Diluting the brand in Kerikeri

When a business is sold, the buyer normally expects that the seller will agree not to leverage their relationships with clients to set up in competition with the buyer.  But apparently a Mr Waterman didn’t get the memo, according to a recent High Court decision.

In Mirabito v Waterman [2026] NZHC 2257 (4 August 2026) both parties operated companies with similar names – Northland Dairy & Lifestyle Specialists Ltd (co-plaintiff) and Northern Dairy Specialists Ltd (co-respondent).

Justice MacGillivray issued an injunction, preventing the respondents from “soliciting or attempting to solicit away from the business any person, persons or entity who was a customer of the business sold to the first applicant under the agreement.”

Restraint of trade

There is a huge difference between restraints of trade in employment agreements, and restraints related to the sale of a business.

Employment non-competes are moderately enforceable in New Zealand.  In the United States, non-competes range from unenforceable in California, to very enforceable (and rampant, often abusive) in Florida.

We advised a Motueka couple on their appeal of more than $36,000 in damages, penalties and costs that the Employment Relations Authority had ordered in favour of a commercial cleaning company, after realising that the employee was only earning a couple of dollars above minimum wage.  The public interest is that abusive non-competes limit employee mobility and artificially suppress wages due to the imbalance of power.  Not only was there insufficient consideration to support such an award, but the applicant company did not come to the Authority (and later the Court) with clean hands – long story. The parties agreed to a “walk away” settlement with costs to lie where they fell. 

At the other extreme was a 2012 judgment ordering three directors of a failed startup to pay $4.29 million to their former employer Rooney Earthmoving Ltd.  And they were rather naughty, poaching clients while still working for Rooney.  All three directors ended up bankrupt through enforcement of the award.

Ripped off - seller thumbed his nose at the sale and purchase agreement

In Mirabito v Waterman, the judgment that granted an injunction recorded that:

[2] On 29 January 2025, Northern Dairy Specialists Limited sold its business to Lauren Mirabito, the first applicant, for a purchase price of $585,000 plus GST, of which $362,000 was attributable to intangible assets including goodwill. Ms Mirabito incorporated and nominated the second applicant, Northern Dairy Specialists Limited, to complete the purchase.

The way things work in relation to the sale of a business is that the owner intending to sell is expected to be somewhat invested in the success of the buyer, and the price of the “intangibles" reflects that.  That includes the seller, in this case Mr Waterman, removing himself as a potential competitor so that the market doesn’t get diluted, impacting the buyer's future trade margins.  Normally the seller of the business intends to leave the industry, or the area (in this case Kawakawa, 20km South of Waitangi, to the top of the North Island).

The judgment went on to say:

[5] The restraint of trade clauses are as follows:

In consideration of the purchase price, the vendor … hereby agree with the purchaser that they will not within the restraint area during the restraint period, in their own right or on behalf of any person or entity be directly or indirectly involved or engaged with any business or enterprise that is similar to or competes with the business.

In addition, and as a separate obligation, the vendor … will not within the restraint area during the restraint period, solicit or entice away from the business, or attempt to do so, any person, persons, or entity who were a customer or employee of the business on a settlement date.

Sounds good in principal, however the Court heard:

[9] The applicants’ evidence is that … Mr Waterman has made disparaging remarks about Ms Mirabito and her husband Gavin Mirabito to both staff and customers. A key staff member …  says in her evidence that she heard Mr Waterman describe Mr and Mrs Mirabito as “dumb Aucklanders”, “useless”, incompetent, and destined to fail…

[10] The applicants say that during the vendor assistance period, Mr Waterman, far from assisting, used the period to try to reinforce customer loyalty to himself personally, including providing customers with his personal contact details, representing that he remained available for private work, and making disparaging comments to customers about the new owners of the business…

[11] … on 4 September 2025, [a witness] visited a customer whose worker referred to pulsators that Mr Waterman had arranged to supply to him. The worker told [the witness] that the arrangement was a cash deal and that the Mirabitos were not to know about it.

Mr Waterman denied all of this, saying:

[13] Mr Waterman disputes the applicant's evidence. He is 62 years old and says that he sold the business to retire. He denies making disparaging comments about the Mirabitos or making any statements that cast them in a negative light. He says that he wanted the sale to succeed and encouraged staff to give the vendors a go.

Justice MacGillivray ruled:

[33] Mr Waterman has had the full financial benefit of the sale of his business. He has received $362,000 of the total purchase price for intangible assets including goodwill.

[36] I grant an injunction in terms of … soliciting or attempting to solicit away from the business any person, persons or entity who was a customer of the business sold to the first applicant under the agreement.

Damages

Given Mr Waterman’s conduct, which the Mirabitos could not have anticipated when they agreed to buy his business, the substantive matter will likely look at the difference between the $362,000 the Mirabitos paid for intangibles including goodwill, and what it was actually worth since he has diluted the brand through - as the Court found - unfair competition and disparagement. 

Eventually, Mr Waterman may have to give up a large chunk of that $362,000 by way of a settlement, or a publicised judgment if settlement cannot be reached.

Not a great legacy, is it?

Tristam Price, Editor