Southern Cross Computer Systems Pty Ltd v Palmer - [2017] VSC 412

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

EMPLOYMENT AND INDUSTRIAL LIST

S CI 2017 01876

SOUTHERN CROSS COMPUTER SYSTEMS PTY LTD (ACN 005 770 598) & ANOR (in accordance with the schedule attached)	Plaintiffs
v
CHRISTOPHER ANTHONY PALMER & ORS (in accordance with the schedule attached)	Defendants

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JUDGE:	McDonald J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 June 2017
DATE OF JUDGMENT:	27 June 2017
CASE MAY BE CITED AS:	Southern Cross Computer Systems Pty Ltd v Palmer
MEDIUM NEUTRAL CITATION:	[2017] VSC 412

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CONTRACT – Sale of business agreement – Restraint of trade – Enforceability of covenant in restraint of trade – Whether restraint reasonable – Application for interlocutory injunction granted.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D Collins QC with Mr A Kirby	Nicholas O’Donohue & Co
For the Defendants	Mr A Herskope with Mr S L Freire	Kalus Kenny Intelex

HIS HONOUR:

By an amended summons, the plaintiffs seek an order restraining the first defendant, Christopher Palmer, from carrying on, engaging in or having any involvement in the business of Blue Connections Pty Ltd.[1]
[1]Amended Summons dated 21 June 2017, [1](a).

There is no issue that for several months Mr Palmer has been providing services to Blue Connections Pty Ltd one day per week and has been receiving remuneration of approximately $5,000 per month. There is also no dispute that Blue Connections is a direct competitor of Southern Cross Computers Pty Ltd.

Prior to June 2016, Mr Palmer's company, Lendossa Pty Ltd, owned 40 per cent of the shares in Southern Cross Computers. He sold the shares to the second plaintiff, Ingenio Group Pty Ltd, in 2016. The agreement pursuant to which the shares were sold provided for payment of $3.5m to an entity associated with Mr Palmer.

The agreement also provided for Mr Palmer to continue as an employee of Southern Cross Computers and to be subject to a number of restraints operative for a period of up to four years from the completion date of the share sale agreement being 28 June 2016.

The central issue in the current interlocutory application turns on the construction of a restraint contained in clause 14.1(a) of the share sale agreement which relevantly provides:

During the Restraint Period, each Restricted Person must not, within the Restrained Area, directly or indirectly, either on their own account or as an employee, member, shareholder, unitholder, director, consultant, adviser, contractor, principal, agent, manager, beneficiary, partner, associate, trustee, nominee, custodian, financier, representative, salesperson or in any other capacity whatsoever for any other person, firm, association or corporation (except as is expressly permitted by this agreement):
(a) carry on, engage in or have any involvement in the Restricted Business.[2]

There is no issue that Mr Palmer is a Restricted Person within the relevant definition.

[2]Exhibit DW-2 to the affidavit of Denise Wightman sworn 23 June 2017, Share Sale and Purchase Agreement, 27.

The restraint in clause 14.1 is to be read in conjunction with the…

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: [2017] VSC 412
Decision Date: 27 June 2017

CaseChat Overview and Summary

Southern Cross Computer Systems Pty Ltd sought relief against Palmer in relation to a sale of business agreement. The dispute centred on the enforceability of a covenant in restraint of trade, which was included in the sale of business agreement. The case was heard by the Supreme Court of New South Wales. The primary issue before the court was to determine whether the restraint of trade clause was reasonable and, therefore, enforceable.

The court considered the nature and extent of the restraint, the legitimate interests of the parties, and the impact on the employee. It was noted that the restraint was intended to protect the legitimate business interests of Southern Cross Computer Systems Pty Ltd by preventing Palmer from engaging in competitive activities. The court examined the duration and geographic scope of the restraint, as well as the nature of Palmer’s role and responsibilities during his employment. The court found that the restraint was reasonable and necessary to protect the legitimate business interests of Southern Cross Computer Systems Pty Ltd.

Having concluded that the restraint of trade was reasonable, the court granted an interlocutory injunction to prevent Palmer from breaching the terms of the covenant. The court emphasised that the injunction was not intended to be a final determination of the enforceability of the restraint, but rather a provisional measure to maintain the status quo pending a final determination of the proceedings. The court ordered Palmer to refrain from engaging in any activities that would breach the covenant in restraint of trade until the matter was finally resolved.

The court's decision was focused on the need to balance the legitimate business interests of Southern Cross Computer Systems Pty Ltd with the rights of Palmer as an employee. The court recognised the importance of protecting legitimate business interests, but also emphasised the need for restraint clauses to be reasonable and necessary. The court's decision provides guidance for businesses seeking to enforce restraint of trade clauses in sale of business agreements, and highlights the importance of carefully drafting such clauses to ensure they are enforceable.

Orders