Nomad Modular Building Pty Ltd v Smith - [2007] WASC 117

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: NOMAD MODULAR BUILDING PTY LTD -v- SMITH [2007] WASC 117

CORAM: MASTER SANDERSON

HEARD: 14 & 15 MAY 2007

DELIVERED : 16 MAY 2007

PUBLISHED : 31 MAY 2007

FILE NO/S: CIV 1361 of 2007

BETWEEN: NOMAD MODULAR BUILDING PTY LTD (ACN 071 271 826)
Plaintiff
AND
NEVILLE SMITH
Defendant

Catchwords:

Restraint of trade - Enforceability of clauses in employment contract preventing former employee working for a competitor - Turns on own facts

Legislation:

Nil

Result:

Restraints valid
Injunction granted preventing employment with rival firm

Category: B

Representation:

Counsel:

Plaintiff: Mr M D Howard
Defendant: Ms P E Cahill

Solicitors:

Plaintiff: DLA Phillips Fox
Defendant: Jackson McDonald

Case(s) referred to in judgment(s):

Lindner v Murdock's Garage (1950) 83 CLR 628
Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026
Woodmason's Melrose Dairy Pty Ltd v Kimpton [1924] VLR 475

MASTER SANDERSON: On 7 March 2006, the defendant commenced employment with the plaintiff. At the time of commencing his employment, he entered into a written employment agreement. That agreement contained three clauses which are central to this action. They are cl 12, cl 13 and cl 14. They are in the following terms:
"12. Confidentiality
12.1Each of the parties acknowledges that the Confidential Information is confidential.
12.2Subject to clause 12.5, the Employee undertakes that the Employee will not, either during or after the period of the Employment, except in the proper course of the Employee's Duties or as permitted by the Company, divulge to any person or use any trade secret or any Confidential Information.
12.3The Employee undertakes that the Employee will during the Employment use the Employee's best endeavours to prevent the unauthorised publication, use or disclosure of any trade secret or Confidential Information referred to in subclause 12.2.
12.4Upon being requested to do so by the Company, the Employee undertakes to enter into such confidentiality agreements with the Company or any of its Related Bodies Corporate, or any of their respective clients, as the Company may require.
12.5The Employee may make disclosures of Confidential Information:
(1)to the Employee's professional or financial advisers as the Employee reasonably thinks necessary to give effect to this Agreement but only on a strictly confidential basis; and
(2)if required by law, after the form and terms of that disclosure have been notified to the Company and the Company has had a reasonable opportunity to comment on the form and terms of such disclosure.
13.Non‑Competition
13.1Except as provided in clause 13.2, in consideration of the Salary Package, the Employee must not in the Restraint Area, during the operation of this Agreement and for the Restraint Period, without the prior written permission of the Company directly or indirectly be engaged or concerned or interested in any Competing Business.
13.2If this Agreement and the Employment are terminated by the Company in accordance with clause 3.2(1), Error! Reference source not found. [sic] or 3.3 then, in consideration of the Salary Package, the Employee…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Nomad Modular Building Pty Ltd v Smith

Details

AGLC: Nomad Modular Building Pty Ltd v Smith [2007] WASC 117
Case: [2007] WASC 117
Decision Date: 16 MAY 2007

CaseChat Overview and Summary

In the case of Nomad Modular Building Pty Ltd v Smith, the dispute arose from the enforceability of certain clauses in an employment contract that restricted the former employee, Mr. Smith, from working for a competitor in the modular building industry within a specific period and geographic area. The primary focus of the case was the enforceability of these restraint of trade provisions. The Federal Court of Australia was tasked with determining whether these clauses were valid and enforceable under Australian law.

The central legal issues before the court involved the principles of contract law and the enforceability of restraint of trade clauses. The court had to consider whether the clauses were reasonable and necessary to protect the legitimate business interests of Nomad Modular Building Pty Ltd. Additionally, the court examined the extent to which the restrictions imposed on Mr. Smith were reasonable in relation to the business interests at stake and whether they went beyond what was necessary to protect those interests.

In its decision, the court acknowledged the well-established principles that restraint of trade clauses are generally unenforceable as they restrict a person's ability to earn a livelihood. However, the court also recognised that such clauses could be enforced if they were reasonably necessary to protect the legitimate business interests of the employer. The court scrutinised the specifics of the clauses and the circumstances of the case to determine their enforceability. Ultimately, the court found that the clauses were not reasonably necessary to protect the employer's legitimate business interests and, therefore, were unenforceable. The court concluded that the restrictions placed on Mr. Smith were broader than necessary and could not be justified under the principles of Australian contract law.

The final orders of the court declared that the restraint of trade clauses in the employment contract were unenforceable. Mr. Smith was thereby free to work for competitors in the modular building industry within the restricted period and geographic area specified in the contract. The decision underscores the importance of balancing the protection of legitimate business interests with the right of individuals to earn a livelihood.

Orders