Husqvarna Construction Products Australia Pty Ltd v McLean
[2006] VSC 381
•9 October 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8748 of 2006
| HUSQVARNA CONSTRUCTION PRODUCTS AUSTRALIA PTY LTD | Plaintiff |
| v | |
| CAMERON McLEAN | Defendant |
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JUDGE: | Morris, J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5 October 2006 | |
DATE OF JUDGMENT: | 9 October 2006 | |
CASE MAY BE CITED AS: | Husqvarna v McLean | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 381 | |
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Injunction – Interlocutory - Protection of business deed – Whether restraint of trade – Injunction sought to restrain employee from certain conduct in employment of competitor – Serious question to be tried – Whether damages adequate – Consequences of granting or refusing relief – Discretionary factors – Undertaking by employer to pay salary until protection of business deed expires shifts balance
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G.J. McEwen | Mallesons Stephen Jaques |
| For the Defendant | Mr J. D’Abaco | MW Law |
HIS HONOUR:[1]
[1]These reasons were given orally at the hearing and subsequently revised.
The plaintiff, which I will call “Husqvarna”, seeks an interlocutory order that the defendant be restrained from taking up work in Victoria as a consultant or employee of Castle Tools Tyrolit in its business in: (a) the development, manufacture and sale of diamond tools and associated products, such as drill bits and diamond wires; and (b) the importation, distribution and sale of portable saw and machinery products for the construction and stone industries.
Husqvarna is a company which develops and supplies diamond tools and associated machinery for the construction and stone industries. It is part of a larger group that was once part of the Electrolux Group. Although there have been a number of changes as a result of company re-organisations, I am proceeding on the basis that, at all relevant times, the relationship between the parties was one in which Husqvarna was the former employer of the defendant.
Husqvarna holds a major market share in Australia including Victoria in product areas such as diamond blade tools, portable saw products and the like. It competes with three other main companies one of which is Castle Tools Tyrolit Pty Ltd.
The defendant, Mr McLean, commenced employment with Husqvarna in February 2000 as State Sales Manager, Victoria on a salary of $55,000 per year. In June 2003 Mr McLean was promoted to the position of Branch Manager, Victoria. According to Mr Lloyd Williams, the Chief Executive Officer of Husqvarna, as a result of this promotion and the new responsibilities Mr McLean would take on, he was asked to execute a Protection of Business Deed. I note that Mr McLean's salary in his new position was in the order of $75,000 per annum. This figure was not part of the affidavit material but was mentioned to me by counsel but I accept that is the order of things.
Although Mr McLean was promoted in June 2003, the Protection of Business Deed was not executed until 27 May 2004. In such circumstances, it is difficult to know whether the promotion was the real basis for the Protection of Business Deed or whether it was simply a requirement which Husqvarna decided, in effect, to impose upon its employees in mid-2004.
The Protection of Business Deed
The Protection of Business Deed is at the heart of this proceeding. As each such document must be applied by reference to its own language, it is necessary that I set out key provisions of the deed:
“3 Protection of ECPA’s interests
3.1Non-competition upon cessation of employment
The Employee must not be engaged or involved in any business or activity which competes with, or is the same as or similar to, the Business or any material part of it:
(a)(i) for a period of 6 months following the cessation of the Employee’s employment with ECPA;
(ii)for a period of 6 months following the cessation of the Employee’s employment with ECPA;
(iii)for a period of 6 months following the cessation of the Employee’s employment with ECPA;
(b)(i) in Australia;
(ii)in Victoria;
(iii)in Melbourne.
3.2Construction of clause 3.1
(a)In clause 3.1, “engaged or involved in” includes direct or indirect involvement as a principal, agent, contractor, partner, employee, shareholder, unitholder, director, trustee, beneficiary, manager, consultant, adviser or financier.
(b)Clause 3.1 is to be construed and have effect as if it were the number of separate sub-clauses which results from combining the commencement of clause 3.1 with each sub-paragraph of paragraph (a) and combining each combination with each sub-paragraph of paragraph (b), each such resulting sub-clause being severable from each other such resulting sub-clause. If any of the separate resulting sub-clauses is invalid or unenforceable for any reason, the invalidity or unenforceability will not prejudice or in any way affect the validity or unenforceability of any other such resulting sub-clause.
4Non-Solicitation Undertakings
4.1Undertakings by the Employee
The Employee undertakes that they will not directly or indirectly (whether on the Employee’s own account or for any other party):
(a)(i) solicit or endeavour to solicit from the ECPA or the ECP Group the business or services of any person who was a customer or supplier of ECPA or the ECP Group (including any person in the process of being engaged as such a customer or supplier) and who the Employee had dealings with or knowledge of during the Employee’s employment with ECPA;
(ii)entice away or endeavour to entice away from ECPA or the ECP Group any employee, contractor, agent of ECPA or the ECP Group or anyone who was at any time during the period of [12] months immediately prior to the cessation of the Employee’s employment by ECPA an employee, contractor, or agent of ECPA or the ECP Group;
(b)(i) for a period of 6 months after the cessation of the Employee’s employment by ECPA:
(ii)for a period of 3 months after the cessation of the Employee’s employment by ECPA;
(iii)for a period of 1 month after the cessation of the Employee’s employment by ECPA.
4.2Construction of clause 4.1
Clause 4.1 is to be construed and have effect as if it were a number of separate sub-clauses which results from combining the commencement of clause 4.1 with each sub-clause of clause 4.1(a) and combining each combination with each sub-clause of clause 4.1(b), each such resulting sub-clause being severable from each other such resulting sub-clause. If any of the separate resulting sub-clauses is invalid or unenforceable for any reason, the invalidity or unenforceability will not prejudice of in any way affect the validity or enforceability of any other such resulting sub-clause.
5.3Severance
The Employee agrees that the obligations and restrictions imposed upon the Employee under this Deed are fair and reasonable in all the circumstances. Each of these obligations and restrictions and each part of them is a severable and independent obligation or restriction to the intent that, if they may be taken together be adjudged to go beyond what is reasonable in all the circumstances, but would be adjudged reasonable with any of the obligations or restrictions or parts of them deleted, the obligations and restrictions apply as if that deletion were made.
8.1Definitions
Business means the business activities of ECPA and its Related Bodies Corporate including the manufacture and distribution of diamond tools and laser cutting devices.
Related Body Corporate means related body corporate as that term is defined under the Corporations Act 2001 (Cwlth).”
The provisions of clause 3.1(a) of the deed are confusing. I suspect that the draftsperson meant to replicate what is in clause 4.1(b), but did not finish off the word processing job, leaving clause 3.1(a) as containing three identical provisions.
The threatened breach
On 25 July 2006 Mr McLean resigned his position, effective 25 August 2006. His employer took the view that it was not appropriate for Mr McLean to serve out his four weeks' notice and required that his employment cease at the end of that week in July. It would appear that the decision that Mr McLean made to leave Husqvarna's employment was promoted by a personality disagreement he had with his boss, Mr Williams.
On 29 August 2006 Mr Williams was informed by the State Manager of Castle Tools Tyrolit that the defendant, Mr McLean, had started to work for Castle Tools. Subsequently, Mr Williams required Mr McLean to desist from working for Castle Tools. That demand was refused. As a consequence, the present relief has been sought from the court in order to protect the plaintiff, Husqvarna, by requiring the enforcement of the defendant’s obligations in the Protection of Business Deed.
Interlocutory injunctions
Just a week or so ago, the High Court discussed the question of interlocutory injunctions in another context and referred to four things that a plaintiff must show in order to obtain interlocutory relief: Australian Broadcasting Corporation v. O'Neill (2006) H.C.A. 46, particularly at paragraphs 19 and 65-72. These four points were, (1) there is a serious question to be tried; (2) that the plaintiff will suffer injury for which damages is not an adequate remedy if the injunction is not granted; (3) the balance of convenience favours the granting of an injunction; and (4) there are no discretionary factors, such as lack of candour or clean hands, which would disentitle it to such relief.
I have no doubt that there is a serious question to be tried. Of course, the strength of the competing parties' positions is a matter of debate and it is also a matter which influences the balance of convenience. I am also satisfied that damages are not an adequate remedy. I am satisfied on this point because it will be extremely difficult to assess the quantum and cause of any injury that Husqvarna suffers as a result of a breach of the Protection of Business Deed in the event that it is successful at the trial of this action. I am also satisfied that there are no relevant discretionary factors. Hence the key factor is the balance of convenience.
In April of this year, the Court of Appeal in Bradto Pty Ltd v. State of Victoria (2006) VSCA 89, said that:
”The flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the approach taken by Lord Hoffman in Films Rover International Ltd v. Canon Film Sales Ltd (1987) 1 W.L.R. 670.”
The Court of Appeal noted that that was so, whether or not the relief sought was prohibitory or mandatory. Essentially, the test set out by Lord Hoffman was that the court should take whichever course appears to carry the lesser risk of injustice if it should turn out to be "wrong" in the sense of granting an injunction to a party who fails to establish his right at the trial or in failing to grant an injunction to a party who succeeds at trial.
Consequences of granting or refusing injunction
If I grant the injunction as originally sought, without any particular conditions, and the plaintiff loses at trial, what will be the consequences? One consequence will be that Mr McLean is likely to be out of pocket for the next few months. It is true that in that event Mr McLean will be entitled to recover the amount that he is out of pocket from the plaintiff, but this could be a year or two years from today. The ordinary person, particularly someone on a salary of $75,000 per annum or thereabouts, requires and depends upon a regular supply of money in order to meet normal living expenses. To say to such a person, "You will go without for a few months, but we will make it all up to you in a couple of years" is no real recompense, because the money is needed now to pay electricity bills, mortgage payments, school fees and the like.
Another possible outcome, if I grant the injunction and the plaintiff loses the case, is that Castle Tools will be affected. In that case, it will be able to be compensated pursuant to a general undertaking as to damages, although it will be out of pocket or at least adversely affected by not being able to use Mr McLean in its employment. However, it is in a fundamentally different position to meet that problem than an ordinary person earning an ordinary salary.
If I refuse the injunction, and ultimately the plaintiff wins the proceeding, what injustice will result? In that situation, the plaintiff may be placed in the situation where it has suffered damages as a result of losing custom to Castle Tools (as a result of Mr McLean breaching his Protection of Business Deed), but also being in a position where it cannot prove the quantum of those damages. I think this is a likely situation because there will always be a myriad of explanations as to why sales are gained or lost. To attribute the loss of a sale to the breach of a protection of business deed is inherently difficult. One might form the view that the breach may have caused loss, but be unable to be satisfied about that loss on the balance of probabilities. Hence, I think that if I refuse the relief and the plaintiff ultimately wins in the proceeding, it is likely that the plaintiff will suffer damage of some sort that cannot be recovered.
If I compare the two types of injustice, I think that the injustice that would be inflicted on the defendant, that is being out of pocket to serve his daily living needs, outweighs the potential injustice to the plaintiff. But, in order to form a final view, I need to give some consideration to the comparative strength of the cases, because if the plaintiff's case is extremely strong, then that may lead to a different outcome.
Because this is an application for interlocutory relief, nothing that I am about to say is intended to determine the substantial issue between the parties. However, by forming a view as to the relative strength of the claims and counter claims, it better enables me to decide where the balance of convenience lies or, to put it another way, what outcome will produce a lower chance of injustice.
In their respective outlines of argument, both counsel set out the relevant legal principles. There does not appear to be any substantial difference between the parties in this respect. A restraint of trade is contrary to public policy and void unless on the facts of the particular case the restriction is reasonable, having regard to the interests of the parties and interests of the public, so that while affording adequate protection to the covenantee it is not injurious to the public. If the restraint is not reasonable in reference to the interests of the parties and the public, it is contrary to public policy and void. The restraint is unreasonable if it is greater than is needed to give adequate protection for the person for whose benefit the restraint is imposed; and the matter is to be gauged as at the time the agreement was entered into. In Brilliant Lighting (Aust) Pty Ltd v. Baillieu (2004) V.S.C. 248, Hollingworth J set out five considerations which will be relevant. These were (1) the scope of the restraint in terms of both the geographic area and duration; (2) the activities covered by the restraint; (3) the relative bargaining power of the parties; (4) the consideration paid in exchange for the restraint; and (5) the context of the contract. I adopt those as relevant considerations, without suggesting that it is an exclusive list.
I make the tentative finding that the Protection of Business Deed in this case, if not read down in some way, is likely to be found to be void as being too wide. Let me take clause 3.1, which provides that the employee must not be engaged or involved in any business or activity which competes with or is the same as or is similar to the “Business” or any material part of it. The words "or similar to" seem to be both vague and extensive and certainly beyond that which is necessary to protect the interests of the employer in this case. Further the word “Business”, which is defined to include the business activities of bodies corporate related to the plaintiff, seems too wide. This is so especially as the expression "related body corporate" has the same meaning as defined in the Corporations Act which is a broad definition.
Then if one turns to clause 3.2(a) we see that the words "engaged or involved in" includes such things as being a shareholder or an advisor or agent of a business or activity which might be similar to the business of Husqvarna or its related parties. It is likely that there would be some business which is similar to or the same as some part of the business of Husqvarna or a related party which is a public company. Taken literally, that would mean that Mr McLean could not own shares in a public company, even via his superannuation fund.
It is said that the effect of clause 3.2(b) or clause 4.2 or clause 5.3 enables the relevant provisions to be read down so that they would be valid and enforceable. As this is an interlocutory application, I do not propose to finally determine that question. It may be that that proposition applies in relation to what is called the cascading provisions that are in 4.1(b), and that I suspect were meant to be in 3.1(a). But, I have great doubt as to whether such a proposition would apply to reading down the expression "engaged or involved in" or the expression "or similar to" or similar provisions of that generality.
In my tentative view, the plaintiff's case is relatively weaker than the defendant's case. To succeed it would appear that the plaintiff requires the court to re-write the contract so that it becomes a valid and enforceable contract. This process is likely to require more than simply ignoring a provision or part of a provision.
Thus, in the absence of any specific undertakings, I would conclude that this is a case where the better holding position pending trial would be to refuse interlocutory relief.
Undertaking to pay the defendant
Towards the end of the argument on Wednesday I raised with counsel for the plaintiff the prospect of giving an undertaking that would effectively mean that the defendant was paid his old salary until the end of the period sought to be protected by the deed, subject, of course, to that amount being repaid if the plaintiff succeeds in the action. Subsequently, Mr McEwen for the plaintiff, said his client would give an undertaking along those lines. Today I suggested that, in order to succeed, there would need to be some further modifications to what had been suggested. I have now been told that the plaintiff would be prepared to give the undertaking with those modifications. The undertaking which is now offered is that, in addition to the usual undertaking as to damages, Husqvarna is prepared to undertake to pay to the defendant in each month the sum equal to the defendant's monthly salary (that is, the monthly salary to which he was entitled immediately prior to the cessation of his employment at Husqvarna on 28 July 2006), commencing on the date his next salary payment by Castle Tools Tyrolit is due to be made and concluding as the final payment, if necessary on a pro rata basis, for a period ending 27 January 2007, to abide by the final determination of the enforceability of clause 3.1(c). So that if the court, at trial, determines that clause to be enforceable, whether entirely or in some relevant severed or modified form, all monies so paid by Husqvarna will be repaid by the defendant within 30 days of the court's determination.
The giving of that undertaking changes the balance. It changes the balance because it means that if the plaintiff loses the action, or, for that matter if the action is discontinued, the defendant will not be out of pocket. The defendant may choose to take up other employment, but whether he does this, he will still be paid by Husqvarna. Of course, if the plaintiff wins in the action, it will be to the defendant's disadvantage if he does not take up other employment, because in that circumstance he will be required to repay the money paid to him by Husqvarna.
Essentially, I regard my task today to engage in a balancing process in order to achieve an outcome that produces a lower risk of injustice in the event that the decision I make turns out ultimately to be the "wrong" decision, having regard to the way the action is finally determined. In my opinion, the course I propose produces that outcome.
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