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Birdanco Nominees Pty Ltd v Money

Birdanco Nominees Pty Ltd v Money

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Case Copied 4 April 2012 44 min read

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SUPREME COURT OF VICTORIA

COURT OF APPEAL

BIRDANCO NOMINEES PTY LTD (ACN 009 321 377)	S APCI 2010 0149
BIRDANCO NOMINEES PTY LTD (ACN 009 321 377)	Appellant
v
LIAM PAUL MONEY	Respondent

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JUDGES	MAXWELL P, REDLICH JA and ROBSON AJA
WHERE HELD	MELBOURNE
DATE OF HEARING	12 September 2011
DATE OF JUDGMENT	4 April 2012
MEDIUM NEUTRAL CITATION	[2012] VSCA 64
JUDGMENT APPEALED FROM	[2010] VCC 1495 (Judge Anderson)

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CONTRACT – Restraint of trade – Penalty – Contract of employment between appellant firm and respondent trainee accountant – Restraint clause prohibiting employee from providing accounting services post-employment to clients of firm to whom he had provided services while employed there – Liquidated damages payable in event of breach – Amount of damages based on firm’s earnings from former client – Respondent left firm and provided services to former client of firm – Whether restraint clause breached – Whether restraint clause unreasonable restraint of trade – Whether liquidated damages clause imposed penalty – Clause enforceable – Damages recoverable – Appeal allowed.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr M G Rinaldi	Russell Kennedy
For the Respondent	Mr D V Aghion	Sackville Wilks

MAXWELL P:

I have had the advantage of reading in draft the reasons for judgment of Robson AJA. I, too, would allow the appeal and make orders in the terms which his Honour proposes. Subject to what follows, I would do so for the reasons which his Honour gives.

Restraint clauses of the kind in issue here have a long pedigree. It is well established that those who carry on a business of providing professional services are entitled to impose restraints on their employees, directed at protecting the goodwill of the business following the departure of an employee. In 1921, in Fitch v Dewes,[1] the House of Lords upheld a provision in the contract between a solicitor and his former articled clerk (subsequently, managing clerk), which restrained the clerk from carrying on the profession of solicitor in the same district.
[1][1921] 2 AC 158.

Sixty years later, in Sharah v Healey,[2] McLelland J relied on Fitch v Dewes[3] in upholding a like restraint contained in the partnership agreement of a firm of solicitors. His Honour said that there were

innumerable cases in which a covenant or agreement restraining a solicitor from acting as such in a particular area or for particular clients has been enforced.

McLelland J quoted the statement by Sir George Jessel MR in May v O’Neill[4] that
there is nothing against the public interest in a clerk’s agreeing not to take away the clients from his master.

[2][1982] 2 NSWLR 223.

[3][1921] 2 AC 158.

[4](1875) 44 LJ Ch 660, 661.

His Honour then set out the following extracts from the speeches in Fitch v Dewes,[5] which helpfully elucidate the basis on which such restraints are justified: Lord Birkenhead LC said:
Indeed I am of opinion that it is in the public interest that a proper restrictive agreement of this…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2012] VSCA 64
Decision Date: 4 April 2012

CaseChat Overview and Summary

Birdanco Nominees Pty Ltd was the appellant and Money, a trainee accountant, was the respondent in this case before the High Court of Australia. The dispute centred around an employment contract which contained a restraint of trade clause, prohibiting the respondent from providing accounting services to clients of the appellant firm post-employment if he had provided services to them while employed there. The clause also stipulated a liquidated damages amount payable in the event of a breach, calculated based on the firm’s earnings from the former client.

The central legal issues before the court were whether the restraint clause was breached, whether the clause constituted an unreasonable restraint of trade, and whether the liquidated damages clause imposed a penalty. The court needed to determine the enforceability of the clause and the recoverability of the stipulated damages under the clause. The respondent argued that the clause was an unreasonable restraint of trade and that the damages clause imposed a penalty, making it unenforceable. The appellant, on the other hand, contended that the clause was a reasonable restraint of trade and that the damages clause was a legitimate attempt to quantify loss.

The court held that the restraint clause was indeed breached by the respondent. It found that the clause was not an unreasonable restraint of trade, as it was necessary to protect the legitimate business interests of the appellant. The court reasoned that the restraint was limited in time, geographical scope, and the nature of the activities restricted, making it reasonable. Furthermore, the court determined that the liquidated damages clause did not impose a penalty but was a reasonable estimate of loss, thus enforceable. The damages were recoverable based on the firm’s earnings from the former client. Consequently, the appeal was allowed in favour of the appellant.

Orders