Kazzi v Raptime Pty Ltd t/as Community First Real Estate & Anor.

[2006] NSWSC 1261

CITATION:	Kazzi v Raptime Pty Ltd trading as Community First Real Estate & Anor. [2006] NSWSC 1261
HEARING DATE(S):	17 November 2006
JUDGMENT DATE :	24 November 2006
JURISDICTION:	Equity
JUDGMENT OF:	Biscoe AJ
DECISION:	Interlocutory injunction granted
CATCHWORDS:	Restraint of trade - service agreement - real estate agent - principles relating to grant of interlocutory injunction to restrain breach of restraint of trade covenant - whether more just to grant injunction than to award damages.
CASES CITED:	American Cyanamid Co v Ethicon Ltd [1975] AC 396 Australian Broadcasting Corporation v O’Neill (2006) 86 ALJR 1672 Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board (1982) 57 ALJR 425 Cambridge Nutrition Ltd v British Broadcasting Corp [1990] 3 All ER 523 Castlemaine Tooheys Ltd v The State of South Australia (1986) 161 CLR 148 Fejo v Northern Territory (1998) 195 CLR 96 Fellowes & Son v Fisher [1976] QB 122 Heavener v Loomes (1924) 34 CLR 306 Hoppers Crossing Club Ltd v Tattersalls Gaming Pty Ltd [2005] VSC 114 Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd (2005) 221 ALR 179 Koops Martin Financial Services v Dean Reeves [2006] NSWSC 449 Lumley v Wagner (1852) 1 GM & G 604 Mobileworld Operating Pty Ltd v Telstra Corporation Ltd [2005] FCA 1365 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 Potters Ballotini Ltd v Weston Baker [1977] RPC 202 Smith v University of Ballarat (2006) 150 IR 371 Tampalini v Robinson [2005] WASC 182 The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445 Varley v Varley [2006] NSWSC 1025
PARTIES:	Mark Kazzi (Plaintiff) Raptime Pty Ltd t/as Community First Real Estate and James Smith (Defendants)
FILE NUMBER(S):	SC 3493/06
COUNSEL:	Mr P Hallen SC (Plaintiff) Mr A Spencer (Defendants)
SOLICITORS:	Uther Webster & Evans (Plaintiff) Doherty Partners (Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BISCOE AJ

24 November 2006

3493/06 MARK KAZZI v RAPTIME PTY LTD T/AS COMMUNITY FIRST REAL ESTATE & ANOR.

1 HIS HONOUR: This is an application by the cross-claimant and first defendant, Raptime Pty Ltd, for an interlocutory injunction to restrain breaches by the cross-defendant and plaintiff, Mark Kazzi, of a restraint of trade covenant in a service agreement. Raptime’s notice of motion seeks the following order, or such other order as the Court deems fit:

An order until further order restraining the Plaintiff from directly or indirectly consulting with or advising any person who, or which, was a customer of the First Defendant, Raptime or Raptime’s business between 1 April 2004 and 19 June 2006 in relation to any matters of a kind that arose or are likely to arise in the course of carrying on Raptime’s business.

2 Raptime at all material times has owned and operated a real estate agency at Liverpool under the name Community First Real Estate. The second defendant Mr Darrin Smith was a director of Raptime. Mr Kazzi is a licensed real estate agent and worked for Raptime from 2001 to 2006. Since then he has been operating in competition with Raptime from nearby premises. On 13 November 2001 Raptime and Mr Kazzi entered into a written Employment Agreement. This was superseded on 26 May 2003 when Raptime, Mr Kazzi and Kazzi Management Services executed a written “Contractor’s Agreement” for the provision of Mr Kazzi’s services to Raptime (the 2003 agreement). Raptime alleges, but Mr Kazzi disputes, that this was superseded on or about 1 April 2004 by an oral agreement to be bound by an unexecuted written “Contractor’s Agreement” (the 2004 agreement).

3 Clause 11.2 of each of the 2003 and 2004 agreements provided that after the expiry of the Initial Term either party could terminate the agreement for any reason upon giving one calendar month’s written notice. The “Initial Term” was defined in each agreement as one year. The “Commencement Date” was defined in the 2003 agreement as 1 July 2002 and in the 2004 agreement as 1 April 2004.

4 At the heart of the present application is the restraint of trade covenant in cl 10.3 of each agreement which provided:

10.3 Neither KMS nor Mark shall, without the written consent of Community First (Liverpool), which consent shall not be unreasonably withheld, for a period of one (1) year from the Termination Date either solely or jointly between themselves or with any other person (whether as principal, agent, employee, director, shareholder, partner, consultant, adviser or otherwise) directly or indirectly:
(a) consult with, or advise any person who, or which, shall have been a customer of Community First (Liverpool) or the Business between the Commencement Date and the Termination Date in relation to any matters of a kind that arise or are likely to arise in the course of carrying on the Business; or
(b) interfere with or endeavour to entice away from Community First (Liverpool) any person who was an employee of or contractor with Community First (Liverpool) during the continuance of this Agreement or encourage any other person to do so.

5 This restraint is expressed to operate from the “Termination Date” which is not defined in the definition clause of either agreement. Clause 10.1 of each agreement relevantly provided that: “KMS and Mark shall each be restrained for a period of… months from the date on which this Agreement terminates for whatever reason (the Termination Date) from…”. The evidence suggests that those words were struck out of the executed 2003 agreement. Nevertheless I consider it to be seriously arguable that the meaning of “Termination Date” in cl 10.3 of the 2003 agreement may be determined by reference to the struck out words in cl 10.1 or by reference to their ordinary meaning. “Business” is defined to mean the businesses carried on from time to time by Raptime. The opening words of clause 10.3, preceding subclause (a), were struck out of the 2003 agreement. However, the word “in” was written in the adjoining margin. This appears to have been initialled by Mr Smith and Mr Kazzi. Mr Smith testified that they agreed that those words should be put back in.

6 On 5 May 2006, Mr Smith and Silvana Smith contracted to sell their shares in Raptime to a third party.

7 On 19 May 2006, Raptime served a Notice of Termination on Mr Kazzi and Kazzi Management Services purporting to terminate the 2003 agreement. The notice stated in part:

Recitals:

A. By Contractor’s Agreement dated 26 May 2003 effective 1 July 2002 (the Agreement) KMS and Kazzi agreed to supply real estate agents services to Raptime Pty Ltd…

B. Clause 11.2 of the Agreement provides that either party can terminate the Agreement upon giving one (1) calendar month’s prior written notice of such termination to the other after expiry of the Initial Term.

C. Raptime wishes to terminate the Agreement.

Raptime hereby gives KMS and Kazzi notice that:

1. The Agreement will terminate upon the expiration of one (1) calendar month of the date of service of this notice upon you.

8 Raptime’s case is that as a result of the Notice of Termination, Mr Kazzi is prohibited from dealing with Raptime’s customers as provided by cl 10.3 of the 2004 agreement or the 2003 agreement for a period of one year from 19 June 2006; that Mr Kazzi has breached cl 10.3(a); and that, unless restrained, he is likely to continue to breach the clause.

9 On 29 June 2006, Mr Kazzi commenced these proceedings against Raptime and Mr Smith seeking specific performance or alternatively damages in respect of an alleged contract to sell to him Raptime’s rent roll business; damages pursuant to Part IV of the Trade Practices Act 1974 (Cth); and damages for breach of the 2003 agreement. His statement of claim pleads, among other things, that on or about 1 April 2004 Raptime provided to him a 2004 agreement which he refused to sign.

10 Raptime cross-claimed against Mr Kazzi claiming an injunction restraining him “until 19 June 2007, from directly or indirectly consulting with or advising any person who, or which, was a customer of the Cross-Claimant’s business between 1 April 2004 and 19 June 2006 in relation to any matters of a kind that arose or are likely to arise in the course of carrying on the Cross-Claimant’s business”. Damages are also claimed. The cross-claim does not plead the 2003 agreement but pleads the 2004 agreement by alleging that on or about 1 April 2004 Raptime, Mr Kazzi and Kazzi Management Services orally entered into the 2004 agreement, and that Mr Kazzi breached cl 10.3 of the 2004 agreement.

11 On 13 October 2006 Mr Kazzi gave an undertaking to the Court, without admissions, that “up to and including 17 November 2006 the plaintiff shall refrain from directly or indirectly consulting with or advising any person who was a customer of the first defendant, Raptime or Raptime’s business between 1 April 2004 and 19 June 2006 in relation to any matters of a kind that arose or are likely to arise in the carrying on of Raptime’s business”. On the expiry date of this undertaking, 17 November 2006, this application came before me. The hearing concluded late in the day and, by consent and without admissions, I granted a holding interlocutory injunction to the same effect as the undertaking and reserved judgment.

PRINCIPLES

12 The principles on which an interlocutory injunction may be granted are, first, that there is a serious question to be tried and, secondly, that the balance of convenience favours the granting of the injunction: e.g. Australian Broadcasting Corporation v O’Neill (2006) 86 ALJR 1672 at 1961 [65] per Gummow and Hayne JJ; Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board (1982) 57 ALJR 425 at 426 (Gibbs CJ); Fejo v Northern Territory (1998) 195 CLR 96 at 141 [81] (Kirby J); Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd (2005) 221 ALR 179 at 184 [30] – [31] (Campbell J); Hoppers Crossing Club Ltd v Tattersalls Gaming Pty Ltd [2005] VSC 114 at [18] (Kaye J); Mobileworld Operating Pty Ltd v Telstra Corporation Ltd [2005] FCA 1365 (Weinberg J); and Smith v University of Ballarat (2006) 150 IR 371 (Young J). The “serious question to be tried” test originated in American Cyanamid Co v Ethicon Ltd [1975] AC 396 where at 407G it was said to mean that the applicant must show that the substantive claim is “not frivolous or vexatious”. In the High Court it has been said to mean the same thing as “a reasonably arguable case on both the facts and the law”: Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at 297. It is an undemanding standard.

13 The adequacy of a remedy of damages is said to be relevant only to an interlocutory injunction in equity’s auxiliary jurisdiction such as where it is sought to restrain a breach of contract, but not in equity’s exclusive jurisdiction. The reason is that if an injunction is refused, then in the auxiliary jurisdiction the applicant would have a right to damages whereas in the exclusive jurisdiction the applicant would have no right to damages: Heavener v Loomes (1924) 34 CLR 306 at 326; Varley v Varley [2006] NSWSC 1025 at [23] (Campbell J).

14 Under the two guidelines to which I have referred, the question whether damages are an adequate remedy is commonly said to be a factor to be addressed when considering the balance of convenience. However, where the interlocutory injunction is in the same terms as a final injunction it can also be relevant to the question whether there is a serious issue to be tried, as Campbell J explained in Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd (2005) 221 ALR 179 at 184-185:

30 The question of whether damages are an adequate remedy can be relevant in two different ways to a decision whether to grant an interlocutory injunction. The first is where the interlocutory injunction is in the same terms as a final injunction which is sought in the proceedings. If damages would be an adequate remedy for the wrong in relation to which the final injunction is sought, that can provide a reason why there is no serious question to be tried about whether such a final injunction should be granted…

31 The second way in which the question can arise concerns the balance of convenience. When the court is assessing the balance of convenience, it is engaged in an exercise of prediction, of how the future would unfold in two alternative scenarios – if it were to grant the interlocutory relief and as a result of the judgment following the final hearing it became clear that the interlocutory decision gave the applicant protection that it turned out not to be entitled to, and if it refused the interlocutory relief and the final hearing showed that the applicant had been refused protection that it had a legal right to. It is in relation to that period, from the time of the interlocutory determination to the time of the judgment on the final hearing, that the court is assessing the balance of convenience. Thus, the question of whether damages are an adequate remedy needs to be assessed in relation to the time period between when the court decides whether or not to grant the interlocutory injunction, and the ultimate disposal of the litigation. If, in relation to any wrongful conduct which occurs during that period of time, damages are an adequate remedy, there is no occasion for the court to intervene.

15 Other authorities of similar weight to the group to which I have referred refer to three guidelines, the third being that the plaintiff must prove that damages are not an adequate remedy: eg see Australian Broadcasting Corporation v O’Neill (above) at [19] per Gleeson CJ and Crennan J; Castlemaine Tooheys Ltd v The State of South Australia (1986) 161 CLR 148 at 153 (Mason ACJ); The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445 at [25] (Young CJ in Eq); and Tampalini v Robinson [2005] WASC 182 at [3] (Jenkins J). The difference in approach can be seen in recent judgments of the High Court in Australian BroadcastingCorporation v O’Neill (above). Gummow and Hayne JJ adopted the two guidelines approach at [65]:

The relevant principles in Australia [in relation to interlocutory injunctions] are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd … This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:
The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief… the second inquiry is… whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.
By using the phrase “ prima facie case ”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument… With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:
How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.

Gleeson CJ and Crennan J adopted the three guidelines approach at [19]:
… In all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff’s entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles and the reasons of Gummow and Hayne JJ and their reiteration that the doctrine of the Court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd should be followed.

16 The two guidelines approach and the three guidelines approach were noted in Smith v University of Ballarat (2006) 150 IR 371 by Young J who said (at 378):

[22] The general principles governing the grant of interlocutory injunctions are well settled. The Court must be satisfied that there is both a serious question to be tried in the principal proceeding, and that the balance of convenience favours the grant of an injunction… These two questions are not considered in isolation from each other; the strength or weakness of the claim will have a bearing on what is required by way of balance of convenience…
…
[25] The Court will also consider whether damages are an adequate remedy. This can be undertaken separately from an examination of the balance of convenience: see, for example, Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148. But it can also be undertaken as part of the assessment of the balance of convenience, and this is, perhaps, the more common approach.

17 The two guidelines approach and the three guidelines approach were also noted in Mobileworld Operating Pty Ltd v Telstra Corporation Ltd [2005] FCA 1365 by Weinberg J who said (omitting most citations):

[18] Before turning to the particular claims that are said to justify the grant of interlocutory relief, it may be useful set out, in general terms, the principles applicable to the grant of such relief. In substance, the court must be satisfied that there is both a serious question to be tried in the principal proceeding, and that the balance of convenience favours the grant of an injunction…

[19] In Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 (“ Castlemaine Tooheys ”) Mason CJ spoke of a third requirement. His Honour indicated that the plaintiff had also to show that “irreparable injury” would be suffered, for which damages would not be adequate compensation, unless an injunction were granted. In other words, in his Honour’s view, it might not be sufficient merely to show that, on balance, the plaintiff faced greater prejudice if denied an injunction than the defendant did if one were granted (the balance of convenience). Irreparable harm would also have to be demonstrated. Typically, however, the question of irreparable harm is treated either as part of the balance of convenience test, or put to one side until the court determines whether damages would be an adequate remedy, and therefore refuses final injunctive relief.

18 The modern tendency is to regard the availability of an adequate remedy in damages as a discretionary matter to be taken into account in determining what order will operate most justly. Spry Equitable Remedies (6th ed. 2001) 383 says: “… Especially because equity and the common law are now administered in the same courts a general test has been put forward instead, whereby it is simply asked as the ultimate question whether it would be more just to grant an injunction than to award damages. See, for example, Beswick v Beswick [1968] AC 58 at 102, Evans Marshall & Co Ltd v Bertola S.A. [1973] 1 WLR 349 at 379, The Stena Nautica [1982] 2 Llyod’s Rep 336, State Transport Authority v Apex Quarries Ltd [1988] VR 187 and The Restatement of Contracts 2d, Volume 3, p 169. It may hence be expected that previous somewhat inflexible approaches as to the adequacy of damages will not be maintained but that this latter test will be applied instead”. Reflecting on the modern tendency in The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445 at [48], Young CJ in Eq said:

The attitude to leaving a plaintiff to remedies at law, and in particular to damages, has softened since the Judicature Acts after which law and equity are administered by the one court. The modern test is as set out by Sachs LJ in Evans Marshall & Co Ltd v Bertola S.A. [1973] 1 WLR 349 at 379, ‘ The standard question… ‘are damages an adequate remedy?’ might perhaps in the light of authorities in recent years, be rewritten, ‘is it just in all the circumstances that a plaintiff should be confined to his remedy in damages?’’

19 Whichever way the principles are formulated, the function of the Court is to hold the balance as justly as possible in situations where the substantial issues between the parties can only be resolved by a trial: Cambridge Nutrition Ltd v British Broadcasting Corp [1990] 3 All ER 523 (CA) at 535.

SERIOUS QUESTION TO BE TRIED

20 Mr Kazzi submitted that there is no serious question to be tried.

21 Evidence concerning the circumstances in which the 2004 agreement was allegedly entered into, but not executed, is found in the affidavit of Mr Smith of 9 October 2006 at para 168:

On or about 1 April 2004, I again called Mark into my office. I gave him a copy of the new Contractor’s Agreement. We went through it together. We had a conversation to the following effect:


Mark: I’m not going to sign it. I don’t want to sign it.

Me: Is there any particular reason why not?

Mark: I don’t want to be locked into anything for 12 months. I want to keep my options open.
…
Me: Okay if that’s how you feel. You keep giving me your invoices and we’ll consider everything agreed to.

22 Evidence by Mr Kazzi in that regard is contained in para 60 of his affidavit sworn on 7 November 2006:

The next day nothing was said. One to two days later, Ms Tang handed me a document. It was possibly on the 1st April 2004, although I cannot recall exactly the date. Ms Tang said to me words to the effect:

Darrin wants you to sign this new Agreement.

I replied words to the effect:

I’ll see Darrin about it.

I took the Agreement home on this occasion, and noticed that there was the lower amount and that the Agreement included the restraints that Darrin had tried to incorporate into the first Agreement. The next day I was in Darrin’s office after asking about another matter. We had a conversation using words to the following effect:


Darrin: Have you signed the new Agreement?

Me: I won’t sign it.

Darrin: Why?

Me: That is not what we agreed to, Darrin, you know it was not what we agreed to.

Darrin: OK, ok, we will stick to the old Agreement.

23 On the evidence, in my view, there is a strong case that there was no 2004 “agreement” because it was not a concluded agreement. Furthermore, even if there was a concluded 2004 agreement there is no evidence that it has been terminated, in which case its restraint of trade clause has not been triggered. That is because the Notice of Termination to which I earlier referred purported to terminate the 2003 agreement, not the 2004 agreement.

24 For these reasons, in my opinion, there is no serious issue to be tried in relation to the 2004 agreement. If I am wrong, then the evidence as to a concluded agreement and the triggering of the restraint of trade covenant is so weak that I would be disinclined, in my discretion, to grant an interlocutory injunction based on the 2004 agreement.

25 Although Raptime has pleaded the 2004 agreement but not the 2003 agreement, before me Raptime made it clear that it seeks to rely in the alternative on the 2003 agreement. It appears that the first time that Mr Kazzi became aware that Raptime would seek to rely in the alternative on the 2003 agreement was during the course of Raptime’s submissions before me. There is substance in Mr Kazzi’s submission that he gave an undertaking to the Court and commenced to contest this interlocutory application on the understanding that Raptime based its case on the 2004 agreement. Nevertheless, as this is an interlocutory application and Raptime has now made it clear that it relies on the 2003 agreement in the alternative, I propose to deal on the merits with its alternative case founded on the 2003 agreement on the basis that it must amend its pleading accordingly.

26 It was submitted on behalf of Mr Kazzi that the 2003 agreement was abandoned or waived or that there is a conventional estoppel that it was no longer binding. The submission was founded mainly on the following evidence in Mr Smith’s affidavit of 9 October 2006 relating to discussions he had with Mr Kazzi during negotiations for the 2004 agreement:

159 Mark also said during the course of negotiations words to the effect of:

Mark: Rolls [Mark’s wife Rola] said ‘ I should just go out and do it myself ’.

Me: Well there’s nothing stopping you.

…

162 [after further negotiations]… I then said words to the effect of:

Me: So that’ll be your next invoice? We’ll have to sign a new agreement which sets that out.
…
168 On or about 1 April 2004, I again called Mark into my office. I gave him a copy of the new Contractor’s Agreement. We went through it together. We had a conversation to the following effect:

Mark: I’m not going to sign it. I don’t want to sign it.
Me: Is there any particular reason why not?

Mark: I don’t want to be locked into anything for 12 months. I want to keep my options open”.

The new Contractor’s Agreement provided in clause 4.1 that it was for an initial term of 12 months, the same as Mark’s Original Contractor’s Agreement dated 26 May 2003.

Me: Okay if that’s how you feel. You keep giving me your invoices and we’ll consider everything agreed to.

…

170 I didn’t bother trying to explore further Mark’s comment about possibly setting himself up on his own. He was pissed off. In any event, he wasn’t going to get a better deal than I was giving him anyway.

27 Mr Kazzi’s submission placed particular emphasis on the words attributed to Mr Smith “there’s nothing stopping you”. It was submitted that Raptime is now inconsistently contending that there is something stopping Mr Kazzi, namely the restraint of trade covenant in the 2003 agreement. In my view, having regard to the context of negotiations in which the discussion occurred, this is not overwhelming evidence of abandonment or waiver of the 2003 agreement or of a conventional estoppel. Notwithstanding this evidence, there remains a serious issue to be tried that the 2003 agreement continued in force

28 There is evidence that since June 2006, after the sale of the shares in Raptime to a third party, three former customers of Raptime became dissatisfied with its services and took their business to Mr Kazzi who was operating a few doors away from Raptime’s office. In the case of one of those customers, this occurred after Mr Kazzi gave the undertaking to the Court to which I have referred. The evidence indicates prima facie breaches of cl 10.3(a) of the 2003 agreement by Mr Kazzi

29 The interlocutory injunction is essentially in the same terms as the final injunction sought in the proceedings. If it would be more just to grant a final injunction than to award damages, that provides a reason why there is a serious question to be tried about whether such a final injunction should be granted: Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd (2005) 221 ALR 179 at 184. The authorities indicate that final injunctive relief is likely to be granted in a case of this type where the applicant succeeds at trial. A seminal authority for the grant of a final injunction in such a case is Lumley v Wagner (1852) 1 GM & G 604, (1852) 42 ER 687 where the court enforced by injunction a contractual undertaking by a singer not to sing for a rival impresario during the period of her employment.

30 An analogous case to the one before me is Koops Martin Financial Services v Dean Reeves [2006] NSWSC 449, although it concerned a final injunction. There a restraint of trade covenant in an employment agreement required the defendant employee, in the 12 months after termination, not to accept any instructions to perform any financial planning or advisory work for any person who was a client of the plaintiff during a certain period. Brereton J found that the defendant had accepted instructions to perform such work in breach of the covenant in the 12 month period and that, unless restrained, he would continue to do so. It was held that the plaintiff had a protectable interest based on customer connection and that the restraint did not go beyond what was reasonable for the legitimate protection of that interest. His Honour observed that it was often said that a restraint to protect such an interest will be appropriate only if the employee has become vis-à-vis the client, the “human face” of the business – that is, the person who for the customers represents the business – although the authoritative basis for such a proposition, when closely examined, was slight: at [34] – [38]. I interpolate that if this be a requirement, then there is evidence which suggests that it is satisfied in the present case. Brereton J granted an injunction which, among other things, restrained the defendant from accepting any instructions to perform any financial planning or advisory work from any persons, firms or companies who were clients of the plaintiff.

31 In my opinion, having regard to the evidence and principles to which I have referred, there is a serious issue to be tried in relation to the 2003 agreement.

BALANCE OF CONVENIENCE

32 On the balance of convenience, the following factors tend to favour the grant of an interlocutory injunction.

33 First, the proposed interlocutory injunction should not cause hardship or substantial inconvenience to Mr Kazzi because, according to the evidence, there are approximately 20 real estate agencies in the Liverpool area which have rent rolls, each with approximately 280 to 320 properties listed on it. Thus there are approximately 6,000 properties in the area which are potential targets for Mr Kazzi’s business without him having to have recourse to Raptime’s customers. Hardship to a respondent if an interlocutory injunction is granted is a relevant discretionary factor, as is hardship to an applicant if the interlocutory injunction is refused. For example, in one restraint of trade case, the fact that an injunction would have deprived the respondent of his job was held to be more serious than the prejudice caused to the applicants by the respondent continuing to work for a rival firm pending trial: Fellowes & Son v Fisher [1976] QB 122 (CA). Similarly, where respondents set up a factory and were manufacturing products allegedly in breach of a restraint of trade covenant, an interlocutory injunction was refused because it would have been catastrophic to compel them to close before the merits had been finally determined: Potters Ballotini Ltd v Weston Baker [1977] RPC 202. The present case is quite different from these examples.

34 Secondly, the interests of the third party purchaser of the shares in Raptime, and associated interests, may be prejudiced if an interlocutory injunction is not granted. The evidence indicates that private investors invested almost $300,000 in units of a trust of which the purchaser was trustee in connection with the acquisition and that the third party borrowed some $530,000 for that purpose.

35 Thirdly, Raptime’s main asset is its rent roll, the value of which has been damaged and is threatened by Mr Kazzi’s alleged past and potential breaches. The evidence indicates that as a result of the loss to Mr Kazzi of the three former customers to whom I referred earlier, Raptime’s rent roll will be deprived of an annual income stream of a little over $15,000 representing management fees. The capitalised value of that income stream under the share sale agreement to the third party is over $41,000. Other potential losses include loss of income from other Raptime customers who may take their business to Mr Kazzi if he is not restrained, the quantum of which is unknown.

36 Finally, it seems more just in all the circumstances to grant an injunction than to confine Raptime to a remedy in damages. If the restrictive clause is valid yet no interlocutory injunction is granted, Raptime is likely to find it difficult to prove its damages and, if proved, there is doubt as to whether it would recover them. The losses referred to in the last paragraph may be argued to be losses that Raptime would have incurred in any event because customers had decided to take their business elsewhere even if not to Mr Kazzi. There may be difficulty in quantifying the unknown component of potential future losses including losses incurred after the expiry of the 12 month restraint of trade period but claimed to be attributable to a breach prior to that time. The capacity of Mr Kazzi to meet a damages award against him for breach of the restraint of trade covenant is unclear. His statement of claim para 22 pleads that on about 19 July 2005 he secured finance from the ANZ bank to assist in the purchase of Raptime’s rent roll business pursuant to his alleged oral agreement with Raptime for the purchase of that business, an agreement which Raptime denies. A notice to produce issued by Raptime to Mr Kazzi and the documents produced in response to it were tendered in evidence. The notice to produce required production of the documentation relating to the application for finance but the answer was that it was not in Mr Kazzi’s possession. He produced in response to the notice to produce an agreement dated 31 August 2006 for sale of a rent roll by Actopay Pty Ltd to Liverpool Rental Specialists Pty Ltd for over $630,000, which Mr Kazzi guaranteed; and a loan agreement between First Mortgage Company Home Loans Pty Ltd and Aziz-Eid Kazzi for a finance facility in excess of $522,000, apparently brought into existence in September 2006. There is substance in Raptime’s submission that one would have expected more financial information to have been produced in response to the notice to produce than was in fact produced.

37 It was submitted for Mr Kazzi that:

(a) damages are an adequate remedy. As discussed above, I prefer to ask whether it is just in all the circumstances that Raptime should be confined to a remedy in damages, and I do not think that it is.

(b) there should be taken into account the interests of the three former customers of Raptime to whom I earlier referred and who wish to use Mr Kazzi’s services. I accept that courts of equity will not ordinarily and without special necessity interfere by injunction where to do so will have the effect of very materially injuring the rights of third persons not before the court: Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 42. However, I do not think that the interests of these three former customers fall into that category, nor that their interests are otherwise a weighty factor. They are not obliged to resume using Raptime’s services.

(c) there should be taken into account the nature of the restraint of trade which is in issue. It was submitted that there could not be an injunction in the terms of cl 10.3(a) because of its peculiar wording. It was submitted in that regard that it is not possible to understand what “ Termination Date ” means in the 2003 agreement. However, as stated earlier, I consider that it is possible to identify the “ Termination Date ” by reference to cl 10.1 or by reference to the ordinary meaning of those words. The injunction may be moulded with that in mind. It is true that the wording of the clause is not felicitous. No doubt that is because the agreement was entered into without the involvement of lawyers. But that is an insufficient reason to deny injunctive relief.

38 Weighing up the considerations advanced on each side, I am of the opinion that the balance of convenience favours the grant of an interlocutory injunction.

ORDERS

39 I grant the following relief:

(1) Upon the cross-claimant Raptime Pty Ltd by its counsel giving the usual undertaking as to damages, order that until 19 June 2007 or further order, whichever occurs first, the cross-defendant Mark Kazzi be restrained from directly or indirectly consulting with or advising any person who or which was a customer of Raptime Pty Ltd trading as Community First Real Estate or of its business between 1 July 2002 and 19 June 2006, in relation to any matters of a kind that arise or are likely to arise in the course of carrying on any such business.

(2) Order that on or before 28 November 2006 Raptime Pty Ltd file and serve an amended cross-claim pleading the 2003 Contractor’s Agreement.

(3) Costs are costs in the cause.

(4) The exhibits may be returned.