Marlov Pty Ltd v Murat Col

[2009] NSWSC 501

CITATION:	Marlov Pty Ltd v Murat Col [2009] NSWSC 501
HEARING DATE(S):	29 May 2009
JUDGMENT DATE :	5 June 2009
JURISDICTION:	Equity
JUDGMENT OF:	Debelle AJ
CATCHWORDS:	CONTRACT – Employment – Restraint of Trade – plaintiff formerly employed first defendant – first defendant now employed by second defendant – whether defendant had solicited customers of plaintiff in breach of contractual restraint – validity of restraint against employment – Held first defendant did not solicit plaintiff’s customers and restraint void to the extent that it geographically limited the first defendant’s employment.
LEGISLATION CITED:	Restraints of Trade Act 1976
CATEGORY:	Principal judgment
CASES CITED:	Buckley v Tutty (1971) 125 CLR 355 Drake Personnel ltd v Beddison [1979] VR 13 Harlow Property Consultants Pty Ltd v Byford Herbert Morris Ltd v Saxelby [1916] 1 AC 688 Herron v Port Huon Fruit Crower's Co-operative Association Ltd (1922) 30 CLR 315 Koops Martin v Reeves [2006] NSWSC 449 Lindner v Murdock's Garage (1950) 83 CLR 628 Nordenfelt v Martin Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126
TEXTS CITED:	The Restraint of Trade Doctrine (3rd ed)
PARTIES:	Marlov Pty Ltd trading as Ray White Carnes Hill (Plaintiff) Murat Col (First Defendant) Ashcroft Cleaning Services Pty Ltd trading as Wiseberry Acclaim (Second Defendant)
FILE NUMBER(S):	SC 1872/2009
COUNSEL:	B Obradovic (Plaintiff) B Spinks (Defendants)
SOLICITORS:	AB Mezzanotte Lawyers (Plaintiff) Carbone Lawyers (Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ACTING JUSTICE DEBELLE

FRIDAY, 5 JUNE 2009

1872/2009 - MARLOV PTY LTD v MURAT COL & ANOR

JUDGMENT

1 HIS HONOUR: The plaintiff Marlov Pty Ltd carries on business as a real estate agent from premises at Carnes Hill Market Place at the corner of Cowpasture Road and Kurrajong Road, Horningsea Park. It carries on business under the name or style “Ray White Carnes Hill”.

2 The first defendant Murat Col is a real estate agent. The second defendant is a company Ashcroft Cleaning Services Pty Ltd. It carries on business as a real estate agent trading under the name Wiseberry Acclaim from premises situated at Minnamurra Circuit, Prestons. I will refer to it as “Wiseberrys”. I will refer to the first defendant Murat Col as “the defendant”. In these proceedings the plaintiff alleges that the defendant has acted in breach of an employment agreement whilst employed by Wiseberrys.

3 The defendant has been a real estate agent for about 14 years. On 28 May 2008, he commenced employment with the plaintiff. Immediately before, he had been employed for about two years by a company related to the plaintiff that also carries on business as a real estate agent. It carries on business at Green Valley under the name or style “Ray White Green Valley”. The defendant was transferred from one company to the other by Mr Piredda who controls both companies. The defendant was one of six salespersons employed by the plaintiff. His duties included canvassing for vendors, listing properties for sale, taking enquiries from interested vendors and interested purchasers, showing homes for sales to prospective purchasers, attending open house inspections and telephoning persons from a database kept by the plaintiff. While employed by the plaintiff, he had full access to its list of clients.

4 On 13 August 2008, the plaintiff and the defendant executed an employment agreement. The agreement included a restraint of trade clause. It is clause 19 of the agreement and is in these terms:

“19. RESTRAINT OF TRADE
19.1 In consideration of your remuneration and to protect the Company’s goodwill, you will not while employed by the Company, or for six (6) months within 7.5 km from the company’s office, after your employment with the Company ends, of the following:
a. induce, encourage or solicit any of the Company’s employees to resign;
b. induce, encourage or solicit any of the Company’s customers, clients or suppliers with whom you have contact in the preceding 12 months, to end or restrict their trade relationship with the Company;
c. carry on or be engaged or interested in any business which competes with the Company.

There is no clause 19.2. I will refer to this clause as clause 19.

5 On 31 December 2008, the defendant was admitted to hospital. He remained in hospital for five days. On about 4 January 2009, he contacted Mr Mario Piredda, a director of the plaintiff company, and informed him that he was not well and was unable to come to work. The defendant was discharged from hospital on 4 January. He continued to take medication. He returned to work on 14 January but the same day he went home feeling unwell. He did not return to work. On 19 January he informed Mr Piredda that he was not returning to work.

6 On 22 January 2009, the defendant resigned his employment with the plaintiff. On the same day he commenced employment with Wiseberrys. The premises of Wiseberrys are 2.1 kilometres from the premises of the plaintiff as the crow flies. They are about 4.5 kilometres by road.

7 On 22 January the defendant went to the office of the plaintiff and returned material belonging to the plaintiff. That material comprised his diary, lists of properties listed for sale by the plaintiff, and past appraisals.

8 On 31 January 2009, the defendant informed Mr Piredda that he had commenced employment with Wiseberrys.

9 The plaintiff seeks a declaration that the defendant has acted in breach of clause 19 of the employment agreement in two respects. The first is in taking up employment with a real estate agent within a distance of 7.5 kilometres from the plaintiff’s office. The second is that he has solicited the plaintiff’s customers of Marlov contrary to the terms of clause 19.1(b). The plaintiff seeks orders restraining the defendant from acting in breach of clause 19.

10 In these proceedings the plaintiff seeks

1. A declaration that the defendant has acted in breach of the terms of the employment agreement.

2. A declaration that Wiseberrys has by its conduct furthered the breach by the defendant of that employment agreement.

3. An order restraining the defendant until 22 August 2009 or until further order from carrying on or being engaged in or interested in any business which is carried on in competition with the plaintiff and is conducted within a radius of 7.5 kilometres of the premises of the plaintiff and, in particular, an order restraining the defendant from being employed by Wiseberrys at its premises at Prestons.

4. An order restraining the defendant until 22 August 2009 or until further order from inducing, encouraging or soliciting any of the customers of the plaintiff in breach of the employment agreement.

5. An order restraining Wiseberrys until 22 August 2009 or further order, from employing the defendant at its premises at Prestons, or in any other business conducted within a radius of 7.5 kilometres from the premises of the plaintiff.

6. Damages .

Any soliciting of customers?

11 I deal first with the plaintiff’s allegation that the defendant has solicited its customers in breach of clause 19. The allegation concerns four properties. I deal with each in turn and set out my findings in respect of each. The defendant’s evidence was that he did not solicit customers of the plaintiff in breach of clause 19. He was cross-examined. He appeared to be honest and I accept his evidence which was, in large part, confirmed by evidence of three witnesses connected with three of the four properties. Those witnesses were Mrs Shefki, Ms Cataldo, and Mr de Oca Each of those three witnesses had sworn an affidavit and there was no application to cross-examine any of them. For the reasons that follow, I find that the defendant did not solicit business from customers or clients of the plaintiff either in breach of clause 19 or at all.

Tantani Avenue, Green Valley

12 I find the facts to be as follows. In February 2009, Mr Piredda saw the defendant’s car outside a property at Tantani Avenue, Green Valley, a property being sold by the plaintiff. He telephoned the defendant and asked what he was doing at that property. The defendant informed him that he had been asked by an employee of Wiseberrys to go to the property for the purposes of discussing the listing of the property for sale by Wiseberrys. He told Piredda that, on arriving at the property, he had seen the plaintiff’s “For Sale” sign. He told Mr Pierdda that he then told the vendor that Wiseberrys could not list the property for sale as it had been listed with the plaintiff and that Wiseberrys could not act for the vendor until the plaintiff’s agency agreement had terminated. The defendant acted lawfully and properly. On ascertaining that the plaintiff was selling the property, he had told the vendor that Wiseberrys could not act as agent while the plaintiff’s exclusive agency agreement was on foot. It is clear that the defendant did not solicit the business of the vendor.

Berrigan Close, Bossley Park

13 The evidence establishes the following facts. The owners of this property were Mr and Mrs Shefki. Their son was a friend of the defendant. In August 2008, Mr and Mrs Shefki instructed the defendant to sell the property. The defendant was then employed by the plaintiff. On 14 August 2008, Mr and Mrs Shefki entered into an exclusive agency agreement with the plaintiff. That agreement operated for a period of four months. It expired at some time in December 2008. The plaintiff was unable to sell the property. The Shefkis withdrew the property from the market. Towards the end of February 2009, the Shefkis decided to attempt again to sell the property. Mrs Shefki asked her son to contact the defendant and ask him to act as agent to sell the land. The defendant was then employed by Wiseberrys. The defendant agreed to act as agent for the Shefkis. The defendant’s evidence was confirmed by Mrs Shefki. Their evidence was uncontroverted. Plainly, the defendant did not induce Mr and Mrs Shefki to engage him as their agent. Instead, they sought out his services. They are at liberty to change agents. They are at liberty to engage the defendant as an employee of a real estate agency different from an agency they had engaged previously. There is, therefore, no breach of clause 19.

14 The plaintiff proved that the defendant had telephoned one of its employees in February 2009 asking for a copy of the contract for this property and that employee had supplied it to him. The defendant later called and asked for photographs of the property but they had been deleted from the plaintiff’s computer system. Given the defendant’s recent departure from the plaintiff, his request was impertinent but it was not a breach of clause 19. He had asked for information and it had been supplied to him.

Bringelly Road, Bringelly

15 The plaintiff had listed this property for sale on 26 September 2008. The registered proprietors of the property were Ms Lina Cataldo, her son and son- in-law. Lina Cataldo has known the defendant for some 10 years. Since October 2007, she had been attempting to sell the property. She had engaged two agents but neither was able to affect a sale. In July 2008, she instructed the defendant to sell the property. He was then still employed by the plaintiff. She executed an exclusive agency agreement with the plaintiff which expired in January 2009. The plaintiff was unable to effect a sale of Ms Cataldo’s property. In January 2009, she contacted the offices of the plaintiff and asked for the defendant. She was informed that he was absent on leave. In mid January, she again contacted the plaintiff’s office to be told that the defendant was ill. In late January, the plaintiff’s sales manager informed her that the agency agreement had expired and asked if she wished to enter into another agency agreement. She did not. On 10 February 2009, she contacted the defendant by telephone. He informed her that he was then employed by Wiseberrys. She asked him to list the property for sale. He later came to her property and Ms Cataldo executed an agency agreement with Wiseberrys. Ms Cataldo’s evidence was that the defendant did not contact nor approach her to ask her to sell the land. That evidence was unchallenged. It is clear that there was no breach of clause 19.

Angeldool Avenue, Hinchinbrook

16 In September 2008, whilst employed by the plaintiff, the defendant had effected the sale of a property in Angeldool Avenue to a Mr Singh. Mr Singh later decided to sell the property. In January 2009, Mr Singh contacted Daniel Montes De Oca, an employee of Wiseberrys, and asked him if Wiseberrys would act as his agents. On 23 February 2009, Mr Singh executed an agency agreement with Wiseberrys Liverpool City. That business is operated by Liverpool City Realty Pty Ltd, a company related to Wiseberrys. The defendant is not employed by Liverpool City Realty Pty Ltd. Daniel Montes De Oca’s uncontroverted evidence is that the defendant had no involvement in respect of either the listing or the sale of that property. The defendant was not contacted by Mr Singh. It was the defendant’s evidence that he had no involvement with Mr Singh in relation to the listing or sale of this property. I accept this evidence. Furthermore, Mr Singh was not a customer of the plaintiff. He had done no more than purchase a property that had been sold by the plaintiff. He had decided to instruct Wiseberrys to sell his property and in no respect had any contact with the defendant. Plainly, there was no breach of clause 19.

No soliciting of customers

17 The evidence clearly establishes that in none of these four instances did the defendant act in breach of that part of clause 19 which prohibits him from soliciting business of the plaintiff. The plaintiff’s claim that the defendant has acted in breach of paragraph (b) of clause 19.1 must, therefore, be dismissed.

The restriction in clauses 19.1(b) and 19.1(c)

18 It is necessary also to consider the validity of the restraints contained in clauses 19.1(b) and 19.1(c). Clause 19.1(b) imposes restrictions upon soliciting customers with whom the defendant has had contact in the preceding 12 months. Clause 19.1(c) restricts the defendant from carrying on or being engaged in or interested in any business which competes with the plaintiff. This clause does not in express terms prohibit employment in a business that competes with the plaintiff. However, it is reasonable to construe the clause as a restriction upon employment. In my view, employment falls within the restriction on being engaged in a business which competes with the plaintiff.

19 There was no dispute that each of these restrictions is a restraint of trade. Clearly, each satisfies the three threshold questions identified in Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at [14]. Each restriction is a restraint, it is a restraint on trade, and it is a restraint on trade to which the common law doctrine of restraint of trade applies. If the restraint is too widely stated, it will be valid to the extent to which it is not contrary to public policy: s 4 of the Restraints of Trade Act 1976.

20 Any contractual restraint of trade is prima facie unlawful and invalid: Lindner v Murdock’s Garage (1950) 83 CLR 628 per Kitto J at 653. A restriction on a person’s ability to trade will be justified only if it is reasonable in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, that is to say, it must be so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it must be in no way injurious to the public: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565 per Lord Macnaghten. In Heron v Port Huon Fruit Grower’s Co-operative Association Ltd (1922) 30 CLR 315 at 324, the test was expressed by Knox CJ, Gavan Duffy and Starke JJ in these terms:

“’The real test’ whether a contract is reasonable between the parties is, in the language of Lord Birkenhead … ‘does the restriction exceed what is reasonably necessary for the protection of the covenantee?’ Do the articles ‘impose upon the appellant a greater degree of restraint than the reasonable protection of the part of the respondents requires?’” (Citation omitted.)

Both tests were approved by the High Court in Buckley v Tutty (1971) 125 CLR 353 at 376. A restraint must be no wider than is necessary.

21 A distinction must be drawn between, on the one hand, a covenant that restrains an employee from disclosing confidential information or from soliciting customers of his former employer and, on the other, a covenant that simply restricts competition. That distinction was emphasised by Latham CJ and by Fullagar J in Lindner v Murdock’s Garage. Latham CJ (at 633-634) said:

“Where an employee has access to trade secrets or other confidential information he may be restrained by agreement from communicating those secrets or such information to other persons, and particularly to competitors in trade with his employer. Again, an employee who is brought into personal contact with the customers of his employer may by agreement effectively bind himself to abstain after his term of service has been completed from soliciting the customers of his former employer. In these cases the covenant in restraint of trade is not a covenant against mere competition but is a covenant directed to securing a reasonable protection of the business interest of the employer, and in the circumstances is not unjust to the employee. The interest which can validly be protected is the trade connection, the goodwill of the business of the employer.”

Fullagar J said (at 650):

“There may, of course, be cases in which the employer has no interest which can legitimately be protected by any covenant in restraint of an employee's trade. But, generally speaking, if there is an interest which may legitimately be protected - whether because the employee will learn trade secrets or because he will come into close relations with customers or for any other reason - that interest may be protected not merely by a covenant against the unfair use of an advantage as such but, within limits which will be jealously scanned to see that the restraint goes no further than is reasonably necessary, by a covenant restricting the actual carrying on of a trade or occupation.”

The distinction has been frequently recognised. A restriction on employment will be jealously scanned: Lindner v Murdock’s Garage at 650 per Fullagar J.

22 The evidence of Mr Piredda is that, while the plaintiff has a number of recurring customers, the greater number of its clients are persons who deal once only with it. Its business does not include the management of leased premises. It directs that kind of business to its related company that trades as Ray White Green Valley. There is no suggestion that the defendant is in any respect competing with the plaintiff in the business of managing leased premises.

23 Very little of the plaintiff’s business can be described as confidential. On a few occasions a vendor will ask that his or her property not be advertised for sale. On other occasions, although the property is advertised for sale the address will not be disclosed except on enquiry to the plaintiff. However, as a general rule, the properties listed for sale are advertised in a number of ways including by advertisement in the press or on the internet and by signs erected at the property. The plaintiff did not point to any respect in which a restriction on employment was necessary to protect any confidential aspect of its business.

24 Although there is no evidence to this effect, I proceed on the assumption that a real estate agent has the capacity to build up a relationship of trust and confidence with the vendor and even with the purchaser of a property being sold. Clients will rely on the advice of the agent. At the same time, an agent has no property in a client. If an employee of a real estate agent leaves one agency and takes up employment with another, a client is at liberty to follow the agent.

25 The plaintiff seeks to be protected against the possibility of losing business in consequence of the personal knowledge and influence that the defendant might have acquired whilst employed by the plaintiff. It is reasonable that it should seek such protection: Lindner v Murdock’s Garage at 654; Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 702 per Lord Atkinson and at 710 per Lord Parker. However, the business of the real estate agency is different from other kinds of trades or professions where there is a real interest in preserving the relationship with a customer. A real estate agency does not sell goods on a regular and frequent basis to customers in the same way as a retailer of food or other goods. A real estate agency does not, as a general rule, have customers who regularly consult it for advice as in the case of professional advisors such as solicitors, accountants and financial advisors and that is the position with the plaintiff. The plaintiff comes within that general proposition. While the plaintiff has some recurring customers, most of its business is derived from persons who deal once only with it. There is no suggestion that the defendant dealt with recurring customers while he was employed by the plaintiff. It has not been suggested that the defendant had established any special relationship with any of the plaintiff’s clients.

26 The restraint against solicitation in clause 19.1(b) is limited to a period of six months and in that respect might appear to be reasonable. The restraint does not seek to prevent contact with all customers or clients of the plaintiff including those with whom the defendant had no contact. Such a clause may be reasonable if it extends only to those with whom the employee has dealt: Harlow Property Consultants Pty Ltd v Byford [2005] NSWCA 658 at [30]; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [62]. Weighing these factors, the evidence points to the conclusion that the covenant in clause 19.1(b) is valid. However, it is unnecessary to decide the question as the defendant has undertaken not to solicit custom in the remaining period of the covenant. The covenant will expire within about six weeks. I therefore do not decide whether clause 19.1(b) is valid.

27 The restriction in clause 19.1(c) is plainly a burden to the defendant as an employee. It has little justification when considered as a matter of public interest in that it restricts competition. It prevents the defendant from taking up employment with other existing agents in the area. The plaintiff is not the only real estate agency that operates in the area of its business. It is but one of about 34 businesses that compete for custom in the area. Of those 34 businesses, about 30 are based in Liverpool which is more than 7.5 kilometres from the plaintiff’s office. The plaintiff competes with three to four other real estate agencies that carry on business in its area. The restriction prevents the defendant from being employed by any of those latter agencies.

28 The defendant was but one of six real estate salespersons employed by the plaintiff. He did not have access to anything that could properly be regarded as a trade secret. I repeat, it has not been suggested that he had established any special relationship with a client or clients of the plaintiff. The plaintiff is not entitled to be protected against the defendant using whatever skills and experience he has acquired in 14 years of selling real estate nor against whatever skills and experience he might have acquired in the seven months in which he was selling real estate in the area in which the plaintiff conducts its business: Herbert Morris Ltd v Saxelby per Lord Parker at 710; Drake Personnel Ltd v Beddison [1979] VR 13 at 21-24.

29 The fact that the defendant’s customers include one or two friends is not, standing alone, a sufficient basis on which to support the restraint: see the discussion in J D Heydon, The Restraint of Trade Doctrine 3^rd ed (2008) LexisNexis Butterworths at 131. Something more than mere friendship must be established: Koops Martin Financial Services Pty Ltd v Reeves at [43].

30 There is no evidence that the defendant has been instrumental in establishing the goodwill of the plaintiff’s business. That would be highly unlikely given that he was but one of six salespersons and had been employed by the plaintiff for some seven months only. In any event, the evidence pointed to a fall in sales which had caused the plaintiff to reduce the salary paid to its employees including the defendant.

31 This is simply a case where a real estate agent has terminated his employment with the plaintiff and has entered the employment of another real estate agent that competes with the plaintiff for business in much the same area as the plaintiff conducts its business. There is no suggestion that the plaintiff has taken with him any information confidential to the plaintiff. The covenant is simply directed at restricting competition within the area in which the plaintiff conducts its business. While instances do arise when it is proper to restrain a former employee from competing directly with the former employer, this is not such a case.

32 Having regard to the fact that the defendant was but one of six salespersons employed by the plaintiff, the fact that the defendant has undertaken not to solicit the plaintiff’s customers, for the period remaining of the covenant, the fact that the plaintiff has not demonstrated that the defendant has any special relationship with its customers, the short period of time in which the defendant had been employed by the plaintiff, the fact that the plaintiff has not demonstrated that the defendant has any special relationship with any of its recurring customers and the fact that the greater number of the plaintiff’s customers are not recurring customers, I find that the restraint is not valid. Clause 19.1(c) is a covenant against mere competition. It does not protect any legitimate interest of the plaintiff in its business connection or goodwill. It cannot be read down so as to be valid. It is, therefore, void against public policy and unenforceable.

Lack of consideration

33 Given this conclusion it is unnecessary to consider Mr Spinks’ contention that clause 19 did not bind the defendant because there had been no consideration passing between the plaintiff and the defendant for the covenant in clause 19.

Conclusion

34 For these reasons, the plaintiff has failed to establish that the defendant has solicited customers of the plaintiff in breach of clause 19.1(b). In addition, the covenant in clause 19.1(c) is void and unenforceable. The plaintiff has failed to establish that it has incurred any loss or damage. The plaintiff’s claims as against both the first and the second defendant must, therefore, be dismissed.

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