Just Group Ltd v Peck
[2016] VSC 614
•17 October 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S CI 2016 02141
| JUST GROUP LIMITED (ACN 096 911 410) | Plaintiff |
| v | |
| NICOLE PECK | Defendant |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 and 31 August and 1, 2 and 5 September 2016 |
DATE OF JUDGMENT: | 17 October 2016 |
CASE MAY BE CITED AS: | Just Group Ltd v Peck |
MEDIUM NEUTRAL CITATION: | [2016] VSC 614 |
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CONTRACT OF EMPLOYMENT – Enforceability of covenant in restraint of trade – Legitimate interest of plaintiff in protecting its confidential information – Restraint unreasonable – Single restraint preventing defendant from working for 50 brands/entities – Restraint not capable of being severed – Applications for injunctions and declarations dismissed – Supreme Court Act1986 s 36 – Restraints of Trade Act1976 (NSW) s 4.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | S J Wood QC, D Ternovski and E L Murphy | Arnold Bloch Leibler |
| For the Defendant | P J Jopling QC, N A T Harrington and N P DeYoung | Ashurst |
HIS HONOUR:
Introduction
On 7 December 2015, Nicole Peck signed a contract of employment with Just Group Limited (‘JGL’). Under the terms of the contract Ms Peck was employed as Chief Financial Officer (‘CFO’) of JGL with a commencement date of 6 January 2016. As events unfolded, Ms Peck’s employment with JGL was of short duration. On 2 May 2016 Ms Peck tendered her resignation to take effect in one month’s time. For approximately one month prior to the date upon which she tendered her resignation, Ms Peck had been negotiating with Cotton On Group Services Pty Ltd (‘Cotton On’) in respect of an offer of employment as General Manager, Finance and Treasury for the Cotton On Group. Shortly prior to her last scheduled day of employment, Ms Peck informed JGL of her intention to commence her employment with Cotton On on 6 June 2016.
On 2 June 2016, JGL commenced the current proceedings. On 3 June 2016, the Court made orders by consent. Ms Peck gave an undertaking not to commence employment with Cotton On prior to the hearing and determination of the proceedings. JGL undertook to continue to pay Ms Peck income equivalent to that which she had received as an employee of JGL.
A five day trial took place between 30 August and 5 September 2016. The plaintiff led a considerable volume of documentary and oral evidence directed at establishing, in particular,
·The volume and nature of JGL’s confidential information to which Ms Peck had been exposed during the course of her employment;
·The extent of competition between JGL and Cotton On; and
·The potential for Ms Peck to cause damage to JGL’s commercial interests in the event that she commences employment with Cotton On.
JGL sought to justify the very wide restraints in Ms Peck’s contract by focusing on the circumstances of the alleged breach; ie her prospective employment with Cotton On, the fierce competition between it and Cotton On and the damage which could be inflicted on its business if Ms Peck commences employment with Cotton On. If Ms Peck’s contract had been subject to the laws of New South Wales, JGL’s approach to the current proceedings would have been in accordance with s 4 of the Restraints of Trade Act 1976 (NSW). That section allows a court to ignore the fact that a restraint goes beyond that which is reasonable, provided that in the circumstances of the actual breach, the restraint can be enforced to an extent that is reasonable. The current proceedings are, however, subject to the common law, unqualified by statute. The consequence is that the Court cannot assess the reasonableness of the restraints in Ms Peck’s contract simply by reference to her proposed employment with Cotton On. That company was but one of 50 brands/entities in respect of which the restraints in Ms Peck’s contract operated. The reasonableness of the restraints is to be assessed by reference to all 50.
The central issue in the current proceedings is whether the post-employment restraints in Ms Peck’s contract of employment are enforceable. I have concluded that, notwithstanding JGL’s legitimate interest in seeking to protect its confidential information, the restraints imposed upon Ms Peck are not reasonable and are not enforceable. A secondary issue is whether Ms Peck breached a term of her contract requiring her to provide notice to JGL in the event that she entered into any discussions with a prospective employer during the course of her employment. I have concluded that Ms Peck did not breach the notice provision of her contract because the clause is not enforceable.
Principles governing the enforceability of restraint of trade clauses
The principles to be applied in assessing the enforceability of a restraint of trade provision are not controversial. Both parties cited the following statement from the Court of Appeal judgment in Wallis Nominees (Computing) Pty Ltd v Pickett: [1]
[1](2013) 45 VR 657.
14The judge set out the basic principles governing restraint of trade clauses:
[50]The principles applicable to the enforceability of contracts in restraint of trade are not for the most part in dispute. They are well settled:
(a)a contractual provision in restraint of trade is, prima facie void.
(b)The presumption can, however, be rebutted and the restraint justified by the special circumstances of a particular case, if the restriction is reasonable by reference to the interests of the parties.
(c)The validity of the covenant in a contract is to be judged as at the date of the Employment Agreement.
(d)A stricter view is taken of covenants in restraint of trade in employment contracts than those contained in contracts for the sale of a business.
(e)The onus of proving the special circumstances justifying the restraint is on the person seeking to enforce the covenant.
(f)So far as the parties’ interests are concerned, the restraint must impose no more than adequate protection to a party in whose favour it is imposed. If the court is satisfied that the restraint confers greater protection than can be justified, there is no further issue of reasonableness.
(g)The meaning of the restraint clause may be construed by reference to the factual matrix, documentary context and surrounding circumstances.[2]
[2]Ibid [14] (citations omitted). See also Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2013] SASC 91, [53]; Integrated Group Ltd v Dillon [2009] VSC 361, [32]-[33]; Workplace Access & Safety Pty Ltd v Mackie [2014] WASC 62, [40].
JGL’S legitimate interest in protecting its confidential information
When Ms Peck entered into the contract of employment on 7 December 2015, JGL had a legitimate interest in protecting its confidential information from disclosure to a competitor.[3] The nature and extent of this interest was expressly prescribed in Ms Peck’s contract of employment under the heading: ‘Restricted Activities – Legitimate Interest’:
[3]Woolworths Ltd v Olson [2004] NSWCA 372, [67]; Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9, [13]-[14].
In addition with being provided with or having access to confidential information, in the course of your employment you will gain connections with its customers, employees and suppliers. It is acknowledged that this information and these connections are essential to JGL’s and the Group’s market position, brand advantage and ability to operate effectively. The parties recognise that JGL and the Group have legitimate interests in protecting the information and connections after your employment ends and restricting them from being used to JGL’s and/or the Group’s disadvantage.
As a result of your role with JGL, you will have access to commercially sensitive information about the way JGL, and the Group, runs its business. You acknowledge and agree that:
(a)You have access to relevant confidential information including financial reporting, sale patterns, promotional and business plans, pricing, marketing, recruitment and talent information;
(b)JGL’s confidential supplier network, product design and development processes are essential to the commercial success of JGL and the Group;
(c)JGL’s supply chain and logistics network are highly commercially sensitive and critical to its competitive advantage and market position, reflecting a significant investment on the part of JGL that would take over 12 months to independently devise;
(d)the period between the commencement of a new design project and its eventual release to the market is at least 6 months in duration and commonly longer;
(e)the disclosure of JGL’s or the Group’s valuable and commercially sensitive designs and information during the period between concept and release to the market would significantly diminish JGL’s competitive advantage and capacity to maintain its market position; and
(f)JGL and the Group have a legitimate interest in protecting their interests by restraining certain conduct during your employment and after the termination of your employment, as set out in this Section.[4]
[4]Exhibit P3: Affidavit of Mark McInnes sworn 21 July 2016, “MM-2”, 8-9.
Confidential Information is defined in the contract to mean all information regarding the businesses of JGL, 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.[5]
It is difficult to conceive of a contract which prescribes in more robust terms than the contract entered into by Ms Peck, an employer’s claim to have a legitimate interest in protecting its confidential information.
[5]Ibid 4.
JGL led a considerable amount of evidence regarding the nature of the confidential information to which Ms Peck was exposed whilst an employee. This evidence was consistent with the express terms of the contract. It is unnecessary to set out this evidence. It is sufficient to record my finding that the evidence confirmed that Ms Peck was in fact exposed to JGL’s confidential information during her employment. However, the evidence did not advance JGL’s case in respect of establishing its legitimate interest in protecting its confidential information beyond the express terms of the contract.
Whether JGL had a legitimate interest in protecting its confidential information is primarily to be determined as at 7 December 2015 when Ms Peck accepted the offer of employment. The terms of the contract spell out, in robust terms, the acceptance of both Ms Peck and JGL that throughout her employment as CFO she would be exposed to JGL’s highly commercially sensitive information. The terms of the contract establish conclusively that JGL did have a legitimate interest in protecting its confidential information. The issue in the current proceedings is not whether JGL had a legitimate interest in protecting its confidential information. The issue is whether the restraints go beyond that which is reasonable to afford protection to that legitimate interest.
The Restraints
The primary restraint underpinning JGL’s claims in the current proceedings is a restraint entitled: ‘Restricted Activities – Personal Engagement’:
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.[6]
[6]Ibid 9.
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.[7]
[7]Ibid 4.
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.[8]
[8]Ibid 5.
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; [‘the first limb’] or
2)for or on behalf of any of the entities operating the brands listed in Annexure A, 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’].[9]
[9]Ibid.
‘Annexure A’ is a list of 50 entities/brands, including Cotton On Group, which is annexed to this judgment.
Connection Period means:
(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.[10]
[10]Ibid 4.
Two further provisions are relevant to an assessment of the reasonableness of the restraints set out above. Clause 4 is headed ‘TERMINATION’. Relevantly, it 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...[11]
[11]Ibid 6.
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.[12]
[12]Ibid 10.
Construction of Restricted Activities – Personal Engagement
Before an assessment can be undertaken as to the reasonableness of the restraints it is necessary to determine what restraints were imposed upon Ms Peck. The meaning of the defined term, ‘Restricted Activities – Personal Engagement’, was contentious.
Paragraph (c) of the preamble to ‘Restricted Activities – Personal Engagement’ is the phrase ‘carrying on any activity’. JGL submitted that the words ‘any activity’ should be read as if on a separate line. JGL submitted as follows:
Although the words “any activity” are printed on the same line as paragraph (c) of the definition of Restricted Activities – Personal Engagement, this is clearly a layout error in the 2015 Contract. The definition does not make grammatical sense if the words “any activity” are part of paragraph (c) because paragraphs (a) and (b) do not grammatically fit together with sub-paragraphs (1) and (2).
It is obvious that the parties intended the words “any activity” to be on a new line as follows:
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 speciality 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; or
2)for or on behalf of any of the entities operating the brands listed in Annexure A, 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).
It follows that the Restraint Provision provides for six combinations of paragraphs (a), (b) and (c) with sub-paragraphs (1) and (2), each combination linked by the words “any activity”.[13]
[13]‘The Just Group’s Closing Submission’ dated 5 September 2016, ‘Appendix 5 – Construction Submission’, [15]-[17].
I accept the submission set out above. The contract should be construed sensibly. The objective intention of the parties is that paragraphs (a) and (b) should have work to do. This can be readily achieved, without the addition or deletion of any words, if ‘any activity’ is placed on a separate line after paragraph (c).
JGL’s next submission is much more contentious. JGL submits that the word ‘activity’ does not refer to activities engaged in by Ms Peck in a new job, but rather the activities of Ms Peck’s new employer.[14] Further, JGL submits:
the word “activity” refers to the “front end” commercial or trading activities of the new employer, and as distinct from “back end” business activities, such as leasing premises.[15]
[14]‘The Just Group’s Closing Submission’ dated 5 September 2016, [38](b).
[15]Ibid ‘Appendix 5 – Construction Submission’, [18].
It is understandable why JGL advances this submission. If ‘activity’ means the personal activities undertaken by Ms Peck rather than the business activities undertaken by a new employer, the first limb of the definition of Restricted Activities – Personal Engagement is nonsensical. In order for the first limb to have work to do it is necessary to insert the phrase ‘any activity which is’ in the opening line of the first limb such that it reads:
(1) which is the same as, or similar to, any activity which is any part of the speciality brand and fashion business…
Absent the reading in of the words set out above, if activity is construed as an activity undertaken by Ms Peck, there is a disconnect between the restraints in (a), (b) and (c) and the first limb.
I reject JGL’s submission that ‘activity’ means the front end commercial or trading activities of the new employer. Contextual matters point strongly to the conclusion that ‘activity’ means an activity undertaken by Ms Peck rather than the new employer. The covenant which incorporates the definition of Restricted Activities – Personal Engagement is directed at personal activities undertaken by Ms Peck:
You must not… engage in Restricted Activities – Personal Engagement…[16]
The ordinary and natural meaning of these words is consistent with a restraint in respect of activities undertaken by Ms Peck, not her new employer.
[16]Exhibit P3: Affidavit of Mark McInnes sworn 21 July 2016, “MM-2”, 9.
Further, the plain meaning of the restraints in (a), (b) and (c) is consistent with the restraints operating by reference to activities undertaken by Ms Peck rather than a new employer.
JGL’s construction of ‘activity’ requires a wholesale re-writing of the clause.[17] In addition to reading in words, JGL’s construction requires a distinction to be drawn between so called ‘front end’ and ‘back end’ business activities. The construction contended for by JGL is untenable and must be rejected.
[17]Cf Courtenay Polymers Pty Ltd v Deang [2005] VSC 318, [120]–[121].
It follows from the matters set out above, that the first limb of the definition of Restricted Activities – Personal Engagement does not create any enforceable obligation. If I am wrong in reaching this conclusion and the clause does restrain Ms Peck from engaging in front end commercial or trading activities of a new employer, the clause is nevertheless unenforceable as an unreasonable restraint of trade.
Unlike the second limb (which operates by reference to 50 nominated brands/entities), the first limb operates by reference to any activity ‘the same as, or similar to, any part of the speciality brand and fashion business of a Group Company’. The effect of the clause is to prevent Ms Peck from being employed by any retailer of apparel or stationery.
JGL submits that the phrase ‘engaged, concerned or interested in’ in paragraph (a) does not cover employment in any role.[18] Rather, ‘it is limited to roles to which the confidential information that Ms Peck was expected to acquire at the Just Group would be relevant’.[19]
[18]‘The Just Group’s Closing Submission’ dated 5 September 2016, ‘Appendix 5 – Construction Submission’, [31].
[19]Ibid.
JGL submits that it would be fanciful if Ms Peck, within two years of leaving the CFO role with JGL, accepted a position with a competitor such as a check out operator or a shelf stacker.[20] JGL submits that the phrase ‘being engaged, concerned or interested in’ must be construed so as to exclude improbable contingencies.[21] JGL submits that agreements in restraint of trade:
cannot properly be held to apply to cases which, although covered by the words of the agreement, cannot be reasonably supposed ever to have been contemplated by the parties, and which on a rational view of the agreement are excluded from its operation by falling, in truth, outside, and not within its real scope.[22]
Thus, JGL contends that ‘if a particular construction results in improbable and extravagant contingencies falling within the covenant, thereby rendering it potentially void, a construction should be adopted which avoids this outcome’.[23]
[20]Ibid [33].
[21]Ibid.
[22]Ibid [4], quoting Haynes v Doman [1899] 2 Ch 13, 25. See also Rentokil Pty Ltd v Lee (1995) 66 SASR 301, 304, 319, 338.
[23]‘The Just Group’s Closing Submission’ dated 5 September 2016, ‘Appendix 5 – Construction Submission’, [4] quoting JD Heydon, The Restraint of Trade Doctrine (LexisNexis Butterworths, 3rd ed, 2008) 139.
As against the improbable contingencies principle relied upon by JGL, it is necessary to bear in mind authoritative statements of principle which require an assessment of the reasonableness of a restraint by reference to what the restraint requires or permits the parties to do. In Adamson v New South Wales Rugby League Ltd,[24] Gummow J stated:
But there always remains the basic proposition, as Scott J has expressed it, that the reasonableness of a restraint of trade must be tested, not by reference to what the parties have actually done or intend to do, but what the restraint entitles or requires the parties to do.[25]
[24](1991) 31 FCR 242 (‘Adamson’).
[25]Ibid 285, citing Watson v Prager [1991] 1 WLR 726, 749.
In Geraghty v Minter,[26] Barwick CJ stated:
If the clause were unreasonable in any of the circumstances in which according to its terms properly construed it could operate, it could not be supported in my opinion, by ignoring or treating as outside the contemplation of the parties an occasion or event which fairly fell within the terms of the clause because it was an unlikely possibility. I can see no reason why other than full effect should be given to all the possibilities which fall within the terms in which the parties have expressed their agreement. But, of course, when construing such a clause, it may be possible to hold that some unlikely event, not thought to be in the contemplation by the use of the language to be construed, was not meant to be included therein.[27]
[26](1979) 142 CLR 177 (‘Geraghty’).
[27]Ibid 180.
The statement of Barwick CJ in Geraghty demonstrates how the observations of Gummow J in Adamson can accommodate improbable contingencies. I accept JGL’s contention that it would not have been in the contemplation of JGL and Ms Peck when the employment contract was signed on 7 December 2015, that within two years of leaving her CFO role she would be working as a shelf stacker or sales assistant with a competitor. I also accept JGL’s contention that the restraint clause should not be held invalid by reason of it theoretically precluding Ms Peck from taking up any form of employment, however menial, with an employer engaged in retailing apparel or stationery. However, properly construed, the first limb is not limited to employment with a new employer in a role where confidential information Ms Peck acquired throughout her employment with JGL would be relevant. The terms of the restraints in (a), (b) and (c) together with the first limb are very broad: ‘any activity… the same as, or similar to, any part of the speciality brand and fashion business…’
Applying the reasoning of Barwick CJ in Geraghty, if the first limb is unreasonable in any circumstances in which, according to its terms, properly construed, it could operate, it is not appropriate to treat as outside the contemplation of the parties an event which fairly falls within the terms of the clause, merely because it was unlikely.
I put to one side the extreme example of Ms Peck being employed as a shop assistant or a check out operator with a competitor of JGL. It is nevertheless possible that Ms Peck, within two years of leaving the CFO role with JGL, would seek and obtain employment in a business similar to that of JGL, in a role in which confidential information she obtained in her CFO role would not be relevant. The express terms of the first limb would preclude Ms Peck from being employed in such a role. So construed, the first limb extends beyond that which is reasonable to protect JGL’s legitimate interest in protecting its confidential information.
If, contrary to the conclusions set out above, the phrase ‘being engaged, concerned or interested in’ is confined to employment in a role in which confidential information acquired by Ms Peck would be relevant to a new employer, the first limb is nevertheless invalid as an unreasonable restraint of trade. The first limb extends to any activity which is similar to any part of JGL’s business. It therefore extends far beyond the reach of the second limb which is itself of very broad reach.
JGL submits that the phrase ‘same as, or similar to’ in the first limb should be read as identifying businesses that compete with JGL.[28] The difficulty with this submission is that Annexure A read in conjunction with the second limb identifies 50 brands/entities which compete with JGL. Annexure A is extensive, indicating an objective intention on the part of the contracting parties to identify the businesses competing with JGL relevant to the protection of the confidential information to which Ms Peck would be exposed as JGL’s CFO. As such, there is no such justification for reading down the phrase ‘same as, or similar to’ in the first limb such that it is confined to businesses in competition with JGL. Properly construed, the first limb extends beyond the 50 brands/entities listed in Annexure A. It goes much further than is reasonable to protect the legitimate interests of JGL. As such, it is unenforceable.
[28]‘The Just Group’s Closing Submission’ dated 5 September 2016, ‘Appendix 5 – Construction Submission’, [25].
The Second Limb of Restricted Activities – Personal Engagement
The second limb operates in respect of ‘any of the entities operating the brands listed in Annexure A’. There are 50 brands/entities listed in Annexure A. Save for Target, Kmart, Big W and Cotton On, no evidence was led regarding the commercial activities of the operating entities of the remaining 46 brands/entities.
JGL accepted that it bears the onus of establishing the reasonableness of the restraint created by the second limb when read in conjunction with Annexure A.[29] JGL submitted that ‘… in the absence of contrary evidence, the Court can infer that it is unlikely that the same corporate vehicle that operates a major apparel brand would also be deployed to operate a substantial unrelated non-apparel business’.[30] This submission must be rejected.
[29]Ibid ‘Appendix 6 – Submission on Annexure A and on Severance’, [13](f).
[30]Ibid.
In AusNet Electricity Services Pty Ltd v Liesfield,[31] Robson J cited with approval the following statements of principle regarding the assessment of whether a party who bears an onus of proof, has discharged that onus:
[31][2014] VSC 474.
In G v H, Brennan and McHugh JJ stated:
When a court is deciding whether a party on whom rests the burden of proving an issue on the balance of probabilities has discharged that burden, regard must be had to that party's ability to adduce evidence relevant to the issue and any failure on the part of the other party to adduce available evidence in response.
In Ho v Powell, Hodgson JA stated:
In deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision.
In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so.
In Shalhoub v Buchanan, Campbell J stated:
Failure of a party who bears an onus of proof to call an available witness who could cast light on some matter in dispute can be taken into account in deciding whether that onus is discharged, in circumstances where such evidence as has been called does not itself clearly discharge the onus. This is an application of Lord Mansfield's maxim.
...
In Cook's Construction Pty Ltd v Brown, Hodgson JA stated, in an ex tempore judgment:
Where a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party's favour from indirect and second-hand evidence, when the party doesn't call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation.[32]
[32]Ibid [125]–[129], quoting G v H (1994) 181 CLR 387, 391–392; Ho v Powell (2001) 51 NSWLR 572, [14]–[15]; Shalhoub v Buchanan [2004] NSWSC 99, [71]; Cook's Construction Pty Ltd v Brown (2004) 49 ACSR 62, [42].
There is no legitimate basis for the Court to draw an inference in the plaintiff’s favour that none of the 46 entities operate substantial non-apparel businesses. This is particularly so given the evidence regarding Woolworths Ltd,[33] the operating entity of Big W. Woolworths Ltd does have substantial non-apparel businesses. It has substantial liquor retailing businesses: BWS, Cellarmasters, Dan Murphy’s, Langton’s Wine Auctioneers and Woolworths Liquor. In addition it operates the LH Group, a hotel and poker machine operator which is 75 per cent owned by Woolworths Ltd.
[33]Exhibit P15: Annual Report of Woolworths Ltd 2015.
In circumstances where JGL could have, but did not, lead any evidence regarding the commercial activities of the other 46 brands/entities in Annexure A, it is not appropriate for the Court to draw an inference in its favour that none of these operating entities have substantial non-apparel businesses. It follows that JGL has failed to discharge the onus of establishing that the second limb, when read in conjunction with Annexure A, is a reasonable restraint. Unless the 46 brands/entities can be severed from Annexure A, the second limb is unenforceable as an unreasonable restraint of trade.
Earlier in this judgment I have concluded that the restraint imposed upon Ms Peck by the first limb is an unreasonable restraint, because it prevents her from being employed in a position in which confidential information acquired by her during her employment with JGL would be irrelevant to a new employer. This reasoning applies equally to the 50 brands/entities listed in the second limb. The restraint prevents Ms Peck from being engaged in ‘any activity… for or on behalf of any of the entities operating the brands listed in Annexure A’. Properly construed, this restraint would prevent Ms Peck from taking up employment in a role where confidential information acquired by her during the course of her employment with JGL would be of no relevance to a new employer. So construed, the second limb is an unreasonable restraint of trade and is unenforceable.
Termination on one month’s notice during probationary period
During the first six months of Ms Peck’s employment, JGL had the right to terminate her employment upon the provision of one month’s notice, or payment in lieu thereof. If JGL exercised this right, it would trigger the post-employment restraints prescribed by Restricted Period – Personal Engagement, ranging from 12 months, up to two years. Does this have the consequence that the restraint periods ranging from 12 months to two years are unenforceable?
The ability of an employer to lawfully terminate employment after a short period, thereby activating a lengthy restraint, is of limited relevance in assessing the reasonableness of the restraint if the likelihood of early termination was not seriously contemplated by the parties.[34]
[34]Geraghty (1979) 142 CLR 177, 187-88 (Gibbs J), 189–90 (Stephen J); NE Perry Pty Ltd v Judge (2002) 84 SASR 86, [123]–[124] (Besanko J).
In Lindner v Murdock’s Garage,[35] Fullagar J stated:
The only point which has caused me any difficulty is the fact that the contract of employment is made terminable on twenty-one days’ notice on either side. That the period of employment may be a relevant matter in such cases as the present can hardly, I think, be doubted, but there is authority for saying that what must be taken to have been actually contemplated by the parties may be taken into consideration along with the actual terms of the contract itself.[36]
[35](1950) 83 CLR 628.
[36]Ibid 650.
Thus, in assessing the relevance of JGL’s capacity to trigger the restraints within the first six months of Ms Peck commencing employment, upon the provision of one month’s notice of termination or payment in lieu thereof, it is necessary to determine whether it was contemplated by JGL and Ms Peck that her employment could have been terminated within the first six months. The evidence of JGL’s CEO, Mr McInnes, strongly supports a finding that JGL expressly turned its mind to the possibility of Ms Peck’s employment being terminated within the first six months. He gave the following evidence regarding the probationary period and the notice period in Ms Peck’s contract:
It was all encompassing. So, for me on the 24th, I had written down – given – again it’s contextual: Nicole was joining back into the retail industry from the health industry. She’d gone from Barwon Health to Nufarm, she was looking for a job back in the retail industry, having been unsuccessful with two Target MDs, and we were giving her an opportunity to come in as the CFO of a subsidiarily listed company, very similar to, as she’d previously managed at Target and Kmart, and this part of the contract was talking to her about – was the fair notice period given that we were bringing her out of the wilderness, bringing her back into the public company environment, and I put to her specifically that I’d written down on the 24th, that the contract would be – if you were offered a contract, it would be six months probation at our election, 12 months notice and 24 months restraint against our list of competitors.[37]
…
In my mind, the total contract for Nicole – and again, each employee is different based on their circumstances – was, we were bringing Nicole out of the wilderness, back into the retail industry, and giving her, you know, my right-hand person job.[38]
[37]Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 1 September 2016) T275 LL1–18.
[38]Ibid T276 L5–9.
Mr McInnes’ evidence that Ms Peck had been unsuccessful with Target MD’s and was being brought back ‘out of the wilderness’ and ‘back into the public company environment’ is significant. This evidence demonstrates that notwithstanding the seniority of her role as CFO, Mr McInnes was keeping JGL’s options open in the event that Ms Peck did not successfully transition back into the retail/listed subsidiary company environment. As at 7 December 2015, there was a real possibility that JGL would exercise its right to terminate her employment within the first six months.
In the circumstances set out above, the disparity between the notice period of one month during the probationary period and a minimum restraint period of 12 months is relevant to an assessment of the reasonableness of a restraint. The disparity is such that the restraint, even if it be confined to the minimum period of 12 months, is unreasonable. It goes beyond that which is reasonable to protect JGL’s legitimate interests. On the one hand, JGL reserved to itself the right to terminate Ms Peck’s employment on one month’s notice within a short period of her commencing employment. On the other hand, it reserved to itself the right to impose wide ranging restrictions upon her capacity to earn a livelihood for a period of 12 months.
Although not decisive, two further matters reinforce my conclusion that the disparity during the probationary period between the notice and restraint period is unreasonable. First, Ms Peck’s immediate predecessor as CFO, Ashley Gardiner, was not subject to any post-employment restraint.[39] Second, Mr McInnes’ current contract of employment, although providing a period of restraint for up to two years, imposes an obligation upon JGL to pay his base salary during any period that JGL seeks to enforce such restraint.[40]
[39]See Exhibit P43: Contact of employment between Just Group and Ashley Gardiner dated 1 May 2012.
[40]See Exhibit P44: Contracts of employment between Premier Investments Ltd and Mark McInnes dated 24 March 2011 and 26 April 2016.
JGL submits that no weight should be accorded to the more generous terms of Mr McInnes’ contract.[41] JGL submits that Mr McInnes was able to negotiate these favourable terms when he renegotiated a new five year contract.[42] JGL submits that in assessing the reasonableness of the restraints in Ms Peck’s contract, regard must be had to the fact that the restraints are contained in a contract which was the subject of a negotiation.[43] JGL points to the fact that Ms Peck was negotiating in respect of a senior position. The initial salary offered to her was $380,000 per annum.[44] The salary in the contract offered to her on 7 December 2015 was $450,000 per annum, with a $50,000 sign on fee.[45]
[41]‘The Just Group’s Closing Submission’ dated 5 September 2016, [79](a).
[42]Ibid.
[43]Ibid [66].
[44]Ibid.
[45]Ibid.
The fact that Ms Peck was prepared to agree to the restraints in her contract is a matter to which I attach considerable weight.[46] The fact that Ms Peck’s contract was a product of negotiation is not, however, determinative of whether JGL has discharged the onus of establishing that the restraints contained therein go no further than is reasonably necessary to protect its legitimate interests. The same observation may be made in respect of the express contractual acknowledgement that the restraints are reasonable. Provisions acknowledging the reasonableness thereof are a common feature of contracts which contain restraints provisions.[47] Irrespective of the nature of the negotiations which precede a contract containing restraint provisions, the onus rests upon the covenantee to establish the reasonableness of the restraint. The restraints imposed upon Ms Peck are liable to be struck down as unreasonable on multiple grounds. The fact that the contract was the product of negotiations, and that Ms Peck succeeded in negotiating a very generous salary package, does not validate the restraints.
[46]See JD Heydon, The Restraint of Trade Doctrine (LexisNexis Butterworths, 3rd ed, 2008) 38 nn 32 and the cases cited therein; Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187, [17]–[18], [30]–[36].
[47]See, eg, Integrated Group Ltd v Dillon [2009] VSC 361, [30] where a restraint of trade clause contained the provision: ‘The parties agree that each separate covenant and restraint in this Deed is reasonable and that each party approves its drafting’.
Severance
Thus far I have concluded:
(i) The first limb of the restraint is unenforceable. The restriction upon Ms Peck engaging in ‘any activity’ refers to her personal activities, as opposed to ‘front end commercial or trading activities’ of a new employer. So read, the first limb makes no sense. There is a disconnect between the personal activities Ms Peck is restrained from undertaking and the subject matter of the first limb;
(ii) In the alternative, the first limb is void as an unreasonable restraint of trade. The restraints go well beyond that which is reasonable to protect JGL’s legitimate interests;
(iii) The second limb is an unreasonable restraint and is unenforceable:
(a) JGL has not discharged the onus of establishing that the operating entities of 46 of the 50 brand/entities listed in Annexure A do not have commercial activities which do not compete with JGL. Of the remaining four, Woolworths Ltd does have businesses which do not compete with JGL, yet Ms Peck would be precluded from working in any of those businesses;
(b) It restrains Ms Peck from engaging in any employment, including employment in a position in which confidential information obtained by her would be of no relevance to a new employer;
(iv)The restraint periods ranging from 12 to 24 months are unreasonable because of the disparity with the one month notice period, or payment in lieu, upon which Ms Peck’s employment could have been terminated during the first six months of her employment.
JGL responds to Ms Peck’s challenge to the validity of the second limb based upon the breadth of Annexure A by submitting that the list of 50 brands/entities can be severed.[48] The primary relief sought by JGL is an injunction to restrain Ms Peck from commencing employment with Cotton On. JGL submits in support of this relief that if the validity of the second limb can be secured by severing all brands/entities listed in Annexure A save for Cotton On, the Court should do so.[49]
[48]‘The Just Group’s Closing Submission’ dated 5 September 2016, ‘Appendix 6 – Submission on Annexure A and on Severance’, [41]-[45].
[49]Ibid [45](b).
JGL’s reliance on the doctrine of severance is of no utility if I am correct in concluding that the restraint period of 12 to 24 months is unreasonable because of JGL’s capacity to terminate on one month’s notice during the probationary period. However, if I am wrong in reaching this conclusion, the second limb could provide a foundation for the injunctive relief sought by JGL. There is therefore utility in considering the question of whether the second limb is enforceable via severance.
The first issue to be addressed is whether the list of 50 brands/entities is severable. The second is whether, if it is, the Court should do so.
JGL submits that the second limb read in conjunction with Annexure A creates 50 discrete covenants.[50] JGL submits that the word ‘any’ in the phrase ‘any of the entities operating the brands listed in Annexure A’ should be read as ‘any one’.[51] In support of this submission Mr Wood QC relied upon the Oxford English Dictionary definition of ‘any’:[52]
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.[53]
[50]Ibid [41]; Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 5 September 2016) T590 LL3-13.
[51]Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 5 September 2016) T591 LL5-6.
[52]Ibid LL7-15.
[53]Oxford English Dictionary (2nd ed).
The dictionary definition does not support Mr Wood’s submission that the second limb read in conjunction with Annexure A creates 50 discrete covenants. As defined, in either the singular or the plural, ‘any’ means ‘no matter which’. So defined, ‘any of the entities operating the brands listed in Annexure A’ is a single covenant restraining Ms Peck from working for any; ie no matter which, of the brands/entities listed in Annexure A. So construed, the second limb creates a single covenant.
Contextual considerations support the conclusion that the second limb read in conjunction with Annexure A creates a single covenant restraining Ms Peck from working for any of the 50 brands/entities listed in Annexure A. The phrase ‘their assignees, successors, or transmittees’ is consistent with the creation of a single covenant operative in respect of all 50 entities listed in Annexure A. Similarly, the use of the plural, ‘the entities’ and ‘the brands’ points to the same conclusion.
There are three clauses in the contract which utilise the drafting technique of cascading obligations which expressly contemplate the prospect of severance in the event of a finding of invalidity:
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.
Restricted Period – Engagement of Others means during your employment and for the period of:
(a)12 months after the Termination Date; or (if that period is held to be invalid)
(b)6 months after the Termination Date; or (if that period is held to be invalid)
(c) 3 months after the Termination Date.
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.
The three definitions set out above support the conclusion that where the contract contains a provision which is capable of being severed, the contract expressly so provides. There is a striking contrast between the drafting of the three clauses set out above and the second limb. The definitions of Restricted Periods – Engagement of Others and Restricted Period – Personal Engagement, follow on immediately after the second limb. If the contracting parties had intended that the second limb in conjunction with Annexure A created 50 separate covenants capable of severance, it would have been a simple matter for the contract to have expressly so provided as in the case of the three definitions referred to above.
If I am wrong in concluding that the list of brands/entities in Annexure A is not severable, I would in any event refuse to sever brands/entities from the list.
In I F Asia Pacific Pty Ltd v Galbally,[54] Dodds-Streeton J stated:
The plaintiff bears the onus of establishing that severance is appropriate. The evidence it has adduced is, in my view, insufficient to justify severance even on the more liberal approach reflected in Business Seating (Renovations) v Broad, which is distinguishable. The stricter approach, in any event, cautions against curial disentanglement of unreasonably wide clauses, recognising that they may act in terrorem by exposing employees to the threat of litigation. Undue judicial readiness to save such clauses by severance reduces the sanction of invalidity otherwise applicable to employers who attempt to impose unjustifiably wide restraints.[55]
[54](2003) 59 IPR 43.
[55]Ibid [201].
In Wallis Nominees (Computing) Pty Ltd v Pickett,[56] Redlich JA stated:
Further, the courts have strictly circumscribed the circumstances in which severance should be undertaken in the context of employee restraint covenants. This stricter approach, as Dodds-Streeton J observed in I F Asia Pacific Pty Ltd v Galbally, cautions against curial disentanglement of unreasonably wide clauses, recognising that they may act in terrorem by exposing employees to the threat of litigation. A too ready judicial willingness to save such clauses by severance would, as her Honour rightly observed, also reduce the sanction of invalidity otherwise applicable to employers who attempt to impose unjustifiably wide restraints. Where an employer has sought to burden its employee with a patently unjustifiable restraint, there should be a marked reluctance by the courts to allow the employer a belated revision of the condition, only when it has become apparent that the condition is likely to be struck down because of its unreasonable reach. This was such a case.[57]
Redlich JA’s reference to ‘a patently unjustifiable restraint’ is apt to describe the operation of the second limb by reference to the 50 brands/entities in Annexure A.
[56](2013) 45 VR 657.
[57]Ibid [110] (citations omitted).
The reasonableness of the Annexure A restraint falls to be determined, not by reference to the circumstances of the alleged breach, but by reference to the operation of the restraint as at 7 December 2015. The plaintiff mounted a substantial case in support of its contention that there is fierce competition between JGL and Cotton On. It led a considerable volume of evidence regarding the operations of Smiggle and the commercially sensitive information in respect of Smiggle which Ms Peck was exposed to during her employment. JGL submitted that this evidence supported a finding that the restraints in her contract are reasonable and enforceable.[58]
[58]See, eg, Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 5 September 2016) T504 L29 – T505 L11.
JGL’s focus on the level of competition between it and Cotton On Group invites the obvious question as to what is the level of competition between it and the other 49 brands/entities in Annexure A. JGL conducted its case by focusing very heavily upon the circumstances of the alleged breach; ie Ms Peck’s proposed employment with Cotton On. If the current proceedings were subject to the Restraints of Trade Act1976 (NSW), JGL could validly contend that the reasonableness of the restraint should be assessed by reference to Ms Peck’s proposed employment with Cotton On.
Section 4 of the Restraints of Trade Act1976 (NSW) provides:
(1)A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.
(2)Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy.
(3)Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or party by reason of, manifest failure by a person who created or joined in creating the restraint to attempt to make restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards it application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order.
…
In Woolworths Ltd v Olson,[59] the New South Wales Court of Appeal stated in respect of s 4:
First, the court determines whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed. Next, the court determines whether the restraint, so far as it applies to that breach, is against public policy. If it is not, the restraint is valid, subject to any order which may be made under s 4(3).[60]
[59][2004] NSWCA 372.
[60]Ibid [42].
In applying s 4(1), the court concentrates on the actual breach, rather than hypothetical breaches that might apply if the restraint were given its widest effect:
In applying s 4(1) the court should consider the circumstances of the particular case before it and determine the validity of the restraint to the extent that it purports to operate in those circumstances, and it is unnecessary to consider its purported operation in other conceivable sets of circumstances… the enactment of s 4(1) has succeeded in requiring attention to be concentrated on “the actual breach” rather than “imaginary breaches” for the purpose of determining validity of a restraint.[61]
[61]Orton v Melman (1981) 1 NSWLR 583, 588.
Section 4(1):
allows the court to ignore the fact that the restraint goes beyond what is reasonable, provided the restraint can be enforced to an extent that is reasonable. The subsection permits the court to enforce a covenant whose provision is overextensive as regards area, time or extent.[62]
It gives the Court capacity ‘to enforce just and reasonable covenants which may on their face be too widely expressed’.[63] In other words, it may permit the enforcement of a covenant which might otherwise be void by operation of the common law doctrine, if its particular application on the facts is reasonable.
[62]Woolworths Ltd v Olson [2004] NSWCA 372, [45].
[63]Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564, 43 (Sheller JA) quoted in Woolworths Ltd v Olson [2004] NSWCA 372, [47].
In Victoria, the common law principles governing restraint of trade are not qualified by legislation. Contrary to the position under s 4 of the Restraints of Trade Act1976 (NSW), a Victorian court cannot ignore the fact that a restraint goes beyond that which is reasonable. The assessment of the reasonableness of a restraint is in accordance with the statements of principle of Barwick CJ in Geraghty and Gummow J in Adamson. Putting to one side improbable contingencies not within the contemplation of the contracting parties, the reasonableness of the restraint is to be assessed by reference to what the restraint, properly construed, requires or permits. That assessment is to be undertaken by reference to the position when the contract was entered into. As at 7 December 2015, Cotton On was one of 50 brands/ entities listed in Annexure A. The reasonableness of the restraint created by the second limb is assessed by reference to all 50 brands/entities.
I accept that evidence of competition between Cotton On and JGL is relevant insofar as it sheds light on JGL’s legitimate interest in protecting its confidential information.[64] Ultimately that evidence is of limited value because the contract spells out in very strong terms JGL’s legitimate interest in protecting its confidential information. Further, the evidence of competition between JGL and Cotton On is, at best, of marginal relevance to the assessment of the reasonableness of the restraint created by the second limb. This is because Cotton On is but one of 50 listed entities/brands in respect of which the second limb operated.
[64]See Emeco International Pty Ltd v O’Shea[No 2] [2012] WASC 348, [168].
JGL acknowledged that ‘the vast majority’ of its evidence on competition was directed specifically between JGL and Cotton On.[65] JGL submitted that:
[65]‘The Just Group’s Closing Submission’ dated 5 September 2016, ‘Appendix 6 – Submission on Annexure A and on Severance’, [7].
7.The vast majority of the Just Group’s evidence on competition was directed specifically to competition between the Just Group and Cotton On. This is because:
a. Ms Peck proposes to start working for Cotton On and not some other brand listed in Annexure A;
b. discretion to refuse an injunction was a live issue until Ms Peck abandoned it at the very end of her opening; and
c. the Just Group submits that, for the reasons set out below, Annexure A is severable.
8.The Remaining Issues Submission will analyse this evidence of competition between the Just Group and Cotton On to show that, together with other factors, it justifies a broad and long restraint with respect to Cotton On.
9.As for the other 49 items, the following evidence shows that their inclusion in Annexure A is also reasonable because each of them competes with the Just Group.
10.Mr McInnes gave the following evidence about the list in Annexure A:
a. In his affidavit, he deposed:
The list is a listing of brands or companies from whom I considered it vital to keep JGL's confidential information so that they could not benefit at our expense in terms of their product range, sourcing, retail space and future investment strategies. I reviewed Annexure A before sending Peck the employment agreement and was satisfied that the listing was appropriate given the CFO role and the nature of the information to which the CFO would be exposed.
b.In his oral evidence, Mr McInnes further explained that each item in Annexure A is a “competitor for customers, products, space or people”.
c.He agreed that, with the exception of T2, the other 49 items had the same “common denominator” in that they “are involved in, to varying degrees at least, the clothing retail business”.
d.Mr McInnes also explained why T2 was included in Annexure A:
The main reason was that T2 announced a major international expansion plan in the United Kingdom for T2 stores, and we were going to be competing with them for space in shopping centres, and I think now they have 13-15 stores in the United Kingdom competing for the discretionary gift dollar - that was the main reason.
…
[C]ompetition is not just for the product or the customer of clothing, but competition exists for space in retail centres, and T2 had announced a major UK geographic expansion, and we are competing with them for space in the United Kingdom shopping centres with landlords for rent, and we are competing with them for retail staff in the United Kingdom, for store managers, assistant store managers and frontline staff.
e.Consistently with his oral evidence, in September 2015 Mr McInnes sent an email to the Just Group executives warning about the need to protect the Just Group’s confidential information from T2:
…
Our results to date in the UK market have been exceptional and this has clearly been noted by other Australian retailers who have either entered the UK market or have announced their intention to do so.
Brands like T2 and Taking Shape are already trading in the UK and both Kikki K and Lovisa have now publically announced their intention to enter the UK before Christmas. We also understand that Typo have been in market recently doing research and have announced internally they will be launching in the UK next year.
I have no doubt that a number of the above companies [sic] senior personnel will be looking to ride on the hard work already undertaken by ourselves and will endeavour to make contact with some of you to pick your brains and those of your teams on key contacts (project managers, lawyers, shop fitters, suppliers, recruiters, service providers, agents etc) as well as try to gain access to financial metrics, be it rents, sales, wages, demographic date or just general UK information.
It is absolutely imperative that neither yourself or any of your team members share any of our confidential knowledge or information with any third party ... Any disclosure of any of our IP to any third party is a breach of our companies [sic] code of conduct.
Could you please pass this email to your team to ensure they understand the importance we place on keeping our Information confidential.
f.Ms Peck did not adduce any contrary evidence and did not challenge Mr McInnes’ evidence on this issue.
g.Mr McInnes also explained that not all executives have the same list of brands for their restraint provision:
[The list] varies … depending on their level of responsibility. The reason for the comprehensive nature of this list is that [Ms Peck’s] role was the only other role in the organisation that had full access to all seven brands and all other functions within our business.
h.Mr McInnes gave evidence about the list of brands in his own contract. It contains 69 items and includes large apparel and retail brands that are not included in Ms Peck’s Annexure A, such as Levi Strauss and Kikki K.
11.Mr McCartney gave the following evidence about the list in Annexure A:
a.In his reply affidavit, Mr McCartney explained:
I have reviewed "Annexure A" to Peck's contract. All of the items noted in Annexure "A" are retail brands or entities, in one form or another. Only T2 does not retail apparel.
b.He also gave the following evidence about T2:
The Just Group is concerned to retain its senior executives. I note that Rachel Kelly, a Just Group board member, went to T2 as Chief Executive in 2013/14. I also note that Rosetta D'Amico, the Just Group's General Manager of Finance, left the Just Group to become the CFO of T2 in 2013.
c.Again, Ms Peck did not adduce any contrary evidence and did not challenge Mr McCartney’s evidence on this issue.[66]
[66]Ibid [7]-[11] (citations omitted).
As is apparent from JGL’s own submissions, there was no detailed evidence regarding the extent of the competition between JGL and the other 49 entities in Annexure A.
If the second limb had operated solely by reference to Cotton On, the evidence before the Court may well have justified a conclusion that JGL was entitled to impose wide-ranging restraints upon Ms Peck. However, as regards the other 49 entities, there is no evidence to suggest that insofar as those brands/entities compete in the apparel retail sector, that the level of competition between JGL and those brands/entities is on par with that which exists between JGL and Cotton On. The evidence which was led in respect of competition between JGL and Cotton On provides no legitimate foundation for a conclusion that the restraints imposed on Ms Peck in respect of the other 49 brands/entities are reasonable.
JGL's reliance on the doctrine of severance is an invitation to the Court to engage in the task of curial disentanglement to salvage a patently unreasonable restraint. Absent severance the second limb is unenforceable as an unreasonable restraint.
Breach of Confidence
JGL submitted that in the event that the restraint clause was held to be invalid, injunctive relief could nevertheless be justified on the basis of Ms Peck's breach of an equitable confidentiality obligation which she owed to JGL.[67] This submission must be rejected. On 30 August 2016, JGL sought leave to file a further amended statement of claim. The prayer for relief in the proposed amended pleading contained the following:
An injunction to restrain the defendant howsoever from using the confidential information of the Just Group or any part thereof, as defined by the employment contract, other than for the purpose for which it was supplied or otherwise using or exploiting the said confidential information or any part thereof.[68]
[67]‘The Just Group’s Closing Submission’ dated 5 September 2016, [86](c).
[68]Proposed Further Amended Statement of Claim dated 15 August 2016, [B].
When granting JGL leave to file a further amended statement of claim, the Court did so on the basis that no leave was granted to include in the prayer for relief, a claim for the injunction in the terms set out above.[69] The proposed pleading did not articulate any basis for relief in those terms. To the contrary, an earlier version of the pleading did plead an alleged breach of a confidential information obligation by Ms Peck.[70] However, those claims were subsequently abandoned by JGL.
[69]Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 30 August 2016) T5 LL5-10.
[70]Statement of Claim dated 10 June 2016, [19]-[22].
Breach of Notification Obligations
Ms Peck's contract contained the following provision:
You agree you will notify JGL, via the Chief Executive Officer, in writing immediately (and in any event within 24 hours) if you:
(a)during the Restricted Period - Personal Engagement, participate in any discussions with a firm, business or undertaking which competes with JGL or a Group Company with a view to you providing services within the Geographic Region to that business, firm or undertaking (whether directly or indirectly) that could include similar services as you provided to JGL or a Group Company.[71]
[71]Exhibit P3: Affidavit of Mark McInnes sworn 21 July 2016, “MM-2”, 9.
In its further amended statement of claim, JGL seeks the following relief:
A declaration that the defendant breached the notification clause by failing to notify the Just Group that, from 6 April 2016, she had participated in discussions with Cotton On with a view to providing services to Cotton On within Australia as General Manager of Treasury and Finance.
A declaration that the defendant breached the notification clause by continuing to have discussions with Cotton On after the initial discussion on 6 April 2016.[72]
[72]Further Amended Statement of Claim dated 1 September 2016, [BA]-[BB].
Ms Peck does not contest that she breached the notification obligations set out above.[73] However, she contends that the restraint contained by the notification obligation is unenforceable and did not impose any contractual obligation to notify JGL of communications that she was having with Cotton On.[74] In the alternative, Ms Peck submits that if there was a breach nothing turns upon it.[75] Ms Peck informed JGL's solicitors on 26 May 2016 that she proposed to commence employment with Cotton On, thereby providing it with an opportunity to obtain injunctive relief to prevent her from commencing employment. This is in fact what occurred.
[73]‘Defendant’s Outline of Closing Submissions’ dated 5 September 2016, [69].
[74]Ibid; Second Further Amended Defence dated 1 September 2016, [7D].
[75]‘Defendant’s Outline of Closing Submissions’ dated 5 September 2016, [69]-[70].
Mr Wood accepted that if the restraint imposed by the definition of Restricted Period - Personal Engagement was struck down as unreasonable, the notification obligation would also be unenforceable.[76] I have concluded that the restraint imposed by the definition of Restricted Period – Personal Engagement is unenforceable. However, if I am incorrect, I would still refuse to grant declaratory relief.
[76]Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 5 September 2016) T525 LL19-24.
In seeking declaratory relief, JGL seeks to enliven the Court's powers pursuant to s 36 of the Supreme Court Act 1986 and/or the inherent jurisdiction of the Court. Whether the source of the Court's power to grant declaratory relief is the statutory power conferred by s 36 of the Supreme Court Act, or the Court's inherent jurisdiction, in each case the grant or refusal of declaratory relief is within the discretion of the Court.[77] In Ainsworth v Criminal Justice Commission,[78] the plurality stated:
Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have “a real interest” and relief will not be granted if the question “is purely hypothetical”, if relief is “claimed in relation to circumstances that [have] not occurred and might never happen” or if “the Court's declaration will produce no foreseeable consequences for the parties”.[79]
[77]AWB Ltd v Cole [No 2] (2006) 233 ALR 453, [45]–[46].
[78](1992) 175 CLR 564.
[79]Ibid 582 (citations omitted).
I would decline to grant JGL the declaratory relief which it seeks. It is true that Ms Peck engaged in discussions throughout April and May 2016 with Cotton On which were covered by the notification obligations in her contract of employment. However, the net effect of the findings set out earlier in this judgment is that the prospective employment with Cotton On was not subject to any enforceable restraint. This is a significant discretionary factor which would weigh against granting the declaratory relief sought by JGL. Further, prior to the termination of her employment, Ms Peck did inform JGL of her intention to commence employment with Cotton On on 6 June 2016. By doing so she afforded JGL an opportunity to obtain injunctive relief to prevent her from commencing employment. In circumstances where the Court has concluded that Ms Peck is entitled to commence employment with Cotton On, no foreseeable consequences exist which would justify the grant of the declaratory relief sought.
In light of the conclusions set out above, nothing turns on Ms Peck’s alternative contention that she entered into a new contract with JGL in February 2016 which did not contain any restraints.[80] The basis of this contention is the Company Secretary role which was added to Ms Peck’s duties in February 2016.[81] Ms Peck contended that the addition of these duties constituted a profound change to her employment duties.[82] Had it been necessary to do so, I would have rejected this contention. Ms Peck’s contract contained an express right for JGL to vary the duties which she performed, subject to the duties being within her skill and competence.[83] Ms Peck agreed to carry out the Company Secretary role and there is nothing to suggest that she did so other than competently.
[80]See ‘Defendant’s Outline of Closing Submissions’ dated 5 September 2016, [65]; Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 5 September 2016) T549 LL1-6.
[81]Transcript of Proceedings, Just Group Ltd v Peck (Supreme Court of Victoria, S CI 2016 02141, McDonald J, 5 September 2016) T585 LL3-10.
[82]Ibid LL6-17; ‘Defendant’s Outline of Closing Submissions’ dated 5 September 2016, [65].
[83]Exhibit P3: Affidavit of Mark McInnes sworn 21 July 2016, “MM-2”, 1.
Release from mutual undertakings
On 3 June 2016, Ms Peck gave an undertaking to the Court not to commence employment with Cotton On until the hearing and determination of the current proceedings. For its part, JGL gave an undertaking to the Court that it would continue to pay Ms Peck an income in line with that which she had previously received as an employee of JGL. A question may arise as to the operation of these undertakings in the event JGL exercises its right of appeal in respect of this judgment.
The effect of the findings contained in this judgment is that there has been a material change in circumstances since Ms Peck and JGL gave undertakings to the Court. The overriding principle when considering whether a party should be released from an undertaking is that the Court should do whatever is in the interests of justice having regard to the particular circumstances of the case.[84] Having concluded that Ms Peck is lawfully entitled to commence employment with Cotton On, the interests of justice dictate that she should be released from the undertaking which she provided to the Court on 3 June 2016. Needless to say, the same conclusion applies in respect to the undertaking which has been provided to the Court by JGL. This conclusion applies irrespective of whether JGL seeks to exercise its right of appeal in respect of this judgment.
[84]Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44, 46; AED Oil Ltd v Puffin FPSO Ltd [No 5] [2011] VSC 60, [43]-[44].
Conclusion
JGL’s application for injunctive and declaratory relief is dismissed. I shall provide the parties with an opportunity to make submissions on the question of costs.
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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
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