Superior Packaging Pty Ltd v Christoforou

[2011] VCC 1463

IN THE COUNTY COURT OF VICTORIA Revised

(Not) Restricted

AT MELBOURNE

CIVIL DIVISION

Case No. CI-11-01185

SUPERIOR PACKAGING PTY LTD	Plaintiff
v
THEMI CHRISTOFOROU	Defendant

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JUDGE:	HIS HONOUR JUDGE ANDERSON
WHERE HELD:	Melbourne
DATE OF HEARING:	9, 12-14 December 2011
DATE OF JUDGMENT:	21 December 2011
CASE MAY BE CITED AS:	Superior Packaging Pty Ltd v Christoforou
MEDIUM NEUTRAL CITATION:	[2011] VCC 1463

REASONS FOR JUDGMENT

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Catchwords:	Contract – Oral agreement for the sale of a plastic thermoforming business – Vendor agreed not to be involved in a similar business – Subsequent sale of business by purchaser – Alleged breach of restraint of trade clause – No
pleading by defendant vendor that clause an unreasonable restraint – Permanent injunction sought to restrain vendor.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C R Northrop	G S M Lawyers
For the Defendant	Mr J Goussis	W M B Lawyers
HIS HONOUR:

1           George Georgakakis and Themi Christoforou had been close friends for many years. In November 2007, Mr Georgakakis through his company, Superior Packaging Pty Ltd, agreed to purchase Mr Christoforou plastic thermoforming business conducted through Formpac Plastics Pty Ltd for $800,000. The agreement was constituted by conversations between Mr Georgakakis and Mr Christoforou. There is no issue that among the matters discussed and agreed was Mr Christoforou’s continued employment in the business and a “restraint of trade” clause preventing him being “involved” in a “plastic thermoforming business” for a period of time. Whilst the precise terms of the restraint clause are disputed, no defence was specifically pleaded that the clause should not be enforced as an unreasonable restraint of trade.

2           In early 2009, Superior Packaging sold the business. Mr Christoforou continued working for the purchasers for a number of months. He then left and at some stage registered a company, Mouldpak Pty Ltd, which conducted a similar plastics manufacturing business. The plaintiff alleges that Mr Christoforou has breached the restraint clause.

3           The plaintiff, in its Amended Statement of Claim, sought damages, an account of profits and a permanent injunction to enforce the restraint clause. In his final submissions, plaintiff’s counsel, Mr Northrop, indicated that the plaintiff would not proceed with its claim for damages or for an account of profits. He submitted that in the absence of the defendant having raised the issue of the reasonableness and enforceability of the restraint clause, if the plaintiff’s witnesses’ evidence were accepted, an injunction should be granted.

4           A further claim related to monies owing to the Australian Taxation Office. The sale of the business in 2007 proceeded as a sale of the shares in Formpac Plastics Pty Ltd. After the sale, the company changed its name to Christoforou Pty Ltd in order to

allow Superior Packaging to trade as Formpac Plastics. There was no issue between
the plaintiff and the defendant that the parties had agreed that:

“(a)	the balance of the price would be adjusted to take into account the liabilities and assets of Christoforou Pty Ltd and paid to the defendant;
(b)	the defendant warranted the accuracy of information provided by him in respect of Christoforou Pty Ltd’s operations, net debts and liabilities;
(c)	the defendant would pay to the plaintiff any debts owed by Christoforou Pty Ltd that were not brought into account by an adjustment to the price”.

5           The plaintiff claimed that the company had a liability to the Australian Taxation Office which had not been disclosed by the defendant at the time of the purchase and was therefore not “brought into account by an adjustment” to the purchase price for the

business and the amount of the liability should therefore be paid to the plaintiff.

6 payment of debt dated 3 November 2010 on Christoforou Pty Ltd claiming the total
sum of $25,666.07. In April 2008 the shares in the company had been transferred to
Mr Georgakakis and he had been appointed a director of the company. The

The Deputy Commissioner of Taxation served a creditor’s statutory demand for him through the company, Christoforou Pty Ltd (or its predecessor, Formpac Plastics Pty Ltd). Mr Georgakakis ran the business through the newly incorporated company, Formpac Plastics (Australia) Pty Ltd. Neither Mr Georgakakis nor Superior Packaging paid the statutory demand, although the plaintiff now seeks in this proceeding to recover the amount of $25,666.07.

7           The issues for determination in the proceeding are:

a.	whether the court should consider the question of the reasonableness of the restraint agreement in determining whether the agreement should be enforced;
b.	if the agreement is enforceable, whether a permanent injunction should be granted and upon what terms;
c.	whether the defendant should be ordered to pay the sum of $25,666.07 to the plaintiff.

Witnesses and other evidence

8 reaffirmation of the restraint of trade provision was given on behalf of the plaintiff by
Mr Georgakakis, Toni Koneski, Roni Siljanovski, Peter Maloney and Robert Kostovski

Evidence about the terms of the sale of business agreement and the later and by Meryl Licqurish. Evidence about the debt to the Australian Taxation Office was given by the plaintiff’s accountant, Norman Draper, and by the defendant’s accountant, Ermis Yianni.

9           The evidence about the sale of the business in 2007 and the later discussions about Mr Christoforou’s involvement in a similar business was diametrically opposed. The likely conclusion to draw from the evidence is that one party, and its witnesses,

deliberately concocted a version of events to assist its case. There is very little
objective evidence which might be used to test the credibility of both versions.

10         In relation to the conversations leading to the sale of business agreement in 2007, there was relatively little difference between the parties as to what was discussed. It

is agreed that ─

a.	The business was sold for $800,000.
b.	Mr Christoforou was to remain in the business as an employee at a wage of $1,000 each week.
c.	Mr Georgakakis would onsell the business within a year or so and Mr Christoforou would possibly be asked to stay on to assist the purchasers.
d.	Mr Christoforou agreed that after he left the business he would not be involved in a plastic thermoforming business in Victoria.

11         The critical areas of disagreement in the evidence are ─

a.

Who was present at the discussions in 2007 at which the negotiation for the purchase of the business was conducted. Mr Georgakakis and the plaintiff’s witnesses said that he, Mr Christoforou and Mr Robert Kostovski were present and that Mr Peter Maloney had come in and out of the meeting. Mr Christoforou and his witnesses said that Mr Georgakakis and he were present, Mr Kostovski and Mr Maloney were not and that Mrs Christoforou and Ms Licqurish were also at the meeting.

b.

The plaintiff alleged in its amended statement of claim that it was a term of the sale of business agreement that “the defendant would not be

c.	The structure of the agreement. Mr Georgakakis said that the agreement in 2007 was for the purchase of the business. It was not until about April 2008 that Mrs Christoforou spoke with Mr Georgakakis and the defendant’s accountant, Mr Yianni, first raised with Mr Draper the need for the sale to be structured as a sale of shares in the company, Formpac Plastics Pty Ltd, so that the effect of Capital Gains Tax would be minimised. Mr Christoforou and Mrs Christoforou said that the agreement always included a sale of the shares in the company.
d.	When Mr Georgakakis negotiated the sale of the business to the purchasers in 2009 and Mr Christoforou agreed to continue in the employ of the purchasers, Mr Georgakakis and other witnesses called by the plaintiff gave evidence of conversations in which Mr Christoforou confirmed the earlier agreement with Mr Georgakakis that he would not be involved in a similar plastics manufacturing business in Victoria for a period of five years after he ceased working in the business. Mr Christoforou denied that any such conversations took place.
e.	evidence that when Superior Packaging sold the business in 2009, Mr Georgakakis agreed to retain a 20 per cent interest in the business. The purchasers were to have full control and were to retain all profits. However, if the business was sold within five years Mr Georgakakis was

involved in a plastic thermoforming or similar business in Victoria for a

period of five years after he ceased working in the business”. The terms
of the restraint clause Mr Christoforou admitted in the defence and
amended defence filed in May and July 2011 were that he agreed as a

term of the sale of business that “he would not be involved in a plastic

thermoforming business in Victoria for a period of three years

commencing on the date the plaintiff assumed control of the business,

namely 1 December 2007”.

Mr Georgakakis and other witnesses called by the plaintiff gave sold at the expiry of five years, the business was to be valued and the purchasers would be required to pay 20 per cent of the value of the business to Mr Georgakakis. This was described as a “gentlemen’s agreement” and was not part of the standard form contract of sale of business executed by the parties.

12         It will be necessary to examine the evidence given by the witnesses on these issues. However, the following general comments can be made:

a.	The concession in the defence that some form of restraint on Mr Christoforou was agreed was very significant. Mr Christoforou agreed that he would be constrained from being involved in a plastic thermoforming business in Victoria for a period of time. Without that concession it is likely I would not have been satisfied that an agreement with sufficient precision and certainty had been reached in the relevant conversations between Mr Georgakakis and Mr Christoforou. For example, no evidence was given that the restriction was limited to an involvement “in Victoria” or to any other locality.
b.	It having been conceded that an agreement had been reached on the critical issues of Mr Christoforou’s “involvement” in a “plastic thermoforming business” in “Victoria”, the task then became to consider the points of disagreement; the period of the restraint, the commencing date and whether the industry was broader and included “a similar business” as Mr Georgakakis suggested or “plastic manufacturing” as Mr Christoforou said in his evidence.
c.

If the issue of the reasonableness of the restraint had been raised on application of the restraint as reasonably necessary for the protection of the business sold by Mr Christoforou to Superior Packaging, as regards:

i.        the period of the restraint agreed (taking account of when the period started);

ii.        its application to the whole of Victoria;

iii.       whatever “involvement” Mr Christoforou might have;

iv.       in the specific industry covered by “plastic thermoforming” as well as in a “similar business” (or in “plastics manufacturing”),

d. The lack of pleading on the issues of reasonableness and enforceability may not however relieve the plaintiff of the obligations of satisfying the Court of these matters.

13 been discussions involving Mr Georgakakis, the purchasers and Mr Christoforou. Mr
Christoforou had agreed to stay on and work for the purchasers and had during the
conversation said that he would “honour his contract for five years”. In cross-
examination, Mr Georgakakis said that he had been concerned Mr Christoforou

George Georgakakis: At the time of the sale of the business in early 2009, there had never go back into thermoforming”. Mr Christoforou had told the purchasers from Mr Georgakakis that he would not go into another business for “five years after he leaves”.

14         Mr Georgakakis denied that the restraint period discussed was three years and said that the bookkeeper, Ms Licqurish, was never present during discussions. Mr Georgakakis said that in 2009 he found out that Mr Christoforou had had a pattern made in order to do work for Heritage Chocolates. He had asked Mr Christoforou if he was doing anything. Mr Christoforou had denied that he was. Mr Georgakakis told him, “If you are doing anything then you will end up in court”.

15         Mr Georgakakis said in evidence that he offered to pay $800,000 for the business but told Mr Christoforou, “There will be conditions. You will have to work in the business

for a minimum of a year or until I sell and for five years you can’t get into a similar
business. That will give whoever I sell the business to the chance to honour the

contract”. He said that when he told Mr Christoforou that he cannot get into a similar business he explained that he can do “injection moulding” but “can’t touch any of the customers of the business and can’t get into a thermoforming business”.

16         Mr Georgakakis gave evidence that in 2008 in a discussion with Mr Christoforou, Mr Christoforou had said to him, “One day we will have to argue”. Mr Georgakakis replied, “If you do the right thing there will be no need to argue, only if you start another business”. In early 2009, Mr Georgakakis entered into a contract for the sale of the business. Mr Christoforou continued to work in the business until July 2009. About two to three months later Mr Christoforou was in hospital. Mr Georgakakis visited him. Mr Christoforou had said, “One day we will have to argue”. Mr Georgakakis had replied, “There is no need to argue unless you do some work or harm Formpac Plastics”.

17 with Mr Georgakakis in late 2008 or early 2009 for the purchase of his plastics
business, some conversations had occurred at which Mr Christoforou was present.
On one occasion, Mr Georgakakis had brought up the position where after the sale of

Toni Koneski: Mr Koneski said that at the time he and his partners were negotiating in relation to the business he was selling, Mr Christoforou would stay in the business for at least six months and when he left would not be involved in a similar business for five years.

18         Mr Koneski said that after the business had been purchased, he and Mr Christoforou would work together, first learning the machines and later being introduced to customers whilst they were driving around together. They had discussed what Mr Christoforou would do after he left the business. Mr Christoforou had said, “What can I do after I leave? I have five years”. Mr Koneski said that he could stay as a sales representative on the basis that he receive a commission if he obtained more work.

19         Mr Koneski said that on a visit to a pattern maker, Mr Alan Gollings, he had seen Mr Christoforou’s name attached to a pattern used for the creation of a dummy mould for a plastic tray used by one of the customers of his business, Heritage Chocolates. Mr Koneski said that over the three years that his business had traded with Heritage Chocolates, the sales in 2009 were $170,000, in 2010 $145,000 and in 2011 to date about $200,000. Mr Koneski said that of the business’s approximately 60 customers about five had been lost, Alphatop, Buderim Bakery, Melbourne Chef, Flexoplast and Just Entrees. He said that of the five customers he was only aware that Melbourne Chef now did business with the company, Confoil, which now employed Mr Christoforou.

best endeavours to procure the services of Themi Christoforou to spend 40 hours per
week to train the purchaser’s staff in the operation of the business for a period of up
to six months from the date of completion. The purchaser will be liable to pay the

costs of such training to Themi Christoforou at the rate of $5,000 per month”

20         In cross-examination, Mr Koneski said that there had only been one conversation involving Mr Christoforou at the time of negotiations to purchase the business where the issue of restraint of trade had been discussed. His other partners, Roni and David, had been present as well as himself, Mr Georgakakis and Mr Christoforou. Mr Christoforou had expressly said that he had agreed to a period of five years.

21          Roni Siljanovski: Mr Siljanovski gave evidence that when he and his partners were negotiating in early 2009 for the purchase of the business from Mr Georgakakis, there was a meeting with Mr Christoforou to make sure that he would continue to be employed in the business. At the meeting, Mr Christoforou had indicated that for at least five years once he had left the business he would not approach customers and would not get into the same line of work. Mr Siljanovski said that after the new owners took over the business, and whilst Mr Christoforou was working in the business, there had been no discussion he was aware of about what Mr Christoforou would do after he left the business.

22 Mr Christoforou had agreed that he would work for the new owners. He said that

In cross-examination, Mr Siljanovski repeated that during negotiations in early 2009, customers of the business away and they needed therefore to safeguard themselves.

23         Mr Siljanovski was referred to additional special condition 17 of the contract of sale of business dated 17 February 2009, which reads as follows: “The vendor will use its

. Mr not to work in a similar business after he left their employ. Mr Siljanovski said it was a “gentlemen’s agreement” and Mr Christoforou had “said in front of all of us” that “he was going to honour it” and accordingly they did not “seek safeguards through their solicitor”.

24          Peter Maloney: Mr Maloney was employed as the sales manager in the business from 2007 until the sale in February 2009. He said that in November 2007, a meeting was proceeding between Mr Georgakakis and Mr Christoforou. He had entered the

meeting once or twice to get advice from Mr Christoforou about technical matters. told him that he had just purchased the business for $800,000, that Mr Christoforou was going to stay with the business for a period to manage it, although Mr Maloney was not sure for how long, and then Mr Christoforou would not go into a competing business in plastics for five years.

25         In cross-examination, Mr Maloney said that Mr Georgakakis had not told him whether the five years would run from the date of the agreement. He said that he had had no discussion with Mr Christoforou about the sale of the business. He recalled that Mr

Robert Kostovski was present at the discussion but could not recall Mrs Christoforou or Ms Licqurish being present.

26          Robert Kostovski: Mr Kostovski said that in November 2007, as was his practice, he had visited Mr Christoforou’s factory and was present during a discussion about the sale of the business from Mr Christoforou to Mr Georgakakis. He said that during the

conversation Mr Georgakakis offered to purchase the business for $800,000. He
said he would guarantee Mr Christoforou continued work as the manager of the
business for $1,000 per week plus a phone although he was going to put in extra
machinery and sell the business within a short period. Mr Georgakakis said to Mr
Christoforou, that he could “work here as long as you wish even if I sell the business

[however] from the moment you decide to leave this business you cannot be involved

in any business of thermoforming for at least five years”. Mr Christoforou had agreed
to these terms and was “overwhelmed and quite happy”.

27         Mr Kostovski said that Mr Maloney had come into the meeting a few times but he could not recall any discussion between Mr Georgakakis and Mr Maloney. In cross- examination Mr Kostovski said that the terms agreed were that if Mr Christoforou

“ever decided to leave or walk out of here he can’t get involved with any

thermoforming or manufacturing of plastic for a minimum of five years”. Mr Kostovski
said that Mr Christoforou had responded, “I would never do that. I would never do
anything behind your back”.

28          Themi Christoforou: Mr Christoforou said in evidence that the meeting where the agreement for the sale of business to Mr Georgakakis had taken place was in late November 2007. He thought it was a Thursday and the meeting had involved himself, his wife Chrissa, Meryl Licqurish and Mr Georgakakis. He said Mr Georgakakis had offered to pay $800,000 for the business and it was agreed that he “can’t work in the industry for three years and would stay on in the business”. He said that “three years. That’s all I remember”.

29         Mr Christoforou denied that he had ever said to anyone from the new business after the sale in 2009 that there was an agreement for five years when he would not work in a competing business. He said that after he left the business in July 2009 he

established a company, Mouldpak Pty Ltd, and it was not until about October 2010 that he started “taking in clients” and had approached Heritage Chocolates to ask if they had “any work apart from the work that Formpac was doing”. He later sold his business to Confoil although he is currently employed by Confoil running their

business.

30         In cross-examination, Mr Christoforou said that Ms Licqurish had “wanted to be at the

meeting [to discuss the sale of the business in November 2007] because she did not

trust Georgakakis”. He said that his wife was present because he had “told Chrissa by phone, ‘We have sold the factory. Come in and get the cheque’”. Mr Christoforou said that the restraint period was to operate for three years from the date that he

received the cheque from Mr Georgakakis for the business which was on 1
December 2007. Mr Christoforou said that when Mr Georgakakis had given him the
third and last cheque on 5 March 2009 he had said, “The time starts now”. Mr
Christoforou had responded, “No, it started with the first cheque”.

31         Mr Christoforou said that he had talked to Toni Koneski when they went to see customers. There was no discussion about what he would do after he left their employ. He said he never “spoke to them about any restraint” on himself.

32          Meryl Licqurish: Ms Licqurish, the former bookkeeper of the business both before and after the sale to Mr Georgakakis, said that she was present at a meeting on Friday 30 November 2007 with Mr Georgakakis and Mr Christoforou involving the sale of the

Christoforou to stay on in the business for 12 months. Mr Georgakakis had said to

business. After Mr Georgakakis had agreed to buy the business, he asked Mr business”. They had shaken hands on this arrangement.

33 and did not believe he was at the meeting. She said she attended the meeting
because she was asked to go in that day by Mr Christoforou. She assumed she went

In cross-examination, Ms Licqurish said she could not recall a person named Robert that both Mr Georgakakis and Mr Christoforou were at that time her friends and she trusted them both.

34          Chrissa Christoforou: Mrs Christoforou said that on 30 November 2007, she was called in by her husband to attend a meeting. Mr Georgakakis, her husband, Ms Licqurish and herself were present. Mr Georgakakis had said that he would buy the

whole company and its shares. He said that Mr Christoforou could not work in the
plastics industry for three years after the sale and he was to stay on for no more than
12 months. Mr Georgakakis had said that he was hoping to sell the business as
soon as possible. Mr Georgakakis had signed a cheque for $350,000 that day. It
was post-dated 1 December 2007 and had been written out by Ms Licqurish.

35         In assessing the evidence in relation to this issue there are a number of factors I have taken account of, including:

a. Mr Georgakakis and Mr Christoforou had been the best of friends. Mr Georgakakis said that he had only purchased the business in 2007 to help Mr Christoforou out of a domestic crisis. He had offered Mr Christoforou $200,000 more than Mr Christoforou expected to receive for the business, particularly as Mr Christoforou had told Mr Georgakakis that the tax returns for the business disclosed a profit of only $15,000 in the previous year. Mr Christoforou agreed to continue managing the business on what appeared to be a generous salary in the circumstances and agreed to restrictions on his future employment.

When Mr Georgakakis sold the business in early 2009, Mr Christoforou increased the annual income to more than $200,000. Mr Georgakakis’ asking price was $2 million for the business, although the sale price was agreed at $1.35 million. He said that in fact by agreement he was only paid $1.25 million and retained a 20% interest in the business.

stayed on until July that year ensuring the new owners, who had no
experience in the industry, had a smooth transition. Mr Georgakakis sold the
business for $1.35 million, little more than 12 months after he had taken over.

When Mr Christoforou left the business in July 2009 he started up a new issued on 18 May 2011.

business which, at least by October 2010 was soliciting customers and
preparing for manufacturing by ordering a new mould pattern. Mr
Georgakakis said that although he had received information at about that time
of Mr Christoforou’s breach of the restraint clause, it was not until later that he
had found out that Mr Christoforou was operating a business at Dandenong.

b.	Although the writ included a claim for damages and for an account of profits, those matters were not pursued during the pre-trial processes. The particulars of loss and damage in the Amended Statement of Claim dated 17 June 2011 read: “The business conducted by Mould Pac Pty Ltd competes
with the plaintiff’s business. The plaintiff’s loss and damage is loss of income from customers of Mould Pak Pty Ltd who would otherwise be customers of the plaintiff. Further particulars will be provided prior to trial”.

The evidence at the trial did not support a conclusion that Mr Christoforou’s new business had had any significant effect upon the old business. Indeed the only basis Mr Georgakakis had to be concerned that it might, was the

particulars were never provided and the plaintiff did not pursue discovery of
any documents from the defendant which might have clarified whether Mr

20% interest he claimed he had retained in the business he had sold. Further business, now being run by the purchasers from Mr Georgakakis.

c. In these circumstances, it was difficult to understand the very strong enmity that now apparently exists between Mr Georgakakis and Mr Christoforou. When the cross-examination of Mr Christoforou commenced, Mr Christoforou’s evidence was very ill-disciplined. He might have felt provoked by counsel. Nevertheless, he took every opportunity to make gratuitous remarks reflecting poorly on Mr Georgakakis’ character. After a short break in proceedings, Mr Christoforou’s evidence was generally more restrained and appropriate.

Mr Georgakakis’ evidence emphasised his close friendship with Mr Christoforou. However, this simply made his pursuit of Mr Christoforou in this proceeding more difficult to understand. Plaintiff’s counsel, Mr Northrop, explained it as simply the desire of the plaintiff to enforce a promise made by the other party.

d.	Without an understanding of the motivations of the principal witnesses, it is difficult to make an assessment of their evidence particularly in a case such as this where there is little objective material. This is compounded by the
almost inescapable conclusion that one side’s witnesses appear to have deliberately fabricated a version of events. There is only limited evidence about the personal relationships between the various parties.

Mr Georgakakis and Mr Christoforou were extremely close friends until after July 2009. One might speculate that they fell out because Mr Christoforou broke his promise not to be involved in a similar business. Alternatively, the fact that Mr Georgakakis was able to obtain a more substantial price for the business within a year or so might have been a cause of resentment. This, however, appears unlikely because Mr Christoforou continued to work, by all accounts helpfully and productively, in the business until July 2009.

many matters going back a number of years that upset him about Mr
Georgakakis. Some of these matters he said he had “only recently realised”.
Others were probably false statements such as the suggestion that Ms

Certainly in the first part of his cross-examination, Mr Christoforou referred to was suspicious of Mr Georgakakis.

e. Mr Robert Kostovski said that he was a good friend of Mr Christoforou and Mr Georgakakis. Mr Toni Koneski and Mr Roni Siljanovski said that they had become friends with Mr Christoforou when they worked together in the business. Ms Licqurish said that she had friendly relations with both Mr Christoforou and Mr Georgakakis and was grateful to them both when the police were not called in when she admitted irregularities in the accounts of the business.

It was likely Mrs Christoforou would support her husband’s version of events because of their marital relationship. With Ms Licqurish the impression was that she retained more friendly relations with Mr & Mrs Christoforou than with

Mr Georgakakis. Similarly with Mr Kostovski and Mr Koneski and Mr Siljanovski; the impression from their evidence was that these witnesses were more likely to be favourably disposed towards Mr Georgakakis. Mr Moloney had worked for Mr Christoforou in the business and for a further 12 months when Mr Georgakakis took over. The evidence he gave was supportive of Mr Georgakakis’ version.

Each witness had aspects of their evidence which cast some doubt on their credibility. A significant matter was the “gentlemen’s agreement” by which Mr Georgakakis was to retain a 20% interest in the business when he sold it in 2009. That agreement was not reflected in the written contract of sale of business. Mr Draper, Mr Georgakakis’ and Superior Packaging’s accountant was unaware that Mr Georgakakis claimed he had retained a 20% share in the business.

It is difficult to understand why it was not the subject of a formal arrangement if in fact there was such an agreement. There was some evidence that the retention of 20% was the reason Mr Georgakakis accepted $1.35 million for the business when he wanted $1.5 or $1.6 million or that perhaps it was the reason Mr Georgakakis ultimately accepted payment of $1.25 million.

f. Defendant’s counsel, Mr Goussis, suggested that Mr Georgakakis was asserting that he had retained a 20% in the business in order that he could claim he had a proprietary interest which required an injunction to protect. The Statement of Claim and Amended Statement of Claim simply asserted that the plaintiff “conducts a plastic thermoforming business”. It was only in the Further and Better Particulars of Statement of Claim delivered 29 August 2011 that the plaintiff asserted that: “In 2009 the plaintiff sold 80% of the

business to Formpac Australia Pty Ltd and retained a 20% interest in the

business”. It was never alleged that the purchasers had taken an assignment of Superior Packaging’s right to enforce the restraint of trade agreement.
g.	Mr Koneski said that Mr Georgakakis kept a 20% share of the business and remained silent about it “so that we could get funds from the bank”. I granted Mr Koneski a certificate in relation to this evidence pursuant to s.128 of the Evidence Act 1958. Later, however, Mr Koneski said that there had never been any intention to mislead the bank. He said, “I was still not eligible [for a loan] from the bank” and his parents had to put up a property as security. He said, however, the bank saw the contract of sale and “in their minds they had it on paper that I was a one-third owner of the business”. Mr Koneski said that although Mr Georgakakis had a 20% interest “if we sold the business it was in our discretion to pay Mr Georgakakis”. He said though that he would consider himself bound by the “gentleman’s agreement”.
Mr Siljanovski gave evidence of a discussion involving both Mr Georgakakis and Mr Christoforou before the purchase of the business in which Mr Christoforou said he would stay working in the business and after he left for at least five years he would “not approach customers” and would “not get into the same line of work”. He did not give evidence of any later discussions about what Mr Christoforou would do after he left the business. Mr Siljanovski said that he and his partners “relied on Mr Georgakakis” for the assistance he continued to give them with the business.
h.	Mr Moloney appeared to be an independent witness. There was no current relationship with either Mr Georgakakis or Mr Christoforou disclosed in the evidence. His critical evidence was of a conversation after the conclusion of the meeting in which Mr Georgakakis had purchased the business. Mr Georgakakis related to Mr Moloney, in Mr Christoforou’s presence, what he said had just been agreed. Mr Moloney said Mr Georgakakis told him Mr Christoforou was going to stay with the business as manager for a period of time and “he was not going into a competing business in plastics for five years”. Mr Moloney said Mr Georgakakis had then “taken me aside and

offered for me to continue on in the business with a good salary to look after

sales”. He continued in the position for 12 months until Mr Georgakakis sold
the business.

i.           Mr Kostovski said that he was still friends with both Mr Georgakakis and Mr Christoforou. He had worked with Mr Georgakakis’ business until recently and Mr Georgakakis had assisted him. He gave evidence of the conversation in 2007 during which the business was agreed to be sold and Mr Christoforou agreed that he “can’t get involved with any thermoforming or manufacturing of plastic for a minimum of five years”.

j.	Mr Christoforou’s evidence was unsatisfactory in a number of respects. As I have mentioned, he made gratuitous comments about Mr Georgakakis which were not generally responsive to the questions asked and related to matters
not put in cross-examination to Mr Georgakakis. Some of his evidence was inconsistent with the evidence by the witnesses called on his behalf, for example, evidence of the reason Mr Licqurish was at the meeting with Mr Georgakakis at the end of November 2007.
k.	Mr Licqurish was also granted a certificate pursuant to s.128 of the Evidence Act in respect of her involvement in irregularities in the accounts of the business both before and after the sale in 2007 to Mr Georgakakis. Her admissions involved defalcations of more than $200,000. This affects the credibility of her evidence generally.
l.	At the start of her cross-examination, Mrs Christoforou was asked about the manner in which she had given her evidence. She admitted that she had “tried to learn” her evidence.

36         In the circumstances, the evidence of the plaintiff’s witnesses on the issue of the restraint clause should be more compelling. The defence witnesses were not convincing. The plaintiff’s witnesses included Mr Moloney, who seemed to be independent of Mr Georgakakis, save that he was a former employee and Mr Koneski, Mr Siljanovski and Mr Kostovski, whose connection to Mr Georgakakis would not ordinarily lead to a conclusion that there was any reason for them to concoct parts of their evidence. Further, the commencement of the restraint period from the date Mr Christoforou left the business would appear more logical than tying it to the date of the agreement itself. These are, in my view, reasons why the version of the plaintiff’s witnesses that five years rather than three years seemed more likely to have been discussed and agreed by the parties.

37         However, I would not reach that conclusion without serious reservations. I would consider that to do so would be to accept evidence which does not provide any real understanding of why the parties have ended up in court and why there is what appears to be a deep-seated antagonism between them. Usually this would not matter if the issues could be confined. In this case it is difficult, even after listening to the evidence and within a few days writing about it, to feel the degree of satisfaction with the evidence about this issue which is required in a civil case.

38         I am conscious, too, that if the case had been fought on a different basis, the plaintiff would have had other difficulties making out its case. First, as to what was precisely agreed between the parties and, secondly, as to whether the agreement would be

enforceable as reasonably required to protect the legitimate interests of the plaintiff.

39         “The general principle of law is that a contract which is in restraint of trade cannot be enforced unless [firstly] it is reasonable as between the parties…It is for the party who alleges that there are circumstances sufficient to outweigh the policy of the law against restraint of trade to establish this… The real test whether the contract is reasonable between the parties is, ‘Does the restriction exceed what is reasonably

necessary for the protection of the covenantee?’” (Heron v Port Huon Fruit Growers Co-Operative Association Limited (1922) 30 CLR 315 at 323-4 per Knox CJ, Gavan Duffy and Starke JJ).

40         I consider that, for the following reasons, there are serious doubts as to whether the restraint agreement would be regarded as a “reasonable” protection of the plaintiff’s legitimate interests if considered at the time the agreement was entered into:

a.	a restriction against some degree of participation in a “plastic thermoforming business” may have been reasonable. A restriction for the whole of Victoria is more dubious;
b.	a restriction relating to an “involvement” by Mr Christoforou might be read down to save the agreement although it would need to be more limited than the definition of “involved in any way” in clause 10.1 of the general conditions of the contract for the sale of the business in 2009;
c.	a restriction limited to a thermoforming “or similar business” as the plaintiff alleged or “the manufacture of plastics”, as Mr Kostovski said in his evidence, may be too wide;
d.	a period of five years, particularly commencing after Mr Christoforou left the business, may be regarded as too long a period.

41         I consider, however, that the better view is that the parameters of the case were defined by the pleadings. Although the plaintiff would ordinarily bear the onus of establishing that the restraint was reasonable between the parties, that matter was

had the effect of not alerting the plaintiff to the need to lead evidence as to the
reasonableness of the term of the restraint or indeed the fact that it was confined to

not put in issue in the proceeding by the defendant raising it by way of defence. This as to the terms of the restraint which the defendant conceded had been agreed.

42         In my view, even if the plaintiff reaches this point in the examination of the case, it should fail on the question of whether the court should intervene to grant a permanent injunction. The terms of the injunction sought by Mr Northrop were that,

“Until 16 July 2014, the defendant be restrained from being involved in a plastic

thermoforming or similar business in Victoria”. It might be considered that the words “or similar” business might be excluded because the defendant did not concede the words in his defence and at least Mr Kostovski thought the words used were “or in

the manufacture of plastics”. Further, it might be necessary to limit the scope of the
defendant’s “involvement” so that it includes only the sort of participation which might
legitimately threaten the plaintiff’s interests.

43         Ordinarily where a party agrees to abide by a restraint that was contained in an express negative contractual stipulation, “the correct approach is to grant the injunction unless there are good reasons to the contrary” (Maggbury Pty Ltd v Hafele Pty Ltd (2001) 210 CLR 181 at para 102 per Callinan J). However, in my view, an injunction, even modified in the ways I have earlier suggested, would not be appropriate for the following reasons:

a.	rather than looking at the restraint agreement at the time it was entered into, the court should examine the appropriateness of enforcing the agreement at the time the injunction is sought;
b.	over four years have past since the date of the agreement;
c.	in the two and a half years since Mr Christoforou left the employ of the business, he operated his own plastic thermoforming business, Mouldpak Pty Ltd, and after he sold the business continued to work as an employee of the purchaser;
d.	the actual effect of the competition offered by Mr Christoforou’s continued involved in plastic manufacturing upon the business conducted by Formpac Plastic Australia Pty Ltd has been negligible;
e.	Mr Georgakakis’ continued interest in a plastic thermoforming business requiring protection is limited to the 20% interest he may have retainedpursuant to the “gentlemen’s agreement” with the purchaser of his business in February 2009, if indeed any such agreement was entered into;
f.	Mr Georgakakis was not prepared to present any evidence at the trial of any loss or damage that he, or the purchasers of his business might have suffered as a result of any alleged breach by Mr Christoforou of the restraint agreement;
g.	if an injunction were granted in the terms sought by the plaintiff, it would impose restrictions upon Mr Christoforou which would clearly go beyond what could in any circumstances be regarded as necessary for the reasonable protection of the plaintiff’s legitimate interests;
h.	any such injunction would expose Mr Christoforou to criminal sanctions if he were to breach the court order. It may also impose unacceptable hardship on Mr Christoforou by the restriction of his rights to obtain employment in, or indeed to be involved in the conduct, of a range of otherwise legitimate pursuits;
i.	any modifying or limiting of the injunction ordered would underline the fact that the original restraint agreement was unreasonable and should not have been enforced.

44         Accordingly, I propose to refuse to grant the injunction sought by the plaintiff.

Payment of the sum of $25,666.07

45 business as originally foreshadowed in November 2007, involved the purchase by Mr
Georgakakis of the shares in the company Formpac Plastics Pty Ltd. I accept the
evidence of Mr Georgakakis that it was not until April 2008 that Mrs Christoforou had

I do not accept the evidence of the defendant’s witnesses that the sale of the because of the impact of capital gains tax. I accept that Mr Georgakakis said to Mrs Christoforou that he “did not want the company as there were too many skeletons”, although he agreed to speak to his accountant.

46         This version of events is supported by the following matters:

a.	a letter written by the defendant’s solicitors which formed part of his discovery. It was noted that in the sale to Superior Packaging, Formpac Plastics Pty Ltd had sold “all their assets”. There was no reference in the letter to the sale of shares in the business;
b.	Mr Draper’s evidence that, in about March or April 2008, Mr Georgakakis requested him to speak with the company’s accountant, Mr Yianni, about the form of the sale;
c.	two of the three cheques in payment for the business and stock had been made before this time;

i.           1 December 2007, $350,000.00

ii.          22 February 2008, $318,487.54

iii          5 March 2009, $256,980.00

d.	Mr Draper met with Mr Yianni on 30 May 2008. Mr Draper had envisaged a sale of the business, “but Formpac wanted it to be a sale of shares because of the tax advantages”;
e.	Mr Draper and Mr Yianni agreed that it was expedient to wait until 30 June 2008 and then to look at the assets and liabilities of the company as at that date. As the final payment had not been made, “We were to make the final

adjustment after we knew what the assets and liabilities would be”.

f.	Mr Draper and Mr Yianni met again on 22 August 2008. A letter from Mr Yianni to Mr Draper dated 1 September 2008 referred to their discussions on 22 August and noted, “We have now received the receipts and payments
analysis since June 30 2008 from the bookkeeper. As the company’s financial position is a moving target I suggest that the deal be finalised with sale effective 30 June 2008, subject to final agreed adjustments”.

47         It was for this reason the plaintiff alleged in its Amended Statement of Claim, and the defendant admitted in his defence, that there were terms agreed between them that:

“(a)	the balance of the price would be adjusted to take into account the liabilities and assets of Christoforou Pty Ltd and paid to the defendant;
(b)	the defendant warranted the accuracy of information provided by him in respect of Christoforou Pty Ltd’s operations, net debts and liabilities;
(c)	the defendant would pay to the plaintiff any debts owed by Christoforou Pty Ltd that were not brought into account by an adjustment to the price”.

48        The following dates are also relevant:

a.	on 21 April 2008, Formpac Plastics Pty Ltd changed its name to Christoforou Pty Ltd;
b.	on 23 January 2009, Formpac Plastics Australia Pty Ltd had been registered with Mr Koneski, Mr Ronnie Siljanovski and Mr David Siljanovski as directors;
c.	on 23 September 2009, Mr Christoforou resigned as a director of Christoforou Pty Ltd and Mr Georgakakis was appointed a director and the shares of the company were transferred from Mr Christoforou to Superior Packaging Pty Ltd;
d.	on 21 April 2011, Christoforou Pty Ltd was placed into liquidation by reason of its failure to pay the statutory demand from the Deputy Commissioner of Taxation, dated 3 November 2010 in the sum of $25,666.07.

49         The correspondence between the two accountants records:

a.	in his letter dated 1 September 2008, Mr Yianni noted that certain adjustments would be made to the balance of purchase price due, to reflect “net liabilities” and “net cash movements”;
b.	in a letter dated 9 September 2009, Mr Yianni advised that the Australian Taxation Office had notified that there were “missing BAS

documents and some discrepancies in relation to wages and salaries”

and that certain “missing documentation” had that day been handed to an ATO investigator;
c.	in a letter dated 2 February 2010, Mr Yianni enclosed a bank cheque for $21,707.54 and two smaller cheques to be passed on to the ATO. The letter suggested that Mr Draper “make an application for the
remission of … interest and … penalties” noted that $18,000.00 was owing in respect of Mr and Mrs

from the ATO. Mr Yianni evidence, Mr Yianni said that eventually that sum had been paid by Mr and Mrs Christoforou directly to the ATO;

d.	in a letter dated 1 April 2010, Mr Draper enclosed a demand from the ATO for $78,914.20. Mr Draper advised that his office was still holding funds previously forwarded by Mr Yianni;
e.	in a letter dated 4 May 2010, Mr Draper advised Mr Yianni that Mr Georgakakis “remains insistent that Themi [Christoforou] should pay
the entire amount owing to the ATO to finalise this matter … We consider the most expedient way to handle this situation is for George to transfer the company back to Themi and allow him to pursue the interest relief”;
f.	in later correspondence, Mr Yianni expressed his concern that Mr Draper had not done enough “to remove the penalties and interest” through negotiation with the ATO;
g.	in an email dated 30 May 2011, after the liquidation of Christoforou Pty Ltd, Mr Draper suggested that, “It would be prudent for Mr

Christoforou to pay the amount outstanding directly to the ATO as soon as possible as I expect that if the liquidator collects the amount directly from Mr Christoforou, that it will be significantly reduced by the

liquidator’s costs”;

52 respect of the sum of $25,666.07. Although he raised in his email to Mr Yianni on
30 May 2011 that the liquidator may seek to collect “the amount direct from

h. in an email dated 31 May 2011, Mr Yianni said, “My understanding

was that the only outstanding items were penalties and interest that

your firm did not see fit to make application for remission”;

i.           in an email dated 31 May 2011, Mr Draper clarified that “the amounts

outstanding to the ATO represent the unpaid personal entitlements of reversed”.

50 Deputy Commissioner of Taxation’s statutory demand setting out how the debt of
$25,666.07 was calculated. Mr Draper gave evidence that apart from the sum of
$343.97 which related to withholding tax in respect of employees and GST payments,

In their evidence, both Mr Draper and Mr Yianni examined the schedule to the claimed for the charge itself had been paid, and the further amounts claimed reflected liabilities for penalties and interest incurred before his firm took over responsibility for the accounts of the company and which had not been remitted by the ATO, and further penalties and interest on those sums.

51         Mr Yianni said that in his experience the ATO invariably remitted interest and penalties where the liability was due to the criminal acts of a third party. He said in evidence that he had only recently seen the statutory demand and without access to the ATO portal, he was not able to say what part of the demand related to interest and penalties. He was unable, therefore, to dispute the evidence of Mr Draper that the penalties and interest not remitted largely related to later defaults in payment of the liability rather than the earlier actions of the bookkeeper, Ms Licqurish.

Mr Draper confirmed in evidence that the plaintiff had no liability to the ATO in responsibility of the company in liquidation although there are no assets in the company to meet the payment.

53         In my view the debt is arguably covered by the agreement between the parties for the following reasons:

a.	it was one of the “debts owed by Christoforou Pty Ltd” prior to the adjustment date of 30 June 2008, although Mr Christoforou apparently did not become aware of the debt until about September 2009;
b.	the debt was “not brought into account by an adjustment to the price” of the business.

54         I raised during Mr Northrop’s submissions whether the phrase “debts owed by Christoforou Pty Ltd” should be construed as meaning only those debts which Superior Packaging had a liability to pay or alternatively, that any judgment in favour

of the plaintiff would only be on terms that Superior Packaging received the judgment
debt as trustee for the Deputy Commissioner of Taxation.

55         Mr Northrop responded that Mr Georgakakis had been a director of Christoforou Pty Ltd when it went into liquidation and that fact reflected unfavourably upon him and therefore an order should be made so that the debt could be cleared. Further, he said Mr Christoforou should not secure the advantage by not having had to meet the debt. As to the first matter, Mr Georgakakis could have avoided the situation by ensuring that Christoforou Pty Ltd paid the ATO demand. If that had occurred it would be difficult to see any basis upon which the present claim could be resisted by Mr Christoforou.

56         In the circumstances, I propose to order as follows:

1.	Judgment for the defendant against the plaintiff that the plaintiff’s claim for a permanent injunction, damages and an account of profits, be dismissed.
2.	Judgment for the plaintiff against the defendant for payment to it, for the benefit of the Deputy Commissioner of Taxation, the sum of $25,666.07;
3.	Payment of the sum of $25,666.07 by the defendant directly to the Deputy Commissioner of Taxation shall be for all purposes regarded as complete satisfaction of the judgment ordered in the preceding paragraph;
4.	A copy of the Associate’s Memorandum of the Orders of the Court must by 4:00 pm of 23 December 2011 be sent by the plaintiff’s solicitors by prepaid post, fax or electronic mail to the Australian Taxation Office at Level 1, 2

Lonsdale Street, Melbourne, 3000 or to the appropriate facsimile number or email address.

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Certificate

I certify that these 27 pages are a true copy of the reasons for decision of His Honour Judge

Anderson delivered on 21 December 2011.

Dated: 21 December 2011

Caroline Dawes

Associate to His Honour Judge Anderson