RNTT Pty Ltd v Ryan - [2013] SADC 35

District Court of South Australia
(Civil)
RNTT PTY LTD v RYAN
[2013] SADC 35
Judgment of His Honour Judge Costello (ex tempore)
8 March 2013
TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - RESTRAINT OF TRADE
RESTITUTION
CONTRACT - BREACH OF CONTRACT - DAMAGES
Upon termination of his employment with the plaintiff the defendant agreed that for a period of sixteen weeks he would not undertake work of the nature of the work he had performed for the plaintiff - in return the plaintiff agreed to pay him a sum of money which included an amount equivalent to sixteen weeks ordinary pay - defendant commenced work with a rival company after four weeks - plaintiff sought repayment of the sixteen weeks pay by way of restitution or as a breach of contract - defendant asserted that the agreement constituted an unlawful restraint of trade.
HELD: Restraint of trade clause not unreasonable - claim in restitution dismissed as no total failure of consideration - defendant in breach of contract - plaintiff entitled to damages in the sum of $35,214.00.
Amaco Australia Pty Ltd v Rocca Brothers Motor Engineering Company Pty Ltd (1973) 133 CLR 288; Geraghty v Minter (1979) 142 CLR 177; Baltic Shipping Company v Dillon (1993) 176 CLR 344; Wenham v Ella (1972) 127 CLR 454, considered.

RNTT PTY LTD v RYAN
[2013] SADC 35
Introduction

In this action, the plaintiff claims the sum of $46,952.00 by way of restitution as money had and received by the defendant on the basis of a total failure of consideration. Alternatively, it seeks that amount as damages for the defendant’s breach of contract.
In May 2011, the parties executed a deed pursuant to which the plaintiff made certain payments to the defendant. These payments were made upon his employment being terminated, and represented amounts for ‘severance’ pay, annual leave, long service leave and a contribution to superannuation.
It was a term of the deed, inter alia, that the defendant would not in the State of Queensland perform work of the nature performed by him during his employment with the plaintiff, for a period of 16 weeks from 26 April, 2011. On or about 23 May, 2011, the defendant commenced employment with Integrated Group Ltd (“Integrated”). The nature of the work carried out by the defendant for Integrated, included work of the same nature as the work he had performed for the plaintiff.
For the reasons which follow, I am satisfied that the moneys paid by the plaintiff, were paid on the express understanding that the defendant would not undertake the type of employment which he entered into with Integrated. By commencing employment with Integrated, the defendant breached his agreement with the plaintiff. The plaintiff is entitled to damages in the sum of $35,214.00 for breach of contract. As I am not persuaded that there was a total failure of consideration, the plaintiff’s claim for restitution is dismissed.
Background facts
The background facts of this matter lie in a relatively narrow compass and are largely uncontroversial. In February 2008 Rexco[1] (a labour hire and recruitment services company with offices in Queensland) entered into a written contract with the defendant whereby it agreed to employ him as its business development manager in Queensland.
[1] In 2010 Rexco was acquired by the plaintiff.
There was a dispute between the parties as to whether he was employed to be a business manager in Brisbane or throughout Queensland. One version of his Letter of Appointment describes the position as business development manager ‘Brisbane’ with that word struck out and replaced by the letters ‘Qld’. Later versions of the Appointment Letter record it as Queensland. I am satisfied that the proper construction of the Letter of Appointment was that the defendant was appointed as a business development manager for Queensland.
The duties that the defendant was employed to do by Rexco included managing the plaintiff’s existing clients and the development of new business from existing and potential clients.
In April 2011 the defendant ceased employment with the plaintiff. Thereafter the plaintiff and the defendant entered into a deed (“the Separation Deed”) pursuant to which it was agreed, inter alia, that the plaintiff would make a payment to the defendant representing an amount equal to 16 weeks of ordinary pay together with amounts for annual leave, long service leave and superannuation.
It was a further term of the Separation Deed that:
The defendant would not in Queensland undertake or carry on (whether directly or indirectly) work of a nature performed by him during his employment with the plaintiff for a period of 16 weeks after 26 April 2011.
On or about 5 May 2011, pursuant to the terms of the Separation Deed, the plaintiff paid out the following amounts:
·The sum of $34,652.92 to the defendant;
·The sum of $8,424.00 on behalf of the defendant to the Australian Taxation Office; and
·The sum of $3,876.00 on behalf of the defendant to the defendant’s nominated superannuation fund.
On about 23 May 2011, the defendant commenced employment with Integrated (which, as I have already indicated, operated as a labour hire and recruitment services company in Queensland) as its account manager out of an office in Ipswich. The defendants’ duties included him undertaking work in the nature of the work which he had been performing for the plaintiff. The defendant worked with Integrated from 23 May 2011 until his employment with that company was terminated in October 2011.
The Hearing
The Plaintiff’s Case
In support of its claim, the plaintiff called evidence from two witnesses, Ms Jane Banton and Mr Shane Gordon.
Ms Banton is the human resources manager with the plaintiff. She identified the role and duties of the plaintiff’s Business Development Manager. Based upon documents discovered from Integrated, she was able to compare the defendant’s duties with the plaintiff, in his role as a Business Development Manager, with those with Integrated as an Account Manager. It is clear from her evidence that there was a good deal of similarity or overlap in the work duties required in each of these two positions. She also told me that the plaintiff and Integrated are competitors in the labour hire industry nationally, and that both maintain and operate offices in Queensland. She said that they are in direct competition for clients and in particular she mentioned the Brisbane City Council as a client with which the defendant had worked closely in his time when employed by the plaintiff.
Mr Gordon is currently employed by the plaintiff as a Business Development Consultant and Account Manager. He told me that both the plaintiff and Integrated have various sectors of the Brisbane City Council as clients. I accept the evidence of the plaintiff’s witnesses without reservation. I am quite satisfied, based upon their evidence, that it was absolutely essential for the plaintiff to take precautions to restrict the potential for its former employees, upon termination of their employment, to take up employment immediately with competitors such as Integrated.
The Defendant’s Case
The defendant gave evidence. He said that in February 2008 he was appointed to the position of Business Development Manager, Brisbane (not Queensland), with the plaintiff. As such he said that he did not breach the employment contract by later taking up the position with Integrated because he worked at its office in Ipswich some 40 – 50 minutes by car from Brisbane. As I indicated earlier, I reject his evidence on this issue. However, he acknowledged that the terms of the Separation Deed did include a clause precluding him from undertaking work in Queensland of a similar nature to the work that he was doing for the plaintiff, for a period of 16 weeks from 26 April 2011.
He said that he took the position with Integrated because he needed the money and could not afford to be out of the industry for an extended period of time. He said that he regarded the restraint clause as constituting an unlawful restraint and that, in effect, the clause was invalid.
Discussion
The Law
The plaintiff brings its claim for restitution and/or damages for breach of contract based, in part, upon a restraint of trade clause which the defendant says is unlawful.
Restraint of Trade
A contract or a term of a contract that is in unreasonable restraint of trade is prima facie contrary to public policy and void.[2]
[2] Amaco Australia Pty Ltd v Rocca Brothers Motor Engineering Company Pty Ltd (1973) 133 CLR 288
It is unnecessary for me to rehearse the various factors which courts have identified as being relevant to the question of reasonableness. It is sufficient to observe that the courts have taken a “stricter and less favourable view of covenants in restraint of trade entered into between employer and employee.”[3] However, even in contracts of this nature, a restraint will be reasonable if it goes no further than to properly safeguard the employer’s business interests.
[3] Geraghty v Minter (1979) 142 CLR 177, at 185
In this case, the plaintiff sought to restrain the defendant from working in a business carrying out work in the nature of work he was performing for it, ie the plaintiff was in the labour hire business and it was seeking to restrain the defendant from going into a business operating in that field. It also sought to restrain him from performing work of that nature in Queensland and finally for a period of some 16 weeks.
When viewed collectively I would not regard these restraints as unreasonable in the sense that their effect was to restrict a former employee from working for a company operating in the same line of business within a part of Australia where the plaintiff had established its business for what objectively was a relatively short period of time, ie 16 weeks.
It is also relevant in this regard to consider the reasonableness or otherwise of the restraint against the background of the fact that the plaintiff had agreed to make payments to the defendant covering the period of the restraint. In all the circumstances I am not persuaded that this restraint of trade clause was unreasonable.
Restitution
Where money is paid, pursuant to an obligation created by a contract, in the expectation of securing contractual performance from the defendant, the failure of the defendant to perform the contract is a failure of consideration since it deprives the plaintiff of the performance for which it bargained. The effect of such a failure by the defendant signifies that he has been unjustly enriched.[4] In order for the plaintiff to succeed on this part of its claim, it must show, inter alia, that the failure of consideration is total.[5]
[4] JW Carter - Contract Law in Australia 6th Ed Paragraph 38-06
[5] Baltic Shipping Company v Dillon (1993) 176 CLR 344
In my view it cannot be said that there was a total failure of consideration. It is clear that the plaintiff did not commence employment with Integrated until 23 May 2011. As a result it could not be said that the defendant entirely failed to perform the contract. In effect, the plaintiff received a benefit from the plaintiff represented by some four of the sixteen weeks. For this reason alone, the claim in restitution must fail. I now turn to consider the claim for breach of contract.
Breach of Contract
As I have already noted, the Separation Deed contained an express provision that the defendant would not undertake work, for a period of 16 weeks, of the nature of the work that he had been performing for Rexco. By accepting a position with Integrated and commencing work for that company in May 2011, the defendant breached his contract with the plaintiff.
The question however remains as to the loss, if any, sustained by the plaintiff by reason of the defendant’s breach. It is sufficient for these purposes to observe that, prima facie, the plaintiff is entitled to be placed in the same situation as if the contract had been performed.[6]
[6] Wenham v Ella (1972) 127 CLR 454 at 471
In this case, if the contract had been performed the plaintiff would have paid the equivalent of 16 weeks ordinary pay and “received”, in return, a period lasting sixteen weeks during which the defendant did not work for another employer in the same line of work. Instead it paid for 16 weeks and received a benefit of only 4 weeks.
In my view the proper measure of the plaintiff’s loss is the difference between what it paid and bargained for and that which it “received” in return, namely an amount equivalent to 12 weeks ordinary pay. The parties are agreed that 12 weeks ordinary pay equates to a sum of $35,214.00. In my view the damages occasioned to the plaintiff which flow from the defendant’s breach of contract amount to the $35,214.00.00.
Accordingly there will be judgment for the plaintiff in the sum of $35,214.00.
The plaintiff is also entitled to interest. Interest on an amount of approximately $35,000.00 for nearly two years amounts to something in excess of $3,500.00. In all the circumstances, I am disposed to fix a lump sum for interest of $3,000.00.
Formal Orders
There will be judgment for the plaintiff against the defendant for damages for breach of contract in the sum of $35,214.00.
The defendant is to pay the plaintiff interest on that amount fixed at $3,000.00 and the defendant is to pay the plaintiff costs on a party/party basis to be taxed unless otherwise agreed.