Eroldo Pty Limited v Abbott

[2003] NSWSC 1239

CITATION:	Eroldo Pty Limited v Abbott [2003] NSWSC 1239
HEARING DATE(S):	11 December 2003
JUDGMENT DATE:	11 December 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Summons dismissed
CATCHWORDS:	CONTRACTS - illegal contracts - covenant in restraint of trade - whether enforceable
PARTIES :	Eroldo Pty Limited (Plaintiff) Karen Abbott (Defendant)
FILE NUMBER(S):	SC 5759 of 2003
COUNSEL:	P D Gray-Grzeszliewicz (Plaintiff) D Shoebridge (Defendant)
SOLICITORS:	Jane Adams Lawyers (Plaintiff) Fishburn Watson O'Brien (Defendant)

- 5 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

THURSDAY 11 DECEMBER 2003

5759/03 - EROLDO PTY LIMITED v KAREN ABBOTT

JUDGMENT

1 HIS HONOUR: In this case the plaintiff company seeks an injunction to restrain breach by the defendant of a clause in a contract of employment which restrains the defendant for a period of six months after termination of employment with the plaintiff:

.... within thirty kilometres directly or indirectly, on your own account or on behalf of or within association with others carry on, be employed in or be in any way involved in any activity or business of providing the services of a real estate agency.

2 The injunction which the plaintiff seeks is not so widely based as it would be entitled to under the particular restraint clause in the agreement, but rather, has a more limited geographical area, namely, within 25 kilometres of Coffs Harbour, but, in addition, within Woolgoolga, which is a town to the north of Coffs Harbour, further away than 25 kilometres, but, as I understand it, is accepted as within thirty kilometres of Coffs Harbour. So that there is no undue suspense, I should say, at this stage, in my view the plaintiff’s claim fails, so the summons will have to be dismissed.

3 In general, contracts in restraint of trade are illegal unless they protect legitimate interests of the person or company with the benefit of the covenant. Insofar as they are wider than is necessary for their purpose, either in length of time or in geographical width, they can be read down in accordance with the New South Wales legislation.

4 If, however, they are not, on any basis of reading down, necessary to protect the legitimate interests of the person or company having the benefit of the covenant, then they cannot be enforced. That is the question, in a simple way, which has to be decided in this case.

5 The defendant commenced work with the plaintiff company on 8 February 2003. She left that employment on 28 October 2003. She is employed by another real estate agency in Coffs Harbour. The evidence shows that she has been mainly employed in activities involved in the sale of commercial and industrial property, but it is clear that her activities are not entirely limited to that type of business.

6 The agreement is said to be a workplace agreement under a current enterprise agreement. I do not think it necessary to determine whether or not there is a current enterprise agreement for the purposes of this action. There is no doubt that the agreement, which includes the restraint clause, was signed by the defendant. Although she says she took little notice of it, that is irrelevant. People who sign contracts without reading them take the consequences of doing so. It is not suggested that the contract should be set aside.

7 The only question is whether or not the restraint in the document ought to be enforced. The restraint appears in a part of the agreement headed: ”Confidential information and obligation not to compete.” Under that heading there is a subheading called “Introduction” which sets out, or states, that the plaintiff company is a real estate agency, that the defendant is a salesperson who will have access to confidential information, and that this is of importance and must not be allowed to be disclosed.

8 Subheading 2 relates to “confidential information”, and its use during employment or after termination, namely, that it not be divulged to any persons other than for the purposes of the plaintiff company and its business and affairs. “Confidential information” is defined as including, but not limited to, certain matters, namely, names and details of clients, affairs of clients, technical matters such as trade secrets, technical data, marketing procedures, accounting programs and the like, and other information which is stated by the employer to be confidential.

9 The “obligation not to compete” is set out in subparagraph 3 under the said heading. It states as follows:

In order to reasonably protect the goodwill of Coffs Harbour Professionals, you agree that you will not, without prior consent (of) Coffs Harbour Professionals, directly or indirectly participate, assist or be interested in (whether as a sole operator, partner, associate, consultant, employee, independent contractor, employer or in any other capacity) the commission of each restricted activity during each restricted period as defined below. You acknowledge that the restraints imposed by this clause are fair and reasonable.

10 For the purposes of this agreement each of the following activities is a restricted activity, together with a restricted period:

(a) Soliciting the business of any client of Coffs Harbour Professionals for services similar to those supplied by Coffs Harbour Professionals for six months after your employment ends;

(b) Soliciting any employee of Coffs Harbour Professionals to leave the employment or agency of Coffs Harbour Professionals for six months after your employment ends;

(c) For a period of six months after your termination of employment within 30 kilometres directly or indirectly, on your own account or on behalf of or within association with others carry on, be employed in or be in any way involved in any activity or business of providing the services of a real estate agency.

11 It is this last subparagraph (c) that the plaintiff seeks to enforce in these proceedings. There is no suggestion that the defendant is in breach of subparagraphs (a) and (b). I accept, for purposes of these proceedings that there is no doubt that the restraint under subparagraphs (a) and (b) is a reasonable restraint for legitimate interests of the business of the plaintiff company, although, in stating that, I am not to be taken as necessarily determining that the geographical area is reasonable.

12 I am to be taken, however, as determining that the period of six months is reasonable, because the evidence of the plaintiff, through its managing director, Mr Young, is that for the most part agency agreements for the sale of property are, or were at least at the time the agreement was entered into, for a period of six months, which was a normal period at that time, from listing to sale.

13 Mr Young’s evidence is that he made the plaintiff aware of his sales methods. There is nothing to show that there was anything which would make those methods confidential information of the plaintiff company, rather than just an efficient method of conducting a real estate agency business. The evidence of Mr Young is that the defendant, having been introduced to some of the customers of the plaintiff, may be approached by the defendant and asked to terminate their existing agreements with him, which apparently they might be able to do under amendments to the relevant Real Estate Sales legislation.

14 If the defendant did take some action, then it is my view she would be in breach of subparagraph (a) of the restraint clause, and it would be appropriate to restrain her accordingly. There is no evidence of any such action. There is no evidence of any threat of any such action.

15 Clients of the plaintiff would, of course, be part of the goodwill of the plaintiff, and their custom would be something which the plaintiff was entitled to protect by appropriate covenant. The part of the covenant sought to be enforced is, however, a pure restraint on competition, not shown to be required for the legitimate interests of the plaintiff. The only detriment which could be shown that the plaintiff company might suffer is that it might have lost some chance of obtaining a listing of a property, which it does not obtain because the defendant, through her efforts, has obtained such a listing for her new employer, and thereby, if you like, deprived the plaintiff company of the chance that it would have had to obtain that listing, had the defendant not been employed by another agent.

16 I do not consider that is an inroad on the goodwill of the plaintiff company which can be protected by a restraint clause. I should say, if it were – and I do not think it is – then this would not be an appropriate case for an injunction.

17 In those circumstances the summons must be dismissed with costs. I so order.

**********

Last Modified: 12/22/2003