Christchurch-based Heath chose not to renew his Mike Pero franchise agreement when it expired on June 30 this year and attempted to then set up a new business, even though he knew about the restraint of trade clauses in his agreement.
Those clauses stopped him from being a mortgage adviser within New Zealand for six months and within Christchurch and Canterbury for two years after the agreement was terminated.
Mike Pero sought, in June, an urgent injunction in the Auckland High Court to restrain Heath and his de facto partner Gina Smith from setting up a new business after it discovered the pair had been planning to start a new firm, James Heath Mortgages Ltd.
Justice Simon Moore had little hesitation in granting Mike Pero interim relief before the case goes to a full hearing.
The full hearing includes other former Mike Pero franchisees who are trying to overturn their restraints of trade clauses.
Justice Moore said the courts “have consistently granted injunctions to uphold a restraint of trade where a departing transferee seeks to simply rebrand their services and continue business by competing with the franchisor with little or no material change to the business.”
With regards to the Mike Pero franchise agreement he said: “I am satisfied that it is at least seriously arguable that the restraints are not unreasonable.”
Judge had “no doubt Heath and Smith intend to compete with Mike Pero.
He says that is demonstrated by Smith applying to join the NZ Financial Services Group as a broker; the fact that a new website went live, allegedly accidentally; the fact that Heath had established a new company and this company was incorporated the day after Heath and other franchisees started court action to overturn their restraint of trade agreements and that the new business would be in the same building as Heath operated his Mike Pero franchise from.
Justice Moore accepted that “an inevitable consequence of granting interim relief will result in hardship to Mr Heath and Ms Smith I am far from satisfied it would be of the catastrophic levels which are frequently encountered in applications of this sort.”
However, he acknowledged they may have to sell their house.
The judgment also noted that “Heath must have known that Mike Pero would respond in the way it has when confronted with the prospect of a former franchisee setting up business in direct competition contrary to its contractual obligations.
“It is inconceivable he did not contemplate the consequences and the need for him to take steps to secure alternative employment which would not breach the terms of the restraint. I am satisfied that any harm to the respondents is capable of being adequately protected by damages and note that in this regard Mike Pero has provided an undertaking as to damages.”
He also said “Heath has brought these consequences upon himself through his own actions”, particularly by not putting in place any plan for protecting his income.
Mike Pero was unsuccessful in securing orders against Smith has she wasn’t bound by the franchise agreement like Heath.
Smith could set up a mortgage advisory business but cannot use the name James Heath Mortgages, nor can Heath assist her.
"The injunction already granted prevents Mr Heath from being involved a mortgage broking business in any way whatsoever. He cannot assist Ms Smith if she elects to start such a business. Any restriction that goes beyond this would be both punitive and unwarranted."
