JUDGE:	WHELAN J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	11-14, 18-19 and 22 April 2005; 24 May 2005
DATE OF JUDGMENT:	11 August 2005
CASE MAY BE CITED AS:	Courtenay Polymers v Deang
MEDIUM NEUTRAL CITATION:	[2005] VSC 318

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CONTRACTS – Employee – Restraint of trade provision – Whether restraint exceeds what is necessary to protect the legitimate interests of the employer – Restraint of trade too wide and therefore invalid – Breach of non-solicitation provision – Misuse of confidential information.

EQUITY – Fiduciary duties of directors – Involvement in establishment of competing business before and after resignation – Fiduciary duties subsequent to resignation from company – Failure to act in the best interests of the company – Use of information to detriment of company and benefit of others.

CORPORATIONS – Corporations Act 2001 (Cth) – Directors’ duties – Breach of ss 181 and 183 by first defendant – Third defendant involved pursuant to s 79 in breach of first defendant’s statutory duties – Dishonestly assisted first defendant in breaches of fiduciary duties – Liability under the second limb of Barnes v Addy.

Southern Real Estate Pty Ltd v Dellow [2003] SASC 318, followed.

IF Asia Pacific v Galbally (2003) 59 IPR 43, followed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M L Sifris SC with Mr M Algie (Solicitor)	Baker & McKenzie
For the Firstnamed Defendant	No appearance
For the Second and Thirdnamed Defendants	Mr P M N Bornstein	Hendersons Legal

HIS HONOUR:

Introduction

The plaintiff, Courtenay Polymers Pty Ltd (“Courtenay Polymers”), is a manufacturer of polyethylene rotational powder used in the plastics industry and also provides grinding and compounding services for the plastics industry. The first defendant, Mr Deang, was a longstanding employee who had been Courtenay Polymers’ sole director in Australia from December 2001. On 7 February 2003, he left Courtenay Polymers’ employment and resigned as a director. From Courtenay Polymers’ point of view, Mr Deang’s departure was caused, or precipitated, by an investigation conducted by Courtenay Polymers’ staff into improper credit card usage, withdrawals of petty cash without authority, unauthorised incurring of casual factory labour expenses, and unauthorised acquisitions.

One of Courtenay Polymers’ customers was a company named Australian Rotomoulding Industries Plastank Pty Ltd (“ARI”). Mr Deang had a close association with personnel at ARI, particularly with a Mr Ian Hansen, and was Courtenay Polymers’ principal point of contact with ARI (now named Nylex Water Solutions Pty Ltd).

At approximately the same time that Mr Deang left Courtenay Polymers’ employ, the third defendant, Asia Pacific Consolidated Holdings Pty Ltd (“APC”), was incorporated and began conducting a business of providing grinding and compounding services to the plastics industry. It rented premises, obtained equipment and set up production lines. Its only customer is, and with…

Grounds of appeal

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

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

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

Consideration

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

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

Continue reading Courtenay Polymers Pty Ltd v Deang

Details

AGLC: Courtenay Polymers Pty Ltd v Deang [2005] VSC 318
Case: [2005] VSC 318
Decision Date: 11 August 2005

CaseChat Overview and Summary

In the case of Courtenay Polymers Pty Ltd v Deang, the plaintiff, a company involved in the plastic moulding and recycling business, sought to enforce various contractual provisions against the defendants, who were former employees and directors of the company. The primary dispute involved the enforceability of a restraint of trade provision, allegations of misuse of confidential information, and breaches of fiduciary duties by the defendants. The matter was heard in the Supreme Court of South Australia.

The court was tasked with determining whether the restraint of trade clause imposed by the plaintiff on the defendants was valid and enforceable. The court also had to decide if the defendants had breached their fiduciary duties by engaging in activities that were detrimental to the plaintiff's business interests. Additionally, the court considered whether the defendants had misused confidential information obtained during their employment. The court needed to address whether the restraint of trade provision was overly broad and thus unenforceable, and if so, whether any breaches of the non-solicitation clause could be upheld. The court further examined the fiduciary duties of the directors and whether they had breached their obligations by establishing a competing business and using confidential information to the detriment of the plaintiff.

The court found that the restraint of trade provision was too wide and therefore invalid, as it exceeded what was necessary to protect the legitimate interests of the plaintiff. The court held that the defendants were not bound by the restraint of trade clause and could engage in activities that were not directly competitive with the plaintiff. However, the court did find that the defendants had breached the non-solicitation provision by engaging in activities that directly solicited the plaintiff's customers. The court also determined that the directors had breached their fiduciary duties by establishing a competing business before and after their resignation, using information obtained during their employment to the detriment of the plaintiff and the benefit of others. The court held that the third defendant, who was involved in the breach of fiduciary duties by the first defendant, was liable under the second limb of Barnes v Addy for dishonestly assisting in the breaches.

The court ordered the defendants to pay damages to the plaintiff for the breaches of the non-solicitation provision and for the misuse of confidential information. The court also declared that the restraint of trade clause was invalid and unenforceable. The third defendant was held liable for the breaches of fiduciary duties and ordered to compensate the plaintiff for the losses incurred.

Orders