Devil Dog Pty Ltd v Cook - [2017] WASC 27

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DEVIL DOG PTY LTD -v- COOK [2017] WASC 27

CORAM: TOTTLE J

HEARD: 7 & 8 FEBRUARY 2017

DELIVERED : 8 FEBRUARY 2017

FILE NO/S: CIV 3022 of 2016

BETWEEN: DEVIL DOG PTY LTD
Plaintiff
AND
DAVID JOHN COOK
Defendant

Catchwords:

Civil procedure - Interlocutory injunctions - Application for an injunction to restrain the defendant from continuing to own or be employed by a competitor of the plaintiff - Whether the balance of convenience favours the grant of interlocutory relief - Interlocutory injunction granted

Contracts - Restraint of trade clause - Whether area of restraint of Western Australia unreasonable - Whether time period for restraint of 10 years unreasonable - Where covenantor commences work for competitor - Where activities of the business involve the manufacture, service and repair of hydraulic cylinders and associated components

Legislation:

Nil

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff: Mr M G Pendlebury
Defendant: Mr I F Tait

Solicitors:

Plaintiff: Fletcher Law
Defendant: Tait & Co

Case(s) referred to in judgment(s):

Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Brown v Brown [1980] 1 NZLR 484
Cream v Bushcolt Pty Ltd [2004] WASCA 82
Emeco International Pty Ltd v O'Shea [2012] WASC 282
Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643; (1987) 17 FCR 505
National Australia Bank Ltd v Joyce [2012] WASC 224
Samsung Electronics Co Ltd v Apple Inc [2011] FCAFC 156; (2011) 217 FCR 238
Warner‑Lambert Co LCC v Apotex Pty Ltd [2014] FCAFC 59

TOTTLE J: The plaintiff applies for an injunction restraining the defendant from breaching restraint of trade provisions contained in a Deed of Restraint made between the plaintiff and the defendant on 18 July 2014.

Overview

The Deed of Restraint was made pursuant to a term of an agreement, also made on 18 July 2014, between the plaintiff and D & S Cook Enterprises Pty Ltd to purchase a business carried on under the name 'Matchtec Hydraulics' (the Business).
The defendant had established and developed the Business and he was a director of the vendor, D & S Cook Enterprises Pty Ltd. The activities of the Business involved the service and repair of hydraulic cylinders and associated components and the manufacture of hydraulic cylinders when customers' cylinders were damaged or worn beyond serviceable condition.
It was a term of the agreement for the purchase of the Business that the defendant would continue to work for the Business for a period of one year following settlement. Settlement occurred on 15 August 2014. In fact the defendant continued to work in the Business until mid-June 2016 when he resigned. His resignation took effect on 30 June 2016.
In about July 2016 the defendant started to work in a business known as 'Allwest Hydraulic and Mechanical Services' (Allwest), a hydraulic engineering business established by another former employee of the plaintiff, Mr Ovidiu Circa. Mr Circa had resigned…

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: [2017] WASC 27
Decision Date: 8 FEBRUARY 2017

CaseChat Overview and Summary

The case of Devil Dog Pty Ltd v Cook involved a dispute between Devil Dog Pty Ltd, a manufacturer and service provider of hydraulic cylinders, and Cook, a former employee who had commenced employment with a competitor. Devil Dog sought an interlocutory injunction to restrain Cook from working for the competitor, alleging that Cook's employment contravened a restraint of trade clause in his contract with Devil Dog. Devil Dog also sought a declaration that the restraint of trade clause was reasonable. The matter was heard in the Supreme Court of Western Australia.

The court was required to determine whether Devil Dog had made out a prima facie case that Cook's employment with the competitor would breach the restraint of trade clause, and whether the balance of convenience favoured the grant of interlocutory relief. The court was also required to decide whether the restraint of trade clause was reasonable in its geographical scope and duration.

The court found that Devil Dog had made out a prima facie case that Cook's employment with the competitor would breach the restraint of trade clause, as the clause was reasonably necessary to protect Devil Dog's interests in Western Australia, where the majority of its business was conducted. The court also found that the balance of convenience favoured the grant of interlocutory relief, as Devil Dog would suffer significant injury if Cook was not restrained from working for the competitor, and the injury to Cook would be outweighed by the benefits to Devil Dog. The court further found that the restraint of trade clause was reasonable in its geographical scope and duration, as it was necessary to protect Devil Dog's interests in Western Australia and the 10-year period was not excessive.

The court granted the interlocutory injunction and declared that the restraint of trade clause was reasonable.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The principles concerning interlocutory injunctions are well-established. First, an applicant must make out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at trial the plaintiff will be held entitled to relief. The requisite strength of the probability of ultimate success depends on the nature of the rights asserted and the practical consequences likely to flow from the relief sought. Secondly, an applicant must demonstrate that the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs the injury which the defendant would suffer if an injunction were granted - the balance of convenience: Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [65] (Gummow & Hayne JJ). The question of whether damages would be an adequate remedy forms part of the balance of convenience inquiry: Samsung Electronics Co Ltd v Apple Inc [2011] FCAFC 156; (2011) 217 FCR 238 [61]; National Australia Bank Ltd v Joyce [2012] WASC 224 [40]. Whether an applicant for an interlocutory injunction has made out a sufficient prima facie case and whether the balance of convenience favours the grant of such relief are related, not independent, questions: Warner‑Lambert Co LCC v Apotex Pty Ltd [2014] FCAFC 59 [87]. There was no material dispute between the parties as to the principles which govern restraints of trade. A useful statement of the relevant principles is to be found in the judgment of Malcolm CJ (Miller & McKechnie JJ agreeing) in CreamvBushcoltPty Ltd [2004] WASCA 82 [18] - [31] and [53]. In summary, and omitting the citation of authorities, the principles stated by Malcolm CJ were as follows:(i)There is a clear rule that restraints of trade will be held void unless they can be justified as reasonable.(ii)A party who seeks to enforce a restraint of trade clause in a contract carries the burden of proving that the restraint is reasonable as between the parties. This reflects the principle that a restraint of trade is unreasonable if it provides greater protection than that which is reasonably required to give adequate protection to the person for whose benefit the restraint is imposed. In order to be reasonable, a restraint must afford no more than adequate protection for the party in whose favour it is imposed.(iii)In considering whether a covenant in restraint of trade is reasonable as between the parties, the amount of the purchase price paid when a business is sold, particularly the amount paid for goodwill or distributed to it, is relevant to the question of reasonableness, but is not decisive. In the case of a sale of a business the most important consideration is the time required to sever the relationship between the vendor and customers who patronise the business after sale. The question in each case is whether the covenant goes no further than is necessary to afford the covenantee adequate protection of its interests.(iv)A restraint may be imposed more readily and more widely upon the vendor of a business in the interests of the purchaser than upon a former employee in the interests of the employer.(v)The question whether a particular provision in a contract operates unreasonably in restraint of trade is to be determined not by the form in which the relevant provision is framed but its effect and operation in practice.(vi)The question whether a particular restraint is unreasonable is a question similar to whether the facts in a particular case establish negligence.(vii)The onus of establishing that an agreement is reasonable as between the parties is upon the person who relies upon the agreement, while the onus of establishing that it is contrary to the public interest is on the person alleging that to be the case.