LCR Group and Anor v Bell - [2016] QSC 130

SUPREME COURT OF QUEENSLAND

CITATION:

LCR Group & Anor v Bell [2016] QSC 130

PARTIES:

LCR GROUP PTY LTD ACN 095 626 798

(First Applicant)
AND
CRANE AND HAULAGE PARTNERS HOLDINGS LIMITED ACN 608 139 215
(Second Applicant)

v
JAMES ROBERT BELL

(Respondent)

FILE NO/S:

No BS2892 of 2016

DIVISION:

Trial Division

PROCEEDING:

Civil Trial

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

10 June 2016

DELIVERED AT:

Brisbane

HEARING DATE:

18, 19, 20 May 2016

JUDGE:

Byrne SJA

ORDER:

CATCHWORDS:

TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – VALIDITY AND REASONABLENESS – PARTICULAR CASES – EMPLOYMENT – where the defendant was employed by the first plaintiff – where the first plaintiff was a subsidiary of the second plaintiff – where the defendant entered into a Shareholders’ Agreement with the second plaintiff – where the Shareholders’ Agreement contained a restraint clause –whether the restraint clause is valid and enforceable

COUNSEL:

K Howe for the applicants

A Fraser for the respondent

SOLICITORS:

Rostron Carlyle Lawyers for the applicants

Bennett Carroll for the respondent

Parties

Until recently, the defendant (“Mr Bell”) was employed by the first plaintiff (“LCR”).
For some years, LCR has operated as an industrial and mining services company, supplying what LCR’s CEO, Mr Partington, calls “lift and shift” services, including bulk material handling, mobile crane hire, transport, mining and associated services.
LCR is a subsidiary of the second plaintiff (“Crane”).
Promise
Mr Bell and Crane are parties to a Shareholders Agreement dated 31 July 2014 pursuant to which Mr Bell acquired a small shareholding in Crane. The Agreement contains a provision in restraint of trade:
“12. Restraint of Trade
12.1 Definitions
In this clause 12, the terms below have the following meaning:
Restraint Area means:
(a)those geographical areas in which the Business operates from time to time;
(b)each state or territory of Australia, and each other country, in which the Business operates from time to time;
(c)Australia and New Zealand;
(d)Australia;
(e)Queensland;
(f)New South Wales;
(g)Victoria;
(h)Tasmania;
(i)South Australia;
(j)the Northern Territory;
(k)the Australian Capital Territory;
(l)Western Australia;
(m)New Zealand;
(n)Papua New Guinea.
This definition operates such that the Restraint Area incorporates all of the areas set out in paragraphs (a) to (m) above inclusive. If a court of competent jurisdiction considers that such area makes the restrictions at clause 12.2 unenforceable, one or more of the limbs described in paragraph (a) to (m) above will be removed from the definition of Restricted Area, but:
(a)only to the extent necessary to make the restriction in clause 12.2 enforceable; and
(b)only on the basis that areas furthest from where the Manager is employed or otherwise provides services to the Company Group are removed first.
Trigger Date means the later of:
(a)the date on which the Management Shareholder (including any Permitted Transferee) ceases to hold Shares; and
(b)the date on which the Relevant Manager ceases to be an employee of, or engaged by, the Company Group.
Restraint Period means the period:
(a)commencing on…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] QSC 130
Decision Date: 10 June 2016

CaseChat Overview and Summary

LCR Group and Anor v Bell is a case involving a dispute between LCR Group (first plaintiff), a subsidiary of Crane Worldwide Logistics (second plaintiff), and Mr Bell (defendant), a former employee. The central issue in the case was the validity and enforceability of a restraint clause contained within a Shareholders’ Agreement between Mr Bell and Crane Worldwide Logistics. This clause restricted Mr Bell from working for competitors of LCR Group for a period of 12 months following the termination of his employment. The court was required to determine whether this restraint was valid and reasonable given the context and the nature of the confidential information that Mr Bell could potentially have access to.

The legal issues at the heart of this case centred around the enforceability of the restraint clause in the Shareholders’ Agreement. The court had to consider whether the restraint was necessary to protect the legitimate business interests of LCR Group and Crane Worldwide Logistics and whether it was reasonable in scope, duration, and geographical reach. Furthermore, the court examined the quality and sufficiency of the evidence presented by the plaintiffs to substantiate the need for such a restraint.

The court found that despite the deficiencies in the evidence presented by Crane, there was enough to support the claim that Mr Bell had access to commercially sensitive, confidential information during his employment. The strategic plans of LCR Group, which were not publicly available, were identified as particularly sensitive. The court reasoned that there was a legitimate interest in protecting this information from potential misuse by Mr Bell. The court also noted that the strategic plans were developed triennially, indicating that the confidential information would remain commercially valuable for an extended period. Consequently, the court held that the restraint clause for a duration of 12 months was reasonable and necessary to protect the legitimate business interests of LCR Group and Crane Worldwide Logistics.

In summary, the court ruled that the restraint clause in the Shareholders’ Agreement was valid and enforceable. The legitimate interest in protecting confidential information, particularly strategic plans, justified the restraint for a period of 12 months following the termination of Mr Bell’s employment.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

After the briefing, Mr Bell chose to become an “initial management shareholder”. Quality of evidence Much of the evidence relating to Mr Bell’s acquisition of LCR’s allegedly confidential information is not clearly directed to circumstances existing by 31 July 2014 or which then seemed in reasonable prospect[13]. Identifying the pertinent facts involves picking through Mr Partington’s affidavits and testimony, as well as evidence of Mr Bell, trying to discover circumstances material to LCR’s interest in such of its information as may have been protectable by the restraint in cl 12. [13] cf Auto Parts at [53]. Crane’s case furnishes surprisingly[14] little detail about Mr Bell’s knowledge of LCR’s affairs as at 31 July 2014 or concerning the extent to which such information as had been imparted to him was truly confidential. [14] The importance of identifying the detail is notorious: Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37, [49]. An illustration of misspent effort involved in the failure to link information Mr Bell acquired to circumstances existing in July 2014 or then reasonably foreseeable appears in an affidavit of Mr Partington, where he deposes:“Jim Bell was personally and directly involving in pricing and negotiation of works with clients and others. He is aware of the terms of those works, including details of the agreed rates and fees to be paid and the equipment needs of that particular client. He became familiar with the key purchasing and negotiating officers from the clients. He also attained knowledge of the profitability…of the businesses through these clients and became aware of the extent of engagement required and the supervisory needs on various projects and jobs.” Mr Partington testified but said nothing about the extent to which those assertions related to the situation that obtained by July 2014. There is also a difficulty about what the future likely held when the Shareholders Agreement was concluded. As Mr Bell’s subscription for shares reveals, the parties then anticipated that he would continue to be employed in some capacity under the employment agreement after his work at Jellinbah/Yarrabee finished. But the evidence is silent about what his responsibilities might have been expected to be in the longer term – an omission with potential to matter for predicting the nature of LCR’s confidential information that Mr Bell may have acquired after 31 July 2014. On Mr Bell’s case, Crane has not adduced enough evidence to show that the categories of information said to be confidential are reasonably capable of protection by contractual restraint: in particular, apart from a few miscellaneous documents tendered during Mr Bell’s cross-examination, Crane chose not to put into evidence any document that is alleged to contain confidential information. There is force in that criticism. Skimpy indeed is the material touching the confidentiality of LCR’s information that Mr Bell had acquired by 31 July 2014[15]. [15] The employment agreement does contain acknowledgements by Mr Bell concerning the kinds of information to which he would be exposed, and that the only reasonable manner in which LCR’s interests could be protected was by the restraints that agreement imposed. In principle, such concessions can afford evidence of the reasonableness of a restraint against working for a competitor. But these acknowledgements relate to information that Mr Bell was to acquire as National Manager – Heavy Lift Services. By 31 July 2014, that role was finished; and there was no expectation that Mr Bell might assume that position again.Paucity

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Strategic plans of some organisations are published to the world. It appears not to be controversial that LCR’s strategic plans were secret, containing confidential information of potential advantage to a competitor: the strategies that LCR would use to “win business”, as Mr Partington put it.Duration In July 2014, it will have been anticipated that Mr Bell would be privy to commercially sensitive, confidential information during his continuing employment. But, with one exception, no evidence was directed to the length of time during which LCR’s information could be expected to remain secret or commercially valuable. For example, there is nothing to show how long information about prices or profit margins would retain their currency[17]. [17] Or, if it matters, potentially advantage a competitor who learned of the information. If all LCR’s information was bound to lose such confidential character as it may have had, and therefore its commercial value, within a year of the commencement of the “restraint period”, a restraint for as long as 12 months would necessarily afford more than reasonable protection to that interest. LCR’s strategic plans are imparted to staff in confidence. Such a plan holds information which, were it to become known to a competitor, would have significant potential to damage LCR’s and Crane’s economic interests. LCR’s strategic plans are developed triennially. A strategic planning exercise was planned when the Shareholders Agreement was concluded. That soon happened. In September 2014, Mr Bell attended the strategic planning meeting with senior general managers and other LCR staff.Area By the end of the addresses, there was no contest about the reach of geographical restraint following severance of some places. Foresight On 31 July 2014, it was well on the cards that Mr Bell, in ongoing employment with LCR, would acquire some commercially valuable, confidential information of LCR. Indeed, that happened at the planning meeting a few weeks after the Shareholders Agreement was concluded. In whatever position with LCR he came to serve afterwards, Mr Bell would very likely learn of other confidential information the misuse of which would probably be detrimental to LCR’s and Crane’s economic interests. On 31 July 2014, Crane and LCR had a legitimate interest, deserving of protection from misuse, in whatever confidential information that Mr Bell had already acquired and which it could fairly have been anticipated he would acquire in future. At least some of that confidential information[18] was valuable material with a commercial life not so transitory as would make a 12 months restraint longer than was reasonably required to protect the information from disclosure or other misuse by Mr Bell. [18] A strategic plan at any rate. Despite the many deficiencies in the evidence in its case, in the result, Crane has proved that the protection of its confidential information justified the cl 12 restraint for a year after termination of Mr Bell’s employment. Enforceable

CITATION:	LCR Group & Anor v Bell [2016] QSC 130
PARTIES:	LCR GROUP PTY LTD ACN 095 626 798 (First Applicant) AND CRANE AND HAULAGE PARTNERS HOLDINGS LIMITED ACN 608 139 215 (Second Applicant) v JAMES ROBERT BELL (Respondent)
FILE NO/S:	No BS2892 of 2016
DIVISION:	Trial Division
PROCEEDING:	Civil Trial
ORIGINATING COURT:	Supreme Court of Queensland
DELIVERED ON:	10 June 2016
DELIVERED AT:	Brisbane
HEARING DATE:	18, 19, 20 May 2016
JUDGE:	Byrne SJA
ORDER:
CATCHWORDS:	TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – VALIDITY AND REASONABLENESS – PARTICULAR CASES – EMPLOYMENT – where the defendant was employed by the first plaintiff – where the first plaintiff was a subsidiary of the second plaintiff – where the defendant entered into a Shareholders’ Agreement with the second plaintiff – where the Shareholders’ Agreement contained a restraint clause –whether the restraint clause is valid and enforceable
COUNSEL:	K Howe for the applicants A Fraser for the respondent
SOLICITORS:	Rostron Carlyle Lawyers for the applicants Bennett Carroll for the respondent