Bromhead v Graham

[2007] NSWSC 609

CITATION:	Bromhead v Graham [2007] NSWSC 609
HEARING DATE(S):	04/06/07, 05/06/07
JUDGMENT DATE :	14 June 2007
JUDGMENT OF:	Gzell J
DECISION:	Injunctive relief refused. Inquiry as to damages for breach of fiduciary duty of fidelity and breach of non-solicitation restraint.
CATCHWORDS:	EMPLOYMENT LAW - The contract of service and rights, duties and liabilities as between employer and employee - Restraint of trade - Breach of fiduciary duty of fidelity by employed solicitor canvassing clients of employer during employment - Breach of non-solicitation restraint of trade after termination of employment - Whether employer repudiated contract of employment and restraint at an end - Whether partnership dissolved and employment contract thereby repudiated - Whether restraint against public policy - Whether terms should be read down under the Restraints of Trade Act 1976, s 4(1) - Whether manifest failure to make restraint reasonable invoking the Restraints of Trade Act 1976, s 4(3) - Whether discretion should be exercised against granting injunctive relief where partnership to be dissolved and all new work on files to the account of the person performing the work
LEGISLATION CITED:	Restrains of Trade Act 1976 Partnership Act 1892
CASES CITED:	Hall v Hall (1855) 20 Beav 139 (52 ER 555) Palmer v Moore [1900] AC 293 to Ryder v Frohlich [2004] NSWCA 472 Brace v Calder [1895] 2 QB 253 Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] 1 Ch 169 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Australian Regional Wholesalers v Stafford [2007] NSWSC 572 John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 Lindley & Banks on Partnership, 18th ed, Sweet & Maxwell, London, 2002
PARTIES:	Stephen Bruce Bromhead - First Plaintiff John William Walker - Second Plaintiff Michael Noel Crozier - Third Plaintiff Ian James Graham - Defendant
FILE NUMBER(S):	SC 2352/07
COUNSEL:	Mr R Margo SC/ Ms T Leibman - Plaintiff Mr R Newlinds SC/ Mr J Johnson - Defendant
SOLICITORS:	Walker Smith Solicitors - Plaintiffs Stacks/Forster Solicitors - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

THURSDAY 14 JUNE 2007

2352/07 STEPHEN BRUCE BROMHEAD & ORS v IAN JAMES GRAHAM

JUDGMENT

1 The defendant, Ian James Graham, was an employed solicitor with the legal firm JA Vaughan & Company, Forster. The goodwill of that practice was purchased by Walker Smith Solicitors, which changed its name to Walker Smith Solicitors incorporating JA Vaughan & Co Forster. Mr Graham became an employee of that firm. The plaintiffs, Stephen Bruce Bromhead, John William Walker and Michael Noel Crozier became the partners of that firm.

2 Mr Graham’s employment by the partners was terminated. His contract of employment contained a restrictive covenant in the form of a non-solicitation provision. Clause 20.3 was in the following terms:

“Upon termination of employment for any reason the employee shall not approach, canvas, solicit, interfere with or entice away any person, firm or company client of the firm of Walker Smith Solicitors and JA Vaughan and Company. The employee shall not solicit work from clients nor shall the employee act on behalf of any Walker Smith Solicitors and JA Vaughan and Company clients for a period of twelve months after the termination of the employment.”

3 The partners seek to enforce that provision and a provision prohibiting Mr Graham from disclosing confidential information by injunctive relief. They also seek damages and an accounting for any remuneration to which Mr Graham became entitled in breach of his fiduciary duties while an employee by reason of the transfer of clients of the partnership to his current employer. An interlocutory injunctive regime is in place.

4 It is not in dispute that Mr Graham breached cl 20.3 of his employment contract . During the Easter weekend that followed his being given notice of the termination of his employment, Mr Graham telephoned a number of the clients of Walker Smith and told them that he had left. He was subsequently employed by Stacks Forster Pty Ltd, an incorporated legal practice, and a number of the persons he had contacted became clients of that practice.

5 What is put on Mr Graham’s behalf is that the partners repudiated his employment contract. Alternatively, it is put that the partnership was dissolved thereby repudiating his employment contact. In either event it is said that Mr Graham accepted the repudiation and the non-solicitation provision came to an end. If those defences fail, it is submitted that the non-solicitation clause was against public policy as being too wide or simply a restraint on competition. The Restrains of Trade Act 1976, s 4(3) is invoked and an order sought that the restraint be declared invalid. Finally, it is submitted that the court’s discretion to refuse injunctive relief should be exercised because of the repudiations, because damages are an adequate remedy, because the partnership having been dissolved there is no need to protect its client connection and, at least, there should be no injunction against nine former clients of Walker Smith who have chosen to become clients of Stacks.

Repudiation of employment contract

6 Mr Graham’s contract of employment was not terminated as a result of any misconduct on his part. Nor were any of the circumstances leading to termination in clauses 20.1.1, 20.1.3, 20.1.4 or 20.1.5 invoked. Clause 20.1.6 applied in the instant circumstances. It was in the following terms:

“The Partners may terminate the contract for any reason other than those specified in clauses 20.1.1, 20.1.3, 20.1.4 and 20.1.5 provided the Partners shall give one month’s notice or, in the absence of notice, the payment in lieu thereof of all salary and benefits as though the notice period had been worked.”

7 Mr Bromhead signed a letter dated 30 March 2007 addressed to Mr Graham on the letterhead of Walker Smith. It was in the following term:

“Dear Ian
Re: Walker Smith Solicitors
We advise that the partnership of Walker Smith Solicitors has been dissolved to take effect on 31st March 2007.
We hereby give you one months notice of termination of your employment. You will take 4 weeks annual leave from 2nd April 2007 until your last day of employment the 27th April 2007.
Your will be paid all outstanding entitlements ie: long service leave and holiday pay.”

8 It was submitted that since Mr Graham’s employment contract spoke in terms of a relationship between the partners and Mr Graham, it followed that upon the proper construction of the contract the parties intended the relationship to exist only so long as the partnership existed and the assertion that the partnership had been dissolved constituted a repudiation of Mr Graham’s employment contract.

9 Having met with their accountant on 28 March 2007, Mr Walker and Mr Bromhead decided that the partnership should be dissolved. A deed of dissolution was drawn up. It was in the following terms:

“ Deed of dissolution
Agreement made on the date referred to in the Schedule between ‘the partners’ referred to in Item 1 of the Schedule.

RECITALS:

A. The partners have carried on business in partnership (‘the partnership’) a legal practice (‘the business”) pursuant to a partnership agreement (‘the agreement’).
B. The partners are entitled to the assets of the partnership in accordance with the provisions of the agreement.
C. The parties have agreed that the partnership shall cease and be dissolved from the date set out in the Schedule (‘the dissolution date’) subject to the provisions contained in this agreement.
AGREEMENT:
1. The partners hereby with effect from the dissolution date determine and dissolve the partnership so far as the partners are concerned.
2. The John Walker and Stephen Bromhead shall continue to practice law from those offices at which they now base their practice and shall apply profit costs billed until date of dissolution to payment of the debts of the partnership. It is agreed that the profit costs billed on any file after the date of dissolution shall be those of the partner who has carriage of that matter at the date of dissolution.
3. The John Walker and Stephen Bromhead shall be at liberty to use the name ‘Walker Smith Solicitors’ and Stephen Bromhead shall be at liberty to use the name ‘JA Vaughan and Co’ as part of the name of the firm or the business to be carried on by them.
4. The John Walker and Stephen Bromhead shall be at liberty to collect all assets of the former partnership including to demand, sue for, recover, receive and give full and effectual receipts and discharges of all debts and effects of, due, owing or belonging to the partnership and to settle all accounts of the partnership and to compound for or release any debts or claims belonging to it and to institute any actions or other proceedings to enforce such payments.
5. The John Walker and Stephen Bromhead shall with effect from the dissolution date pay all debts and liabilities of the partnership on behalf of all partners.
6. On completion of all partnership matters the partners shall be entitled to equal portions of assets remaining or shall contribute equally to any shortfall necessary to extinguish remaining partnership debt.
6. All parties to this agreement shall sign and execute all documents and deeds and do all things reasonably required by any of the others for completely effectuating the provisions of this agreement.
SCHEDULE

Date of Agreement. 31 March 2007
Dissolution date: 31 March 2007

Stephen Bruce Bromhead Michael Noel Crozier John William Walker”

10 Mr Bromhead and Mr Walker discussed the contents of the deed with Mr Crozier in the last week of March 2007. Mr Crozier had become ill in about February of that year and his practice plans were uncertain. He did, however, indicate that he wanted to take over some client files and deed packets of the partnership. He said he would like to take the deed away and think before signing anything. Mr Bromhead said he and Mr Walker then executed the deed in the expectation that it would be executed by Mr Crozier. However, Mr Crozier did not execute the deed. He has made other proposals as to the way in which assets, including client files, should be distributed. Those negotiations have not been concluded and will not be concluded until the completion of these proceedings.

11 It was submitted that the statement as to dissolution of the partnership in the termination letter was consistent only with the employment relationship, and hence the contract of employment, coming to an end as at 31 March 2007.

12 I reject that submission. The letter clearly specified 27 April 2007 as the last day of employment.

13 It was submitted that neither option in cl 20.1.6 of Mr Graham’s employment contract was exercised. Clearly, the letter did not purport to terminate the contract by payment in lieu of notice. The other option was to terminate the employment by giving one month’s notice. It was submitted that the direction to take annual leave infringed the provision because there was no suggestion that Mr Graham was to work out the notice period. It was submitted that the suggestion of four weeks’ annual leave was illusory because at that time Mr Graham was owed no more than six days. It was submitted that by failing to comply with cl 20.1.6, the partners had repudiated Mr Graham’s employment contract.

14 There is nothing in cl 20.1.6 that requires an employee given one month’s notice to carry on working for the partners if they forego that requirement, as they did in instructing Mr Graham to take four weeks’ annual leave. Nor is it to the point that Mr Graham was owed no more than six days at the time. The partners were not precluded by any provision in the contract from granting Mr Graham the indulgence of not having to work out his period of notice. And, no doubt, there were good practical reasons why he should not.

15 I reject the argument that the direction to take annual leave constituted a repudiation of Mr Graham’s employment contract.

16 In the expectation that the partnership would be dissolved by mutual consent, Mr Walker set up a new business in the premises that had been occupied by the partners at Taree under the name Walker Smith Solicitors Taree. Mr Bromhead used the premises formerly used by the partners in Forster and set up a new business under the name Walker Smith Solicitors – Forster.

17 Later on 3 April 2007, Mr Graham asked Mr Bromhead for a reference. Mr Bromhead obliged with a letter dated 3 April 2007 that he gave to Mr Graham the next day. The letter was on the letterhead of Mr Bromhead’s new firm. It commenced: “I provide this reference for Ian Graham who leaves this firm with our best wishes.”

18 It was submitted that the issuing of the reference on the letterhead of Mr Bromhead’s firm constituted a repudiation of Mr Graham’s contract of employment. I do not think it did. The use of the wrong letterhead did not alter the fact that the reference was provided to Mr Graham on behalf of the partners and in glowing terms in respect of his performance of duties for the partners.

19 Mr Bromhead asked Mr Graham to return the keys he had to Forster premises. Mr Graham did so. It was submitted that demanding the keys from Mr Graham was tantamount to locking him out and constituted a repudiation of his contract of employment.

20 I do not view the incident in that way. Mr Graham was not required to work further at the Forster premises and a set of keys was needed for Mr Rider who was to attend to those premises more frequently.

21 On 4 April 2007, Mr Graham was paid for the first week of his holiday including leave loading and he was paid and accepted his full entitlements on 27 April 2007. That is hardly consistent with an alleged earlier repudiation of the contract of employment constituted by one or other or a combination of a number of the grounds relied upon.

22 Nor do I regard Mr Graham’s handing over of the keys as an acceptance by him of a repudiation of his contract of employment.

23 It is unnecessary for me to consider the authorities relied upon for the proposition that a covenant in restraint of trade does not survive an employer’s wrongful repudiation of a contract of employment.

Dissolution of partnership

24 In Mr Graham’s behalf a series of admissions was relied upon to ground the submission that the partnership had been dissolved.

25 There is the statement in the notice of termination of 30 March 2007. By the time the letter was handed to Mr Graham, 31 March 2007 had come and gone and Mr Bromhead did not say to Mr Graham that the partners were still discussing the question of dissolution. In cross-examination, Mr Bromhead said he expected the partnership would be dissolved by mutual consent. In re-examination, he said that he did not consider the contents of the letter between time it was written and signed by him and the time he handed it to Mr Graham.

26 Reliance is placed upon the deed of dissolution that speaks of a dissolution date of 31 March 2007.

27 In his first affidavit of 19 April 2007, Mr Bromhead said that on 31 March 2007 each of the partners executed a deed of dissolution and the partnership was dissolved. In cross-examination, Mr Bromhead said the affidavit had to be sworn quickly and he made a mistake.

28 The next day, Mr Bromhead swore another affidavit in which he said that Mr Crozier took a few criminal matters from the firm on dissolution of the partnership. It falls into the same category of what Mr Bromhead asserted was a mistake brought about by haste.

29 On 20 April 2007, the matter came before Hamilton J on an ex parte basis when the two affidavits were read. It was submitted that, expressly or implicitly, on the various occasions the injunction had been modified and extended, the assertions formed part of the plaintiff’s case until trial.

30 That is not so. In his third affidavit of 24 April 2007, Mr Bromhead swore to the chain of events with respect to the discussions between the partners as to the dissolution of their partnership, the execution by two of them of the deed of termination and Mr Crozier’s subsequent proposals with respect to the assets of the partnership.

31 It was also submitted that the clear distinction between the letterhead used by Mr Bromhead for the notice of termination and the letterhead used by him for the reference constituted an admission that the partnership had been dissolved on 31 March 2007. I have already indicated that while on the letterhead of Mr Bromhead’s new firm, the reference was clearly written on behalf of the partners.

32 I do not regard these matters, singly or collectively, as outweighing the evidence of Mr Bromhead as to what happened between the partners in their discussions of dissolution of the partnership.

33 In his affidavit sworn on 4 June 2007, the first day of the trial, Mr Bromhead said that he and Mr Walker are managing files of the partnership in addition to their participation in their respective new firms. It was submitted that Mr Bromhead’s evidence in this regard should not be believed. It was submitted that it was a vague new assertion unsupported by any corroborative evidence. It was also submitted that the assertion was equivocal and equally consistent with the partnership having been dissolved.

34 But Mr Bromhead had said, in his affidavit of 24 April 2007, that the partnership had continued to cover Mr Graham under its workers’ compensation policy and that the partnership continued to employ Mr Rider as a practice manager for the purpose of managing matters associated with the ongoing dissolution of the partnership, a process likely to continue for 18 months to two years.

35 Mr Bromhead repeated these assertions in his affidavit of 22 May 2007, stating that he and Mr Walker continued to manage files of the partnership and Mr Crozier was managing other files and the dissolution of the partnership will not be resolved prior to the termination of these proceedings. Mr Bromhead indicated that the partnership continued to employ Ms Kelly Stevens as an assistant to Mr Rider and the partnership proposes to continue employing Ms Stevens so long as Mr Rider needs assistance. The partnership continues to maintain its trust account and workers’ compensation cover.

36 In his affidavit of 1 June 2007, Mr Bromhead indicated that the partnership accounts will continue to be kept and records of the trust account of the partnership maintained.

37 In his affidavit of 4 June 2007, Mr Bromhead described in detail exhibits from the business records of the partnership dealing with matters affecting the partnership since 31 March 2007. The exhibits were not tendered as they go to any inquiry as to damages.

38 I reject the submission that Mr Bromhead’s evidence of management of the files of the partnership should be rejected. And I reject the submission that the assertion is equivocal. The exhibits from the business records of the partnership described by Mr Bromhead are consistent only with its continuation past 31 March 2007.

39 There was no written partnership agreement. The Partnership Act 1892, s 32 provides, relevantly for present purposes, that a partnership is dissolved if entered into for an undefined time by any partner giving notice to the other or others of the partner’s intention to dissolve the partnership. A partnership is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is mentioned, as from the date of communication of the notice.

40 As is pointed out in Lindley & Banks on Partnership, 18th ed, Sweet & Maxwell, London, 2002 at [24-21] a dissolution notice must be clear and unambiguous. Hence a proposal to dissolve on terms that are not accepted will not be effective (Hall v Hall (1855) 20 Beav 139 (52 ER 555)).

41 The proposal contained in the deed of dissolution was not accepted by Mr Crozier. On that basis, the deed did not terminate the partnership. Furthermore, the deed constituted a proposal for the dissolution of the partnership by agreement between the partners. It did not take the form of a notice by Mr Bromhead and Mr Walker to Mr Crozier giving notice of intention to dissolve the partnership if agreement was not reached. In my view, the deed of dissolution did not answer the description of a notice of intention to dissolve the partnership and the Partnership Act 1892, s 32 did not apply to it.

42 Reference was made to Palmer v Moore [1900] AC 293 and to Ryder v Frohlich [2004] NSWCA 472 at [102] for the proposition that if a party to a working partnership abandons his or her commitment to working in the partnership, that abandonment can amount to notice of termination of the partnership. But that is not the situation in the instant circumstances. Mr Crozier’s agreement with his co-partners to seek to protect partnership assets shows that he does not abandon his commitment to working in it. And neither do Mr Walker or Mr Bromhead. The partners continue to engage Mr Rider and Ms Stevens as practice manager and assistant with Mr Bromhead looking after the bulk of the Forster files, Mr Walker looking after the bulk of the Taree files and Mr Crozier looking after some of the files.

43 I reject the submission that the partnership has been dissolved.

44 It is unnecessary for me to consider the proposition that dissolution of an employer partnership has the effect of repudiating contracts of employment, for which Brace v Calder [1895] 2 QB 253 was cited as authority.

Fiduciary duty

45 It was submitted in Mr Graham’s behalf that since he ceased to be an employee on 3 April 2007, the partners’ case that he had breached his fiduciary duty must fail.

46 I reject that submission. Mr Graham continued in the employment of the partnership until 27 April 2007 and in that time he was bound by express and implied fiduciary duties of fidelity and confidence. The relationship between employee and employer is one of the accepted fiduciary relationships. An employee is subject to a general duty to serve an employer with good faith and fidelity (Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] 1 Ch 169). Contractual and fiduciary obligations may co-exist between the same parties (Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97).

47 In canvassing the clients of the partnership before 27 April 2007, Mr Graham breached his obligations of fidelity and confidence and there should be an inquiry as to damages.

Public policy

48 In Australian Regional Wholesalers v Stafford [2007] NSWSC 572, I had cause to consider the principles associated with restrictive covenants. At [29] I adopted the summary of the principles by Brereton J in John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [6]. I pointed out at [34] that the question whether the non-solicitation provision in this case, in its application to Mr Graham’s breaches of it, is against public policy, raises two questions: does the employer have a legitimate interest to protect and is the restraint no more than reasonable for that protection? It is the latter of those matters that Mr Graham attacks.

49 It was submitted that the non-solicitation provision in Mr Graham’s contract of employment was no more than a restraint on competition and against public policy. I do not agree. Mr Graham’s profile had been developed as the face of the partnership. He had a close personal relationship with clients of the partnership he served and he was in a position to affect the partnership’s client connection. It was, therefore, not unreasonable, at the time Mr Graham signed his contract of employment, that he not exploit the confidential information and client connection of the partnership.

50 It may be that the non-solicitation provision was excessive in its application to all clients of the partnership as distinct from those served by Mr Graham. I do not have to decide that point because the Restraints of Trade Act 1976, s 4(1) would preserve so much of the non-solicitation provision as is not against public policy and I am of the view that, at the least, the application of the restrictive covenant to those clients of the partnership served by Mr Graham would not infringe public policy. The injunctive relief sought is limited to those circumstances. What is sought is the enforcement of the provision in relation to those clients of the partnership served by Mr Graham in the 18 months preceding the termination of his contract of employment.

51 It was submitting that a 12 month restraint was excessive. In support of its reasonableness, it was submitted that consideration should be given to the time it might reasonably take a replacement employed solicitor to build up the client connection exercised by the departing employee.

52 In my view, a six month restraint is adequate protection of the client connection of the partnership. Forster and its surrounds, from which partnership clients might be drawn, is a relatively small area and I see no reason why a similar build up of the profile of a replacement solicitor to that which the partners extended to Mr Graham, together with the canvassing of existing clients, could not re-establish client connection in a six month period.

53 In terms of the Restraints of Trade Act 1976, s 4(1), I am of the view that the non-solicitation provision limited to a restraint for a period of six months is not against public policy.

Restraints of Trade Act 1976, s 4(3)

54 Mr Graham seeks an order that the non-solicitation provision be declared invalid. The Restraints of Trade Act 1976, s 4(3) empowers the court to make such an order if a restraint of trade is against public policy to some extent because of a manifest failure to attempt to make it a reasonable restraint. The provision is in the following terms:

“(3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order.”

55 It was submitted that Mr Bromhead did not turn his mind to whether the non-solicitation provision, when included in Mr Graham’s employment contract, was fair or not. It was submitted that Mr Bromhead was simply doing the best he could to exact the most anti-competitive position he could achieve in the circumstance that the bargaining position between the partnership and Mr Graham was not even.

56 Mr Bromhead said in cross-examination that he did not want any solicitors or any other employees going next door and taking clients with them when they went. He did not mind Mr Graham competing in Forster. He did not mind Mr Graham being employed by another firm in Forster. The only thing he was concerned about was taking the clients of the partnership.

57 There was a conflict in the evidence of Mr Bromhead and Mr Graham as to negotiations with respect to restraint of trade provisions in his first contract of employment when he came from JA Vaughan & Company and in his further contract of employment in 2005. Mr Graham denied that there was any discussion as to the exclusion of a restraint with respect to a geographical area with respect to both contracts.

58 The partnership standard form of contract of employment of solicitors in 2005 was provided to Mr Graham in advance of his execution of an agreement. Clause 20.3 of the executed agreement was cl 19.3 in the standard form. There was, in addition, a cl 27 in the following terms:

“Upon termination of employment for any reason the employee shall not, for a period of two (2) years after termination of employment practice as a solicitor within sixteen kilometres of the firm’s offices at Taree, Old Bar, Forster and Bulahdelah canvas, solicit, interfere with or entice away any person, firm or company of the employer nor shall the employee act on behalf of any Walker Smith Client for the same period.”

59 Mr Graham’s note with respect to cl 27 was: “See 19.3 – covers this so 27 redundant.”

60 Mr Graham denied that he had said anything to Mr Bromhead to the effect that a geographic restraint should be removed because the other clause was sufficient protection until he was shown his notes on the draft of the second contract.

61 I prefer the evidence of Mr Bromhead on this issue. The partnership’s standard contract of employment of solicitors when Mr Graham became an employee of the partnership was in evidence. It contained a non-competition provision that upon termination of employment for any reason, the employee should not practise as a solicitor within 30 kilometres of the firm’s offices at Taree, Wingham and Old Bar. Mr Bromhead’s evidence was that he gave the standard form of contract to Mr Graham who said he was not happy with the restraint that stopped him from working in the area after he left the firm. Mr Bromhead’s evidence was that Mr Graham said that he lived in Taree. He had a house and family there. He could not leave. He could not agree to the restraint. He was happy with the other restraint about not soliciting clients but he could not agree that he would not work in the area if he left the firm. Mr Bromhead agreed to remove the geographical restraint from the contract and Mr Graham’s first contract of employment of 1 February 2001 contained only cl 9.3 in the same terms as cl 20.3 of the later contract of employment of 12 October 2005. As a result of Mr Graham’s submission with respect to that second contract of employment, the geographical restraint in cl 27 of the partnership’s standard form was deleted.

62 The evidence establishes that Mr Bromhead and Mr Graham negotiated the terms of the restraints of trade and Mr Graham succeeded in having them reduced to a restraint with which he agreed. There is no evidence that Mr Bromhead took advantage of any inferior bargaining power of Mr Graham. In particular, the evidence does not establish a manifest failure on Mr Bromhead’s part to attempt to make the restraint a reasonable one. The prerequisite for an order under the Restraints of Trade Act 1976, s 4(3) has not been established.

Discretion to refuse injunctive relief

63 It was submitted on Mr Graham’s behalf that the court should exercise its discretion against granting injunctive relief. So far as the nine former clients of the partnership who have become clients of Stacks are concerned, that seems to be an appropriate course. The partners concede, correctly in my view, that damages an adequate remedy with respect to them.

64 It is submitted on behalf of Mr Graham that damages are also an adequate remedy with respect to all the clients of the partnership with whom Mr Graham dealt in his last 18 months of employment by them.

65 In ordinary circumstances I would reject this submission. An employer with respect to whom an employee has disregarded his contractual and fiduciary obligations by soliciting the clients of his employer, is entitled to the enforcement of those obligations by injunctive relief.

66 In the instant circumstances, the question would also arise whether injunctive relief should be granted against Stacks. An application to join the incorporated legal practice as a defendant did not proceed upon the basis that, in the event that the court was satisfied that it was appropriate that injunctive relief extend to bind Stacks, it would not object to any such order being made notwithstanding that it had not been joined as a party, but it would seek to be heard on the appropriateness and ambit of any such relief.

67 But the partners do not seek retainers from their clients with respect to new matters and new work done on existing files is to the account of the individual performing the services. Mr Bromhead and Mr Walker have set up new firms to take that business and Mr Crozier has taken over some partnership files. What remains to the partnership when it is dissolved, which is expected to follow the conclusion of these proceedings, will be the winding down of the former business of the partnership by the resolution of existing files.

68 In my view, those circumstances do not justify injunctive relief. There is no continuing confidential information or client connection the damage to which cannot be compensated, adequately, by an award of damages. I decline to grant injunctive relief against Mr Graham or against Stacks.

Conclusion

69 I have formed the view that the contract of employment of Mr Graham by the plaintiff partners was not repudiated by them and the restraint of trade in the form of a non-solicitation provision in cl 20.3 of the contract did not come to an end for that reason. Nor, in my view, was the partnership dissolved with the consequence that the contract of employment was repudiated.

70 In canvassing the clients of the partnership before 27 April 2007, I am of the view that Mr Graham breached his obligations of fidelity and confidence and there should be an inquiry as to damages.

71 In terms of the Restraints of Trade Act 1976, s 4(1) I am of the view that, at the least, the application of the non-solicitation provision to those clients of the partnership served by Mr Graham would not infringe public policy. I am also of the view in terms of the statute that the non-solicitation provision limited to a restraint for a period of six months is not against public policy.

72 In my judgment, the evidence does not establish a manifest failure on Mr Bromhead’s part to attempt to make the restraint a reasonable one and the prerequisite for an order under the Restraints of Trade Act 1976, s 4(3) has not been established.

73 In my view, the circumstances do not justify injunctive relief. There is no continuing confidential information or client connection the damage to which cannot be compensated, adequately, by an award of damages. I decline to grant injunctive relief against Mr Graham or against Stacks.

74 I will hear the parties on the appropriate terms of orders and I will hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons.

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