Airmaster Corporation Pty Ltd v Mohtadi
[2022] VSC 822
•23 December 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
EMPLOYMENT AND INDUSTRIAL LIST
S ECI 2022 05157
| AIRMASTER CORPORATION PTY LTD (ACN 133 652 749) | Plaintiff |
| v | |
| MOHAMMED MOHTADI | Defendant |
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JUDGE: | Ginnane J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 December 2022 |
DATE OF JUDGMENT: | 23 December 2022 |
CASE MAY BE CITED AS: | Airmaster Corporation Pty Ltd v Mohtadi |
MEDIUM NEUTRAL CITATION: | [2022] VSC 822 |
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CONTRACT – Sale of business agreement – Employment agreement – Restraint clauses – Restraint of trade – Enforceability of covenants – Whether restraints reasonable – Interlocutory injunction granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Frenkel | O’Donnell Salzano Lawyers |
| For the Defendant | Ms E Tardos | Russell Kennedy |
HIS HONOUR:
The plaintiff, Airmaster Corporation Pty Ltd (‘Airmaster’), is an Australian company which carries on an integrated services business involving the supply of heating, ventilation and air-conditioning, refrigeration, building controls and fire protection equipment and services including maintenance services. It seeks interlocutory orders against the defendant, Mr Mohammed Mohtadi, including orders which would prevent him engaging in business activities which compete with Airmaster’s business in designing, installing and maintaining fire protection equipment and providing ancillary services known as ‘Specialised Fire Protection’ in Australia or seeking to obtain orders from, or to do business with, any person who is, or has been in the last 12 months, a customer of ‘Specialised Fire Protection’.
Mr Mohtadi founded the Specialised Fire Protection business in 2013 and was its Managing Director. He and his wife Ms Amar Mohtadi were ultimate owners of the company that owned that business. At completion of the sale, the Specialised Fire Protection business had about 43 staff, all of whom accepted Airmaster’s offers of employment, although some have since left and a few have commenced work with Pinnacle Fire Services Pty Ltd, with which, as appears below, Airmaster contends Mr Mohtadi has been involved while still its employee.
Summons
Airmaster’s summons seeks orders that:
1.Until the hearing and determination of this proceeding or further order, the Defendant, by himself or his servants or agents, is restrained from, directly or indirectly:
(a)engaging in a business or activity which competes with the Plaintiff’s business of designing, installing and maintaining fire protection equipment and providing ancillary services known as ‘Specialised Fire Protection’ (Business) in Australia, whether on his own account or as a consultant to or partner, agent, shareholder, director, financier or member of any other person or in any other way whatsoever;
(b)seeking to obtain orders from, or do business with, or encouraging directly or indirectly another person to obtain orders from or do business with, a person who is at the relevant time, or who has been in the 12 months period immediately preceding that time, a customer of the Business, in relation to goods or services ordinarily supplied by the Business;
(c)soliciting or persuading any person who has dealt with the Business to cease doing business with the Business or reducing the amount of business which the person would normally do with the Business;
(d)soliciting or contacting with a view to its or his engagement or employment by another person, a director, officer, employee or manager of the Business;
(e)inducing or attempting to induce any director, manager, contractor or employee of the Plaintiff (or any related body corporate of the Plaintiff) to terminate his or her employment or engagement with the Plaintiff or related body corporate of the Plaintiff; and
(f)using or disclosing confidential information of the Plaintiff, except in the following circumstances:
(i)the Plaintiff has given its prior written consent; or
(ii)to the extent required by law.
This is an interlocutory application and therefore the Court does not express a concluded view about the issues, either those of fact or as to the application of the law. The conclusions that I reach in this judgment are expressed for the purposes of this interlocutory application only and do not contain final conclusions about any matter considered.
This proceeding follows Airmaster’s purchase of the Specialised Fire Protection business from Z.A. Constructions Pty Ltd (‘Z.A.’) on 19 April 2021. Z.A. was controlled, and ultimately owned, by Mr Mohtadi and his wife, Ms Mohtadi. The purchase price paid was $10,253,745.24, including $5,116,741.69 attributed to good will, $3,369,000.00 to customer relationships and $290,000.00 to the brand name. Because of their ownership of Mazs Investment Group Pty Ltd (‘Mazs’), which was the sole shareholder in Z.A., that money, or at least the net sum after any liabilities had been paid, ultimately belonged to Mr and Ms Mohtadi.
The sale of the Specialised Fire Protection business was evidenced and implemented by two agreements, the first being the Sale of Business Agreement and the second the Employment Agreement. Under that latter agreement, Mr Mohtadi was to be employed as Specialised Fire Protection’s National Integrated Services Manager. He was paid a commencing annual salary of $225,000 with the potential for bonuses, together with the use of a fully maintained motor vehicle. The term of his employment was five years, although he had a right to terminate it on six months’ notice. In the Employment Agreement Mr Mohtadi agreed not to compete with the Specialised Fire Protection business for six months after the termination of the agreement. It can be inferred from the provisions of this Employment Agreement that Airmaster considered it important to maintain Mr Mohtadi in a significant position when it took over the business of Specialised Fire Services.
The restraints in the Sale of Business and Employment Agreements
Clause 19 of the Sale of Business Agreement contains the following restraint clause:
19. Non-competition
19.1 In this clause 19, the following words have the following meanings:
Restraint Area means:
(a) Australia;
(b) Victoria;
(c) The area within a 300-kilometre radius of the Business Premises;
(d) The area within a 200-kilometre radius of the Business Premises;
(e) The area within a 100-kilometre radius of the Business Premises;
Restraint Period means the period commencing on the Completion Date and ending on the date that is:
(a) 3 years after the Completion Date;
(b) 2 years after the Completion Date;
(c) 1 year after the Completion Date;
(d) 6 months after the Completion Date;
(e) 3 months after the Completion Date;
19.2During the Restraint Period, each of the Vendor and the Covenantor covenant with the Purchaser, that they shall not directly or indirectly, except with the prior written consent of the Purchaser:
(1)be directly or indirectly engaged in any business or activity which competes with the Business in the Restraint Area, whether on its own account or as a consultant to or partner, agent, shareholder, director, financier or member of any other person or in any other way whatsoever;
(2)either seek to obtain orders from, or do business with, or encourage directly or indirectly another person to obtain orders from or do business with, a person who is at the relevant time, or who has been in the 12 months period immediately preceding that time, a customer of the Business, in relation to goods or services ordinarily supplied by the Business;
(3)do or say anything which is harmful to the goodwill of the Business or solicit or persuade any person who has dealt with the Business to cease doing business with the Business or reduce the amount of business which the person would normally do with the Business;
(4)directly or indirectly solicit or contact with a view to its or his engagement or employment by another person, a director, officer, employee or manager of the Business; or
(5)induce or attempt to induce any director, manager, contractor or employee of the Purchaser (or any Related Body Corporate of the Purchaser) to terminate his or her employment or engagement with the Purchaser or Related Body Corporate of the Purchaser.
19.3The restraints contained in clause 19.2 are separate, distinct and several, so that the unenforceability of any one restraint does not affect the enforceability of any other restraint. The provisions of clause 19.2 have effect together as if they consisted of separate restraints, each being severable from the other. Each separate restraint results from combining:
(1)the undertaking in clause 19.2(1) with each period in the definition of Restraint Period and each geographic area in the definition of Restraint Area; and
(2)each undertaking in clauses 19.2(2) to 19.2(5) with each period in the definition of Restraint Period.
19.4Each separate restraint is severable from the other separate restraints. If a restraint is judged to be void, voidable, unenforceable or illegal by a court or tribunal because it goes beyond what is reasonable to protect the legitimate interests of the Purchaser and the Business or for any other reason, then that restraint will be severed and the other restraints shall remain in force.
19.5The Vendor and the Covenantor acknowledge that the value of the Business on which the Purchase Price has been assessed and accepted by the Vendor and the Purchaser is dependent upon the undertakings given in this clause 19, and that such undertakings are reasonable and have been given for the protection of the Purchaser in respect of value of the Business including associated Goodwill.
Mr Mohtadi is the Covenantor referred to in the Sale of Business Agreement. The restraints in that agreement bind Mr Mohtadi until April 2024, in 16 months’ time.
Clause 27 and Schedule B of the Employment Agreement set out his ‘Post-Employment Restrictions’ in the following terms:
27. Post-Employment Restrictions
27.1You will comply with the post-employment restrictions set out in Schedule B.
27.2The Employment is conditional upon you complying with the post-employment restrictions. You acknowledge that your remuneration under this Agreement incorporates consideration for the post-employment restrictions.
27.3You acknowledge that during the Employment, you have or will become possessed of Confidential Information regarding the business of the Company and the Group, clients and customers, and the disclosure or use of such information may materially harm the Company and the Group. You agree that the post-employment restraints contained in Schedule B are reasonable and necessary for the protection of the business of the Company and the Group.
Schedule B – Post-Employment Restrictions
1.In this schedule, the following words have the following meanings:
Restraint Area means:
(a)Australia;
(b)Victoria;
(c)The area within a 300-kilometre radius of the Location;
(d)The area within a 200-kilometre radius of the Location;
(e)The area within a 100-kilometre radius of the Location;
Restraint Period means the period commencing on the Completion Date and ending on the date that is:
(a)6 months after the Termination Date;
(b)3 months after the Termination Date.
2.During the Restraint Period, must not directly or indirectly, except with the prior written consent of the Purchaser:
2.1be directly or indirectly engaged in any business or activity which competes with the Business in the Restraint Area, whether on your own account or as a consultant to or employee, partner, agent, shareholder, director, financier or member of any other person or in any other way whatsoever;
2.2either seek to obtain orders from, or do business with, or encourage directly or indirectly another person to obtain orders from or do business with, a person who is at the relevant time, or who has been in the 12 months period immediately preceding that time, a customer of the Business, in relation to goods or services ordinarily supplied by the Business;
2.3do or say anything which is harmful to the goodwill of the Business or solicit or persuade any person who has dealt with the Business to cease doing business with the Business or reduce the amount of business which the person would normally do with the Business;
2.4directly or indirectly solicit or contact with a view to its or his engagement or employment by another person, a director, officer, employee or manager of the Business; or
2.5induce or attempt to induce any director, manager, contractor or employee of the Company (or any Related Body Corporate of the Purchaser) to terminate his or her employment or engagement with the Purchaser or Related Body Corporate of the Purchaser.
3.The restraints contained in clause 2 of this Schedule are separate, distinct and several, so that the unenforceability of any one restraint does not affect the enforceability of any other restraint. The provisions of clause 2 of this Schedule have effect together as if they consisted of separate restraints, each being severable from the other. Each separate restraint results from combining:
3.1the undertaking in clause 2.1 of this Schedule with each period in the definition of Restraint Period and each geographic area in the definition of Restraint Area; and
3.2each undertaking in clauses 2.2 to 2.5 of this Schedule with each period in the definition of Restraint Period.
4.Each separate restraint is severable from the other separate restraints. If a restraint is judged to be void, voidable, unenforceable or illegal by a court or tribunal because it goes beyond what is reasonable to protect the legitimate interests of the Company and the Business or for any other reason, then that restraint will be severed and the other restraints shall remain in force.
5.You acknowledge that the undertakings in this schedule are reasonable and have been given for the protection of the legitimate interests of the Company in respect of the Business.
Mr Mohtadi’s employment was terminated by an agreement that he made with Airmaster effective on 30 November 2022, that is about 19 months after he commenced the employment. The restraints in the Employment Agreement bind him until 30 May 2023.
Ms Mohtadi, Mr Mohtadi’s wife, who was a former employee of Z.A. in its Fire Services Protection business, accepted employment with Airmaster after the completion of the sale of the business and was employed as ‘Office Manager’ on a salary of $136,500. She resigned her employment with effect from 6 December 2022.
Airmaster’s evidence is that, after it took over the Specialised Fire Services business, it made substantial losses.
Airmaster contends that Mr Mohtadi breached the restraints contained in the Sale of Business Agreement and the Employment Agreement by his association with Pinnacle Fire Services Pty Ltd (‘Pinnacle Fire’). The sole director of that company is Mohamed Rabia Chaaraoui, who Airmaster alleges is Mr Mohtadi’s accounting advisor, including in connection with the Sale of Business Agreement and is Mr Mohtadi’s cousin. The interlocutory application was conducted on the basis that Pinnacle Fire conducts a similar business to Specialised Fire Protection.
Airmaster’s claims against Mr Mohtadi are principally related to conduct or actions that it alleges he engaged in from 9 May 2022 in connection with the conduct and management of Pinnacle Fire’s business. Airmaster’s statement of claim alleges that Mr Mohtadi:
(a) received reports as to the progress of work carried out by Pinnacle Fire at three separate sites from Stefan Szecheny, then an employee of Airmaster, but who later became an employee of Pinnacle Fire, and that he received reports as to payments from some Pinnacle Fire customers;
(b) had direct contact with Pinnacle Fire’s customers and responsibility for the provision of their fire certificates and any amendments to them that were required;
(c) attempted to conceal his involvement with Pinnacle Fire from Airmaster, by instructing others not to use his Specialised Fire email address when dealing with him in respect of the Pinnacle Fire business;
(d) had a Pinnacle Fire email address;
(e) used Airmaster’s resources during ordinary working hours for the performance of work for the benefit of Pinnacle Fire.
Mr Courtney’s affidavit
Airmaster’s case was based on the affidavit of a director, Mr Noel Courtney. Mr Mohtadi challenged the admissibility of parts of that affidavit. Parts of it were legitimately described as conclusory and hyperbolic and, to that extent, I have not taken them into account. I have also not taken into account the paragraphs that relate to Ms Cerra. I have only taken into account the parts of Mr Courtney’s affidavit which consist of background information or, at least for interlocutory purposes, provide relevant or potentially relevant evidence that may suggest that Mr Mohtadi may have breached the restraints in the Sale of Business and Employment Agreements.
Mr Main’s affidavit
Mr Mohtadi did not make an affidavit, but his solicitor Mr Michael Main did, and it was relied on for Mr Mohtadi’s opposing the application. Mr Main stated that his affidavit was made from personal knowledge except where he otherwise stated. He stated that where he deposed to matters based on information provided to him by others, he believed those matters to be true. He was instructed by Mr Mohtadi of matters including the following:
(a) that he, Mr Mohtadi, denied any previous or current involvement with the Pinnacle Fire business and he has never been, nor is currently, involved in its conduct and management;
(b) he has never had, and does not currently have, any email address at Pinnacle Fire. The email address with his name does not exist. An email address currently exists with a similar name, however that email address is spelt differently;
(c) he has never solicited work or employees from Airmaster to Pinnacle Fire;
…
(f) in emails dated 22 and 24 May 2022, Mr Mohtadi recommended ‘A Real Australian’ (‘ARA’) and Pinnacle Fire for a project at Highpoint because Airmaster was not the incumbent contractor and not eligible;
…
(i) for three months, June-August 2022, Mr Mohtadi was sent to South Australia approximately three times per week to ‘rescue’ the South Australian branch business. He subsequently discovered that Airmaster senior management had already made a decision to close the South Australian branch on 17 October 2022 and operate in South Australia through the Western Australian branch;
(j) he felt disappointed and mistreated and immediately went to Mr Noel Courtney to resign but was directed to speak to Mr John Colley to do so;
(k) he is currently unemployed and has no employment plans for the future;
(l) he plans to work pro bono for the National Fire Industry Association and Fire Industry Service starting in 2023;
(m) with his experience in the fire protection industry he hopes to re-join the industry in the future;
(n) he had no access to any confidential information of Airmaster whatsoever;
(o) he fears the making of an open ended interlocutory order, not confined by time and geography, which he considers would be unfair and unbalanced given Airmaster’s mistreatment of him and its breaches of the Sale of Business Agreement by not allowing him to fully integrate the former Z.A. business into the Airmaster company and allowing his role to be overseen by an Airmaster manager, Simon Rickard, in a negative fashion.
Mr Main also referred to some of the emails that Mr Courtney describes in his affidavit to establish that Mr Mohtadi breached the restraints by his involvement with Pinnacle Fire. I consider those emails next.
The emails Airmaster relied on to establish breaches of the restraints contained in the Sale of Business and Employment Agreements
Airmaster relied on four series of emails to establish Mr Mohtadi’s involvement in Pinnacle Fire’s business when he was still employed by Specialised Fire Protection.
Mr Courtney states that he has been informed by Sachin Mehra, Airmaster’s Chief Technical Officer, and believes that he undertook various searches of deleted items in Specialised Fire Business email accounts and he retrieved, either from system backups or Microsoft Active Logs, various emails which I refer to below. Mr Mohtadi raised doubts about the admissibility, provenance and authenticity of these emails. But, for the purposes of the interlocutory application, the Court is entitled to act on them. They are arguably admissible under s 161 of the Evidence Act 2008 as electronic communications which attract the presumptions that they were sent by or on behalf of the persons on whose behalf they appear to have been sent and were sent at the time, and from the place, which it appears from them to have been sent and were received at the destination to which it appears from the document to have been sent. Some of them appear to be emails using Specialised Fire Protection’s email account and, therefore, are arguably part of that businesses’ business records forming part of the records belonging to, or kept by, a person in the course of a business for the purposes of s 69 of the Evidence Act 2008. It may be arguable that the emails contain representations by persons who had, or might reasonably be supposed to have had, personal knowledge of the facts asserted in them within the meaning of s 69(2)(a).
I will consider the emails in the sequence that Airmaster’s counsel addressed them in submissions.
The emails of 9 May 2022
The first series of emails occurred on 9 May 2022 and concerned customers or projects. Airmaster contends that the emails show that Mr Szecheny, who later joined Pinnacle Fire, and Mr Mohtadi were working for Pinnacle Fire.
One email in particular, at 11.47am on 9 May 2022, from Mr Szecheny may be of significance. On its face it is sent to the defendant, Mr Mohtadi, and states:
If you need to know what was done at the Hammertime Jobs:
Thrift Park – missing a cap 25 sprinklers rough in fit off
Clarendon Centre – can you organise someone to come to install the caps. 8 sprinklers rough in fit off
Greenvale – Install smoker detector cap(s) 8 Sprinklers and a plug off a pipe. Jarrod will swing past tomorrow and install his detectors.
Opalia Plaza. Fit off 85 sprinklers.
On its face this email might lead to a conclusion that Mr Mohtadi was involved in the work of Pinnacle Fire because Hammertime was not a client of Airmaster.
Mr Main states regarding this email:
Fire Equipment Services (‘FES’) and Airmaster have a memorandum of understanding between them and do not compete. A long term friend of Mr Mohtadi asked for a cheaper option than FES and Mr Mohtadi recommended he try Pinnacle Fire.
It will be a matter to be determined after a trial whether that evidence explains the email from Mr Szecheny to Mr Mohtadi.
The emails of 15 July 2022
The second series of emails were dated 15 July 2022. The first on its face is an email from Mr Mohtadi, using the email address at Pinnacle Fire and directed to Hammertime and Mr Szecheny, stating:
Hi Guys,
Just wondering if there was any update on this invoice please.
This email appears to have been responded to on 28 July 2022 by a client of Pinnacle Fire, Hammertime, sending an email to Mr Mohtadi at his Specialised Fire Protection email, addressed to ‘Hi Mo’ stating that the invoice had been paid and attaching the receipt. As mentioned, Specialised Fire Protection was the name of Z.A.’s business.
Mr Main states that these emails were directed to Mr Mohamed Chaaraoui but mistakenly emailed to Mr Mohammed Mohtadi.
Again, this explanation raises a disputed question of fact which will have to be determined at trial.
The emails of 23 May 2022
The next emails on which Airmaster relied were dated 23 May 2022 and were from a client, a Mr Tony Tran, at Sharppoint, a customer, which was directed to an email address for the accounts at Pinnacle Fire and to Mr Mohtadi at his Specialised Fire address. The email was a request by Sharppoint for a fire certificate.
The following day Mr Tran of Sharppoint sent an email to an email address for accounts at Pinnacle Fire, and to Mr Mohtadi at Specialised Fire, stating:
Hi Mohammed
Surveyor wants more address detail to the certificate
Can you pls add:
[Address]
The emails of 14 June 2022
The fourth emails were on 14 June 2022 and were addressed to Mr Mohtadi at his Specialised Fire email address and to his brother, Jamel Mohtadi at Pinnacle Fire and concerned a job in Queens Road, Melbourne. Jamel Mohtadi replied to that email stating to the client, ‘You cannot cc us in this email’. At the bottom of that email is Mr Mohtadi’s email address at Specialised Fire.
Mr Main’s affidavit states that the emails copied both Pinnacle Fire and Airmaster in the same email and Mr Mohtadi informed the client that competing customer companies could not be included in the same email.
Consideration of the emails
In my opinion, these emails present an arguable case that Mr Mohtadi, the defendant, was involved in the business at Pinnacle Fire during the period that he was still employed by Airmaster. On one reading, they show that while employed at Airmaster, he received information about Pinnacle Fire’s business, as seen in the emails of 9 May 2022, had contact with Pinnacle Fire’s customers including providing fire certificates to them, as seen in the emails of 23 May 2022, and he received emails about Pinnacle Fire’s business on his Specialised Fire Protection email account, as seen in the emails of 23 May 2022. That involvement would breach both his covenants given and restraints agreed to in the Sale of Business Agreement. They may provide evidence that, at least, Mr Mohtadi was engaged directly or indirectly in an activity which competed with Airmaster’s business in the Restraint Area, cl 19.2, and in the case of the Employment Agreement being engaged, concerned or interested directly or indirectly in a business which is in, or related to, the industry in which Airmaster is concerned, cl 10.2. Whether the emails do have that character can only be assessed by the consideration of all the evidence that may be led at trial, including any evidence that Mr Mohtadi may give. It is not appropriate that I say anything more than that because this is an interlocutory application.
Alleged dealings with Airmaster’s Optus telephone accounts
The other allegation made by Airmaster that I will mention is that, in October 2022, Mr Mohtadi, who was the primary contact for Airmaster’s Optus mobile telephone accounts for the Specialised Fire Services, attended an Optus store and arranged for the telephone numbers of three Airmaster employees to be transferred to the Optus account of Pinnacle Fire without the authority or consent of Airmaster.
Airmaster relies on information obtained by Mr Rickard, its business manager, that three telephone numbers to employees accounts were transferred to Pinnacle Fire in October 2022 and that, as these were done in a store, would have required the primary contact and the current account holder to be present in the store. Mr Mohtadi was the primary contact.
Mr Main’s affidavit denies were any phone numbers were transferred from Z.A.’s Optus account to the Pinnacle Fire Optus account. Mr Mohtadi had approval from Airmaster’s managers to transfer the phone number of departing employees to the individuals’ personal accounts on a case to case basis. He transferred no phone numbers to the Pinnacle Fire Business.
I consider that this factual dispute also gives rise to a serious question to be tried as to whether Mr Mohtadi breached the restraints in the Sale of Business Agreement by being engaged, directly or indirectly, in an activity which competed with Airmaster’s business in the Restraint Area and by directly or indirectly soliciting or contacting Airmaster’s employees to transfer to Pinnacle Fire, cl 19.2. In the case of the Employment Agreement, the evidence may show a breach, being that Mr Mohtadi was engaged, concerned or interested, directly or indirectly, in a business which is in, or related to, the industry in which Airmaster is concerned.
Legal issues
The legal principles applying to restraint clauses can be clearly stated by quoting the following passage from the Court of Appeal’s judgment in Just Group Ltd v Peck:[1]
A term in a contract, which is a restraint of trade (‘a restraint clause’), is presumed to be void as contrary to public policy.
The presumption may be rebutted if there are special circumstances that demonstrate the covenant to be:
(a) reasonable as between the parties; and
(b) not unreasonable in the public interest.
The test of reasonableness varies depending on ‘the situation the parties occupy and so recognising different considerations which affect employer and employee and independent traders or business men, particularly vendor and purchaser of the goodwill of the business’. A court takes a ‘stricter view’ of restraint clauses in employment contracts; and will more readily uphold a restraint clause in favour of the purchaser of the goodwill of a business than a restraint clause of an employer. In particular, a purchaser of a business is entitled to protect itself from competition by the vendor; but an employer is not entitled to protect itself from competition per se by an employee.
[1][2016] VSCA 334; (2016) 264 IR 425, [30]-[32].
The onus of proving the special circumstances from which the Court may infer ‘reasonableness between the parties’ is on the person seeking to enforce the covenant.
Mr Mohtadi submitted that the restraints were too broad and unrestricted extending through a cascading series of areas to all of Victoria or Australia. The restraints in the Sale of Business Agreement were also for various periods of time extending up to three years after completion, being 19 April 2024. The restraint in the Employment Agreement extended for periods of three or six months up to 30 May 2023, because Mr Mohtadi’s employment ended on 30 November 2022. If the injunctions are granted, Mr Mohtadi is effectively prevented from engaging in any business activity, whether directly or indirectly, which competes with Airmaster’s fire protection equipment business in the whole of Australia. It prevents Mr Mohtadi from doing business with any business that has been a customer of Airmaster for the preceding 12 months in all of Australia for an indeterminate period of time, even if that contact would not result in direct competition with Airmaster.
Mr Mohtadi pointed to the differences between the Sale of Business Agreement and the orders sought. He submitted that the grant of injunctions to enforce the restraints might, in effect, be final relief, because the restraints might have expired before the case was determined in court. But I consider that that is a consequence of the length of the restraints to which the parties have agreed and is also dependent on when the final hearing of the case occurs.
Mr Mohtadi submitted that the balance of convenience was against the grant of interlocutory injunctions as they would prevent him engaging in any business activity, whether directly or indirectly, which competes with Airmaster’s fire protection equipment business in Australia until this proceeding is determined.
Mr Mohtadi also submitted that Airmaster had not established that damages would not be an adequate remedy. He said that he had assets that could satisfy any judgment. Airmaster could not demonstrate a sufficient likelihood that it would succeed in establishing that the non-competition restraints in the agreements were reasonable as between the parties and not unreasonable in the public interest. Airmaster’s claims were based on speculative inferences from the material, much of which is inadmissible.
Analysis
In Southern Cross Computer Systems Pty Ltd v Palmer (No 2),[2] McDonald J quoted relevant authorities on the validity of restraint clauses upon the sale of businesses in the following passage:[3]
[2][2017] VSC 460.
[3]Ibid [6]-[8].
In Butt v Long, Dixon CJ identified the characteristics distinguishing the purchaser of the goodwill of a business from that of an employer seeking to restrain competitive activity by an employee. His Honour stated:
A distinction is drawn between the position of the purchaser of the goodwill of a business taking a covenant in restraint of trade from his vendor and the case of the owner of a business taking such a covenant from his servant or apprentice. The goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment and if the purchaser is to take over such goodwill with all its advantages it must in his hands remain similarly immune. Without, therefore, a covenant on the part of the vendor against competition, a purchaser would not get what he is contracting to buy, nor could the vendor give what he is intending to sell. The covenant against competition is therefore reasonable if confined to the area within which it would in all probability enure to the injury of the purchaser.
… As Judd J observed in Allison v BDO (NSW – Vic) Pty Ltd:
There can be no doubt that the purchaser of goodwill is entitled to reasonable protection of the goodwill. That is a matter which will be prominent in the mind of a court in deciding whether or not a restraint is enforceable.
The test of the reasonableness of a goodwill covenant therefore focuses upon what is necessary to protect the goodwill in the business which has been sold. In British Reinforced Concrete Co v Schelff, Younger LJ stated:
It is the business sold which is the legitimate subject of protection, and it is for its protection in the hands of its purchaser, and for its protection only, that the vendor's restrictive covenant can be legitimately exacted.
In my opinion, the Court should consider the Sale of Business and Employment Agreements together. It was an integral part of the Sale of Business Agreement that Mr Mohtadi would remain as a senior employee of the business and would have to give six months’ notice to terminate that employment. The restraints in the Sale of Business Agreement and Employment Agreement have to be viewed in that context.
I have taken into account the width of the restraints both in duration and geographic area.
However, I take into account the fact that Airmaster paid a substantial sum of money, in excess of $10 million, to corporate entities controlled by Mr and Ms Mohtadi for the sale of the business and its goodwill upon the terms contained in the agreements, including the restraints. That is significant in deciding whether there is a serious question to be tried that Airmaster may establish that the restraints were reasonable. The agreements did not prevent Mr Mohtadi working in the fire services industry, in the sense that they enabled him to, and anticipated that he would, continue working for Specialised Fire Protection, where he had worked for 14 years, under a new owner on a substantial remuneration package terminable upon six months’ notice. An assessment of the validity of the restraints in the Employment Agreement has to take into account that Mr Mohtadi entered into it as part of transaction to sell his business for $10.2 million. Mr Mohtadi initiated the termination of his contract. I do not accept for present purposes that much turns on the argument that Airmaster’s competitor was not Mr Mohtadi, but Z.A., as that appears to have been the corporation through which Mr Mohtadi conducted Specialised Fire Services, a business which he and his wife ultimately owned. He is obviously an experienced business man in the fire services industry. Despite the width of the restraints, taking the features of the agreements that I have mentioned into account, in my opinion, Airmaster has established a serious question to be tried that the restraints, even at their greatest extent, will be held to be valid. I consider that Airmaster has established a serious question to be tried that the lengths and areas of the restraints were reasonable as between the parties and not unreasonable in the public interest judged at the date of the Agreements.
I have previously in this judgment concluded that Airmaster has established that there is a serious question to be tried that Mr Mohtadi has breached the restraint clauses.
The balance of convenience factors are important when someone is kept out of their normal area of business or employment, in this case perhaps for a period of 16 months. On the other hand, I accept that it may be difficult for Airmaster to prove what damage it has suffered by any breach of the restraints. I accept Mr Courtney’s evidence for the purposes of this interlocutory application that the losses to Airmaster’s business may be difficult to ascertain and may be difficult to connect to any breaches of the restraints. I do not consider that damages would be an adequate remedy.
I therefore consider that the balance of convenience favours the grant of an interlocutory injunction.
Other matters
Mr Courtney’s affidavit contains allegations of unauthorised data access and deletion of data by other employees of Airmaster and about another employee who, it is suggested, was paid for work that he did not perform for Airmaster. These allegations were not pressed as part of Airmaster’s claim for interlocutory orders. Nor were claims pleaded in Airmaster’s statement of claim against Mr Mohtadi for breach of statutory or equitable duties.
Nor do I place weight on Mr Mohtadi’s claims that he may a cause of action against Airmaster for breach of the Sale of Business Agreement. Apart from some references in Mr Main’s affidavit about these claims, there was no significant detail of them.
Conclusion
Upon receiving the usual undertaking as to damages, I will grant Airmaster an interlocutory injunction against Mr Mohtadi in the terms sought in the summons with two modifications. First, it will be expressed to last until the determination of this proceeding or further order, or 19 April 2024, whichever first occurs. Secondly, the injunction will be expressed to not apply to conduct engaged in with the ‘prior written consent’ of Airmaster.
I do consider that, if either party wishes it, the Court should attempt to give the matter a speedy hearing so that it may be determined during the next year, perhaps even the first half of next year.
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