Jeffrey Thomas & Partners v Jackson
[2001] VSC 490
•7 December 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 8518 of 2001
| JEFFREY THOMAS AND PARTNERS | Plaintiffs |
| v | |
| PETER McKENZIE JACKSON | Defendant |
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JUDGE: | Beach J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 December 2001 | |
DATE OF JUDGMENT: | 7 December 2001 | |
CASE MAY BE CITED AS: | Jeffrey Thomas & Partners v Jackson | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 490 | |
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Interlocutory injunction – ex-employee acting for clients of ex-employer – no misuse of confidential information – no serious issue to be tried.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr. A. Rodbard-Bean | Lewis Holdway |
| For the Defendant | Dr. K.P. Hanscombe | Tolhurst Druce & Emmerson |
HIS HONOUR:
Between 14 July 1986 and 1 July 1999, the defendant, Peter McKenzie Jackson, was a partner in the accounting firm of the plaintiff, Jeffrey Thomas & Partners. In 1999, the defendant was diagnosed as suffering from prostate cancer which required major surgery.
It was those facts which caused the defendant to retire from the partnership with effect from 1 July of that year.
The agreement whereby the defendant terminated his interest in the partnership is dated 27 August 1999, and reads:
"Jeffrey Thomas & Partners
Agreement between:
Jeffrey Thomas & Partners (JT & NA) and PJ
1.PJ to receive the full proceeds of the trauma insurance policy owned by JT&P Services Pty Ltd. This is in full and final payment for all PJ's capital accounts, current accounts, shareholdings, employee entitlements and any other claim he may have on JT&P, JT&P Services or related entities.
2.Immediately after 1. above, PJ to pay $70K to JT and $30K to NA in a tax free sum.
3.PJ has no further participation in the profits/losses or capital gains/losses of the business (JT&P and related entities) from 1/7/99.
4.PJ is to honour the terms of the partnership agreement in that he is not to be employed or practice as a chartered accountant without the consent of JT&P for the period of two years from the date of his retirement from JT&P, nor approach clients directly or indirectly re leaving JT&P.
5.PJ and EJ are to resign from all directorships and other offices with JT&P related entities and dispose of any JT&P related shareholdings as required.
6.If PJ is to have an ongoing role with JT&P, this will be determined following his recuperation.
7.PJ will continue to use his best endeavours to maintain and build the goodwill/business of JT&P and related entities.
8.JT and NA will use their best endeavours to release PJ from any guarantees for JT&P and related entity loans etc.
9.PJ, EJ and related entities agrees to pay PJ's pro rata proportion (41%) of tax that may arise to JT&P Services, JT, NA or related entities as a result of proceeds received in relation to the insurance proceeds.
Signed: JT........ PJ........
NA........ Date: 27/8/99."
Following the successful treatment of the defendant's cancer, on 12 November 1999 he agreed to take a new position with the plaintiff. The letter of offer of employment, which the defendant accepted, reads:
"Dear Peter
RE: LETTER OF OFFER OF EMPLOYMENT
Following our recent discussions, we are pleased to offer you a position, as follows:
1. Commencing Monday 15th November 1999.
2.Salary of $40,000 per annum, including superannuation, for four days work per week (Monday to Thursday).
3.Car park to be provided at a cost of approximately $190.00 per month.
4.You will be responsible for allocated clients in my subsidiary ledger and be able to work on other nominated clients and research projects.
5.You will be entitled to an additional payment of 30% of first year fees billed and collected for new clients introduced by yourself to the firm, not including new work for existing clients or referrals.
6.The other usual employee conditions and entitlements are also applicable. We note that all employee entitlements will commence from 15th November 1999, following the recent payout to you of your previous entitlements.
If the above is in accordance with your understanding of the arrangements as agreed, please sign the attached copy of this letter and bring it with you on Monday.
Pete, Neil and I look forward to working together with you again and are sure that the future holds lots of interesting and exciting opportunities for us all.
Kind Regards
JEFFREY O THOMAS
PARTNEREnclosure"
On 31 October 2001, the defendant resigned from his position with the plaintiff. Since that time, he has been acting as accountant for a number of clients of the partnership.
On 29 November 2001, the plaintiff filed a writ and summons in the court whereby it seeks an order (inter alia) that the defendant be restrained from providing accounting services to any past or pending client of the plaintiff.
The provision in the partnership agreement between the plaintiff and defendant relied upon by the plaintiff, is Clause 7.9 which reads:
"7:9 ON a partner ceasing to be a member of the partnership for whatever reason, the outgoing partner shall not during a period of two years after such cessation either alone or in partnership or as agent, consultant or employee of any other person or firm, perform accountancy services for any clients of the firm at the date of such cessation without the consent of the continuing partners."
What is said on behalf of the plaintiff is that, when the defendant resumed with the plaintiff in November 1999, he did so not as an employee but as a salaried partner. That much is clear, so it is said, from an internal memorandum sent by the founding partner of the plaintiff to staff on 17 November 1999, and a letter written by the defendant to a client of the firm in which the word "partner" appears below the defendant's signature.
The memorandum reads:
"This memo is to advise you of the new arrangements that will be commencing from Monday 15th November 1999 in relation to Peter.
Prior to his recent surgery, Peter decided to sell his equity in Jeffrey Thomas & Partners and related entities to myself and Neil. Since that time, as you are all aware Peter has been recuperating from his surgery and has not recommenced normal work.
Peter will be commencing again with JT&P next Monday, as a salaried Partner. He will be working four days per week, Monday to Thursday. Peter's ledger will be assumed primarily into my ledger, which in turn will be sub divided into three; that is, Paul, Michael and Peter.
We are pleased that Peter is well and able to commence a new role and it will be good to have him back.
If there are any questions relating to the above, please contact me."
The case for the defendant so far as this aspect of the matter is concerned is that, when the defendant took up a position with the plaintiff in November 1999, he did so as an employee and not as a salaried partner. That much is clear, so it is said, from the following facts.
1. The terms of the cessation agreement dated 27 August 1999 make it clear that the defendant was retiring as a partner of the plaintiff;
2. The terms of the letter of offer of employment made it clear that the defendant was entering the employ of the plaintiff and was not taking up a position as a partner; in particular, paragraph 6 of the letter which reads:
"6. The other usual employee conditions and entitlements are also applicable. We note that all employee entitlements will commence from 15th November 1999 following the recent payout to you of your previous entitlements."
3. The defendant's group certificate for the financial year ended 30 June 2000 and the PAYG payment summary for the year ending 30 June 2001 make it clear that the defendant was an employee of the plaintiff, not a partner;
4. The conduct of the parties towards each other after the defendant entered the employ of the plaintiff in November 1999, as deposed to by the defendant in his affidavit of 4 December 2001, and as illustrated by the two memorandums he sent to the founding partner of the firm, which are Exhibits PMJ3 and PMJ5 to the affidavit; and
5. A person can only be either a partner in a firm or an employee. To refer to a person as a salaried partner is in law quite meaningless, as is the fact that in the letter relied upon by the plaintiff to which I earlier referred, the defendant described himself as "partner". When one is determining the capacity in which one person is associated with another, it is the agreement between them which is paramount. In this case, the written agreement between the parties of 12 November 1999 makes it clear on its face that the defendant was entering the employ of the plaintiff and was not becoming a partner in the plaintiff.
Having considered this aspect of the matter overnight, I am not persuaded that it can be strongly argued that, when the defendant took up a position with the plaintiff in November 1999, he did so as a partner. In my opinion, the factors relied upon by the defendant in this regard make it far more likely that the defendant resumed his association at that time simply as a salaried employee. If that view of the matter is correct, then he has not breached the provisions of Clause 7.9 of his original partnership agreement by now acting for former clients of the plaintiff.
The second argument advanced on behalf of the plaintiff is that the defendant has been soliciting clients of the plaintiff in circumstances where he should be restrained from doing so.
In my opinion, there is no evidence before the court establishing that the defendant has been soliciting clients of the plaintiff. Indeed, what evidence there is concerning the matter is to the contrary. When the defendant terminated his employment with the plaintiff, he wrote the following letter to each of those clients of the plaintiff whose work he had handled. The following is an example:
"26th October 2001
Mr L. Dunne
101 Russell TerraceINDOOROOPILLY QLD 4068
Dear Len,
This letter is to advise that after over 20 years as a founding partner of Jeffrey Thomas & Partners, I have decided to retire from practice and to that end, wish to advise that I will be leaving on 31st October, 2001 to pursue other interests. I have enjoyed my association with the firm and the relationships formed with clients over the years and the various friendships established.
I leave in the knowledge that your ongoing professional interests will be well served by the continuing partners and staff of Jeffrey Thomas & Partners and in that regard, you will shortly be contacted to ensure a seamless transition.
With kind regards and best wishes for the future.
Yours faithfully
PETER M JACKSON."
In November he wrote two letters to the plaintiff informing it that he had been approached by clients for whom he had previously acted and asked if there were any ethical reasons why he should not act for them. Each letter is in the same form and reads:
"12 November 2001
Mr Jeffrey Thomas & Partners
11th Floor, 446 Collins StreetMELBOURNE VIC 3000
Dear Jeff,
RE: Mr & Mrs S. Wirtz
R. Anguey Pty Ltd
S & R Wirtz Superannuation Fund
Mrs V Adams
Ms C HoltI have been approached by the above to attend to their accounting and taxation requirements. Prior to accepting this appointment, would you kindly advise if there are any ethical reasons which would preclude my appointment.
Assuming there are none, would you kindly contact me in order to facilitate the transfer of any relevant records that you may be holding on their behalf.
Yours faithfully,
PETER JACKSON"
In those circumstances, I consider it cannot be said that, on the evidence before the court, the defendant has solicited clients of the plaintiff.
But what if he had? An ex-employee is entitled to approach its employer's customers. That matter was dealt with by Dr Robert Dean in his work on The Law of Trade Secrets. At page 214 the author says:
"An ex-employee is entitled to approach the ex-employer's customers so long as:
(i) those customer's names are not trade secrets;
(ii)the employee is not in breach of a valid restraint of trade clause;
(iii) the employee does not do so by using lists dishonestly removed from the ex-employer or as a consequence of deliberately and dishonestly memorizing the ex-employer's clients' names."
In his work Dr Dean cited with approval the decision of Harvey, C.J. in Ormonoid Roofing & Asphalts Ltd v. Bitumenoids Ltd (1930) 31 S.R. (N.S.W.) 347 at 354:
"Where an employee in the course of his employment and for the purpose of his employment has obtained ... particulars of customers which have become stored up in his mind as a necessary consequence of the way in which his master employed him, there is no justification in the absence of an express contract, for preventing him making use of that knowledge."
In the final analysis, I am not satisfied that the plaintiff has made out any case justifying the grant of injunctive relief against the defendant. But, even if the plaintiff had satisfied me that the defendant had acted unlawfully in some manner, I would not be disposed to grant the injunctive relief sought. In my opinion, if, contrary to the views I have formed, the plaintiff does establish its case at trial, it can be satisfactorily compensated by an appropriate award of damages.
The plaintiff's summons filed in the court on 29 November will be dismissed with costs to be taxed, including reserved costs, and paid by the plaintiff, but excluding the costs of 5 December.
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