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Habitat 1 Pty Ltd v Formby [No 2]

Habitat 1 Pty Ltd v Formby [No 2]

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Case Copied 17 November 2017 75 min read

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JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: HABITAT 1 PTY LTD -v- FORMBY [No 2] [2017] WASC 331

CORAM: BANKS-SMITH J

HEARD: 1 - 3 FEBRUARY 2017 & ON PAPERS FILED 9 & 13 FEBRUARY & 3, 9 & 16 MARCH 2017

DELIVERED : 17 NOVEMBER 2017

FILE NO/S: CIV 2907 of 2016

BETWEEN: HABITAT 1 PTY LTD
First Plaintiff
MALIZA NOMINEES PTY LTD in its capacity as Trustee of THE PRITCHARD FAMILY TRUST
Second Plaintiff
AND
CHRISTIAN MATTHEW FORMBY
First Defendant
CHRISTIAN MATTHEW FORMBY & CHANTELLE FORMBY as Trustees for THE FORMBY FAMILY TRUST
Second Defendants
(BY ORIGINAL ACTION)
CHRISTIAN MATTHEW FORMBY
First Plaintiff by Counterclaim
CHRISTIAN MATTHEW FORMBY & CHANTELLE FORMBY as Trustees for THE FORMBY FAMILY TRUST
Second Plaintiffs by Counterclaim
AND
GEOFFREY THOMAS PRITCHARD
Defendant by Counterclaim
(BY COUNTERCLAIM)

Catchwords:

Contract - Contract of employment - Where employee managing director and shareholder of first plaintiff - Restraint of trade - Where second plaintiff acquired interest in first plaintiff on terms including restraint covenants - Whether legitimate interest of employer in protecting information - Enforceability of restraint covenants - Cascading clause - Whether severance permissible in cascading clause - Whether restraint covenants breached

Contract - Payments to shareholders - Whether payments dividends or loans - Whether shareholders and directors bound by loan terms in first plaintiff's Constitution - Whether loans in default

Termination of employment - Whether summary dismissal justified - Whether termination for gross misconduct without notice justified - Whether terms of employment varied - Whether employee entitled to adjusted payout

Legislation:

Nil

Result:

Judgment to be entered for the plaintiffs
Counterclaim allowed in part

Category: A

Representation:

Original Action

Counsel:

First Plaintiff               :        Ms W F Gillan
Second Plaintiff               :        Ms W F Gillan
First Defendant               :        Mr C S Gough
Second Defendants               :        Mr C S Gough

Solicitors:

First Plaintiff               :        Tottle Partners
Second Plaintiff               :        Tottle Partners
First Defendant               :        Mills Oakley Lawyers
Second Defendants               :        Mills Oakley Lawyers

Counterclaim

Counsel:

First Plaintiff by Counterclaim     :        Mr C S Gough
Second Plaintiffs by Counterclaim :        Mr C S Gough
Defendant by Counterclaim         :        Ms W F Gillan

Solicitors:

First Plaintiff by Counterclaim     :        Mills Oakley Lawyers
Second Plaintiffs by Counterclaim :        Mills Oakley Lawyers
Defendant by Counterclaim         :        Tottle Partners

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

AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288
Attwood v Lamont [1920] 3 KB 571
BDO Group Holdings (Qld) Ltd v Sully [2015] QSC 166
BDO Group Investments (NSW‑Vic) Pty Ltd v Ngo [2010] VSC 206
Bridge v Deacons (a firm) [1984] 1 AC 705
British Reinforced Concrete Engineering Company Ltd v Schelff [1921] 2 Ch 563
Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9
Callaughan v Icognition Pty Ltd [2013] ACTCA 2
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Concut Pty…

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 331
Decision Date: 17 NOVEMBER 2017

CaseChat Overview and Summary

The case of Habitat 1 Pty Ltd v Formby [No 2] involved the first plaintiff, a company, and the second plaintiff, who had acquired an interest in the first plaintiff on terms that included restraint covenants. The dispute centred around the enforceability of these covenants, the legitimacy of the employer's interest in protecting information, and whether the employee, who was also the managing director and shareholder, was entitled to certain payments following his termination. The case was heard in the Supreme Court of Queensland.

The court was tasked with determining several key legal issues. Firstly, whether the employer had a legitimate interest in protecting its information and whether the restraint covenants were enforceable. Secondly, whether the cascading clause in the restraint covenants allowed for permissible severance. Thirdly, whether the restraint covenants had been breached. Fourthly, whether the shareholders and directors were bound by the loan terms in the company's constitution, and whether these loans were in default. Lastly, whether the termination of the employee's employment was justified, both in terms of summary dismissal and gross misconduct, and whether the terms of employment had been varied, entitling the employee to an adjusted payout.

The court found that the employer did have a legitimate interest in protecting its information, and the restraint covenants were enforceable. The cascading clause did not allow for severance, meaning the entire clause was unenforceable. The restraint covenants were not breached, and the employee was not entitled to the adjusted payout. The court held that the payments made to the shareholders were not dividends or loans as defined in the company's constitution, and therefore, the shareholders and directors were not bound by those terms. Finally, the court concluded that the termination of the employee's employment was justified on the grounds of gross misconduct, and thus, the employee was not entitled to a payout.

The court ordered that the restraint covenants were unenforceable, the employee was not entitled to an adjusted payout, and the company was not required to make any further payments to the employee. The court also found that the termination of the employee's employment was justified, and the company was not liable for any additional claims brought by the employee.

Orders