Moore Stephens Adelaide Pty Ltd v Wyka Consulting Pty Ltd (No 3)
[2015] SADC 4
•23 January 2015
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MOORE STEPHENS ADELAIDE PTY LTD v WYKA CONSULTING PTY LTD & ANOR (NO 3)
[2015] SADC 4
Decision of His Honour Judge Barrett
23 January 2015
TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - RESTRAINT OF TRADE - RESTRAINT BY AGREEMENT - CONSTRUCTION OF AGREEMENTS IN RESTRAINT OF TRADE
Upon the sale of the defendants' accountancy practice to the plaintiff the parties executed a Business Sale Agreement ("BSA") and a Service Agreement ("SA"), both of which contained restraint clauses. The second defendant contends that the restraint clauses in the SA are unreasonable in several respects. In addition he contends that there should not now be any restraint orders made.
Held: The agreed restraints are reasonable and there should now be court ordered restraints in relation to identified clients.
Nexus Mortgage Securities Pty Ltd and Ors v Ecto Pty Ltd [1998] 4 VR 220; Moore Stephens Adelaide Pty Ltd v Wyka Consluting Pty Ltd and Anor (2014) SADC 131; Moore Stephens Adelaide Pty Ltd v Wyka Consulting Pty Ltd and Anor (No 2) (2014) SADC 154, considered.
MOORE STEPHENS ADELAIDE PTY LTD v WYKA CONSULTING PTY LTD & ANOR (NO 3)
[2015] SADC 4
In this action I have delivered two judgements. The first[1] was delivered on 27 June 2014 and relates to what I describe as the principal dispute between the parties. That dispute concerned the enforceability of a clawback clause in a Business Sale Agreement (“BSA”) entered into by the parties. That judgment is the subject of an adjourned appeal in the Full Court.
[1] Moore Stephens Adelaide Pty Ltd v Wyka Consulting Pty Ltd & Anor [2014] SADC 131.
The second judgment[2] was delivered on 4 September 2014. In that judgment I made findings about certain aspects of the restraint provisions contained in the BSA and a Service Agreement (“SA”) also entered into by the parties. For reasons set out in that judgment I stood over the question of what final orders for restraint I should make and the question of costs. The standing over of those questions has made it impossible for the Full Court to proceed with the appeal. I therefore deal now with the questions of restraint and costs.
[2] Moore Stephens Adelaide Pty Ltd v Wyka Consulting Pty Ltd & Anor (No 2) [2014] SADC 154.
Restraint
While I made no final orders on the question of restrain, I did make several findings which I now repeat so as to distinguish between findings I have already made and findings I must make in this judgment.
I found first that the restraint provisions in both the BSA and the SA survive the termination of those agreements.[3] I will not elaborate on the reasons I gave for those findings.[4]
[3] Paragraph 18.
[4] Paragraphs 21 and 22.
Second, I found that it was the second defendant who breached the BSA not the plaintiff. For that reason I rejected the second defendant’s alternative submission that the plaintiff was disentitled to the equitable remedy of restraint because the plaintiff did not come to the court with “clean hands”.[5]
[5] Paragraph 13.
Finally, I found that the restraints were not void for uncertainty, nor were they unreasonable.[6] In that finding I failed to indicate whether the finding related to the restraint provisions in the BSA, the SA or both. The parties are concerned to clarify the finding in relation to the SA because that agreement relates particularly to the second defendant.
[6] Paragraph 24.
I am grateful to Mr Britten-Jones for the plaintiff and Mr Jenner for the second defendant for supplementary written and oral submissions they have made on the question of restraints. Each has tendered draft Minutes of Order, Mr Jenner reserving his submission that no orders for restraint should be made.
It is convenient to begin by discussing the restraint question by reference to Mr Jenner’s submissions.
The restraint provisions in the SA are contained in clause 22.[7] While that clause refers to the service provider (the first defendant), clause 23.2(b) extends its operation to the consultant (the second defendant, Mr Richmond). I will not reproduce clause 23. It is set out in full in Moore Stephens Adelaide Pty Ltd v WYKA Consulting Pty Ltd and Anor (No 2).
[7] Exhibit P1 tab 18, pp 9-11.
Clause 23(b)(i) has the effect of preventing Mr Richmond from soliciting the custom or dealing with (or endeavouring to do either) any client of the plaintiff. “Client” is defined in clause 28.1 as follows:
That is the Principal, any person who is a client of the Principal and/or any related body corporate of the Principal during the term and with whom that party had direct or indirect dealings as part of its engagement;
Any person to whom that party and/or any related body corporate of that party within twelve months prior to expiry (or earlier termination) of the Term has either made a representation or whose business that party and/or the Principal, and/or any related body corporate of that party, and/or the Principal has actively pursued.
The second defendant submits that that description in clause 28.1 is too uncertain. Without the benefit of judicial authority, that submission may have some attraction. However Mr Britten-Jones submits that expressions such as “client” and “dealing with” are understood to be limited to dealings in connection with the relevant trade or practice, here accountancy.[8]
[8] Authorities referred to in Heydon “The Restraint of Trade Doctrine” 3rd Edition p 142.
I also bear in mind that this was an agreement entered into by two experienced accountants. I reject the submission that the description of the proscribed activity is uncertain or unreasonable. I will turn in a moment to a further submission relating to the specific restraint order sought. For the moment I am dealing only with the reasonableness of the terms of the restraint in the SA.
I also find that the term of the agreed restraint was reasonable. Effectively it was two years from the date of termination of the agreement. I found that date to be 5 February 2014.
I accept the evidence of Mr Fusco for the plaintiff that it is necessary to have professional dealings with many clients for more than a year because professional contact may be only once a year. In order to reasonably protect its customer base I think that a two year period of restraint following termination is reasonable.
The second defendant makes a subsidiary submission on the question of the term of restraint. He submits that clause 19, the only clause dealing with the termination of the agreement, contemplates only the termination of the agreement by the plaintiff. The clause makes no reference to termination of the agreement by the first or second defendants. Accordingly, if the agreement was lawfully terminated by the defendant, the defined term of the agreement has no end date. In those circumstances any restraint would be unreasonable.
Despite Mr Jenner’s invitation to me to make a ruling on this submission, I am reluctant to do so I have found that the agreement was terminated by the plaintiff, and clause 19 provides for a termination by the plaintiff. I must say I cannot image a court being willing to order a restraint for an indefinite period against a party who has lawfully terminated the agreement, simply because the agreement failed to make provision for such an event. Beyond that observation I am not willing to make an alternative finding.
I find that the terms of the restraint in the SA are reasonable, that is the terms of the restraint are sufficiently certain and reasonable, their scope is reasonable and the term of two years is reasonable.
I turn to consider what orders for restraint should be made. The plaintiff does not seek a restraint order in respect of all the plaintiff’s clients. Instead it seeks an order which applies only to clients which were brought by the second defendant into the amalgamation with the plaintiff. The plaintiff particularises those clients in an annexure to the draft Minutes of Order. The clients there listed are said to be clients brought by Mr Richmond into the amalgamation and serviced by him and others in a department kept separate from the plaintiff’s other clients. In that way it was hoped that those clients would have continuity of service by Mr Richmond, although they would gradually be introduced to the plaintiff’s staff as the amalgamation progressed. The billing records of those clients were kept separate from the plaintiff’s other clients so that the billings by the first and second defendants could be more easily identified for the purpose of, inter alia, the clawback calculation.
The plaintiff seeks in paragraph 1 of the Minutes a restraint that broadly follows the wording of the restraint clause in the SA, but applies to the annexed list of clients rather than all the plaintiff’s clients as the restraint clause contemplates. In paragraph 2 of the Minutes the plaintiff seeks “deliver up” orders.
The second defendant opposes the making of a restraint order generally but he opposes the plaintiff’s proposed orders on three broad bases.
First, he emphasises the requirement of precision in the making of restraint orders.[9] Insofar as the order replicates the agreement it is uncertain and unreasonable. I have already made findings contrary to that submission. In the interests of precision, the second defendant submits that the order should refer to work done in the area of accountancy, but as I have already indicated, I find that provision is unnecessary. Further the second defendant submits that there should be a prologue to the restraint order noting the work that it is agreed between the parties the second defendant may continue to do with businesses he calls 10 X Business Services and Straight Talk Services. The plaintiff does not assert that the defendant may not carry out this work as this work was never part of the agreed amalgamation between the parties. I think it is unnecessary to add that prologue.
[9] Nexus Mortgage Securities Pty Ltd and Ors v Ecto Pty Ltd [1998] 4 VR 220.
Second, the second defendant submits that at the trial there was no real, or sufficient, evidence that the clients referred to in the annexure were clients with whom the second defendant had “direct or indirect dealings” within the meaning of the agreement. He points to the turnover of the separate department being far greater than that which he could himself service.
I reject that submission. I accept the submission of Mr Britten-Jones[10] that the evidence there identified establishes that there was direct or indirect contact by Mr Richmond with the clients in that separate department and that those clients’ names appear in the annexure.
[10] Paragraph 8 of outline.
The second defendant submits that, if, contrary to his primary submission, a restraint order is to be made, it should simply be in terms of the agreement and should not refer to a list of clients. I reject that submission. I think that the reference to the list of clients makes the order clearer and easier for the second defendant to follow and for the plaintiff to monitor.
The third submission by the second defendant is that if a restraint order is to be made it should follow the terms of the interlocutory restraint order made by Brebner DCJ on 14 February 2014.[11] His Honour there followed the words of the SA and in the first instance applied the order to all clients. However his Honour then excluded from the order clients whose names appeared in two affidavits sworn by the second defendant. In my view the converse approach is clearer, that is, identify in one annexure the clients to whom the order does apply rather than identify those to whom it does not apply.
[11] Trial Book tab 5.
The second defendant makes two further submissions. He submits that the interlocutory restraints have now been in operation for twelve months. That is sufficient temporal protection for the plaintiff. For reasons that I have already given I find that a restraint for two years after termination is reasonable.
The second defendant makes a specific submission opposing the inclusion of the delivery up orders proposed in paragraphs 2 and 3 of the plaintiff’s draft Minutes of Order. He submits that the obligations of confidentiality, which are a precondition of a requirement to deliver documents, is contained in paragraph 14 of the SA. Paragraph 14 is not included in clause 13.2(b), the clause binding the second defendant, as opposed to the first defendant. That is so, and it could be seen as an unusual omission from the agreement. However I accept Mr Britten-Jones’ submission in reply that an equitable remedy is available to the plaintiff to protect it from the consequences of that omission. I am persuaded that it is appropriate to make restraint orders in terms of the plaintiff’s draft Minutes of Order. I so order. For convenience I now set out those orders.
The court orders that:
1.The second defendant by his agents, servants or otherwise be restrained until 4 February 2016 from whether directly or indirectly:
1.1soliciting the custom of or dealing with (or endeavouring to solicit the custom or deal with) any client of the plaintiff (as defined in clause 28.1 of the Service Agreement dated 25 October 2011) which is included in the annexure hereto;
1.2soliciting or enticing away or endeavouring to solicit or entice away from the plaintiff any person who is employed or otherwise contracted by the plaintiff;
1.3using, conveying or otherwise employing any Intellectual Property or Confidential Information (both as defined in clause 28.1 of the Service Agreement dated 25 October 2011 and hereinafter referred to as Intellectual Property Rights and Confidential Information).
2.The second defendant shall within seven (7) days:
2.1return to the plaintiff all documents, printed or computer materials or records, memory sticks or other property capable of storing information which contain any Confidential Information, subject matter of the Intellectual Property Rights or the plaintiff’s trading names or trademarks; or
2.2if such property is incapable of being returned, destroy, delete or erase all documents, printed or computer materials or records, memory sticks or other property capable of storing information which contained any Confidential Information, subject matter of the Intellectual Property Rights or the plaintiff’s trading names or trademarks.
3.The second defendant shall within seven (7) days after the due date for compliance with paragraph 2 above, file an affidavit deposing to his actions with respect to the above paragraph 2.
Costs
I order that the second defendant pay the plaintiff’s costs including any reserve costs to be taxed or agreed.
2
0