Green Acres restraint case' a win for franchising'

An arbitrator has ruled against a former Green Acres franchisee who re-branded his business and carried on servicing the same customers when his franchise term expired. Garth and Gwyneth Ruebe have been restrained from operating any lawn or garden care business in South Auckland whatsoever under order 4041382, which has just been lodged in the High Court.

Green Acres was also given leave to seek costs and damages against the Ruebes and has already filed a claim accordingly. Green Acres CEO Logan Sears advises that the company’s costs alone amount to over $70,000.

‘This is a massive result for the franchise sector,’ he told Franchise New Zealand. ‘If a franchisee were allowed to flip the finger at the franchise agreement, ignore the restraints of trade in his contract and just walk off with the brand’s customers and business at the end of the term, franchising would be toast.  You can’t just keep operating but stop paying the royalties. We had no choice as a franchisor but to fight this case, not just for ourselves but for the whole of franchising.’

The issue

The Ruebes originally signed a franchise agreement with Green Acres for a 10-year term in January 2004. At the time, the standard Green Acres agreement allowed for a right of renewal for another 10 years (new Green Acres agreements are now for a 20-year term). According to Green Acres, ‘on the very day that they were due to sign the renewal, the Ruebes suddenly announced that they were not renewing and were now trading as Garth’s Lawnmowing, taking with them the Green Acres customer base locally.’

Why seek an injunction?

Green Acres immediately sought an interim injunction against the Ruebes to prevent them from operating, arguing that this was a breach of the restraint of trade clause within the franchise agreement which provided that the franchisee could not compete for two years following termination. The injunction was not granted (see reasons here) and some observers expressed surprise that the company had gone down that path but, says Logan Sears, it was a deliberate strategy to force a time scale on to what could otherwise be a very long, drawn-out process.  ‘The judge had either to grant the injunction or set a time scale for arbitration. It gave us the right to re-apply for an injunction if the parties hadn’t reached agreement within two months. It was an expensive process, as the standard principle is that if you seek an interim injunction which isn’t granted, you have to pay costs.’

Protecting the brand

‘A lot of smaller franchisors wouldn’t have the ability to fight to uphold their franchise agreements in this way,’ Logan points out. ‘This case hasn’t been about us bullying one little operator, as suggested elsewhere: it’s about protecting our brand, our intellectual property, our franchise agreement and the businesses of 600 other people trading under the Green Acres name around New Zealand.’

‘I hope that this result has set a precedent for the benefit of franchising in general.’