Cambridge News Limited v Mark Media Company Limited [2016] NZHC 1326 (17 June 2016)

High Court of New Zealand

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Cambridge News Limited v Mark Media Company Limited [2016] NZHC 1326 (17 June 2016)

Last Updated: 1 July 2016

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2016-419-000155 [2016] NZHC 1326

BETWEEN	CAMBRIDGE NEWS LIMITED Plaintiff
AND	MARK MEDIA COMPANY LIMITED First Defendant MARK STEFAN NOGAJ and TE RANGI MARIA CHRISTINE NOGAJ Second Defendants

Hearing:	2 June 2016
Counsel:	KI Bond and M Meier for Plaintiff SJ Rawcliffe for First Defendant MD Branch for Second Defendants
Judgment:	17 June 2016

_{JUDGMENT OF ASHER J}

This judgment was delivered by me on Friday, 17 June 2016 at 4 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Whitfield Braun Ltd, Hamilton.

Harkness Henry, Hamilton.

CAMBRIDGE NEWS LTD v MARK MEDIA COMPANY LTD [2016] NZHC 1326 [17 June 2016]

Introduction

[1] The plaintiff, Cambridge News Ltd (Cambridge News), publishes a weekly community newspaper in the Cambridge area called Cambridge News. It purchased the business of the newspaper from the first defendant, Mark Media Company Ltd (Mark Media), approximately a year ago on 29 May 2015.

[2] Cambridge News now alleges that Mark Media and its principals Mark Nogaj and Te Rangi Nogaj are breaching restraint of trade clauses that were part of the agreement by publishing a newspaper, Biz Hamilton. It seeks an interim injunction effectively restraining the publication of Biz Hamilton within a 30 kilometre radius of central Cambridge. This would include publication in most of Hamilton.

[3] Mr Nogaj as the principal of Mark Media had commenced publishing Cambridge News in 2008. The negotiations to purchase Cambridge News between him and Mr Prichard commenced in March 2015. On 30 March 2015 Mark Media and Kim Prichard who ultimately became the principal of Cambridge News, signed an Auckland District Law Society form of agreement for sale and purchase. It recorded that the purchase price was $280,000, being $275,000 for intangible assets and $5,000 for tangible assets. The intangible asset can be assumed to have been largely goodwill.

[4] The standard form part of the agreement contained a restraint of trade clause as follows:

7.0 Restraint of trade

7.1 In consideration of the purchase price the vendor hereby agrees with the purchaser that the vendor will not during the vendor’s restraint of trade period stated on the front page of this agreement either directly or indirectly carry on or be interested either alone or in partnership with or as manager, agent, director, shareholder, financier or employee of any other person in any business similar to the business within the radius from the premises stated on the front page of this agreement.

7.2 If the vendor is an incorporated company it will on or before the possession date procure its shareholders and its directors, other than any shareholders or directors specifically excluded from this provision in terms of Schedule 2 to this agreement, to enter into a deed of covenant with the purchaser binding themselves to like effect, such deed of covenant to be prepared by and at the expense of the purchaser and

tendered to the vendor or the vendor’s lawyer for execution a

reasonable time before settlement.

[5] At the front of the agreement for sale and purchase a vendor’s restraint of

trade was referred to as follows:

Three years after the possession date within your Cambridge News distribution area and two years within a radius of 30 kilometres (a maximum of three years in total).

[6] In addition the law firm acting for Mark Media and Cambridge News (they used a common lawyer) prepared a deed of covenant in restraint of trade. It was between Mark Media and Cambridge News and did not include the Nogajs as parties, despite the fact that they were directors of Mark Media and would have fallen under the ambit of cl 7.2. I record that on my assessment of the overall evidence it seems likely that both sides assumed that the Nogajs were bound by the restraint of trade.

[7] The relevant clause of the restraint of trade read as follows:

In consideration of the Purchaser accepting the nomination to perform the obligations under the Agreement with the Vendor, the Vendor covenants that he will not during the period that ends on 29 May 2018 within the Your Cambridge News distribution area and during the period that ends on

29 May 2017 within a radius of 30 kilometres from 55 Victoria Street, Cambridge, either directly or indirectly carry on or be interested either alone or in partnership with or as manager, agent, director, shareholder, financier or employee of any other person in any business similar to the Business.

[8] Mr Nogaj had discussed his future plans with Mr Prichard in the course of negotiations. He was proposing to start a men’s magazine. Mr Prichard understood this would be a magazine that customers would have to purchase, and that it would not be specific to the Cambridge area, and was not troubled by that proposition.

[9] Mr Prichard duly settled and his company Cambridge News Ltd took over Cambridge News. It has targeted advertisers from outside Cambridge and the first year’s turnover showed an increase from $400,000 at the time of sale to $500,000.

[10] In the meantime it seems as if Mr Nogaj’s men’s magazine was not a success

as a hardcopy publication, although he deposes that it is available online. It seems

that following the purchase he decided to set up a new publication, Biz Hamilton, which would be a fortnightly Hamilton free newspaper, focusing on businesses in the wider Hamilton region.

[11] Mark Media published its first Biz Hamilton issue on 9 May 2016. A quantity of copies were distributed in the Cambridge area. The next day Cambridge News’ solicitors wrote to Mark Media requesting an undertaking that all publications cease. Mark Media through its solicitors refused to provide that undertaking. These proceedings were filed on 19 May 2016.

[12] In accordance with the approach to interim injunctions established in New Zealand I first consider whether there is a serious question to be tried. I will then proceed to consider the balance of convenience and overall justice.¹

Serious question to be tried

Is there a breach of the restraint of trade clause?

[13] Both restraint of trade clauses in the agreement and the deed prohibit the vendor from carrying on a business within the restraint areas “similar to the business”. It was argued for Cambridge News that the businesses of Biz Hamilton and Cambridge News were similar. This was denied by the Mark Media and the Nogajs.

[14] Ms Rawcliffe for Mr Nogaj argued that they were distributed to entirely different groups. I do not accept that. On the material before me both publications are distributed to businesses, although I accept that there is no evidence that Biz Hamilton is deliberately distributed to householders.

[15] An examination of the advertisements shows that some of those in

Cambridge News are advertisements that would appeal to businesses, and some of those in Biz Hamilton are advertisements that would appeal to householders. There

¹ American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] 1 All ER 504 (HL), and Klissers Farmhouse

Bakeries Ltd v Harvest Bakeries Ltd [1985] NZCA 70; [1985] 2 NZLR 129 (CA).

have in fact been some common advertisements in the two publications of Biz

Hamilton that have taken place so far with those in Cambridge News.

[16] There is some similarity in the editorial format in that they both feature a chatty personalised style. Both of the newspapers share details of appearance and presentation. They are on newsprint and feature colour photographs and advertisements. It is significant that in the opening editorial comment in the first Biz Hamilton issue it was stated that the publication was for all Hamilton businesses. It went on to say that Hamilton was an amazing and fast growing city and warranted “its own dedicated regular publication to highlight news, politics, events, advice, opinions, developments, businesses, industry bodies, business groups, organisations, people and more”.

[17] While I accept that Biz Hamilton was predominantly focussed on businesses, the newspaper has a community feel about it and the quoted editorial comment shows the wide range of its content, much of which would appeal to any resident in the local Hamilton area.

[18] The interpretation of the word “similar” must involve a question of degree. Slight similarity will not be enough. However, the publications clearly do not need to be identical. In my view there is a sufficient number of features that both share to make them “similar”. I have already set out what those shared features are.

[19] In my view there is a serious question that the two newspapers are sufficiently similar for the restraint of trade clause to be invoked. Therefore it is entirely arguable that the publication of the newspapers within the Cambridge News circulation area for three years, and within the 30 kilometre radius for two years from the date of the agreement, is a breach of the restraint.

Is the restraint reasonable?

[20] In the context of this interim injunction application the question must be whether there is a serious question to be tried that this is a reasonable restraint of trade clause.

[21] My approach in assessing reasonableness is influenced by the fact that this restraint of trade clause arises in the context of an agreement for sale and purchase of a business involving a very significant payment towards goodwill. In fact, as I have said, almost the entire purchase price was for goodwill. On its face, therefore, the purchaser having paid for goodwill should be able to enjoy the fruits of that purchase in accordance with a restraint of trade clause. However, some restraint of trade clauses can be unreasonable even in the context of an agreement for purchase of goodwill. A long restraint in relation to a geographic area or type of business that had nothing to do with what was purchased could well be unreasonable. The higher the price that is attributable to goodwill, the slower the Court will be to release the

purchaser from his side of the bargain.²

[22] I have no doubt the three year restraint in relation to the Cambridge distribution area was reasonable, on a serious question to be tried basis. Any competition from a similar publication of the vendor in the purchaser’s distribution area would damage the goodwill. The position in relation to the 30 kilometre two year restraint is more problematic, extending as it does beyond the distribution area of Cambridge News. At the time of the purchase (which is the time when reasonableness is assessed), the advertisers for Cambridge News were drawn from the Cambridge area. Given this factor, and the lack of any distribution in the wider Hamilton area, it is far from obvious that a reasonable restraint of trade should extend to Hamilton itself where Cambridge News is not distributed.

[23] To this Mr Bond for Cambridge News submitted that Mr Prichard had deposed that he had planned to expand the business by attracting Hamilton advertisers, and that this in fact had happened. He also pointed out that the extension to Hamilton was the result of hard negotiation, and part of the purchase price, and could be seen as relating to it.

[24] In response Mr Branch for the second defendants submitted that Biz Hamilton is prepared to undertake not to contact any advertising customers that were customers at the time of sale, and in addition, having gone through the current

_{advertiser list for Cambridge News, would undertake not to contact approximately}

² Brown v Brown [1980] 1 NZLR 484 (CA) at 490.

90 per cent of all those advertisers, specifying which particular businesses it wished to be free to continue to contact. He provided a schedule setting out those he would not contact. His point was that while the existing restraint could extend to all the paid for goodwill, it should not act as a barrier to a vendor moving to different publication in a new area, albeit one which falls under the restraint.

[25] In the end I do not have sufficient information to reach a final view on the reasonableness of the second aspect of the restraint of trade clause, and nor do I need to do so given that this is an interim injunction. I consider that there is a serious question to be tried that the whole restraint of trade clause is reasonable, but I recognise that the second aspect of the restraint extending to attracting Hamilton advertisers is less strong, and that the plaintiff might fail to satisfy a Court that this aspect of the restraint is reasonable.

[26] A final determination may turn on the view the Court might ultimately take of the evidence that is being offered by Mr Prichard and Mr Nogaj. Mr Prichard says he made it clear that he wished to expand the business and attract Hamilton advertisers, and that is one of the reasons why he paid such a large amount for the goodwill. There is some support for that proposition in the fact that there was a distinction made between trading in the Cambridge area and trading within the

30 kilometre radius, with the 30 kilometre radius restraint being for only two years, as against three years for the smaller area.

[27] The difference between the parties on this point is important when it comes to assessing the overall justice of the situation.

The claim against the second defendants

[28] On the face of the contracting documents the second defendants are not bound by the restraint of trade. They are not parties. The plaintiff says this was an error made by the single firm of lawyers employed by both parties, and that it was always envisaged that both the Nogajs personally, and Mark Media, would be bound.

[29] Clause 7.2 of the agreement for sale and purchase placed on the purchaser

(Cambridge News) the obligation of forwarding a deed of covenant binding the

directors of the vendor, and this was never done. While this may have been an error on the part of their solicitors that is not relevant to this proceeding. It is to be noted that the Nogajs signed the deed of restraint themselves.

[30] Support for this proposition that the Nogajs were bound can be drawn from the plain fact that a restraint of trade that did not bind the Nogajs personally would be of little use, as they could easily have started another company and commenced trading in direct competition.

[31] There were various possible ways in which the Nogajs could be bound by the restraint of trade. The Court might find that despite the fact that they were not parties to the deed, they were nevertheless contractually bound by an oral contract, where, as Mr Prichard has deposed, they personally agreed to the restraint.

Rectification

[32] The principles that govern rectification in New Zealand can be treated as summarised by the statement of Peter Gibson LJ in the English Court of Appeal decision of Swainland Builders Ltd v Freehold Properties Ltd:³

(a) the parties had a common continuing intention whether or not amounting to an agreement in respect of a particular matter and the instrument to be rectified;

(b) there was an outward expression of the accord;

(c) the intention continued at the time of the execution of the instrument sought to be rectified;

(d) by mistake, the instrument did not reflect that common intention.

[33] In my view it is entirely arguable that if the parties had a common intention that a related person be a party to a contract and there was an outward expression of that accord continuing to the time of execution, but that because of an error the restraint of trade failed to record the parties as personally liable, a Court would order

_{rectification to include the parties mistakenly left out. In Swainland Builders Ltd v}

³ Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560; [2002] 2 EGLR 71 at [33].

Freehold Properties Ltd the Court appeared to be prepared to allow a management company that was not a party to be treated as a party. It was held:⁴

... the inclusion of the management company was simply part of the mechanics by which the court, having decided that the common intention had not been given effect to by the transfer, rectifies the transfer so as to achieve the common intention.

[34] Thus, in my assessment it is reasonably arguable that the Nogajs could be joined as parties by virtue of the doctrine of rectification. In the end, however, there will have to be an assessment of common intention which will involve a close analysis of the facts.

Fair Trading Act

[35] The Fair Trading Act also, relied on by Mr Bond, is unlikely to avail Cambridge News, and this submission seems to me to be misconceived. A promise about the future cannot be misleading at the time it is made unless the person giving the promise had no intention to carry it out.⁵ There was nothing to show that when Mr Nogaj made the statements he allegedly made about there being no intention on his part to compete in the Hamilton area, that this was a misrepresentation as to his belief at that time. There was no evidence on which it could be assumed that

Mr Nogaj was deliberately misleading Mr Prichard when he allegedly said this.

Other approaches

[36] There are other possible approaches that a Court might adopt. In United Pukekohe Ltd v Grantley⁶ in relation to the sale and purchase of a business, it was held that it was open to rational argument that the parties must have intended that there be a no competition clause, even if there was no formal restraint.⁷ In Henare v Te Puke Box and Pallet Co Ltd⁸ there was again no restraint of trade covenant entered into on the sale of a business with a significant payment for

_{goodwill. Nevertheless, Gallen J followed the English case of Trego v Hunt}⁹ _as

⁴ _{Swainland Builders Ltd v Freehold Properties Ltd, above n 3, at [47].}

⁵ _{Muollo v Creative Engineering Design Ltd [2005] NZCA 403; (2006) 8 NZBLC 101,675 (CA) at [24]–[26].}

⁶ _{United Pukekohe Ltd v Grantley [1996] 3 NZLR 762.}

⁷ _{United Pukekohe Ltd v Grantley, above n 6, at 766.}

⁸ _{Henare v Te Puke Box and Pallet Co Ltd HC Rotorua A213/84, 21 November 1984.}

⁹ Trego v Hunt (1896) AC 7.

authority for the proposition that where the goodwill of a business is sold without any specific restraint of trade term, the vendor of the business is nevertheless not entitled to solicit the customers of the business sold. This would constitute a derogation from the grant and would be clearly dishonest, the vendor having sold the goodwill. Gallen J noted that in Chitty on Contracts¹⁰ it is stated that the principle of Trego v Hunt extends to the executors of a vendor who are executing a contract for the sale of the goodwill. He observed: “By analogy, the director of a company might well qualify.”¹¹ He concluded that it was arguable that the principle in Trego v Hunt might properly apply to the situation where a restraint of trade was sought against the directors of a vendor.

[37] At the end of submissions Ms Rawcliffe and Mr Branch were not seeking to argue that if I found the businesses were similar, that Mr or Mrs Nogaj could nevertheless publish and circulate within the Cambridge News distribution area. I conclude that there is a serious question to be tried in relation to the Nogajs personally. It would be quite unconscionable for the Nogajs to be able to set up a directly competing newspaper in the Cambridge area using a different company to Mark Media, and indeed, accepting that the distribution in Cambridge was a mistake, they have not done so.

[38] What Mr Branch definitely would not concede was that the Trego v Hunt principle could be used to extend the restraint beyond the Cambridge distribution area to the 30 kilometre area generally. His submission was that there was nothing inequitable in the Nogajs distributing a business community newspaper in Hamilton (but not in Cambridge), providing it did not use any advertisers of Cambridge News Ltd. I can see considerable force in that submission.

Summary on serious case to be tried

[39] In my assessment there is a strong case that both Mark Media and the Nogajs personally are in breach of their contractual or equitable obligations if they breach

¹⁰ _{The current edition of Chitty on Contracts says this also. See HG Beale (ed) Chitty on Contracts}

₍₃₂^nd _{ed, Thomson Reuters, London, 2015) at [16-128].}

¹¹ Henare v Te Puke Box and Pallet Co Ltd, above n 4, at p 6.

the first part of the restraint of trade clause, prohibiting publications in the

Cambridge News distribution area within the three year period.

[40] The case is less strong in relation to the wider 30 kilometre area, particularly if the defendants’ undertaking not to take business from existing advertisers is taken into account. It may be even less strong against the Nogajs personally in that area, given that they never signed the restraint.

The balance of convenience

The plaintiff

[41] At present Cambridge News is doing well. Turnover is up 25 per cent. There is nothing before me to indicate that the Nogajs’ two publications so far have derogated from its business. I have no doubt their business would be severely damaged if the Nogajs starting publishing a similar newspaper in Cambridge. However, while Mr Prichard was justified in being concerned that exactly this was happening when he discovered Biz Hamilton newspapers being distributed in Cambridge, that appears to have been an accident. In any event, the balance of convenience is firmly in favour of the granting of an interim injunction in respect of the first aspect of the restraint of trade clause prohibiting publications for three years in the Cambridge News distribution area.

[42] The detriment to the defendants on the balance of convenience will be negligible or indeed nil. The Nogajs have said that they never intended to publish in Cambridge or to solicit customers of Cambridge News at the time it was sold. So the balance of convenience favours the granting of the first aspect of the interim injunction.

[43] Turning to the wider aspect of the interim injunction, involving the

30 kilometre radius zone, the balance of convenience is reversed. The damage to Cambridge News will be limited to some Hamilton advertisers who might otherwise have advertised with Cambridge News, giving their advertisements to Biz Hamilton. It is unlikely that this will cause severe problems for Cambridge News, as none of the advertisers that were in existence at the time of sale will be approached, and the

majority of the existing advertisers (approximately 90 per cent) will also not be approached. Any advertiser approached by Mark Media will be aware that publication is not distributed in Cambridge, and they will have to look to Cambridge News or another Cambridge publication for their advertising in that area.

[44] So in my assessment the loss caused to Cambridge News should Mark Media be able to continue to distribute its newspaper in Hamilton (but not Cambridge), and be allowed to approach Hamilton advertisers (but not those existing Cambridge News advertisers and not those listed) will be slight.

[45] I compare this to the damage to Mark Media and the Nogajs should the wider injunction be granted. This will have the effect of requiring Mark Media to close the business that it has commenced, and keep it closed for a year. It does not seem as if there has been a great money investment in the new publication, but I readily accept that there has been a major investment of Mr Nogaj’s time and effort. I also accept that the effect of requiring him to close Biz Hamilton down would be to discredit him with advertisers and in the community, and to make it more difficult to re-open a successful community newspaper in a year’s time. The balance of convenience is against the wider injunction.

Damages and adequate remedy

[46] If I do grant an injunction in relation to the first part of the restraint, but not the second, any damages assessment will relate to the reduction in goodwill because of new Hamilton advertisers not being as amenable to giving their business to Cambridge News as they might have been if Biz Hamilton was not being published. I accept that this will not be easy to formulate, but there will be a reference upon which to calculate damages, in that there will be the records of trading at Cambridge News over the last 12 months. Any change in profit or trends is likely to be discernible.

[47] If the full injunction is granted against Mark Media and it is forced to close down, the damages assessment will be much more difficult. It will involve an assessment of how the business might have done if it had been allowed to develop.

That would be very speculative. Thus, a comparison of the potential damages calculations comes out in favour of granting a limited injunction only.

Overall justice

[48] Mr Nogaj sought some limited legal advice before he embarked upon his new venture. He gave a rather perfunctory description of the type of business he proposed, which I do not think adequately highlighted the similarities between his proposed newspaper and Cambridge News. The response he received was cautious, indicating no apparent problem, but the existence of risk. It was recommended that he speak to Mr Prichard about his proposals (which he did not do).

[49] This sequence of events shows perhaps a degree of carelessness and wishful thinking on the part of Mr Nogaj, but it does not show that he was setting out to deliberately defy the law or trick Mr Prichard, and indeed it was always open to him to start the new business in the name of a different company, which he did not do. This shows some naivety on his part, and does not show an intention to take the goodwill of Cambridge News.

[50] In assessing the overall justice of the case I bear in mind also that a year has gone by since the purchase. Cambridge News has had a period of time in which to develop the business, and its own goodwill.

[51] On the orders that I propose it will remain protected from any type of direct competition within its distribution area. Any damage will be in the fringes of its operation, by some advertisers having less of their advertising revenue available for an exclusively Cambridge publication. But I do not see this as going to the heart of the successful running of the Cambridge News business.

[52] The overall justice of the case favours an injunction, but one which is limited as I have outlined.

Result

[53] I make orders as follows:

(a) An interim injunction restraining the defendants from being involved directly or indirectly with the publishing or distribution of Biz Hamilton or any other free publication funded by advertising content either in hard copy form or via the internet in Cambridge and the surrounding area as per the distribution map labelled “A” and annexed to the application for interim injunction, until the earlier of 29 May

2018 or a further order of the Court in the substantive proceedings.

(b) An interim injunction restraining the defendants from targeting the plaintiff’s advertisers and key personnel as they were in May 2015 and from engaging any other of the advertisers who were on the list at exhibit A in Mr Nogaj’s affidavit of 26 May 2016, save those that have an X beside them, until the earlier of 29 May 2018 or an order of the Court in the substantive proceedings, providing that this prohibition extends only to seeking advertisers and personnel for publications in the area within a 30 kilometre radius of Cambridge as shown in the map labelled “B” attached to the interim injunction application dated 18 May 2016.

[54] Given that I have not gone through this wording with counsel, I reserve to the parties the right to seek further clarification of these orders.

Costs

[55] The plaintiff has succeeded in obtaining an interim injunction. However, in many respects it reflects orders that the defendants were prepared to accede to either prior to or during the hearing. There is not therefore a straightforward case for the awarding of costs at this stage, prior to the substantive hearing. I have not had submissions on the point and if the parties wish to pursue the issue they should file submissions and I will determine costs on the papers.

...................................

Asher J