RNTT Pty Ltd v Constable (No 2) - [2014] SADC 213

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
RNTT PTY LTD v CONSTABLE (NO 2)
[2014] SADC 213
Reasons for the Verdict of His Honour Judge Barrett
19 December 2014
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - GENERAL
DAMAGES - GENERAL PRINCIPLES - EXEMPLARY, PUNITIVE AND AGGRAVATED DAMAGES
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
The defendant breached his contract of employment by working on his own account for two of the plaintiff's clients while employed by the plaintiff and he breached a Restraint Agreement by working for one of those clients after he left the employment. The plaintiff sought quantification of the damages for the breaches of the employment contract and the restraint agreement. The plaintiff also sought exemplary damages and indemnity costs.
Held:
1) Damages fixed at $17,500 for the breach of both agreements in respect of the client Inghams.
2) Damages fixed at $3,000 for the breach of the employment agreement in respect of the client Desiree. No breach proved in respect of the restraint agreement regarding Desiree.
3) there is no power to order exemplary damages for a breach of contract.
4) No order made for indemnity costs.
RNTT Pty Ltd v Constable [2014] SADC 78; Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; Artcraft Pty Ltd and Anor v Dickson and Anor [2014] SASC 108; Groom v Earthmoving Contractos Association of South Australia Inc (No 2) [2001] SASC 241, considered.

RNTT PTY LTD v CONSTABLE (NO 2)
[2014] SADC 213

In RNTT Pty Ltd v Constable [2014] SADC 78 I made findings about the liability of the defendant to pay damages to the plaintiff for breach of contract. The plaintiff is a labour hire company based in Adelaide which employed the defendant as Regional Manager of its Queensland branch.
I found that the defendant had breached his contract of employment in two ways:
1.He had worked on his own account for two of the plaintiff’s clients (Inghams and Desiree) while still employed by the plaintiff. He left the plaintiff’s employment on 27 July 2011. He had begun operating his own company, Sandross, on 4 January 2011, just over 6 months before leaving the plaintiff’s employment;
2He had continued to work on his own account for one of the plaintiff’s clients (Inghams) after he left the plaintiff’s employment. I found that that work constituted a breach of a restraint agreement entered into by the parties. I found a restraint of 6 months was reasonable, so the defendant is liable to pay the plaintiff damages for the income he received for work he did from 28 July 2011 to 28 January 2012.
I made no finding in relation to the plaintiff’s claim that the defendant worked for the other client, Desiree, during that 6 month period. I ordered the defendant to account to the plaintiff for monies received by him in respect of both Inghams and Desiree. I deferred making a finding about the plaintiff’s claim that the defendant worked for Desiree in the 6 months after his employment ceased. I dismissed the plaintiff’s claim for damages for work done by the defendant after 28 January 2012. I found that the period after that time was too remote from the employment
The plaintiff has sought orders for exemplary damages, interest and indemnity costs.
Issues at this trial
1. What is the quantum of damages that the defendant should pay to the plaintiff?
2. Should the defendant be ordered to pay exemplary damages?
3. Should the defendant be ordered to pay indemnity costs?
Orders for account
After delivering judgment on the questions of liability I made orders that the defendant account to the plaintiff for monies received by him while working for the plaintiff’s client Desiree in breach of his contract of employment and the restraint agreement.[1]
[1] See orders made on 7 August 2014.
The defendant has failed to comply with those orders. He maintains his denial that he ever worked for Desiree on his own account, whether before or after ceasing employment with the plaintiff.
The defendant sought to call as a witness Ms Desiree Johnson, the proprietor of Desiree Pty Ltd, to support his contention that he never worked for her on his own account. At the trial of the liability questions the defendant had sought to tender a affidavit of Ms Johnson, but I upheld the plaintiff’s objection to the tender of the affidavit if, as turned out to be the case, Ms Johnson was not called by the defendant as a witness.
After delivery of the judgment on liability the matter was set down twice for the hearing of the questions of quantum, first on 1 September, then on 20 October. Each time Ms Johnson failed to attend court in response to a subpoena issued by the defendant for her attendance. Each time she sent a doctor’s certificate saying she was unwell. On 20 October she sent a note saying that she was suffering from an anxiety problem.
I refused the defendant’s application on 20 October 2014 for a further adjournment to enable the attendance of Ms Johnson. I did so because I did not believe she would attend on any adjourned hearing.
On 20 October I received submissions on quantum from both Mr Richter for the plaintiff and from the defendant.
On 20 October Ms Banton gave further oral evidence on quantum on behalf of the plaintiff. The defendant simply reiterated his denials of ever working for Desiree on his own account.
Quantum – Inghams
I must determine the quantum of the plaintiff’s loss by reason of the defendant working for Inghams on his own account for two periods – the period leading up to the defendant leaving the plaintiff’s employment on 27 July 2011, and for the 6 month period of restraint after he left, ie 28 July 2011 to 28 January 2012.
In respect of the first period I fix damages at $10,000, evidenced by four invoices sent by the defendant’s company Sandross to Inghams between 31 March and 16 June 2011.[2]
[2] Exhibit P11, tender book volume 2 at pp 291-294.
For the period from 28 July 2011 to 28 January 2012 I fix damages at $17,500, as evidenced by five invoices sent by Sandross to Inghams between 12 August 2011 and 30 November 2011.[3]
[3] Exhibit P11, tender book volume 2 at pp 295-299.
Quantum – Desiree
Despite the defendant’s denials I have already found that he worked for Desiree on his own account while still employed by the plaintiff.[4] The plaintiff is not able to produce Sandross invoices to Desiree in support of its submissions on quantum. However, Ms Banton has given evidence about the loss of profit suffered by the plaintiff due to reduced receipts from Desiree coinciding with the defendant setting up his company Sandross.
[4] RNTT Pty Ltd v Constable [2014] SADC 78 at [22]-[31] and [33].
For the financial year 2009/10 the profit to the plaintiff from Desiree work was $6,104. Sandross began operating on 4 January 2011. The plaintiff’s last invoice to Desiree was on 6 December 2010. The defendant left the plaintiff’s employment on 27 July 2011, just 27 days after the end of the financial year 2010/11.
I have already found that, despite the defendant’s denials, he did work on his own account for Desiree both while he was employed by the plaintiff. On the basis of the facts I have set out above, I am willing to infer that the defendant worked for Desiree on his own account from 1 January to 27 July 2011, a period of about 6 months.
I made the finding that the defendant had worked for Desiree on his own account while employed by the plaintiff because of emails between him and Ms Johnson from Desiree in January and March 2011, but they are the only proved communications between the two.[5]
[5] See RNTT Pty Ltd v Constable [2014] SADC 78 at [23].
In other words, there is no direct evidence of the defendant working for Desiree after he left the plaintiff’s employment. I suspect he did. He had a continuing association with Ms Johnson after he left the plaintiffs’ employment and that association continued even after I delivered judgment and the question of quantum arose. But I cannot be satisfied on balance that the defendant did work for Desiree after he left the plaintiff’s employment. Accordingly I make no assessment for losses the plaintiff suffered in the Desire work from 28 July 2011 to 28 January 2012.
Mr Richter submitted that for the period before the defendant left I should fix damages at the likely gross invoices the plaintiff would have rendered to Desiree. He submits that would be of the order of $5,000.
In the case of Desiree, because of the absence of invoices, I think it appropriate to take a more conservative approach and fix damages by reference to the likely profit lost for the later six months of the 2010 to 2011 financial year. The profit for the previous financial year was $6,000. Accordingly I fix the damages for the second half of the 2010/11 financial year at $3,000.
Exemplary damages
The plaintiff submits that because the defendant’s behaviour was so blatant an abrogation of his duty as an employee, I should make an award of exemplary damages. While I would not disagree with the plaintiff’s characterisation of the defendant’s behaviour, I think it is plain that there is no power to award exemplary damages for a breach of contract, even where that breach amounts to a breach of the fiduciary duty of an employee to an employer.
The majority of the New South Wales Full Court so held in Harris v Digital Pulse Pty Ltd.[6] The facts of that case were materially the same as this. An employee worked secretly for his own benefit in competition with his employer.
[6] [2003] NSWCA 10 per Spigelman CJ at [43]–[47] and Heydon J at [470].
Mr Richter relied on the South Australian case of Artcraft Pty Ltd and Anor v Dickson and Anor[7] where Kelly J made an award of exemplary damages where an employee converted his employer’s property for his own benefit. Her Honour cited Harris supra but concluded that because the plaintiff succeeded in each of its three causes of action, namely, breach of contract, breach of fiduciary duty and wrongful conversion of property, the discretion to order exemplary damages arose.
[7] [2014] SASC 108.
The distinguishing feature of that case however is the finding in respect of the tort of conversion.[8] In the present case the defendant has breached his contract of employment, albeit he has done so in breach of his fiduciary duty, and I think in those circumstances it is clear that the court has no power to award exemplary damages.
[8] See [173]–[175].
I dismiss the claim for exemplary damages.
Interest
The plaintiff seeks an award of interest on the claims in respect of each client, that is Inghams and Desiree.I will make an award for interest at the rate of 6 per cent. In the case of the awards I have made in respect of Inghams, I will make interest run from the date of the last invoice rendered by Sandross to Inghams. In the case of the invoices rendered while the defendant was still employed by the plaintiff, the last invoice was dated 16 November 2011 so I will make the interest on $10,000 run from 16 June 2011 to the date of judgment. I will calculate the interest as simple interest. That is approximately 3 and a half years.
In respect of the 6 months after the defendant ceased employment with the plaintiff, the last invoice was dated 30 November 2011. So I will fix interest on $17,500 from that date. That is approximately 3 years.
In respect of Desiree I will calculate the interest from the date on which the defendant left the employment of the plaintiff. That was 27 July 2011. The period from then until judgment is approximately 3 years 4 months. I will calculate the interest at 6 per cent on $3,000. The calculations therefore appear as follows:
·Inghams from 16 June 2011               $2,100
·From 30 November 2011                   $3,150
·Desiree from 27 July 2011                   $600
_______
Total $,5850
Costs
The plaintiff seeks an order for indemnity costs on the bases that the defendant has:
1.Prolonged proceedings by refusing to discover materials without extensive procedures being required to facilitate discover.
2.Failed to offer compromise of any sort.
3.Failed to concede matters in wilful disregard of the known facts and clearly established law.
4.Prolonged the case by putting forward groundless contentions.
The court may order an unsuccessful party to pay indemnity costs where there are special or unusual features of the case to justify the court exercising its discretion.[9]
[9] Groom v Earthmoving Contractors Association of South Australia Inc (No 2) [2001] SASC 241.
In the present case the only striking circumstance about the defence was that the defendant asserted he was somehow justified in working for the plaintiff’s client Ingham on his own account, while employed by the plaintiff. However the defendant was unrepresented and may not have had the absurdity of that position pointed out to him. His being unrepresented may also explain, to a degree at least, his being responsible for the pre-trial proceedings being more protracted than they would otherwise have been. However the trial itself only took two days with another day taken for the quantum question. I do not think the circumstances of this case call for an award of indemnity costs.
I dismiss the claim for indemnity costs. I order the defendant to pay the plaintiff’s costs on a party/party basis.
Orders
I order that the defendant pay:
1. Damages to the plaintiff in the sum of $30,500.
2.Interest in the sum of $5,850
3.The plaintiff’s costs on a party/party basis.