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Thread: Restraint of trade question for ex-cc member

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    Restraint of trade question for ex-cc member

    Hi there

    I apologise for the length of this explanation - I am desperate for good advice, and would like to make it as clear as possible what I am facing.

    I was a 45% member in a cc (one other member) for five years, and left two months ago. The break-up of the partnership was difficult, as it always is, but we parted on pretty good terms.

    During the course of our partnership, I created a new department in the company to create multi-media products, usually original video productions. I wrote, produced and directed every single video that came through the company, and also sourced most of the clients that used this service. When I exited the cc, I took this department with me, including all the equipment. My ex-partner has absolutely no experience or ability in this area at all, and in fact, as part of the parting deal, it was decided that I will continue to produce videos for him.

    Several months before I left, I personally sought out new contact with someone from a company (Bookers) that works in our field. He saw my video productions, and was immediately interested in trying to expand one of his on-going non-profit projects with a video series. We met again with other interested parties, and it was decided that we would not be able to implement this project without corporate CSI funding. The 'project' remained an idea on hold, with no specific plans to move forward.

    I was then personally contacted by a major company (let's call them Giants) that has never been a client of ours, and that found us via our website, looking for a suitable CSI project. My partner was with me in that first meeting with Giants. They were not interested in our products, but seeing a match between them and the Bookers concept (which included my ideas for the video series), I pitched this to them. Giants then requested a preliminary proposal.

    As the production of a video series was the only aspect to this possible joint venture that our company could benefit from, and as I was the sole creative and production person, my partner took no part whatsoever in the intense research and planning that followed. I produced a massive thesis of a report in ten days, which I then presented along with Bookers. My partner had absolutely no input whatsoever to any stage of this, including presenting to Giants.

    Although the report received a positive response, we then heard nothing from Giants for months. This week, one month after I officially exited the cc, I received a call from Giants, with the news that international funding for the 7-year project has been approved, and would I please come in immediately.

    Now here's the rub - I made the mistake of telling my ex-partner, who is in severe financial trouble. I was planning to use HIS services, and also to pay him a substantial commission on the project, as a courtesy for the fact that I did this proposal while I was still his partner. He seemed happy - but a day later, began contacting both Giants and Bookers, trying to take over the project. When confronted, he informed me that he will 'manage' the project, and take 20% of turnover. When I asked him exactly what he would be doing for this 20%, he was unable to answer, and instead threatened me with both Restraint of Trade, and also his intention to go to Giants to stake his claim. That would obviously spook Giants and ruin it all for both of us... I offered to pay him a percentage provided that I have full control of the project, but he rejected this offer. That was simply to try to maintain the relationship, but it is now irretrievably broken down.

    Our associations agreement had a very vague restraint of trade clause that does not even mention video production. Giants has never been a client of his company, i.e. no contracts, billing or any other agreements have been entered into. There have only been 3 meetings with Giants, of which my partner was at one. All other relationship building and communications have gone through me. Also, as my ex-partner has no video production facility at all, nor any staff with that experience, surely he cannot stop me from plying MY trade?

    The numbers involved are fairly big for a single project, somewhere around R8 million over 6 years. I had no choice but to inform Giants that I am no longer with him, especially as he has been trying to get meetings with them. I fully realise that doing so may make them nervous, especially if he carries through on his threats to just turn up there (CRINGE). But I am pretty philosophical about that.

    I have suggested that the entire project be run by Bookers, who originated it long before I got involved, and that they then sub-contract to me or to the production company that I now work with as a supplier.

    So - (sorry again for the long read)

    - Can he apply any restraint of trade in these circumstances?
    - Can he take this project away from me?
    - Does he indeed have an automatic right to share in anything I do in perpetuity if I began it before I left the CC?
    - If I have any obligation to pay him out at all, how do I figure out what that is?
    And lastly, as a creative, does everything I created while in partnership belong to him, even if he was not involved? Does anyone know what recourse I have as far as intellectual property is concerned, particularly for ideas and proposals that were never actually carried out while I was in the cc?

    I'd be very grateful for any and all advice.

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    Will revert to-morrow if you still want advice
    Let us have the conversation!
    Blog: http://coginito.blogspot.com Cognito ergo sum

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    I've got a hunch you're going to need to hire a lawyer somewhere along the line in this one. May as well start now so that you don't trip up the case along the way.

    That said, and without a written restraint of trade in play (plus some aspects of your background info presented), your ex-partner can only really make a case against you if you solicit clients and known prospects. If Mr. Giant approached you, and you informed them of the split, and they decide to go with you anyway, your ex-partner can't sue you.

    What I'm not sure of is whether your ex-partner could sue Mr. Giant. Just how obliged is Mr. Giant to go with the legal entity that made the original pitch?

    Not sure, but it needs to be cleared up.

    My only other comment is make sure you're absolutely straight up and honest with Mr Giant and Bookers. This could well come down to who they trust. Be trustworthy and competent.
    The trouble with opportunity is it normally comes dressed up as work.

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    Thank you, Dave. I am heartened by the fact that I have done exactly as you advised, and told both Booker and Giant of the change. I had to write the emails out about five times before they sounded calm and businesslike! But I did.

    I realise that there is no way that such a long-term project can be sustained without my being honest and up-front, however scary that may be for the parties involved. At the end of the day, if they want my expertise, they'll work with me.

    I've also done some more research as far as restraint of trade is concerned, and it seems that any halfway binding restraint is usually conducted at the END of the relationship, and involves compensation for a specific restraint, i.e. loss of income to the party leaving. There is no such agreement in place for me.

    Yes, I would love to go to a lawyer, but my finances do not allow any such luxury right now...

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    Thank you - and yes please! I need all the help I can get right now!

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    Quote Originally Posted by McCaffrey View Post
    it seems that any halfway binding restraint is usually conducted at the END of the relationship, and involves compensation for a specific restraint, i.e. loss of income to the party leaving. There is no such agreement in place for me.
    That is my understanding of the matter too. It also needs to be very specific in terms of area for example. Your ex partner also needs to be in a position to enforce this restraint. If he's also struggling cash wise, that can be difficult.

    What was your ex partners role in the original cc? You seem to have done everything?

    As others have said, this is starting to sound a bit complicated and some legal advice may be required.

    My unprofessional answers on the limted details available would be that:
    - No he can't enforce a restraint of trade.
    - He can only take this project away from you by giving Giants a better offer or scaring them off all together. The decision on who to give the project to remains with them.
    - Does your ex partner now hold 100% of the original cc or has that since been liquidated? Ultimately the cc probably holds the rights on any creative work done for them whilst employed by them. Networking and proposals are unlikely to be included. I think you would only have an issue if it could be easily shown that you hooked the client whilst in the cc and then left in order to reap the benefits. The fact that the project was only awarded after you left leaves you okay here. Any work you do after you leave the cc is yours, provided you dont use their materials.
    - I can't at the moment see why he needs to be paid anything, unless you are leaving something out.
    - An "idea" is somewhat a grey area. But designs, video materials, artwork, etc will belong to the cc. Its difficult to comment on the proposal as I don't know what that really consists of.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by McCaffrey View Post
    Yes, I would love to go to a lawyer, but my finances do not allow any such luxury right now...
    Given the situation, I'm not sure I'd classify this as a luxury. A consult and opinion should come to something around R1k at a guess. At least phone a lawyer or two and get an estimate from them.
    The trouble with opportunity is it normally comes dressed up as work.

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    Diamond Member AndyD's Avatar
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    I've had limited first hand experience of restraint of trade agreements. To pass muster in a court they need to be specific. There needs to be a defined time frame for the restraint as well as a defined geographical area. The type of work needs to be defined as well and overall the restraint of trade agreement needs to be reasonable. If it basically completely stops you from earning a living then it won't hold water either.
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    difficult to enforce

    I agree with Andy D. most restraints are difficult to enforce especially if they're not clearly laid out.Even if they are there has to be "reasonableness" about them.i just cannot understand why you offered the 20% initially.that being said soliciting an attorney in this case with the amounts mentioned is NOT a luxury.
    my belief is that a stern note from an attorney specialising in these sort of "marriages" to your ex-partner to stop him from making any form of contact with the potential client with the threat of asking courts to enforce this should no notice be taken will put paid to your problems.
    You should be directing your energies to the potential contract & leave this in the hands of a competent attorney.
    forgive me if above sounds too pushy.

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    Arrow Restraint of trade question for ex-cc member

    In such a situation here are the basic keys:
    1. He who avers must prove
    By this is meant that as regards agreements always ask yourself the question; -when push comes to shove who is it that is forced to rely on an agreement?
    That person is going to have to prove it. In the absence of a written document, "my word against yours" rarely stands up unless the overall circumstances, especially the way we conducted ourselves supports my contention.
    2. Restraint of trade agreements, because they restrict human rights, have to be proved.
    3. Even when proved they have to be proved as regards their "reasonableness" especially as regards geographical application and period of application.

    I would strongly advise that you consider appointing a mediator who can also arbitrate the thing for the two of you. It is the most effective and cost effective route to take in these situations.
    What is good about it is that you don't need legal representation. You agree with the mediator/arbitrator on the process and you both agree to be bound by his/her ruling.
    That way you can get a decision that is fair, reasonable and accords with law at minimum expense and in reasonable time.
    Let us have the conversation!
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    McCaffrey (12-Dec-10)

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