Monash Real Estate Pty Ltd v Ross
[2005] VSC 116
•15 February 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 4489 of 2005
| MONASH REAL ESTATE PTY LTD (T/as BARRY PLANT DOHERTY WAVERLY) | Plaintiff |
| v | |
| MAXWELL ROSS | Defendant |
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JUDGE: | KAYE J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 14 and 15 February 2005 | |
DATE OF JUDGMENT: | 15 February 2005 | |
CASE MAY BE CITED AS: | Monash Real Estate v Ross | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 116 | |
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INTERLOCUTORY INJUNCTION – Employment Agreement – Confidentiality clause – Restraint of trade clause.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. D’Abaco | Mason Sier Turnbull |
| For the Defendant | Mr T. Angelopoulos | Brennan & Georgiou |
HIS HONOUR:
This is an application by the plaintiff, Monash Real Estate Pty Ltd for an interlocutory injunction to enforce the provisions of an employment agreement which it entered into with the defendant, Ross Maxwell. The plaintiff is a real estate agency trading as Barry Plant Doherty and conducting its business from three offices in the City of Monash at Glen Waverley, Mount Waverley and Wheelers Hill.
On 10 February 2003 the plaintiff engaged the defendant as a sales consultant. The parties signed an employment agreement setting out the terms of the defendant’s engagement by the plaintiff. The defendant initially commenced work at the plaintiff’s Wheelers Hill office but then he moved to the Mount Waverley office where, as I understand it, he worked for most of the time during his employment with the plaintiff.
He resigned from his employment with the plaintiff on 20 December 2004 and commenced new employment as a real estate agent with Hocking Stuart, Mount Waverley, on 17 January 2005. The plaintiff alleges that the defendant, in the course of his new employment, has breached the terms of the employment agreement which the defendant made with the plaintiff, in particular by endeavouring to solicit customers of the plaintiff to give business to him while he is working with Hocking Stuart.
In particular, the plaintiff seeks to enforce the Clauses 14 and 22 of the employment agreement. Clause 14 is entitled “Confidentiality”. By that clause the defendant agreed not to disclose, either during the agreement or after its termination for whatever reason, to any person, any confidential information which he acquires or becomes aware of by reason of his employment. Clause 14 then defined five categories of confidential information. For the purposes of the present application, sub-category (a) is relevant and it defines confidential information to include, but not be limited to, the client details of Barry Plant Doherty and their practices, business dealings, trade secrets and affairs.
Clause 22 of the agreement is entitled, “Restraint of Trade”. It provides that to reasonably protect the goodwill of the business of Barry Plant Doherty the employee - that is the defendant, agreed to a number of restraints. Sub-clause (a) of Clause 22 provides for effectively severance of the various restraints and various permutations of time and place which the clause sets out. In effect, Clause 22(a) provides that Clause 22 shall have effect as if it consisted of several separate covenants and restraints consisting of each separate covenant and restraint set out in sub-paragraph (b) combined with the periods of time set out in sub-paragraph (c) and of each such separate combination combined with the area as set out in sub-paragraph (d).
Clause 22(a) then provides that if any of those separate covenants and restraints becomes invalid or unenforceable for any reason, that invalidity or unenforceability will not affect the validity or unenforceability of any of the other separate covenants or restraints.
Clause 22(b) contains the substantive restraint provided for in the agreement. It provides:
(b)Without the prior written consent of Barry Plant Doherty the employee will not, whether directly or indirectly, for the periods and within the areas specified in this clause:
(i)Be employed by, engaged by or in any way associated with a direct competitor of Barry Plant Doherty;
(ii)canvass, induce, encourage or solicit any employee or contract of Barry Plant Doherty to leave the employment or engagement of Barry Plant Doherty; or
(iii)canvass, approach or accept any approach from any customer of Barry Pant Doherty with the view of soliciting for himself or a third party, the business of that customer in competition to Barry Plant Doherty”.
Clause 22(c) provides three alternative periods of time in which the restraint is to operate, namely 12 months, six months or three months from the date of termination of the agreement. Clause 22(d) provides three alternative areas within which the restraint is to operate, namely 15 kilometres, 10 kilometres or 5 kilometres from the place of employment.
Clause 22 concludes by providing that for the purposes of the agreement, a customer of Barry Plant Doherty includes any person, firm or company who, at any time during the last two years of the employee’s employment, was a customer of Barry Plant.
In summary, the material proffered by the plaintiff on this application in respect of the alleged breach of those clauses, consists of three principal matters. Firstly, the plaintiff has tendered in evidence a letter which the defendant sent to a former customer of the plaintiff, dated 7 January 2005. Without quoting that letter in detail, it commences by thanking the customer for his support over the last couple of years. It proceeds to say, “I would like to take this opportunity to thank you all for your support, loyalty, and for all of the referral business that many of you have generated for me throughout the years”.
It then proceeds to inform the customer that the defendant is now working for Hocking Stuart Real Estate. It states that the move is extremely important “to us for several reasons”. The letter states, “I believe the move to Hocking Stuart will ensure that all of my customers will achieve exceptional selling prices for the future”. The letter concludes by providing contact telephone numbers for the defendants at Hocking Stuart.
The second item of evidence consists of evidence relating to two cases where a potential vendor dealt with the defendant while he was engaged by the plaintiff as an estate agent and where the defendant is now dealing with the same vendor in respect of the same property during his employment with Hocking Stuart. The third item of evidence consists of evidence relating to a decline in the listings achieved by the defendant during the last two months of his employment with the plaintiff.
As I stated this is an application for an interlocutory injunction. Ordinarily, in order to obtain such relief, the plaintiff must show, first, that there is a serious issue to be tried, and secondly, that the balance of convenience between the parties favours the grant of such interlocutory relief. See for example The Australian Coarse Grain Pool Pty Ltd v The Barley Marketing Board of Queensland;[1] Murphy v Lush.[2] The authorities show that the two issues are not entirely discrete but are inter-related. In other words, the strength or otherwise of the plaintiff’s case may be relevant ultimately to an assessment of the balance of convenience between parties. See Magna Alloy & Research Pty Ltd v Coffey.[3]
[1](1982) 57 ALJR 545.
[2](1986) 60 ALJR 523.
[3](1981) VR 23 at 28.
Further, in cases involving contracts which contain a provision in restraint of trade, the authorities suggest that a higher onus rests on the plaintiff to persuade the court to grant the interlocutory injunction since such relief may impinge on the right of the defendant to pursue gainful employment. See Hartleys Limited v Martin;[4] Brilliant Lighting (Aust) Pty Ltd v Baillieu.[5]
[4](2002) VSC 301, at paragraphs 32-34.
[5](2004) VSC 249 at paragraph 7.
The cautious approach which should be adopted by a court in such cases is reflected in the decision of Anderson J in Drake Personnel Limited v Beddison.[6] In that case the former employer sought an interlocutory injunction in full terms, designed to restrict the defendant from working as a personnel consultant at all. At the interlocutory application, O’Bryan J, as is reflected at p.18 of the report, only made a limited order enjoining the defendant from soliciting custom from any client of the plaint or its affiliates with whom he dealt while an employee of the plaintiff. The matter came before trial, before Anderson J who dismissed the plaintiff’s claim on the basis that the clauses, which the plaintiff sought to enforce, were invalid. His Honour remarked as follows at pp.24-25.
“It is very commonly the fate of an action such as this that it never gets past the interlocutory stage. The plaintiff employer gets its interlocutory injunction and time runs out before the action comes to be heard. In such a situation the advantage is with the plaintiff. In the present case it seems to me to be fortunate that O’Bryan J had the wisdom to make the guarded order he did, for it enabled the defendant to continue in business which, if my decision is correct, he was entitled to do. On the other hand, had the interlocutory injunction be granted in the usual unqualified terms, the defendant may not have had the fortitude or inclination to persist in the litigation and to vindicate his rights, suffering unwarranted damages thereby.”
[6][1979] VR 13.
The principles relating to the contracts containing the restraints of trade, are well established by the authorities. Any restraint on the right of a person to be employed is prima facie void as being contrary to public policy. That presumption may be rebutted if it is shown that the restraint is no more than what is reasonably necessary to protect the plaintiff against the infringement of a legitimate interest recognised by law, such as trade secrets, confidential information or the like.
The assessment whether the restraint is reasonably necessary to protect such an interest is made by the court as at the time of the making of the contract. See Herbert Morris Limited v Saxelby;[7] Mason v Provident Clothing & Supply Co Limited;[8] Lindna v Murdock’s Garage;[9] and Drake Personnel Limited v Beddison.[10] In this context it is recognised that an employer is entitled to impose a restrictive covenant to reasonably protect its business against ex-employees taking customers from it to a business in competition with its former employee. See Drake Personnel Limited v. Beddison;[11] Phillip M. Levy Pty Ltd v Christopoulos,[12] and Hartley Limited v Martin.[13] On the other hand, a covenant against mere competition is not enforceable as it does not protect any legitimate interest op an employer which is recognised by the law. See Drake Personnel.[14]
[7](1916) 1 AC 688.
[8][1913] AC 724.
[9](1950) 83 CLR 528.
[10]Above, at 19.
[11]Above, at 19.
[12][1973] VR 673 at 678.
[13]Above, at paragraph 91.
[14]At paragraphs 92-96.
In this case the plaintiff seeks the following orders by way of interlocutory relief. First, an order restraining the plaintiff from being employed by or engaged by, or in any way associated with a direct competitor of the plaintiff within a 10 kilometre radius of the plaintiff’s former place of employment at Mount Waverley, for a period of six months. Secondly, an order restraining the plaintiff from canvassing, approaching or accepting any approach from any person, firm or company who was a customer of the plaintiff in the two years before 20 December 2004, and appearing in the plaintiff’s master data base, with a view to soliciting for himself or a third party the business of that customer within a 10 kilometre radius of the plaintiff’s former employment at Mount Waverley for a period of six months from the cessation of the defendant’s employment with the plaintiff. Thirdly, an order restraining the defendant from disclosing to any person any confidential information of the plaintiff.
As I stated, the plaintiff’s application for such orders was founded on its concern that the defendant has been using confidential information about its customers and clients in order to induce those customers to deal with the defendant during his employment with Hocking Stuart. Much of the debate before me centred on the difficult question as to who might be defined as comprising the customers or clientele of the plaintiff which the plaintiff sought to protect by interlocutory relief.
The plaintiff relied on an affidavit of its director, Robert David Wartnaby, sworn 8 February 2005. Mr Wartnaby stated that the clientele of the plaintiff, consists of residential vendors and purchasers. He stated that each sales consultant engaged by the plaintiff is allocated a business development area within which the consultant is required to conduct marketing activities. The sales consultant maintains an individual data base on which he or she records his or her contacts with the clients in that area. That data base, itself, forms part of the plaintiff’s master data base. The master data base, according to Mr Wartnaby, contains information relating to six categories of what the plaintiff claims to be customers, namely:
“(a)potential vendors contacted by the plaintiff’s tele-canvassers;
(b)potential vendors approached directly by the sales consultant;
(c)potential vendors as a result of the sales consultant’s marketing activities;
(d)potential purchasers;
(e)past purchasers - for example investors, and
(f)other listing opportunities.”
There was some dispute before me as to the ability of the defendant to access the main data base of the plaintiff in order to obtain that information. However, what has emerged, and has been established to my satisfaction, for these purposes, is that a sales consultant cannot only access the main data base for information concerning his own clients, but that he can also access the main data base to obtain the name and suburb of other persons and contacts with whom other sales consultants of the plaintiffs have had dealings.
As I have described above, the evidence discloses that the defendant on the cessation of his employment with the plaintiff, wrote a number of letters to persons who were apparently listed on his own individual data base. I have quoted from part of the letter from one of those persons. At the cessation of his employment, apparently the defendant had some 297 such names on his individual data base.
Initially there was debate before me as to whether all or any of those persons might be properly described as customers, which the law would protect. The defendant argued that some of those names related to person who had simply been contacted as potential or possible sales. In other words they were mere prospects rather than customers. However, the defendant’s own affidavit described the persons on his own data base as clients. More importantly, in the letter that he sent to those persons, and which I have referred to, he thanked those persons for their support, loyalty and referral business that many of them had generated for him throughout the years.
The terms of that letter reflected that it was sent to persons on the defendant’s individual data base, who the defendant, himself, treated as customers. At this stage of the proceeding the letter is sufficient to show that there is a serious issue that the defendant did have customers with whom he had had contact through his employment with the plaintiff and which the plaintiff, at law, is entitled to protect by appropriate restraint clause.
In the course of argument, Mr Angelopolous who appeared for the defendant, recognised the difficulty exposed by the evidence to which I have just referred. Accordingly in the course of his argument he proffered an undertaking not only on behalf of his own clients but also on behalf of Hocking Stuart from whom apparently he has instructions. That undertaking was that for a period of six months from 20 December 2004 they would not canvass, approach or accept any approach from any person on the defendant’s individual data base where the property of such a person is within a 10 kilometre radius of the former employment of the defendant at Stephensons Road, Mount Waverley. In my opinion, the defendant was correct in making that concession during argument.
The law recognises that an employee may, during his entitlement, forge a relationship with a client or contact or prospective client of his employer, which the employer may protect by appropriate contractual restraint - see Hartleys Limited v Martin;[15] I.F. Asia Pacific Pty Ltd v Simon Galbally & Ors.[16] Thus the plaintiff has established that it has a legitimate interest in the persons with whom the defendant had had contact in the course of his employment, and it is entitled to protect that interest by appropriate contractual restraint.
[15][2003] VSC 192 at paragraphs 97-101.
[16]At p.680.
The letter sent by the defendant to persons nominated on his individual data base, and his contact with two such persons in respect of sales of their properties, are sufficient at this level to show that there is a serious issue to be tried in relation to a breach of the restraint. Accordingly, the plaintiff at this stage is entitled interlocutory relief in respect of that aspect of his claim. As I stated, Mr Angelopolous proffered an undertaking on behalf of his client to provide such protection. The plaintiff is not bound to accept such an undertaking. He was entitled to an injunction in those terms which I shall grant in due course.
The plaintiff, however, seeks a broader relief than that proffered by the defendant in argument. The plaintiff, first, seeks to enjoin under Clause 22(b)(iii), the defendant from dealing with any person on the plaintiff’s own name data base for a period of six months where such person has a residence within 10 kilometres of the defendant’s former place of employment. The plaintiff also seeks to restrain the defendant from being employed at all by any competitor of the plaintiff pursuant to Clause 22(b)(i), again within a distance of 10 kilometres of the defendant’s former employment, for a period of six months from the cessation of his employment with the plaintiff.
Mr D’Abaco who appeared for the plaintiff, contended that the latter restraint is necessary because if the plaintiff were confined for relief under Clause 22(b)(iii), it might at trial have difficulty in proving any damages resulting from a breach of such a clause by the defendant. On the other hand, Mr Angelopolous for the defendant, contended that the restraint sought by the plaintiff does not protect a legitimate interest of the plaintiff recognised by law. Rather, it is said that the restraint is wider than is necessary to protect what might possibly be described as the customers of the plaintiff but is rather a restraint on competition.
In order to resolve that dispute I turn again briefly to the evidence. The affidavit of Mr Wartnaby provides very little detail concerning the nature and composition of the six categories of persons which he lists in paragraph 8 and which I have quoted above. The first three categories are described as potential vendors. There is no evidence as to what is meant by the adjective “potential”.
The first category relates to potential vendors contacted by the plaintiff’s tele‑canvassers. Little information is proffered as to that category in Mr Wartnaby’s affidavit. However, Mr Maxwell, at paragraph 46 of his affidavit, described such contacts as follows.
“Tele-canvasser leads are what we call in the industry soft leads. That is, they are leads that we manufactured by way of being proactive. The result is that the majority of these home owners are not ready to sell. They generally just want an idea of the current value of their home or may be thinking of selling in the distant future, and are happy to be given a rough idea of the value in the current market and a guide as to the home’s future value. It is extremely rare for one of these leads to he listed within a two to four week period. Some of these soft appraisals take years to come onto the market and the majority (indistinct).”
That description and the bare description of persons as potential purchasers, in my opinion, for these purposes, falls well short of what the law understands as customers of an employer which an employer is entitled to protect by appropriate injunctive relief. An estate agent is, of course, in a different category to, for example, a retailer of goods from a shop. His clientele is different of course to such a retailer. However, there is no evidence in this case that any of the names on the main data base of the plaintiff, constituted recurring customers as vendors - there Philip Levy v Christopoulos.[17]
[17]At p.680.
I have no doubt that estate agents are, as Mr Wartnaby says, proactive in seeking out persons who might potentially decide to sell at a future date, and if they do so, might potentially engage the plaintiff to effect such a sale. However, as I stated, such persons are very different and are not, in my view, what might be described as customers of a business which a plaintiff employer is entitled to protect by a restrictive covenant.
Similar comments may be made in relation to the other three categories of persons on the main data base. The next two are categories of past purchasers - potential purchasers or past purchasers. There is no evidence that they include persons who put recurring business in the hands of the plaintiff. Indeed there is no evidence that any such purchasers engaged the plaintiff, which as I understand it, acts on behalf of vendors.
The sixth category, “Other Listing Opportunities” is, in my view, hopelessly vague and imprecise for these purposes. Thus I do not consider that, on the material which has been proffered at this stage, there is a serious issue that the plaintiff has an interest in the categories described in paragraph 8 of Mr Wartnaby’s affidavit, which it is entitled to protect by a restrict covenant. On any view the case of the plaintiff in this respect is not strong at all, and certainly is not sufficiently strong to justify the far-reaching restraint which it seeks to have imposed pending trial on the defendant.
In addition, there is no evidence that the defendant has dealt with what the plaintiff might describe as its customers, other than those persons with whom he has had contact and who are contained on the defendant’s own individual data base. The plaintiff is understandably anxious that the defendant may have had such contact or may be liable to do so, given his conduct in relation to the persons set out on his individual data base, but there is no evidence that the defendant has done so, and not sufficient evidence certainly to establish a serious issue to be tried as to breach.
In I.F. Asia Pacific Pty Ltd v Galbally, Dodds-Streeton J noted:[18]
“It is one thing to restrain an ex-employee from dealing with customers with whom the employee actually had contact in the course of his or her employment. On the other hand, it is more difficult for the employer to restrain an ex-employee having contact with customers of the employer with whom the employee had no contact during his employment, especially in the absence of credible evidence that the defendant has pilfered or otherwise extracted confidential lists of those employees from the main data base. The evidence here does not support such a conclusion.”
[18]At paragraph 97.
There is a further consideration of course, and that lies in the concept of the balance of convenience. The wider restraint contended for by the plaintiff would be particularly far-reaching. There is no evidence before me as to the number of persons who are in fact listed on the plaintiff’s main data base, however the description to which I have referred in Mr Wartnaby’s affidavit, suggests that that list could be quite extensive and indeed indeterminate. Any restraint of the defendant from having any contact at all with such persons would constitute a significant restriction on his right to work.
Further, if any such restriction were imposed and if it were found to be invalid at trial, it might be very difficult for the defendant to adduce evidence as to the damages that he would have sustained as a result of being placed under such a restriction at the interlocutory level. On the other hand, if the plaintiff is correct and the defendant is breaching a legitimate restraint by contacting persons on its main data base, the plaintiff can at least discover that information by interlocutory processes in this court.
I accept that the plaintiff’s path to proving damage as a result of such dealings might be difficult, but on balance I am not satisfied that the damage occasioned to the plaintiff by refusing an injunction in the wider term sought by it, outweighs the clear detriment to the defendant which the defendant would sustain if such an injunction were granted to the plaintiff.
For the same reason I would not grant an injunction restraining the defendant in terms of Clause 22(b)(i) is of course a further reason for declining to enforce that clause by interlocutory relief. On its plain construction, that clause seeks to restrain the defendant not only from working as a real estate agent but indeed from working in any capacity whatsoever within the nominated period and within a nominated time. Such a restraint goes well beyond protecting any possible legitimate interests of the plaintiff. I am not permitted to read down Clause 22(b)(i) simply to save it from invalidity –seeAsia Pacific;[19] Butts v Long.[20]
[19]At paragraph 105.
[20](1953) 88 CLR 476 at 487.
Finally, the plaintiff seeks an injunction restraining a breach of Clause 14 relating to the use of confidential information. An injunction restraining the defendant from disclosing confidential information is too wide, too vague, and would be unenforceable. The only information which the plaintiff has established that the defendant has been using, derives from the information contained in the individual data base. I will grant an injunction restraining the defendant, pending trial, from disclosing the information on that data base.
Subject to hearing from counsel as to the precise drafting of the orders, I propose making the following orders:
(1)Pending the trial of this action or further order, I restrain the defendant until 20 June 2004, from canvassing, approaching or accepting any approach from any person, firm or company, appearing on the defendant’s individual data base maintained with the plaintiff, a copy of which is attached to this order and marked with the letter A, with a view to soliciting for himself or a third party the business of that customer in respect of the sale or prospective or possible sale of a property or of an interest in a property located within a 10 kilometre radius of the defendant’s former place of employment with the plaintiff at 278 Stephensons Road, Mount Waverley;
(2)Pending the trial of this action or further order, I restrain the defendant from disclosing to any person, any of the information contained on the defendant’s individual base maintained with the plaintiff, a copy which is attached to this order marked with the letter A.
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