Recently a US client asked me whether New Zealand Courts enforce non-compete/restraint of trade covenants (Non-Competes) against the sellers of New Zealand businesses. If New Zealand law governs the agreement, the short answer is: yes, to the extent the Non-Compete is “reasonable”. However, even where a Court finds a Non-Compete to be unreasonable, it can modify the offending provision so that it becomes reasonable.
Which Non-Competes will be seen as “reasonable” on the sale of a business?
A full discussion on this topic is a cure for insomnia! However, in brief, an enforceable Non-Compete is one that is reasonably necessary to protect the buyer’s legitimate proprietary interest.
To expand slightly: a buyer must establish the following to successfully enforce a Non-Compete:
- that it will actually gain a practical benefit if the Non-Compete is enforced – an example of such a benefit is that the enforcement will afford the buyer a reasonable opportunity to secure the goodwill of the business’ customers); and
- the Non-Compete only restrains the seller from competing:
(a) in the specific market sector in which the acquired business operated;(b) in the particular geographical area in which the acquired business had trade connections – regardless of any plans for expansion the seller and/or buyer may have had in mind at the time of the sale; and
(c) for no longer than it should take the buyer to secure the goodwill of the business’ customers.
Which market sector, geographical area and/or time period will be reasonable/right/not too restrictive will depend on all the circumstances surrounding the business being sold and the nature of the overall deal agreed.
When will a Court modify an unreasonable Non-Compete?
If a Court finds that a Non-Compete is too wide/an unreasonable restraint of trade, then it must either:
- decline to enforce any part of the Non-Compete; or
- modify it so that it is reasonable. A Court is likely to modify the Non-Compete where it believes that the modification:
(a) is required when looking at the essential justice of the case requires it; and(b) can be performed without unreasonably modifying the parties’ bargain.
Please get in touch if you are a buyer or a seller and you’d like some assistance with drafting an appropriate Non-Compete or assessing the enforceability of an existing one.
You have been out to buy your first home. Yesterday, you fell in love with this seemingly fantastic house with an amazing view.
After hearing that it is likely to be snatched up any time soon, you hurriedly signed an agreement to buy it WITHOUT any conditions attached.
You have been out to buy your first home.
Yesterday, you fell in love with this seemingly fantastic house with an amazing view.
After hearing that it is likely to be snatched up any time soon, you hurriedly signed an agreement to buy it WITHOUT any conditions attached.
Later, you realised that there are other aspects that are undesirable for you and you wish to pull out.. Can you do this?
Unconditional agreements are UNCONDITIONAL
Unconditional agreement has to be followed by the parties. If the deposit has been paid, the vendor can take it. If the deposit was not paid, the vendor can still sue you for payment of deposit or make you buy the house.
In particular, the successful bidder of an auction will be signing an unconditional agreement so it is crucial that the necessary homework is done before making any serious bid at an auction. Visit the house and have a thorough look at the LIM report, the builder’s report and the certificate of the title for the house. We strongly recommend you to seek legal advice as early as possible. Many law firms including us do not charge any extra fee for conveyancing clients who engage the service early on.
Despite the fact that you are bound by the terms of an unconditional agreement, there may be a way out depending on the circumstances.
Was there any reason which makes you think that you were induced into signing the contract by any misrepresentation from the vendor or the agent? If the vendor intentionally lied or unintentionally distorted a crucial fact about the house, such as the absence of any leaky issues, you may be able to argue that the agreement is invalid (section 7, Contractual Remedies Act 1979). Think about whether there was any such misrepresentation. Have a look at the marketing brochure or any emails from the vendor or the agent. Since written communications can be useful evidence of a relevant statement, any questions you ask the vendor or agent better be put in writing such as in emails or txts.
Termination by mutual agreement?
You may also be able to talk your way out of the mess by having an honest discussion with the vendor since unconditional agreements can be terminated without legal consequences if both parties agree. The real estate agent may assist in the process. If this is agreed to, instruct your lawyer to obtain a written confirmation from the other side to prevent any future disputes.
The above potential solutions may not be available in many situations so please take a special care before committing to a purchase of a house which is one of the biggest investments for most people.
No information on this article shall be construed as legal advice and information is offered for information purposes only. You should always seek advice from an appropriately qualified solicitor on any specific legal enquiry.
Unit titles – who pays?
he Court of Appeal looks at how costs for remedial works should be shared at Auckland’s Shangri-La apartments. Wikipedia notes Shangri-La is meant to be a “permanently happy land”, not so Auckland’s Shangri-La. The Court of Appeal was asked by the body corporate (i.e the owners) to look at:
The Court of Appeal looks at how costs for remedial works should be shared at Auckland’s Shangri-La apartments.
Wikipedia notes Shangri-La is meant to be a “permanently happy land”, not so Auckland’s Shangri-La. The Court of Appeal was asked by the body corporate (i.e the owners) to look at:
- the cost allocation for remedial works; and
- the penthouse owner’s claim for compensation for the 18 month period they had been denied use of their unit whilst remedial works were completed.
The High Court had approved a scheme under the Unit Titles Act 2010 that allocated costs for the installation of the new curtain wall at Shangri-La 50% equally between the each of the 15 units and 50% based on utility interest. This meant the penthouse owner, relatively speaking, paid a smaller share than the other owners. The new glass curtain wall did not have to extend to level 16. It finished at the lower level of the penthouse on level 15.
The Court of Appeal upheld the scheme. The Court considered the scheme obtained the requisite fairness. The body corporate wanted all costs allocated based on utility interest. The Court considered that would be unfair to the penthouse owner whose unit had the same amount of work done as the other units in the tower.
All owners were denied use of their units for 6 weeks, but the penthouse owner was out of their unit for 18 months. The curtain wall and support beam were installed on level 15 and other works needed to be done from the penthouse unit. The Court of Appeal agreed compensation was appropriate and should be calculatedbased on the lost market rent. The use of the penthouse during the 18 month period was for the common benefit of all unit owners. However “there will need to be a significant loss for a particular unit owner before a claim for compensation should be contemplated”. Remember also that this compensation payment was being ordered as part of the scheme, which can only be ordered by the Court following destruction or damage so this does not necessarily open the floodgates for compensation claims by unit owners.
This decision does not change how costs are allocated day to day by bodies corporate. The body corporate does not have the same flexibility as the Court in this respect. We believe bodies corporate should have more flexibility to determine different utility interests for different budget items. Others are lobbying for this too as part of the review of the Unit Titles Act 2010. For the moment, the body corporate must use the tools it has:
- charging individual owners for repairs or maintenance to building elements or infrastructure contained in their unit
- using utility interest for allocation of levies rather than ownership interest
- recovering money spent on any repair, work or act for the benefit of individual owner(s) or caused by those owner(s) from those owner(s)
New Health and Safety Regime
Next month the Government will begin to introduce a new Health and Safety (H&S) regime in its bid to achieve a 25% reduction in workplace fatalities and serious injuries by 2020. As a result, most businesses will need to immediately up skill, perform due diligence and then implement the necessary change in order to be compliant by the go-live date of 1 April 2015
Next month the Government will begin to introduce a new Health and Safety (H&S) regime in its bid to achieve a 25% reduction in workplace fatalities and serious injuries by 2020. As a result, most businesses will need to immediately up skill, perform due diligence and then implement the necessary change in order to be compliant by the go-live date of 1 April 2015. Failure to do so will expose organisations and those responsible for H&S to hefty fines and, for the worst breaches, prison sentences.
IS THIS RELEVANT FOR SMALL AND / OR RELATIVELY LOW-RISK BUSINESSES?
Yes. The Government has signalled that it will do more to help all businesses and employees to understand their obligations and rights ahead of the new regime becoming law. To this end, it is creating a new, purpose-built and adequately-resourced regulator, WorkSafe NZ, to: provide more accessible and understandable guidance to assist businesses to comply with the new regime; and appropriately punish any transgressions. Once the improved assistance is in place, there will be no defence if an injury occurs to your staff, or to anyone affected by a small business’ activities, in circumstances that would not have arisen had reasonable H&S measures been taken.
WHO SHOULD BE PRIMARILY INTERESTED?
Failure to meet the requirements of the new regime will expose PCBUs to fines of up to $3M per transgression.
The new legislation will allocate duties to those people in the best position to control risks to health and safety, as are appropriate to their role in the workplace. The core duty is that of a person or organisation conducting a business or undertaking (PCBU) which must so far as is reasonably practicable, ensure the health and safety of everybody: who works in or for the business; or who enters its workplaces. PCBUs must firstly consult with their workers, and secondly consult, coordinate and cooperate with other duty holders regarding matters affecting health and safety.
Duties will be owed by the PCBUs to upstream participants in the supply chain (e.g. PCBUs that are designers, manufacturers, importers and suppliers of plant, substances, and structures). Further, multiple businesses or undertakings and therefore multiple PCBUs might be involved. For example, in a typical supply chain, all of the members of the chain are a PCBU, except the workers.
The PCBU at the head of a construction contracting chain (usually, the construction firm) will need to ensure that the principal contractors, contractors and sub-contractors are properly selected and managed via the contract and instruments such as compliance guides. Each PCBU has to manage the health and safety performance of the parties beneath them in the chain through supervision and monitoring. The construction firm and principal contractor will lead the coordination of the work, and health and safety performance of all the parties. You can see why ALL businesses/organisations in a construction supply chain will need to be compliant in order to be eligible to enter the chain.
Other examples of people who might be PCBUs if they have people contracting to them, are:
- The owner of a shopping centre, the manager of the shopping centre, each of the businesses operating from shops in the shopping centre and those carrying out ancillary activities such as cleaning, security and shopping trolley collection.
- A service station owner, the service station operator (if different from the owner), the mechanic (if running a separate business), the PCBU carrying out the supply of gas cylinders to the public at the service station and the operator of an attached fast food outlet.
The new Act places a positive duty on every owner/operator, every director and every member of the senior management of a PCBU, however small or large (an Individual Duty Holder or IDH) to exercise due diligence to ensure that workers involved in their businesses and all other persons visiting their workplace(s) receive the highest level of protection against harm to their health, safety, and welfare that is reasonably practicable, taking into account all relevant factors. A window into the intent of the new regime is that a relevant factor is whether the cost of a measure to eliminate or minimise a risk is grossly disproportionate to the risk faced.
Failure to meet the requirements of the new regime will expose an IDH to personal fines of up to $0.6M AND up to 5 years in prison.
STEPS TO TAKE NOW
In May this year the Ministry of Business, Innovation & Employment (MBIE) and the Institute of Directors (IoD) jointly released a guide for managing H&S risks. Whilst the guide sets out a recommended, as opposed to mandatory, path to follow, shortly following their release the Minister for Labour observed that he believed the Courts would treat them as a guide to good H&S practice. The guide emphasises that whilst an IDH can delegate H&S roles and seek specialist external advice as necessary, responsibility for H&S remains with the IDH. The guide recommends that IDHs should:
- develop a specific charter which defines: their role in leading H&S within the organisation; and the roles of each IDH;
- perform a vigorous due diligence of their organisation’s H&S system against that charter, i.e., develop a sound understanding of: the hazards and risks faced; the control methods and systems used and whether the current systems are of the required standard;
- update the existing control methods and systems as necessary; and
- understand how to measure H&S performance (including the use of lag indicators (like injury rates) AND lead indicators (like the number of its workers who are appropriately trained)) so they can evaluate whether the revised control methods and systems are being implemented effectively.
Please contact Chris Lee to discuss the new regime’s potential impact for your business and how you can begin to get ready.
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