Bizeasset Limited v Su Casa Pty Limited [2012] NZHC 586 (29 March 2012)

Last Updated: 4 April 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

COMMERCIAL LIST

CIV-2011-404-8185

_{NZHC [2012] 586}

BETWEEN BIZEASSET LIMITED Applicant

AND SU CASA PTY LIMITED Respondent

Hearing: 29 March 2012

Counsel: RB Hucker and DL Langsiu for Applicant

No appearance for Respondent

Judgment: 29 March 2012

_{ORAL JUDGMENT OF RODNEY HANSEN J}

Solicitors: Hucker Associates, P O Box 3843, Auckland 1140 for Applicant

(Email: [e-mail] )

BIZEASSET LIMITED V SU CASA PTY LIMITED HC AK CIV-2011-404-8185 [29 March 2012]

Introduction

[1] In June 2005, the applicant agreed to sell its management system software for local government and, separately, its website and address to the respondent. The agreement for the sale of the software incorporated a restraint of trade clause that is the subject of this application.

[2] The applicant has since created and intends to promote new software for the local government asset management market. It is, I am told, a system using entirely different programme codes from the original software. However, in order to clear the way for it to market the new software, the applicant seeks clarification of the status of the restraint of trade clause which is said to be either void for uncertainty or unreasonable.

[3] Accordingly, the applicant brings this proceeding in the Commercial List seeking a declaration under r 29.17 as to the construction, status and application of the clause. If and to the extent that the restraint remains in force, orders are sought under s 8 of the Illegal Contracts Act 1970.

Further background

[4] As earlier mentioned, two distinct but related assets were sold to the respondent. There was an absolute assignment of the software for local government with an irrevocable licence back for the promotion and marketing of the software within New Zealand. Separately, the applicant’s website and email addresses were disposed of.

[5] In evidence Mr Trevor Glass, a director of the applicant, explained that although the agreement was negotiated and drafted with legal assistance, the restraint of trade clause was agreed to between the parties. The clause read as follows:

30. The Vendor agrees to and accepts the following restraint of trade provisions:

(a) This clause has effect as if it were separate clauses, each one being severable from the others, such separate clause consisting of the covenant set out in clause 30(b) combined with each separate period referred to in clause 30(c) combined with each separate area referred to in clause 30(d) and if any of these separate clauses are invalid or unenforceable for any reason, such invalidity or unenforceability will not affect the validity or enforceability of any other separate clause.

(b) The Vendor covenants that it will not whether individually or as a principal, agent, partner, joint venture, shareholder, directly or indirectly, within the period consent in writing of the Purchaser, be concerned or interested or employed, manage or operate or participate in the management or operation of marketing of any products or services in competition with the business, the software and services the subject of this agreement during the periods and in the areas specified in this clause.

(c) The periods specified are:

(i) Twenty five (25) years; (ii) Twenty (20) years;

(iii) Fifteen (15) years; (iv) Ten (10) years;

(v) Five (5) years; (vi) Two (2) years;

(d) The areas specified are:

(i) The world (except for New Zealand);

(ii) Australia, South Africa and the United States; (iii) Australia.

(e) For the purposes of this clause “the business” means, the business described in this contract and the development, marketing or sale of any software or computer programme which may be used for asset management.

(f) The Vendor will on or before the possession date procure its shareholders and its directors to enter into a Deed of Covenant with the Purchaser binding them to the restraint contained in paragraphs 30(a), (b), and (c).

[6] Mr Glass said that he never understood what was intended by cl 30 and was advised by his solicitor that the restraint was too wide to be enforceable. Despite this, in order to complete the transaction, he agreed to the restraint of trade based on his understanding that only reasonable restraint could be enforced.

Jurisdiction

[7] The respondent has taken no formal steps in the proceeding. However, in an email to the Court dated 14 December 2001 prior to service being effected, it advised that as no part of the agreements were entered into in New Zealand, should the applicant persist with the application, the respondent would instruct its New Zealand agents to have the proceedings struck out for want of jurisdiction.

[8] I am, however, in no doubt that this Court has jurisdiction. Clause 18 of the agreement relating to the sale of the software provides that the agreement is to be construed in accordance with the laws of New Zealand and that the parties submit to the jurisdiction of this Court in relation to any dispute arising under the agreement.

Uncertainty

[9] Mr Hucker submits that cl 30 is ambiguous and should fail for uncertainty. He points out that six different time periods are specified in subparagraph (c), ranging from two to 25 years and three areas are specified in subparagraph (d) ranging in extent from the world (except New Zealand) to Australia.

[10] I am left in no doubt that the submission must be upheld. Subclause (a) provides that each separate period in cl 30(c) is to be combined with each separate area referred to in cl 30(d) to create separate obligations and if any such clause is invalid or unenforceable, the validity or enforceability of other clauses will not be affected. In effect, cl 30 makes provision for 18 distinct combinations of time and geographic extent without any means of determining which will prevail. The invalidity or unenforceability of each clause is the determinant of whether or not it becomes part of the agreement. In effect, the agreement attempts to secure a restraint for the maximum period and the most extensive geographic area but, save

for obtaining a Court ruling, provides no means by which the parties could determine which combination of the time and spatial dimensions should apply.

[11] There is no way in which the plaintiff can know the agreed limits of its activities.[1] Self-evidently, the clause is void for uncertainty.

Remedy

[12] The applicant sought a declaration that the period of restraint under cl 30 was to enure for a period of no more than five years and no longer remains in force. That declaration, as I understand it, was sought on the basis that cl 30 was unreasonable and that s 8 of the ICA was available to permit the Court to modify the period of restraint to what was reasonable. However, I am of the view that, as no agreement was reached, cl 30 cannot be said to constitute an unreasonable restraint of trade and s 8 of the Act is not available to permit its modification.

[13] Accordingly, I make a declaration that the restraint under cl 30 of the agreement is void for uncertainty and of no effect.

_{[14] There will be no order as to costs.}

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[1] See the comments of McGregor J in Bush & Southern Hawke’s Bay Districts Veterinary Club

(Inc) v Jacob [1961] NZLR 146 at 153.