RBM Plastic Extrusions Pty Ltd v Diaz - [2006] NSWSC 1332

CITATION: RBM Plastic Extrusions Pty Ltd v Diaz [2006] NSWSC 1332

HEARING DATE(S): 20/09/06

JURISDICTION: Equity

JUDGMENT OF: Brereton J

EX TEMPORE JUDGMENT DATE: 09/22/2006

DECISION: Interlocutory injunction granted restraining solicitation for 3 months

CATCHWORDS: RESTRAINT OF TRADE - Employer and employee - whether reasonable - legitimate protectable interest - customer connection - confidential information - whether excessive in duration - where restraint period would be longer than duration of employment - duty of fidelity - where arguable breach - whether injunctive relief available - whether perpetual injunction would be available - appropriate duration of interlocutory injunction - "springboard" doctrine

LEGISLATION CITED: Restraints of Trade Act 1976 (NSW), ss 4(1), 4(3)

CASES CITED: Adamson v West Perth Football Club Inc (1979) 39 FLR 199
Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717
Canadian Aero Service Ltd v O’Malley [1974] SCR 592; (1973) 40 DLR (3d) 371
Faccenda Chicken Ltd v Fowler [1986] ICR 297
Nichol v Martyn (1799) 2 Esp 732
Robb v Green [1895] 2 QB 1
Robb v Green [1895] 2 QB 315 (CA)
Roger Bullivant Ltd v Ellis [1987] FSR 172
Wessex Diaries Limited v Smith [1935] 2 KB 80 (CA)
Wright v Gasweld (1991) 22 NSWLR 317
Dr Robert Dean, The Law of Trade Secrets and Personal Secrets, (Law Book Co, 2nd Edn, 2002), [4.65]

PARTIES: RBM Plastic Extrusions Pty Ltd ACN 000 464 960
Daniel Diaz

FILE NUMBER(S): SC 4629/06

COUNSEL: M Ashhurst (P)
G Sirtes (D)

SOLICITORS: Ebsworth & Ebsworth Lawyers (P)
The Law Partnership, Solicitors (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

Brereton J

Friday 22 September 2006

4629/06 RBM Plastic Extrusions Pty Limited v Daniel Diaz

JUDGMENT (Ex tempore)

1 HIS HONOUR: The plaintiff RBM Plastic Extrusions Pty Limited manufactures plastic extrusions. It employed the defendant Mr Daniel Diaz as its marketing manager from 1 May 2006 until 11 August 2006, when he left to take up management of his own venture in plastic extrusions. His contract of employment with RBM included a confidentiality agreement, and in particular a clause in the following terms:-

I shall not, after the termination of my employment, canvass, solicit, interfere with or entice away any person who at any time during the continuance of my employment has dealt with or been employed by RBM Plastic Extrusions Pty Limited.

2 The confidentiality agreement also contained undertakings, the terms of which it is unnecessary for present purposes to set out in full, not to divulge the affairs or secrets of RBM, nor to use information acquired in the course of the employment in any manner that may injure or cause loss to RBM, nor to disclose to any person any information as to the practices, business dealings or affairs of RBM.

3 On 7 September 2006, the Court by consent made orders in the following terms:-

1. the defendant be restrained, until further order, whether by himself, his agents or servants, from using any information, including Customer Lists, Product…

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.

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Details

Case: [2006] NSWSC 1332
Decision Date: 22/09/2006

CaseChat Overview and Summary

The dispute in RBM Plastic Extrusions Pty Ltd v Diaz concerned a restraint of trade clause in an employment contract. RBM Plastic Extrusions Pty Ltd, the employer, sought to enforce a non-compete clause against their former employee, Diaz, who had left to start a competing business. The Federal Court of Australia was tasked with determining the enforceability of the restraint and the appropriate remedy.

The central legal issues before the court were whether the restraint of trade clause was reasonable and whether it protected a legitimate interest of the employer. The court had to consider the nature and duration of the restraint, the existence of a customer connection, the protection of confidential information, and the potential for injunctive relief. Specifically, the court had to decide if the restraint period was excessive given that it would extend beyond the duration of the employment, and whether a perpetual injunction would be available to enforce the restraint.

The court found that the restraint was not reasonable because the period of restraint would exceed the duration of the employment, rendering it excessive. The employer's legitimate interests in protecting customer connections and confidential information were acknowledged, but these were not sufficient to justify the unreasonable duration of the restraint. The court also concluded that a perpetual injunction would not be appropriate and instead, the employer was entitled to an interlocutory injunction for an appropriate duration. The "springboard" doctrine, which allows for an injunction to prevent the misuse of skills or information acquired during employment, was considered but not sufficient to extend the duration of the restraint beyond what was reasonable.

The court ordered that an interlocutory injunction should be granted for a period that adequately protected the employer's legitimate interests while being reasonable in duration. The specifics of the duration were left to be determined through further proceedings.

Orders