The Independent Liquor Group Distribution v Andrew Clement

[2007] NSWSC 1507

CITATION:	The Independent Liquor Group Distribution v Andrew Clement [2007] NSWSC 1507
HEARING DATE(S):	23 November 2007
JUDGMENT OF:	McDougall J at 1
EX TEMPORE JUDGMENT DATE:	23 November 2007
DECISION:	See paragraphs [39], [40], [45] and [46] of the judgment
CATCHWORDS:	CONTRACTS – restraint of trade – plaintiff seeks enforcement of restraint of interlocutory relief – whether restraint a term of defendant’s employment – whether first employment agreement continued to bind defendant – whether term asserted too wide – balance of convenience – Costs.
LEGISLATION CITED:	Restraint of Trade Act 1976 Section 4A of the Liquor Act (NSW) 1982
CASES CITED:	Brambles Ltd v Wail (2002) 5 VR 169 Leichhardt Municipal Council v Green [2004] NSWCA 341
PARTIES:	The Independent Liquor Group Distribution Co-Operative Ltd ABN 70 252 541 400 (Plaintiff) Andrew Clement (Defendant)
FILE NUMBER(S):	SC 5536 of 2007
COUNSEL:	T Saunders (Plaintiff) G J Hatcher SC / M Painter (Defendant)
SOLICITORS:	Harmers Workplace Lawyers (Plaintiff) Thompson Playford Lawyers (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

McDOUGALL J

23 November 2007 (ex tempore – revised 28 November 2007)

5536/07 THE INDEPENDENT LIQUOR GROUP DISTRIBUTION v ANDREW CLEMENT

JUDGMENT

1 HIS HONOUR: As its name suggests, the plaintiff (ILG) supplies alcoholic beverages to independent members of the liquor trade. It has done so for a number of years. It does so through a cooperative structure in which some 90 percent or more of those whom it supplies are members of the cooperative.

2 From about 28 October 2002 for a period of five years, the defendant (Mr Clement) was employed by ILG as a representative. His position title changed from time to time, but in essence his obligations over the period included servicing accounts in the western Sydney and Wollongong regions.

3 Mr Clement's employment with ILG came to an end on 29 October 2007. Although there is some dispute as to the precise circumstances in which it came to an end, there is no doubt that Mr Clement tendered his resignation, ILG accepted that resignation, and Mr Clement thereupon ceased to work for ILG.

4 Mr Clement has undertaken employment with Metcash Trading Limited, one of whose subsidiaries or divisions, known as Australian Liquor Marketers or ALM, is a competitor of ILG. ILG claims that Mr Clement is bound by restraints in his contract of employment in essence preventing him from undertaking most if not all incidents of that employment. It seeks to enforce those restraints through the grant of interlocutory relief.

5 Mr Clement's terms of employment with ILG were originally documented in a letter dated 4 October 2002, accepted by Mr Clement in writing on 28 October 2002. That letter said nothing as to any restraint of trade, although it did say if Mr Clement successfully completed a three month probationary period he would be offered a contract of employment which would detail all of the conditions of his employment.

6 Clearly, for ILG, the words "on successfully completing your probationary period" had some elastic content because the terms of employment were not offered to Mr Clement until about April 2003. On that date, he signed another agreement, which is the employment contract on which ILG relies in these proceedings. Although signed on 17 August 2003, it purports to have been made on 28 October 2002 and to have been effective from that date until 30 June 2004.

7 A number of terms in that agreement were the subject of debate. I do not propose to go to all of them. It is, however, necessary to set out the provisions of clauses 8, 14, (as to part) 15, 16, 17, 18, 23 and 24).

8. Subject to this Agreement, the term of this Agreement shall be for the period specified in Item 4 of the Schedule unless sooner terminated by either party during the original term (or any renewal term) by the giving of one (1) calendar months written notice to the other by hand or registered or certified mail, whereupon this Agreement shall terminate on the date specified in the notice. Prior to or at the end of the term of this Agreement, the parties will review the terms of the then current agreement with a view to seeking to reach agreement as to terms for a further period of employment but it is agreed and understood that nothing in this Agreement obliges either party to enter into a new agreement or to renew the employment.
14. The Employee hereby acknowledges:
(a) that the work of the Co-operative is highly specialised and unique and that, notwithstanding that he will acquire certain information in the ordinary course of the Employment, the property of the Co-operative includes, and will include, all confidential information and all records, documents, accounts, plans, formulae, designs, specifications, price lists, customer lists, correspondence, records maintained in any data bank, computer memory, upon any hardware or in any other medium whatsoever and letters and papers of every description, including all copies of or extracts from the same, relating to the affairs or business of the Co-operative or any associated Co-operative or which may come into his possession in the course and by reason of the Employment, whether or not the same were originally supplied by the Co-operative (the “Co-operative’s Documents”);

(b) that the information contained in the Co-operative’s Documents has been, and will be, acquired by the Co-operative or its associated companies at considerable effort and expenses;

(c) that he will come into possession or acquire knowledge of a great deal of information relating to the business affairs of members of the Co-operative;

(d) that the Co-operative and its associated companies have also expended, and will also expend, considerable effort and money in establishing their customer base and employee skills; and

(e) that, accordingly, it is reasonable that he should enter into the covenants and, in the event of termination for whatever reason, he should be subject to the restrictions, in each case set out in Clauses 15 to 20 inclusive hereof.
15. The Employee hereby covenants and undertakes that he will not either during the continuance of the Employment or at any time thereafter (except in the proper course of his duties hereunder or as required by law or the Co-operative) use or disclose to any person any confidential information of or relating to the Co-operative or its associated companies or any person with whom he has come into contact as a result of the Employment or any trade or business secrets or information of any kind contained in the Co-operative’s Documents of which he becomes possessed while employed in any capacity hereunder and will use his best endeavours to prevent the use of disclose of any such information by third parties.
16. Unless otherwise approved by the Board of Directors in writing in advance, the Employee hereby covenants and undertakes that he will not within Australia and its Territories for a period of 18 months after the termination of the Employment (however caused) solely or jointly with any other person, whether as principal, agent, director, executive, officer, employee, shareholder, partner, joint venturer, member, advisor, consultant or otherwise howsoever, directly or indirectly carry on, be engaged, concerned or interested in (except as the holder of not more than 5% of the issued capital of any Company whose shares are listed on a recognised stock exchange) or otherwise associated with any trade or business in competition with any business carried on by the Co-operative (or by any associated Co-operative in which he played a material executive role) at the date of termination of the Employment.
The parties agree that it is an essential term of this agreement that the employee shall not, at any time, hold any interest in a liquor licence within the Commonwealth of Australia, nor shall the employee be a close associate of any person with an interest in a liquor licence within the Commonwealth of Australia.
The parties further agree that should the employee, at any time during the currency of this agreement either acquire an interest in a liquor licence or become a close associate of a person with an interest in a liquor licence, the employee shall be terminated.
For the purposes of this agreement, the term “close associate” shall have the same meaning as prescribed in Section 4A of the Liquor Act (NSW) 1982.
17. Without limiting the generality of Clause 16 (but as a separate and independent covenant), the Employee hereby covenants and undertakes that he will not within Australia and its Territories for a period of 24 months after the termination of the Employment (however occurring):-
(a) canvass, solicit or endeavour to entice away from the Co-operative or any subsidiary any person who or which at any time during the last 12 months of the Employment or at the date of termination of the Employment was or is a member or customer of the Co-operative (or any associated Co-operative in which he played a material executive role) or in the habit of dealing with the Co-operative or any such associated Co-operative;

(b) solicit, interfere with or endeavour to entice away any employee of the Co-operative or any associated Co-operative; or

(c) counsel, procure or otherwise assist any person to do any of the acts referred to in Clauses 17(a) or 17(b).
18. The Employee hereby covenants and undertakes that he will not other than in the performance of his duties hereunder either during the continuance of the Employment or at any time thereafter use or disclose to any person other than as required by law any information of or relating to any client of the Co-operative which has come to his knowledge in the course of the Employment.
23. It is acknowledged and agreed that the Co-operative shall be entitled to injunctive relief against the Employee with respect to breach by the Employee of any obligation under this Agreement. In particular, but without limitation, the Co-operative shall be entitled to such relief for the purpose of protecting the confidential information of members of the Co-operative of which the Employee is possessed or of which the Employee becomes aware. This Clause 23 shall not derogate from or affect any other right or remedy to which the Co-operative may be entitled at law, in equity, or before any competent tribunal or statutory body.
24. This Agreement may not be modified, altered or changed in any way except in writing signed by the Employee and under the seal of the Co-operative.

8 There was some debate as to whether the terms of the document signed on 17 April 2003 had contractual effect.

9 Mr Hatcher of Senior Counsel who appeared with Ms Painter of Counsel for Mr Clement, submitted that the document did not have contractual effect. He submitted that it offered Mr Clement nothing that he did not have already under what was on any view of the facts a specific contract of employment that commenced on about 28 October 2002, and that had become "non probationary" (if there is such an expression) some three months thereafter.

10 Mr Saunders of Counsel, who appeared for ILG, submitted that the document signed on 17 April 2003 gave Mr Clement benefits that he did not have under the earlier agreement. He pointed to the entitlement to sick leave and bereavement leave, and to a fixed term up until 30 June 2004 (subject to prior termination in the event of among other things any wrongful behaviour).

11 Mr Hatcher submitted that the entitlements to sick leave and bereavement leave were provided under applicable industrial awards, and were no more generous than the entitlements under those awards. Those, he submitted, could provide no consideration.

12 In my view, there is a serious question to be tried as to whether, in all the circumstances that may be proved on a final hearing, the document signed on 17 April 2003 did have contractual effect. I say that partly because it does appear to have assured Mr Clement of a secure term of employment up until 30 June 2004.

13 Mr Saunders submitted that there was a serious question to be tried as to whether or not the terms of the agreement signed on 17 April 2003 continued to bind Mr Clement on and from 1 July 2004. He relied on the decision of the Supreme Court of Victoria, Court of Appeal, in Brambles Ltd v Wail (2002) 5 VR 169, referring in particular to the reasons of the Court from 185 [57] to 188 [61]. In my view, subject to the matters to which I next turn there is a serious question to be tried as to whether or not, from 1 July 2004, the parties did enter into a new agreement on the terms of the agreement signed on 17 April 2003, so far as they might be applicable but excluding the termination date stated in that document.

14 Mr Hatcher submitted that the parties had conducted themselves on the basis that the document of 17 April 2003 did not have continuing contractual effect. He referred, by way of example, to an incident in 2005 when Mr Clement sought to leave the employ of ILG and to join ALM, and was induced not to do so in circumstances that made no reference to the written agreement, or to any restraint contained in it.

15 Whilst I understand the force of the matters put by Mr Hatcher, they relate essentially to questions of fact that cannot be resolved on an interlocutory hearing. In my view, they do not change the prima facie position: namely, that there is a serious question to be tried as to the existence of an agreement from 1 July 2004 on the relevant or applicable terms of the document signed on 17 April 2003.

16 Thus, I find, there is a serious question to be tried as to whether on 29 October 2007, Mr Clement, was bound by the terms of that document, including the terms of the restraint set out in particular in clauses 15, 17 and 18.

17 The relief sought by ILG does not go so far as the relief set out in those clauses. It is in the following terms (I quote from prayer 8 of the amended notice of motion filed in court on 23 November 2007):

[8] That until further order the Defendant be restrained in New South Wales from, by himself, his servants and agents:

(a) canvassing, soliciting or endeavouring to entice away from the Plaintiff or from the Independent Liquor Group (Suppliers) Co-operative Limited (ABN 63 629 864 769) ( ILGS ) any person or entity who or which at any time during the 12 months prior to 5pm on 29 October 2007 was a number of customer of the Plaintiff or ILGS;

(b) soliciting, interfering with or endeavouring to entice away any employee of the Plaintiff or ILGS;

(c ) counselling, procuring or otherwise assisting any person to do any of the acts referred to in 8(a) or 8(b) above; and

(d) in any manner directly or indirectly disclosing or using the Plaintiff’s, or ILGS’, confidential information described in the Schedule, except as required by law.

18 It will be seen that the terms of the relief claimed vary significantly from the contractual provisions, both as to the duration of the restraint, and as to the area within which it is sought to be enforced.

19 Mr Hatcher accepted that the contractual restraints could be read down to the levels set out in the amended notice of motion through the operation of s 4 (3) of the Restraint of Trade Act 1976. He submitted, however, that the relief claimed in the amended notice of motion could not be read down in the same way, if the Court were to conclude that the relief sought were too wide and thus unenforceable.

20 I think that submission is correct. It therefore serves to focus attention on the particular issue: whether the relief sought by the amended notice of motion is too wide.

21 As I have said, the territory within which Mr Clement carried out his duties for ILG was limited to the western areas of Sydney and Wollongong. It is, I think, an available inference on the evidence that he may have had extremely limited contact with customers of ILG outside those areas, but more or less proximate to them. There is absolutely no evidence that otherwise he has had any contact whatsoever with any customer of ILG throughout the State of New South Wales generally.

22 A restraint on employment may be legitimate if it serves to protect the connection built up by the employee with customers in circumstances that make the connection in effect the property of the employer. It may also be legitimate if it serves to protect the abuse of confidential information in the knowledge or possession of the employee. In the present case the first limb of protection - protection of connection - cannot justify the restraint sought. That is because there is no basis in the evidence for concluding that Mr Clement has the requisite connection with customers of ILG throughout New South Wales generally, as opposed to customers within the particular areas in which he performed his duties for ILG.

23 It follows, as I think Mr Saunders submitted, that the restraint can only be justified if it is necessary to protect ILG’s interests in its confidential information, and no more than is necessary for that purpose.

24 I think there is little doubt that Mr Clement had access to confidential information of ILG. That confidential information is described, somewhat expansively, in the schedule to the amended notice of motion as follows:

Schedule
1. The prices charged by the Plaintiff or ILGS to each of its customers and members.
2. The cost to the Plaintiff or ILGS of purchasing the products sold by it.
3. The Plaintiff’s, or ILG’s, customer and member lists.
4. The Plaintiff’s, or ILG’s, business plans.
5. Details of how often and when the Plaintiff or ILGS changes its prices.
6. Details of the Plaintiff’s, or ILG’s, marketing and advertising plans and strategies.
7. The requirements of the Plaintiff’s or ILG’s, customers and members, including without limitation their buying patterns, their idiosyncrasies and the reasons why they deal with the Plaintiff or ILGS.
8. The names, positions, skills and experience of the Plaintiff’s, or ILGS’s, sales staff.

25 The reference to ILGS (as it is called) in prayer 8 and in the schedule can be disregarded. In the course of argument Mr Saunders accepted that ILGS had no separate employees or customers, or confidential information. It follows, as Mr Saunders accepted, that relief relating to the customers, employees or confidential information of ILG would be sufficient.

26 It does not follow from any of this that a restraint in the terms sought can be justified throughout the State of New South Wales. The evidence leads strongly to the conclusion that what is important to retailers is firstly, the connection that they have with the agent or representative who serves them; and secondly, questions of price. In this context, I note that Mr Clement suggests that questions of price are paramount whereas ILG’s evidence tended to suggest that the relationship is paramount. However that may be, it does not to my mind lead to any inference that, outside the territories, such confidential information as Mr Clement may have will assist him in any way in seeking to obtain new customers for his new employer. In other words, I think, the evidence does not show that there is a serious question to be tried that Mr Clement, in performing his new duties will use, or abuse, such confidential information of ILG as he has in his possession or mind.

27 Thus, I think, the restraint sought is excessive in its width. To the extent that restraints were also sought in respect of solicitation of employees and the use of confidential information, the question is covered by an undertaking that Mr Clement has offered to the Court. That undertaking is in the following terms:

Mr Clement will provide an undertaking to the following effect:
“That until further order Andrew Clement refrain from:
(a) soliciting, interfering with or endeavouring to entice away any employee of the Plaintiff or ILGS;
(b) counselling procuring or otherwise assisting any person to do any of the acts referred to in (a) above; and
(c) in any manner directly or indirectly disclosing or using the Plaintiff’s or ILG’s confidential information.”

28 In my view, that offer is a sufficient protection to ILG for its interests in respect of its employees and its confidential information.

29 The view to which I have come means that it is not necessary to consider the question of balance of convenience. However, I will deal with that question briefly.

30 It is, I think, correct to say that damages are rarely, if ever, an adequate remedy for a breach of enforceable restraint of trade. It is also correct, I think, to say that generally a restraint or an under- taking directed solely at the use or abuse of confidential information may be very difficult to enforce. Those factors would weigh in favour of the grant of relief if, contrary to the view that I have expressed, the relief sought were no wider than was necessary for the protection of ILG's legitimate interests.

31 As against that, there are Mr Clement's personal circumstances. He is now aged 45. He has spent all his working life from age 18 in the liquor industry. He has worked for a variety of employers. It is, I think, clear, as he says, that if he could not work in the industry that he is unlikely, at least in the short term, to find other employment. He is a married man with children. He has the usual commitments that one would expect. If he is to be restrained from earning his living with ALM then it is likely that he and his family will suffer significant, although perhaps only short term, detriment.

32 One answer to this may be that Mr Clement should have thought before he jumped. However, as Mr Hatcher submitted, there was no reason for him to have turned his mind to the question of any restraint before he made his decision to leave, and to take alternative employment.

33 Mr Clement's evidence is that he did not have a copy of the document signed on 17 April 2003. There is some evidence, although not particularly strong, that there was a degree of coercion involved in the signing of that document. Certainly, the document goes well beyond the accepted letter of offer signed on 28 October 2002.

34 Further, and more significantly, when Mr Clement contemplated resigning in 2005, the then Chief Executive Officer of ILG, Mr Raymond, made no reference to the written agreement or to any applicable restraint of trade although Mr Clement had told Mr Raymond that he was proposing to go to ALM.

35 Finally, in this context, no-one told Mr Clement about the restraint of trade until after his resignation on 29 October 2007 had been accepted.

36 For those reasons also, and were it necessary to do so, I would conclude that the injunctive relief sought in terms of prayer 8 A of the amended notice of motion should be refused; and as I have said the balance of prayer 8 is sufficiently covered by the undertaking to the Court that Mr Clement has offered.

37 I note that the plaintiff by counsel offers to the Court the usual undertaking as to damages.

38 I note that the defendant by senior counsel offers to the Court the following undertakings:

Mr Clement will provide an undertaking to the following effect:
“That until further order Andrew Clement refrain from:
(a) soliciting, interfering with or endeavouring to entice away any employee of the Plaintiff or ILGS;
(b) counselling procuring or otherwise assisting any person to do any of the acts referred to in (a) above; and
(c) in any manner directly or indirectly disclosing or using the Plaintiff’s or ILG’s confidential information.”

39 I order that the amended notice of motion be dismissed.

40 I direct the parties to bring in short minutes of order at 10.00 a.m. on Monday 26 November 2007 providing for the continuation of these proceedings.

41 I will hear the parties on costs.

42 Mr Saunders accepts that Mr Clement should have his costs of the notice of motion. Mr Hatcher seeks an order that those costs be assessed on the indemnity basis. He relies on a letter dated 23 November 2007, sent a little after six o'clock last night, in which, "without prejudice save as to costs", his client offered the undertaking to which I have referred, and that I have accepted.

43 The question is whether it was unreasonable of ILG to go further than the undertaking and seek to enforce the restraint of trade. Although it is difficult to extract any clear statement of principle from the authorities, including cases such as Leichhardt Municipal Council v Green [2004] NSWCA 341 in the Court of Appeal, it is, I think, reasonable to say that the failure to accept a “Calderbank” offer (which is what this in essence is) does not give any presumption in favour of indemnity costs. It requires an analysis of the whole situation.

44 In circumstances where the offer was made late last night and where, no doubt, the parties’ attentions were focussed on preparation for hearing, I do not think that the failure to accept the offer was of itself sufficiently unreasonable to expose ILG to a liability for indemnity costs.

45 Accordingly, I order the plaintiff/applicant to pay the defendant/respondent's costs of the application for interlocutory relief.

46 The documents made available by the plaintiff on notice to produce are to be returned to the plaintiff save for those that have been tendered which will remain with the court file.

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