Neville Jeffress Advertising Pty Ltd v Barlow

[1992] TASSC 89

COURT:  SUPREME COURT OF TASMANIA

CITATION:              Neville Jeffress Advertising Pty Ltd v Barlow [1992] TASSC 89; B9/1992

PARTIES:  NEVILLE JEFFRESS ADVERTISING PTY LTD
  v
  BARLOW, Patrick

FILE NO/S:  368/1992
DELIVERED ON:  15 April 1992
JUDGMENT OF:  Underwood J

Judgment Number:  B9/1992
Number of paragraphs:  12

Serial No B9/1992

List "B"

File No 368/1992

NEVILLE JEFFRESS ADVERTISING PTY. LTD. v. PATRICK BARLOW

REASONS FOR JUDGMENT  UNDERWOOD J

(Delivered Orally)  15 April 1992

Injunction – Interlocutory injunction – Beecham Group Ltd. v. Bristol Laboratories Pty. Ltd. (1967–1968) 118 C.L.R. applied – Covenant in restraint of trade.

1. This is an application for an interim prohibitory injunction. The plaintiff company bought the goodwill of an advertising business owned by Barlow Advertising Pty. Ltd. for $50,000. The purchase agreement was completed on 31 August 1990. The defendant was the managing director of Barlow Advertising. Clause 8 of the agreement provided that the plaintiff will employ the defendant "with the status of Client Services Director" at a salary of $65,000 per year. The defendant was so employed from 31 August 1990 until 12 February 1992 when he was dismissed by the plaintiff. The defendant claims that his dismissal was a breach of a collateral contract of employment entered into between himself and the plaintiff. On 4 March 1992 the defendant commenced proceedings in this Court for damages for breach of that contract. However, this application is not brought in those proceedings but in separate proceedings instituted by the purchaser of the business on 25 March 1992. The only evidence on this application of a contract of employment for a specified period of time appears by way of assertions to that effect in a letter written by the solicitors for the defendant to the solicitors for the plaintiff. The principal proceedings in which this application is brought relate to cl.12 of the agreement to purchase the business and made between the plaintiff, Barlow Advertising Pty. Ltd. and the defendant. It provides:

"In consideration for [sic] the Purchaser agreeing to employ the Covenantor upon the terms and conditions hereinbefore appearing the Vendor and the Covenantor jointly and severally covenant and agree that the Covenantor will not during the term of his employment with the Purchaser or for a period of three (3) years from the date of termination of that employment either directly or indirectly or as principal agent employee or otherwise conduct or be associated with the conduct of any advertising business with the Clients or with any other clients of the Purchaser or with any persons or Corporations who during the period of the Covenantor's employment with the Purchaser become clients of the Purchaser.

PROVIDED THAT the provisions of this clause shall not apply to the Covenantor when he is conducting advertising business as an employee of and for the benefit of the Purchaser."

1. The plaintiff is the purchaser and the defendant the covenantor in the clause set out above. The agreement defines the expression "the Clients" to mean those persons, companies or organisation specified in a list annexed to the agreement. The plaintiff's claim in the principal proceedings is that the defendant is in breach of that covenant and is likely to commit further breaches unless restrained by injunction. The writ seeks a permanent injunction restraining the defendant from committing further breaches of cl 12. On this application the plaintiff seeks an interim prohibitory injunction expressed in the terms of cl 12.

1. By his affidavit, the defendant concedes that if cl.12 is enforceable, he has breached it with respect to two clients. On his behalf it was submitted that the clause is void in that it is contrary to public policy. Further, in opposition to the grant of interlocutory relief it was submitted on behalf of the defendant that:

1.        The balance of convenience favours rejection of the application.

2.        Damages will be an adequate remedy.

3.        Delay and prejudice individually and collectively, require rejection of the application.

4.        The applicant/plaintiff does not come to this Court with clean hands.

1. The last matter relates to the defendant's claim that the present situation has only arisen because the plaintiff wrongfully dismissed the defendant from his employment. However, as mentioned earlier, there is insufficient material before me on this application with respect to that claim to permit a conclusion that the plaintiff's conduct has disentitled it to the grant of equitable relief that it would otherwise be appropriate to give. Coupled with this submission it was put that, as the plaintiff did not commence proceedings within the time threatened in a letter from its solicitors dated 25 February 1992, it permitted the defendant to act to his detriment upon an assumption the plaintiff created viz, that no proceedings would be commenced at all. The short answer to this submission is that there is no evidence that:

(a)       such an assumption was created;

(b)       the defendant acted on it to his detriment; or

(c)       that the plaintiff knew that the defendant made such an assumption.

1. On the question of the proper exercise of the discretion, I venture to repeat what I said recently in Drake Personnel Ltd v Southern Long Line & Trawl Co Pty Ltd B7/1992 at 3:

"Upon an application for interlocutory injunctive relief one consideration is whether the plaintiff has made out a prima facie case, 'in the sense that if the evidence remains as it is there is a probability that at the trial of action, the plaintiff will be entitled to relief', per Beecham Group Ltd v Bristol Laboratories Pty Ltd (1967–1968) 118 CLR 618 at pp622–623. For the reasons set out by Zeeman J in Markham & Anor v The Commonwealth Bank of Australia & Anor 51/1991, I too consider that the law is as expounded by the High Court in the Beecham Group (supra) decision notwithstanding the subsequent criticism of that case by single justices of that Court and the English test as formulated in American Cyanamid Co v Ethicon Ltd [1975] AC 396. Another consideration on an application for interlocutory injunctive relief is whether the inconvenience or injury which the plaintiff would be likely to suffer if the injunction were refused is outweighed by the injury the defendant would suffer if it was granted. Of course, these are not separate isolated considerations but significant matters to be taken into account in the proper exercise of the discretion. See Magna Alloys v Ten–Haaf [1978] Tas SR 136."

1. The terms of the restrictive covenant are plain. If it is not void, the defendant is already in breach of it with respect to two clients. I am satisfied that if the interlocutory order sought is not made, there will be further breaches, for the letters written by the defendant's solicitors and the tenor of his affidavit, make it plain that the defendant considers that he is not bound by the terms of the covenant and will act contrary to it if it suits him so to do.

1. A substantial sum of money was paid by the plaintiff for the goodwill of the business and the probability is that the value of this asset will be considerably diminished by the time the action goes to trial if the order sought is not made. The defendant asserts in his affidavit that, with respect to a number of clients of the plaintiff, they have gone to others for their work or have not ordered work from the plaintiff for a substantial period of time. With respect to the latter proposition I have no evidence concerning the frequency it would ordinarily be expected that work would be ordered and, with respect to the former, there seems to be little significance for either the plaintiff or the defendant on this application as it was not suggested that those clients had ordered or wished to order work from the defendant.

1. It is true that an interlocutory order will cause the defendant harm if he ultimately succeeds in the action. He will lose the small amount of business he is presently conducting with two clients and will be stopped from doing business with any other clients of the plaintiff. However, the same proposition applies in reverse if the order sought is not made, for the plaintiff will be deprived of interim protection for its client base from the defendant.

1. The plaintiff's case is, in essence, that it paid $50,000 for goodwill and it risks losing a substantial part of the value of that goodwill by the time trial is reached unless the order sought is granted. On the other hand, the defendant's claim is only that, if the order sought is made, he will be unable to solicit work from, or do work for a number of clients of the plaintiff to an extent which, understandably, he was unable to quantify. If the clause is found to be valid and the interlocutory order not made it appears that breaches will be hard to detect and damages difficult to assess although, I accept, that to some extent, assessment of any damages suffered as a consequence of the making of the order sought may also be difficult to assess. However, on a careful consideration of the merits of both sides I have reached the conclusion that the balance of convenience favours the making of the order sought.

1. With respect to the question of a prima facie case it is of course trite law that prima facie, any contract in restraint of trade is void but, "restraints of trade and interferences with individual liberty of action may be justified by the special circumstances of a particular case", per Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565. It is true, as counsel for the defendant submitted, that there are instances, where apparently far less restrictive covenants have been held void. He referred to Iraf Pty Ltd & Ors v Graham (1982) 41 ALR 209 (a case concerning a covenant restricting a defendant from carrying on a competitive hairdressing business for a period of three years within a radius of one kilometre from the plaintiff's business). See also, Papastravou v Gavan [1968] 2 NSWR 286.

1. Although cl 12 of the agreement made between the parties to this litigation is geographically unrestricted, it is not a general prohibition against the defendant going into competition against the plaintiff. The covenant is confined to identifiable persons in respect of whose business the plaintiff paid Barlow Advertising Pty Ltd a considerable sum of money. There are no rigid rules to be applied. The question is whether, upon the evidence, "the restraint affords to the person in whose favour it is imposed nothing more than reasonable protection against something which he is entitled to be protected against, provided, the clause is not injurious to the public." See Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 700. See also Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315 – 316. The onus lies upon the plaintiff to establish that the restraint is reasonable as between the parties and upon the defendant to establish that it is injurious to the public.

1. The evidence on this application establishes a degree of probability that the plaintiff will succeed in the principal proceedings which, together with the other matters relevant to the proper exercise of the discretion and referred to earlier, is sufficient to activate that discretion in favour of the applicant/plaintiff and an interlocutory prohibitory injunction will be granted. I will hear counsel with respect to its terms.