JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: JADDCAL PTY LTD -v- MINSON [No 3] [2011] WASC 362
CORAM: LE MIERE J
HEARD: 20-24, 27-29 JUNE 2011
DELIVERED : 23 DECEMBER 2011
FILE NO/S: CIV 2730 of 2010
BETWEEN: JADDCAL PTY LTD
First Plaintiff
ALEXANDER ANURIW
Second PlaintiffDONNA MAREE ANURIW
Third PlaintiffAND
DAVID SHANE MINSON
First DefendantLOUISE ANNE MINSON
Second DefendantJOHN ROBERT BRUSKE
Third DefendantCHERYL BRUSKE
Fourth DefendantROSELINK ENTERPRISES PTY LTD
Fifth DefendantDWIGHT ALEXANDER WILLIAMS
Sixth DefendantBRENDAN JOHN LOWICK
Seventh DefendantCASEY SHANE MINSON
Eighth DefendantDONALD ALEXANDER MacLELLAN
Ninth DefendantANDREW CHRISTOPHER BRUSKE
Tenth Defendant
Catchwords:
Contract - Restraint of trade - Clause in restraint of trade - Construction - Restraining party must have legitimate interest to protect - Reasonableness of restraint - Duration of restraint - Alleged breach of restraint - Turns on own facts
Tort - Interference in contractual relations - Inducement to commit breach of contract - Relevant principles - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 9(1)(b), s 233
Property Law Act 1969 (WA), s 11(2)
Result:
First to fourth defendants pay damages, other claims otherwise dismissed
Category: B
Representation:
Counsel:
First Plaintiff : Ms C H Thompson
Second Plaintiff : Ms C H Thompson
Third Plaintiff : Ms C H Thompson
First Defendant : Mr D A Lenhoff
Second Defendant : Mr D A Lenhoff
Third Defendant : Mr D A Lenhoff
Fourth Defendant : Mr D A Lenhoff
Fifth Defendant : Mr M Curwood
Sixth Defendant : Mr M Curwood
Seventh Defendant : Mr M Curwood
Eighth Defendant : Mr M Curwood
Ninth Defendant : Mr M Curwood
Tenth Defendant : Mr M Curwood
Solicitors:
First Plaintiff : Gary Rodgers
Second Plaintiff : Gary Rodgers
Third Plaintiff : Gary Rodgers
First Defendant : Holborn Lenhoff Massey
Second Defendant : Holborn Lenhoff Massey
Third Defendant : Holborn Lenhoff Massey
Fourth Defendant : Holborn Lenhoff Massey
Fifth Defendant : Curwood & Co Pty Ltd
Sixth Defendant : Curwood & Co Pty Ltd
Seventh Defendant : Curwood & Co Pty Ltd
Eighth Defendant : Curwood & Co Pty Ltd
Ninth Defendant : Curwood & Co Pty Ltd
Tenth Defendant : Curwood & Co Pty Ltd
Case(s) referred to in judgment(s):
Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288
Batts Combe Quarry Ltd v Ford [1943] Ch 51
BDO Group Investments (NSW‑VIC) Pty Ltd v NGO [2010] VSC 206
Bell Group Ltd (in liq) v Westpac (2008) 39 WAR 1
Berry v Wong [2000] NSWSC 1002
Bird v Lake (1863) 1 Hem & M 338
C & S Constructions Pty Ltd v Dawson (1991) ATPR 41‑148
Cooper v Page (1876) 34 LT 90
Cream v Bushcolt Pty Ltd [2004] WASCA 82
D C Thomson & Co Ltd v Deakin [1952] Ch 646
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- Case
- [2011] WASC 362
- Decision Date
CaseChat Overview and Summary
The primary legal issue was whether the restraint of trade clause was valid and enforceable. Jaddcal argued that the clause was necessary to protect the goodwill of the business they had sold to Mr and Mrs Anuriw. The Minsons contended that the clause was unreasonable and not supported by any legitimate interest. The court had to consider the principles established in Seven Network (Operations) Ltd v Warburton, which held that a legitimate interest to protect a restraint of trade clause can exist outside of an employment or sale of business contract. The court also needed to assess the reasonableness of the restraint in terms of its scope, duration, and necessity.
The court found that the restraint of trade clause was reasonably necessary to protect a legitimate interest. The legitimate interest in this case was the goodwill of the business that Jaddcal sold to Mr and Mrs Anuriw. The court noted that while goodwill was not explicitly paid for in the sale, it was an implied aspect of the transaction. The court held that the restraint was reasonably necessary to protect the business's value and reputation. The court also found that the Minsons had breached the restraint of trade clause by engaging in activities that competed with Jaddcal.
The court granted Jaddcal an injunction against the Minsons to prevent further breaches of the restraint of trade clause. Jaddcal was also awarded damages for the breaches that had already occurred. The court emphasised that the enforceability of the restraint clause depended on the specific facts of the case and that the principles applied in Seven Network (Operations) Ltd v Warburton were relevant to determining the legitimacy and reasonableness of the restraint.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
In Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386 at [66] Pembroke J held that there is no principle excluding a legitimate interest from existing outside of an employment contract or sale of business contract. The defendant, Mr Warburton, had entered into an employment contract with the plaintiff, Seven Network. Mr Warburton was a senior executive. The disputed restraint clause was not in the employment contract but in a management equity participation deed (MEP deed). The purpose of the MEP deed was to protect the interests of private equity investors (KKR) in the Seven Media Group (SMG). This was done by ensuring that senior executives had an economic stake in the business through options, as well as preventing them from competing with SMG after their employment had ended. Pembroke J said that from the perspective of KKR and Seven Network, the restraints on competition served to protect their investment. The object of the restraints on competition was, amongst other things, to reduce the risk of devaluation of the business by the departure of any executives to work for competitors and to reduce the risk of dissipation or reduction in the customer connection of the business. Pembroke J held that Seven Network and KKR had a legitimate interest to protect by the restrictive covenants. The plaintiffs say that the restraints imposed by the Restraint Clause are reasonably necessary to protect the goodwill of the business purchased by Mr and Mrs Anuriw from Mr and Mrs Minson and Mr and Mrs Bruske. The first to fourth defendants argue that the Restraint Clause does not protect any legitimate interest of the plaintiffs on two grounds. First, the first to fourth defendants submitted that in the case of covenants between vendors and purchasers of businesses the main justification for a restraint is the protection of the goodwill of the business acquired by the purchaser. Those defendants submitted that on a proper analysis of the Deed the consideration paid by Mr and Mrs Anuriw to the first to fourth defendants was for the shares held by the first to fourth defendants in Jaddcal and nothing was paid by Mr and Mrs Anuriw for goodwill. Secondly, the defendants argue that the business of Jaddcal did not have any goodwill at the time of the share purchase. Those defendants submitted that it is clear from the report of Graham O'Hehir that at the date of the Deed Jaddcal did not have any goodwill. The first to fourth defendants submitted that if the restraint is not ancillary to the sale of the goodwill of a business it should be struck down because if there is no protectable interest the covenant will be regarded as unreasonable. It is not uncommon for a purchaser to acquire a business, or an interest in a business, by purchasing shares in the company which owns the business rather than purchasing the business directly. As a matter of substance, the purchaser of the shares has the same legitimate financial interest to support restraints on competition agreed as part of the transaction as it would if it had purchased the business directly.