LCA Traralgon Pty Ltd v Johnson Pty Ltd
[2024] VSC 612
•7 October 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S ECI 2024 04169
BETWEEN:
| LCA TRARALGON PTY LTD (ACN 632 445 660) | Plaintiff |
| v | |
| ASHLEE JOHNSON PTY LTD & ORS (according to the attached Schedule) | Defendants |
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| JUDGE | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 October 2024 |
DATE OF RULING: | 7 October 2024 |
CASE MAY BE CITED AS: | LCA Traralgon Pty Ltd v Johnson Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 612 |
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EMPLOYMENT – Contract – Restraint of trade – Legitimate protection of interests – Client connections – Restraints of Trade Act 1976 (NSW) s 4 – Application in Victoria.
INJUNCTION – Interlocutory injunction – Significance of delay in bringing an application where notice of a prospective injunction application has been provided.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G A Pauline | Norton Rose Fulbright Australia |
| For the First and Second Defendants | Mr M J Hoyne | Pointon Partners Pty Ltd |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Summary.............................................................................................................................................. 1
Background......................................................................................................................................... 1
Applicable Principles – interlocutory injunctions...................................................................... 6
Application of Restraints of Trade Act 1976 (NSW).................................................................... 8
The restraints.................................................................................................................................... 12
Is there a serious issue to be tried?............................................................................................... 14
Whether the alleged breaches infringe the terms of the restraint and non-solicitation clauses................................................................................................... 14
Whether the restraint and non-solicitation clauses are contrary to public policy 15
Are damages an adequate remedy?.............................................................................................. 21
Balance of convenience................................................................................................................... 22
Delay................................................................................................................................................... 23
Undertaking as to damages............................................................................................................ 24
Conclusion......................................................................................................................................... 25
HER HONOUR
Introduction
The plaintiff seeks an interlocutory injunction to enforce restraint clauses in its contract with the first defendant and a deed poll with the second defendant. The injunction is opposed.
Summary
I will grant an interlocutory injunction, subject to the usual undertaking as to damages.
Background
The plaintiff carries on a business franchise known to the public as Laser Clinics Australia. Relevantly, a branch of that business carries out its practice at 81-89 Hotham Street, Traralgon, Victoria (‘plaintiff’s premises’).
The plaintiff provides laser hair removal and skin and non-surgical cosmetic injection treatments.
The first defendant, Ashlee Johnson Pty Ltd (‘AJPL’), is an independent contractor who provides injector cosmetic treatments.[1]
[1]Affidavit of Danielle Daniel, sworn on 17 September 2024 (‘Daniel affidavit’), [23].
The second defendant, Ashlee Johnson, is the sole director of the first defendant; she is a registered nurse who provides injection treatments.
The third defendant, known as Haven Aesthetics Gippsland, operates approximately 250 metres away from the plaintiff’s premises.[2] The third defendant played no active part in this application.
[2]Daniel affidavit, [42].
For shorthand, I shall collectively refer to the first and second defendants in this ruling as ‘the defendants’.
On 8 July 2019, the plaintiff engaged the first defendant as an independent contractor by contractor agreement.[3]
[3]Affidavit of Alexandra Shields, affirmed 17 September 2024 (‘Shields affidavit’), [7](b).
Per cl 4 of the contractor agreement, the second defendant was obliged to provide the Injecting Services and complete the jobs allocated by the plaintiff. The agreement provided that the first defendant was paid for the services of the second defendant by the plaintiff. Per Schedule 1, item 3, this was to be calculated on the basis of each job and was 30% of the gross fee received by the plaintiff for the job.[4] The agreement obliges, per cl 5, the plaintiff to provide training and support to the second defendant. Per cl 8, the plaintiff was required, at its own costs, to provide facilities, including equipment, access to the IT systems and premises for use by the second defendant to provide Injectable Services. Per cl 6, the first defendant may supply Injecting Services to third parties if the services are not provided to a Competing Business or in conflict with the interests of the plaintiff and do not adversely affect the plaintiff’s ability to perform those services. Per cl 10, the plaintiff was not obliged to provide any minimum amount of work. As will be discussed below, the contractor agreement and attached deed poll included restraint clauses.
[4]There is some dispute as to whether this occurred: see affidavit of Ashlee Lauren Johnson, sworn on 20 September 2024 (‘Johnson affidavit’), [20].
Initially working one day per week and every second Saturday, the first defendant increased work with the plaintiff, with the second defendant eventually providing injecting services to the plaintiff’s clients seven days per fortnight.[5]
[5]Daniel affidavit, [26].
In January 2023, the second defendant advised the plaintiff that the first defendant wished to provide services to a clinic approximately 130 km away from the plaintiff’s premises, in Paynesville. The plaintiff provided consent to perform that work.[6]
[6]Ibid, [35].
In July 2023, the second defendant informed the plaintiff that the first defendant was to perform work for another clinic. Being 13 km away from the plaintiff’s premises, in Morwell, the plaintiff agreed.[7]
[7]Daniel affidavit, [36].
On 11 June 2024, the first and third defendants entered into an agreement appointing the first defendant as an ‘independent contractor’ of the third defendant.[8] They agreed that the second defendant would provide services as a Cosmetic Nurse Injector commencing on 24 July 2024.[9]
[8]Exhibit “ALJ-1” to the Johnson affidavit, 106-116.
[9]Per Schedule 1 of the agreement between the first and third defendants.
On 4 July 2024, the second defendant verbally and in writing informed the plaintiff that she was giving two weeks’ notice.[10] On that day, the first defendant ceased providing services to the plaintiff.
[10]Exhibit “DD-1” to the Daniel affidavit, 212.
On or around 5 and 7 July 2024, the second defendant advertised that she had entered into a business partnership with the third defendant, and that all future appointments for her services would be available at the third defendant’s premises.[11]
[11]Shields affidavit, [7](f).
On 17 and 18 July 2024, the plaintiff engaged Norton Rose Fulbright (‘NRF’) as their solicitor.
On 23 July 2024, the plaintiff’s solicitor sent an email to the first and second defendants attaching a letter (dated the same day) written by the plaintiff’s solicitor setting out AJPL’s continuing obligations to the plaintiff owed under the contractor agreement, and the plaintiff’s requirement that, pursuant to the agreement, the second defendant cease any activities which may be in breach of it. It also requested that the second defendant agree to undertakings that she understood the terms of the letter; was aware of the ongoing obligations under the contractor agreement; confirmed that she had returned all property owned by the plaintiff that is within her possession, custody, or control; and confirmed that she had deleted or destroyed copies (soft or hard) of any confidential information, intellectual property, documents, records, or material which came into her possession, custody or control as a result of her engagement with the plaintiff.[12]
[12]See: Exhibit “AS-1” to the Shields affidavit, 1 – 7.
On 23 July 2024, the plaintiff’s solicitor sent an email to the third defendant attaching the email she had sent to the first and second defendants.[13] In that email, she also attached a copy of the contractor agreement, and a letter addressed to the third defendant intimating the continuing obligation owed under the Agreement, and expressing the plaintiff’s expectation that the third defendant would not permit, encourage, induce, incite, abet, solicit, benefit, or otherwise be knowingly involved in a breach of the Agreement by the first and second defendant. The letter asked for the third defendant to agree to undertakings as to this expectation, as well as undertakings acknowledging the ongoing obligations owed to the plaintiff under the Agreement, and to a full review of its relevant systems to ensure it had deleted or returned any of the plaintiff’s confidential information in its possession, power, or control.[14]
[13]Shields affidavit, [29].
[14]Ibid, [29](c); See: Exhibit “AS-1” to the Shields affidavit, 78 – 117.
On 26 July 2024, the plaintiff’s solicitor followed up with an email to the first and second defendants. She sought to ascertain whether they had received the 23 July 2024 letter and email, if they intended to respond, and communicated that in the absence of a response, proceedings would be commenced in the Supreme Court of Victoria.[15]
[15]Exhibit “AS-1” to the Shields affidavit, 8.
On that same day, the plaintiff’s solicitor sent an email to the third defendant seeking to ascertain whether they had received the letter sent to them on 23 July 2024 and whether they intended to respond, and reiterating the plaintiff solicitor’s instructions to commence proceedings in the absence of a reply.[16]
[16]Ibid, 118.
On 9 August 2024, the plaintiff caused these proceedings to be issued.
On 12 August 2024, having been met once again by silence, the plaintiff’s solicitor provided a further email to the first and second defendants. In that email, the plaintiff’s solicitor attached the relevant proceeding commencement documents: the plaintiff’s writ and statement of claim. That email also enclosed a letter from the plaintiff’s solicitor which outlined the allegations in the statement of claim, requested that the second defendant sign the consent orders enclosed in the letter, and advised that, in the absence of a response by 16 August 2024, the plaintiff would file a summons urgently seeking the orders set out in the proposed consent orders.[17] Substantially the same email was sent to the third defendant by the plaintiff’s solicitor on that same day.[18]
[17]Exhibit “AS-1” to the Shields affidavit, 9 – 13.
[18]Ibid, 119 – 123.
On 15 August 2024, on the eve of the deadline, the plaintiff’s solicitor received an email from the solicitors for the first and second defendants. Those defendants’ solicitors, Pointon Partners, stated that they had been engaged in the wake of the 12 August 2024 email, and that they were in the process of taking instructions. Later that day, the plaintiff’s solicitor replied, notably, extending the 16 August 2024 deadline by seven days to 23 August 2024 at noon.[19]
[19]Ibid, 14 – 16.
On that same day, the plaintiff’s solicitor received a response from Ms Sheen of LegalVision, who had been engaged by the third defendant. Notably, that solicitor requested an extension of the deadline to 23 August 2024, which the plaintiff’s solicitor granted in reply later that day.[20]
[20]Ibid, 124 – 125.
On 20 August 2024, the first and second defendants filed an appearance in this proceeding.
On 23 August 2024, the plaintiff’s solicitors received an email from the first and second defendant’s solicitor. In that email, they stated that the first and second defendants refused to agree to the consent orders enclosed in the 12 August 2024 letter.[21] On that same day, the third defendant’s solicitor emailed the plaintiff’s solicitor communicating that the third defendant had also refused to agree to the proposed consent orders.[22]
[21]Ibid, 28; see generally: Exhibit “AS-1” to the Shields affidavit, 25 – 29.
[22]Exhibit “AS-1” to the Shields affidavit, 126 – 129.
The parties exchanged some without prejudice correspondence on 4 and 9 September 2024. I will not consider it at this stage, save to note that it attaches a spreadsheet with the names of all the clients for which the second defendant performed services during the time in which she worked with the plaintiff.[23]
[23]See: Exhibit “AS-1” to the Shields affidavit, 30 – 74.
On 18 September 2024, the third defendant filed an appearance. The following day the first and second defendants filed a defence. On 1 October 2024, the third defendant filed a defence.
Despite demand, the defendants have not provided the plaintiff with undertakings.
Applicable Principles – interlocutory injunctions
The legal principles concerning interlocutory injunctions are well-established and not in dispute. As Gleeson CJ and Crennan J stated in Australian Broadcasting Corporation v O’Neill
… 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.[24]
[24]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 68.
The defendants referred to authorities highlighting the importance of assessing the strength of the plaintiff’s case. I agree that there are circumstances where that is required.[25] I adopt the following summary of principles given by Edelman J in Emeco International Pty Ltd v O’Shea (‘Emeco’):
The extent to which a court can embark in a detailed consideration of the strength of a plaintiff's case depends on each particular case. The principles concerning the assessment of the strength of a case for an interlocutory injunction were set out by McLelland J in Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533, 535 536. These passages from the decision have been relied upon and quoted numerous times including in the High Court in Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57, 84 [72] (Gummow & HayneJJ). A summary, extracting those principles relevant to the issue of the extent to which the strength of Emeco International's case can be assessed, is as follows.
(1)Normally the court does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case. But, there are some kinds of case in which for the purpose of seeing where lies the balance of convenience it is desirable for the court to evaluate the strength of the plaintiff’s case for final relief. One class of case to which this applies is where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue.
(2)Where a plaintiff’s entitlement to ultimate relief is uncertain, the court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled.
(3)Where the uncertainty depends in whole or in part on a contested question of fact it is not appropriate for the court to decide that question on the interlocutory application.
(4)Where the uncertainty depends in whole or in part on a contested question of law, it may or may not be appropriate for the court to decide that question on the interlocutory application, depending on circumstances, eg, whether the question is novel or difficult, or is susceptible of resolution on the present state of the evidence, or whether the urgency of the matter renders it impracticable to give proper consideration to the question.[26]
[25]See: Avant Group v Kiddle (2023) 325 IR 292, [7]-[9]; Lansing Linde Ltd v Kerr [1991] 1 All ER at 423-424 per Staughton LJ; Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238, [71]-[74]; Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at page 536.
[26][2012] WASC 282, [24].
A preliminary trial is not required here. Although the award of an interlocutory injunction will practically determine one of the matters in dispute, it will not practically determine all of them. The matter in dispute which will be practically determined is the application for an interlocutory injunction for breach of the contractor agreement, including the deed poll. However, this will not determine other significant matters such as whether the plaintiff is entitled to a permanent injunction and damages as sought by their statement of claim. Here, an interlocutory injunction will be awarded but it will be confined by date and by reading down its scope.
I will determine whether there is a serious issue to be tried on the material before me. The extent to which the strength of the plaintiff’s case can be assessed is affected by several disputed facts. They include whether the parties agreed to amend the contractor agreement and deed poll so there was no need to give more than two weeks’ notice, and whether the plaintiff acted to waive the requirement in the contractor agreement for four weeks’ notice. Determination of these issues will bear directly on whether the first defendant remained engaged by the plaintiff in the third and fourth weeks after they gave notice of termination and how a Court will characterise the defendants’ conduct over this period. It will also bear on the dispute about whether there was a repudiation of the contractor agreement and if so, when the plaintiff accepted the repudiation. There are also factual disputes as to whether the third defendant induced the first and second defendants to breach the contractor agreement and deed poll, and whether the plaintiff has taken steps to mitigate their loss. The parties’ submissions and affidavit material suggest other disputed facts include the extent of the contact that the second defendant had with all the clients named in the plaintiff’s spreadsheet, the remuneration generated by the second defendant’s performance of services, and the type of services offered by the third defendant.
Before turning to whether there is a serious issue to be tried, I must address a key dispute, namely the application of the Restraints of Trade Act 1976 (NSW).
Application of Restraints of Trade Act 1976 (NSW)
There was a dispute between the parties as to whether the Restraints of Trade Act 1976 (NSW) (‘ROT Act’) applies to the contractor agreement and deed poll. Section 4 of the ROT Act provides:
4 Extent to which restraint of trade valid
(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 partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the 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 its 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.
…
(5)An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect.
The dispute about the application of the ROT Act is significant. As McDonald J observed in Just Group v Peck [2016] VSC 614 (‘Peck’) in respect of s 4(1):
It gives the Court capacity ‘to enforce just and reasonable covenants which may on their face be too widely expressed’. 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.
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 Act 1976 (NSW), a Victorian court cannot ignore the fact that a restraint goes beyond that which is reasonable.[27]
[27][2016] VSC 614, [71]-[72] (citations omitted).
Clause 25 of the contractor agreement states that the ‘Agreement is governed by the law applying in New South Wales and the parties submit to the non-exclusive jurisdiction of the courts of that state or territory’. The definition of “Agreement” includes attachments to the contract. The deed poll forms Attachment 1 to the contract and is referred to in the contract.
The plaintiff relies on the operation of the ROT Act. On the other hand, the defendants say there is doubt as to its application in Victoria. It is common ground that the plaintiff’s operations are in Victoria, the second and third defendants are also located in Victoria, and the injecting services performed by the second defendant have been in Victoria.
The plaintiff has established a strong prima facie case that the ROT Act applies. By the contractor agreement, the parties submitted to the law of NSW. Where parties have agreed, the ROT Act may apply to outside New South Wales: Hawker de Havilland Pty Ltd v Fernandes & Anor.[28] The ROT Act does not have geographical limits and applies to a contractual restraint of trade where the proper law of the contract is NSW: K & C Smith Pty Ltd v Ward.[29] Barlow DCJ recently applied these principles in Prowealth Corporation Pty Ltd v Property Investment Advisory Pty Ltd & Ors.[30]
[28](1996) ATPR 41-479 at 41-910-41-911 (per Commissioner Gilmour QC).
[29][1998] 45 NSW LR 702 at 719 (Austin J).
[30][2022] QDC 257, [106]-[109], [199], [120], [123], [124].
I accept that doubt has been expressed as to whether public policy in Victoria permits the enforcement of a restraint in Victoria relying on the ROT Act.[31] However, the doubt has been expressed as obiter and is contrary to the authorities cited above.
[31]Allied Express Transport [2022] NSWSC 1298 [273]-[274] per Williams J; Label Manufacturers v Chatzopoulos [2022] NSWSC 1059 [153] - [154] per Parker J; IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 427.
The defendants submitted that only the Supreme Court of NSW had power per s 4(3) of the ROT Act. They referred to the Interpretation Act 1987 (NSW) Dictionary in Schedule 4. It defines the Supreme Court to be the Supreme Court of NSW. This is not a strong prima facie argument in circumstances where the proper law of the contract is NSW and the parties contractually agreed to submit to the non-exclusive jurisdiction of the courts of NSW.
The defendants said the Court could ignore the parties’ choice of NSW if it is appropriate for public policy reasons. However, they have not established a prima facie case for doing so.
As to the application of the ROT Act, I adopt the following principles given by the NSW Court of Appeal in Isaac v Dargan Financial Pty Ltd:
The correct approach to the application of s 4(1) of the Restraints of Trade Act is well settled. In Orton v Melman [1981] 1 NSWLR 583 at 587 McLelland J (as his Honour then was) explained that 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 contrary to public policy. If it is not, the restraint is valid, subject to any order which may be made under s 4(3). These principles have been approved in later cases…
The nature of the interest meriting protection under a covenant in restraint of trade will differ according to the type of restraint under consideration. In Tullett Prebon (Australia) Pty Ltd v Purcell, a case involving restraints in an employment case, Brereton J said at [47]:
Whether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest. A covenantee is not entitled to be protected against mere competition; the legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter … including trade secrets and confidential information, and goodwill including customer connection.
However as Young JA explained in Sidameneo (No 456) Pty Ltd v Alexander, the word “proprietary” is used in a special sense and will include legitimate commercial interests.
…
Generally, a stricter and less favourable view is taken of covenants in restraint of trade between employer and employee than in commercial agreements. As Mason P explained in Woolworths Ltd v Olson [2004] NSWCA 372 at [38]:
The courts in general take a stricter and less favourable view of covenants in restraint of trade entered into between employer and employee than of similar covenants in commercial agreements… It is nevertheless well established that an employer may have interests capable of protection by a restraint covenant. These interests go beyond protection of goodwill and retention of customers and extend to trade secrets.
The same point is made by JD Heydon in the most recent edition of The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths) at 96-97, where four main reasons are given for the Court’s approach in employment cases. First, the inequality of bargaining power between the parties. Second, the employee may be giving up that employee’s only asset, which depends on specialised training and which may not be at all negotiable. Third, when labour is hired it remains valuable whether or not the employee later competes. Fourth, once the employee accepts the post-employment restraints, the employer’s power during the contract is much increased by reason of the inhibition on the employee’s ability to threaten to leave and seek work elsewhere.
That the principles relating to covenants in restraint of trade apply to relationships between contractor and principal is not in doubt. NE Perry Pty Ltd v Judge involved a restraint on a company, AMJ Chiropractors Pty Ltd that had provided services as a contractor at a clinic run by another company. Doyle CJ said at [20]:
The contract is not a contract of employment. AMJ is an independent contractor. However, cl 10 imposes a restraint on AMJ practising as a chiropractor. I see no reason why the common law principles relating to covenants in restraint of trade should not apply to the contract. The impact of the covenant on the interests of the parties and on the public interest does not appear to me to be affected by the fact that the contract is not a contract of employment.[32]
[32]Isaac v Dargan Financial Pty Ltd ATF Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) (2018) 98 NSWLR 343, [61]-[65], [67]-[69], [73].
The restraints
The restraint clauses in the contractor agreement and deed poll mirror one another. Cl 18 of the contractor agreement contains the restraint clause and provides:
18. Restraint on the Supplier’s conduct
18.1 Scope of restraint
The Supplier must not:
18.1.1 accept any engagement intended to commence after termination of the Agreement which requires the Supplier to disclose any Confidential Information;
18.1.2 during the Agreement and the Restraint Period, in the Restraint Area, engage or prepare to engage in a Competing Business;
18.1.3 during the Agreement and the Restraint Period, induce or attempt to induce any employee or contractor of an LCA Entity with whom the Supplier or the Health Professionals had contact in the course of performing Jobs under the Agreement to terminate or not renew his or her employment or engagement;
18.1.4 during the Agreement and the Restraint Period, solicit, canvass, approach or accept any approach from any patient, customer, contractor or supplier of an LCA Entity with whom the Supplier or the Health Professionals had contact in the course of performing Jobs under the Agreement for the purpose or with the effect of obtaining the custom or business of that person or entity in the Restraint Area for the benefit of a Competing Business or detrimentally affected the business of an LCA Entity.
18.2 Evidence of Compliance by the Supplier
The Company may require the Supplier to provide evidence to the satisfaction of the Company that the Supplier is not in breach of clause 18.1.
18.3 Restraint is reasonable
The Supplier acknowledges that:
18.3.1 each restraint stated in clause 18.1 is reasonable and necessary to protect the Company’s legitimate interests;
18.3.2 the Supplier intends the restraints to operate to the maximum extent; and
18.3.3 damages may be inadequate to protect the interests of an LCA Entity for breach of the obligations contained in this clause and the Company is entitled to seek and obtain injunctive relief, or any other remedy, in any court.
18.4 Separate and severable restraints
The restraints in clause 18.1 are intended to be separate and severable. If any of the separate restraints is or becomes invalid or unenforceable for any reason it is severed and its invalidity and unenforceability does not affect the validity or enforceability of any of the other separate restraints.[33]
[33]Exhibit “AS-1” to the Shields affidavit, 107.
I shall refer to cl 18.1.2 (and cl 6.1.2 of the deed poll) as ‘the restraint clause’ and cl 18.1.4 (and cl 6.1.4 of the deed poll) as ‘the non-solicitation clause’.
Clause 1 of the contractor agreement contains definitions relevant to the restraint and non-solicitation clauses.
Business means a business performing laser, skin and cosmetic injection treatments as conducted by the Company and other LCA Entities.
Company’s Premises means all premises owned, leased, controlled used or managed by the Company and includes the premises specified in Item 5 of Schedule 1.
Competing Business means any business or activity that competes with any part of the business of an LCA Entity.
engage in includes to participate, assist or otherwise be directly or indirectly involved as a member, shareholder, unit holder, consultant, advisor, contractor, principal, agent, manager, beneficiary, partner, associate, trustee or financier.
Injecting Services means the services described in Item 2 of Schedule 1.
Restraint Area means each of the following areas separately:
(a) within 5 kilometres; or
(b) if a court determines that 5 kilometres is invalid, then within 2 kilometres; or
(c) if a court determines that 2 kilometres is invalid, then within 1 kilometre of the location of any LCA Clinic Premises at which the Health Professionals performed work in the 12 months prior to the termination of the Agreement.
Restraint Period means each of the following periods separately:
(a) 12 months after termination of the Agreement; or
(b) if a court determines that 12 months is invalid, then 6 months after termination of the Agreement; or
(c)if a court determines that 6 months is invalid, then 3 months after termination of the Agreement.
solicit includes advising or notifying via any social networking websites (including LinkedIn) on which the Supplier is registered or has a profile, of any changes in the Supplier’s engagement or the provision of its services.[34]
[34]Exhibit “AS-1” to the Shields affidavit, 94 – 97.
Injecting Services is defined to mean the services described in item 2 of Schedule 1.
Item 2 Injecting Services
Includes the following:
1. cosmetic injectable consulting;
2. cosmetic injectable procedures; and
3. after-care for patients
performed in the course of the Business.
Is there a serious issue to be tried?
I find there is a serious issue to be tried for the following reasons.
Whether the alleged breaches infringe the terms of the restraint and non-solicitation clauses
The defendants have engaged in conduct that breaches the restraint clause. They are engaged in a ‘Competing Business’ with the third defendant, within the ‘Restraint Area’, being about 250 metres from the plaintiff’s premises, and in the ‘Restraint Period’. It is about two and a half months since the defendants’ gave two weeks’ notice of the termination of the contract. They admit that the second defendant commenced providing Injecting Services to patients at the premises of the third defendant from about 24 July 2024.
The defendants have engaged in conduct that breaches the non-solicitation clause. They solicited the plaintiff's clients by posting on social media on 5 and 7 July 2024 and accepted approaches by providing services to 235 former clients of the plaintiff.[35] This is detrimental to the plaintiff.
Whether the restraint and non-solicitation clauses are contrary to public policy
[35]Johnson affidavit, [69].
The plaintiff has a legitimate protectable interest, being its client connections.
Robb J’s statement concerning a chiropractor is apt here.
Customer connection can be a legitimate basis for a restraint of trade, at least where the contractor’s responsibilities involve “close and personal contact” with the clients of the principal: Jardin v Metcash Ltd [2011] NSWCA 409; (2011) 285 ALR 677 at [97]. Given the physical nature of the provision of chiropractic services, it may be accepted that there will have been a relatively intense close and personal contact between Ms Crozier [contract chiropractor] and at least those clients of Triggerpoint [chiropractor service] that she personally serviced. As the object of the service is to protect the health of the client, it is also probable that Ms Crozier would have been able to establish a relationship whereby she would enjoy the loyalty of the clients that she serviced. The strength of this client connection was likely to be enhanced by the use of the detailed notes that were taken at the time of each appointment with clients for the provision of chiropractic services.[36]
[36]Carsal and Associates Pty Ltd t/a Triggerpoint Natural Health Centre v Crozier [2024] NSWSC 26, [53]
Here, the nature of Injecting Services involves ‘a relatively intense and personal contact’ between the person providing the services, namely the second defendant, and the client receiving the service. The second defendant deposes that the patient’s face is usually injected.[37] Further, Ms Daniel, director of the plaintiff, deposes that:
Central to the role of providing injecting services, Ms Johnson was required to develop strong relationships with LCA Traralgon’s clients. This was because by reason of the physical nature of these services, these clients would place significant trust in Ms Johnson to provide the injectable treatments professionally, safely and effectively; in a one-on-one environment. For the majority of Ms Johnson’s clients, they would insist that she was the only injector that they would be treated by at LCA Traralgon. Ms Johnson was also required to understand which treatments these clients would need, the frequency of appointments and how best and often to contact these clients. This would often result in a close and personal connection developing between Ms Johnson and these clients.
This is evident from the fact that many clients would return to the clinic over a period of multiple years and request to receive injecting services from Ms Johnson.[38]
[37]Johnson affidavit, [6].
[38]Daniel affidavit, [39] – [40].
The second defendant deposes that when she met with a new client, she would have a detailed consultation with them and it could take half an hour to an hour.[39] Given the size of the plaintiff’s premises, only one injector can work at any point in time.[40] Records were evidently made by the second defendant on a ‘tracking sheet’ and perhaps elsewhere. Per cl 4.3 of the contractor agreement, the first defendant was required to provide a ‘tracking sheet’ each day. Evidently this listed the names of clients.
[39]Johnson affidavit, [25].
[40]Johnson affidavit, [23].
As Doyle CJ held in Perry, another case concerning chiropractors, the connection between patients and the plaintiff clinic ‘is a form of goodwill of undoubted value’ to the clinic, and the contractor agreement enabled the defendant chiropractor to ‘establish a connection with the patients of the Clinic, such that [he and his company] were in a position to take patients from the Clinic, were they to practise elsewhere.’[41] Doyle CJ noted that it was relevant that the defendant chiropractor and his company were the chiropractors in the plaintiff practice, and that it was located in a country town (Whyalla) with a fairly settled population. His Honour stated this emphasised, ‘the vulnerability of the [plaintiff clinic’s] goodwill to the connection that would develop between the contractor and patients of the Clinic.’[42] Similarly here, the second defendant’s involvement with the plaintiff provided her with direct contract with its client base in a country town.[43]
[41]NE Perry Pty Ltd v Judge [2002] 84 SASR 86, [22] (‘NE Perry’).
[42]NE Perry, [22].
[43]Daniel affidavit, [28].
There is a good prima facie case that it was reasonable for the contractor agreement to include the restraint and non-solicitation clauses to protect their client connections.
I refer to some relevant circumstances at the time the parties entered into the contractor agreement and deed poll. The second defendant deposes that she felt there was no opportunity to negotiate the contract terms and she felt she had little choice to agree to the terms in the contractor agreement if she wanted to do training in Traralgon.[44] Nevertheless, it does not appear she was under pressure to execute the contractor agreement. She was a registered nurse who was ‘interested in a slight change of career focus towards non-surgical procedures.’[45] She saw a job advertisement for the plaintiff, which called for someone with experience, which she did not have. However, after speaking with representatives of the plaintiff, she was told that they would provide training, but she would need to work for them for three years and set up a company. She deposes that she met with an accountant suggested by the plaintiff’s head office and then incorporated a company. She later received the contractor agreement and agreed to it.
[44]Johnson affidavit, [16].
[45]Ibid, [5].
The issue here is whether the restraint and non-solicitation clauses each extend further than reasonable for the legitimate protection of that interest. As Doyle CJ stated in Perry:
The fundamental issue is whether the restriction is reasonable in the interests of the parties, or whether it affords no more than adequate protection to NEP [the plaintiff clinic] . On the assumption that NEP would replace AMJ [defendant contractor providing chiropractor] with another chiropractor, and continue its practice, the period of time within which a replacement chiropractor would have an opportunity to demonstrate his or her effectiveness to patients at the Clinic may well be much the same as the period of time required to sever the connection between Dr Judge and patients of the Clinic. However, I agree that it is safer to focus on the period of time reasonably required to break the connection with [defendant contractor] and [defendant chiropractor], rather than the period of time within which there would be an opportunity for [the plaintiff clinic] to establish a new connection.
There can be no precision in this. The strength of the connection between [defendant contractor] and a patient of the Clinic is likely to depend on a number of factors, including the number of times that the patient has been treated by [the defendant chiropractor]. It is likely that there would be some patients who would prefer to be treated by [the defendant chiropractor] , and who would seek him out, if the need for treatment arose many years after they last saw [the defendant chiropractor]. At the other extreme there are likely to be patients who are indifferent to the identity of the person treating them, and who for one reason or another would simply return to the practice where they have been treated before. It seems to me that all the court can do is consider the period of time reasonably required to sever or to substantially erode the connection between [the defendant chiropractor] and most of the patients, recognising in doing so that the strength of that connection in any particular case cannot be measured.[46]
[46]NE Perry, [31].
Here, the restraint and non-solicitation clauses each extend further than is reasonable for the legitimate protection of the plaintiff’s interest. The definitions of Company Premises, Competing Business, ‘engage in’, and ‘solicit’ mean that the second defendant would not be able to work or even inform the public of the change in her work address for 12 months if this occurs within 5 km of any premises where there is a business operated by the plaintiff or an entity appointed as a franchisee with the franchisor (LCA Operations Pty Ltd). This is the case regardless of whether or not that business provides Injecting Services. It would apply beyond Injectable Services to those not performed by the second defendant, such as laser treatments. This traverses beyond legitimate protection of the plaintiff’s interests to the interests of the franchisor and related entities.
However, the ROT Act applies, which, as McDonald J clarified in Peck, reroutes the course of the analysis regarding reasonableness. In Woolworths Ltd v Olson, the New South Wales Court of Appeal stated that s4(1) of that Act:
…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 [sic] as regards area, time or extent.[47]
[47]Woolworths Ltd v Olson [2004] NSWCA 372 (‘Olson’), [45] (per Mason P, McColl JA, Bryson JA).
This does not extend to rewriting the covenant: ‘[a]mputation is directed but reconstruction is not.’[48] The plaintiff has established a strong prima facie case that these principles are applicable here.
[48]Olson, [46] citing ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 674.
As currently framed, the restraint clause and non-solicitation clause are expressed wider than necessary to protect the plaintiff’s legitimate interests. The defendants have established a strong prima facie case that they would therefore be void as against public policy at common law. However, applying s 4(1), the restraint clause and non-solicitation clauses may be read down so as not to contravene public policy. They will be read down to extend only so far as necessary to protect the plaintiff’s legitimate interests.
I will read down “Company Premises” to mean the premises specified in Item 5 of Schedule 1, being the plaintiff’s premises.
I will read down “Competing Business” to mean any business that competes with the plaintiff in performing Injecting Services. On the evidence before me, I am satisfied that includes the third defendant.
I will read down “engage in” and change the tense to present continuous. “Engaging in” means participating, assisting or otherwise being directly or indirectly involved as a consultant, contractor, agent, or manager. This does not stop the defendants from taking ownership of a Competing Business but it does stop the defendants from working in or for a Competing Business.
I will read down the non-solicitation clause by removing the words “solicit” and “canvass”. As defined in the contractor agreement, “solicit” is too wide. I accept the second defendant’s evidence that it would be almost impossible for her to build a client base if the use of social media was not permitted, and would make maintaining an existing practice difficult as it is her primary method of engaging with her clients.[49] However, the prohibition against approaching or accepting any approach from the plaintiff’s clients will remain. It is necessary to protect the plaintiff’s client connections.
[49]Johnson affidavit, [77].
I am satisfied that a 12 month restraint is reasonable. It is necessary to protect the plaintiff’s client connections. Ms Daniel’s evidence discloses the difficulty of finding an alternate provider to replace the services provided by the second defendant. Time is needed to sever the connection between the clients and the defendants. I have referred to the dispute about termination of the contractor agreement and whether it was two weeks or four weeks. Giving the defendants the benefit of doubt, I will calculate the 12 month period from two weeks after notice was given. I am not satisfied that it is reasonable to run from a time elected by the plaintiff to repudiate the contract and reject the plaintiff’s submissions in that regard.
I am satisfied that the 5km radius is reasonable. It appeared common ground that it covered Traralgon, the city where the plaintiff operates.[50]
[50]Johnson affidavit, [73].
Read this way, the restraint clause and non-solicitation clause would operate as follows:
Until 17 July 2025, and within 5km of Shop 1, 81-89 Hotham Street, Traralgon Victoria, the first and second defendants be restrained from:
(a) engaging in a Competing Business; and
(b)approaching or accepting any approach from any patient, client, or customer of the plaintiff, with whom the second defendant had contact in the course of performing the Injecting Services, for the purpose or with the effect of obtaining the custom or business of that person for the benefit of a Competing Business or detrimentally affecting the business of the plaintiff.
I am satisfied that the patients, clients, or customers of the plaintiff, with whom the second defendant had contact in the course of performing the Injecting Services, may be identified by the defendants. They are named on pages 36-74 of Exhibit ‘AS-1’ to the affidavit of Alexandra Shields affirmed on 17 September 2024. Contrary to their submissions, no evidence suggests that any clients have changed their names. There was no evidence to suggest that clients did not provide their name at the time of making appointments. The defendants submitted that the names should not include all the 1902 clients treated over the five years of the engagement with the plaintiff. The second defendant deposes that she has no recollection of who the vast majority of the people are.[51] Nevertheless, there is no evidence to suggest the list is inaccurate. I am satisfied that given the intimate nature of the Injectable Services and that ‘many clients would return to the clinic over a period of multiple years and request to receive injecting services’ from the second defendant, the non-solicitation clause directed to all clients on the list is reasonable.[52]
[51]Ibid, [69].
[52]Daniel affidavit, [40].
I reject the defendants’ submission that it would be contrary to public policy to enforce a restraint in circumstances where some patients will be denied their choice of injector and the plaintiff cannot service existing patients, let alone patients that the second defendant can no longer treat. Firstly, patients could elect to be treated by the second defendant so long as it is at premises more than 5 km from the plaintiff’s premises. For instance, they could elect to be treated at Morwell or Paynesville. Secondly, if the plaintiff cannot service the patients who wish to be treated within 5 km, there is nothing to stop them from being treated by other injectors in Traralgon. The second defendant deposes there are several other injectors there.[53] Thirdly, the plaintiff is currently providing Injecting Services, although only two days per week, but is actively looking for another person to provide those services.[54]
[53]Johnson affidavit, [72], [82].
[54]Ibid, [21] – [22], [59]-[63]
The findings here are prima facie and made only for the purpose of this interlocutory application.
Are damages an adequate remedy?
The second question concerns whether damages are an adequate remedy.
In Emeco, Edelman J explained why damages are often inadequate in these cases including:
(i)the difficulty of detection of breaches of the obligations; (ii) the difficulty of establishing causation between any loss of business with customers and any actions of the ex-employee; and (iii) the difficulty of the calculation of the quantum of any damage arising from loss of business…[55]
[55]Emeco International Pty Ltd v O’Shea [2012] WASC 282 (‘Emeco’), [21]
I reject the defendants’ submission that damages are an adequate remedy. Their submissions refer to the loss outlined in Ms Daniel’s affidavit. Her affidavit itemises the drop in revenue and number of clients for Injectable Services.[56] However, the parties are already disputing loss and damage, illustrating the point made by Edelman J above. In the plaintiff’s statement of claim, they estimate loss to be approximately $900,000 of revenue, but the defendants deny this.[57] The second defendant deposes that ‘it would be almost impossible to work out what clients would have come to me in the period leading up to trial but who chose not to do so.’[58]
[56]Daniel affidavit, [64]-[72], [80]-[82].
[57]Statement of claim [37]; first and second defendants’ defence, [37].
[58]Johnson affidavit, [82].
Balance of convenience
The third question concerns the balance of convenience. That is, whether the inconvenience or injury that the plaintiff would suffer if the injunction were refused is outweighed by the injury the defendants would suffer if the injunction were granted.
The defendants submit that the second defendant will effectively be left unemployed (other than one day of work per month in Paynesville). The second defendant can only work at Paynesville when her husband has an RDO because of the distance from home and her child care responsibilities.[59] She is currently working three to four days per week at the third defendant’s premises.[60] The second defendant is working one day a month at Morwell and it is not busy enough there because of the socio-economics of the town.[61] The second defendant thinks it unlikely people would travel from Traralgon to Morwell for treatment as many come in for treatment during their lunch break or while at work. The second defendant deposes as to the practical difficulties of establishing a new practice.[62] She deposes that the only job she is aware of for a cosmetic nurse at the moment in the Traralgon area is the one advertised by the plaintiff.[63] The second defendant does not depose as to why she could not return to work as a registered nurse.
[59]Ibid, [78].
[60]Ibid, [67].
[61]Ibid, [67], [75]-[76].
[62]Ibid, [79].
[63]Ibid, [80].
Although the injunction will have a harsh effect on the first and second defendants, it will not prevent the second defendant from performing Injecting Services outside of the restraint area, that is, outside of the 5 km radius from the plaintiff’s premises. Her work to date in Morwell and Paynesville shows that she is capable of doing so. The injunction will not prevent her from building up her practice in those areas. The first and second defendants are not prohibited from marketing work outside the restraint area, that is, general soliciting or canvassing. The injunction will prohibit approaches or accepting approaches from the plaintiff’s clients within the restraint area.
The defendants submit that the rights of the third defendant will be affected because, having arranged business operations to take on the second defendant, the director of the third defendant, Alisha Armstrong (nee Barbour) would need to re-arrange her plans and those of her family. There is no evidence from Ms Armstrong regarding this. However, she has been on notice that the plaintiff intended to enforce their rights since NRF’s letter to her dated 23 July 2024.[64]
[64]Exhibit ‘AS-1’ to the Shield affidavit, 85-89.
The following findings of Edelman J in Emeco are apt here:
However, perhaps the most powerful factor relevant to the balance of convenience is that if no injunction is granted, [the plaintiff] will be deprived, probably permanently, of the protection afforded by a potentially valid contractual restraint and left to a claim for damages which, at this stage, I consider to be inadequate. On the other hand, if an interlocutory injunction is granted, any loss to [the former employee] will be recoverable on the undertaking as to damages which is given by [the plaintiff] …[65]
[65]Emeco, [61].
Delay
There is delay by the plaintiff in seeking this injunction. The application was made about two and a half months’ after the defendants’ gave two weeks’ notice on 4 July 2024. However, I am not satisfied that the delay is such that the injunction should not be granted. I am satisfied there is adequate explanation for the delay and that the defendants were on notice of a prospective injunction application since about 23 July 2024. I refer to the following.
On 5 July 2024, the second defendant advertised that she would work with the third defendant. Ms Daniel was in a “state of shock and disbelief but began to come to terms with the financial impact on the business.”[66] The second defendant was on pre-arranged holiday in Vietnam with her family and returned on 18 July 2024.[67] On 17 or 18 July 2024, Ms Daniel spoke to a solicitor.[68] On 23 July 2024, the plaintiff engaged solicitors (NRF). On the same date, NRF sent correspondence to the first and second defendants.[69] Amongst other things, the correspondence sought an undertaking and reserved the plaintiff’s rights to seek an injunction. As outlined above, there was further correspondence, proceedings were issued and no undertakings were forthcoming. On 17 September 2024, the plaintiff filed its application for an interlocutory injunction by summons.
[66]Daniel affidavit, [57].
[67]Johnson affidavit, [49], [58].
[68]Shield affidavit, [10].
[69]Ibid, [11].
Undertaking as to damages
The plaintiff is prepared to give the usual undertaking as to damages.
The defendants submit that there is no evidence of the value of any undertaking as to damages. In correspondence regarding security for costs, the plaintiff proposed CCA Management Pty Ltd, the franchisor’s parent company, would give a guarantee.[70] It has $100 of paid up capital.[71] Despite request, the plaintiff has not provided evidence of CCA Management Pty Ltd’s ability to satisfy any cost order or confirmed the guarantee.[72]
[70]Affidavit of Carl Edward Millington 23 Sept 24 affidavit, [4] (‘Millington affidavit’).
[71]Ibid, [5]; Exhibit ‘CEM-1’ to the Millington affidavit, 11.
[72]Millington affidavit, [6]-[8]; Exhibit ‘CEM-1’ to the Millington affidavit, 35.
I accept that ‘where there is some evidence that a plaintiff is in a financially difficult situation and it seeks an injunction, it is of great significance that it establishes the value of any undertaking it offers.’[73] This is not such a case. There is simply no evidence to suggest the plaintiff is in a financially difficult situation. Rather, there is evidence to the contrary.[74]
[73]VAC Group Holdings Pty Ltd v Cliplyn Pty Ltd [2019] FCA 1704, [35].
[74]See the revenue figures in the Daniel affidavit.
Conclusion
I propose making orders in the following form. They will be subject to the plaintiff giving the usual undertaking as to damages.
1.In these orders, the following definitions apply.
“Competing Business” means any business that competes with the plaintiff in performing Injecting Services.
“Engaging in” means participating, assisting or otherwise being directly or indirectly involved as a consultant, contractor, agent, manager.
“Injecting Services” means cosmetic injectable consulting, cosmetic injectable procedures and after-care for patients.
2.Until 17 July 2025, and within 5km of Shop 1, 81-89 Hotham Street, Traralgon Victoria, the first and second defendants be restrained from:
(a)engaging in a Competing Business; and
(b)approaching or accepting any approach from any patient, client, or customer of the plaintiff, with whom the second defendant had contact in the course of performing the Injecting Services, for the purpose or with the effect of obtaining the custom or business of that person for the benefit of a Competing Business or detrimentally affecting the business of the plaintiff.
3.The patients, clients, or customers of the plaintiff, with whom the second defendant had contact in the course of performing the Injecting Services, are named on pages 36-74 of Exhibit ‘AS-1’ to the affidavit of Alexandra Shields affirmed on 17 September 2024.
I will hear the parties on the confidentiality orders sought by the plaintiff regarding the Shields and Daniel affidavits.
SCHEDULE OF PARTIES
| S ECI 2024 04169 | |
| BETWEEN: | |
| LCA TRARALGON PTY LTD (ACN 632 445 660) | Plaintiff |
| - and - | |
| ASHLEE JOHNSON PTY LTD (ACN 633 881 393) | First Defendant |
| ASHLEE JOHNSON | Second Defendant |
| ALISHA BARBOUR PTY LTD PTY LTD (ACN 611 962 442) | Third Defendant |
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