John Fairfax Publications Pty Ltd v Birt

[2006] NSWSC 995

CITATION:	John Fairfax Publications Pty Limited v Birt & 6 ors [2006] NSWSC 995 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	11/09/06; 12/09/06
JUDGMENT DATE :	25 September 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
DECISION:	Some restraints prima facie valid; interlocutory injunctions granted: see para 59
CATCHWORDS:	RESTRAINT OF TRADE – Employer and employee – Newspaper advertising manager – construction – business “in competition with” that of employer - validity – legitimate protectable interests - confidential information – where employee has knowledge of customers and discount arrangements and information about circulation and distribution – where employer is not shown to have taken measures to assert or maintain confidentiality of some such information during employment - knowledge of commercial strategy – customer connection – where employee has little customer contact - staff connection – where employee is in leadership role - reasonableness – Restraints of Trade Act, s 4(1) – time for determination of reasonableness - INJUNCTIONS – interlocutory injunctions – where interlocutory determination will practically determine outcome of case – balance of convenience
LEGISLATION CITED:	Restraints of Trade Act, 1976 (NSW) s 4
CASES CITED:	Adamson v West Perth Football Club (1979) 39 FLR 199 Arthur Murray Dance Studios of Cleveland Inc v Witter 105 NE (2d) 685 (Ohio, 1951) Cactus Imaging Pty Limited v Peters [2006] NSWSC 717 Commercial Plastic Limited v Vincent [1964] 3 WLR 820 Coote v Sproule (1929) 29 SR (NSW) 578 Corrs Pavey Whiting and Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (NSWSC, Young J, 14 April 1997, unreported, BC9701250) Dewes v Fitch [1920] 2 Ch 159 Geraghty v Minter (1979) 142 CLR 177 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 Hitchcock v Coker (1837) 6 Ad & El 438; [1835-42] All ER Rep 452 Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533 Kone Elevators Pty Ltd v McNay (NSWSC, Young J, 10 March 1997, unreported) Kone Elevators Pty Limited v McNay (1997) ATPR 41-564 Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 Lindner v Murdock’s Garage (1950) 83 CLR 628 Littlewoods Organisation Limited v Harris [1977] 1 WLR 1472 Mason v Provident Clothing & Supply Co Limited [1913] AC 724 Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535 Orton v Melman [1981] 1 NSWLR 583 Portal Software v Bodsworth [2005] NSWSC 631 (White J) Portal Software Pty Ltd v Bodsworth [2005] NSWSC 1179 Reeves v Koops Martin Financial Services Pty Limited [2006] NSWCA 221 Rosewood Advertising Pty Limited v Hannah Marketing Pty Limited [2000] NSWSC 1034 Saltman Engineering Co Limited v Campbell Engineering Co (1948) 65 RPC 203 Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659 Twenty-First Australia Inc v Shade (NSWSC, Young J, 31 July 1998, unreported), BC9803667 Vandervell Products Ltd v McLeod [1956] RPC 185 Woolworths Limited v Olson [2004] NSWCA 372 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 CJ Farwell, Covenants in Restraint of Trade as between Employer & Employee (1928) 44 LQR 66 J D Heydon, The Restraint of Trade Doctrine, 2nd Ed.
PARTIES:	John Fairfax Publications Pty Limited (plaintiff) Jeremy Birt (first defendant) General Newspapers Pty Limited (second defendant) Double Bay Newspapers Pty Limited (third defendant) Suburban Publications Pty Limited (fourth defendant) The Federal Publishing Co Pty Limited (fifth defendant) Nine to Five (Holdings) Pty Limited (sixth defendant) Nine to Five Magazine Pty Limited (seventh defendant)
FILE NUMBER(S):	SC 4659/06
COUNSEL:	Ms K Eastman (plaintiff) Mr D Robinson SC w Mr G George (defendants)
SOLICITORS:	Freehills (plaintiff) David R Purvis & Co (defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

25 September 2006

4659/06 John Fairfax Publications Pty Limited v Birt & 6 ors

JUDGMENT

1 HIS HONOUR: From 1997 until 30 August 2006, the plaintiff John Fairfax Publications Pty Limited employed the first defendant Jeremy Benjamin Birt, after 1 October 2003 in the role of General Manager Sales Development, Real Estate and Motors New South Wales. On 30 May 2006, Mr Birt gave three months’ notice of termination of his employment, having decided to accept an offer of employment with the fifth defendant the Federal Publishing Co Pty Limited, to commence from about 1 September 2006 in the role of Publisher, City Publications, involving the management of the publications City Weekly, Central, and 9to5. Together, the second to seventh defendants comprise the Hannan Group, part of the business of which involves the publication of free suburban newspapers, including those three publications.

2 In order to enforce restraints contained in Mr Birt’s contract of employment, Fairfax Publications applies for interlocutory injunctions:

· restraining him until 1 March 2007 from approaching any employee agent or customer of Fairfax Publications with a view to enticing them away from Fairfax Publications (claim 1);

· restraining him until 1 December 2006 from carrying on or being engaged or interested in, in any capacity, including as an employee, or being otherwise associated with any business which is in competition with the Fairfax Group (which is intended to prohibit his employment in the Hannan Group during that period) (claim 2);

· restraining him from using any confidential information of Fairfax Publications its products or clients for his personal gain or revealing it to others (claim 3); and

· restraining the Hannan Group from inducing or requiring him to engage in any of the activities from which he is restrained (claim 4).

3 On an application such as the present for an interim injunction, the question is whether the plaintiff has established a sufficiently seriously arguable case for final relief to justify the grant of interlocutory relief, having regard to the balance of convenience. So stating the test emphasises three matters: first, that the plaintiff bears the onus of making out a case for interlocutory relief; secondly, that before one comes to the balance of convenience, there must be a serious question to be tried; and thirdly, that the strength of the serious question to be tried may be relevant to what is required to tip the balance of convenience one way or the other.

4 Much of the relief sought is limited to the period until 1 December 2006 or 1 March 2007. It is improbable in the extreme that a final hearing can take place before the later, let alone the earlier, of those dates. Accordingly, the resolution of this interlocutory application “will in a practical sense determine the substance of the matter in issue”, and in those circumstances, it is appropriate to consider, in more depth than might otherwise be the case on an interlocutory application, the strength of the plaintiff's case [Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533, 536 (McLelland J); Portal Software v Bodsworth [2005] NSWSC 631, [26] (White J)]. For that reason, and because of the potential consequences for Mr Birt’s employment, I permitted cross-examination, notwithstanding that this was an interlocutory application, and as is reflected in these reasons I have reached some conclusions in more categorical terms than might normally be appropriate on an application for an interlocutory injunction, although they are of course limited to the evidence presently before the court and are not intended to be final findings of fact.

5 These are claims to enforce covenants between employee and employer in restraint of trade. Whether there is a serious question to be tried for final relief depends upon whether it is seriously arguable that there is (1) a valid contractual restraint and (2) a breach or apprehended breach of it (3) in respect of which as a matter of discretion the court would grant injunctive relief.

Valid contractual restraint?

6 Although at common law a restraint of trade is contrary to public policy and void unless it is justified by the special circumstances of the particular case (for which purpose it is sufficient justification that the restriction is reasonable having regard to the interests of the parties concerned and in reference to the interests of the public, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public) [Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535, 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 706, 707; Lindner v Murdock’s Garage (1950) 83 CLR 628, 653], in New South Wales a restraint is valid to the extent to which it is not against public policy, even if not in severable terms [Restraints of Trade Act, 1976 (NSW) s 4(1); Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449, [26]-[27]]. The effect of the Restraints of Trade Act is that, in New South Wales, one approaches this type of case by determining, first, whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed; secondly, whether the restraint in its application to that breach is against public policy; and thirdly, if it is not, then in its application to the alleged infringing conduct, the restraint is valid unless the court makes an order under Restraints of Trade Act, s 4(3) [Orton v Melman [1981] 1 NSWLR 583; Woolworths Limited v Olson [2004] NSWCA 372, [42]]. That is because the effect of the Restraints of Trade Act, s 4(1), is to require that, for the purpose of determining the validity of a restraint, attention be focussed on the actual or apprehended breach, rather than on imaginary or potential breaches.

7 The first question, then, is whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed.

8 The relevant restraints are contained in a letter agreement between Fairfax Publications and Mr Birt dated 8 December 2003, by which Mr Birt was appointed, with effect from 1 October 2003, to the position of “GM Sales Development Real Estate and Motors, NSW”, with responsibilities said to be outlined in an attached position description – which was not in evidence – on a remuneration package of $150,000. Clause 6 (Confidentiality) provided as follows:

During the course of your employment, you will have access to many confidential matters concerning the Company, its products and clients. Such information is not to be used by you for your personal gain or revealed to others outside the Company without the Company’s written approval. This obligation of confidentiality continues even after your employment with the Company comes to an end.

9 Clause 9 (Termination on Notice) provided that each of Fairfax Publications and Mr Birt might terminate his employment at any time by giving the other three months’ written notice. Clause 10 (Obligations on Termination) provided that upon termination of his employment, Mr Birt must deliver to Fairfax Publications all property documents and records (including any stored electronically) in his possession or control relating in any way to any confidential information of Fairfax Publications. Clause 11 (Restraints) provided as follows:-

For a period of six (6) months after the cessation of your employment with the Company, you agree not to approach any employee, agent or customer of the Company with a view to enticing them away from the Company.
You must not for a period of three (3) months after the termination of employment with the Company for any reason, anywhere within Australia carry on, be engaged or interested in, in any capacity, solely or with any other person/s, directly or indirectly, (including as an employee, contractor, agent, consultant, contributor, shareholder, joint venturer, principal, director, adviser or otherwise, whether paid or unpaid) or be otherwise associated with any business which is in competition with the Fairfax Group.

10 In the agreement, “the Company” is defined as Fairfax Publications (the plaintiff). The “Fairfax Group” is not defined.

11 Claim 1 in the Summons is founded on the first limb of clause 11 of the agreement. The apprehended breach – as appears from the terms of the injunction sought – is an approach on or before 1 March 2007 to any employee agent or customer of Fairfax Publications with a view to enticing them away from Fairfax Publications. Self-evidently, such an approach would infringe the terms of the restraint properly construed, save that notice having been given on 30 May and having expired on 30 August, the restraint expires on 28 February, not 1 March 2007.

12 Claim 2 in the Summons is founded on the second limb of clause 11 of the agreement. Although it is framed in broad terms that reflect the terms of the restraint, in substance the alleged breach sought to be restrained is being “engaged … as an employee … with” the Hannan Group. The construction issue is whether the business of the Hannan Group, or part of it, is a “business which is in competition with the Fairfax Group” within the meaning of the agreement.

13 Despite Mr Robinson SC’s submission to the contrary, in my opinion the reference to the Fairfax Group is a reference to the corporate newspaper publishing group of companies, including the plaintiff, of which John Fairfax Holdings Ltd is the holding company. It obviously refers to a larger entity than just the plaintiff, but there is no reason to exclude the plaintiff Fairfax Publications from it. By the time this contract was executed in December 2003, Mr Birt had been employed by Fairfax Publications for six years. It is entirely implausible that the parties would have intended to exclude Fairfax Publications – the very company by which Mr Birt was employed - from the scope of the protection of the restraint.

14 Is the business of the Hannan Group in competition with that of the Fairfax Group? According to the evidence of Mr Hooke, the Managing Director New South Wales of Fairfax Publications, the Fairfax Group is Australasia’s largest newspaper publishing group, publishing metropolitan, regional and community newspapers, financial and consumer magazines, and providing online interactive and e-commerce services, throughout Australia and New Zealand. In New South Wales, Fairfax Publications operates three types of print publishing businesses: metropolitan paid daily newspapers (the Sydney Morning Herald and the Sun-Herald), regional paid daily newspapers (the Newcastle Herald and the Illawarra Mercury), and free community/suburban newspapers which are said to be focussed, in Sydney, in the Northwest, Southwest, South and West regions of the Sydney metropolitan area, but the evidence does not descend to any further detail. Since about 2004, Fairfax Publications has also published “zoned inserts” in the SMH to service areas in which it does not operate community papers; these are the real estate inserts Domain North, Domain East, and Domain Inner West, colloquially known as the Junior Domains. They are distributed via insertion into the SMH, and they contain, almost exclusively, real estate advertising.

15 Also according to Mr Hooke, who says he knows the broad nature of the operations of the Hannan Group, it has three main arms: magazine publishing (Vogue Australia and Good Taste); heat set printing; and publication of free suburban newspapers in Sydney, Wollongong, the Sunshine Coast and the Gold Coast. It is in this third arm that Mr Birt is to be employed. Federal (which publishes City Weekly and Central) is held as to 50% by Suburban Newspapers Pty Limited, and 25% each by General Newspapers Pty Limited and Double Bay Newspapers Pty Limited. Suburban is itself held as to 50% each by General and Double Bay, each of which is a wholly owned subsidiary of F Hannan Pty Limited. Nine-to-Five Magazine (which publishes 9to5) is a wholly owned subsidiary of Nine-to-Five (Holdings) Pty Limited, which is a sibling corporation of Federal, being also held as to 50% by Suburban, and 25% each by General and Double Bay.

16 When his contract with Fairfax Publications was negotiated, according to Mr Birt (whose evidence on this topic was neither challenged nor contradicted), he had a conversation with Mr Sutcliffe of Fairfax Publications, to whom he then reported, in which Mr Birt said that he was not happy with a clause that said he could not work for any competitor for three months, and Mr Sutcliffe said that it meant that he could not work for News Limited. While pre-contractual negotiations are not of themselves permissible aids to construction, they can illuminate the context by showing matters which were in the contemplation of both parties; this conversation tends to show that the “competition” which the parties contemplated were other newspaper publishing groups, such as News Limited, which it could not be doubted was in competition with the Fairfax Group.

17 The Hannan Group is, at least in part, a newspaper-publishing group, though not of metropolitan dailies and not of the same scale as the Fairfax Group or News Limited. The Hannan Group publications are free suburban newspaper/magazines, circulating among residents and commuters in the Sydney City area. The evidence focussed on the three with which Mr Birt would work: 9to5 is aimed at a younger female demographic and is distributed at railway stations; City Weekly is aimed at a younger mixed demographic and also distributed at railway stations; Central is a community newspaper with a broad demographic and delivered to doorsteps in the city. They circulate in at least a small part of the area in which the SMH circulates. While there is no evidence that Hannan’s free Sydney City newspapers service the same area as any Fairfax community paper, the zoned inserts in SMH – the so-called Junior Domains - are distributed in large sectors of metropolitan Sydney as weekly inserts in the SMH.

18 Mr Hooke deposes that Hannan’s Sydney City publications compete with Fairfax publications – in particular, the SMH and the Junior Domains - as they circulate in areas in which the SMH and one or other of the Junior Domains circulate, and seek to attract the same advertisers (not limited to real estate) that Fairfax Publications also seeks to attract. 9to5 and City Weekly each carry some real estate advertising, and Central has a substantial real estate advertising component. Hannan seeks to attract real estate advertising, from the same agents as Fairfax Publications, for real estate and property publications in Sydney. Hannan’s advertising sales team targets advertisers in Fairfax publications (not limited to real estate advertisers), and vice versa, encouraging advertisers to change from one to the other. Thus there is substitution between the products and sources of supply [cf Adamson v West Perth Football Club (1979) 39 FLR 199, 224], in that, for example, a real estate agent (or other advertiser) might chose to advertise in Central rather than in the SMH, Domain East or Domain Inner West, or vice versa. It follows that the Sydney City newspaper publishing business of Hannan is in competition with the Fairfax Group. Accordingly, by being employed in the Sydney City newspaper publishing business of the Hannan Group, before 1 December 2006, Mr Birt would be engaged as an employee in a business that is in competition with the Fairfax Group, contrary to the restraint clause in the agreement.

19 Claim 3 in the summons is founded on clause 6 of the agreement. A plaintiff who seeks to restrain a former employee from using confidential information must identify with specificity, and not merely in global terms, the relevant information [Saltman Engineering Co Limited v Campbell Engineering Co (1948) 65 RPC 203, 215; Corrs Pavey Whiting and Byrne v Collector of Customs (Vic) (1987) 14 FCR 434, 443 (Gummow J); Rosewood Advertising Pty Limited v Hannah Marketing Pty Limited [2000] NSWSC 1034, [8]]. Although those cases were concerned with the circumstances in which, even in the absence of a contract, equity imposes an obligation of confidence, the requirement for specificity is no less where a contractual obligation is sought to be enforced. One reason for this is that an injunction in general terms restraining a former employee from using the employer’s “confidential information”, would inappropriately leave, to an application for contempt, determination of whether particular information was or was not confidential [Twenty-First Australia Inc v Shade (NSWSC, Young J, 31 July 1998, unreported, BC9803667); Cactus Imaging Pty Limited v Peters [2006] NSWSC 717, [14]].

20 Ultimately, Fairfax Publications particularised the information in respect of which it claims confidentiality as follows:

… any information not already in the public domain which relates to the following:

(i) Strategy, commercial business information and tactical plans about the conduct of the Fairfax Group’s business operations;

(ii) Any details of the Fairfax Group’s operations including the costs and logistics of printing and distributing publications (including the Sydney Morning Herald, the Sun-Herald and the Zoned products) in Sydney areas;

(iii) Any details of the costs to the Fairfax Group of print media advertising in Sydney areas;

(iv) The Fairfax Group’s marketing and planning activities relating to print media; or

(v) Any information the Fairfax Group has concerning the nature of the market for print media in the Sydney areas, including
(A) internal research and commissioned confidential research of readership and circulation within the Sydney areas and within each publication;
(B) customer pricing and discounting; and
(C) customer lists.

21 Would disclosure of that information, now particularised in claim 3 in the Amended Summons, be a breach of the obligation of confidentiality? That depends on whether the information is “confidential information”, although to qualify as such, it need not have the character of a trade secret that would attract protection in equity apart from any covenant. As was explained by Kirby P in Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317, (at 333-4):-

It is important that courts, with limited experience in the operation of particular businesses, should refrain from too readily substitut­ing their views of what is confidential for that which the parties have defined and agreed to be such. Necessarily, courts get a limited perception of the operation of a business enterprise. Their view of its activities in a competitive marketplace must depend upon the evidence typically called in a trial. Merely because a person says that something is regarded as confidential or a “trade secret” does not make it so: cf Drake Personnel Ltd v Beddison [1979] VR 13 at 20. Courts should, nevertheless, exercise a modest disinclination to hold that information is not confidential when parties have taken the trouble to say that it is.

I would certainly agree that none of the information which the employer here sought to protect could properly be classified as a “trade secret”, accepting that expression as being at the far end of the spectrum which runs between information which is:

(i) Publicly available or trivial;

(ii) Common to a particular trade or calling even if not publicly known;

(iii) Confidential information properly so called;

(iv) Secrets that attract equitable protection whether or not there is a contractual agreement: cf Faccenda Chicken Ltd v Fowler [1987] Ch 117 at 133 (CA); [1984] ICR 589 at 598 (Ch D) and Warman International Ltd v Envirotech Australia Pty Ltd (1986) 11 FCR 478.

In my view, the information which the employer sought to protect here would not, in the absence of an express covenant have attracted the protection of equity. Nevertheless, there was such a covenant. To the extent that it was too wide, the Act was available to sustain it in a modified form. Determining what is confidential involves a decision on a question of fact in each case where that quality is asserted. Considerations which courts have found to be relevant, in particular cases, in determining this question include:

(a) The fact that skill and effort was expended to acquire the information: see Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 at 117; Wheatley v Bell [1982] 2 NSWLR 544 at 546; cf International Scientific Communications Inc v Pattison [1979] FSR 429 at 434;

(b) The fact that the information is jealously guarded by the employer, is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others: see Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 50; E Worsley & Co Ltd v Cooper [1939] 1 All ER 290 at 307; cf Stephenson Jordan & Harrison Ld v McDonald& Evans (1952) 69 RPC 10 at 16;

(c) The fact that it was plainly made known to the employee that the material was regarded by the employer as confidential: see Printers and Finishers, Ltd v Holloway (Confidential Information) [1965] RPC 239 at 256 and Faccenda (at 137);

(d) The fact that the usages and practices of the industry support the assertion of confidentiality: see, eg, Thomas Marshall (Exports) v Guinle [1979] Ch 227 at 248; and

(e) The fact that the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer's organisation: see Faccenda (loc cit).

22 Much of the evidence adduced to make a case of confidentiality was quite inadequate to do so. It is true that Mr Birt’s cross-examination showed that he had knowledge of the parameters for the discounts which Fairfax Publications would give to agents, current circulation and distribution data (at least some of which was but some of which was not publicly available), and customer lists. But the evidence does not show that Fairfax took any measures, of the type described by Kirby P in Gasweld, to assert or maintain the confidentiality of customer lists, or pricing and discount arrangements: customer lists produced by A C Nielson were publicly available, and Fairfax’s advertising customers could easily enough be identified by looking at the newspaper; circulation data, though not the most recent, was publicly available; and although the parameters of the discount arrangements were not advertised by Fairfax, they could be ascertained by inquiry of the agents, who would reveal them to competing publishers to negotiate a better price, and who were not shown to be under any obligation not to disclose them. The evidence does not make good the contention that this information relating to customers or to pricing and discount arrangements was confidential in any relevant sense.

23 However, in an open letter from his solicitors to Fairfax Publications’ solicitors dated 6 September 2006, Mr Birt offered an undertaking not to disclose “for a period of three months from the commencement of his employment” with Hannan:

1 Any strategy and commercial business information and tactical plans about the conduct of the Fairfax Group business operations;
2 Any details of the economics of the Fairfax Groups printing of print media advertising in Sydney city areas;
3 Any details of the Fairfax Group’s physical delivery of print media in the Sydney city areas;
4 The Fairfax Group’s marketing and planning activities;
5 Any information the Fairfax Group has that is not available to the public concerning the nature of the market for print media in the Sydney city areas.

24 In effect, Mr Birt conceded that such information was confidential. As to the fifth item, he conceded in cross-examination that he had occasional access to internal readership and circulation survey data, and that it was confidential. Moreover, Mr Birt was responsible for developing the business case for the introduction and implementation of the Junior Domains. He must have an appreciation and understanding of the commercial strategy that propelled them: not just on what days and in what areas they are distributed, but the commercial rationale that underlies those matters. This information, in my opinion, is confidential, even if it would not be properly characterised as a trade secret. Accordingly, in my opinion Fairfax Publications has established a seriously arguable case that disclosure of the following information would be a breach of clause 6 of the agreement:

1 Strategy, commercial business information and tactical plans about the conduct of the Fairfax Group’s business operations;

2 Details of the Fairfax Group’s physical delivery of print media in the Sydney metropolitan area;

3 Details of the costs to the Fairfax Group of print media advertising in the Sydney metropolitan area;

4 The Fairfax Group’s marketing and planning activities relating to print media;

5 Internal readership and circulation survey data in respect of publications within the Sydney metropolitan area.

25 The second step is to consider whether each restraint, in its application to the alleged breach, is against public policy. While the same general principle applies in all cases of restraint of trade, a stricter and less favourable view is taken in respect of covenants in restraint of trade between employer and employee than in commercial agreements for sale of goodwill [Nordenfelt, 566; Mason v Provident Clothing & Supply Co Limited [1913] AC 724, 731, 738; Herbert Morris Ltd v Saxelby; Geraghty v Minter (1979) 142 CLR 177, 185; Woolworths Limited v Olson, [38]; J D Heydon, The Restraint of Trade Doctrine, 2nd Ed, pp68-69]. An employer is not entitled to be protected against mere competition, and the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary interests [Vandervell Products Ltd v McLeod [1956] RPC 185, 192; Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659, 664], including the employer’s trade secrets and confidential information, and the employer’s goodwill including customer connection.

26 In this context, there are two main questions: first, does the employer have a legitimate protectable interest, and secondly, is the restraint no more than reasonable for the protection of that interest. The validity of a restraint is judged as at the time at which the contract is made, by reference to what the restraint entitled or required the parties to do, rather than what they intend to do or have actually done [Nordenfelt, 574; Commercial Plastic Limited v Vincent [1964] 3 WLR 820, 829; Heydon, pp37-40; Lindner v Murdock’s Garage; Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, 334; Woolworths Limited v Olson, 372, [40]].

27 As to protectable interests, three are potentially relevant: confidential information, customer connection, and staff connection.

28 An employer has an interest in its confidential information, which it may legitimately protect by a restraint of trade, even if the information is not in the nature of a trade secret such as to attract equitable protection in the absence of any contractual agreement [Wright v Gasweld, 326F, 333G-334E, 341G].

29 Mr Birt was appointed to a managerial position. Clause 6 of the contract in terms shows that the parties contemplated that Mr Birt would in the course of his employment come into possession of Fairfax Publications’ confidential information. The findings made above [par 24] in respect of his actual receipt of confidential information only reinforce that conclusion. In those circumstances, judged as at the date of the contract, Fairfax Publications had a legitimate protectable interest in respect of confidential information which it was reasonably supposed would come into Mr Birt’s possession in the course of his employment - although that is not conclusive of whether as at the date of hearing injunctive relief is appropriate.

30 An employer’s customer connection is plainly an interest which can support a reasonable restraint of trade [Hitchcock v Coker (1837) 6 Ad & El 438, 454; [1835-42] All ER Rep 452, 456-7 (Tindal CJ); Herbert Morris Ltd v Saxelby, 709; Dewes v Fitch [1920] 2 Ch 159, 181; Coote v Sproule (1929) 29 SR (NSW) 578, 580 (Harvey CJ in Eq); Lindner v Murdock’s Garage, 633-634 (Latham CJ, Webb J agreeing), 650 (Fullagar J), 654 (Kitto J); Koops Martin v Reeves, [29]-[33]]. Such a restraint is legitimate where the employee is, vis-à-vis the client, the “human face” of the business, namely the person who represents the business to the customer - or, as it was put by Hoover J in Arthur Murray Dance Studios of Cleveland Inc v Witter 105 NE (2d) 685, 706 (Ohio, 1951): “The personal relation between the employee and the customer [is] such as to enable the employee to control the customer’s business” [Twenty-First Australia Inc v Shade, BC9803667, 12; Koops Martin v Reeves, [34]]. While the employer is not entitled to be protected against mere competition by a former employee, the employer is entitled to be protected against unfair competition based on the use by the employee after termination of employment of the customer connection which the employee has built up during the employment – which, because the employee has in effect represented the employer from the customer’s perspective during the employment, might at least temporarily appear attached to the employee, but in truth belongs to the employer [Koops Martin v Reeves, [30]].

31 The evidence reveals very little actual contact between Mr Birt and the real estate agents who were the relevant customers of Fairfax Publications; it was his subordinates in his sales team who had that contact, although he might occasionally become involved in the event of some difficulty arising. There is no evidence at all that in this industry a person in Mr Birt’s position gains any influence over customers. Fairfax Publications has not established that it has a legitimate protectable interest vis-à-vis Mr Birt in its customer connection with real estate agents, or even that it is seriously arguable that it has such an interest.

32 For reasons explained in Cactus Imaging v Peters, [55], apart from protection against misuse of confidential information, an employer has a protectable interest in staff connection – that is, in maintaining a stable trained workforce. Staff connection constitutes part of the intangible benefits, which may give a business value over and above the value of the assets employed in it, and thus comprises part of its goodwill. It is amenable to protection by a covenant in a manner similar to customer connection, even in the absence of protectable confidences.

33 Mr Birt was appointed to a leadership position, in which it was readily foreseeable that he might acquire influence over the staff who reported to him and who worked under his supervision. The prospect that a person in his position might develop so strong relationship with subordinates that they would follow him upon his departure was real. In my opinion, Fairfax Publications had a protectable interest vis-à-vis Mr Birt in its staff connection.

34 It is next necessary to consider whether each of the restraints, in its application to the alleged breach, is no more than reasonable for the protection of Fairfax Publications’ legitimate interest in its confidential information and staff connection.

35 There can be no objection to clause 6 (Confidentiality), which is supported by protection of confidential information, in its application to such information not yet in the public domain as has been found to be confidential. In that respect, it does no more than protect what Fairfax Publications is entitled to protect. It is no objection to such a clause that it is unlimited in time or area; confidential information can be protected everywhere, for so long as it does not enter the public domain.

36 The second limb of clause 11 is also supported by confidential information. As Lord Denning said in Littlewoods Organisation Limited v Harris [1977] 1 WLR 1472, 1479, experience has shown that it is unsatisfactory simply to have a covenant against disclosing confidential information, because it is difficult to draw the line between information which is confidential and information which is not, and very difficult to prove a breach when the information is of such a character that an employee can carry it away in his or her head, so that the only practicable solution is to take a covenant from the employee by which he or she undertakes not to work for a trade rival. The permissibility of such a restraint for that purpose is well established [Kone Elevators Pty Limited v McNay (1997) ATPR ¶41-564, 43,834; Woolworths Limited v Olson, [38], [67]; Lindner v Murdock’s Garage, 650 (Fullagar J); Portal Software Pty Ltd v Bodsworth [2005] NSWSC 1179, [83]].

37 Whatever might be said of the restraint’s purported application in respect of businesses which compete with parts of the Fairfax Group’s business in which Mr Birt had no involvement, or of its purported nationwide application, here the breach in question is employment in the Sydney City newspaper publishing business of Hannan, which competes for real estate and other advertising with a part of the Fairfax group’s business in which Mr Birt was engaged. Although he has proffered an undertaking not to be involved in real estate advertising, the court enforces valid restraints without embarking into “nice considerations as to the personal honour or integrity of the particular employee” [CJ Farwell, Covenants in Restraint of Trade as between Employer & Employee (1928) 44 LQR 66, 68; Heydon, p87]. Moreover, quite apart from involvement in real estate advertising, Mr Birt’s knowledge of the strategy which launched the Junior Domains might well be of assistance to Hannan in gaining market share. The restraint is therefore not excessive in its application to employment in Hannan’s Sydney City newspaper publishing business. Nor is three months an unreasonable period for the employer to insist on protection against the risk that Mr Birt, in the capacity of “publisher” with plenary responsibility for the three relevant Hannan publications, when advancing the interests of his new employer in increasing market penetration and share, might find it impossible, even perhaps despite his best endeavours, to put out of his mind what he knew of Fairfax Publications’ strategies and vulnerabilities.

38 The first limb of clause 11 has three elements: employees, agents and customer. In respect of the solicitation of employees, it is supported by staff connection. The employer is entitled to protection for only so long as it would reasonably take to install a replacement and allow a reasonable opportunity for that replacement to prove his or her competence to and gain the confidence of the staff. However, the agreement of the parties is at least a starting point for that exercise. In my view it is at least seriously arguable that a prohibition on solicitation of employees for six months is not unreasonable; it may well take six months for Mr Birt’s influence to wane.

39 As to the solicitation of agents, while I would not deny that there may be cases in which a connection with agents is protectable by restraint, there is nothing in the evidence which permits a finding that Fairfax Publications has any relevant connection with its agents – whoever they might be – which justifies protection by restraint. In this respect there is no evidence of a legitimate interest which could support the restraint and I would not find it valid.

40 As to solicitation of customers, while on its face this type of restraint protects customer connection, such a restraint can also be supported by confidential information: in particular, a prohibition on solicitation of customers protects an employer against misuse of knowledge which the employee has in the course of employment gained of the employer’s terms of trade with those customers, or their particular requirements and reasons for dealing with the employer [cf Cactus Imaging v Peters, [34]]. Such a restraint affords a lesser degree of protection than an absolute prohibition on employment by a competitor, and may be justifiable for a lengthier period. However, as none of such information as I have found to be protectable as confidential relates to terms of trade with or characteristics of customers, in this case I do not consider that the restraint on solicitation can be supported by confidential information.

41 Accordingly, in their application to the alleged infringing conduct, the restraints in clause 6 and the second limb of clause 11 are valid, or at least seriously arguably so; that in the first limb of clause 11 is so only to the extent that it prohibits to solicitation of employees. [There has been no suggestion of any application for an order under Restraints of Trade Act, s 4(3)].

Breach or apprehended breach?

42 It is plain that there is a threatened or actual breach of the second limb of clause 11. Mr Birt has indicated that unless restrained he would commence employment with Hannan on 4 September 2006.

43 So far as clause 6 is concerned, although Mr Birt has offered an undertaking not to use for his own purposes or disclose the confidential information referred to in his solicitor’s letter of 6 September 2006 for three months, that undertaking itself bespeaks a misapprehension of his obligation, which is not to use or disclose the confidential information so long as it remains confidential, not merely for a limited period of three months. Such a misapprehension of an obligation founds a sufficient apprehension of a breach.

44 There is no direct evidence of any actual or threatened breach of the first limb of clause 11. However, a breach of one aspect of a restraint can found sufficient concern about breach of another to justify an injunction in respect of the other [Reeves v Koops Martin Financial Services Pty Limited [2006] NSWCA 221, [20]]. Here, there is an actual breach of one restraint, and if employed by Hannan, before or after the three-month period, Mr Birt’s plenary responsibility as “publisher”, including the re-invigoration of the relevant Hannan publications, would provide a motive and an opportunity for him to seek to recruit staff with whom he might still have influence at Fairfax Publications. In my view, that found a sufficient apprehension of a breach to justify the grant of injunctive relief in respect of the first limb of clause 11, in so far as it relates to enticing employees.

Injunctive relief - discretionary considerations

45 Generally speaking, an injunction will be granted to enforce a negative contractual stipulation. In the context of restraints of trade, damages are rarely a sufficient remedy. In this case, as in most, it would be very difficult to prove and quantify the damage that may be suffered, which may accrue of a period of time. In particular, confidential information, once lost, cannot usually be recovered.

46 In exercising the discretion to grant or withhold injunctive relief, the Court has regard to the circumstances at the date of the hearing [Kone Elevators Pty Ltd v McNay (NSWSC, Young J, 10 March 1997, unreported; reversed, but not on this point, 19 March 1997); Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (NSWSC, Young J, 14 April 1997, unreported, BC9701250)]. Thus even where judged as at the date of the contract a restraint is reasonable, the Court may on discretionary grounds withhold injunctive relief if at the date of hearing there is no protectable interest – for example, if despite contemplation at the date of contract that the employee would have access to confidential information, that did not eventuate. However, it is to be born in mind that restraints of the type contained in the second limb of clause 11 are sought and given because it is recognised that it may be difficult to prove with sufficient specificity the possession of confidential information, and courts should be slow to decline as a matter of discretion to enforce such a restraint, one it is found to be valid when created, on the grounds that it is unclear what confidential information if any the employee in fact possesses: it was to provide certainty and avoid the need for detailed proof of possession and apprehended misuse of confidential information that such clauses are upheld as valid.

47 Mr Robinson has submitted that by isolating Mr Birt from confidential information for the three-month notice period at the end of his employment, Fairfax Publications removed the need to protect its confidential information after the employment terminated. However, I do not see why the entitlement of Fairfax Publications to the benefit of the three-month non-compete period should be affected by its taking precautions to minimise Mr Birt’s access to confidential information during the three-month notice period. The parties bargained for three months’ notice, followed by a three-month non-compete period. Fairfax Publications was entitled to have him serve out his notice period, and then not be employed by a competitor for three months. In particular, I do not accept the submission that Mr Birt was “demoted”; it is true that he was replaced in the position of General Manager Sales Development, Real Estate New South Wales, but he was assigned to a project on which he had previously been engaged but which was incomplete. His remuneration was unchanged.

48 I am also unable to accept Mr Robinson’s submission that Fairfax Publications’ entitlement to insist on the restraint is affected by the circumstance that, when it first learnt of Mr Birt’s intention to take up employments with the Hannon Group, there was no immediate assertion of its rights under the restraints. It is true that, for a month or two, Fairfax Publications did not positively assert that it would invoke the restraint on employment. It endeavoured to negotiate with Mr Birt to retain him at Fairfax Publications. But even if this created in Mr Birt an assumption that the restraint would not be enforced, he did not rely on any such assumption to his detriment. He had already given his three months’ notice, terminating the contract. When Fairfax Publications endeavoured to negotiate his retention, he made clear that he was determined to proceed with a new career with Federal, “risky as it may be”. I am unable to accept his assertion that he would not have agreed to an “end date” of 30 August had he known that the restraint would be enforced; he himself selected that end date by giving three months notice on 30 May, before any assumption about enforcement of the restraint could have been created.

49 There is no doubt that enforcing the restraints by injunction will occasion hardship to Mr Birt, and one cannot but have considerable sympathy for his predicament: he will be out of employment for three months, although it seems that upon expiration of the three month restraint, Hannan will still employ him, so that he will not lose his employment opportunity forever. This hardship is increased by the circumstance that his wife is expecting their second child in about a month; and their first child is only 16 months old. However, enforcement of such restraints frequently occasion hardship to employees who, in defiance of them, accept employment with competitors. To a significant extent, an employee who pursues such employment despite the terms of a restraint is the author of his or her own misfortune. I do not think that sympathy for the position in which Mr Birt now finds himself can justify not enforcing the contractual rights of Fairfax Publications.

Balance of convenience

50 The inquiry as to the balance of convenience involves consideration of the consequences of granting or refusing an interlocutory injunction as the case may be, when the opposite position prevails on final hearing.

51 If no injunction is granted, Fairfax Publications will be permanently deprived of the protection afforded by the contract, and left to a claim for damages that, for reasons already explained, is an inadequate remedy. On the other hand, if an injunction is granted, any loss occasioned to Mr Birt will be recoverable on the undertaking as to damages. This favours granting rather than withholding relief, a conclusion which is fortified by what I consider to be the prima facie strength of Fairfax Publications’ case, on the material now before the court, on the second limb of clause 11.

The claim against the Hannan companies

52 Claim 4 in the Summons seeks to have the companies in the Hannan Group restrained from inducing Mr Birt to do any of the things from which it is sought to have him personally restrained.

53 It is well established that it is a tort intentionally to induce a party to a contract to breach his or her contractual obligations, including in respect of employment contracts [Lumley v Gye (1853) 22 LJQB 463], and that a threatened inducement to breach a contract may be restrained by injunction [Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581, 625].

54 The Hannan Group was placed on notice of Mr Birt’s contractual obligations to Fairfax Publications by letter from Fairfax Publications on or about 17 August 2006. In the face of that notification, they have continued to pursue the employment of Mr Birt. In my view, a case has been made out for an interlocutory injunction restraining Federal and Nine-to-Five Magazine, which are the companies responsible for the publications on which he is to be engaged, from inducing Mr Birt to breach his contractual obligations with Fairfax Publications, to the extent that those obligations are enforceable. At this stage, insufficient has been shown to implicate the other Hannan defendants to warrant relief against them.

Conclusion

55 In their application to the alleged infringing conduct, the restraints in clause 6 and the second limb of clause 11 are valid, or at least seriously arguably so; but that in the first limb of clause 11 is so only to the extent that it prohibits the solicitation of employees.

56 There is a threatened or actual breach of the second limb of clause 11, and a sufficient apprehension of a breach of clause 6 and of the first limb of clause 11. The policy in favour of enforcing valid restraints outweighs such discretionary considerations as might point the other way.

57 The balance of convenience, reinforced by the strength of Fairfax Publication’s prima facie case on the second limb of clause 11, favours granting rather than withholding relief.

58 A case has also been made out for an interlocutory injunction restraining Federal and Nine-to-Five Magazine, who were on notice of Mr Birt’s contractual obligations - but not the other Hannan defendants - from inducing him to breach those obligations, to the extent that they are enforceable.

Orders

59 My orders are as follows:-

1. UPON the Plaintiff by its counsel giving to the court the usual undertaking as to damages:-

1.1 ORDER that UNTIL FURTHER ORDER the first defendant be restrained:


(a) from being engaged or interested in, in any capacity, including as an employee, or being otherwise associated with, the Sydney City newspaper publishing businesses of the fifth defendant and/or the seventh defendant, until and including 30 November 2006;

(b) from approaching any employee of the plaintiff with a view to enticing them away from the plaintiff, until and including 28 February 2007;

(c) from using for his personal gain or revealing to others any of the confidential information of the plaintiff described in the Schedule.
1.2 ORDER that UNTIL FURTHER ORDER the fifth and seventh defendants be restrained from inducing or requiring the first defendant to engage in any of the conduct prohibited by order 1.1.


2. ORDER that costs of the application for interlocutory relief be the plaintiff’s costs in the proceedings.

3. STANDOVER the proceedings to 9 October 2006 at 09:30am before the Registrar for directions.

Schedule

(i) Strategy, commercial business information and tactical plans about the conduct of the Fairfax Group’s business operations;

(ii) Details of the Fairfax Group’s physical delivery of print media in the Sydney metropolitan area;

(iii) Details of the costs to the Fairfax Group of print media advertising in the Sydney metropolitan area;

(iv) The Fairfax Group’s marketing and planning activities relating to print media;

(v) Internal readership and circulation survey data in respect of publications within the Sydney metropolitan area.

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26/10/2006 - Correction - Paragraph(s) Paragraph 1.2 of orders, alter "plaintiff" to "first defendant"