Gardening franchisor Green Acres has been unsuccessful in its attempt to stop a former franchisee from operating its business.
The franchisor had applied to the High Court at Auckland to obtain an injunction against Garth and Gwyneth Ruebe, who now operate ‘Garth’s Mowing.’
After operating a Green Acres franchise for 10 years, the Ruebes chose not to renew their sub-franchise agreement and began a new business instead servicing the same clients.
The Ruebes’ contract was with Ancom, which grants sub-licences to those wanting to use the Green Acres System in South Auckland. Ancom has a master franchise agreement with Green Acres.
Green Acres wants the list of customers that the Ruebes had for their business, arguing a restraint of trade applies, preventing the Ruebes from operating their competing business for two years.
As per the franchising contract, the full case will be dealt with through arbitration.
However, Green Acres went to the High Court to get a ruling, forcing Garth’s Mowing to stop trading until arbitration had been completed. According to the judgment, it will take two to three months to resolve the case through arbitration.
The terms of the contract included that Ruebes paid $16,000 to Ancom up front, as well as royalties and brand levies of $125 a week as part of being in the Green Acres franchise.
At the end of the 10-year period outlined in the contract, the Ruebes chose to let it expire and delivered two different notices to customers about the change. The second notice included contact details for their new business.
Green Acres says it has a proprietary interest in the Ruebes’ list of customers because it has a right to service the customers while it was a Green Acres franchise.
It argues that while the agreement did not refer explicitly to customer lists, this is encompassed in its exclusive intellectual property right to the “know how” of the business.
Argument either way
Justice Graham Lang said that there were arguments for both sides on who should have the customer list and whether the sub-franchise agreement meant Green Acres had rights to all customers or just those referred by Green Acres.
As for the restraint of trade, Justice Lang said that it was arguable that the restraint of trade may not apply because the agreement was unclear on what to do if the contract had expired instead of being terminated.
The judge decided that given the Ruebes have about 80 customers and is one of 750 sub-franchisees providing similar services there is no real risk in the Ruebes threatening the Green Acres franchise system.
Because very few sub-franchisees stay the entire 10 years before exiting the Green Acres franchise, the judge doubted the floodgates would be opened to other sub-franchisees.
However, the Ruebes were directed to maintain full and proper records of their lawn mowing services for those on their client list when they left Green Acres in case damages were later awarded.
Green Acres Chief Executive Logan Sears told NBR ONLINE that the case was about protecting the integrity of the franchise.
“It is unacceptable for someone to have Green Acres’ intellectual property and ignore the terms of the contract. We have to fight for that,” he said.
Corban Revell Lawyers Managing Partner Lawrence Ponniah, who is representing the Ruebes said that his client feels bullied and should have never been forced to pay the cost of going to the High Court.
“Green Acres went for an injunction but it didn’t really need one, because how can a person with 80 customers damage their larger franchise?”
He said that Mr Ruebe had stuck out the 10-year contract because he believed that he had an obligation and that when the contract expired he could operate his own business.
The above article appeared in the National Business Review (Online) on March 26, 2014, reproduced here with the permission of its Editor-in-Chief Nevil Gibson.
Our Staff Reporter adds:
In his judgment on May 7, 2014, Judge Graham Land awarded costs to Garth and Gwyneth Ruebe on ‘Category 2B’ basis, which, according to available information may mean between 60% to 70% of what was assessed as actual and reasonable costs. He also noted that the dispute was set for arbitration.
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