FNET v Laksanabencharong

[2009] NSWSC 708

CITATION:	FNET v Laksanabencharong [2009] NSWSC 708 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	23rd June 2009
JUDGMENT DATE :	30 June 2009
JURISDICTION:	Equity
JUDGMENT OF:	Slattery J at 1
DECISION:	A restraint should be imposed in the terms sought by the plaintiff but not one that will endure for a period longer than the restraint that is likely to be imposed at a final hearing.
CATCHWORDS:	Termination of sub-contract - Breach of terms of sub-contract - Restraint clause - Want of consideration for restraint - Reasonableness of restraint - Damages as an adequate remedy - Interlocutory relief
CATEGORY:	Principal judgment
CASES CITED:	Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 Cactus Imaging Pty Limited v Glenn Peters [2006] NSWSC 717 Cremoata v Rice Equalization Association Limited (1953) 89 CLR 286 Hitech Contracting Limited v Lynn BC200108978 Industrial Rollformers Pty Limited v Ingersoll Rand (Australia) Pty Limited [2001] NSWCA 111 Sundell & Sons Pty Limited v Erin Yannoulatos (Overseas) Pty Limited (1956) 323
PARTIES:	FNET Pty Limited ACN 109 209 547 (Plaintiff) Sitthichai Laskanabencharong (Defendant)
FILE NUMBER(S):	SC 3251/09
COUNSEL:	S Phillips (Plaintiff) D Raphael (Defendant)
SOLICITORS:	Henry Davis York (Plaintiff) Penhall & Co (Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

Slattery J

30 June 2009

3251/09 FNET Pty Limited v Sitthichai Laksanabencharong

JUDGMENT

1 HIS HONOUR: These full reasons are published today in respect of orders that were made yesterday. The portion of this judgment under the heading below “The Restraint” was pronounced yesterday.

2 The plaintiff, FNET Pty Limited was set up in July 2004 in association with John Fairfax Holdings Limited to provide wholesale operations for and home delivery of Fairfax publications. The plaintiff’s business has expanded beyond these origins. Now it delivers publications and parcels to residences as well as to businesses along established commercial service routes. The evidence in this case suggests that its business is substantially based in New South Wales.

3 A significant component of the plaintiff’s business now is contracting with Australia Post to provide delivery services on behalf of Australia Post. The plaintiff currently sub-contracts thirty drivers to do this work under 5 contracts, one for each of the Chatswood, Lane Cove, Newtown, Crows Nest and Mt Colah post code areas.

4 The defendant, Sitthichai Laksanabencharong, was first employed by the plaintiff from 22 August 2005 after he answered an advertisement published by the plaintiff seeking employee delivery drivers. The defendant ceased to be an employee on 30 June 2006 and became a subcontractor of the plaintiff commencing on 1 July 2006. The terms of that subcontract are one of the matters in issue in these proceedings.

5 The defendant worked as a subcontractor for the plaintiff until 22 May 2009 when his sub-contact was terminated by the plaintiff. The termination without notice was initiated by the plaintiff on that date because the plaintiff had formed the view that the defendant had breached the terms of the defendant’s sub-contract by tendering for a contract for the delivery of parcels for Australia Post in the Mt Colah post code district in which district at the time of tender the plaintiff was the incumbent operator. As the evidence analysed below indicates, if the sub-contract contained the terms contended for by the plaintiff, there was a basis to support the plaintiff’s belief that such a breach had occurred.

6 The defendant was involved in bidding for Australia Post tenders in March 2009. He submitted tenders without seeking the prior consent of the plaintiff. He was successful against other bidders in receiving the Mail Contract Tender for the Mt Colah post code area.

7 On the plaintiff’s version of the sub-contract, it contained a restraint (clause 22) against the defendant which would constrain the defendant’s presently proposed business operations after the termination that has occurred. Clause 22 provides as follows:

22 RESTRAINT
22.1 The Sub-contactor undertakes to the Principal-contractor that it will not, and will ensure that none of its Associates (as defined in the Corporations Act 2001 (Cwth ) shall within the Restraint Period, be engaged in any business or activity which involves the provision the Services or similar Services to any Customer (for which Customer the Sub-contractor provided Services within the six months prior to the cessation or termination of this Agreement) within the Delivery Area or any other area where the Sub-contractor provided the Services to that Customer.
For the purposes of this clause, “engaged or involved in” includes direct or indirect involvement as principal, agent, partner, employee, shareholder, unit-holder, director, trustee, beneficiary, manager, consultant, advisor or financier.
22.2 In this clause:
“Restraint Period” means:

(a) any period during the term;

(b) a period of six (6) months from the date of cessation or termination of this Agreement; but if for any reason this period is unenforceable, then

(c) a period of three (3) months from the date of cessation or termination of this Agreement;
The covenant contained in clause 22.1 of this Agreement shall be construed as if it was the number of separate covenants which results from combining clause 22.1 with clause 22.2, each resulting sub-clause being severable from each other resulting sub-clause. Of any such separate resulting sub-clause shall be invalid or unenforceable for any reason, such invalidity or unenforceability shall not prejudice or in any way affect the validity of enforceability of nay other resulting sub-clause.
22.3 If any of the prohibitions or restrictions contained in this clause is judge to go beyond what is reasonable in the circumstances and necessary to protect the goodwill of the business of the Principal-contractor but would be judged reasonable and necessary if any activity were deleted or a period or area were reduced, then the prohibitions or restrictions apply with that activities deleted or period reduced by the minimum amount necessary.
22.4 Each of the prohibitions and restrictions in this clause has effect as a separate and severable prohibition or restriction and is not to be enforced accordingly.
22.5 The Sub-contractor acknowledges that all of the prohibitions and restrictions in this clause are reasonable in the circumstances and necessary to protect the business of the Principal-contractor.

8 The restraint operated both during the term of the sub-contract and for a period of six or alternatively three months after termination, preventing the defendant from being engaged in any business or activity which would involve the provision of services similar to those under the sub-contract to any customer of the plaintiff to whom the defendant had provided services. It is said that Australia Post was just such a customer of the plaintiff to whom the defendant had provided services.

9 On this interlocutory hearing the plaintiff seeks interim relief restraining the defendant in the terms of clause 22 for a period until further order from:

“engaging in any business or activity which involves the provision of of parcel delivery services to Australia Post within the Chatswood territory (the area covered by postcodes 2064, 2067 and 2069),the Crows Nest territory (the area covered by postcode 2065), the Lane Cove territory (the area covered by postcode2066) and the Mt Colah territory (the area covered by postcodes 2079, 2080, 2081, 2082 and 2083)”

10 The defendant resists the grant of such relief on several grounds which are set out in its written submissions and which are examined below. For convenience these grounds may be grouped under the following headings.

a. No sub-contract term of the kind alleged by the plaintiff (clause 22) exists
b. Any restraint sought to be imposed is unenforceable for want of consideration
c. Any restraint sought to be imposed is unreasonable
d. Damages are not demonstrated to be an inadequate remedy
e. The balance of convenience

11 I find below in these reasons that interlocutory relief of the kind sought by the plaintiff should be granted for a limited period of three months dating from the termination of the contract on 22 May 2009, that is until 21 August 2009. First though it is necessary to briefly state the relevant principles that govern the grant of interlocutory injunctions which are being applied here.

12 In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199, the High Court held that, where an interlocutory injunction is sought in respect of private rights, it is first necessary to identify the legal or equitable rights which are to be determined at the trial and in respect of which the final relief is sought. In the present case the final relief that is sought includes a permanent injunction in terms of clause 22 of the subcontract. At a final hearing whether clause 22 is a term of the subcontract and whether it was breached by the defendant will be central issues.

Background

13 In this case the legal or equitable rights which are to be determined at the trial may readily be identified by briefly supplementing the facts that have been set out in summary above when discussing the issues raised in the case. Then it is necessary to consider whether there is a serious question to be tried or whether the plaintiff has made out a prima facie case in the sense that if the evidence remains as it is there is a probability that that at the trial of the action that the plaintiff will be held entitled to relief. This will emerge from analysis of the defendant’s grounds for resisting relief.

No sub-contract term of the kind alleged by the plaintiff (clause 22) exists

14 There is no issue between the parties that a subcontract relationship has existed between them since 1 July 2006. The defendant has obtained and used an Australian Business Number, ABN 29 564 165 959, to run an independent business for tax purposes. He has also lodged Workers Compensation and Payroll Tax and other statements as a subcontractor – and using that ABN. There was a degree of formality in negotiations to effect that change which he admits in his own evidence.

15 The plaintiff’s case is that it had obtained a signed copy of the subcontract agreement including clause 22 from the defendant but it appears since to have gone missing. There is some force in this case at final hearing because of the signature of like agreements. The defendant denies signing an agreement. It would be difficult to predict the outcome of this debate at final hearing. However the plaintiff’s case does not depend on it proving the existence of an agreement signed or it proving the existence of an agreement signed by the defendant. The plaintiff says that the defendant was on notice of the terms of the subcontract and had agreed by his conduct to be bound by its terms. The plaintiff submits (and will submit at final hearing) that a reasonable bystander would regard the defendant’s conduct as signalling to the plaintiff that its offer with respect to the subcontract had been accepted: see Industrial Rollformers Pty Limited v Ingersoll Rand (Australia) Pty Limited [2001] NSWCA 111 at [136]. The defendant even on his own case had a copy of the terms of the subcontract at its commencement. He says he expected to receive a final agreement telling him how much he could be paid but he was never given a final agreement to look at. He says he took the agreement home to read it. Once he did not receive a final form of agreement he did not ask for a copy but he was obviously being paid on a final basis. At trial the defendant will face quite a strong case that he must have appreciated that the plaintiff regarded the agreement as having been finalised on the terms that had been discussed. His answer to that does not include saying that any other terms or agreement were discussed between the parties at a later stage.

16 Force is added to the plaintiff’s case at final hearing by Mr Morello’s evidence that the defendant was very indirect with him about the possibility of the defendant bidding for other Australia Post Contracts and may indeed have concealed that from him. If this is right it may show a degree of consciousness by the defendant of the fact that he was bound by a restraint of the kind recorded in clause 22. The defendant’s affidavits do not meet head on or give any satisfactory explanation of this conduct which is relied upon by the plaintiff.

17 This is clearly a matter in contest for final hearing. At present though it is not asserted for example by the defendant that he did seek the plaintiff’s consent to his Mt Colah bid. The plaintiff’s case at trial may be that the breach was conscious and deliberately concealed. If the defendant was bound by clause 22 a clear answer to the plaintiff’s evidence on breach does not yet emerge from the defendant’s affidavit evidence.

Any restraint sought to be imposed is unenforceable for want of consideration

18 The defendant makes several points under this heading. He points to Cremoata v Rice Equalization Association Limited (1953) 89 CLR 286 at 318 and submits that a restraint covenant is not enforceable if there is no consideration passing from the promisee of the restraint to the promisor. There is consideration in the various amounts paid to the defendant under the subcontract.

19 If the defendant’s submission based upon Cremoata (at 318) is that the promisee must have a real interest to be protected then that is sufficiently answered here by the plaintiff’s submissions, that it had a legitimate interest in protecting by means of the clause 22 restraint and to propound at final hearing namely the legitimate interest in protecting the connection the plaintiff has with its customers: Cactus Imaging Pty Limited v Glenn Peters [2006] NSWSC 717 at [25] per Brereton J.

20 The plaintiff’s evidence that the defendant held confidential information of the plaintiff is vague at this stage but it may yet be developed for a final hearing. I do not place weight on it in my present reasons, nor to the “springboard effect” argument. The plaintiff has a sound argument at a final hearing that it has a legitimate interest to protect by the restraint which is not a mere attempt to protect itself against competition.

21 The defendant also relies upon Sundell & Sons Pty Limited v Erin Yannoulatos (Overseas) Pty Limited (1956) 323 to found a submission that payment of consideration under the agreement for its performance is not sufficient consideration to uphold a restraint. Sundell does not speak to the present circumstances where the plaintiff has an arguable legitimate interest to protect and it is soundly arguable that the restraint was present in the original contractual bargain for which the subcontract sum was payable.

Any restraint sought to be imposed is unreasonable

22 Cases such as Cactus Imaging Pty Limited v Glenn Peters [2006] NSWSC 717 show that the length of time for which a restraint covenant will be supportable as reasonable will depend to a considerate extent on the legitimate interest that it protects.

23 There is extensive evidence advanced through Mr Morello for the plaintiff that the defendant was involved in staff assessment and selection in relation to a variety of contracts that the plaintiff was performing or preposing to perform for Australia Post in several postcode areas. The defendant’s alleged role in assisting in bids for future contracts is denied but there is less contest about his role in assisting with current contracts. Even in this latter role his contact with and duties in relation to the plaintiff’s staff who in turn have contact with Australia Post, together with his own contact with Australia Post would give him influence in relation to the plaintiff’s customer connection with Australia Post that would arguably be expected to endure for many months after termination of the subcontract. This is a case where it could be anticipated that a restraint of three months could well be supported as reasonable at final hearing. Support for the longer restraint of six months in clause 22 is doubtful.

Damages are not demonstrated to be an inadequate remedy

24 The plaintiff submits that damages will not be an adequate remedy. The defendant says that the plaintiff is only likely to have suffered minor provable damage and that issue should be tried in the District Court. The defendant says that the plaintiff should be left to its action in damages for breach of contract.

25 The defendant’s contention as to the adequacy of damages is not correct. It would be very difficult to assess damages in this case with respect to the Mt Colah contract. The plaintiff would have to attempt to prove whether or not it would have won that contract if the defendant had performed its contract with the plaintiff and not pursued the tender with Australia Post for the Mt Colah postcode area.

26 The considerations here about the adequacy of damages are not dissimilar to those faced by Austin J in Hitech Contracting Limited v Lynn BC200108978. Although Hitech was an employee case, as the defendant rightly points out, similar issues as to the adequacy of damages are likely to be common to cases involving employees and independent contractors. Here the plaintiff’s potential losses associated with the defendant’s securing the Mt. Colah contract, if any, would be extremely difficult to calculate. They would depend on whether or not the plaintiff would have been the successful tenderer for the Mr Colah contract if the defendant had not been a tenderer for that contract. As there were a number of tenderers for that contract to Australia Post that is not a straight forward matter to determine.

The balance of convenience

27 The defendant advances a number of arguments in relation to the balance of convenience. The defendant says that the plaintiff would be prevented from making a living if a restraint is imposed. This submissions takes an overly broad view of the evidence. At best the restraint would prevent the defendant from operating a business in five groups of postcode areas in some parts of Sydney. It has not been suggested in the evidence that Australia Post does not call for tenders for similar parcel delivery services on its behalf in other postcode areas in the Sydney metropolitan region and indeed in other regions. Furthermore despite the proposed restraint the defendant’s skills would still be deployable without any restraint in the operation of any parcel delivery service for any customer other than Australia Post either as an employee or in operation of his own business anywhere he chooses. The restraint sought in this case only prevents him from providing services to Australia Post.

28 The defendant also says that a restraint would put Australia Post in the position of having to choose between the plaintiff and the defendant in carrying on the Mt Colah contract. Australia Post would be disabled by the restraint proposed only from choosing the defendant to perform the Mt Colah contract further. The plaintiff submits that if a restraint is imposed that it would be in a position to perform the Mt Colah contract at short notice if required by Australia Post, as it did last year to replace a party to that contract who was terminated by Australia Post. The machinery orders that appear below to protect Australia Post and to ensure the continuity of the public postal service will allow it a full opportunity to select the contractor that it wishes to perform the Mt Colah contract from Wednesday 1 July. It may be the plaintiff that is successful in that selection process but it may also be one of the other parties against whom the plaintiff and the defendant were recently bidding for the Mt Colah contract who is successful.

Other Arguments advanced by the Defendant

29 The defendant argued that it was not established on the evidence that Mr Claude Morello was authorised as a mere director of the plaintiff to speak for the plaintiff. This point really fails to address the nature of Mr Morello’s evidence that makes clear that he is performing an executive role within the plaintiff apart from his being a director. There is no challenge made to the retainer of the plaintiff’s lawyers and I see no reason to consider this argument any further at an interlocutory stage. If it is to be pressed it can be resolved at final hearing.

The Restraint

30 For the reasons stated I have reached the conclusion that a restraint should be imposed in the terms sought by the plaintiff but not one that will endure for a period longer than the restraint that is likely to be imposed at a final hearing. I am not satisfied that at final hearing that a Court would be likely to uphold the restraint for the full six month period in clause 22 of the subcontract. Although the defendant had been either employed by or sub-contracted to the plaintiff since about August 2005, a period of almost four years, and there was sufficient evidence to support the conclusion that the defendant had gained a position of seniority and trust in his relationships with the plaintiff that went somewhat beyond the role of a contract driver I am more confident that the alternative restraint period of three months would be likely to be upheld at a final hearing. Weighing in the balance the other way is the fact, as the defendant submits that under clause 16 the contract was terminable by either party without cause on 30 days written notice to the other party. Also many of the defendant’s duties were still in the nature of driving duties. He was not a senior manager.

31 Accordingly I propose to order as follows that upon the plaintiff by its counsel giving the usual undertaking as to damages the defendant is restrained until final hearing or until 21 August 2009 which ever is the earlier from engaging in any business or activity which involves the provision of parcel delivery services to Australia Post within the Chatswood territory (the area covered by postcodes 2064, 2067 and 2069), the Crows Nest territory (the area covered by postcode 2065), the Lane Cove territory (the area covered by postcode2066) and the Mt Colah territory (the area covered by postcodes 2079, 2080, 2081, 2082 and 2083).

32 I am concerned that there may be some problem for Australia Post which is presently unforeseen by the parties which may result from the making of these orders today without any prior notice to it. This is a case in which a restraint will be imposed that has the potential to interfere with the public postal service in this state if a proper replacement delivery contract is not able to be put in place to replace the plaintiff’s contract which would otherwise commence on this coming Wednesday morning 1st July 2009. Accordingly I will stay this order with respect to the Mt Colah contract until 11.00am tomorrow, Tuesday 30 June until after which time Australia Post will have been given notice of this order. I direct the plaintiff to forward a copy of this order to a proper officer within Australia Post who has authority to administer the Mt Colah postcode area contract and otherwise has authority to deal with any issues with respect to that contract. Similar problems do not arise so far as I am aware with respect to the imminent commencement of any other contract. I do not see any present disadvantage to the plaintiff or the defendant in taking this course of staying the orders for this one contract for 24 hours now that the order is known. If there is no appearance for Australia Post tomorrow morning I will require evidence of the service of this order before lifting the stay on the order that I have proposed for the Mt Colah contract. If the making of this order creates any special difficulty for Australia Post that cannot readily be accommodated then it is invited to appear tomorrow morning to put any submissions it may be advised as to the form of order that it says should be made.

Directions and other orders

33 Directions must be made for the further disposition of these proceedings. Given the orders which the Court has made today this is now a matter for which there is ground for the expedition of a final hearing. The defendant may wish to seek to discharge the restraint ordered at a final hearing. The plaintiff may wish to argue for the extension of the restraint for an additional three months. Therefore such a hearing should take place at the earliest opportunity. Nevertheless the overall need for expedition of the matter should be considered by the expedition judge in the light of all the other demands for expedition in that list. Therefore if one or other of the parties requests it, I will stand the matter into the next expedition list on condition that one or other of the parties files a motion seeking expedition of the proceedings.

34 In the ordinary course costs of an interlocutory hearing such as this one, costs would be reserved pending determination at a final hearing. That is the order that I propose in the present case but I will hear the parties if any other order is to be sought.

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10/08/2009	-	Correction - Paragraph(s) 34
19/11/2009	-	8th last word- change "of" to "if" - Paragraph(s) 34