Mortgage
broking franchise Mike Pero (NZ) had the High Court enforce a two year
restraint of trade against a Christchurch franchise holder looking to set up in
opposition after fifteen years with the franchise.
Franchise holder James Heath and his de facto
spouse Gina Smith were stopped in their tracks when setting in place a rival
mortgage broking business called James Heath Mortgages Ltd.
The High Court was told Mr Heath had
signed a restraint of trade when taking on a Mike Pero (NZ) franchise in May
2000 which prohibited him on leaving from
setting up a rival business anywhere in New Zealand within six months of his
departure or anywhere in Canterbury within two years. Ms Smith had been an employee of Mr Heath,
commencing in 2008. Her employment contract
contained a restraint of trade prohibiting her from competing with Mike Pero
(NZ) only whilst employed by the franchise.
As a general rule, the courts refuse to
enforce restraints of trade. Restraints
are considered anti-competitive, reducing consumer choice, and can have the
effect of preventing a person from using their trade or professional skills. But a restraint of trade is valid if
reasonable: it protects a property interest such as business goodwill and is
not too wide in geographic area or too long in time.
Justice Moore ruled that the restraints
imposed by Mike Pero (NZ) were reasonable to protect its franchise manual and
its customer base. Evidence was given
that Mr Heath earned net commissions of $50,200 and then $106,600 in his first
two years with the franchise. Revenue
had increased to over $350,00 per year over the last two years of his fifteen
year association with the franchise. Fee
levels earned indicates that it takes about two years for a new Christchurch business
in mortgage broking to reach a profitable equilibrium. On these figures, a two year restraint of
trade appears reasonable, Justice Moore ruled.
Mr Heath said an injunction enforcing the
restraint of trade and preventing him from working as a mortgage broker would
cause serious financial harm, probably forcing a sale of the family home. Justice Moore said Mr Heath was aware of the
restraint of trade when leaving the franchise, bringing these financial
consequences on himself. He declined to
grant an injunction prohibiting Ms Smith from starting a mortgage broking
business, pointing out that Mr Heath was blocked from involvement in any
mortgage broking business in Christchurch for the next two years and could not
assist Ms Smith in any way.
Mike
Pero (NZ) Ltd v. Heath – High Court (27.08.15)
15.095