CFC Consolidated Pty Ltd v Cooper
[2015] WASC 185
•25 MAY 2015
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CFC CONSOLIDATED PTY LTD -v- COOPER [2015] WASC 185
CORAM: MITCHELL J
HEARD: 19 MAY 2015
DELIVERED : 19 MAY 2015
PUBLISHED : 25 MAY 2015
FILE NO/S: CIV 1725 of 2015
BETWEEN: CFC CONSOLIDATED PTY LTD
Plaintiff
AND
JOHN GRAHAM COOPER
Defendant
Catchwords:
Contract - Restraint of trade
Procedure - Ex parte application for search orders - Whether criteria satisfied
Legislation:
Rules of the Supreme Court 1971 (WA), O 52B
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr E W L Greaves
Defendant: No appearance
Solicitors:
Plaintiff: Greenmonts Legal Pty Ltd
Defendant: No appearance
Case(s) referred to in judgment(s):
Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55; [1976] 2 WLR 162; [1976] 1 All ER 779
Booker McConnell Plc v Plascow [1985] RPC 425
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Hartleys Ltd v Martin [2002] VSC 301
Long v Specifier Publications Pty Ltd (1998) 44 NSWLR 545
MITCHELL J:
Background
This is the plaintiff's ex parte application for search orders under O 52B of the Rules of the Supreme Court 1971 (WA) (Rules). The principal proceedings were commenced in this court on 15 May 2015.
The plaintiff's claim arises out of the termination of an employment contract between the plaintiff and the defendant, which was entered into on 30 June 2014 (employment contract). The plaintiff provides labour hire services to Centurion Transport Company Pty Ltd (Centurion), which is said to be a 'related company' of the plaintiff on the basis that the plaintiff and Centurion share a common director. The plaintiff claims that, until 21 April 2015, it employed the defendant as the 'Major Account Manager - Rio Tinto Pilbara' for Centurion. Centurion's business includes providing road transport services to clients including 'Rio Tinto' and 'Chevron'. The clients to which services are provided are not more particularly identified in either the statement of claim or the affidavits filed in the proceedings.
Affidavits filed by the plaintiff indicate that, in late 2014, 'Chevron' called for tenders to move freight between locations in Perth and the Karratha region. Centurion placed its tender in January or February 2015. There is evidence that the defendant had access to material relating to this bid, although he was not primarily involved in the bid because his primary responsibility was with 'Rio Tinto'.
There is also evidence that the defendant had access to material on Centurion's 'tender drive', which contains confidential information for each of Centurion's tenders. There is no evidence as to the extent to which the defendant exercised his capacity to access the 'tender drive'. The plaintiff's counsel expressly disclaimed any claim for breach of confidence.
On 7 April 2015 the defendant tendered his resignation to Centurion's General Manager of Business Development and Strategy (Mr Ford), who is also an employee of the plaintiff. By agreement between the plaintiff and defendant, the contract of employment came to an end on 21 April 2015.
The employment contract contained the following term (the restraint of trade provision):[1]
You [the defendant] must not for a period of 6 months after the date of termination of employment on your account or for any other person solicit or entice from us or our related entities … the custom of any person who has during the duration of your contract been a customer … of us or our related entities.
[1] In cl 17 ('Termination of employment').
The plaintiff claims that the defendant breached the restraint of trade provision of the employment contract by 'being involved in soliciting and/or enticing the custom of Chevron for the benefit of' Lionel Samson Group Pty Ltd trading as Sadleirs Nexus Logistics (Sadleirs Nexus). It is alleged that Sadleirs Nexus is a competitor of Centurion in the road transport industry. The statement of claim does not in terms allege that the defendant has himself solicited or enticed the custom of 'Chevron', but I did understand that to be the submission of the plaintiff's counsel.
In the primary proceedings, the plaintiff seeks an injunction restraining the defendant from employment with Sadleirs Nexus, or alternatively from contacting certain companies, until 21 October 2015 or such further or other relief as the court sees fit.
Notice of the primary proceedings has not yet been given to the defendant. The plaintiff seeks search orders enabling the search of the defendant's residence in Bassendean for any document (whether electronic or hard copy) that refers to any one or more of Centurion, the plaintiff, 'Rio Tinto', 'Chevron', 'Mermaid Marine Offshore' or 'Crane Worldwide Logistics'.
Order 52B
Order 52B of the Rules makes provision for the court to grant what are now known as 'search orders', and which were previously known as 'Anton Piller orders'.[2] Such orders are extraordinary orders, designed to obtain and preserve vital evidence pending the final determination of a proceeding in a case where it can be shown that there is a risk that, if forewarned, the defendant will destroy or hide the evidence, or cause it to be removed from the jurisdiction of the court.[3] If granted in the present case, a search order would enable an intrusive search of the home of the defendant, which the plaintiff understands to be also occupied by his wife and child, and computer equipment located on those premises. The courts will be obviously reticent in authorising such an invasion of a person's privacy and property rights.
[2] Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55; [1976] 2 WLR 162; [1976] 1 All ER 779.
[3] Long v Specifier Publications Pty Ltd (1998) 44 NSWLR 545, 547.
Further, if Sadleirs Nexus, which is said to be a competitor of Centurion, is currently employing the defendant, then it is likely that he will have in his possession electronic equipment containing confidential and potentially commercially sensitive information of Sadleirs Nexus. The effect of the order would be to expose that confidential information to representatives of the plaintiff, a related company of Centurion. The effect of the order sought would be to release that confidential information to persons who include representatives of the plaintiff, a related company of Centurion. While I accept that there are measures proposed which will protect confidentiality, those potential consequences of the search order highlight the need for caution in considering its grant.
The conditions for the existence of the court's power to make a search order under the Rules are provided for in O 52B r 3:
The Court may make a search order if it is satisfied that:
(a)an applicant seeking the order has a strong prima facie case on an accrued cause of action; and
(b)the potential or actual loss or damage to the applicant will be serious if the search order is not made; and
(c)there is sufficient evidence in relation to a respondent that:
(i)the respondent possesses important evidentiary material; and
(ii)there is a real possibility that the respondent might destroy such material or cause it to be unavailable for use in evidence in a proceeding or anticipated proceeding before the Court.
In my view none of these three conditions are satisfied in the present case.
Strong prima facie case
I am not satisfied that there is a strong prima facie case that the defendant has breached the restraint of trade clause in the employment contract. I understood counsel for the plaintiff to concede that the restraint of trade provision was not enforceable without qualification.[4]
[4] See Hartleys Ltd v Martin [2002] VSC 301.
Counsel for the plaintiff contended that the reference to 'a person who has during the duration of your contract been a customer' is to such a person with whom the defendant has had contact as an employee of plaintiff. Counsel for the plaintiff also submitted that the term 'from us or our related entities' attaches both to the words 'entice' and 'solicit', and that this requires that custom be taken from the plaintiff or its related entity. So construed, counsel submits that the clause is valid.
In Cheshire and Fifoot Law of Contract, the following is said:[5]
It has been said that when a contract is impeached on the ground that it contains an unreasonable restraint of trade, the principal rule of construction is that the Court's duty is 'first to interpret the covenant or agreement itself, and to ascertain according to ordinary rules of construction what is the fair meaning of the parties, and then to apply the rule as to reasonableness with reference to the extent of the impeached covenant, and to see whether it goes too far.' As with any other contractual clause, 'a covenant in restraint of trade is in the first place to be construed in accordance with the natural and ordinary meaning of its words.' The challenged clause should be construed with reference to the object sought to be obtained, and in a 'business fashion.' (footnotes omitted)
[5]Seddon N, Bigwood R, Ellinghaus M, Cheshire and Fifoot Law of Contract (10th Australian ed), 979 [18.35].
It seems to me that the plaintiff's construction of the restraint of trade clause is an artificial and strained construction which is formulated in an attempt to avoid unenforceability. For example, it does not make sense to prohibit the defendant from soliciting from the plaintiff or its related entities the custom of a third party. Further, it seems to me to be strongly arguable that on the plaintiff's construction of the restraint of trade provision, competing for the tender of what has been referred to as a 'line-haul contract' will not be caught by the clause, as that is not custom which Centurion currently has.
Even if I were to assume that the clause is valid and enforceable, and that Centurion is a related entity of the plaintiff within the meaning of the clause, I am not satisfied that the evidence produced by the plaintiff constitutes a strong prima facie case that the defendant has breached the restraint of trade provision of his employment contract.
The plaintiff relies on what it refers to as 'five key pieces of evidence'.
The first piece of evidence is that, upon his resignation from the plaintiff and prior to the completion of his service with Centurion, the defendant told colleagues, as well as Centurion customers, that he was leaving to work in 'Sadleirs' rail and marine division. Of particular present relevance it is said that the defendant so advised particular Centurion employees and it is put that the defendant's representations in that regard do not, on the present evidence to which the plaintiff refers, appear to have been true.
It should also be noted, however, that in a discussion with Mr Doig and Mr Houtby on 13 May 2015 at a hotel bar in Karratha, the defendant said, 'I'm not quite doing what I thought I was going to be doing but it's all good'. This statement leaves open the inference that the defendant had been truthful about what he would be doing in his new position while still employed by the plaintiff, but had subsequently found his role to have changed since commencing in the new position.
The plaintiff submits that the defendant knew from the position description emailed to him on 23 March 2015 that the position was with Sadleirs Nexus, which the plaintiff contends is the road transport division of 'Sadleirs'. Counsel for the plaintiff submits that it is not credible to suggest that the defendant thought he would be going to a rail and marine division. However, even if the defendant was, to adopt the term used in the written submissions of the plaintiff, 'less than candid' about what he would be doing in his new position, that does not in my view compel any inference that he was acting in breach of the restraint of trade provision.
The second piece of evidence is an unsigned draft Service Agreement between Sadleirs Nexus and the defendant, which was sent to the defendant's personal email account by Matthew Brown, who described himself as the General Manager of Sadleirs Nexus, on 26 March 2015. It seems clear that the document is only a draft as the commencement date and targets for the 'short term incentive plan' were still to be agreed. Counsel for the plaintiff observed that on some occasions people do sign incomplete contractual documents. However, on its face, the service agreement seems to be a draft only and there is no evidence before me to suggest otherwise. I am reluctant to infer that any final agreement was in substantially the same terms as this draft. Even if it was, however, that would not demonstrate a breach of the restraint of trade provision.
The draft Service Agreement includes a warranty that the defendant has disclosed to the Board of Sadleirs Nexus 'all information about possible restrictions on the [defendant] performing the Duties'. There is no evidence that the defendant has failed to disclose the restraint of trade provision in his employment contract to the Board of Sadleirs Nexus.
The third piece of evidence is an email from a Jeremy Thomas, who is said to be the National Business Development Manager of Sadleirs Nexus, which was sent from the email domain 'sadleirs.com.au', to the email accounts of other persons using the same domain. That email was copied to the defendant's corporate email address with Centurion. The email read:
MG/DR,
Sorry if I've missed the mails, but where are we at with the TransLogix maintenance system?
Is it now operational for Nexus ongoing PM tasks, and is it ready to be audited by Chevron if requested?
Are we ready and able to populate with tasks for new equipment as we purchase for the Chevron contract?
Cheers, Jeremy.
The email contained a footer indicating that 'Jeremy' is based in Sydney.
While the terms of this email mean little to me, Mr Ford described the inferences he would draw from the email in the following terms:[6]
[6] Affidavit of Andrew James Ford sworn 15 May 2015 [41] ‑ [45].
The email refers to 'TransLogix maintenance system'. I know this to be an off‑the‑shelf software package, used to record and flag maintenance and store maintained records. It is auditable to show the maintenance history of a vehicle. [Sadleirs] Nexus used TransLogix to manage maintenance records for their prime movers and trailers, and to schedule maintenance for both.
I suspect that 'PM' is an abbreviation possibly for 'prime mover,' or more likely 'preventative maintenance.' 'Preventive maintenance' would be something that Chevron would be interested to demonstrate that there is a preventive maintenance system in place. In fact, on or about 3 and 4 March 2015, Chevron conducted an audit of Centurion which included a review of our preventive maintenance system.
The last sentence in the email refers to 'populate with tasks for new equipment'. Although I have never seen TransLogix I have seen functionally similar software. Any preventative maintenance system will need to be populated with appropriate data to record what equipment has been purchased and what its maintenance requirements are, to then store and record when work needs to be performed, and has been completed.
The last part of the email refers to 'new equipment as we purchase for the Chevron contract.'
(a)I know that the successful bidder under the Chevron line-haul tender will need to send up 70‑80 trailer loads a week to Karratha. A return trucking trip from Perth to Karratha would be about 1.2 to 1.3 return trips per week (so in a 3 week period, a single trailer could be expected to do 4 return trips). On that schedule, the successful bidder would expect to need to commit about 50‑60 trailers and 20‑25 prime movers to satisfying the tender.
Before Chevron would accept a tender they want to ensure the bidder can meet the schedule, without breakdowns that may expose them to delay. They are looking for sustainability in their service providers.
(a)I know this because in evaluating Centurion's bid for the line-haul tender, Chevron examined Centurion's abilities in this regard.
Assuming that those inferences can be drawn, in my view they do not of themselves support the conclusion that the defendant has acted in breach of the restraint of trade provision of his employment contract. The email was merely copied to the defendant. Further, the subject of the email is the 'TransLogix maintenance system'. Even if the defendant was involved in the procurement or installation of that system, either directly or (as would be more likely for an operations manager) overseeing the process, this would not amount to 'soliciting' or 'enticing' from the plaintiff or Centurion 'the custom' of Chevron, on any reasonable construction of that term. Of course, as with all commercial contracts, the restraint of trade clause must be construed by reference to what a reasonable businessperson would have understood its terms to mean.[7] I do not consider that a reasonable businessperson would understand an employee of a company, working on systems which might be promoted by his employer to obtain new business, to be soliciting or enticing custom. If the restraint of trade provision were construed so as to prohibit such conduct, the enforceability of the restraint of trade provision would be highly suspect, and counsel for the plaintiff accepted that the restraint of trade provision should not be so construed.
[7] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35].
I do not draw from this email the inference that the defendant was participating in providing to Chevron responses to requests for information arising out of the tender process.
The fourth piece of evidence relied on by the plaintiff is a calendar invitation sent by a Phil Scott to Matthew Brown (a 'Sadleirs' employee), the defendant and a Stuart Donnelly with a 'chevron.com' email account on 23 April 2015. This invitation was sent two days after the termination of the defendant's employment with the plaintiff. The meeting proposed was for 27 April 2015 in the 'Samson Boardroom - Kewdale'. I am told by counsel for the plaintiff that 'Samson' is the ultimate holding company of Sadleirs Nexus.
There is no evidence that the defendant accepted or attended this meeting. But even if he did accept and attend, the subject of the meeting was 'recruitment screening … To review potential candidates'. That meeting invitation, read as a whole, hardly suggests that the meeting was for the defendant to solicit or entice Chevron as a client for Sadleirs Nexus. It may be noted that Centurion had not interviewed potential candidates with Chevron, suggesting that this was not part of the tender process.
Counsel for the plaintiff submits I should draw the inference that the meeting related to recruitment of key personnel by Sadleirs Nexus if it were successful in the tender. In my view, the fact that the defendant has had contact with a Chevron employee while performing a recruiting function does not mean that he was necessarily soliciting or enticing Chevron's custom. One might speculate that soliciting might have occurred at the meeting, if the meeting had taken place and if Mr Donnelly had attended, but there is no evidence from which I would be prepared to draw an inference that this in fact occurred.
The fifth piece of evidence relied on by the plaintiff is affidavit evidence that the defendant was seen in Karratha on 30 April 2015 and 13 May 2015. On the first of these occasions he indicated that 'it was his first week with Sadleirs and he was doing the rounds and meeting people in the Sadleirs business'. On the second occasion the defendant was wearing a 'Sadleirs Logistics' uniform. There is otherwise no evidence as to what he was doing in Karratha. I do not infer from his presence in Karratha that the defendant was acting in breach of the restraint of trade provision. There are many other explanations as to why he could be in that location.
Considered individually or together, the evidence relied on by the plaintiff does not, in my view, constitute a strong prima facie case, either that the restraint of trade provision is enforceable, or that the defendant has acted in breach of the restraint of trade provision of his employment contract in relation to 'Chevron'. There is no evidence even suggesting that the defendant might have done so in respect of Rio Tinto or the other entities identified in somewhat imprecise terms in the minute of search order.
Serious damage to the plaintiff if the search order is not made
I am also not satisfied that the plaintiff will suffer serious potential or actual loss or damage if the search order is not made. If the defendant has been soliciting or enticing the plaintiff's customers to Sadleirs Nexus and there are records of that activity, then it seems to me highly likely that records of that activity will be held by either or both Sadleirs Nexus and/or the customer. If, for example, the defendant sent an email to a Chevron employee, it would be expected that he would have done so from a corporate email address to an email address of the customer. That evidence could be subpoenaed from Sadleirs Nexus or Chevron. It seems to me unlikely that the defendant would have at his residence documentary evidence of solicitation or enticement that was not also held by either Sadleirs Nexus or Chevron or both. Given those likely alternative sources, any destruction of documents held at the defendant's residence is unlikely to cause serious damage to the plaintiff.
The plaintiff's submissions refer to serious loss or damage that may result from breach of the restraint of trade provision of the employment contract. However, that is not the loss or damage to which O 52B r 3(b) refers. The loss or damage referred to by that clause is loss or damage that will be suffered 'if the search order is not made'. That can only refer to loss or damage resulting from the destruction or removal of evidence of breach of contract, not the breach of contract itself. The making of a search order will not prevent loss or damage resulting from the breach of contract.
Real possibility of destruction
Nor am I satisfied that there is sufficient evidence that there is a real possibility that the defendant might destroy important evidentiary material in his possession or cause it to be unavailable for use in the primary proceedings. There is, in my view, no evidence at all that the defendant might act in this manner.
Civil Procedure Western Australia refers[8] to the following statement of principle from Booker McConnell Plc v Plascow:[9]
The phrase 'a real possibility' is to be contrasted with the extravagant fears which seem to afflict all plaintiffs who have complaints of breach of confidence, breach of copyright or passing off. Where the production and delivery up of documents is in question, the courts have always proceeded, justifiably, on the basis that the overwhelming majority of people in this country will comply with the court's order, and that defendants will therefore comply with orders to, for example, produce and deliver up documents without it being necessary to empower the plaintiff's solicitors to search the defendant's premises.
[8] Seaman, Civil Procedure Western Australia, 10,479.
[9] Booker McConnell Plc v Plascow [1985] RPC 425, 441.
In my view those comments are apposite in the present case concerning an alleged breach of a restraint of trade provision.
The plaintiff relies on evidence that the defendant has, again to use the term employed by counsel for the plaintiff, been less than candid about what he proposes to do in his new position. Even if that were the case, I would not infer from less than candid conversation with employees of the plaintiff and others that the defendant would act to destroy documents once he became aware of these proceedings in which any claim of breach of confidence is expressly disavowed.
Orders sought are too wide
Even if I had been satisfied that it was appropriate to make a search order, I would have regarded the order sought by the plaintiff to be too wide. The order would authorise the copying of any document that refers to one of six entities, four of which are not specified with any precision. Only one of those companies is 'Chevron', whose custom the defendant is alleged to have solicited or enticed from Centurion. There is no allegation or evidence even suggesting that the defendant has acted in that manner with respect to 'Rio Tinto', 'Mermaid Marine Offshore' or 'Crane Worldwide Logistics'.
Further, the documents sought in relation to the plaintiff and Centurion would likely include personal information concerning the defendant and his family, which could have no connection with any alleged breach of the restraint of trade provision. These documents would include the defendant's tax returns, which would mention his income from the plaintiff. They may also include personal communications by the defendant or his family that mention the defendant's employment with the plaintiff or work for Centurion.
Conclusion as to search order
For the above reasons I am not prepared to make a search order, and dismiss the plaintiff's application for the order.
Injunctive relief sought in the alternative
As an alternative, the plaintiff seeks an order that Sadleirs Nexus secure and retain a copy, either electronically or in hard form, of all emails sent to or from the defendant using any email domain registered to Sadleirs Nexus or any related entity. In my view it is appropriate to make such an order in the present case, that order not involving any search of the relevant premises or even any disclosure of the content of those emails to anyone.
It does seem to me to be within the inherent jurisdiction of the court to preserve its own proceedings to require that material which may be evidence in those proceedings not be destroyed. It would not seem to me to impose any significant burden on, or cause any significant prejudice to, Sadleirs Nexus to require it to secure emails sent from its email domains. One would expect a company of that size to do so in any event under whatever reasonable document retention policy it adopts.
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