
2. where the balance of convenience (including adequacy of damages as a remedy) might lie until the Authority's substantive determination of the proceedings;
3. where the overall justice of the case lies for that period.
At the outset of the hearing Mr Allan announced that he wished the Court to view a number of e-mails and/or other communications, said to have been authored by Mr Marshment during his employment. Counsel said these would refute the plaintiff's contention that he was not aware of confidential information or other secret intellectual property of the defendant. After having heard argument in support of and in opposition to this application I declined to consider this material and said I would give my reasons in this judgment. These are as follows.
Although in early July 2010 when the challenge was first filed I directed that it should be determined on the basis of the evidence that was before the Authority, this did not preclude either party from applying to introduce fresh evidence if there were good grounds for doing so. No application was made over the period of about three and a half weeks before the hearing.
Although the Employment Relations Authority's timetable for the filing and serving of the parties' intended evidence in that forum has now closed, SIL has not tendered this material as part of its substantive case. Mr Allan indicated that he proposed introducing it for the first time in the course of cross-examination of Mr Marshment in the Authority's investigation meeting.
Although it is correct, as Mr Allan pointed out, that the defendant did not have an opportunity to file evidence in reply in the Authority because of the urgency of its investigation meeting, it nevertheless had ample opportunity to seek to do so on this challenge by hearing de novo, but did not.
The e-mails or other written communications are not complete records because material that formed part of them is considered by the defendant to be so secret that it cannot be disclosed to Mr Marshment's counsel in this case.
Finally, the submissions to be made by the plaintiff were said by Mr Allan to contain numerous and repeated untruths on behalf of Mr Marshment about his level of knowledge and involvement in the strategic operations of the defendant. It was to refute these submissions that counsel intended to hand the documents up to me in the courtroom.
As I indicated in the course of argument, submissions on their own are not evidence and the Court expects that submissions will have evidential backing. In the absence of this, submissions may be neutral at best and counter-productive at worst. I considered the most just course in the circumstances was to require counsel for the parties to support or refute submissions by reference to affidavit evidence before the Court.
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