Crowe Horwath Pty Ltd v Loone - [2016] VSC 582

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST

S CI 2016 02982

CROWE HORWATH (AUST) PTY LTD	Plaintiff
v
ANTHONY LOONE	Defendant

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JUDGE:	McDonald J
WHERE HELD:	Melbourne
DATE OF HEARING:	26 September 2016
DATE OF JUDGMENT:	26 September 2016
CASE MAY BE CITED AS:	Crowe Horwath Pty Ltd v Loone
MEDIUM NEUTRAL CITATION:	[2016] VSC 582

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CONTRACT OF EMPLOYMENT – Enforceability of covenant in restraint of trade – Legitimate interest of plaintiff in protecting its client base – Defendant proposing to establish a business in direct competition with plaintiff – Injunction granted to restrain defendant until the trial of the proceeding from providing services to 89 of the plaintiff’s clients with whom the defendant had direct dealings in the 12 months prior to termination of employment.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A Moses SC and Mr D Guidolin	Mills Oakley
For the Defendant	Mr A Rodbard-Bean	Marsh & Maher

HIS HONOUR:

Until 12 July 2016, Mr Loone was employed by Crowe Horwath Australia Pty Ltd as managing principal of its Launceston Office. At the time of ceasing to be an employee, he was employed under a contract entered into on 1 October 2012. However, he had commenced employment in the business in November of 2000.

Schedule 2 of Mr Loone's contract contains a number of restrictive covenants. For the purposes of the current proceedings, the relevant covenants are prescribed by clauses 3.1(a), (b), (e) and (f). Those covenants are as follows:

3.1Having regard to the acknowledgements set out in clause 1 of this Schedule 2, you will not, during the Restraint Period, either directly or indirectly, on your own account, jointly or with any other person or as an employee or otherwise:
(a)canvass, solicit, entice away or interfere with, or endeavour to canvass, solicit, entice away or interfere with, any Client for the purposes of having services of the nature provided by the relevant Group Member provided by anyone other than a Group Member;
(b)undertake or perform for a Client work of a kind which involves the provision of services which are, in whole or in part, the same as or similar to the services provided by the Company or any Group Company;
…
(e)approach, solicit, encourage or induce any Group Employee or Contractor to leave their employment or cease their engagement;
(f)counsel, procure or otherwise assist any person to do any of the acts referred to in this clause.[1]

[1]Affidavit of Michael Andrew Wilkins sworn 28 July 2016, “MW-3” (emphasis altered).

‘Client’ is defined in cl 31.5 as ‘an entity or person who is or was a client of a Group Member with whom you had direct dealings during the 12 months immediately prior to the cessation of the Employment’.[2] ‘Restraint Period’ is defined in cl 31.20 as:

the period commencing on the date of cessation of the Employment (however that termination may occur) and for a period of:
(a) 12 months;
(b) 9…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2016] VSC 582
Decision Date: 26 September 2016

CaseChat Overview and Summary

Crowe Horwath Pty Ltd brought a proceeding against Loone in the Federal Court of Australia. The plaintiff, a firm of accountants, sought an injunction to restrain the defendant from providing services to 89 of its clients, with whom the defendant had direct dealings in the 12 months prior to termination of employment. The plaintiff argued that the defendant’s employment contract contained a restraint of trade clause, which was enforceable given the legitimate interest the plaintiff had in protecting its client base, and that the defendant’s proposed business would be in direct competition with the plaintiff. The defendant, Loone, contested the enforceability of the restraint of trade clause on the basis that it was unreasonable and thus void. The court was required to determine whether the restraint of trade clause in the defendant’s employment contract was reasonable and enforceable, and if so, whether an injunction should be granted to prevent the defendant from providing services to the plaintiff’s clients.

The court considered the principles established in previous cases, including Mobil Oil Australia Ltd v Wellserv Australia Pty Ltd and the more recent decision in Super Cool Pty Ltd v McWilliam. The court noted that the restraint of trade clause in the defendant’s employment contract was not unconscionable or otherwise against public policy. It was also a legitimate attempt to protect the plaintiff’s confidential information and client base. The court further found that the restraint of trade clause was reasonable in its scope and duration, given the nature of the defendant’s role and the sensitive nature of the information he had access to. The court also noted that the defendant’s proposed business would be in direct competition with the plaintiff, and that there was a real risk of the defendant using confidential information to gain an unfair advantage. Therefore, the court granted the injunction to restrain the defendant from providing services to the 89 clients until the trial of the proceeding.

The court’s decision was grounded in the principles of protecting legitimate business interests and preventing unfair competition. The court found that the restraint of trade clause was reasonable and enforceable, given the nature of the defendant’s employment and the legitimate interest of the plaintiff in protecting its client base. The court also noted that the defendant’s proposed business would be in direct competition with the plaintiff, and that there was a real risk of the defendant using confidential information to gain an unfair advantage. The court’s decision was therefore in line with the principles established in previous cases, and provided a clear and enforceable protection for the plaintiff’s legitimate business interests. The court ordered that the defendant be restrained from providing services to the 89 clients until the trial of the proceeding.

Orders