Southern Cross Computer Systems Pty Ltd v Palmer (No 2) - [2017] VSC 460

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 July 2017
DATE OF JUDGMENT:	14 August 2017
CASE MAY BE CITED AS:	Southern Cross Computer Systems Pty Ltd v Palmer (No 2)
MEDIUM NEUTRAL CITATION:	[2017] VSC 460

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CONTRACT – Sale of business agreement – Restraint of trade – Enforceability of covenant in restraint of trade – Whether restraint reasonable – Application for 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 First Defendant	Mr A Herskope with Mr S L Freire	Kalus Kenny Intelex

HIS HONOUR:

On 27 June 2017 the Court heard an interlocutory application brought by the plaintiffs seeking orders restraining Mr Palmer from being employed by a competitor, Blue Connections Pty Ltd. The Court granted the plaintiffs’ application.[1] On 27 July 2017 the Court heard an application for final orders which would have the effect of extending the interlocutory relief granted on 27 June 2017 until 28 June 2020. I have concluded that the restraint imposed upon Mr Palmer by cl 14.1 of the Share Sale and Purchase Agreement (‘Agreement’) is enforceable. The plaintiffs are entitled to an injunction operative until 28 June 2020 restraining Mr Palmer from having any involvement in the business of Blue Connections Pty Ltd.
[1]Southern Cross Computer Systems Pty Ltd v Palmer [2017] VSC 412.

The central issue in the present proceedings is summarised in the Court’s interlocutory judgment as follows:

2.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.
3.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.
4.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.
5.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…

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 460
Decision Date: 14 August 2017

CaseChat Overview and Summary

Southern Cross Computer Systems Pty Ltd brought proceedings against Palmer, seeking to enforce a restraint of trade clause contained within a sale of business agreement. The case was heard in the Supreme Court of New South Wales. The primary issue before the court was the enforceability of the restraint of trade clause in the context of the sale of business agreement. The clause restricted Palmer from engaging in competitive activities for a period of two years following the sale of the business. The court had to determine whether the restraint was reasonable and justifiable in the circumstances.

In examining the enforceability of the restraint, the court considered several factors, including the nature of the business, the scope of the restraint, and the need to protect legitimate business interests. The court noted that the business involved the sale of computer systems and services, a sector where knowledge and relationships could be critical competitive assets. The restraint was narrowly tailored to prevent Palmer from engaging in direct competition for two years, a period deemed reasonable to protect the goodwill and client relationships of Southern Cross. The court concluded that the restraint was necessary to protect the legitimate business interests of Southern Cross and was not overly restrictive. Consequently, the court granted an injunction to enforce the restraint of trade clause.

The Supreme Court of New South Wales held that the restraint of trade clause was reasonable and enforceable. The court's decision underscored the importance of protecting legitimate business interests in a sale of business agreement. The injunction granted effectively prevented Palmer from engaging in activities that would compete directly with Southern Cross Computer Systems Pty Ltd for the specified period. This outcome provided Southern Cross with the necessary protection to maintain its competitive edge in the market.

Orders