An interim injunction is a means of getting urgent relief from
the court where the legal rights of one party have been infringed
by another. A restraining interim injunction is a court order preventing
a party from taking any further action to breach those legal rights
and as such is a very powerful legal remedy. It is granted sparingly
because the consequences of granting the remedy could be dire in
the event it later transpires that no legal rights had been infringed
at all. It is designed to give an immediate remedy where “irreparable
damage” will flow if the remedy is not granted. In other words,
if the party wanting to obtain such a remedy can be properly compensated
in damages, an injunction will not be granted. The potential damage
has to be sufficiently serious that an immediate court order preventing
the other party from taking any further action is required.
It is a key feature of applications for interim injunctions that
Judges weigh the needs of protection for the applicant party against
the needs of the other party; and, in doing so, Judges determine
where “the balance of convenience” lies. It is also
essential for the applicant party to convince a Judge that there
is a serious question for trial or, in other words, a strong arguable
case on the part of the applicant party.
When applying these remedies to the context of franchising, it
is clear that the Courts in New Zealand will grant interim injunctions
where they are convinced that delinquent franchisees have stepped
out of line to the extent where the relevant franchisor is seriously
affected by such delinquent conduct. Two such recent injunctions
have been successfully obtained by Deirdre Watson, a Barrister with
considerable experience in franchise law. The first example was
Window Maintenance Network Ltd v D. & F. Macdonald Limited and
others. The plaintiff company had developed a system of effecting
window and door repairs under the name “Exceed Window Maintenance”.
The action was initiated by the company which now operates the Exceed
Window Maintenance system.
The Franchisee had signed an agreement which, typical of any franchise
agreement, contained a restraint of trade clause. It meant, therefore,
that the franchisee could not, on a whim, abandon the franchise
system and the obligations that go with being a franchisee. In particular,
the franchisee could not simply leave the system and continue to
trade as before, but under a different name. That is exactly what
D. & F. Macdonald Limited and its two directors set about doing
and this action had a potentially serious consequence for the franchisor,
both in the sense that it damaged the goodwill and brand name of
the franchisor as well as allowing the franchisee to take with it
valuable know-how of the Exceed Window Maintenance system and use
that know how to set up its own business in the same field.
The Judge hearing the application was satisfied that there were
serious consequences for the Franchisor unless an Order granting
an interim injunction was made in favour of the Franchisor. The
effect of such Order was that D. & F. Macdonald Limited and
its two directors personally were forced to cease all further trading
as a window maintenance business in the Tauranga area.
The other successful application for interim injunction was applied
for in the Rotorua District Court in November 2004 in the matter
of Focus-on-Food NZ Limited v H.B. Turnbull. In that case, Focus-on-Food,
trading as “Hey Joe”, sought and obtained an Order to
restrain Mr Turnbull from setting up a business in competition with
the Franchisor in circumstances where Mr Turnbull had made inquiries
about becoming a franchisee, signed a Confidentiality Agreement,
gained valuable information about the Hey Joe franchise system and
then, contrary to the terms of the Confidentiality Agreement, had
gone ahead and set up his own business, allegedly adopting many
of the features of the Hey Joe franchise system. The order was obtained,
notwithstanding that Mr Turnbull had been in operation in his own
business for several months and had spent many thousands of dollars
establishing and running that business.
It is relevant to note that Mr Turnbull has applied to the High
Court seeking to overturn the granting of the interim injunction
but, for the time being, the Order of the District Court is effective
and any breach of that Order entitles the Franchisor to issue Contempt
of Court proceedings which is a very serious matter for any party
who contravenes a Court Order. Quick action by Focus on Food was
justifiable and it will be both difficult and expensive for Mr Turnbull
to succeed in having the District Court Order overturned, with no
certainty that he will be successful.
Any application for an interim injunction should not be undertaken
without careful consideration of the consequences. It is important
to select a barrister who has adequate Court experience and a sound
understanding of the intricacies of franchise law. Judges are unhappy
about such proceedings being issued without due consideration of
the threshold expected to be met if the application is to be successful.
A claim for damages or using the dispute resolution procedure in
a Franchise Agreement is often the better alternative to follow.
However, if a breach of the Franchise Agreement is sufficiently
flagrant then, as has been demonstrated in the above decisions,
remedies can be obtained from Courts which protect the integrity
and value of a franchise system.
Indeed, failure to take such protection by a Franchisor sends a
loud message to its franchisees that the Franchisor is lax and uncaring
of its franchise system. That sort of approach can only serve to
undermine the relationship between the Franchisor and all of its
franchisees who conform to the system and who rely on the Franchisor
to maintain and protect the system.