Birdanco Nominees Pty Ltd v Money

[2010] VCC 1495

IN THE COUNTY COURT OF VICTORIA Revised

(Not) Restricted

AT MELBOURNE
CIVIL DIVISION

COMMERCIAL LIST – EXPEDITED CASES DIVISION

Case No. CI-10-00958

BIRDANCO NOMINEES PTY LTD	Plaintiff
v
LIAM PAUL MONEY	Defendant

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JUDGE:	HIS HONOUR JUDGE ANDERSON
WHERE HELD:	Melbourne
DATE OF HEARING:	25-29 October 2010
DATE OF JUDGMENT:	9 November 2010
CASE MAY BE CITED AS:	Birdanco Nominees Pty Ltd v Money
MEDIUM NEUTRAL CITATION:	[2010] VCC 1495

REASONS FOR JUDGMENT

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Catchwords: Employment contract – 19 year old trainee accountant – Duress – Restraint

of trade clause – Liquidated damages.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Rinaldi	Russell Kennedy
For the Defendant	Mr D Aghion	Sackville Wilks
HIS HONOUR:

1 trainee accountant with Bird Cameron, Chartered Accountants. Mr Money was
required to sign a written contract of employment. The contract contained a restraint
of trade clause which governed the employee’s conduct for a period of three years
after the cessation of employment. The contract made it a breach by the employee, if
he were to later provide defined accounting services to a person who had been a
client of Bird Cameron, and for whom Mr Money had provided accounting services
during the three years before his employment ceased. In the event of such a breach
of the employment contract, it was provided that the employee must pay as liquidated

Liam Money was aged 19 in January 2003 when he commenced employment as a full financial year in which the client” had remained a client of Bird Cameron.

2           Mr Money was employed by Bird Cameron for over six years. In that time, he was promoted to the position of supervising accountant although he did not complete the study required to obtain formal accounting qualifications. Mr Money’s responsibilities included the preparation of income tax worksheets and other preparatory material for the Szencorp Group of companies, a substantial client of Bird Cameron.

3           On 19 April 2009, Mr Money tendered his resignation to Bird Cameron in order to take up part-time employment three days a week with the Szencorp Group. Mr Money left Bird Cameron on 23 June 2009. On 24 June 2009, he commenced with a firm of accountants, Benjamin King Money, working two days a week. He started with Szencorp Group on 13 July 2009.

4           In August 2009, the Szencorp Group sought a quotation from Bird Cameron for the continued performance of accounting services for the following 12 months. In September 2009, a similar quotation was requested from Benjamin King Money. Bird Cameron’s quotation dated 17 September 2009 totalled $144,760. Benjamin King Money’s quotation dated 21 September 2009 totalled $71,500. The Szencorp Group terminated its retainer with Bird Cameron and engaged Benjamin King Money to perform the necessary accounting services for the year 2009/10.

5           Between December 2008 and about April 2009, the performance of the accounting services by Bird Cameron for the Szencorp Group had been affected by the illness of Ms Cathy Demenna, the principal accountant at Bird Cameron responsible for overseeing the Szencorp Group account.

6           In the proceeding, Bird Cameron claimed a sum equivalent to 75 per cent of the fees of the Szencorp Group (and certain other smaller clients) for the year to 30 June 2009, they being clients for which Mr Money continued to do work at Benjamin King Money following the termination of his employment with Bird Cameron.

7           The issues raised by Mr Money in his defence were as follows:

a.	the meaning and scope of the phrase “the Services” in the employment contract;
b.	the employment contract was signed by him in circumstances which amounted to duress, and as a consequence the contract was unenforceable;
c.	the restraint of trade clause in the contract was unenforceable as the restraint was not reasonable protection of Bird Cameron’s interests;
d.	the restraint clause had no application because of an exclusion in the contract which operated if Bird Cameron were “unable or were unwilling to provide” the accounting services to the relevant clients after the termination of Mr Money’s employment;
e.	the liquidated damages clause was unenforceable as a penalty as the calculation of damages, by reference to 75 per cent of fees in the last full financial year, was not a genuine pre-estimate of loss.

The circumstances of the execution of the employment contract

8           Mr Money was born on 22 July 1983. After leaving school, he started an accounting course at university. He withdrew from the course after a few months. Later in 2008, he was offered a job with Bird Cameron by Mr Cameron Watson. Mr Watson had

formerly been a partner with Mr Money’s father, Mr Paul Money, in the firm Benjamin
King Money.

9           A letter dated 17 December 2008 offering the employment to Mr Money is in evidence. Mr Money did not recall receiving the letter. The defendant’s records note that the letter of offer was sent to Mr Money on 17 December 2002 by an employee in the defendant’s Sydney office. The letter included the following statement, “As a

condition of your employment, you will be expected to sign the standard RSM Bird Cameron employment agreement. This agreement forms the basis of maintaining goodwill between the firm and staff and has been completed by all current

employees. Three copies, one for your retention, will be given to you upon

commencement”.

10 immediate supervisor. He inducted Mr Money and discussed with him matters of
office procedure. Mr Money was given a “welcome pack” which included a Tax File
Number declaration form, documents relating to superannuation and the disclosure of
his bank account details and the employment contract. Mr Money said that he read
the employment contract a number of times but could not understand parts of it,
including the liquidated damages clause. Mr Watson told him that the contract was

Mr Money started work on 13 January 2003. Mr Watson was his manager and Money did not ask him about it. Mr Money left the contract on his desk overnight. He did not take it home or discuss it with his father.

11         Mr Money said that the following day, the Office Manager Ms Yvonne Lockwood, came to his desk, pointed at the employment contract and said, “You had better return that form or you won’t be paid”. Mr Money said that on the previous day he had

completed the Tax File Number and bank account details forms and returned them to he did not understand it and did not want to sign it. Following his conversation with Ms Lockwood, Mr Money said he signed the employment contract and Mr Watson had witnessed his signature. He said that after Ms Lockwood’s threat he took it that he would not be paid if he did not sign the document.

12         Ms Lockwood gave evidence that she remembered Mr Money commencing his employment. She said she had never discussed his employment contract with him and did not recall seeing the employment contract. She said she had no recollection of the conversation alleged in the defence that she had said to him “words to the effect of: ‘You had better return that form or you won’t get paid’.” She said that she thought that she would have recalled Mr Money raising the issue of his employment contract as that was outside her role, as she only had responsibility for the Tax File Number and bank account details forms.

13         Ms Lockwood said that she was not involved with the “welcome pack”, except for the documents contained in it which were her responsibility. If the Tax File Number or bank details documents were not returned by a new employee, she would go to that employee and ask them to send them on to Bird Cameron’s Human Resources Department which was in Perth. Ms Lockwood said that usually the forms in the welcome pack were handed back to the employee’s manager.

14 document, a “Commencement Action Worksheet”, apparently completed by the
defendant’s Human Resources Department, notes that the “Welcome Package”
containing the “Employment Agreement, Banking Details, etc.” was “sent” on 10
January 2003. The second document is a form headed “Induction Feedback from
New Employee”. The document is signed by Mr Money. It notes the “date of
commencement” and “date of induction” as 13 January 2003, and that Mr Money’s Apart from this oral evidence, there are two relevant documents in evidence. The first were probably placed on the form when it was prepared, although Mr Money said that he had signed the document on 13 January.

15         The document required the new employee to tick a number of boxes indicating that certain information had been covered during the induction process. All boxes were ticked including the last two, which read as follows: “Did you understand everything in

the ‘welcome pack’ from the NT & HR – Perth?” and, “Have you completed forms for tax/pay etc in welcome package and returned them to NT & HR – Perth?”. Beside the place for the employee’s signature, the document contained the words: “When

completed please return to National Human Resource Division – Perth”. In his
evidence, Mr Money said that he took the phrase “welcome pack” in the questions on
the induction feedback form as being limited to the Tax File Number and other “pay”
forms.

16         It is necessary for me to consider whether on the evidence in this case:

a.	there was a threat or implied threat which amounted to illegitimate pressure on Mr Money to execute the contract;
b.	whether that pressure was a cause of Mr Money entering into the contract.

17         The events relied upon occurred over seven years ago. It is likely that the commencement of his employment would have been of more significance to Mr Money than to Ms Lockwood. The employment contract was signed on 14 January, which supports Mr Money’s contention that he had concerns with the contract because he could not understand it. On the other hand, he signed the induction feedback form without qualification. He did not raise any concerns about the contract with either Mr Watson or Ms Lockwood. He did not take the contract home to discuss it with his father.

18         The concerns he said he had in executing the employment contract were not raised at any time prior to the filing of a defence in the proceeding. They were not raised in discussions with the National Chairman of Bird Cameron, Mr Kimbley Hutchinson,

when they discussed the dispute following the termination of Mr Money’s
employment. In Mr Money’s defence, it is alleged that Ms Lockwood “said to him
words to the effect of ‘you had better return that form or you wont get paid’”, although
that qualification “words to the effect” was not stated when Mr Money gave his
evidence.

19         I am not satisfied that Mr Money has met the onus upon him of establishing that a threat was made which constituted illegitimate pressure upon him to execute the employment contract. In certain circumstances, a threat that an employee’s employment would not continue if a document were not signed would be capable of constituting a threat and illegitimate pressure. However, in the present case, I have disputed oral evidence of events which occurred many years ago. Mr Money’s explanation concerning the responses in the induction feedback form are unconvincing and his oral evidence is inconsistent with those responses. Further, there were opportunities available to him, particularly in discussion with Mr Watson during the induction process, and privately with his father, who was an experienced accountant, to raise matters if they were of concern to him. If he had serious concerns about the employment contract, it is surprising that he took none of these steps and made no complaint until after the present proceeding was issued.

20         In the circumstances, I do not consider that the basis for the plea of duress has been made out.

The employment contract – meaning of “the Services”

21         A critical matter of interpretation of the employment contract relates to the use of the phrase “the Services”. The phrase occurs in the following parts of the agreement:

a. the recital, which reads: “WHEREAS the Company carries on the practice of

chartered accountants, taxation agents, business adviser and activities of a

related nature (‘the Services’) in Western Australia and elsewhere in Australia

under the name of Bird Cameron and otherwise”;

b.	in clause 5(a), which reads: “Not on my own account, or for any other person,
for a period of three years after ceasing employment with the Company, to provide any of the Services to either:
(i) any person who as a client of the Company was provided with any of the Services by me at any time during the three years prior to my ceasing to be employed by the Company, and who was a client of the Company at

the time of my ceasing employment with the Company…”;

c. in clause 5(c), which reads: “The negative covenant in paragraph (a) shall not

apply to providing any of such Services for any person where the Company is

unable or unwilling to provide”;

d.

in clause 5(d), which reads: “Should I breach either of the covenants in

paragraph (a) of this clause, I agree to pay as Liquidated Damages a sum has suffered through loss of the business of the particular client. For the purpose of this clause ‘fees incurred’ means the total amount chargeable to equal to 75% of the fees incurred by the client with the Company for Services rendered by the Company in the last full financial year in which the client remained a client of the Company, without prejudice to the right of the

the particular client inclusive of Goods and Services Tax”.

22         Mr Money’s counsel, Mr Aghion, submitted that “the restraint is clearly intended to

apply to professional practitioners, and not to undergraduates, trainees, clerks or other unqualified persons and that Mr Money had not provided such a service as might be provided by a professional practitioner or as may give rise to ‘a relationship

between client and accountant’ either during his employment with the Bird Cameron

or later when employed by Benjamin King Money or by Szencorp”. On the other
hand, Bird Cameron’s counsel, Mr Rinaldi, submitted that “the Services” related to
the performance of work on behalf of a client by an employee of the company which
constituted part of the practice carried on by Bird Cameron as “chartered
accountants, taxation agents, business adviser”.

23         The recital in the agreement is not as clear as it might be. The phrase, “the Services”, defines what it is Bird Cameron “carries on”. It is not appropriate in my view to limit the defined “Services” simply to work performed by a chartered accountant, a tax agent or a business adviser. Those three categories are preceded by the words, “the practice of”, and are followed by the words, “and activities of a related nature”. In my view, “the Services” means activities carried on as part of the practice of chartered accountants, tax agents, business adviser or of a related nature.

24         This interpretation is confirmed by reference to clause 5 of the agreement. The contentious parts of that clause which I have outlined above envisage that:

a.	the employee must “provide any of the Services” to a client prior to ceasing employment with Bird Cameron;
b.	the employee must provide any of the Services to the client after cessation of the employment, either on the employee’s “own account, or for any other person”;
c.	for the restraint clause to operate, Bird Cameron must be able and willing to continue to provide “any of such Services” to the client after the employee’s employment ceases;
d.	the liquidated damages is calculated by reference to “Services rendered” by Bird Cameron to the client, which includes the totality of the work performed whether by a qualified chartered accountant, tax agent, business adviser or by a person without any of these qualifications.

25         The definition of “the Services” therefore has significance in determining the circumstances in which the restraint clause and the liquidated damages clause would have operation.

26         I was referred to a decision of the Full Court of the Supreme Court of Western Australia inTaylor v C P Bird & Associates (9 November 1978). The Full Court upheld the judgment of the District Court in favour of the employer. The employment contract, in that case, was signed in February 1972 although the employee had commenced employment as a trainee accountant in 1968. The employee was required to sign the agreement as “a requirement of employment by the firm with partnership participation therewith”.

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Although the clause considered by the Western Australian courts in that decision was the same terms. The appropriate restraint was upon the employee after determination of employment performing “any tax or accounting services for any

person…which at any time during the course of the said employment shall have been

serviced by me as a client of your firm”.

28         Wickham J said at page 5 of his judgment: “I think that the word ‘serviced’ here

means the provision of recurring accountancy and tax consulting professional service
and advice, being such as to establish a relationship of client and accountant
between the client and the appellant, of a continuing or recurring kind rather than only
of a casual nature, and being such as to create for the appellant an element of

personal goodwill with an understanding of the client’s affairs”. Similarly Smith J, at page 2 of his judgment, adopted Wickham J’s interpretation of the word “serviced” and rejected an interpretation which would have given the restraint clause application

to “people serviced by the appellant during the period of his employment with the
respondent”, which Smith J said was an interpretation which could not “be supported

as being reasonably necessary for the protection of the respondent’s legitimate

interests”.

29         The circumstances of the employee, Mr Taylor, appear to be different than the circumstances of Mr Money in January 2003 and whilst the interpretation of the words “serviced by me as a client of your firm” may have been appropriately limited

to clients where a professional relationship was established, there is no warrant in the
present case for regarding that as the intention of the parties to the contract.

30         Further, it is not possible in my view to suspend the operation of the restraint clause until, for example, Mr Money was performing accounting services of a particular kind which established a relationship of client and accountant between the client and the employee or were to be regarded of “a continuing or recurring kind rather than only of

a casual nature” and therefore creating “an element of personal goodwill with an
understanding of the client’s affairs”. This interpretation must, in my view, be rejected
for the same reason that Mr Aghion’s submission that “the Services” should be
restricted to services provided by a qualified chartered accountant, tax agent or
business adviser, should also be rejected.

Contract of employment – reasonableness of the restraint

31         There was no issue in the present case that:

a.	clause 5(a) involved a restraint of trade, as it restricted the persons for whom Mr Money might perform certain work after the termination of his employment with Bird Cameron;
b.	Bird Cameron had a legitimate interest in protecting the goodwill which developed with its clients as a result of its employees performing accounting services;
c.	in respect of the Szencorp Group (and certain other clients), Mr Money had performed accounting work for those clients during the period of 12 months prior to him ceasing his employment with Bird Cameron and had performed accounting services for those clients on behalf of Benjamin King Money,

during the period of 12 months after he ceased his employment with Bird

Cameron;

d. the Szencorp Group (and other relevant clients) were clients of Bird Cameron when Mr Money ceased his employment with the company.

32         In the circumstances, it is necessary to determine whether the restraint provided in clause 5(a) can be justified having regard to Bird Cameron’s legitimate interest in the goodwill comprised by its client base. To determine this question, it is first necessary to examine the nature of the restraint provided for in clause 5(a):

a. as to time, the restriction was “for a period of three years after ceasing employment” with Bird Cameron and applied if Mr Money had provided services to the client “at any time during the three years prior to my ceasing to

be employed”;

b.	there was no specific restriction as to location, although the restraint clause was limited to the provision of services to particular clients to whom Mr Money had provided services;
c.	as to the type of activity restrained, Mr Money was restrained from providing the defined services if he had provided services to that client. I have previously discussed the meaning of the phrase “the Services”. The restraint clause was silent as to the extent of services which must be provided to the client, either before or after the cessation of employment, in order for the clause to operate;
d.	as to the capacity in which the services were provided, the clause included services provided during employment with Bird Cameron and services provided after the employment ceased on Mr Money’s “own account, or for any other person”;
e.	the client of Bird Cameron to whom services were provided, both before and after the cessation of employment, must be “a client of the company at the time of my ceasing employment with the company”.

33         Adopting the interpretation I have of the extent of the restraint clause, it follows that Mr Money later carried out work for former clients of Bird Cameron in circumstances in which he would be regarded as having breached the restraint of trade clause.

34         After more than six years with Bird Cameron, Mr Money had become a supervising accountant and performed his work only subject to review and “signing off” by the principal accountant of his section, Ms Demenna. Mr Money had established a close relationship of “client and accountant” with the financial controller of the Szencorp Group, Ms Sophie Davis, and the relationship was “of a continuing or recurring kind” (to use the phrases of Wickham J in Taylor v C P Bird & Associates).

37

35         It might also fairly be said that this type of relationship was reasonably foreseeable, even at the commencement of Mr Money’s employment as a trainee accountant, and that some form of restraint was reasonable to protect Bird Cameron’s goodwill in the clients for whom he performed work. On the other hand, the restraint must be no wider than is reasonably necessary to protect the employer’s legitimate business interests and “a restrictive interpretation of general words is not to be adopted simply to save a covenant or agreement from invalidity”, per Dixon CJ in Butt v Long (1953) 88 CLR 476 at 487. It is necessary to consider the operation of the clause at the date the employment contract was entered into and having regard to the circumstances which existed, or which might reasonably have been foreseen at that time.

36 would also cover a very different fact situation. For example, in his first year as a
trainee accountant in 2003, Mr Money may have performed work of a limited
although not trivial nature for a client of Bird Cameron. The client left Bird Cameron in

It is clear, however, that the interpretation I have adopted in relation to clause 5(a) the client totalling $200,000. In 2005, and without progressing beyond his position as a trainee accountant, Mr Money left the employment of Bird Cameron. In the next year or so, he took up a position as an employee accountant with another employer. The client remained with Bird Cameron until the second half of 2006 when it terminated the retainer and engaged Mr Money’s new employer as its accountants. Perhaps by that time a restructure of the affairs of the client had meant that the extent of the accounting services it needed were somewhat less.

In 2007, for his new employer, Mr Money performed accounting services for the The further accounting services were not trivial but on the other hand were not extensive and the fees rendered by his employer were a fraction of the fees rendered by Bird Cameron for the year ended 30 June 2004. I will return to this example when discussing the liquidated damages clause. However, the example does indicate that the restraint clause would, unless read down, have an operation in circumstances which might go far beyond what is reasonable to protect the employer’s legitimate business interests. Further, I do not regard these circumstances to be “improbable” or “unlikely” when judged at the time the employment contract was entered into.

38         Mr Rinaldi’s primary submission as to the reasonableness of the restraint of trade clause was that it was necessary to have regard to the whole of clause 5, and the fact that the clause also provided for the calculation of liquidated damages. Mr

Rinaldi submitted that, in the circumstances, the clause was “akin to and analogous to a sale of business type contract” and his client was simply offering to Mr Money the position that, “if you do breach it, rather than arguing about reasonableness and

damage and mitigation and all of those issues, we will agree that if you breach it you effectively buy the clients and if you buy the clients you agree to pay 75% of the fees incurred by the client with the company for services rendered by the company in the

last full financial year”.

39         In Tropeano v Riboni [2005] VSC 229, Gillard J stated at paragraph 89, “The law

draws a distinction between the types of restraint and, in respect of the sale of a
business, the courts consider the restrictive provision in a much less strict way than

in relation to a restrictive covenant in an employment contract”. Nevertheless, I do not
consider that this statement of principle has any application in the present case.

40         I do not accept Mr Rinaldi’s submission. The employment contract was between an 19 year old trainee accountant on the one hand and a “nationally based second or third tier chartered accountancy firm” on the other. As Gillard J said further in

Tropeano at paragraph 89, “The time to determine whether or not the restraint is void

is the date of the contract, with the court attempting to make an estimate of what the

future would hold”.

41         In my view, Mr Rinaldi’s submission is based upon the assumption that after the cessation of employment, it is reasonable for an employer to protect its goodwill in its clients by regarding an employee who chooses to provide services to former clients of his former employer as doing so at his own risk and fully aware of the financial consequences. This, it was said, quite reasonably involved a notional purchase of those clients’ fees at a price which was said to be somewhat less than market value.

42         In my view, the restraint goes far beyond what is reasonable to provide adequate protection to Bird Cameron’s legitimate business interests and cannot therefore be justified. A person in the position of Mr Money would be prevented from taking up employment with a prospective employer who may require him to do some work for a client for whom he had performed some work whilst at Bird Cameron years previously. I am conscious that the decision I have reached may seem at odds with previous cases to which I have been referred. These are BPM Pty Ltd v Douglas, a decision of Yeats DCJ in the District Court of Western Australia on 2 October 1998, and two related cases of Chamberlain and Cross; the decision of Taylor, to which I have already referred; and BPM Pty Ltd v Triggs, Ong & Sankey, a decision of His Honour Judge McInerney in this Court on 13 September 1996.

43         I have already indicated the basis upon which I consider that Taylor may be distinguished from the present case. There are factors in the other cases which do not, in my view, make them analogous to the present proceeding. For example, in each of the cases, the relevant employment contract was entered into at a more advanced stage of the employee’s career or the employee was required as a condition of their continued employment, to enter into a new employment contract with different restraint clauses. That option would always have been available to Bird Cameron in the present case as the type of work Mr Money performed changed and the activities he carried out involved the establishment of a relationship of client and accountant of a continuing or recurring kind. Even if those different facts were considered not to justify the different conclusion that I have reached, I am unpersuaded that I should adopt the reasoning of the learned judges in the cases to which I have been referred.

the time of the making of the contract, not as at the time of the breach”, (per Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86, quoted with approval in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ).

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practices from Mr Hutchinson, National Chairman of Bird Cameron, from Mr Jonathon Easton, a director and partner of Bird Cameron, and from Ms Michelle Knights, who gave expert evidence on behalf of Bird Cameron as a person with experience in the sale of accounting practices and the evaluation of the goodwill of those practices. Their evidence supported the conclusion that as at January 2003, 75 cents in the dollar was less than what would be regarded as a reasonable price for the acquisition

The employment contract – liquidated damages

44         If the restraint clause applies to Mr Money, Bird Cameron seeks to claim liquidated damages calculated in accordance with clause 5(d) rather than to prove its actual loss. There is no dispute between the parties that the plaintiff’s loss calculated in accordance with the liquidated damages clause was the sum of $188,495.65. This was calculated essentially as 75 per cent of the fees incurred in respect of the Szencorp Group, and the other relevant smaller clients, for the financial year ended 30 June 2009. The liquidated damages clause would be unenforceable if it were established that the liquidated damages were not a genuine pre-estimate of Bird Cameron’s loss and damage. This issue “is a question of construction to be decided

upon the terms and inherent circumstances of each particular contract, judged as at

There was evidence about the usual sale price of fees of clients in accounting in the range of 80 cents to $1.00. In the circumstances, Mr Aghion conceded that 75 cents in the dollar was a reasonable pre-estimate of the price to acquire a parcel of fees of clients of an accounting practice.

46         Mr Aghion relied, however, upon expert evidence given by Mr Mark Lipson, a chartered accountant with experience in the sale of accounting practices and the valuation of goodwill in those practices. Mr Lipson, had examined factual matters relating to the Szencorp Group and the value of its fees to Benjamin King Money and compared the likely losses to Bird Cameron based on those facts with the sum to which Bird Cameron would be entitled as liquidated damages. Firstly, there had been a change in the scope of works in the year 2009/2010 as Mr Money was working in- house at the Szencorp Group and was able to perform much of the preparatory material which was then sent to the accountants for the preparation of financial statements and tax returns. The quotations by Bird Cameron and Benjamin King Money make it clear that substantially less work would be involved in the period immediately following the cessation of Mr Money’s employment with Bird Cameron than had been the case for the last financial year for which Bird Cameron provided accounting services to the Szencorp Group.

47 proportion of the relevant clients, 75 cents in the dollar was not an appropriate
valuation as there were considerable risks to a purchaser of a parcel of fees
dominated by a single client. It was difficult for me to judge whether Mr Lipson’s risk
analyses had any real basis other than the general logic involved in the concept of

Secondly, it was said that because the Szencorp Group comprised a substantial experience and were not derived from academic studies or any other objective data.

48         In the circumstances, I find it difficult to accept his evidence in this regard and to conclude that the liquidated damages are out of proportion to the employer’s actual loss. However, I consider that these are the sorts of matters which might be taken into account when considering, at the time of the making of the employment contract, the possible future losses if a breach of the restraint of trade clause were to occur. It would be reasonable in those circumstances to take account of matters such as a possible change in the scope of works or the possibility that an employee accountant may provide services to only a limited number of an accounting practice’s wider range of clients.

49         I am not, however, satisfied that the liquidated damages clause should be regarded as a genuine pre-estimate of Bird Cameron’s loss and damage. I consider that this conclusion follows from the analysis I made of the breadth of the restraint clause and

the circumstances in which it might operate. The time frame of six years provided for
in the restraint clause and the broad definition of “the Services” takes no account of
the nature, extent or circumstances of the services provided by Mr Money to the
client, both before and after the termination of his employment.

50         There is therefore the chance that in many situations captured by the restraint clause there would be no causal connection between the breach of the restraint clause and loss and damage calculated by reference to the value of the fees of that client to Bird Cameron in the last full financial year. In those circumstances, the liquidated

damages would be “extravagant and unconscionable” and clearly a penalty.

51         Both Mr Easton and Ms Knights gave evidence of “claw back” provisions in agreements for the sale of parcels of fees of an accounting practice. They said that occasionally (or even usually) the consideration would be paid by instalments and that if the level of fees recovered from those clients were not achieved then the further instalments would not be payable. Although the figure of 75 per cent in the liquidated damages clause was said to be a conservative one, it does not contain the “claw back” protection of many agreements for the sale of parcels of fees of accounting practices. Mr Rinaldi submitted that this was not a significant factor in regard to the liquidated damages clause because the restraint only applied to clients for whom the employee had previously worked and for whom the employee undertook further work either with a new employer or on his own account. The “claw back” provision protects a purchaser of fees, if the consideration for the purchase becomes illusory. However, with the restraint clause in the present case, the critical difficulty is the fact that “the breach”, in many circumstances, would not be “akin to and analogous to a sale of business type contract”, and the calculation of loss by reference to the sale price of a parcel of fees would be inappropriate.

52         I am satisfied, therefore, that the calculation of liquidated damages by reference to a fair consideration for the sale of fees of an accounting practice does not necessarily bear any relationship to the circumstances in which an employee in the position of Mr

Money might breach the restraint clause. In the circumstances, the liquidated damages provision in clause 5(d) was not a genuine pre-estimate of Bird Cameron’s loss and damage in the event of such a breach.

Employment contract - exception if Bird Cameron “unable or unwilling to provide” the services

53         Mr Money relied upon three matters which it was said demonstrated that Bird Cameron was “unwilling or unable” to continue to provide accounting services to the Szencorp Group. These were:

a.	The illness of Ms Demenna had meant that for extended periods the accounting work performed by Mr Money had remained incomplete as Ms Demenna was not available to review and “sign off” the work.
b.	Errors in the financial statements and tax returns for the Szencorp Group contributed to the conclusion that Bird Cameron was unable to continue to provide the services to the client.
c.	The quotation by Bird Cameron in September 2009 for the continued Szencorp Group work was so excessive (particularly when compared to the Benjamin King Money quotation) that it demonstrated an unwillingness on the part of Bird Cameron to continue to provide the services or an unwillingness to provide them for a reasonable fee.

54         I consider that there is little basis for this allegation for a number of reasons. The evidence does not support the conclusion that Ms Demenna’s absences from work, as a result of her illness, caused significant delays in the completion of the Szencorp Group work. There were a few emails in 2009 and there was evidence from Mr Money of conversations he had with both Ms Davis and Mr Peter Szental, the principal of the Szencorp Group, in which they complained of delays and the difficulty they had in contacting Ms Demenna.

55         The evidence establishes, however, that a short delay in the finalising of accounts related to a joint venture in December 2008 was resolved when Mr Money took the accounts to Ms Demenna’s home and she completed the review and signing off of the documents at that time. The Szencorp Group’s tax returns were due in May 2009,

extensions were obtained and the returns were finally lodged in July 2009. There is
no evidence of any particular difficulty that was caused by this delay.

56         The only further delay referred to in the emails was a delay of some weeks in Bird Cameron completing the quotations for the services to be provided the following year. Ms Demenna kept Ms Davis informed as to when she would be back at work and completed the quotations immediately she returned. It was not until the quotations had been received that an alternative quotation was sought by Szencorp Group from Benjamin King Money.

57 Group were conceded by Ms Demenna as being matters which ordinarily should

The errors and omissions in the financial statements and tax returns of the Szencorp Szencorp Group. They were likely, as Ms Demenna said, to have been corrected during the preparation of the following year’s returns.

58         The Bird Cameron quotations for the services to be provided to the Szencorp Group for 2009/10 was for a sum substantially more than the quotation of Benjamin King Money. It is not clear the reason for that. There is no evidence Benjamin King Money deliberately underquoted. The 2010 taxation returns have now been lodged and the hours worked on the Szencorp Group matters at Benjamin King Money (upon which the fees were calculated) were, according to Mr Money, not substantially different from what were quoted in September 2009.

59         Nevertheless, I do not consider that the Bird Cameron quotations were necessarily excessive or demonstrated an unwillingness on the part of Bird Cameron to carry out the accounting services for the client, or not to do so for a “reasonable price” if such a term were to be implied. The September 2009 quotations prepared by Ms Demenna involved a substantial reduction on the fees rendered the previous financial year. This reduction was made because Mr Money was to be working in-house at the Szencorp Group and would be able to provide preparatory material to the accounting firm which would substantially reduce the services which would be necessary for the firm to provide.

60         There was no attempt in the evidence to analyse the fees charged in 2008/09 or to suggest that those fees were excessive or unreasonable. This is understandable because, apart from the review work performed by Ms Demenna, much of the remaining work was performed by Mr Money or by more junior accountants under his supervision. There is nothing in the evidence to suggest that the substantial reduction made by Bird Cameron between the fees charged in 2008/09 and the quoted amounts in September 2009 for the 2009/10 financial year did not appropriately take account of the reduced scope of work arising from the fact that Mr Money would be working in-house for the Szencorp Group.

61         As Ms Demenna said in her evidence, Bird Cameron would continue to be professionally responsible for the financial statements and the taxation returns and the reduced scope of work due to Mr Money’s in-house services, would not significantly affect the firm’s obligations in this regard.

Conclusion

62         For the reasons I have set out, I consider that the restraint in clause 5(a) cannot be justified and is therefore unenforceable and for similar reasons the liquidated damages provided for in clause 5(d) is not a genuine pre-estimate and is also not enforceable.

63         In these circumstances, the plaintiff’s claim must fail. I will order that the proceeding be dismissed. I will hear further from the parties before making final orders.

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Certificate

I certify that these 21 pages are a true copy of the reasons for decision of His Honour

Judge Anderson delivered on 9 November 2010.

Dated: 9 November 2010.

Hannah Christensen

Associate to His Honour Judge Anderson