Habitat 1 Pty Ltd v Formby
[2016] WASC 376
•17/11/16
HABITAT 1 PTY LTD -v- FORMBY [2016] WASC 376
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 376 | |
| Case No: | CIV:2907/2016 | 10 NOVEMBER 2016 | |
| Coram: | BANKS-SMITH J | 17/11/16 | |
| 24 | Judgment Part: | 1 of 1 | |
| Result: | Interlocutory injunction granted | ||
| B | |||
| PDF Version |
| Parties: | HABITAT 1 PTY LTD CHRISTIAN MATTHEW FORMBY CHRISTIAN MATTHEW FORMBY as Trustee for THE FORMBY FAMILY TRUST CHANTELLE FORMBY as Trustee for THE FORMBY FAMILY TRUST CCAS (WA) Pty Ltd |
Catchwords: | Practice and procedure Interlocutory injunction Restraint of trade covenant Prima facie case that restraint is enforceable Balance of convenience favours grant |
Legislation: | Nil |
Case References: | Attwood v Lamont [1920] All ER Rep 55 BDO Group Investments (NSW-Vic) Pty Ltd v Ngo [2010] VSC 206 Bend-Tech Group (a firm) v Beek [2015] WASC 491 Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 Cream v Bushcolt Pty Ltd [2004] WASCA 82 DP World Sydney Ltd v Guy [2016] NSWSC 1072 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 Emeco International Pty Ltd v O'Shea [2012] WASC 282 Emeco International Pty Ltd v O'Shea [No 2] [2012] WASC 348 Ezeatm Ltd v Zani [2014] WASC 25 HRX Holdings Pty Ltd v Pearson [2012] FCA 161 John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 Lindner v Murdock's Garage (1950) 83 CLR 628 Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 Sear v Invocare Australia Pty Ltd [2007] WASC 30 Sidameneo (No 456) Pty Ltd v Plint [2015] WASC 243 Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169 SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516 Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164; (2014) 48 WAR 261 Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 Workplace Access and Safety Pty Ltd v Mackie [2014] WASC 62 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
CHRISTIAN MATTHEW FORMBY
First Defendant
CHRISTIAN MATTHEW FORMBY as Trustee for THE FORMBY FAMILY TRUST
First-named Second Defendant
CHANTELLE FORMBY as Trustee for THE FORMBY FAMILY TRUST
Second-named Second Defendant
CCAS (WA) Pty Ltd
Third Defendant
Catchwords:
Practice and procedure - Interlocutory injunction - Restraint of trade covenant - Prima facie case that restraint is enforceable - Balance of convenience favours grant
Legislation:
Nil
Result:
Interlocutory injunction granted
Category: B
Representation:
Counsel:
Plaintiff : Mr S J Penrose
First Defendant : Mr C S Gough
First-named Second Defendant : Mr C S Gough
Second-named Second Defendant : No appearance
Third Defendant : No appearance
Solicitors:
Plaintiff : Tottle Partners
First Defendant : Mills Oakley Lawyers
First-named Second Defendant : Mills Oakley Lawyers
Second-named Second Defendant : No appearance
Third Defendant : No appearance
Case(s) referred to in judgment(s):
Attwood v Lamont [1920] All ER Rep 55
BDO Group Investments (NSW-Vic) Pty Ltd v Ngo [2010] VSC 206
Bend-Tech Group (a firm) v Beek [2015] WASC 491
Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13
Cream v Bushcolt Pty Ltd [2004] WASCA 82
DP World Sydney Ltd v Guy [2016] NSWSC 1072
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Emeco International Pty Ltd v O'Shea [2012] WASC 282
Emeco International Pty Ltd v O'Shea [No 2] [2012] WASC 348
Ezeatm Ltd v Zani [2014] WASC 25
HRX Holdings Pty Ltd v Pearson [2012] FCA 161
John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995
Lindner v Murdock's Garage (1950) 83 CLR 628
Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505
Sear v Invocare Australia Pty Ltd [2007] WASC 30
Sidameneo (No 456) Pty Ltd v Plint [2015] WASC 243
Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169
SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164; (2014) 48 WAR 261
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110
Workplace Access and Safety Pty Ltd v Mackie [2014] WASC 62
- BANKS-SMITH J:
Introduction
1 The plaintiff (Habitat 1) specialises in the design and construction of commercial and office fit-outs.
2 The first defendant (Mr Formby) was a director of Habitat 1 and was also employed as the managing director of its business. He was employed pursuant to the terms of an Executive Sale Agreement (ESA) made between him and Habitat 1 on 23 February 2013.1 The terms of the ESA included a restraint of trade clause.
3 The third defendant is a company controlled by Mr Formby.
4 In February 2016, Mr Formby resigned and it is apparent that the relationship between him and his then fellow director, Geoffrey Pritchard, has irreparably broken down.
5 Habitat 1 alleges that since leaving its employment, Mr Formby has taken steps to establish a business called Habitat Interiors, sought to transfer the domain name of Habitat 1 to the third defendant and has taken other steps to interfere with Habitat 1's relationship with its clients and suppliers.
6 The plaintiff has issued proceedings seeking enforcement of the restraint of trade clause and also seeking recovery of loans it says are due to it by Mr Formby. It has brought this urgent application for interim relief by way of an injunction to enforce aspects of the restraint of trade clause. During the hearing before me, Mr Formby indicated that he was prepared to give certain undertakings pending trial, on his own behalf and on behalf of the third defendant. No relief is sought against the second defendants in this application.
The business of Habitat 1
7 The evidence on behalf of Habitat 1 was given primarily by way of two affidavits sworn by Mr Pritchard.2 Mr Pritchard says that Habitat 1's fitout business involves design, project management and construction, including the procurement of materials, the scheduling of trades and overall supervision of the building process and client liaison.3
8 It operates and has operated mainly in the metropolitan area of Perth, regional Western Australia, the metropolitan area of Melbourne and regional Victoria. It has also done and continues to do work in other areas of Australia including Queensland and New South Wales on an intermittent basis. In 2014 the plaintiff closed its Melbourne office but has recently employed a business development manager and one of its Perth based designers is due to relocate to Melbourne in early 2017.4
9 There is some limited evidence of specific projects undertaken by Habitat 1 in the Perth central business district (CBD) and elsewhere. For example, Mr Formby refers in his LinkedIn page to Habitat 1 projects, some of which appear to be in the Perth CBD,5 and he attaches to his affidavit a Habitat 1 Project Report (year to date as at January 2016) that refers to projects with names that include locations such as Warwick, Cockburn, Joondalup, Baldivis, Morley and Cottesloe.6
The February 2013 agreements
10 Mr Formby was a founding director of Habitat 1 (appointed in 2005), and remained a director and shareholder as at February 2013.7
11 At that time, the shares in Habitat 1 were held as to 50% by Mr Formby and the second-named second defendant (Ms Formby), as Trustees of The Formby Family Trust and as to 50% by a third party.8 The third party became ill and wished to sell his interest.9
12 On or about 22 February 2013, the trustee of The Pritchard Family Trust, a company called Maliza Pty Ltd, acquired the 50% shareholding from the third party. Maliza purchased the shares for a consideration of $1 million. The share sale was documented by way of a Shareholders Deed executed on or about 22 February 2013 between Habitat 1, Maliza, Mr Formby and Ms Formby.10
13 It was a condition precedent of the Shareholders Deed that the ESA be executed by Mr Formby. The Shareholders Deed also contained a restraint of trade clause.
14 The ESA was entered into on or about the same date. The Recitals in the ESA record that it was a condition precedent of the Shareholders Deed that the ESA be executed by Mr Formby.11
15 Mr Pritchard joined Mr Formby as a director of Habitat 1.
16 In summary, from around 23 February 2016 onwards, Mr Formby was a director of Habitat 1 and also employed by it under the ESA and entitled to a salary in accordance with its terms.
Mr Formby's role in Habitat 1
17 According to his counsel, Mr Formby 'made the company'.12
18 According to Mr Pritchard, Mr Formby was the person principally responsible for:
(a) obtaining work for the business;
(b) liaising with clients of the business in relation to their projects; and
(c) overseeing each of the projects undertaken by the business.
19 In his role, Mr Formby had access to all of the business' databases including as to current and prospective clients, suppliers, contractors and the like. Mr Formby also had a detailed understanding of how the business competed for and won clients including its pricing structures.13
20 Mr Formby acknowledges by the ESA that there is information confidential to Habitat 1. The acknowledgment clause is set out in full later in these reasons.
21 Mr Formby's role is also described in some length in the ESA. See, for example:
5.2 Specific duties
The Executive's specific duties include:
(a) managing the business of the Company and its Related Bodies Corporate including, without limitation, implementing strategic and tactical plans and managing operational functions to achieve the Company's goals and outcomes; review and initiate continuous improvement in support and administrative functions; implement employment policies and development of an effective and valued performance management framework;
...
(e) formulating strategies to promote and improve the financial performance of the company;
...
(h) developing new opportunities and expanding the Company's current activities and market share;
(i) supervising and implementing appropriate financial controls and accounting procedures, and the preparation of financial statements[.]
Mr Formby's departure
23 Mr Formby resigned from Habitat 1 by letter dated 16 February 2016.14
24 Following his resignation, Habitat 1 asserted that his employment was in any event terminated and there is clearly a dispute as to the circumstances of Mr Formby's resignation. For example, Habitat 1 makes allegations as to alleged misconduct on the part of Mr Formby during the latter period of his employment and those allegations are denied by Mr Formby.
25 There are other disputes between the parties aired in the papers before the Court. For example, there is a dispute as to whether or not Mr Formby is indebted to Habitat 1 by way of a shareholder loan. Habitat 1 seeks relief with respect to the loan in the writ which initiated these proceedings, but does not seek relief as part of this application. Mr Formby denies he is indebted to Habitat 1, and I was informed that there are separate contested proceedings before the court whereby Mr Formby is seeking production of books and records of Habitat 1.
26 Mr Pritchard also alleges that prior to his resignation, Mr Formby removed various items belonging to the company, including client files and back up tapes.15 Mr Formby denies this.
27 I acknowledge that these matters raise factual disputes which cannot be resolved without trial, but their resolution is not necessary for the purpose of this application.
Mr Formby's conduct post-departure
28 Mr Pritchard alleges that shortly before his resignation, and in the context of the unfolding dispute, Mr Formby threatened to leave Habitat 1 and set up in competition unless the shares in Habitat 1 were all transferred to him (which Mr Formby denies).16
29 Mr Pritchard alleges that after his resignation, Mr Formby has engaged in conduct in breach of the restraint of trade clauses and refers in particular to seven matters.
30 First, it is alleged that in February 2016 Mr Formby contacted Habitat 1's landlord and informed him that Habitat 1 was 'bankrupt' and would cease trading. The landlord passed on the information to Habitat 1.17
31 Second, in February 2016 Habitat 1's financial controller received a phone call from a Mr Deluca, the managing director of Habitat 1's major supplier. Mr Deluca told her that he had been contacted by Mr Formby who said that Habitat 1 would run out of cash and he would not be paid.18
32 Third, in March 2016 Habitat 1 was completing the design stage for one of its clients on a project in Hillarys when the client told him it no longer wished to proceed with construction. Mr Pritchard subsequently found out that Mr Formby completed the construction stage of the job.19
33 Fourth, in about March 2016 Mr Pritchard became aware of a company called Hawk Crest Pty Ltd. Hawk Crest has a website which states that Mr Formby is a director. Hawk Crest is described on the website as a design, project and construction company.20 Mr Formby says that the company was set up by his family and has no employees. He says he became a director eight months after he left Habitat 1, and that it operates as an architecture, project management and construction company.21 During the hearing, and when I raised with counsel whether this choice of words was intended to include or exclude fitout works, counsel said that Hawk Crest's business included some fitout works.22
34 The fifth matter of concern to which Mr Pritchard refers is that in October 2016 Habitat 1 received a telephone call and an email from two different clients informing it that someone purporting to be a 'contractor' (and in one case identifying themselves as 'John') called and warned them that Habitat 1 cannot pay its bills. Mr Pritchard knows of no contractor to Habitat 1 called 'John'.23 Mr Formby denies that he made these calls.24 One of the clients is Ramsay Healthcare. Ramsay Healthcare subsequently imposed a requirement on Habitat 1 that its terms of trade be changed such that they are now outside the usual 30 day terms that the business operates on.25
35 The sixth matter relates to Habitat 1's website, The website is its most significant marketing tool. On or about 20 October 2016, Mr Formby attempted to transfer the registration of the domain name to the third defendant. He completed transfer forms representing that he was the owner or principal of the current registrant and that the domain name had a close and substantial connection to the third defendant's business, and he sought to register the domain name in the name of the third defendant. Copies of the transfer forms were attached to Mr Pritchard's affidavit.26 The application was disclosed to Habitat 1 when its internet provider checked with Habitat 1 as to whether the application was genuine.27 Mr Formby does not deny the allegation.
36 The seventh matter raised by Mr Pritchard is that on 31 October 2016, he discovered that Mr Formby had established a business called Habitat Interiors offering commercial, retail and hospitality and medical fitouts. This was apparently discovered through a LinkedIn search. Mr Pritchard says that he is particularly concerned about the damage to Habitat 1 caused by the establishment of the business by Mr Formby.28
37 Habitat 1 makes other general allegations about Mr Formby's conduct or suspected conduct before and after his resignation, but I do not consider there is sufficient evidence or relevance to those allegations to expand upon them for the purpose of this application.
Mr Formby's qualifications and current roles
38 Mr Formby's affidavit does not disclose whether or how he is currently employed. Although he says that he became a director of Hawk Crest, he does not disclose his day to day role with Hawk Crest, if any. He provides no evidence as to income. As to Habitat Interiors, he says only that he has registered a domain name and that no business has been transacted in its name.29 The only other evidence that he provides relevant to his working arrangements is:30
My qualifications and employment background are in architecture, construction and project management. If I were to be restrained from working in my chosen profession, I would be unlikely to be able to support myself and my three children.
39 However, further information about Mr Formby's qualifications and work history is set out in his LinkedIn profile.31 Mr Formby did not suggest the profile, as attached to Mr Pritchard's affidavit, was not accurate. According to his profile, Mr Formby holds a Bachelor's Degree in Environmental Design and a Bachelor's Degree in Architecture (Hons) from the University of Western Australia. He states he is registered as a builder with Building Commission WA, registered as an architect with Architects Board of Western Australia, and a graduate of the Australian Institute of Company Directors. Mr Formby is also on an executive committee of the 'Young Presidents Organisation' and is a Business News '40 under 40' winner.
40 He recites his experience as follows:32
As an accomplished architect, builder, property developer, board member, Managing Director and business owner with 17 years of experience within the Design and Construction industry, I have a vast experience in architectural design, interior design, project management and construction. My experience combined with a knowledge of feasibility studies, lease negotiations and property consultancy are factors which have contributed to my current leadership roles.
I have strict attention to detail, a proven track record of achieving objectives, motivating teams, implementing organisational strategy, leveraging on professional networks, creating lasting business relationships, and working consistently and effectively to identify opportunities.
Consistently adding value to projects in the hotel, hospitality, commercial, medical, residential and retail industries.
Having owned and operated a successful interior design and construction firm for 11 years, my skill set is perfectly suited to my new venture Oracle Connect.
41 The profile also states that Mr Formby is currently a managing director of Hawk Crest and a managing director of Oracle Connect, described as a networking and collaboration project. He also states he is a director of TAO Hotels & Resorts, a boutique hotel operator based in Singapore.
42 As to Hawk Crest, it is promoted on its website (by a quote attributed to Mr Formby as director) as follows:33
We are a client side project management and construction team that deliver quality projects cost effectively. Combining our property development experience, architectural background and complete transparency through the build process, make us fairly unique.
43 As to Habitat Interiors, Mr Formby describes it as:34
[A] multi-disciplinary design and fitout company that specialises in hospitality, commercial, retail and medical projects. Habitat Interiors provides tailored services in: space planning, concept designs, full itemized budgets, turnkey fitouts, project management, custom furniture, design, graphics and signage, interior decoration and styling.
44 There is also a separate LinkedIn entry for Habitat Interiors as follows:35
Habitat Interiors is a multi-disciplinary design company based in Perth, Western Australia. Uniquely specializing in both architecture and interior design, Habitat Interiors offers design services in commercial and medical fitouts, along with retail and hospitality projects. Being Perth's newest design studio, we're approaching things a little differently. From conceptual design development through to architectural planning, construction and interior design, our wide skill set allows us to see projects from the bigger picture.
45 In summary, whilst Mr Formby has not been forthcoming about his current employment or available options in his affidavit, there is evidence by way of his LinkedIn profile that suggests he is currently involved in various companies, has experience in a wide range of work associated with the architecture and building industries and has networks available to him.
46 I note that counsel for Mr Formby said from the bar table that at the moment Mr Formby is operating as a 'one man band' project managing smaller jobs.36
The restraint of trade clause
47 The restraint of trade clause is comprised in the 'non-competition' section of the ESA and the relevant terms are as follows:
13.2 Restraint of trade
The Executive agrees with the Company that, during the Restraint Period and within the Restraint Area, the Executive will not, without the Company's prior written consent, directly or indirectly:
(a) engage in or be concerned or interested directly or indirectly in any business or person that:
(i) is the same or similar to the Business or any material part of the Business; or
(ii) in competition with the Business or any material part of the Business;
(b) solicit, canvass, induce or encourage any person who was at any time during the twelve month period ending on the date of termination of the Employment a director, employee or agent of the Company to leave the employment or agency of the Company;
(c) solicit, canvass, approach or accept any approach from any person who was at any time during the twelve month period ending on the date of termination of the Employment a customer of the Company with a view to obtaining the custom of any such person in a business which is the same or similar to the Business; or
(d) interfere with the relationship between the Company and its clients, employees or suppliers.
13.3 Application of restraint of trade
The agreement by the Executive in clause 13.2 applies to the Executive acting:
(a) either alone or in partnership or association with another person;
(b) as principal, agent representative, director, officer or employee;
(c) as member, shareholder, debenture holder, noteholder or holder of any other security; or
- (d) as trustee of or as a consultant or adviser to any person.
13.4 Interpretation
In this clause 13:
- (a) Restraint Area means:
(i) Perth and Melbourne;
(ii) Perth, Sydney, Melbourne, Brisbane, Adelaide; Hobart;
(iii) New South Wales, South Australia, Victoria, Queensland and Western Australia;
(iv) Australia;
(b) Restraint Period means:
(i) the period of 2 years after termination of the Employment;
(ii) the period of 1 year after termination of the Employment; or
(iii) the period of 6 months after termination of the Employment.
Clauses 13.3 and 13.4 have effect as comprising each of the separate provisions which result from each combination of a capacity referred to in clause 13.4 and an area, period and a category of conduct referred to in clause 13.3. Each of these separate provisions operates concurrently and independently. If any separate provision is unenforceable, illegal or void, that provision is severed and the other separate provisions remain in force.
13.6 Acknowledgment by Executive
The Executive acknowledges and agrees that each of the restraints imposed upon the Executive under this clause are fair and reasonable and are no greater than is reasonably necessary to protect the Company.
49 In addition to cl 13.5 set out above, there is a general severance provision:
21. SEVERANCE
If any provision of this Agreement is invalid and not enforceable in accordance with its terms, all other provisions which are self-sustaining and capable of separate enforcement without regard to the invalid provision, shall be and continue to be valid and forceful in accordance with their terms.
10. EXECUTIVE'S ACKNOWLEDGMENTS
The Executive acknowledges that:
(a) all trade and business secrets and other information and Documents which are not generally known or available or not already known or available to the Executive at the time of disclosure (other than through the Company's disclosure and without breach of this clause 10) but which relate to the affairs or business of the Company and its Related Bodies Corporate or any person with whom the Executive comes into contact as a result of this Agreement, or which come into the Executive's possession in the course and by reason of the Employment, whether or not the same were originally supplied by the Company or its Related Bodies Corporate, are confidential (Confidential Information);
(b) the Confidential Information has been and will be acquired by the Company or its Related Bodies Corporate at the Company's or its Related Bodies' Corporate initiative and expense :and
(c) the Company and its Related Bodies Corporate have spent and will spend effort and money in establishing and maintaining its customer base, employee skills and the Confidential Information. Accordingly, it is reasonable that the Executive should enter into the representations and warranties contained in this Agreement and, if the Employment is terminated, the Executive should continue to be subject to the restrictions set out in clauses 11, 12 and 13.
51 Habitat 1 seeks in its proposed orders an interim injunction in terms that seek to enforce against Mr Formby the restraints in cl 13.2(a)(i), cl 13.2(b) and cl 13.2(d) of the ESA in the geographical areas of the Perth and Melbourne metropolitan areas (identified by map) until further order.
52 Similar orders are sought with respect to the third defendant, but the position with the third defendant has been overtaken for practical purposes by the undertakings offered by Mr Formby.
Undertakings offered by Mr Formby
53 Mr Formby has offered to undertake as follows until trial:
1. Not in any way deal with the plaintiff company’s website, being the domain habitat1.com.au;
2. Delete the Habitat Interior[s] webpage and refrain from using the name Habitat Interior[s];
3. Remove from the Christian Formby LinkedIn profile all references to Habitat Interiors; and
4. Refrain absolutely from conducting any business through [the third defendant].
The relevant principles on interlocutory injunctions
54 The principles in relation to interlocutory injunctions were set out by Beech J in Twinside Pty Ltd v Venetian Nominees Pty Ltd.37 They are:
(a) whether there is a serious question to be tried or a prima facie case;
(b) whether the plaintiff will suffer irreparable injury for which damages will not be an adequate compensation for the plaintiff; and
(c) whether the balance of convenience favours the grant of the interlocutory injunction.
55 The major considerations are whether the first plaintiff has a prima facie case and where the balance of convenience lies. These two considerations are related. Adequacy of damages is best considered as an element of the assessment of the balance of convenience.
Restraint of trade clauses - general principles
56 The principles concerning the enforceability of restraint of trade clauses are collected by Edelman J in Emeco International Pty Ltd v O'Shea [No 2],38 and are also summarised by his Honour in Workplace Access and Safety Pty Ltd v Mackie as follows:39
(1) As Lord Macnaghten said in Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd:
'[I]t is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.'
(2) The onus of proof is on [the employer] to show that the restraint of trade clause in the employment agreement is reasonable as between the parties.
(3) The question of reasonableness is determined at the date of the contract, although subsequent developments can be considered to determine whether the agreement was reasonable to make at the date of contract, having in mind the best estimate that the parties could make for the future.
(4) A restraint is reasonable in relation to the restraining party if it is necessary for the adequate protection of a legitimate interest of that party and reasonable in relation to the party restrained if it preserves the fullest liberty of action consistent with that protection.
(5) The legitimate interests about which a restraint is commonly justified is customer connection and confidential information. A restraint may be justified as protecting more than one legitimate interest.
57 Edelman J also discusses the principles of severance of restraint of trade provisions in Emeco [No 2].40
Prima facie case
58 For the reasons that follow, and based on inferences and legal arguments that arise from the limited evidence before me, I am satisfied that Habitat 1 has demonstrated a prima facie case that the restraint imposed by the ESA is reasonable and enforceable.
59 I consider that there is sufficient evidence from which I can infer that Mr Formby has acted in breach of the restraint clause and will continue to do so. The steps taken with respect to the domain name and use of the name 'Habitat Interiors' are clear examples. Although Mr Formby has offered undertakings to specifically address those issues, he is a director of Hawk Crest and so engaged in its business in a position of control. Mr Formby accepts that Hawk Crest undertakes fitout works.41 Mr Formby has not disclosed whether other works he is undertaking as a 'one man band' involve fitout works. Leaving aside the fifth complaint referred to in paragraph [34] above (to which I accord no weight), there is evidence of attempts to interfere with Habitat 1's business, for example by the phone calls with the landlord and Mr Deluca referred to above. It is reasonable to infer that the assumption of the construction work for the job in Hillarys was in breach of the soliciting restraint.
60 It is well established that it is legitimate for an employer to protect customer connections and confidential information.42 I take into account that the date for assessing the reasonableness of any restraint is the date of entry into the ESA and this involves an assessment of what the parties would have reasonably anticipated at the time. The role of Mr Formby as set out in the ESA is instructive in this regard. It is apparent that he was to occupy a senior managerial role and that he would be closely involved in Habitat 1's activities, expanding those activities and expanding market share. Furthermore, the acknowledgment clause (cl 10(c)) is relevant, with its express reference to customer base, employee skills and confidential information. Therefore, although Mr Pritchard did not provide precise evidence as to the extent of client connections or confidential information that required protection, I am satisfied that there is a serious question to be tried concerning legitimate interests.
61 The question then is whether it can be inferred that the restraint of trade clause is reasonable to protect those interests. Mr Formby's main complaint is that the restraint clause is too broad. He also contends (in effect) that the restraint was provided without consideration.
62 Mr Formby's position in the company was senior. Based on his duties under the ESA and Mr Pritchard's evidence, his knowledge of Habitat 1's business and pricing would likely include details of plans, targets, revenue, margins and the like. There was an expectation that he would be developing opportunities and be involved in maintaining client relationships. He would have knowledge of those clients with repeat work. Whilst there was no specific evidence as to the timeline of design and construction works the subject of contracts with clients, inferences can be drawn safely that Mr Formby would have knowledge of the contracts both in place and in the pipeline at the date of his resignation. His knowledge would go well beyond his general knowledge of the industry or of Habitat 1's business.
63 It was reasonable for Habitat 1 to expect at the time of entry into the ESA that Mr Formby would retain knowledge if he left and went to work elsewhere. It was reasonable to expect that such knowledge could be used to the detriment of Habitat 1.43
64 I also take into account that there are many examples where the court has upheld restraints that seek to prevent an employee working in a business that is similar to or competitive with the employer's business.44
65 Habitat 1 seeks to restrain Mr Formby from competing in the most confined geographic areas referred to in the cascade in the ESA, being Perth and Melbourne. Mr Formby contends that 'Perth' means that central part of Perth which bears the postcode 6000 (with a similar interpretation of 'Melbourne'). Habitat 1 contends the natural meaning of those expressions in the context of the business of Habitat 1 and the ESA is the respective metropolitan areas. Counsel for Mr Formby contended that it was clear that 'Perth' meant the 6000 postcode area and that the court could not look to any extrinsic information in interpreting that expression.45
66 I accept (without determining at this point) that evidence as to where Habitat 1 in fact carried out work post entry into the ESA may not be admissible for the purpose of construction of the ESA at trial.46 However, I do not accept that the court cannot look beyond the words of the ESA. The court may have regard to surrounding circumstances which would be relevant for a reasonable person in the position of the parties to take into account and which would likely be known to such a person.47 Mr Pritchard's evidence on the point, although limited, was that Habitat 1 worked in the metropolitan area of Perth and Melbourne and Mr Formby did not contest that statement. I infer that such information was known to both parties at the time of entering into the ESA and there is nothing to suggest a reduced scope of its geographic operation was expected. Whilst this question of construction remains to be determined at trial, on balance, I consider that Habitat 1 has established a serious question to be tried that the geographical area is to be construed to mean (relevantly) the Perth and Melbourne metropolitan areas and that such a restraint is reasonable.
67 The longest time period of the restraint in the cascade is two years. Mr Formby points to the fact that the six month period has already expired and there are only three months left of the 12 months period. Counsel asserted the time period of two years, was 'highly unlikely ever to be imposed', and that '[the court] would never enforce two years anyway'.48 There are cases where restraints on former employees for periods exceeding two years have been upheld and the basis of counsel's submission was not clear.49 Counsel seemed to accept that at least in the context of some professional services contracts, six to 12 month periods are considered reasonable.50
68 The particular behaviour that triggered the injunction application was not disclosed to Habitat 1 until some eight months after Mr Formby's resignation. The fact that some eight months had passed ought not deprive it of the continued benefit of the restraint, assuming it to be otherwise reasonable.
69 Even if the court considered a two year restraint was too long, I consider that Habitat 1 has a reasonable argument that severance principles would apply such that a covenant for a lesser period would apply. It is well established that the role of severance may be circumscribed in the context of employee restraint provisions,51 but defining covenants by combining different cascading variables (as in this case) and providing that covenants so generated may be severable is not uncommon and such clauses may be effective.52
70 I consider that Habitat 1 has established a serious question to be tried that the one year or two year periods may be upheld as reasonable as to duration, taking into account the nature of the work undertaken by Habitat 1.
71 The focus above has been on the restraint against working in a similar business. Such a restraint best protects the relevant customer connections and confidential information.53 However, the restraints against soliciting customers and interfering in the business of Habitat 1, although 'lesser' restraints, must also be briefly considered. Taking into account the evidence as to his role in Habitat 1, it appears Mr Formby would have had knowledge of the identity of all the customers of Habitat 1 at the time of his resignation. Therefore, he is in a position to know whether or not conduct on his part is likely to be in breach. The covenant protects the customer connections that form part of the information Habitat 1 seeks to legitimately protect. Such clauses are generally considered valid.54
72 Restraints on interference are also not uncommon.55 Again, such a covenant protects customer connections and may also protect confidential information. Care may need to be taken with the drafting of the precise order to ensure that at this interlocutory stage the conduct to be restrained is clear.
73 There may also be an argument that prohibition by way of the restraint is not absolute, as under the ESA activities can be undertaken with the consent of Habitat 1. That issue remains to be explored at trial.
74 Finally, it must be remembered that Mr Formby acknowledged in cl 13.6 of the ESA that the restraints were reasonable. Such acknowledgements are relevant.56 He also provided the acknowledgments by way of cl 10 of the ESA.
75 By way of a separate issue, counsel for Mr Formby contended that (in effect) there was a lack of consideration for the restraint, taking into account that he had 'made the company', and that he 'pretty much [stayed] in the same position he had been in beforehand'.57 It seems to me that Habitat 1 has a prima facie argument that there was consideration for the restraint.58 The ESA operated so that Mr Formby was in fact employed and paid a salary by Habitat 1. There is no evidence that was the case prior to the ESA.
76 There are facts, inferences and legal argument which support the respective cases of both Habitat 1 and Mr Formby, and those facts cannot be explored or the issues further determined until trial. However, I am satisfied that there is a serious question to be tried that the restraint clause is reasonable to protect the relevant interests of Habitat 1.
Balance of convenience
77 For the reasons that follow, I find that the balance of convenience favours the grant of the injunction.
78 Mr Formby places great weight on the time that has passed since his resignation and the application for an injunction in asserting that the balance of convenience favours denial of injunctive relief. Delay is a matter that was said to weigh against an applicant in Bend-Tech Group (a firm) v Beek59 (although the consideration of the balance of convenience was not determinative in that case). It is true that Mr Pritchard had concerns about some of the earlier activities of Mr Formby but I accept that the catalyst for the application were the decisive steps taken in October 2016 by Mr Formby to transfer the Habitat 1 domain name and set up a business called Habitat Interiors. I do not consider that Habitat 1's application is prejudiced by the fact that such conduct occurred later rather than sooner and still within the prospective restraint period.
79 An injunction to restrain a breach of a negative covenant is not usually declined on the grounds that damages are an adequate remedy. Reasons why damages are often inadequate include the difficulty of detecting breaches, the difficulty of establishing causation between a breach and any loss of business on the part of the plaintiff, and the difficulty of calculating the quantum of loss.60
80 I acknowledge that the undertakings have been offered by Mr Formby. The terms do not, however, address the need for restraint on being engaged in a similar business, and so do not address Mr Formby's activities with Hawk Crest, which, according to Mr Formby's counsel, admittedly include fitout works.61 Nor do they address the restraints referred to in cl 13.2(c) and cl 13.2(d) of the ESA.
81 If no injunction is granted, Habitat 1 will be deprived of the protection of a potentially valid restraint clause and left to a claim for damages, which is likely to be inadequate. On the other hand, the impact on Mr Formby is unknown. There is no indication he cannot or does not work in a field outside commercial and office fitouts. He has a breadth of expertise and experience across architecture and building and is apparently involved in various other activities. He does not depose to any particular restriction upon him that enforcement of the clause would entail or that he will be prevented from working. As noted above, it was submitted from the bar table that Mr Formby was operating as a 'one man band' effectively project managing smaller jobs and so a restraint would have a significant impact on him.62 Mr Formby did not address his current working arrangements in his affidavit and in any event, it was not said that the only jobs he might currently be involved in include fitout.63
82 I do not consider an injunction deprives Mr Formby of all practical opportunities for employment. I accept for current purposes that he works and lives in the geographical area of the metropolitan area of Perth64 and so there may be some restriction on his employment directly related to an injunction. If so, and if following trial the restraint is found to be unreasonable or otherwise unenforceable, then he has the benefit of Habitat 1's undertaking.
83 Mr Formby asserts the undertaking provided by Habitat 1 is of no value. His argument rests on there being no financial records before the court that show Habitat 1's position later than January 2016, and on phone calls he says he has had with suppliers who have said to him that Habitat 1 has not paid certain amounts owing. However, as Mr Formby concedes, he knows nothing of the circumstances of the amounts said to be owing.65 I do not consider there is evidence from which I can properly infer that the undertaking is of no value. The most recent financial records before the court indicate an excess of assets over liabilities as at January 2016 of approximately $810,000. There is no evidence that Habitat 1 is insolvent. Habitat 1 and Mr Formby are in dispute about the production of financial records and each claims to be owed monies by the other and the impact of this on the financial position of the company cannot be determined at present. I accept that Habitat 1 has not provided financial records more recent than January 2016 despite request from Mr Formby but ultimately the adequacy of an undertaking is a discretionary consideration in the context of the balance of convenience.
84 Further, Mr Formby has run the risk with respect to potential financial hardship arising from any defiance of the restraint.66
85 In coming to this conclusion as to the balance of convenience, I take into account that the matter is to proceed expeditiously to mediation and to trial. It will be entered into the CMC List and I will hear the parties as to programming orders (including as to any potential for segregation of issues) for a trial within the next two to three months.
Terms of orders
86 In Ezeatm Ltd v Zani, Le Miere J said as follows:67
The terms of an interlocutory injunction restraining a party from engaging in activity must do so in clear terms. The order should tell the person to whom it is directed what it is that he must refrain from doing. Where an injunction is sought to restrain a party from acting in breach of a contractual undertaking it will often not be sufficient for the order to reproduce the terms of the contract.
87 I propose to make orders essentially in terms of proposed orders 1.1, 1.2 and 1.3, but I have some concerns about the precise terms and will hear the parties in that regard. I will also hear the parties in regard to the precise terms of the undertakings (noting the lack of reference to the separate Habitat Interiors LinkedIn entry) and programming orders for an early trial.
1 Affidavit of Christian Matthew Formby filed 10 November 2016 [6].
2 Affidavit of Geoffrey Thomas Pritchard filed 3 November 2016 (First Pritchard affidavit); affidavit of Geoffrey Thomas Pritchard filed 9 November 2016 (Second Pritchard affidavit).
3 First Pritchard affidavit [5]; Second Pritchard affidavit [6].
4 Second Pritchard affidavit [4] - [6].
5 First Pritchard affidavit, GP7.
6 Formby affidavit, page 164.
7 Formby affidavit [3].
8 First Pritchard affidavit [8].
9 Formby affidavit [5].
10 First Pritchard affidavit, GP3.
11 First Pritchard affidavit, GP4, Recital B.
12 ts 28.
13 First Pritchard affidavit [13] - [14].
14 Formby affidavit [8].
15 First Pritchard affidavit [36].
16 First Pritchard affidavit [32].
17 First Pritchard affidavit [51].
18 First Pritchard affidavit [52].
19 First Pritchard affidavit [55].
20 First Pritchard affidavit [28] - [31], GP8.
21 Formby affidavit [57] - [58].
22 ts 37 - 39.
23 First Pritchard affidavit [58].
24 Formby affidavit [61].
25 First Pritchard affidavit [69].
26 First Pritchard affidavit, GP17.
27 First Pritchard affidavit [60].
28 First Pritchard affidavit [64] - [66].
29 Formby affidavit [57] - [58], [63].
30 Formby affidavit [65].
31 First Pritchard affidavit, GP7.
32 First Pritchard affidavit, GP7.
33 First Pritchard affidavit, GP8.
34 First Pritchard affidavit, GP7.
35 First Pritchard affidavit, GP19.
36 ts 39.
37Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] - [11]; see also Sidameneo (No 456) Pty Ltd v Plint [2015] WASC 243 [20] - [21].
38Emeco International Pty Ltd v O'Shea [No 2] [2012] WASC 348 [66] - [70] (Emeco [No 2]).
39Workplace Access and Safety Pty Ltd v Mackie [2014] WASC 62 [40] (footnotes omitted).
40Emeco [No 2] [214] - [220].
41 ts 37 - 39.
42Lindner v Murdock's Garage (1950) 83 CLR 628. Although counsel used the expression 'goodwill', it is apparent that it was intended to encompass customer connections and confidential information: ts 7.
43Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169 [19] - [21].
44Emeco [No 2] [173].
45 ts 14 - 15.
46Cream v Bushcolt Pty Ltd [2004] WASCA 82 [91].
47Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35]; Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164; (2014) 48 WAR 261 [35] - [45] (McLure P), [152] - [157] (Murphy JA); HRX Holdings Pty Ltd v Pearson [2012] FCA 161 [9].
48 ts 29.
49 See, for example, cases collected at JD Heydon, The Restraint of Trade Doctrine (3rd ed) 170 - 171; HRX Holdings Pty Ltd v Pearson.
50 ts 30.
51Attwood v Lamont [1920] All ER Rep 55; SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516 [45] - [46].
52Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505; Sear v Invocare Australia Pty Ltd [2007] WASC 30.
53Emeco [No 2] [179] - [181].
54 See JD Heydon, The Restraint of Trade Doctrine (3rd ed) 161 - 163.
55 Examples include the clauses referred to in DP World Sydney Ltd v Guy [2016] NSWSC 1072; BDO Group Investments (NSW-Vic) Pty Ltdv Ngo [2010] VSC 206.
56Smith v Nomad Modular Building [17]; DP World Sydney Ltd v Guy [56]; Sidameneo v Plint [36].
57 ts 28.
58Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 [61].
59Bend-Tech Group (a firm) v Beek [2015] WASC 491.
60Emeco International Pty Ltd v O'Shea [2012] WASC 282 [20] - [21] (Emeco [No 1]); Sidemeneo v Plint [60]; Ezeatm Ltd v Zani [2014] WASC 25 [17].
61 ts 37 - 39.
62 ts 39.
63 Formby affidavit [57] - [58].
64 ts 29.
65 Formby affidavit [50].
66John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 [51]; Emeco [No 1] [59].
67Ezeatm Ltd v Zani [21].
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