Miles v Genesys Wealth Advisers Limited

[2009] HCATrans 182

[2009] HCATrans 182

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S66 of 2009

B e t w e e n -

RAYMOND JOHN MILES

Applicant

and

GENESYS WEALTH ADVISERS LIMITED

Respondent

Application for special leave to appeal

HAYNE J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 31 JULY 2009, AT 1.49 PM

Copyright in the High Court of Australia

MR M.L.D. EINFELD, QC:   May it please the Court, I appear with my learned friend, MR A.C. HARDING, for the applicant.  (instructed by Pavuk Legal)

MR A.J. MEAGHER, SC:   May it please the Court, I appear with MR G.K.J. RICH, for the respondent.  (instructed by Atanaskovic Hartnell)

HAYNE J:   Yes, Mr Meagher.  Yes Mr Einfeld.

MR EINFELD:   If the Court please, it is generally accepted that a restraint as to time will be reasonable if it goes no further that is necessary to protect the interests of the party for whose benefit it is being provided.

HAYNE J:   Given that you have mentioned the subject of time, Mr Einfeld, when does this restraint run out?

MR EINFELD:   In September of this year, your Honour.

HAYNE J:   What is the practical purpose that would be achieved if leave were to be given beyond disputing who would bear the costs of the litigation that has hitherto occurred?

MR EINFELD:   A potentially substantial claim in damages pursuant to an undertaking as to damages that was given at the time of the commencement of proceedings, your Honours.

HEYDON J:   Was Justice Palmer’s judgment interlocutory injunction judgment or a final injunction?

MR EINFELD:   No, it was a final hearing.

HEYDON J:   The undertaking as to damages could only operate, could it not, for the period from when it was given and the end of the trial.

MR EINFELD:   Our submission would be on the basis that the principles that we wish to propound that both his Honour at first instance and on appeal applied inappropriate tests to determine the duration of the restraint.  If that be correct on one of our three points of principle we wish to adumbrate in this Court, then the judgment will have miscarried at first instance and on appeal.  It will be now in this Court, if special leave were granted, for the first time that had been held that the restraint was invalid, and in that period of time, even up until now, Mr Miles will have been kept out of his chosen vocation with consequences under the interlocutory undertaking that was given, in our submission.

HAYNE J:   What is the answer to Justice Heydon’s point that that undertaking ceased to operate at least at judgment at trial?

MR EINFELD:   Even so, there will be a significant damages claim because this particular applicant was highly renumerated and the period of restraint, even as by the time of the judgment of Justice Palmer had already been extant for some months, and in our submission, if we are right in point of principle, then it would be our submission that the injunction would run beyond the date of the first final judgment because it will be found to have miscarried in limine, as it were, by application of inappropriate tests and we would ‑ ‑ ‑

HEYDON J:   Can you cite any authority to support that proposition?

MR EINFELD:   No, your Honour.

HEYDON J:   I am not surprised.

MR EINFELD:   Apart from costs considerations, your Honour, the principle point of practicality to the parties is one of the undertaking as to damages.  In point of principle, we say that the issues that are raised by the judgment below, are matters that are significant in the context of restraint of trade in respective matters that have not been looked at by this Court for some considerable time, and when last considered by this time, in particular applied with respect to one of the points of principle we take, an inappropriate test which raises this very question of the double aspect of consideration of what is the relevant time for a restraint of trade restraint, and in our submission, that question is one which very much deserves consideration by the Court because of a confusion of principle at appellate level and at first instance level in Australia, and the questions are significant in the context of restraint of trade contracts, which proliferate, of course, in the modern commercial world.

For those reasons, it is our submission that, notwithstanding the expiry of the restraint period, imminently, that the matter is nonetheless, one which deserves the Court’s consideration.  Your Honours, the three points which we propound as deserving of this Court’s consideration which arise in respect of the generally accepted principle that a restraint as to time is to be determined upon the basis that it goes no further than is necessary to protect the covenantee’s interests, are firstly that the receipt of any benefit by the covenantor is immaterial to the duration of the restraint, and that raises the double aspect, or dual aspect of the tests that has been the subject of comment.

Secondly, it is equally erroneous to bring to account when determining the reasonableness of the time period of the restraint the fact that it was consensual or that it was entered from equal bargaining position of covenantor and covenantee, or for that matter with legal advice, and the third is the question, according to what test should the Court determine the time required to protect the covenantee’s interest?  Your Honours, with respect to the first issue, both at first instance and on appeal, some prominence was given to the employee’s receipt of what were perceived to be valuable benefits.  However, once it is accepted that the fundamental principle is whether the restraint goes no further than is require to protect the employer’s business interests then whether an employee received a benefit of greater or lesser value becomes an irrelevant question.  It is immaterial to the primary determination that is required.

Apart from authority, it is very difficult in principle, your Honours, to see how the receipt of a benefit in exchange for the restraint is capable of informing an inquiry as to time which is necessary to ensure protection of the employer’s commercial interest.  It would seem, your Honours, that the perception that a benefit to the covenantor has a role to play at all appears to emanate from the reference in Lord Macnaughten’s speech in a Nordenfelt decision to the interests of the parties, that is parties, plural.  In point of fact, there is not double or dual aspect.  Lord Macnaughten’s expression was explained in the Herbert Morris decision by Lord Atkinson and Lord Parker.

The correct principle was there said to be that in order to be reasonably in the interests of the parties the restraint must afford no more than adequate protection to the person in whose favour it had been imposed.  In this Court, your Honours, there have been statements treating a benefit to the covenantor as relevant to the restraint duration.  Perhaps most pertinently in the judgments of Justice Gibbs and Justice Walsh in Amoco Australia v Rocca Bros in which Justice Gibbs had said that it was permissible to consider quantum, although not the adequacy of consideration, and by the way, his Honour also had gone on to treat consensus as a matter which was appropriate for consideration in determining duration.

Your Honours, we would invite the Court’s attention to the rather problematic judgment of Justice Walsh in the same Court to which reference is commonly made, which is the materials volume, and if we can just invite your Honours’ attention to it, it is the Amoco Australia decision at tab 2, 133 CLR 288, and if your Honours would be kind enough just to turn to the foot of page 305 for the passage that we suggest indicates a need for the Court to revisit the question. At the foot page 305 his Honour Justice Walsh referred to:

the extent to which the Court, when considering whether or not a restraint is reasonable, should take into account the benefits which the covenantor obtains –

and referred to Lord Macnaughten’s passage, and then says over the page at 306:

That formulation refers to the “interests of the parties concerned”.  But it lays down that a restriction is to be justified only if it is “so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed . . . This formulation, as it has been developed and applied, means that a restraint will not be enforceable, unless it affords no more than adequate protection to the interests of the covenantee –

Then his Honour goes on –

If the court is not satisfied on that question it is immaterial, in my opinion, whether the covenantor has received much or little by way of benefits from entering into the transaction.  But, although it was held from early times that the court would not inquire into the adequacy of the consideration for a restraint, nevertheless I am of the opinion that the quantum of the benefit which the covenantor receives may be taken into account in determining whether the restraint does or does not go beyond adequate protection –

He gives an example of a loan case, and then returns at the end of paragraph, the second last sentence:

If that restraint does not exceed what is reasonably adequate for the protection of the covenantee, then it may be regarded as reasonable –

Then the first sentence of the next paragraph:

But if the restraint goes beyond what is reasonable for the protection of the interests of the covenantee it will not be regarded by the court as being in the interests of the parties.

There is a conundrum there that, in our submission, requires solving.  Namely, on the one hand his Honour says that once it is found that it is in the interests of the covenantee, or adequate for the interests of the covenantee, then the question of consideration is immaterial, on the other hand, suggesting further on in the passage that it nevertheless remains open to consider that question.  In our submission, the present case provides the opportunity to unscramble the difficulties created by the supposed double aspect of the restraint which should focus on the protection of the interests of the covenantee, but in such passages as this suggests that the interests of the covenantor are also pertinent, particularly his receipt or large or smaller benefit.

Allied to that proposition, your Honours, is the second, that is, that notwithstanding comments to the contrary in, for example Justice Gibbs’ judgment in the same case – Amoco – and some of the others, Queensland Milling and so on, nevertheless whilst it is entirely natural as a matter of the general law of contract to look at matters such as consensus and bargaining power and the like, to do so when determining reasonableness of a restraint period overlooks completely the public policy considerations which underpin the restraint of trade doctrine, namely, the promotion of free and fair competition.  The period for which the covenantee’s interests require protection, we submit, cannot, either in principle or as a matter of logic, be affected by whether the parties have legal advice or whether they bargain from an equal position.

HEYDON J:   Can I ask you this question.  Let us say that you can establish these errors of law.  Can you demonstrate that if the correct, on your submissions, legal tests were applied, it would make any difference?

MR EINFELD:   Yes.  The third point we wish to raise in response to your Honour’s question is, what test is it that the Court should apply, and we submit that that which measures the extent to which it would take the employer a period of time to find a replacement employee who would reach the same level of efficiency and effectiveness, or reach levels of effectiveness in the dealing with the employer’s customers, is the appropriate test and that is the one that has been applied by the Supreme Court in Canada, albeit rejected by Justice Hodgson below, and not the same test applied in Western Australia or South Australia, which is a different test altogether, namely, dissipation of the customer connection.

HEYDON J:   You say that is less than two and one half years presumably?

MR EINFELD:   Yes.  For this reason, if that test were applied, then as happened in the decision of this Court in Maggbury v Hafele, that test having been propounded below, and having been rejected, but if it is correct, then the plaintiff employer who had it within its capacity to demonstrate the period of time in which it would have taken the replacement employee to achieve a level of efficiency, particularly in the face of evidence that we have put in the transcript in the bundle of Mr Creaser who had had similar dealings with the same Member Firms for many years, was in fact Mr Mile’s deputy, that the plaintiff failed to adduce evidence as to the period of time it would have taken him to reach the requisite level of efficiency, in which case, as happened in Maggbury, the injunction would not go because of a failure by the plaintiff to adduce evidence satisfying the relevant test of the reasonable duration of the restraint period.

Justice Hodgson brought in 14 months, as your Honour will know, for the principle restraint, and in our submission, in the absence of the relevant evidence on the part of the plaintiff, then the defendant below, applicant for special leave, will succeed in having the restraint declared invalid because of a failure, or at least declared not having been established as reasonable on the part of the plaintiff employee, your Honour.  That is what happened in the Maggbury Case in the case where the issue was whether or not the restraint of trade doctrine applied, but the Chief Justice and Justices Hayne and Gummow came to the view that having failed in establishing that the restraint of trade doctrine did not apply, nevertheless, no injunction would lie because the plaintiff had failed to make good its onus of satisfying the Court that the period of restraint was reasonable, in all the circumstances.

HEYDON J:   That argument is relevant so far as the non‑solicitation part of the injunction is concerned, but does it answer the, what you might call the confidential information aspect of the case as distinct from the customer connection aspect?

MR EINFELD:   We prefer to call it the non‑competition restraint only because the Court of Appeal, your Honour may have noted, changed the form of the order to eliminate any reference to confidential information, so it became a bare competition restraint, but for all that, to answer your Honour’s question, the answer is yes, because the majority reasoned that the non‑competition restraint, not for independent reasons having examined the reasonableness of the duration by reference to any relevant test, or even on the basis of the existing facts, but by justifying it as being required to be co‑relative with the other restraint. 

What Justice Handley had said was, the non‑solicitation restraint will not go far enough, it ought to travel together with the competition restraint because the terms of the non‑solicitation restraint will not be sufficient if there might be some back door means of doing what cannot be achieved through the front door because proposed joint venture with Mr Miles might have its own employees solicit clients and the like.

If the two are to travel together and if we are right in submitting that if the question of consensus on equal bargaining footing, and the receipt by the covenantor of a valuable benefit, are immaterial to the prime question – that is duration of the restraint – then if the two are to travel together and the correct test, in our submission, is to be applied, then both will fall because of a failure on the part of the plaintiff to discharge its burden of

proof in establishing how long it would take to replace the applicant with an efficient alternative employee.

For those reasons, your Honours, in our submission, the matters are of importance in an increasingly common and significant feature of a modern commercial life in Australia and the question has been one which is a vexing one.  The question of what is material to the determination of the time restraint has caused problems such as that identified in the passage to which we took your Honours.  The question of the test to be applied has caused confusion.  We have included a couple of recent commentaries on the Court of Appeal’s decision which have attracted interest and some criticism. 

The application of a test such as that, we propound, would bring some greater certainty into the uncertain area of restraint of trade, particularly in the case of employee restraints, and in a case in which there is no finding and it is accepted by the Court of Appeal that there was no evidence that Mr Miles took away any confidential documents when he left the employ of the respondent.

There are no factual issues that are likely to be disputed on any appeal, and there is the opportunity afforded to the Court in this case, absent factual disputation, to resolve what is apparently a difference of view between appellant level courts within Australia and in other jurisdictions to whose decisions we have pointed.  For those reasons, in our respectful submission, the case warrants a grant of special leave.  May it please the Court.

HAYNE J:   Thank you, Mr Einfeld.  We will not trouble you, Mr Meagher.

The correctness of the orders which the applicant seeks special leave to challenge by appeal to this Court depends in this case upon the application of established principles to the particular facts of the case.  The operation of the final injunction which the applicant contends should not have been granted will cease on 15 September 2009. 

Having regard to the considerations we have mentioned, we are not persuaded that an appeal to this Court would enjoy sufficient prospects of success to warrant a grant of special leave.

Special leave is accordingly refused with costs.

AT 2.11 PM THE MATTER WAS CONCLUDED