Skids Programme Management Ltd v Barbara Winsome McNeill Coa

• Jurisdiction: New Zealand
• Judge: Asher J
• Judgment Date: 23 July 2012
• Neutral Citation: [2012] NZCA 314
• Docket Number: CA315/2011
• Court: Court of Appeal
• Date: 23 July 2012

BETWEEN

Skids Programme Management Limited

First Appellant

Skids Holdings Limited

Second Appellant

Safe Kids in Daily Supervision Limited

Third Appellant

and

Barbara Winsome McNeill

First Respondent

McNeill Enterprises Limited

Second Respondent

Natasha May-Babette Mcneill-O'Keeffe

Third Respondent

Aata Baykids Limited

Fourth Respondent

Kids Choice Limited

Fifth Respondent

[2012] NZCA 314

Court:

Ellen France, Venning and Asher JJ

CA315/2011

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court decision which held respondent was not bound by a restraint of trade clause in a franchise agreement, that the respondent had not breached an obligation of confidence in relation to copying materials owned by the appellant but that she had breached copyright and awarded $3000 damages under s121 Copyright Act 1994 (provisions as to damages in infringement proceedings) — parties ran programmes caring for children after school — respondent held franchise owned by appellant before it was terminated — established similar business and copied confidential information owned by appellant — whether a restraint of trade clause was reasonable — whether appellant entitled to more damages for breach of copyright — whether appellant did not have a protectable interest because the business did not require a high level of skill to operate.

Counsel:

M A Karam and R R Griffin for Appellants

K M Quinn for Respondents

• A The appeal is allowed.

• B The appeal against the order of $2,000 for compensatory damages against the first and fifth respondents is dismissed. There being no cross-appeal, that order stands.

• C We set aside the award of $1,000 additional damages against the fifth respondent, and award $20,000 as additional damages under s 121(2) of the Copyright Act 1994 against the fifth respondent and $20,000 as exemplary damages against the first respondent. The total damages payable jointly and severally by the first and fifth respondents is therefore $22,000.

• D The issue of costs in this Court and the High Court is reserved for further submissions if necessary.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Asher J)

Table of Contents

	Para No
Introduction	[1]
Development of the franchises	[5]
Termination of the franchise agreements	[13]
The decision	[18]
Restraint of trade claim against Mrs McNeill	[31]
Approach to the restraint of trade clause	[36]
Protectable interest	[43]
Public interest	[50]
Reasonableness of term and geographic boundary	[53]
Was there a breach of the restraint of trade clause?	[56]
Remedy	[68]
Breach of the equitable duty of confidence	[74]
Did the documents have the requisite quality of confidence?	[76]
The policy documents	[81]
Information	[85]
Breach of confidence in relation to the policy documents	[86]
Damages for breach of confidence	[87]
Breach of the contractual requirement of confidence and breach of copyright	[91]
Damages for contractual breach and breach of copyright The Judge's assessment	[93]
Our assessment of compensatory damages	[97]
Approach to assessment of additional damages for breach of copyright under s 121	[102]
The facts of the breach of copyright	[112]
Quantum of the award	[117]
Exemplary damages	[120]
Conclusion	[125]
Result	[129]

Introduction

1 The appellants, under the name of Safe Kids in Daily Supervision Ltd (“Skids”), operate a significant New Zealand franchise whereby franchisees carry on the business of caring for children before and after school. There are 60 franchises throughout New Zealand. The respondents, Mrs Barbara McNeill, her daughter Mrs McNeill-O'Keeffe, and related companies, have been associated with Skids in various capacities including as a Skids head franchise, franchisee or associated person.

2 The franchise arrangements between the appellants and respondents ceased around Christmas 2009. The majority of the respondents in various ways were involved in starting up a new business, Kids Choice Ltd. That company now runs an after school childcare business which the appellants say took over the franchise business and operates in competition with Skids.

3 The appellants have obtained judgment in the High Court against the first and fifth respondents for breach of copyright and breach of confidence. The total damages awarded amounted to $3,000. 1 While accepting some of Woodhouse J's reasoning and findings on the causes of action, the appellants question significant aspects of his decision and strongly challenge the amount of damages awarded.

4 It is necessary to summarise the background, which is fully set out in the judgment of Woodhouse J. 2

Development of the franchises

5 The Skids franchise operation began in 1996 with an after school programme at Albany Primary School. In 2006 two of its franchisees, Mrs Dawn Engelbrecht and Mrs Beverly Parsons, acquired the equity in the Skids business and they have run it since.

6 Skids franchisees operate on the basis of a code of conduct and a policy and procedures manual. As will be discussed later, these are significant documents, setting out in detail how children will be looked after in the Skids programmes. This standard documentation is used in applications to the Child, Youth and Family Service (CYFS) of the Ministry of Social Development for approval for the conduct of a childcare operation under a scheme called Out of School Care and Recreation Foundation (OSCAR). An OSCAR approval enables the parents whose children attend childcare to seek subsidies for fees, and for an after school operator to seek a grant from the Ministry of Social Development. Skids is New Zealand's largest provider of OSCAR services.

7 A certain pattern has developed in relation to Skids franchisees. They generally operate at a school and provide after school care, before school care, and holiday programmes. There are master franchisees who are allocated particular areas and are expected to sell some franchises. There are standard franchisees, who are allocated to a specific primary school, and have as their territory the school's enrolment zone.

8 On 12 December 2004 Mrs McNeill entered into a master franchise agreement with Skids. The agreement was for an initial term of five years expiring on 11 December 2009 with a right of renewal for five years. Her franchise territory was called “North Shore/Rodney” and covered the northern half of the North Shore of Auckland. There were three other master franchise areas in the greater Auckland area.

9 When Mrs McNeill acquired the master franchise there were two Skids programmes in her area which were operated by one person. One of these was a programme at the Northcross Community Hall known as the Pinehill programme. In 2007 the Pinehill programme moved to another location at Murrays Bay Intermediate School.

10 In February 2005 the Pinehill programme was almost moribund. With the then-franchisor's consent, Mrs McNeill set up her daughter in that franchise. The takeover was informal and no franchise agreement was signed, although apparently a document which has not been located, was created. The agreement was between Mrs McNeill as franchisor and her daughter. In an unchallenged finding Woodhouse J stated that he was satisfied that there was no restraint of trade provision in that initial agreement.

11 On 1 September 2006 Mrs McNeill incorporated the second respondent McNeill Enterprises Ltd. Mrs McNeill-O'Keeffe incorporated the fourth respondent Aata Baykids Ltd on that same date to run the Pinehill programme. To an extent they both conducted their respective childcare programmes through these companies.

12 From July 2006 Mrs Engelbrecht who recently, with Mrs Parsons, had taken over Skids began pressing Mrs McNeill and Mrs McNeill-O'Keeffe for a written franchise agreement. Ultimately after some negotiations in which the appellants pushed Mrs McNeill and Mrs McNeill-O'Keeffe for documentation, a sub-franchise agreement was signed on 23 February 2007 between Mrs McNeill on behalf of McNeill Enterprises Ltd and Mrs McNeill-O'Keeffe on behalf of Aata Baykids Ltd. McNeill Enterprises Ltd is defined as the franchisor and Aata Baykids Ltd as the franchisee. Skids Programme Management Ltd is referred to as the head franchisor. A range of obligations was imposed on Aata Baykids Ltd under this agreement, including a restraint of trade provision. There was a personal guarantee section in the agreement which was signed by Mrs McNeill. It was not signed by Mrs McNeill-O'Keeffe.

Termination of the franchise agreements

13 Mrs McNeill's master franchise agreement was to expire on 11 December 2009 and Aata Baykids Ltd's sub-franchise agreement on 7 February 2010. During 2009 Skids decided not to renew Mrs McNeill's master franchise agreement. It considered her performance as a master franchisor to have been inadequate. It sent a letter on 11 August 2009 setting out Mrs McNeill's failure to comply with her obligations and advising that while the three sites she operated could continue, new direct franchise agreements would have to be entered into in respect of each site. It also stated that Mrs McNeill-O'Keeffe could continue to operate the Pinehill operation but under a new direct franchise agreement with Skids.

14 Following some exchanges, the parties met on 2 December 2009. Although what occurred at that meeting was the subject of significant attention during the trial, it is unnecessary to dwell on the meeting as Woodhouse J's findings on this issue are not challenged. In short, the Judge found that while various proposals were discussed during the course of that meeting, no binding agreement was reached as to the long-term future of the franchise agreements between the parties. However,...