Retail Focus Group Limited v Forsgren NZ Limited [2014] NZHC 1984 (21 August 2014)

Last Updated: 25 September 2014

ORDER PROHIBITING PUBLICATION EXCEPT IN REDACTED FORM IN THE HIGH COURT OF NEW ZEALAND

_{AUCKLAND REGISTRY}

CIV-2014-404-1891 [2014] NZHC 1984

BETWEEN	RETAIL FOCUS GROUP LIMITED Plaintiff
AND	FORSGREN NZ LIMITED Defendant

Hearing:	15 August 2014
Appearances:	S Corlett/P Couldwell for the Plaintiff P Wright/D Horton for the Defendant
Judgment:	21 August 2014

JUDGMENT OF THOMAS J REDACTED VERSION

This judgment was delivered by me on 21 August 2014 at 1.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date:...............................}

Solicitors:

Brookfields, Auckland. Burton & Co, Auckland.

RETAIL FOCUS GROUP LIMITED v FORSGREN NZ LIMITED [2014] NZHC 1984 [21 August 2014]

Introduction

[1] The plaintiff, Retail Focus Group Limited (Retail Focus), applies for interim relief in respect of the termination by the defendant, Forsgren New Zealand Limited (Forsgren), of a development management agreement dated 4 October 2011 between the parties (the Agreement).

[2] Retail Focus claims there is a serious question to be tried concerning the validity of Forsgren’s purported termination of the Agreement and that the balance of convenience and overall justice favours the granting of the interim relief sought. Forsgren opposes the application.

Background

[3] Retail Focus is a management consultancy business specialising in the quick service restaurant and retail industry.

[4] Forsgren carries on business as a franchisee operator of Carl’s Jr restaurants in the Auckland region. The franchisor is a United States company, CKE Restaurants, Inc. Henry Forsgren is the sole director of Forsgren.

[5] In 2010 Mr Forsgren met Michael Parkinson and Jacobus (Jack) Meertens, the two directors and shareholders of Retail Focus. Mr Parkinson and Mr Meertens are both employees of the company. In September 2010 Retail Focus contracted with Forsgren to provide advice in respect of the Carl’s Jr franchise.

[6] Forsgren began to open restaurants in the Auckland area. On 4 October 2011

Retail Focus and Forsgren entered into the Agreement.

[7] Pursuant to the Agreement, Forsgren appoints Retail Focus to perform services (being development, property and operational services) from 1 September

2011 to 31 August 2016 with rights of renewal. Retail Focus receives a management fee divided into a fee for development and property services and a fee for operational services. The fee for operational services includes a bonus payable if Retail Focus

achieves budgeted levels in relation to labour and food costs.The parties agree to work together in good faith.

[8] In December 2011 Restaurant Brands acquired the nationwide rollout rights

for the Carl’s Jr franchise in New Zealand.

[9] Forsgren continued to open restaurants in the Auckland area.

[10] In late 2012/early 2013 Retail Focus approached Mr Forsgren regarding a franchise opportunity in respect of the business called Miami Grill. Retail Focus had an interest in Miami Grill. By July 2013 Mr Forsgren indicated he was not able to invest in Miami Grill. He had been advised by Carl’s Jr that such involvement would constitute a conflict of interest.

[11] In April 2013 Forsgren’s budget for the year 2013-14 was finalised. This was in conjunction with the refinancing of Forsgren by Westpac. Retail Focus, through Mr Meertens, approved the budget.

[12] Michael McNab, a chartered accountant with DFK Oswin Griffiths Carlton, has been providing accountancy services to Forsgren since February 2010. As such, he dealt regularly with Mr Meertens. DFK prepared the budgets for Forsgren which were approved by Mr Meertens.

[13] DFK produced monthly management reports for Forsgren. By May 2013, Mr McNab was aware of a pattern involving the decline in top line sales but without a corresponding decline in food and labour costs. In August 2013 he raised the issue with Forsgren and Mr Meertens.

[14] In September 2013 Retail Focus secured the franchise rights for Miami Grill in New Zealand.

[15] In October 2013 Mr McNab again highlighted the need to control food and wage costs to improve Forsgren’s margin.

[16] In November 2013 the April 2013 budget was adjusted to reflect lower top line sales.

[17] In December 2013 Mr McNab highlighted the problem of Forsgren’s wage costs and in May 2014 he again drew attention to wage costs and also food costs.

[18] [Redacted material].

[19] On 1 March 2014 Forsgren sent a letter (the March letter) to Retail Focus stating it had concerns that food costs from June to December 2013 did not meet Forsgren’s budget and advising that this “may be” a material breach of the Agreement. Forsgren required Retail Focus to provide an explanation regarding the food costs issues and why the trend had not been rectified over the last seven months.

[20] On 10 March 2014 Forsgren and Retail Focus met to discuss ongoing matters including those raised in the March letter.

[21] On 21 July 2014 Forsgren issued a purported notice of termination of the Agreement (the Notice). This was rejected by Retail Focus. Forsgren refused to retract the Notice and on 30 July 2014 Retail Focus sought urgent relief.

Statement of claim

[22] Retail Focus claims that Forsgren has breached the terms of the Agreement by:

(a) purporting to give notice of termination of the Agreement without any valid grounds to do so and in particular in circumstances where:

(i) there has been no material breach of the Agreement by Retail

Focus;

(ii) Forsgren failed to give notice of a material breach and the opportunity for Retail Focus to remedy breach as required by the Agreement;

(iii) Retail Focus responded to the issues raised by Forsgren;

(iv) there was no conflict of interest in relation to Retail Focus’

acquisition of the Miami Grill franchise; and

(b) failing to make payment of Retail Focus’ management fees and bonuses under the Agreement.

[23] Retail Focus seeks a declaration that the purported termination was invalid and the Agreement remains in full force and effect. Retail Focus also seeks a permanent injunction restraining Forsgren from terminating the Agreement pursuant to the Notice and an order for specific performance requiring Forsgren to perform its obligations under the Agreement. Furthermore, Retail Focus seeks judgment for amounts it claims it is owed under the Agreement, damages and costs.

[24] Retail Focus also seeks interim orders restraining Forsgren from terminating the Agreement or treating the Agreement as being terminated pursuant to the Notice on the grounds that there is a serious question to be tried as to the validity of the Notice and that the balance of convenience and interests of justice favours Retail Focus.

Notice of opposition

[25] Forsgren opposes the making of the orders sought on the grounds that Forsgren validly cancelled and/or terminated the Agreement for repudiation and/or breach; that the Agreement is not one of which the Court should order specific performance; that the order sought is mandatory in nature and ought not to be granted; that damages would be an adequate remedy and the balance of convenience and overall justice is against the orders being sought.

Legal principles

[26] The Court of Appeal has described the purpose of an interim injunction as follows:¹

The object of an interim injunction is to protect the plaintiff from harm occasioned by any breach of rights, that is the subject of current litigation, for which the plaintiff might not be adequately compensated by an award of damages by the court, if successful at the trial. Against that object it is necessary to weigh the consequences to defendants of preventing them from acting in ways which the trial may determine are in accordance with their rights.

[27] The law around interim injunctions is well settled. First, the applicant must establish that there is a serious question to be tried or, put another way, that the claim is not vexatious or frivolous.²

[28] In showing there is a serious question to be tried, the plaintiff must “adduce sufficiently precise factual evidence to satisfy the court that he has a real prospect of succeeding in his claim for a permanent injunction at the trial”.³

[29] Secondly, the balance of convenience must be considered. Wild J stated in Wellington International Airport Ltd v Air New Zealand Ltd that the task involves balancing the injustice that will be caused to the applicant if an interim injunction is refused and the applicant’s case ultimately succeeds, against the injustice to the respondent that will result if the interim injunction were granted but then discharged in the substantive judgment.⁴

[30] Finally, an assessment of the overall justice of the position is required as a check.⁵ McGechan J has stated:⁶

¹ _{Roseneath Holdings Ltd v Grieve [2003] NZCA 302; [2004] 2 NZLR 168 (CA) at [35].}

2. Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] NZCA 70; [1985] 2 NZLR 129 (HC) and recently reasserted in NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at

_[12].

³ _{Re Lord Cable (dec’d) [1977] 1 WLR 7 (ChD) at 19.}

⁴ Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756,

_{30 July 2008 at [4].}

⁵ _{NZ Tax Refunds Ltd v Brooks Homes Ltd, above n 2, at [12].}

⁶ E R Squibb & Sons NZ (Ltd) v ICI New Zealand Ltd [1988] NZHC 719; (1988) 3 TCLR 296 (HC) at 310.

The ultimate and controlling requirement is overall justice. Usually, attainment of overall justice will be served by adopting the relatively low threshold of a mere serious question to be tried... The appropriate test, in the end, is the threshold test which best serves the interests of overall justice in the particular circumstances of the individual case. Commonly that will be the so called serious question threshold, but the common should not be elevated to the invariable.

Interim mandatory injunctions

[31] The courts are much more reluctant to grant mandatory interim injunctions which force a party to do a particular act or thing rather than simply requiring them to refrain from doing something. In Soft-Tech International Pty Ltd v Ball, Eichelbaum CJ emphasised the difficulty in securing mandatory injunctions:⁷

Mandatory injunctions are relatively uncommon, interim mandatory injunctions are rare indeed, and interim mandatory injunctions having the effect of a final order and involving the payment of a sum of money which normally would be described as a debt, in my experience are completely novel.

[32] The law is summarised in McGechan on Procedure:⁸

A mandatory injunction ought to be granted on an interlocutory application only in special circumstances, and then only in clear cases either where the Court thinks that the matter ought to be decided immediately or where the injunction is directed at a simple and summary act, which could be easily remedied or where the defendant has attempted to steal a march on the plaintiff. Moreover, before granting a mandatory interlocutory injunction the Court has to feel a high degree of assurance that at the trial it would appear that the injunction had rightly been granted, that being a different and higher standard than is required for a prohibitory injunction: Locabail International Finance Ltd v Agroexport [1986] 1 All ER 901 (CA).

Is there a serious question to be tried?

Plaintiff's submissions

[33] The plaintiff ’s case is that Retail Focus provided management services as required under the Agreement, including seconding one of its personnel, Mr

_{Meertens, to Forsgren for a three year term which expires in approximately one}

⁷ _{Soft-Tech International Pty Ltd v Ball (1990) 3 PRNZ 683 (HC) at 684.}

⁸ Andrew Beck and others McGechan on Procedure (online ed, Brookers) at [HR7.53.23] quoted in Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2014] NZHC 1708 at [43] and West Harbour Holdings Ltd v Waipareira Investments Ltd [2012] NZHC 164 at [60].

month’s time. Although Forsgren has constantly been late in paying the management fee and has failed to pay some bonuses, generally payments due to Retail Focus under the Agreement have been made.

[34] Retail Focus claims there is a serious question to be tried concerning the validity of Forsgren’s purported termination of the Agreement for the following reasons:

(a) Alleged budgeted food costs requirement.

[35] The March letter alleged that the trend of actual food costs being higher than budget may be considered a material breach. The Notice also relied on the food costs issue as the ground of cancellation. Retail Focus say that the Agreement contains no express requirement that Retail Focus ensure that budgeted food costs are met and that, had this been a material term, then the Agreement should have provided for it. Furthermore, the fact that the Agreement provides for a bonus if budgeted levels are achieved suggests that meeting those targets is not mandatory.

(b) Failure to involve Retail Focus in setting budgets

[36] Retail Focus says that, even if it were contractually obliged to ensure that budgeted food costs were met, Forsgren has breached the Agreement by unilaterally preparing budgets without any real input from or consultation with Retail Focus. Therefore, any costs in excess of budget were caused by the actions of Forsgren rather than Retail Focus. Retail Focus refers to the second schedule of the Agreement which sets out the Operational Services to be provided by Retail Focus. It is those services which are at issue. One of those services is stated to be budgeting. Retail Focus claims that, by late 2013, Forsgren was preparing budgets without input from Retail Focus, something arguably it was not entitled to do. The result was, in Retail Focus’ case, that the budget Forsgren relied on in support of the termination was unrealistic and arguably unachievable and Forsgren cannot use its own breach and fault to justify its purported termination.

[37] Furthermore, even had those budgets been achievable, Retail Focus says that its actions have not been causative of any alleged budget overrun. Rather this is a result of factors outside Retail Focus’ control including: Forsgren’s failure to roll out the franchise nationwide, which would have resulted in greater economies of scale and reduced costs; Forsgren’s failure to make timely payments to suppliers and contractors, which resulted in increased costs and interest payments; and the requirements imposed by Restaurant Brands in respect of promotional activities which have also increased costs.

[38] Retail Focus relies on cl 17 of the Agreement which provides that Retail Focus is not liable for any failure to perform arising from a cause outside its reasonable control.

(d) Procedural requirements

[39] Even if there were any breach of its obligations under the Agreement, Retail Focus claims that Forsgren is precluded from terminating the Agreement because it did not comply with the notice requirements in cl 29. Retail Focus says that, pursuant to cl 29, Forsgren was required to give written notice of any material breach and specify remedial action and a time frame within such action must be taken. Both are mandatory requirements.

[40] Retail Focus says that the March letter makes no reference to cl 29 nor does it say that the breach is material or the remedial action that is required.

[41] Retail Focus then says that the Notice purported to terminate the Agreement for reasons not included in the March letter being increased labour/wage costs and a perceived conflict of interest regarding the Miami Grill franchise. Neither of those issues were raised in the March letter and, if Forsgren relied on them to terminate the Agreement, they should have been.

[42] Retail Focus does not accept the defendant’s claim that it did not properly

respond to the March letter and thereby repudiated the Agreement.

(f) No conflict of interest

[43] Retail Focus denies that there is any conflict of interest in respect of its interest in Miami Grill, noting that Forsgren had been aware of the arrangement from the outset and, for a period, Mr Forsgren considered investing in the franchise. Furthermore, there is no provision in the Agreement prohibiting Retail Focus from having an interest in another franchise or competing in the quick service restaurant industry.

[44] Retail Focus does not accept that the Agreement imposes fiduciary duties between the parties, noting that this is a commercial agreement between two separate independent corporate entities and does not include the necessary relationship of trust and confidence.

(g) No right to terminate summarily

[45] In any event, Retail Focus says that the purported cancellation pursuant to the Contractual Remedies Act 1979 was invalid because any termination needed to comply with the specific provisions of the Agreement and that included the requirement for notice under cl 29.

(h) Dispute provisions in the Agreement

[46] Finally, Retail Focus says that there is a dispute resolution provision in the Agreement (cl 28) whereby any dispute should have been referred to mediation followed by arbitration. Retail Focus says that Forsgren was obliged to engage in that procedure prior to purporting to give a notice of termination.

Defendant’s submissions

[47] The defence framed its submissions on the issue of whether there is a serious question to be tried in association with its submission as to the mandatory nature of the orders sought.

[48] The defence position is that, although the application is framed as a prohibitory order, in fact it is seeking to compel Forsgren to perform contractual obligations.

[49] In Mr Wright’s submission, injunctions are inappropriate where their effect is to order performance of a contract which would not be specifically enforced. If there can be no serious possibility of specific performance being ordered at trial, then, in his submission, an interim injunction is inappropriate. As the Agreement is in the nature of personal services while carrying on a business, Mr Wrights submits that specific performance will not be ordered.

[50] Mr Wright also submits that it is clear that a relationship of trust and confidence is required pursuant to the Agreement and that the Court would generally not order a relationship to continue where a fiduciary relationship has broken down. It is the nature of the relationship which needs to be analysed and, in Mr Wright’s submission, it is clearly arguable that there is a conflict of interest breaching the trust and confidence between the parties. By taking a controlling interest in Miami Grills, Retail Focus has, in his submission, put itself in a position where the conflict of interest would be likely if not inevitable.

[51] In any event, Forsgren’s position is that it validly terminated the Agreement under the Agreement itself and pursuant to the Contractual Remedies Act. Forsgren’s submission in this regard is that, read as a whole, the Agreement makes it clear that Retail Focus’ obligation is to achieve budget.

[52] Forsgren says that the March letter constituted notice of a material breach. It gave Retail Focus an opportunity to provide an explanation about the breaches referred to and, when such an explanation was received, then Forsgren would tell Retail Focus what it required. However, in Mr Wright’s submission, the affidavit

evidence showed that Retail Focus did not in any meaningful way respond to the issues raised in the March letter. Although there were meetings, the problems were never properly addressed and Retail Focus was interested only in discussing its bonus and a potential buy out of the Agreement. In the absence of a sufficiently cogent reply then the March letter must stand as notice of material breach, in Mr Wright’s submission.

[53] Alternatively, he says, Retail Focus waived the requirement for notice or further notice of material breach because it made it clear it was not prepared to perform the Agreement or remedy the breach. Therefore, any failure to give written notice of termination was of no causative effect given Retail Focus' refusal to remedy in any event.⁹

[54] Furthermore, Forsgren was entitled to cancel the Agreement under the Contractual Remedies Act because of Retail Focus’ repudiation, that is, it making clear that it intended not to perform the Agreement. That being the case, there was no requirement to give notice under the Agreement.

[55] On this basis, Forsgren’s position is that, because of the high threshold required for a mandatory order, the Court cannot be satisfied that any interim order will be shown to have been rightly granted at trial.

Analysis

[56] There is clearly a dispute between the parties as to whether Retail Focus has properly performed its obligations under the Agreement. I am satisfied that the services to be performed by Retail Focus include budgeting and performance and efficiency tracking. I accept that there is an issue as to the extent to which Retail Focus is responsible for any cost overruns as against the budget, particularly in circumstances where the budget has been set by another party. In saying that I am

_{mindful of the affidavit evidence that Mr Meertens approved the budget.}

⁹ Forsgren cited Golden Future Holiday Group Ltd v Air China International HC Auckland CIV-

2001-404-2131, 27 July 2004 in support of that submission.

[57] I also accept that the plaintiff has presented evidence indicating that there is an issue regarding its ability to control the costs complained of and the alleged contribution towards those costs as a result of Forsgren’s behaviour.

[58] I also agree with Retail Focus that there is a serious question as to the effect of the March letter and whether it constituted notice pursuant to cl 29 of the Agreement. I say that, in particular, because Forsgren suggested that the higher than budgeted food costs “may” be considered a material breach. Furthermore the last paragraph of the letter makes it clear that Forsgren was to provide specific written instructions to Retail Focus, which it ultimately did not do.

[59] Notwithstanding what appears to be a failure to respond properly to the March letter (although there is a dispute about that), there is a serious issue as to whether Forsgren was entitled to terminate the Agreement without providing written notice to Retail Focus of “the steps Forsgren requires Retail Focus to undertake to remedy the breach”.

[60] While the defence seeks also to rely on repudiation by Retail Focus, there is clearly a serious question as to whether the evidence about Retail Focus’ behaviour will be sufficient to meet the test for repudiation.

[61] Furthermore, I accept there is a real issue concerning the Notice itself. It referred to matters not raised in the March letter, in particular the alleged failure to meet budgeted costs of wages and Retail Focus’ interest in Miami Grill. I also accept that there is a real issue as to whether Retail Focus’ interest in Miami Grill would entitle Forsgren to terminate the Agreement. Even if it did, arguably Retail Focus should have been put on notice of that and given the opportunity to rectify the position.

[62] I am less persuaded that Forsgren was not entitled to terminate the Agreement for material breach without first going through the dispute provisions in cl 28 of the Agreement. I agree with Mr Wright that it would be unworkable for a party to be precluded from terminating an Agreement for material breach if it first had to go

through arbitration. Furthermore, cl 29.2 makes no reference to mediation/arbitration and appears to operate independently of the dispute resolution provisions in cl 28.

[63] However, before finally concluding the issue of whether there is a serious question to be tried, I need to consider the nature of the orders sought and whether Retail Focus could succeed in achieving the remedy sought following the substantive hearing of the case.

[64] Retail Focus has described the order as prohibitory. Whether an order sought is mandatory or prohibitory is a matter of substance not form. The effect of the interim order would be to compel Forsgren to continue in a contractual relationship with Retail Focus and to perform its contractual obligations. The order is therefore mandatory in nature.

[65] The case of Band v Shearer concerned an unsuccessful application for an interim injunction restraining Shearer from issuing a settlement notice under a contract.¹⁰ Tipping J stated:

If the vendor is not entitled to specific performance for whatever reason, then I cannot see how the vendor could possibly sustain the application for injunction because it would seem to me to follow that the best the vendor could hope for would be damages and if the reason why the vendor was not entitled to specific performance struck at the whole root of the contract, the vendor would not be entitled to damages either.

[66] The effect of the orders sought in this case would be to compel the parties to continue to perform their obligations under the Agreement, involving them being in a relatively close working relationship requiring good faith on both sides and where the defendant considers Mr Meertens to be effectively the general manager of the business.

[67] It is a well settled practice of the courts to refuse mandatory injunctions requiring the carrying out of a business. In saying that I am mindful of the cases referred to by Mr Corlett where the Courts have issued interim injunctions in cases arguably similar to this one. In Kelly Enterprises Ltd v Whitireia Community

_{Polytechnic, when issuing an order for an interim injunction, the Court considered}

¹⁰ Band v Shearer [1990] NZHC 391; [1990] ANZ ConvR 631 (HC).

whether the defendant was entitled to cancel a contract of services between the parties.¹¹ The Court held there was clearly a serious issue to be tried and that the balance of convenience favoured the plaintiff. The Court made an order that the defendant not be entitled to cancel the contract pursuant to its purported notice of termination pending the outcome the outcome of the substantive proceedings. In that case, the plaintiff’s potentially significant loss of income and the effect on third party

employees if the agreement was cancelled affected whether or not damages was an adequate remedy.

[68] In Goldridge Estate Vineyards 3552 Ltd v Karaka Estate Ltd, the Court considered whether to award an interim injunction in respect of a purported termination of management agreements. ¹² The Court considered that the adequacy of damages was neutral between the parties but the impact termination of the management agreements would have on the plaintiff ’s employees favoured the granting of the interim injunction. The Court also noted, in response to arguments by the defendants that any injunction would effectively force them to continue to receive management services from the plaintiffs when they did not want to be in an

ongoing relationship with them, that the agreements were not strictly personal service contracts but were in fact agreements between business concerns. In addition, to allow a party (the defendants) to avoid its obligations and defeat the commercial expectations of the plaintiffs and third parties would be contrary to public policy. The overall justice of the case required that the interim injunction be ordered, particularly as the defendants would not be greatly disadvantaged by being restrained from relying on their purported notice of termination until the substantive hearing and could invoke dispute resolution provisions in the agreements to resolve any issues.

[69] In Opus International Consultants Ltd v Projenz Ltd, the Court considered whether to order an interim injunction restraining the defendant from acting on a

_{default process provision in a joint venture agreement in circumstances where the}

¹¹ Kelly Enterprises Ltd v Whitireia Community Polytechnic HC Wellington CIV-2007-485-861, 4

_{May 2007.}

¹² Goldridge Estate Vineyards 3552 Ltd v Karaka Estate Ltd HC Auckland CIV-2010-404-2838, 3

August 2010.

defendant had purported to issue notices invoking the provision.¹³ The Court considered that the purported notice was possibly ineffective as it did not refer to the specific term of the agreement under which it was issued nor did it specify a timeframe in which the plaintiff was to remedy its alleged default. In determining that the balance of convenience and overall interests of justice favoured granting the interim injunction, the Court considered the plaintiff ’s concern that it would suffer reputational damage which may result in future work and income being lost, some of which it would not be aware of, so the value of which was not quantifiable.

[70] However, these cases can be distinguished from this case. Kelly Enterprises involved a cleaning contract. As Mr Corlett accepted, such a contract is very different in nature from one where the services performed by one party are significantly interwoven with the ongoing viability of a business, as is the case here.

[71] In the case of Goldridge Estate, while the Court acknowledged there had been a break down in the relationship between some of the parties, the Court did not accept that those were fundamental to the relationship between other parties involved. The Judge noted:¹⁴

The Courts are of course reluctant to hold parties to contracts of personal services by way of interim orders but I am satisfied that reluctance would be inappropriate in the present case.

[72] The Judge considered that allowing a party to avoid its obligations and thereby defeat the commercial expectations of plaintiffs and third parties would be contrary to public policy. Those observations were clearly of significant relevance to that case. I am not satisfied, however, that the Judge was suggesting that the courts will intervene to prevent attempts to terminate contracts as a matter of course.

[73] In Opus International Consultants Ltd, the Judge was not concerned about

_{the continued working relationship of the parties’ personnel. Projenz had questioned}

¹³ Opus International Consultants Ltd v Projenz Ltd HC Wellington CIV-2003-485-1387, 12

_{August 2003.}

¹⁴ Goldridge Estate Vineyards 3552 Ltd v Karaka Estate Ltd, above n 12, at [82].

the ongoing workability or viability of the joint venture, in particular the impact on staff morale. However, France J held:¹⁵

I do not consider there is anything in the arguments about workability of Roadnet in the interim. The evidence does not satisfy me that is a real concern at this stage.

[74] In this case, there are significant concerns about the parties’ working

relationship.¹⁶

[75] In the case of Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd an injunction was granted to enforce a clause in a contract that the freezing works would not handle stock on behalf of anyone else, thereby enforcing a negative covenant and effectively requiring the defendant to deal with the applicant

for the injunction.¹⁷ The Court considered whether the relations which the injunction

was likely to compel the parties to maintain were such as to make the remedy undesirable in principle. The Court considered cases demonstrating that performance of personal services contracts is not generally ordered. In that case, however, it was particularly relevant that the ongoing relationship involved matters of a routine kind and it was unlikely the personnel concerned in the day-to-day carrying out of the contract would be influenced by the litigation.

[76] There is generally what is regarded as a “settled practice” of the courts to refuse to order a mandatory injunction requiring the carrying on of a business. This was confirmed in Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd.¹⁸ The Lords commented:¹⁹

From a wider perspective, it cannot be in the public interest for the courts to require someone to carry on business at a loss if there is any plausible alternative by which the other party can be given compensation. It is not only a waste of resources but yokes the parties together in a continuing hostile relationship. The order for specific performance prolongs the battle. If the defendant is ordered to run a business, its conduct becomes the subject of a flow of complaints, solicitors’ letters and affidavits. This is wasteful for

¹⁵ _{Opus International Consultants Ltd v Projenz Ltd, above n 13, at [116].}

¹⁶ _{See [78]-[79] and [87] below.}

17. Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd [1978] 1 NZLR 538 (CA).

¹⁸ _{Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] UKHL 17; [1998] 1 AC 1 (HL).}

¹⁹ At 15-16.

both parties and the legal system. An award of damages, on the other hand, brings the litigation to an end. The defendant pays damages, the forensic link between them is severed, they go their separate ways and the wounds of conflict can heal.

[77] If it is not possible, as a matter of law, for the applicants to achieve an order for specific performance following trial because of the nature of the relationship sought to be enforced, then that is a matter which is highly relevant to the question of whether there is a serious issue to be tried.

[78] I accept the defence submission that the relationship in this case is akin to a contract requiring close personal contact and co-operation and there is evidence that the plaintiff’s representatives are hostile towards the defendant. The relationship requires trust and confidence. The defendant says that no longer exists.

[79] I am satisfied there is a strong argument that specific performance would not be awarded at trial because it would compel performance of a contract requiring the parties to continue to function in a close business relationship where there is animosity and a lack of trust between them. It would therefore be inappropriate to award an interim injunction having the effect of specific performance in the meantime.

Balance of convenience and overall justice

[80] In American Cyanamid Lord Co v Ethicon Ltd, Lord Diplock said that, all other things being balanced, “it is a counsel of prudence to take such measures as are calculated to preserve the status quo”.²⁰ However, exactly what constitutes the status quo is often difficult to determine and depends very much on the particular circumstances of the case.²¹ Mr Corlett suggested that the status quo is that the Agreement should remain on foot. However, it can also be said that the status quo is that Forsgren has terminated the Agreement and Retail Focus is no longer involved in the business. I accept the reality of the situation and consider that the status quo

_{favours Forsgren, although this factor is not determinative.}

²⁰ _{American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 (HL)}

²¹ As recently noted by Brown J in Heartland Seven Investments Ltd v Waharoa Industrial Park

Ltd [2014] NZHC 202 at [54].

[81] The nature of the contract is also relevant to the general consideration of the balance of convenience. The evidence from Mr Forsgren made it clear that he entered into the Agreement because of the experience and the background of Mr Meertens and Mr Parkinson. The suggestion by Retail Focus that other personnel from Retail Focus could take over their roles cannot seriously be considered.

Would damages be an adequate remedy?

[82] Retail Focus has sought the injunction on the basis that damages would not be an adequate remedy because Retail Focus will suffer reputational damage which will be difficult to quantify and there is a risk that Forsgren might not be able to meet any judgment which Retail Focus might obtain. The second point received no real attention from Mr Corlett and I agree with Mr Wright that, if that were indeed the case, it would seem strange that Retail Focus wants to keep working for Forsgren.

[83] I am not satisfied that damages would not be an adequate remedy, noting that Retail Focus has already advised Forsgren of what it considers to be the value of the Agreement as calculated by Deloittes around December 2013.

[84] While Retail Focus referred to reputational damage, it has not demonstrated anything over and above any reputational damage that might normally be associated with termination of a contract. Furthermore, contract damages are available for damage to reputation if the plaintiff can prove actual financial loss flowing from the breach which is not too remote.²²

[85] Retail Focus says that its reputation will affect its ability to attract future work and particularly to work for Carl’s Jr in Australia. Mr Corlett acknowledged however, that CKE will be aware of the dispute between Retail Focus and Forsgren

_{in any event.}

²² Malik v Bank of Credit and Commerce International SA (In Liquidation) [1997] UKHL 23; [1998] AC 20 (HL) at

40 – 41.

Other issues raised

[86] Forsgren has raised an issue as to the adequacy of the undertaking as to damages noting that no real financial information has been provided by Retail Focus. In particular, what evidence there is is scant and does not disclose any substantial financial strength. The notice of opposition did not raise this objection.

[87] Although Mr Corlett says that there is only one instance of hostility between the parties and that was an immediate reaction of Mr Meertens to the termination, I am concerned about the relationship between the parties. There is some reference in Mr Forsgren’s affidavit to implied threats to take key employees of Forsgren. There is a dispute between the parties as to bonuses to which Retail Focus claims it is entitled. Forsgren points to this as a further example of the break down in the relationship between the parties. More to the point, however, the evidence from Forsgren is that the alleged failures by Retail Focus have significantly contributed to financial loss suffered by Forsgren. I am not satisfied that it would be appropriate to force Forsgren to continue in a relationship with Retail Focus when it considers that Retail Focus is contributing to losses suffered by the business.

[88] The only the evidence of the adverse implications for any employees of

Retail Focus are the implications for Mr Parkinson and Meertens as employees.

[89] [Redacted material]. However the issue at trial remains the lawful termination of the Agreement. If it was not lawful, Retail Focus will be entitled to damages.

[90] I am satisfied that damages would be an adequate remedy and that the overall justice weighs against the application.

Decision

[91] For the reasons given the application is declined.

[92] The parties agree that the substantive proceedings should be stayed and the matter dealt with pursuant to the dispute resolution clause in the Agreement.

[93] Forsgren is entitled to costs. There seems no reason why the costs should not be on a 2B basis. If the parties are unable to resolve the position between them,

_{leave is given to refer the matter to me by way of memoranda.}

Thomas J