Just Group Ltd v Peck

[2016] VSCA 334

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2016 0147

JUST GROUP LIMITED (ACN 096 911 410)	Applicant
v
NICOLE PECK	Respondent

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JUDGES:	BEACH and FERGUSON JJA, RIORDAN AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	15 December 2016
DATE OF JUDGMENT:	20 December 2016
MEDIUM NEUTRAL CITATION:	[2016] VSCA 334
JUDGMENT APPEALED FROM:	[2016] VSC 614 (McDonald J)

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CONTRACT – Contract of employment – Restraint of trade – Enforceability of covenant in restraint of trade – Legitimate interest of employer in protecting its confidential information – Whether restraint unreasonable – Restraint unreasonable – Severance – Whether covenant or words in covenant should be severed – Covenant and words not severed – Application for leave to appeal granted – Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr A C Archibald QC with Mr M Felman and Ms E L Murphy	Arnold Bloch Leibler
For the Respondent	Ms W A Harris QC with Mr N A T Harrington and Mr N P De Young	Ashurst Australia

BEACH JA
FERGUSON JA
RIORDAN AJA:

1. The applicant, Just Group Ltd (‘Just Group’[1]), applies for leave to appeal against the judgment of McDonald J given on 17 October 2016 dismissing Just Group’s application for injunctive and declaratory relief which would prevent the respondent, Nicole Peck (‘Peck’) from taking up a CFO position at Cotton On.

   [1]Just Group is referred to as ‘JGL’ in the contract of employment referred to in [5] to [9] below.

1. The parties’ Agreed Summary described Just Group as follows:

Just Group is a specialty brand and fashion retailer with established operations in Australia and New Zealand. Through its subsidiaries, it has seven brands: stationery brand ‘Smiggle’, sleepwear brand ‘Peter Alexander’, and fashion brands ‘Just Jeans’, ‘Jay Jays’, ‘Portmans’, ‘Jacqui E’ and ‘Dotti’. Just Group operates across Australia and New Zealand, as well as in Malaysia, Singapore, Hong Kong and the United Kingdom. It has over 1,000 retail stores, as well as established e-commerce internet platforms. In the financial year 2015, Just Group’s sales were $945.7m and it made an underlying profit before tax of $100.9m.

1. The relevant facts can be summarised as follows:

(a)On 7 December 2015, the respondent, Peck, entered into a contract of employment with Just Group, the terms of which included the following:

(i)Peck would be employed as the Chief Financial Officer (‘CFO’) for Just Group.

(ii)Peck would be paid a salary of $450,000 in the first year of employment plus a sign on fee of $50,000[2] and a further amount of approximately $170,000 subject to her qualifying with the rules of the Just Group’s incentive scheme.

(iii)Peck agreed to a clause which restrained her from being engaged in certain specified activities for a period of 24 months (alternatively, depending on validity, 18 months or 12 months) after termination of her employment with Just Group.  The full terms of the clause are set out below at [5] to [9].

(b)From 6 January 2016, Peck commenced in her employment as the CFO for Just Group.

(c)On 1 May 2016, Peck accepted an offer of employment as General Manager of Group Finance and Treasury (a CFO level position) with Cotton On. 

(d)On 2 May 2016, Peck gave Just Group one month’s notice of her intention to resign.

(e)On 27 May 2016, Peck informed Just Group that she had an offer of employment to work for Cotton On, starting 6 June 2016, which she intended to accept.

(f)On 3 June 2016, Peck’s employment resignation became effective and her employment with Just Group ended.

[2]Peck had negotiated this salary and sign on fee from an initial offer from Just Group, on 4 December 2015, of $380,000.

History of the proceeding

1. The history of the proceeding is as follows:

(a)On 2 June 2016, Just Group filed the writ with a generally endorsed claim seeking injunctive and declaratory relief.

(b)On 3 June 2016, upon the provision of mutual undertakings, the proceeding was listed for trial on an expedited timetable.

(c)The trial was conducted over 5 days, between 30 August and 5 September 2016.

(d)On 17 October 2016, McDonald J dismissed the claims by Just Group for injunctive and declaratory relief.

(e)On 26 October 2016, the undertakings previously given by the parties were extended to 4.15 pm on 15 December 2016 and Just Group’s application for leave to appeal and appeal, if leave is granted, was listed for hearing on that date.

The restraints

1. The restraint clause relied on by Just Group was entitled ‘Restricted Activities – Personal Engagement’ and provided:

You must not anywhere in the Geographic Region for the Restricted Period – Personal Engagement, engage in Restricted Activities – Personal Engagement, except with the prior written consent of JGL.

1. The terms referred to in the restraint clause were defined as follows:

(a)       Geographic Region means the geographic region of:

(a)       Australia and New Zealand; or (if this is held to be invalid)

(b)       Australia; or (if this is held to be invalid)

(c)       Victoria.

(b)       Restricted Period – Personal Engagement means:

during your employment and for the period of:

(a)24 months after the Termination Date;  or (if that period is held to be invalid)

(b)18 months after the Termination Date;  or (if that period is held to be invalid)

(c)       12 months after the Termination Date.

(c)Restricted Activities (‘the Restricted Activities’) — Personal Engagement means directly or indirectly:

(a)       being engaged, concerned or interested in;

(b)       assisting or advising in respect of; or

(c)       carrying on any activity:

1)which is the same as, or similar to, any part of the specialty brand and fashion business of a Group Company in which you were involved, or in respect of which you received Confidential Information, in the Connection Period[3]; [‘the first limb’] or

2)for or on behalf of any of the entities operating the brands listed in Annexure A[4], their assignees, successors or transmittees (from which, it is acknowledged, JGL and the Group have a legitimate interest in withholding their confidential information and their connections with customers, employees and suppliers) [‘the second limb’].

[3]            Connection Period is defined to mean:

[4]‘Annexure A’ is a list of 50 entities/brands, including Cotton On Group, a copy of which is annexed to these reasons.

1. ‘Confidential information’ is defined in the contract to mean all information regarding the businesses of Just Group, and includes, without limitation:

§business plans, research, development and survey information;

• customer, staff and all other training manuals and policy manuals;
• planning and marketing strategies, procedures, techniques and information;
• accounting procedures and financial information;
• contracts, agreements and retainers relating to vacancies, whether oral or in writing or otherwise in the process of being implemented;
• client lists, candidate files and associated information;
• product sourcing information, product development information, design concepts and processes, branding and marketing concepts and strategies;
• supplier network identity and contacts;
• any of the above information which relates to and is the property of a client or customer of JGL;
• any recommendation or reports of JGL or any of its consultants or agents;
• any information which you may be given or which may come to your knowledge during the course of employment and which from its nature and content is or would reasonably be expected to be confidential, but does not include any information which enters the public domain other than through a breach of the terms of this agreement by you.

1. Clause 4 is headed ‘TERMINATION’ and relevantly provides:

Your role is subject to a probationary period of six months from the date of commencement.  In this period JGL may elect to terminate your employment by giving notice of one month.

Subsequently, you or JGL may terminate your employment by giving 12 months’ notice in writing.

If you or JGL give notice of termination then JGL may:

(a)elect to make payment to you in lieu of notice instead of requiring you to work for part, or all, of the notice period, in which case your employment ends when the election is made ...

1. Clause 10 includes the following sub-clause under the heading ‘Restraints are Reasonable’:

Both you and JGL consider the restraints and notification obligations contained in this Section to be reasonable and intend the restraints to operate to the maximum extent.  For the avoidance of doubt, the restraints operate in respect of each maximum period and in each of the geographic regions, unless and until a court holds otherwise.

You specifically agree and acknowledge that:

(a)you have had the opportunity to obtain independent legal advice in relation to the terms and effect of this Section;

(b)the restrictions imposed under this Section are reasonable in terms of their extent and duration, and go no further than is necessary to protect the legitimate business interests of the Group;

(c)the restrictions are necessary to protect the goodwill of the business and do not unreasonably restrict your right to carry on your profession;

(d)the restrictions are intended to operate to the maximum extent permissible by law, and for the avoidance of doubt, the Geographic Region, Restricted Period – Personal Engagement and Restricted Period – Engagement of Others is that set out in paragraph (a) of their respective definitions unless a Court holds otherwise; and

(e)the restrictions under this Section may be assigned to one or more third parties as part of the goodwill of any part of the business.

If these restraints:

(a)are void as unreasonable for the protection of the interests of JGL or any entity within the Group; and

(b)would be valid if part of the wording was deleted or period or area was reduced, the restraints will apply with the modifications necessary to make them effective.

The restraints and notification obligations in this Section do not apply if you have obtained the JGL’s prior written consent to act other than as required by this Section.

Confidential information

1. The trial judge found that ’the evidence confirmed that Ms Peck was in fact exposed to [Just Group’s] confidential information during her employment’.[5]  The parties, in their agreed summary state that the evidence was that Just Group’s confidential information fell into three categories:

(a) Evidence about the information concerning Just Group’s work-streams as at late 2015. For example, one of the work-streams was developing the Just Group’s online marketing and e-commerce plan covering each financial year up to [a particular year] (the Online Plan). Just Group has worked on its Online Plan since 2012 at a capital cost of over [a particular amount]. In financial year 2015, Just Group’s online sales grew 31%, well ahead of market growth of 8.6%. Just Group’s stated objective was to continue to invest in technology, people and marketing to achieve an aspirational goal of [a particular percentage] of total group sales from online sales. There were many more examples that cannot be listed here due to space constraints.

(b) Evidence about the nature of the information that would be received in connection with the CFO role at the Just Group and its responsibilities. For example, one of the responsibilities was to run board meetings and manage the board process. This entailed attending all board meetings for their entire duration, preparing agendas, board action points and minutes of meetings, and liaising with management in relation to papers that went before the board. Again, there were many more examples.

(c) Evidence about the information that Peck actually received as CFO. For example, Peck was present at a board meeting where a detailed market entry analysis on launching a Just Group brand in a new country was discussed, including Just Group’s aspirations in terms of store numbers and sales revenue (referred to in the document as ‘the size of the prize’) in the next three years. Once again, there were numerous other examples. Just Group sought to rely on information actually received as a proxy for information that Peck was expected to receive at the time of entry into the Contract.[6]

[5]Just Group Ltd v Peck [2016] VSC 614 [9] (‘Trial Reasons’).

[6]Redactions made for purposes of confidentiality.

Reasons of the trial judge

1. The reasons relied upon by McDonald J for dismissing Just Group’s claims may be summarised as follows:

(a)His Honour accepted Just Group’s submission that to construe the term defining ‘Restricted Activities’ sensibly it was necessary to move the words ‘any activity’ down a line[7] so that it read as follows:

[7]Trial Reasons [21].

(a)being engaged, concerned or interested in;

(b)assisting or advising in respect of; or

(c)carrying on any activity

1)        which is the same …

(b)He rejected Just Group’s submission that the word ‘activity’ in the ‘Restricted Activities’ referred to the ’front end’ commercial or trading activities of the new employer; and found that it was a reference to activities by Peck.[8]

[8]Ibid [27].

(c)He found that the first limb of the restraint made no sense unless it was read as though the words ‘any activity which is’ were inserted[9] so the first limb would read as follows:

[9]Ibid [23].

(1) which is the same as, or similar to, any activity which is any part of the speciality brand and fashion business …[10]

[10]Inserted words underlined.

(d)If the first limb was otherwise enforceable, as contended for by Just Group,[11] it was void as an unreasonable restraint of trade because it went well beyond that which was reasonable to protect Just Group’s legitimate interests. In particular, the first limb prevented Peck from being employed in:

[11]Trial Reasons [28].

(i)a role where the confidential information, which she acquired in her employment with Just Group (’the Just Group confidential information’), would not be relevant;[12]  and

[12]Ibid [36].

(ii)any business similar to any part of Just Group’s business,[13] which would include any retailer of apparel or stationery.[14]  His Honour rejected Just Group’s submission that the phrase ‘same as, or similar to’ in the first limb should be read as identifying businesses that compete with Just Group.[15]

[13]Ibid [37].

[14]Ibid [29].

[15]Ibid [38].

(e)The second limb was unenforceable as an unreasonable restraint because it went beyond that which was reasonable to protect Just Group’s legitimate interests in that:

(i)Just Group had not established that the operating entities of 46 of the 50 brands/entities listed in Annexure A were engaged in commercial activities that competed with Just Group;[16]  and

(ii)it restrained Peck from engaging in any employment with the 50 named brands/entities, including a position in respect of which the Just Group confidential information would be of no relevance to the new employer.[17] 

(f)The restraint periods ranging between 12 months and 24 months were unreasonable because of the disparity with the one month notice period upon which Peck’s employment could have been terminated by Just Group during the probationary period.[18]

(g)The Court would not sever the other entities from Cotton On in Annexure A because:

(i) the second limb read in conjunction with Annexure A created a single covenant restraining Peck from working for any of the 50 brands/entities listed in Annexure A;[19]  and

(ii)severance would require ‘the Court to engage in the task of curial disentanglement to salvage a patently unreasonable restraint.’[20]

[16]Ibid [43].

[17]Ibid [44].

[18]Ibid [50].

[19]Ibid [60].

[20]Ibid [77].

Grounds of appeal

1. Just Group relied upon the following grounds of appeal:

First limb of the restraint clause

In relation to the first limb (first limb) … of the definition of ‘Restricted Activities - Personal Engagement’ in the restraint clause contained in the contract of employment between the Applicant and the Respondent (the contract of employment):

1.The learned trial judge erred in concluding that the first limb does not create any enforceable obligation by reason of it being void for uncertainty (Judgment at [28]).

2.The learned trial judge erred in concluding, alternatively, that the first limb is an unreasonable and therefore unenforceable restraint of trade (Judgment at [28]).

Second limb of the restraint clause

In relation to the second limb (second limb) … of the definition of ‘Restricted Activities — Personal Engagement’ in the restraint clause contained in the contract of employment:

3.The learned trial judge erred in concluding that the second limb is an unreasonable and therefore unenforceable restraint of trade (Judgment at [43] and [77]).

4.The learned trial judge erred by refusing to sever the items listed in Annexure A to the second limb because his Honour wrongly concluded:

a.        that no part of Annexure A was severable; and

b.that there is an overriding discretion to refuse to sever any part of Annexure A, and in error would have exercised that discretion against severance, if such a part had been severable (Judgment at [63]).

Just Group’s submissions

1. Just Group submitted as follows:

(a)       The first limb is not void for uncertainty.
(b)      The restraints in the first and second limbs are reasonable.
(c)       Annexure A can be severed, if necessary.

Ground 1 — The first limb is not void for uncertainty

1. Just Group submitted that the fact that the ‘activity’ referred to in ‘Restricted Activities’ was directed at the personal activities undertaken by Peck did not result in the first limb being ‘nonsensical’.  Although it was ‘perhaps inelegantly drafted’ the first limb effectively provided ‘don’t participate in an activity in competition with the specialty brand and fashion business of the Just Group’.

Ground 2 — The restraints in the first limb are reasonable

The first limb:  the trial judge’s errors

1. Just Group submitted that the trial judge erred in concluding as follows:

(a)The first limb restrained Peck from employment in a position to which the Just Group confidential information would not be relevant.

(b)The expression ‘the same as, or similar to’ any relevant part of Just Group’s business extended beyond businesses competing with Just Group.

(c)The restraint period of 24 months (or, alternatively, 18 or 12 months) was unreasonable due to the disparity between the restraint period and the notice period of one month during the probationary period. 

Just Group submitted that Lindner v Murdock’s Garage[21] was distinguishable on the basis that, in that case, McTiernan J concluded that, if the employee was terminated within the first month of employment, there was no chance of the employee becoming acquainted with the employer’s customers or trade secrets.[22]

(d)The relevance of the one month notice period during the probationary period should be determined by whether such termination was possible. 

Rather, Just Group submitted that the trial judge should have asked whether termination was ‘seriously in the contemplation of the parties as being likely to happen’;  and should have determined it was inherently unlikely.

(e)In deciding that the disparity between the restraint period and the notice period was determinative. 

Just Group submitted that, although it may be relevant, it is not determinative.

[21](1950) 83 CLR 628 (‘Lindner’).

[22]Ibid 644.

1. Just Group submitted that the first limb was reasonable for the following reasons:

(a)It was reasonably limited in its scope because the first limb only restrained Peck from participating in an activity:

(i)which was the same as, or similar to, any part of the ‘specialty brand and fashion business’ of Just Group (or its subsidiaries);  and did not extend to the retail industry at large (or any other industry);  and

(ii)in which she was involved or in respect of which she received the Just Group confidential information within a period of 12 months prior to the termination of her employment.

(b)The restraint in the first limb was reasonable to protect the legitimate interests of Just Group in respect of its confidential information because of the following factors:

(i)       the seniority and importance of Peck’s role as CFO;

(ii)the quantum of consideration provided to Peck for the giving of the restraint;

(iii)     the competitiveness of the fashion retail and stationery industries;

(iv)the access by Peck to the Just Group confidential information immediately upon the commencement of her employment, which was reasonably anticipated by the parties at the time of entering into the contract;

(v)      the significance and longevity of that confidential information;

(vi)the contractual acknowledgement by Peck that the restraints were reasonable;

(vii)the effect of the restraints on Peck’s ability to earn a living during the restraint period.  The restraints allowed Peck to work for any employer requiring a financial executive including any retail employer whose business is not the same as, or similar to, Just Group’s speciality brand and fashion business; and

(viii)the relatively equal bargaining power of the parties and the fact that Peck was able to negotiate improved terms and conditions in her employment contract, but never sought to amend the restraint clause.

Ground  3 — The restraints in the second limb are reasonable

The second limb:  the trial judge’s errors

1. Just Group submitted that with respect to the second limb, the trial judge erred as follows:

(a)He should have construed the words ‘entities operating the brands listed in Annexure A’ as being the entities insofar as they operate those brands and excluding:

(i)       unrelated operations of any entity; and

(ii)all operations of the entity except its apparel and stationery brands.

(b)He should have been satisfied of the legitimate interest in protecting the Just Group confidential information from each of the entities in Annexure A because of the following unchallenged evidence:

(i)Mr Mark McInnes, Just Group’s Chief Executive Officer, deposed that the brands and entities in Annexure A were those ‘from whom I considered it vital to keep [Just Group’s] confidential information so that they could not benefit at our expense in terms of the product range, sourcing, retail space and future investment strategies’; and, except for T2, the other items were involved in, to varying degrees, the clothing retail business.

(ii) Mr Terrence McCartney, a Just Group Non-Executive Director, deposed that all items in Annexure A were retail brands or entities in one form or another, except for T2.

Accordingly, once the above errors are corrected, the factors set out in paragraph 16 above demonstrate that the restraint in the second limb was reasonable. 

Ground 4 — Annexure A can be severed if necessary

1. Just Group submitted that the trial judge erred in refusing to sever the entities other than Cotton On from Annexure A for the following reasons:

(a)He failed to apply the two part test for severance based on answers to the following questions:

1.Is the clause capable of simply being removed (as if crossed out with a blue pen)?

2.Is the part to be severed an independent covenant which is capable of being removed without affecting the meaning of the remaining part?

(b)He failed to refer to the express severance provisions in the contract, which made provision for the deleting of any ‘part of the wording’ of the restraints.

(c)He did not have a separate discretion to refuse to sever a part of a restraint provision that was otherwise severable on the two stage test adopted in Wallis Nominees (Computing) Pty Ltd v Pickett.[23]  The ‘strict approach’ is part of the second step referred to in Wallis.[24]  In any event, the strict approach does not assist Peck because:

(i)the restraint in the second limb is not so oppressive that it ought not be severed; and

(ii)Peck is not a vulnerable employee.

[23](2013) 45 VR 657 (‘Wallis’).

[24]Ibid 676 [94] (Warren CJ and Davies AJA, with whom Redlich JA agreed).

Peck’s submissions

1. Peck responded to the submissions of Just Group as follows:

Ground 1 — Enforceability of first limb

1. Peck submitted that the trial judge had not concluded that the first limb of the restraint was void for uncertainty but rather found that, for the first limb to make sense, the words ‘the activities of’ had to be read before the words ‘any part of’ in the first limb. 

Ground 2 — Reasonableness of the first limb

1. Peck submitted that the first limb required a comparison between:

(a)the activities of ‘any part of the speciality brand and fashion business of a Group Company, in which [Peck was] involved or in respect of which [she] received Confidential Information, in the Connection Period’;  and

(b)      any activity (post employment):

(i)       in which Peck is engaged, concerned, or interested,

(ii)      in respect of which Peck assists or advises, and

(iii)     which Peck carries on,
for her new employer.

1. It was submitted that the first limb extended beyond the legitimate interests of Just Group in protecting the Just Group confidential information for the following reasons:

(a)Peck would be restrained from being involved in her new employment in ‘the same as, or similar to’ any of the activities in which she was involved in Just Group including preparation of year end accounts, bank debt refinancing, investor relations, preparing board papers and attending board meetings.  Such activities would not involve activity in competition with the specialty brand and fashion business of Just Group.

(b)The trial judge was right to reject the submission that the first limb should be read down so that it only prohibited Peck from participating in ‘any activity in competition with the specialty brand and fashion business of Just Group’.[25]  Such a contention is not supported by the text.

[25]Applicant’s Written Case [14].

1. It was submitted on behalf of Peck that a restrictive interpretation of a restraint clause should not be adopted to save it from invalidity due to unreasonableness.  The clause explicitly extends to restrain activities ‘in which [Peck] was involved or in respect of which [Peck] received Confidential Information’.[26]

   [26]Emphasis added.

1. Further, the trial judge correctly held that the first limb restrained Peck from being employed by any retailer of apparel or stationery.[27]  Peck submitted that the contention of Just Group that it only restrained employment by an employer in competition with a Just Group company again had no support in the text.[28]

   [27]Trial Reasons [29].

   [28]Ibid [38]; Applicant’s Written Case [20], [23].

1. Further, Peck submitted that the trial judge did not err in finding that the period of the restraint was unreasonable having regard to the disparity between the probationary notice period of one month and the minimum restraint of 12 months.  The possible period of employment is relevant in determining the reasonableness of the period of the restraint, and the trial judge found that, on the evidence of Mr McInnes, there was a real possibility of Peck’s employment being terminated during the probationary period. 

Ground 3 — Reasonableness of the second limb

1. Peck submitted that the second limb unreasonably restrained her future engagement with the brands/items listed in Annexure A for the following reasons:

(a)Just Group’s contention that the reference to ‘entities operating the brands listed in Annexure A’ should be read down to ‘entities insofar as they operate the brands listed in Annexure A’[29] is not supported by the text.  The clause, on its plain meaning, restrains Peck from being involved in entities operating the brands listed in Annexure A.

(b)The trial judge was correct to hold that Just Group had failed to lead any evidence regarding the commercial activities of 46 of the brands/entities in Annexure A other than Cotton On, Target, Big W and K-Mart.  Accordingly, the trial judge had no basis from which to infer that none of these 46 entities operated substantial non-apparel businesses.[30]

[29]Applicant’s Written Case [26].

[30]Trial Reasons [42].

1. Peck submitted that Mr McInnes’ subjective views were irrelevant to the construction of a contract and could not justify the reasonableness of a restraint which prevented Peck from working for any retailer listed in Annexure A regardless of whether:

(a)that retailer was in competition with Just Group for apparel or stationery; and

(b)the activities of Ms Peck threatened Just Group’s confidential information.

Ground 4 — Severance of the second limb

1. Peck submitted that severance was permissible where:

(a)there are several distinct covenants (rather than a single covenant), one of which is invalid; and

(b)severance of the invalid portion can be carried out without altering the nature of the clause.

The role of severance in the context of an employee restraint covenant is recognised as being strictly circumscribed.[31]

[31]Wallis (2013) 45 VR 657, 679 [110] (Redlich JA).

1. The trial judge was correct to refuse severance because:

(a)       the second limb was a single covenant;

(b)‘any of the entities’ in the second limb was properly read as meaning ‘no matter which’ rather than ‘any one’ of those entities (as contended for by Just Group);[32]  and

(c)Just Group did not identify which covenant was invalid and apt to be severed; and it was not appropriate to sever all of the entities in Annexure A other than Cotton On.

[32]Trial Reasons [58]–[59].

Principles relating to the enforceability of restraint clauses

1. A term in a contract, which is a restraint of trade (‘a restraint clause’), is presumed to be void as contrary to public policy.[33]

   [33]Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535, 365 (Lord Macnaghten); Wallis (2013) 45 VR 657, 662 [14] (Warren CJ and Davies AJA, with whom Redlich JA agreed).

1. The presumption may be rebutted if there are special circumstances that demonstrate the covenant to be:

(a)       reasonable as between the parties; and

(b)      not unreasonable in the public interest.[34]

[34]Ibid.

1. The test of reasonableness varies depending on ‘the situation the parties occupy and so recognising different considerations which affect employer and employee and independent traders or business men, particularly vendor and purchaser of the goodwill of a business’.[35]  A court takes a ‘stricter view’[36] of restraint clauses in employment contracts; and will more readily uphold a restraint clause in favour of a purchaser of the goodwill of a business than a restraint clause in favour of an employer.  In particular, a purchaser of a business is entitled to protect itself from competition by the vendor; but an employer is not entitled to protect itself from competition per se by an employee.[37]

   [35]Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574, 590 (Dixon J).

   [36]Wallis (2013) 45 VR 657, 662 [14] (Warren CJ and Davies AJA, with whom Redlich JA agreed).

   [37]IF Asia Pacific Pty Ltd v Galbally [2003] VSC 192 [102] (Dodds-Streeton J) (‘Galbally’).

1. A restraint clause in favour of an employer will be reasonable as between the parties, if at the date of a contract:[38]

(a)the restraint clause is imposed to protect a legitimate interest of the employer; and

(b)the restraint clause does no more than is reasonably necessary to protect that legitimate interest in its:

(i)duration; or

(ii)extent.[39]

[38]Wallis (2013) 45 VR 657, 662 [14] (Warren CJ and Davies AJA, with whom Redlich JA agreed).

[39]Ibid 662 [18].

1. It is well established that employers do have a legitimate interest in protecting:

(a)       confidential information and trade secrets;[40] and
(b)      the employer’s customer connections.[41]

[40]Pioneer Concrete Services Ltd v Galli [1985] VR 675, 710–711 (Crockett, Murphy and Ormiston JJ); Lindner (1950) 83 CLR 628, 633 (Latham CJ).

[41]Lindner (1950) 83 CLR 628, 633–634 (Latham CJ); Galbally [2003] VSC 192 [101] (Dodds-Streeton J).

1. For the legitimate purpose of protecting the employer’s confidential information, a restraint clause does not need to be limited to a covenant against disclosing confidential information. It may restrain the employee from being involved with a competitive business that could use the confidential information.[42]

   [42]Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, 1479 (Lord Denning MR), 1485 (Megaw LJ); Woolworths Ltd v Olson [2004] NSWCA 372 [67] (Mason P, with whom McColl and Bryson JJA agreed).

1. The onus of proving the special circumstances from which the Court may infer ‘reasonableness between the parties’ is on the person seeking to enforce the covenant.[43]  However, if an employee or other covenantor alleges that the restraint clause is against the public interest, the burden of proving that proposition is on the employee/covenantor.[44]

   [43]Wallis  (2013) 45 VR 657, 662 [14] (Warren CJ and Davies AJA, with whom Redlich JA agreed).

   [44]J D Heydon, The Restraint of Trade Doctrine (Butterworths, 3^rd ed, 2008) 33-35.  For an example of an employee restraint found to be void on the basis that it was contrary to public interest, see Sherk v Horwitz [1972] 2 OR 451 where a restraint clause purported to restrain an obstetrician from working in an area where there was a shortage of obstetricians.

1. Once the facts that are contended to constitute the special circumstances have been established, it is a matter of law whether the restraint clause is reasonable as between the parties.  Accordingly, on appeal, the trial judge’s ‘decision that the covenants were reasonable is not a decision of fact and an appellate court in reviewing such a decision inquires not whether it has been shown to be wrong, but simply whether it is right’.[45]

   [45]Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 318 (Gibbs J).

Construction of restraint clauses

1. In order to determine whether a restraint clause exceeds what is necessary for the protection of the legitimate interests of the employer, a court construes the restraint clause in accordance with the following principles:

(a)The meaning of the restraint clause may be construed by reference to the factual matrix, documentary context and surrounding circumstances to ascertain its real meaning – independently of the rules prescribing tests of reasonableness for the purpose of ascertaining its validity.[46]

[46]Butt v Long (1953) 88 CLR 476, 487 (Dixon CJ); Geraghty v Minter (1979) 142 CLR 177, 180 (Barwick CJ); Galbally [2003] VSC 192 [103].

(b)Where there is ambiguity, a restraint clause in an employment contract will be construed in favour of the employee so that, as between two reasonably available constructions, the one which imposes the lesser obligations on the employee will be preferred.[47]  Although a restraint clause may, on its literal terms, appear to be wider than is necessary to protect the legitimate interests of the employer, a proper construction of the clause in context may narrow its meaning.  This construction may save it from invalidity but, as noted above, the approach is not adopted for the purpose of saving it from invalidity.[48]  The application of this approach has restricted the effect of restraint clauses in the following situations:

[47]Mills v Dunham [1891] 1 Ch 576, 589–90 (Kay LJ); Portal Software v Bodsworth [2005] NSWSC 1179 [67], [73] (Brereton J).

[48]Galbally [2003] VSC 192 [105] (Dodds-Streeton J); Butt v Long (1953) 88 CLR 476, 487 (Dixon CJ).

(i)Limitation on the businesses in respect of which the employee is restrained from being involved.

In Butt v Long,[49] the High Court considered the surrounding circumstances and, in particular, the nature of the employer’s business; and construed the business of a transhipping agent, referred to in the restraint clause, as being limited to carriage by land; and not including carriage by sea.

[49]Butt v Long (1953) 88 CLR 476.

(ii)Limitation of the subject matter in respect of which the employee is restrained from dealing with customers. 

In Mills v Dunham,[50] the restraint clause provided that the former employee, a travelling salesman, should not, inter alia:

[50][1891] 1 Ch 576. Affirmed on appeal [1891] 1 Ch 581 (Lindley, Lopes and Kay LJJ).

[C]all upon, or directly or indirectly solicit orders from, or in any way deal or transact business with, any person or firm who, during the continuance of this agreement, should be customers of [the plaintiffs or their successors in business] …

The effect of this provision, read literally, was to prevent the former employee from purchasing anything including necessaries from old customers. Chitty J held that, despite the fact that ‘business’ was not stated to be limited to ‘a similar business’, understood in its context, ‘dealing or transacting business with the old customers, means, business of the same or a similar kind to that which had been carried on by the Plaintiffs’.[51]

[51]Ibid 581.

(iii)Limitation on the capacities in respect of which the employee is restrained from being involved.

A court may not consider that it was within the contemplation of the parties that an improbable or extravagant contingency, which could fall within the literal scope of the restraint clause, was intended to be the construction that was intended by the parties.  For example, in Marion White Ltd v Francis,[52] the Court adopted a restricted meaning of a restraint clause preventing an employee hairdresser from being involved ‘as principal or as manager, agent or servant or assistant or in any other capacity whatsoever be in any way engaged or concerned or interested in the business of a ladies’ hairdresser’, stating as follows:

[52](1972) 1 WLR 1423 (Davies, Buckley and Stephenson LJJ).

I do not think it was within the contemplation of the parties to this agreement that the employee would either be likely to be employed as a bookkeeper in another hairdressing establishment or as a cleaner or in any other capacity that one can think of that has nothing to do with dressing hair, although it may have to do with the administrative or domestic arrangements of the business.[53]

[53]Ibid 1430 (Buckley LJ, with whom Stephenson and Davies LJJ agreed).

(c)However, generality does not constitute ambiguity.  Accordingly, it is not permissible for the Court to approach the construction of a restraint clause by first determining what degree of restriction would be justified; and then reading down an unduly wide clause in order to preserve its validity.  The Court may not adopt a restrictive interpretation for the purpose of saving the restraint clause form invalidity.[54]  Butt v Long[55] demonstrates the boundaries of the reading down of restraints by reference to the context. After holding that, in context, the business of a transhipping agent did not include sea transport, the High Court found that the restraint from involvement in such a business was too wide because the clause was not limited in area.  Dixon CJ rejected the submission that the restraint clause should be interpreted as being impliedly limited to the area where the business operated, and stated:

[54]Butt v Long (1953) 88 CLR 476, 487 (Dixon CJ); Geraghty v Minter (1979) 142 CLR 177, 180 (Barwick CJ); Portal Software v Bodsworth [2005] NSWSC 1179 [67] (Brereton J); Galbally [2003] VSC 192 [105], [108] (Dodds-Streeton J).

[55]Butt v Long (1953) 88 CLR 476.

An implication of such a kind ought not to be made unless from the subject matter and the contents of the document an inference that the parties so intended arises with such force as to carry conviction to the mind. The words ‘business of a transhipping agent’ are descriptive of a character of business and in them nothing can be found limiting them to a place.[56]  

(d)In Galbally,[57] Dodds-Streeton J considered a restraint clause which provided that the defendant should ‘not offer to perform services and otherwise solicit the custom of any person or corporation which at any time during your company’s contract with I.F. was a client of I.F. or its related companies’. The plaintiff accepted that the words were too wide but submitted that the restraint clause should be ‘read down’ to limit it to solicitation of services or custom for a business the same as, or similar to, that of the plaintiff.[58] Her Honour concluded, in the circumstances of that case, that to interpret the restraint as limited to services in a business the same as, or similar to, that of the plaintiff would be to remake the restraint clause. She stated:

To incorporate such a restriction would be to remake the restraint clause, rather than to give expression to its real meaning.  There is no evident ambiguity in the text which requires resolution; rather, there are general words. The subject matter, contents of the document and such evidence as there is of surrounding circumstances do not, in my opinion, cause an inference to arise with ‘such force as to carry conviction to the mind’ that the parties intended the restriction, thus justifying its implication into ‘perfectly general words’.[59]

[56]Ibid 487–488 (Dixon CJ, with whom Webb and Fullagar JJ agreed).

[57][2003] VSC 192.

[58]Ibid [94].

[59]Ibid [127].

Severance

1. If a restraint clause is ‘not really a single covenant but is in effect a combination of several distinct covenants’,[60] some of which are too wide, the invalid covenants may be severed subject to the following conditions:

   [60]Attwood v Lamont [1920] 3 KB 571, 593 (Younger LJ). Also see Wallis (2013) 45 VR 657, 676 [92] (Warren CJ and Davies AJA).

(a)The impugned covenants must be capable of simply being removed – as if crossed out with a blue pen.  A court can only remove words from a restraint clause;  it cannot rewrite the restraint clause.[61]

[61]Lindner (1950) 83 CLR 628, 648 (Webb J);  Attwood v Lamont [1920] 3 KB 371, 593 (Younger LJ); Wallis (2013) 45 VR 657, 676 [94] (Warren CJ and Davies AJA, with whom Redlich JA agreed).

(b)The restraint clause contains several distinct covenants, one of which is valid.  The covenant to be severed must be an independent covenant capable of being removed without affecting the remaining part.  ‘The only change should be to the sphere of operations of the clause’.[62] 

[62]Wallis (2013) 45 VR 657, 676 [94] (Warren CJ and Davies AJA, with whom Redlich JA agreed) and the cases cited therein: SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516, 531 [46] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ); Attwood v Lamont [1920] 3 KB 571, 588–9 (Lord Sterndale MR), 593 (Younger LJ); Rentokil Pty Ltd v Lee (1995) 66 SASR 301.

(c)Whether it is based on the principle of uncertainty,[63] or the public policy to protect employees,[64] or that ‘it is for the parties to make contracts, not the
courts’,[65] courts have demonstrated reluctance to engage in ‘curial disentanglement’[66] and sever the unenforceable parts of unreasonably wide restraint clauses if the clause is not a genuine attempt to establish reasonable protection for the legitimate interests of the employer.  The following factors indicate that the restraint clauses of the latter kind are unreasonable:

[63]Davies v Davies (1887) 36 Ch D 359, 392 (Bowen LJ), 395, 399 (Fry LJ); Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 804, 845–846 (Wootten J).

[64]Galbally [2003] VSC 192 [201] (Dodds-Streeton J); Wallis (2013) 45 VR 657, 679 [110] (Redlich JA); Mason v Provident Clothing and Supply Co Ltd [1913] AC 724, 745 (Lord Moulton).

[65]Davies v Davies (1887) 36 Ch D 359, 387–388 (Cotton LJ); J D Heydon, The Restraint of Trade Doctrine (Butterworths, 3^rd ed, 2008) 285;  cited with approval in Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505, 522–523 (Spender J).

[66]Wallis (2013) 45 VR 657, 679 [110] (Redlich JA). Also see Attwood v Lamont [1920] 3 KB 571, 593–594 (Younger LJ); Integrated Group Ltd v Dillon [2009] VSC 361 [34]–[41] (Hargrave J); Galbally [2003] VSC 192 [201] (Dodds-Streeton J); Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd [2008] WASC 238 [31]–[45] (Templeman J).

(i)If the restraint clauses include patently unjustifiable restraints such as might intimidate the employee.[67]

(ii)If the restraint clauses are in a standard form.[68]

(ii)If the variables are numerous and the combination of variables appear mechanical and indiscriminate.[69]

However, the application of these considerations is subject to the court giving ‘appropriate attention to the intentions of the parties’ objectively assessed at the time of the contract.[70]

Disposition

[67]Galbally [2003] VSC 192 [201] (Dodds-Streeton J); Wallis (2013) 45 VR 657, 679 [110] (Redlich JA); Mason v Provident Clothing and Supply Co Ltd [1913] AC 724, 745 (Lord Moulton).

[68]Attwood v Lamont [1920] 3 KB 571, 596 (Younger LJ, with whom Atkin LJ agreed).

[69]Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505, 517–523 (Spender J); Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd [2008] WASC 238 [45] (Templeman J).

[70]Rentokil Pty Ltd v Lee (1995) 66 SASR 301, 306 (Doyle CJ).

Ground 1 — Is the first limb unenforceable?

1. The applicant contended that the trial judge found that the first limb was unenforceable because it was ‘nonsensical’ without the insertion of the words ‘any activity which is’.[71] 

   [71]See [11(c)] above.

1. In our opinion, the trial judge’s reasoning was as follows:

(a)He rejected Just Group’s construction that ‘activity’ means front end commercial or trading activities of the new employer.[72]

(b)He found that the first limb refers, in its plain meaning, only to the activities of Peck; and its operation is nonsensical without the insertion of the words ‘any activity which is’.[73]

(c)He concluded that, even adopting Just Group’s construction, the first limb imposed an unreasonable restraint.[74]

[72]Trial Reasons [25]–[27].

[73]Ibid [23].

[74]Ibid [37].

1. In any event, on this appeal, the applicant did not press its contention that the words ‘any activity’ refer to ‘front end’ commercial or trading activities of Peck’s new employer.  Accordingly, it is common ground that, in order for the first limb to operate, it is to be read as though the words ‘any activity which is’ were inserted in the opening line as contemplated by the trial judge.[75]

   [75]Ibid [23].

Ground 2 — Is the first limb unreasonably wide?

1. The restraint clause so construed limits Peck from being engaged, concerned or interested in; assisting or advising in respect of; or carrying on (‘involved’); in any activity which is the same as, or similar to, any activity which is any part of the specialty brand and fashion business of a Group Company (or its subsidiaries) (‘the Just Group businesses’):

(a)       in which [Peck was] involved (‘the first part’), or

(b)in respect of which [Peck] received confidential information (‘the second part’).

1. It was submitted on behalf of Just Group that the restraint clause should be construed so that it only restrains Peck from being involved in any activity which is:

(a)       competitive with any part of the Just Group’s relevant businesses;  and

(b)in respect of which the Just Group confidential information would be relevant.

1. Just Group submitted that:

(a)the reading down of the restraint clause to competitive activity arises from the use of the words ‘same as, or similar to’;[76]  and

(b)the reading down of the restraint clause to an activity, where the Just Group confidential information is relevant, is said to arise from the circumstances of the engagement of Peck as CFO.  It was submitted that ‘the first limb was manifestly not intended to apply to Peck’s post-employment activities in relation to which there was no risk of anything happening which would require Just Group’s confidential information to be protected’.[77]

[76]Applicant’s Amended Written Case [20].

[77]Ibid [19].

1. We agree that on a proper construction the restraint on Peck being involved in any activity, which is the same as, or similar to, activities of any part of the Just Group, connotes similarity in the sense of being competitive.  Our conclusion is based on the following reasons: 

(a)The words ‘the same as, or similar to’ are an established form of words of limitation used to describe businesses whose activities are in competition, or potentially in competition, with the business of the employer.[78]

[78]                Two Lands Services Pty Ltd v Cave [2000] NSWSC 14 [69] (Santow J).

(i)In Pearson v HRX Holdings, the Full Court of the Federal Court said of the use of the word ‘similar’ in a restraint clause:

The ’similarity’ postulated by this phrase is not concerned with points of comparison other than in respect of the business operations of HRX and its putative competitor in relation to sources of demand for their services.[79]

[79](2012) 205 FCR 187, 198 [43] (Keene CJ, Foster and Griffiths JJ). The phrase under consideration in that case was ‘similar to or competitive with’.

(ii)In Spunwill Pty Ltd v BAB Pty Ltd, Santow J construed ‘business of a similar nature’ to mean ‘a resemblance greater than mere competition in peripheral products or lines of business’.[80]

[80](1994) NSWLR 290, 313 (Santow J).

(iii)In Drew v Guy, Lindley LJ considered a covenant not to carry on a similar restaurant business and said:

I do not think that the question of similarity is to be determined by considering whether both of the establishments sell ale, or whether the houses in which they are carried on are similar in appearance, but by the consideration whether the Defendant’s restaurant is so like that of Raven as seriously to compete with it.[81]

[81][1894] 3 Ch 25, 29.

(iv)In Griffiths & Beerens v Duggan, Pagone J considered the meaning of a covenant restraining involvement ‘in a business that is the same or is substantially similar to the [plaintiff’s] Business’ and found:

It is a business, however, that is substantially similar to the plaintiffs’ business when judged by reference to whether the two are competing with each other. The object of the restraint is to prevent competition and the activities of Jak Max were plainly in competition with those of the plaintiffs.[82]

(b)Such a construction is also consistent with the principle that, in construing restraint clauses, the lesser obligation should be preferred where there is ambiguity.[83]

(c)By reference to the context in other cases in which a restraint clause has been imposed, the qualifying words ‘the same or similar’ have been implied into restraints to limit the businesses, with which former employees are to be restrained from dealing, to competitive businesses; thereby preserving the validity of the clause.[84]

(d)It was submitted by senior counsel for Peck that the words ‘same’ and ‘similar’ are ordinary words and should be given their ordinary meaning; and caution should be exercised when considering how similar words have been interpreted in other contracts.[85]  While those submissions can be accepted, the words ‘same’ and ‘similar’ do not have a single, unambiguous ordinary meaning to be applied in any circumstances, but rather have a spectrum of possible meanings.[86] As was observed by Santow J in Spunwill Pty Ltd v BAB Pty Ltd:

[I]n some circumstances it would be sensible to suggest that ‘a cat and a dog are similar’, because each has a head, four legs and a tail. In a different context the statement would be absurd. In some circumstances, the Brown Bros and Retravision stores might be considered to be of a ‘similar nature’ merely because they are both profit-making enterprises operating in the retail sale of manufactured goods, while in another context they would only be considered to be of a ‘similar nature’ if they stocked a largely synonymous range of products. Concepts such as similarity and likeness are purely relative, and rely for content on the existence of other things which are relatively dissimilar and unalike to the things being compared. The words are ‘chameleons, which reflect the colour of their environment’. It is the task of the court to place the document in its factual matrix in order to determine where, along the spectrum of meaning of the words, the parties intended to focus.[87]

[82](2008) 66 ASCR 472, 498 [80].

[83]          See [38(b)] above.

[84]Lindner (1950) 83 CLR 628; Mills v Dunham [1891] 1 Ch 576, 581, 586; Business Seating (Renovations) Ltd v Broad [1989] ICR 729, 735 (Millet J); G W Ploughman & Sons Ltd v Ash [1964] 1 WLR 568, 572 (Harman LJ, with whom Davies and Russell LJJ agreed); McLaughlin Consultants v Boswell [1989] 30 IR 417, 419 (Bryson J); cf Galbally[2003] VSC 192 [118]–[127] (Dodds-Streeton J); Portal Software v Bodsworth [2005] NSWSC 1179 [68] (Brereton J).

[85]Aspden v Seddon (1874) LR 10 Ch App 394, 397 (Jessel MR); Nicol v Chant (1909) 7 CLR 569, 581–582 (Barton J).

[86]Spunwill Pty Ltd v BAB Pty Ltd (1994) NSWLR 290, 302 (Santow J).

[87]Ibid 302–303 (citations omitted).

1. Accordingly, in the context of this restraint clause, we accept Just Group’s submission that the construction of the expression ‘the same as, or similar to’ was intended to refer to an activity competitive to the Just Group’s businesses.

1. However, we do not consider that the first part of the first limb can be read down so as to only apply to Peck being involved in any activity to which the Just Group confidential information is relevant.

1. In our opinion, to read down the first part of the restraint in the first limb so that it only restrained Peck from being involved in ‘an activity to which the Confidential Information is relevant which is the same as or similar to the activity of any part of the Just Group in which Peck was involved’ is impermissible for the following reasons:

(a)The first limb applies to any activity of Peck which is the same as, or similar to, any activity of any part of the Just Group:

(i)       in which Peck was involved; or

(ii)      in respect of which Peck received confidential information.

Accordingly, the second part of the first limb specifically restrains Peck from being involved in any activity in competition with a part of the Just Group businesses in respect of which she has received confidential information.  The first part of the first limb relates to any part of the Just Group businesses in which Peck was involved in the relevant period.  For the first part to have work to do, it must restrain Peck from competing with any part of the Just Group businesses with which she was involved, regardless of whether she had received confidential information about that part of the business.

(b)A reading of the text, in its context, does not support the addition of the added qualification. The first part of the first limb appears to have the purpose of restraining Peck from competing with the Just Group businesses with which she was involved in the relevant period. An employer does not have a legitimate interest in protecting itself from competition per se.[88] However, it is not permissible for a court to read down an unduly wide clause in order to preserve its validity.[89] In our opinion, ‘to incorporate such a restriction [being the added qualification] would be to remake the restraint clause, rather than to give expression to its real meaning’.[90]

(c)It may be arguable that it could be inferred that the Just Group confidential information would be relevant to any competitor of an organisation as
substantial as Just Group. However, the restraint clause seeks to prevent Peck from being involved in any activity the same as, or similar to, ‘any part’ of the Just Group businesses (which includes its subsidiaries’ businesses). We do not consider that Just Group has established that a business, for example a local fashion retailer that is a competitor to a part of the Just Group businesses, would have any interest in such information.

[88]See [32] above.

[89]See [38(c)] above.

[90]Galbally [2003] VSC 192 [127] (Dodds-Streeton J).

1. Accordingly, we consider that to read down the first limb, in the manner suggested, would be to, impermissibly, rewrite the restraint clause in order to preserve its validity.[91]  The first limb of the restraint clause exceeds what is necessary for the protection of the legitimate interests of Just Group and is therefore invalid.

   [91]See [38(c)] above.

Ground 3 — Is the second limb unreasonably wide?

1. The relevant part of the second limb restrained Peck from being involved in any activity for, or on behalf of, any of the entities operating the brands/entities listed in Annexure A (‘the Annexure A entities’).

1. Just Group did not contest that read literally the restraint was too wide; but submitted that, on a proper construction, the clause should be read down — so that the Annexure A entities read as though:

(a)               the words ‘insofar as they operate those brands (and excluding any unrelated operations of any entity)’ after the words ‘the entities operating the brands listed in Annexure A’. 

(b)               where an Annexure A entity is a corporate group rather than a brand, the second limb should be construed as though the item only referred to that group’s apparel and stationery brands.

Accordingly, it was submitted that the second limb should read (excluding the words in parentheses), with the underlined words added, as follows:

Peck must not be involved in any activity ‘for or on behalf of any of the entities operating the brands listed in Annexure A, their assignees, successors or transmittees insofar as they operate those brands (and excluding any unrelated operations of any entity) and, if the entity is a corporate group rather than a brand, only to the extent the entity operates the group’s apparel and stationery brands.

1. The substantial qualifications contended for by Just Group cannot be found in the text and, in our opinion, there is no basis for inferring such qualifications from consideration of the context in which the parties entered into the restraint clause.  In our opinion, to adopt the qualifications as contended for would be to remake the restraint clause so that it was restricted to protecting the legitimate interests of Just Group. This is not a permissible approach to construction.[92]

   [92]See [38(c)] and [38(d)] above.

1. Further, the ‘unchallenged evidence’ of Just Group’s Chief Executive Officer and Non-Executive Director that the Annexure A entities were, with the exception of T2, retail brands or entities in one form or another, from whom the Chief Executive Officer ‘considered it vital to keep [Just Group’s] Confidential Information’[93] does not prove the special circumstances which are required to rebut the presumption that the second limb is void.  It was incumbent on Just Group to prove the special circumstances from which the Court could infer that the restraint clause was reasonably necessary to protect the legitimate interests of Just Group.[94]  Just Group did not attempt to identify the criteria that caused it to select the 50 Annexure A entities, either individually or generally, nor did it prove that the Annexure A entities fell within the criteria.

   [93]Trial Reasons [10].

   [94]We consider that the evidence of the CEO and the Non-Executive Director did not establish the special circumstances but rather put forward their opinion that the second limb was reasonably necessary to protect Just Group’s confidential information.

1. Accordingly, the restraint in the second limb was wider than Just Group proved was necessary for the protection of its legitimate interests.

Ground 4 — Is the second limb severable?

1. Just Group contended that the second limb could be severed by deleting from Annexure A, if necessary, all of the Annexure A entities except Cotton On on the following grounds:

(a)The residuary Annexure A entities were capable of being severed on the application of the two part test as stated by this Court in Wallis.[95]

(b)The Court does not have a separate discretion to refuse to sever a restraint if the two part requirements of severance are otherwise satisfied.

[95](2013) 45 VR 657.

Satisfaction of the two stage test

1. There is no issue that the Annexure A entities, other than Cotton On, could be deleted as with a blue pen.  As in Wallis[96] the impugned part of this restraint clause may be simply struck out without changing a word. The real dispute is whether the impugned part is an independent clause whereby removing it would not change the meaning or scope of the remaining part. However, we do not consider that the second limb can be said to be ‘not really a single covenant but … in effect a combination of several distinct covenants’,[97] in fact, 50 distinct covenants. In our opinion, the second limb is properly construed as a single covenant for the following reasons:

   [96]Ibid 676 [95].

   [97]Attwood v Lamont [1920] 3 KB 571, 593 (Younger LJ).

(a)We agree with the trial judge that the phrase ‘any of the entities operating the brands listed in Annexure A’ should be read as ‘no matter which of the entities…’ rather than ‘any one of the entities’.  As his Honour observed, this interpretation is supported by the Oxford English Dictionary definition of ‘any’ being:

An indeterminate derivative of one, or rather of its weakened adj form a, an, in which the idea of unity (or, in plural, partitivity) is subordinated to that of indifference as to the particular one or ones that may be selected. In sing = A – no matter which; a – whichever, of whatever kind, of whatever quantity. In pl. = Some – no matter which, of what kind, or how many.[98]

[98]As cited in Trial Reasons [58] (emphasis added).

(b)In our opinion, the second limb is one covenant for the protection of the Just Group businesses; and cannot properly be said to constitute 50 separate covenants.  It should be recalled that the restraint clause in this agreement provides:

You must not anywhere in the Geographic Region for the Restricted Period – Personal Engagement, engage in Restricted Activities – Personal Engagement, except with the prior written consent of JGL.

Annexure A is referred to in the second limb of the definition of Restricted Activities – Personal Engagement.  In our opinion, the restraint clause provides a single restraint (subject to the express provision for alternatives in the definitions of Geographic Region and Restricted Period – Personal Engagement) for the protection of the Just Group businesses. We do not consider that on a proper construction it could be concluded that the reference to Annexure A was intended by the parties to insert 50 separate covenants into the agreement.

(c)In Attwood v Lamont,[99] Younger LJ refused severance of a clause which purported to restrain a former employee from being ‘concerned in any of the following trades or businesses; that is to say, the trade or business of a tailor, dressmaker, general draper, milliner, hatter, haberdasher, gentlemen’s, ladies’ or children’s outfitter at any place within a radius of ten miles of Kidderminster’. The employer sought to restrain the former employee from engaging in business as a tailor.  The Divisional Court held that the covenant was wider than was reasonably necessary for the protection of the plaintiff’s business, but that it was severable by striking out the enumerated trades except that of a tailor. The English Court of Appeal held that the restraint clause was one covenant for the protection of the employer’s entire business and did not contain several covenants, of which some could be severed.[100] As was observed by Doyle CJ in Rentokil Pty Ltd v Lee:[101]

The reason for this was that, in the opinion of their Lordships, the relevant contract could not be construed as containing a number of separate covenants each expressed by the particular occupation identified. Reading the contract as a whole there was a single all-embracing restraint and to break it up into a number of separate restraints was to change the nature of the intended contract.

We consider that the reasoning in Attwood v Lamont is applicable in this case.

(d)In Putsman v Taylor, Salter J said that whether a promise is ‘separate or not depends on the language of the document.  Severance, as it seems to me, is the act of the parties, not of the court’.[102] In our opinion, for the Court to sever all but four of the 50 entities listed in Annexure A (with the knowledge of what has occurred since the parties entered into the agreement) is to ‘reason backwards from allegation of “breach“ to construction and evaluation of the contract, rather than by an assessment of validity of the restraints at the time the contract was made’.[103]  As senior counsel for Peck asked rhetorically ‘What would occur if Peck was to then be employed by one of the deleted entities?’.  It is not for the Court to make a new agreement for the parties.[104]  As was stated by Heydon J writing extra-judicially:

The courts are referees, not players; they are not supposed to waste their time adapting illegal covenants at the instance of those who seek to benefit from the illegality.[105]

[99][1920] 3 KB 571.

[100]Ibid 580 (Lord Sterndale MR), 593 (Younger LJ, with whom Atkin LJ agreed).

[101](1995) 66 SASR 301, 307.

[102][1927] 1 KB 637, 640 cited with approval in Peters Ice Cream (Vic) Ltd v Todd [1961] VR 485, 493 (Little J).

[103]         Then There Were Three Pty Limited v Douglas [2014] NSWSC 1011 [140] (Lindsay J).

[104]Lindner (1950) 83 CLR 628.

[105]J D Heydon, The Restraint of Trade Doctrine (Butterworths, 3^rd ed, 2008) 294; cited with approval in Rentokil Pty Ltd v Lee (1995) 66 SASR 301, 337 (Debelle J).

Orders

1. We will grant leave to appeal and dismiss the appeal.

- - -

ANNEXURE A – Material Companies

1.         Sussan Group

2.        General Pants

3.        Jeans West

4.        Target

5.        Kmart

6.        Big W

7.        Myer

8.        David Jones

9.        Cotton On Group

10.      Forever New

11.      Warehouse

12.      Farmers

13.      EziBuy

14.      Max

15.      Hallensteins Glassons

16.      Country Road Group

17.      Roger David

18.      Giordano

19.      PAS Group

20.      Pretty Girl Group

21.      Specialty Fashion Group

22.      Cue/Veronica Maine

23.      Retail Apparel Group

24.      M Webster Holdings

25.      The Apparel Group

26.      BusBrands

27.      Zara

28.      H & M

29.      Topshop (and Topman)

30.      Abercrombie & Fitch

31.      Decjuba

32.      Edge Clothing

33.      Elwood

34.      Esprit

35.      Lolitta

36.      Ojay

37.      Review

38.      Seduce

39.      Sass & Bide

40.      Woolworths (South Africa) Group

41.      Bardot and Bardot Junior

42.      Blue Illusion

43.      French Connection

44.      Kookai

45.      Bras N Things

46       Sportscraft

47.      Forever 21

48.      Pepkor Group of Companies

49.      Uniqlo

50.      T2

‘(a)       during your Employment, the preceding period of up to 12 months; or

(b)if your Employment has ended, the period up to 12 months immediately preceding the Termination Date, during which you were employed by JGL’.