Mackintosh International College P/L v Solao & Pennycook
[2001] QSC 443
•28 November 2001
THE SUPREME COURT
[2001] QSC 443
OF QUEENSLAND
BRISBANE No S 9953 of 2001
BETWEEN:
MACKINTOSH INTERNATIONAL COLLEGE PTY LTD
A C N: 007 306 201
Plaintiff
AND:
SHIVAJI BABASAHEB SOLAO
First Defendant
AND:
GRAEME ALEXANDER PENNYCOOK
Second Defendant
REASONS FOR JUDGMENT
B.W. Ambrose J.
Delivered the 28th day of November 2001
CATCHWORDS: EQUITY – INJUNCTION – application for interlocutory injunction – where employer taking action for breach of confidence, fiduciary duty and contract – where employees allegedly breached conditions of employment by acting in competition with employer – where employer became aware of actions of employees by accident – where discharged employees want to pursue business opportunity – whether injunction should be granted
INJUNCTIONS – INTERLOCUTORY – where application for injunction for restraint of competition – where employer taking action for breach of confidence, fiduciary duty and contract – where employees allegedly pursued business opportunity in competition with employer – where discharged employees refused to give undertaking not to pursue business opportunity – whether serious question to be tried – whether balance of convenience favours granting injunction – whether strong prima facie case
Cases:Consul Development Pty Ltd v DPC Estates Pty Ltd (1974) 132 CLR 373 considered
Counsel: G O’Sullivan for the applicant
R Jackson for the respondent
Solicitors:McDonald Brown solicitors for the applicant
Scoglio Drakos solicitors for the respondent
Hearing Date: 14 November 2001
[1] This is an application by the plaintiff (the employer) for an interlocutory injunction restraining the defendants (the employees) until further order from –
(a) Engaging in any activities involving hospitality training in direct competition with the employer for a period of 12 months after 18 October 2001.
(b) Marketing, promoting, contracting with or otherwise having any business dealings directly or indirectly by themselves or by their servants or agents with Global Management Consultants of Saudi Arabia or its servants or agents.
(c) Divulging or using directly or indirectly, any information concerning personal affairs of clients or the business of the employer, or any knowledge or information acquired during the course of their employment with the employer concerning its affairs or property, or any business property or transaction in which it is or has been concerned.
[2] The employer also seeks an order that the first defendant employee (the “first employee”) deliver up to the employer all printed copies, electronic copies, discs and other computer generated files of all workings carried out by him in respect of the diploma in history management of the employer’s business.
[3] The employer instituted proceedings in this court on 7 November 2001.
[4] Most of the facts pleaded seem not really to be in issue, although the legal consequences are. There has been no defence or counterclaim yet filed by the employees.
[5] It is unnecessary to analyse in depth the content of the statement of claim or the affidavit material upon which the employer relies to support its application for interlocutory relief.
[6] Stated shortly, the employer for some time carried on the business of providing hospitality training to students and also hospitality training consultancy services.
[7] On the material, the employer seems to have made a conscious effort to provide these services to foreign based students as well as to Australia based students.
[8] The first employee was employed by the employer as its National Marketing Manager, National Manager Business Development.
[9] The employment agreement was partly in writing and partly oral. The written part of the agreement is recorded in writing dated 23 December 2000.
[10] The employment contract of the second defendant employee (the “second employee”), under which he was employed as the National Operations Management of the employer, was also partly in writing, also dated 23 December 2000 and partly oral.
[11] The written terms of those agreements relevant to the relief which the employer seeks by way of interlocutory injunction include the following –
“5. CONFIDENTIALITY
All information concerning the personal affairs of clients or the business of the employer must be held in strict confidence and not at any time either during the continuance or after termination of his employment hereunder, except by the direction of the Employer, divulged either directly or indirectly to any person or company any knowledge or information which he may acquire during the course of his employment by the Employer any concerning the affairs or property of the Employer or any business, property or transaction in which the Employer may be or may have been concerned or interested.
6. EXCLUSIVITY OF EMPLOYMENT
For the duration of the period of employment with the Employer, the Employee will give the whole of his professional attention, time and energies to this employment and will not undertake any other employment, or remunerative work, with out the prior written approval of the Employer.
…15. UPON TERMINATION
(a) Upon termination of the Employee’s engagement the Employee shall deliver up to the Employer or its authorised representatives, all property belonging to it and all plans, statistics, documents, records or papers which may be in the Employee’s possession or control and relate in any way to the business or affairs of the Employer and not to retain any copies thereof.
(b) After the termination of this Agreement for any cause whatsoever the Employee will not represent himself as being in any way connected with or interested in the business of the Employer.
(c) The Employee must not after termination of this Agreement engage in direct competition with the Employer for a period of twelve months after termination of this Agreement.
16. DUTY OF FIDELITY
Nothing in this Agreement will be construed to limit the Employee’s fiduciary duties or duty of fidelity to the Employer or any other duties implied at common law.
…20. GOVERNING LAW
This Agreement is governed by the laws of the State of Queensland.”
[12] In April 2001, the first employee travelled to Saudi Arabia to attend a conference concerning matters relevant to the employer’s business. The employer paid the costs incurred by the first employee attending that conference. While at the conference, the first employee met a Mr Kandil, the Managing Director of Global Management Consultants of Jeddah, Kingdom of Saudi Arabia. There was a discussion between them about the employer and Mr Kandil’s company (“GMC”), undertaking a joint venture to establish a hospitality training college in Saudi Arabia. The matter discussed initially related to the employer providing a hospitality training service for a college to be established by GMC and also consultancy services concerning setting up such a college. The management of that college was to be a joint venture between the employer and GMC. The first employee returned to Australia and thereafter there followed discussions between the director of the employer and Mr Kandil by email, telephone and facsimile over a period of months.
[13] Eventually a memorandum of understanding was signed by the director of the employer on 18 May 2001 and by Mr Kandil on behalf of GMC in Saudi Arabia on 21 June 2001. There is a suggestion that the delay in Mr Kandil’s signing was attributable to one or more of the employees although it is the case for the employees that at some stage the director of the employer in some way offended Mr Kandil.
[14] In any event, on 16 July 2001 the director of the employer discussed with the employees the whole matter of the joint venture arrangement and it was decided that he would travel to Dubai in late August 2001. Arrangements were to be made by the first employee. Business commitments prevented Mr Kandil and the director of the employer from meeting to finalise the joint venture agreement proposed in the memorandum of understanding before the terrorist attack in New York on 11 September 2001.
[15] The director of the employer and the employees discussed the risk of war and the effect that it might have on his travelling to Saudi Arabia in September and it was decided unanimously that the employer’s director’s visit to the Middle East to continue negotiations with the director of GMC would be postponed until it was clear that a degree of regional stability would avoid any impediment to those negotiations.
[16] No plans were put in place for the director of the employer to visit Mr Kandil in Saudi Arabia before he received by accident on 17 October 2001 a 29 page business plan directed to GMC that had been prepared by the employees. He received a copy of that business plan emailed from the second employee’s computer. This business plan related to establishment of a “Hotel Management Institute” in Saudi Arabia. The employer’s director had not seen this business plan previously and was not aware that it was in course of preparation by his employees. At that stage, he had only perfunctory correspondence by telephone, email and facsimile with Mr Kandil.
[17] The employer’s director had received a report prepared by the first employee on 26 September 2001 in which reference was made to the establishment of a business by the employer in “Dubai and the Middle East”. It dealt with training “international students” in Australia. In the course of that report reference was made to training students in hospitality in places including Saudi Arabia and the Middle East generally. The report, apart from recording the employer’s business plan seems, on its face, to be designed to obtain an increase in the first employee’s salary from $41,560 per annum to $55,000 per annum between 1 October 2001 and September 2002.
[18] It is clear on the material that the director of the employer received the 29 page “Concept and First Business Plan” entitled “Hotel Management Institute in the Kingdom of Saudi Arabia” on 17 October 2001. This document received as a consequence of a deficiency in the second employee’s computer was prepared by “Ozlink Global Consultants” the address of which was specified to be the first employee’s residence at 72 Kununurra Crescent, Shailer Park, Qld, Australia, and its telephone number and email address were both specified to be that of the first employee. It is recorded on the face of this document that the business plan was written in “September 2001 for Global Management Consultants Jeddah KSA”.
[19] At the conclusion the report appears this paragraph –
“8.0 CONCLUSION
This business plan is a sincere effort on the part of Ozlink Global Consultants Australia and Global Management Consultants, Kingdom of Saudi Arabia. The marketing plan is being attached separately, as it is in a different format. However, it should be read in conjunction with this Business Plan.”
[20] The concept and first business plan is undated. However, the “marketing plan” prepared for the employer by the first employee dated 26 September 2001, suggests that the plan sent by email apparently to the employer’s potential joint venturer in Saudi Arabia was probably sent either shortly prior to or shortly after the marketing plan dated 26 September 2001 was prepared. It was consistent with the content of the memorandum of understanding executed by it in June 2001.
[21] Unsurprisingly when this material came to the knowledge of the director of the employer on 17 October 2001, he took action forthwith and suspended the employment of both employees on 18 October 2001. On that day, the employer’s solicitor demanded from the employees, inter alia, the return of all company books, manuals, etc and any other company property in their possession. The employer’s solicitor advised the employees that, unless they complied immediately with that demand, steps would be taken to recover that property.
[22] Each of the employees replied by letter complaining of their unjust dismissal and demanding payment of moneys allegedly owing to them and advised that they were seeking legal advice.
[23] Investigations by the employer’s solicitor revealed that on 23 October 2001, within a week of their dismissal, the employees together registered the business name “Ozlink Global Consultants” – the name appearing on the business plan and attachments, a copy of which the director of the employer had received by accident on 17 October 2001. In fact, it was only a the deficiency in the computer – email system used by the second employee under the name of Ozlink Global Consultants which led to its disclosure to the director of the employer.
[24] The solicitor for the employer sought from the employees an undertaking in writing that they would not continue to deal with GMC in Saudi Arabia with respect to the setting up of a Hospitality Training School or Institute of the sort dealt with in the memorandum of understanding signed by Mr Kandil and the director of the employer in May – June 2001.
[25] On 29 October 2001, the director of the employer received from the second employee a letter bearing date 22 October 2001. It is unnecessary to analyse this long and argumentative letter which contains, inter alia, an assertion to the effect that the employees were really entering into this arrangement for the indirect benefit of the employer rather than for their own benefit. The letter does however refer to the “virus” which infected the second employee’s personal computer as a consequence of which “one of these emails with attachments went to Mr Darren Mackintosh and created this grave misunderstanding”.
[26] Similarly a long letter was received by the solicitors for the employer from the first employee indicating that the object of the preparation of the business plan under the name of “Ozlink Global Consultants” was really to benefit the employer rather than the employees.
[27] Reference to the affidavit material of the employees in this case leaves uncertain what precisely their intentions were at the time of the hearing. That uncertainty however was resolved by submissions made by their counsel – “It is the employee’s case that they are entitled to the opportunity ... to personally enter into a joint venture agreement with ‘GMC’” in accord with what appears on its face to be the proposal recorded in the email apparently sent to GMC at some stage during September 2001 which led to the termination of their employment on 18 October 2001. It is contended on their behalf that they were entitled to have that business plan implemented between them and GMC as partners in Saudi Arabia in a joint venture.
[28] It is conceded on their part that they owed duties of good faith. It is said that the employer conducted business in Australia but did not conduct any similar business overseas. It is conceded that the first employee went to Dubai on behalf of the employer in April 2001 for the purpose of recruiting international students to come to the employer’s colleges in Australia. It is contended that while he was there he met Mr Kandil, the managing director of GMC in Saudi Arabia when they discussed his interest in having the first employee – not the employer – do some consulting work for him. It is conceded that the employer was paying the cost of the first employee’s visit to Dubai and there was no doubt that the first employee was acting within the scope of his employment when he had these discussions with Mr Kandil and subsequent discussions with the employer’s director concerning the employer providing services of the sort about which Mr Kandil was interested.
[29] It is the contention of the first employee that he attempted to persuade the director of the employer to proceed with this proposal but that he did not show much interest. The employer’s director denies any such lack of interest.
[30] The bottom line of the submissions made on behalf of the employees is that they were entitled to do precisely what the employer is endeavouring to prevent them from doing – that is for their own benefit to enter into a joint venture agreement with GMC along the lines of the memorandum of understanding signed by the employer and Mr Kandil on behalf of GMC in May/June 2001.
[31] Essentially it is the case for the employees that they were entitled, as partners carrying on business as “Ozlink Global Consultants”, to carry on the business of establishing an educational facility as a joint venture with GMC in Saudi Arabia, which the memorandum of understanding between the employer and GMC executed in May/June 2001, was the first step in establishing.
[32] For the employees it is contended that they wish to go ahead and complete their negotiations with GMC in accordance with their business plan which was disclosed accidentally to the employer as a consequence of a computer virus in the second employee’s personal computer, and that they are entitled to do that. Although it is submitted that they have been informed by Mr Kandil that he will not deal with the employer, there is no evidence from Mr Kandil to this effect and there is no suggestion that Mr Kandil ever informed the employer to that effect – indeed he signed the memorandum of understanding in June 2001 and there is evidence of subsequent correspondence by telephone, email, facsimile etc about the intended visit by the director of the employer to Saudi Arabia in September 2001 until the time of the terrorist attack in Washington DC on 11 September 2001.
[33] For the employees, it is contended that the restraint of competition for a period of 12 months anywhere in the world is just too wide to be enforceable. While accepting this contention it is not determinative of the real issue debated before me.
[34] In my view, there is a prima facie breach of fiduciary duty owed by the employees to the employer. There is also strong evidence of a clear breach of confidentiality which they owed to it.
[35] It is quite unnecessary on an application of this kind for me to decided finally or even in a preliminary way the issues pleaded by the employer against the employees. The employees have not yet delivered any defence to the statement of claim.
[36] There is detailed affidavit evidence which I have considered in the context of submissions made by counsel upon it.
[37] In my view, there is a serious issue to be tried between the employer and the employees concerning the attempt by the employees to supplant the employer in negotiations with GMC in Saudi Arabia about their establishing a hospitality training facility.
[38] To the extent that it is necessary when considering the balance of convenience to determine the strength of the employer’s case, it is my view that the employer has established a strong prima facie case of a significant breach of fiduciary duty owed by its employees to it.
[39] In Consul Development Pty Ltd v DPC Estates Pty Ltd (1974) 132 CLR at 394, Gibbs J observed –
“Where the rule applies, the liability of the person in a fiduciary position does not depend on the fact that the person to whom the duty is owed has suffered injury or loss.”
[40] Even if the fact be that GMC in Saudi Arabia would prefer to deal with the employees rather than the employer and thus, as contended by the employees, the employer will suffer no loss or damage if they are allowed to negotiate a joint venture agreement with GMC in lieu of the one that was in the course of preparation between the employer and GMC, that is a serious matter in dispute and to the extent that it is relevant to the determination of the issues between the employer and its employees, must be determined upon evidence upon trial. It seems strongly arguable on the authorities that should the employees successfully negotiate a joint venture agreement with GMC in Saudi Arabia to the disadvantage of the employer – if they have not already done so – that they will be liable to account to the employer in any event by reason of their breach of fiduciary duty to it.
[41] Upon the usual undertaking of the plaintiff as to damages, therefore, I order –
(1) That the defendants until further order be restrained from marketing, promoting, contracting with, or otherwise having any business dealings directly or indirectly by themselves or by their servants or agents with Global Management Consultants of Saudi Arabia, or its servants or agents concerning any joint venture business arrangement of the sort described in the Memorandum of Understanding for a joint venture consultancy business arrangement between Global Management Consultants, PO Box 8250, Jeddah – 21482 KSA and Mackintosh International College, Level 3/37 Connor Street, Burleigh Heads, Gold Coast, Queensland 4220, Australia, a copy of which is Exhibit No DAM4 to the affidavit of Darren Andrew Mackintosh filed herein 13 November 2001 or of the sort described in the Hotel Management Institute in the Kingdom of Saudi Arabia, Concept and First Business Plan prepared by Ozlink Global Consultants of 72 Kununurra Crescent, Shailer Park Qld 4128, Australia, telephone ++617 32096465, email [email protected] being the Business Plan written in September 2001 for Global Management Consultants, Jeddah, KSA, which is Exhibit No DAM6 to the affidavit of Darren Andrew Mackintosh filed herein 13 November 2001.
(2) That the defendants until further order be restrained from divulging or using directly or indirectly any information concerning the personal affairs of clients of the business of the plaintiff or any knowledge or information acquired during the course of their employment with the plaintiff concerning the affairs or property of the plaintiff or any business property or transaction in which the plaintiff has been concerned.
[42] I order that the first defendant deliver up to the plaintiff all printed copies, electronic copies, discs and other computer generated files, of all workings carried out by the first defendant while employed by the plaintiff in respect of the Diploma in Hospitality, Management issued by the plaintiff in the course of conducting its business.
[43] Costs of the application are reserved.
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