Transpacific Industries Pty Ltd v Whelan
[2008] VSC 403
•7 October 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8248 of 2008
| TRANSPACIFIC INDUSTRIES PTY LTD & ORS | Plaintiffs |
| v | |
| MATTHEW WHELAN | Defendant |
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JUDGE: | WHELAN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22-23, 25, 29-30 September 2008 | |
DATE OF JUDGMENT: | 7 October 2008 | |
CASE MAY BE CITED AS: | Transpacific Industries Pty Ltd v Whelan | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 403 | |
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CONTRACTS – Employee – Restraint of trade provision – Whether restraint exceeds what is necessary to protect the legitimate interests of the employer – Restraint of trade too wide and therefore invalid
EMPLOYMENT LAW – Obligation of confidence of employee after termination – Danger of disclosure or misuse – Injunction granted
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Anderson SC Dr R Dean | Browne & Co |
| For the Defendant | Mr R Millar | Macpherson + Kelley Lawyers |
HIS HONOUR:
Introduction
The defendant, Matthew Whelan, has been involved in the waste management industry since 1984. Until 2 July 2008 he was employed by the first named plaintiff, Transpacific Industries Pty Ltd (“TPI”). On 28 July 2008 he began working for another company in the waste management industry named Hi-Quality Sales Victoria Pty Ltd (“Hi-Quality Victoria”).
Before he left employment with TPI, Mr Whelan signed a deed of separation. The deed contains a restraint upon Mr Whelan’s future employment activities.
On 5 September 2008 TPI and three related companies issued this proceeding against Mr Whelan. It is alleged that he has breached the restraint in the deed of separation and it is also alleged that he has engaged in conduct by virtue of which he “risks improperly using or disclosing confidential information”. Counsel for the plaintiffs sought relief by way of injunctions only and disavowed any claim for damages.
The duration of the restraint provision in the deed of separation is six months from 30 June 2008. With the laudable cooperation of the parties and their legal advisors, the proceeding was brought on for trial urgently on Monday 22 September 2008. The pleadings were not such as would normally have been acceptable in a case of this kind, and there had been no formal process of discovery. Nevertheless, the parties and their legal advisors were able to put before the Court the relevant material and to articulate the issues in a manner which enabled me to conduct the trial and to conclude it late on Tuesday 30 September 2008.
Evidence in the trial was given by affidavit. Six officers of the plaintiffs swore affidavits and were cross-examined. The defendant swore two affidavits and he was cross-examined for more than a day. There was one further witness called on behalf of the defendant. As much of the hearing concerned information said by the plaintiffs to be confidential, substantial portions of the evidence were heard in camera. Some of the affidavits were the subject of directions as to confidentiality, as were some of the exhibits.
Given the period of the restraint and given that Mr Whelan’s current employment is alleged by the plaintiffs to constitute a breach of the deed, it is necessary that I give judgment urgently. For that reason, these reasons are not as detailed as might otherwise have been the case, and I may not give specific attention to some of the issues which were raised in the manner which I otherwise might have done. It is imperative that the parties have a decision without delay.
Employment history
On 5 August 2004 Mr Whelan commenced employment with Brambles Australia Limited. His employment with that company involved managing landfill sites in Victoria, including a site at Tullamarine. He executed an employment contract on 5 August 2004. This contract imposed a contractual obligation on him to use confidential information (as defined) solely for the purpose of performing his duties and not to disclose it to anyone other than in specified circumstances. The contract provided for three months’ notice in the event of termination, other than in specified circumstances, and imposed upon him a detailed restraint in relation to his activities after termination. Two aspects of that restraint provision need to be noted. The first is that there appears to be an error in the first line of the restraint clause as the period is expressed to be “three” without any reference to days, months or years. The second is that the clause addresses specifically and in detail the business which is to be protected, relating the description of that business to the duties actually carried out by Mr Whelan in the six months prior to termination.
On 23 August 2006 variations were made to the terms of Mr Whelan’s employment with Brambles Australia Ltd (by then renamed BIS Cleanaway Ltd). Among other things, the notice period was increased to six months.
In May 2007 the business was sold and Mr Whelan became an employee of TPI. It was common ground between the parties that the terms of Mr Whelan’s employment were the same as they had been with his previous employer, including the six months’ notice. Mr Whelan did contend that the post-employment restraint provision in the 2004 contract was void both for uncertainty, in that there was no specified duration, and because it was an unreasonable restraint upon trade.
The fourth plaintiff, Transpacific Industries Group Ltd (“TIG”), is the parent company of a group of companies, known as the Transpacific group, of which all of the plaintiffs are members. TPI is a wholly owned subsidiary of TIG. Most of the businesses conducted by the Transpacific group are in the waste management industry. Companies in the group also conduct other businesses.
The Transpacific group has landfill sites throughout Australia and in New Zealand. At some point in 2007 Mr Whelan took on the role of national landfill manager. Mr Anthony Roderick, managing director, liquid and hazardous group, of the Transpacific group deposed that Mr Whelan commenced these duties in June 2007. Mr Whelan maintained that he commenced these duties on 20 August 2007. Nothing turns on this divergence. Mr Whelan performed the duties of national landfill manager until late November 2007. Senior management did not perceive him to be satisfactory in that role. TPI began a search for a national landfill manager, and Mr Whelan’s duties were confined to management of the landfill site at Tullamarine, with a residual role in assisting management in South Australia and some other functions.
Background to Mr Whelan’s departure from TPI
Mr Whelan was unhappy with the way matters had developed. His view was that he was the appropriate person to be national landfill manager. He was not happy being substantially confined to management of the landfill site at Tullamarine.
In late 2007 a problem arose in relation to the Tullamarine site with the Environment Protection Authority (“EPA”). In substance, the problem was that there had been overfilling. The Tullamarine site in 2007 was approaching full capacity. By a summons issued on 13 August 2008 a Transpacific group company has been prosecuted by the EPA on a charge that, contrary to the conditions of its licence, between 28 November 2007 and 17 December 2007 the company deposited waste above the pre-settlement final contour plan.
The Hi-Quality group
Hi-Quality Victoria is a company which is part of a group of companies associated with a Mr Patrick Hallinan and which are referred to as the Hi-Quality group. Companies in the Hi-Quality group conduct businesses in the waste management industry. The group is based in New South Wales.
Hi-Quality Victoria conducts a landfill site at Bulla in Victoria. The waste which it can accept under the terms of its EPA licence is limited. It accepts only category C contaminated soils.
The managing director, mergers and acquisitions, of the Transpacific group is Mr Terry Woods. Mr Woods was interested in acquisition prospects, one of which was Hi-Quality Victoria’s Bulla site. In 2007 he had discussions and dealings with Mr Whelan about that. Transpacific’s interest in the Bulla site is not confidential. Officers of the Transpacific group inspected the Bulla site with the general manager of Hi-Quality Victoria, Mr David Nagel, for the express purpose of assessing it as an acquisition.
Mr Whelan also referred Mr Woods to at least one other possible acquisition in Victoria.
Mr Whelan’s departure from TPI
Mr Greg Campbell is the chief executive officer, solid waste and New Zealand, of the Transpacific group. In February 2008 Mr Whelan contacted him by email asking whether it had been decided that he was not the person who would fill the national landfill manager role. On 21 February 2008 Mr Campbell replied saying that given what was going on at Tullamarine it was “key” that Mr Whelan remain focussed on that rather than the national landfill role. He advised that they were “probably looking to appoint someone else”. Mr Whelan replied saying, among other things, that he felt his future was somewhat limited and that he was a little “browned off”.
In early March 2008 Mr Whelan wrote to a director of TIG who was then performing the duties of national landfill manager, Mr Mulligan, copying his email to Mr Campbell. He set out the projects in which he was then involved and asserted again that he believed he was the appropriate person for the national landfill manager role. He said that he felt he may have been “a little short changed”.
In early April 2008 Mr Whelan sent emails to Mr Pat Hallinan exploring the possibility of employment in the Hi-Quality group. I will return to those emails.
In May 2008 Mr Whelan engaged in an exchange of emails with the Transpacific group executive then responsible for landfills, Mr Phil Carbins. In substance Mr Whelan complained that he had not been treated fairly and decently in that he had been unsuccessful in obtaining any clarification of his future role. In an email of 21 May 2008 he said:
“For clarification, since my initial change of role in November 2007 I have continued to complete all of my amended projects and responsibilities in good faith and believe that I have consistently added value to Transpacific Cleanaway and the TPI group, however I feel that that good faith has not been reciprocated in the ongoing delays and inability to confirm the next step of my contribution to Transpacific Cleanaway.”
Later that same day Mr Carbins replied to him in an email that was copied to Mr Greg Campbell. In the email Mr Carbins acknowledged Mr Whelan’s concerns and continued:
“Your current role of managing the closure and rehabilitation of the Tullamarine site is very important to Transpacific and to me personally. You have extensive knowledge of the site and its intricate workings.
Unfortunately I am not in a position at this time to be able to provide the clarity that you are seeking. I therefore request that you continue to work diligently at the current tasks set before you.
I will continue to pursue discussions with the TPI hierarchy in order to seek the clarity which you have requested and look forward to your continued contribution to the TPI business.”
The Tullamarine site ceased accepting waste in early 2008. Mr Whelan’s role had become, as Mr Carbins said, a role of managing the closure and rehabilitation of that site.
According to Mr Roderick, in the period February to May 2008, consideration was given at senior management level of the Transpacific group to terminating Mr Whelan’s employment for serious misconduct as a consequence of the issues concerning the EPA. On 23 May 2008, Mr Campbell had a meeting with Mr Anthony Wright, general counsel of the Transpacific group, and others. Mr Wright advised Mr Campbell that there were grounds for Mr Whelan’s dismissal without notice consequent upon matters relating to the EPA and Tullamarine.
On 27 May 2008, Mr Campbell and Mr Whelan had a telephone discussion about his future. Unbeknown to Mr Whelan, Mr Wright and another executive of the Transpacific group were listening in to the conversation at Mr Campbell’s end.
Mr Campbell began the conversation by saying that he was giving consideration to Mr Whelan’s summary dismissal.
There was disagreement between Mr Campbell and Mr Roderick on the one hand, and Mr Whelan on the other, as to whether Mr Whelan had ever previously been advised of the possibility of summary dismissal. Mr Whelan maintained that that suggestion had never previously been made to him. Mr Roderick and Mr Campbell, without being able to give specific details, maintained that it had or that the EPA problems had been raised with him in such a way as would have indicated to him a level of seriousness of that magnitude. I prefer the evidence of Mr Whelan on this issue because the contemporaneous emails, particularly those in May 2008 to which I have referred, are consistent with Mr Whelan’s version and are inconsistent with that of Mr Campbell and Mr Roderick.
Both Mr Campbell and Mr Whelan agree that the suggestion of summary dismissal was made at the start of the telephone conversation of 27 May 2008.
Mr Whelan and Mr Campbell discussed his departure and agreed that Mr Whelan would leave TPI’s employment on the basis of redundancy with six months’ notice. They also agreed that Mr Whelan would be subject to a six month restraint.
Later that same day Mr Whelan sent Mr Campbell an email in the following terms:
“Hi Greg,
I thought that I should confirm my understanding of today’s discussion. I firstly acknowledge that it was without prejudice.[1]
[1]In the hearing before me objection was taken by counsel for Mr Whelan to reliance on the discussion and the email. When it was pointed out that Mr Whelan himself relied on the conversation for his duress claim the objection was withdrawn.
My understanding of the agreement that we have reached is as follows:
1.That my employment with TPI will be severed by way of a redundancy with a redundancy payment equivalent to six months of my current salary and six months of my current car allowance.
2.This payment will be exclusive of any of my accrued statutory entitlements including annual leave and superannuation which will be paid in addition to point 1.
3.A six month non compete clause will apply.
4.Any incurred business expenses will be reimbursed as a separate payment prior to my final severance.
5.It was agreed that a final severance date will be agreed over the next few days.
6.That you have agreed that I attend the Australian/New Zealand landfill tour commencing tomorrow.
7.That we will endeavour to draft up an agreement by the end of this week.
8.It is agreed that this agreement will remain confidential with the exception of Brenda Mello, Anthony Wright, Trevor Coonan and Phil Carbins and a company notification will be agreed once a final severance date is confirmed and an agreement has been signed.
Could I ask that you confirm that this is your understanding of our agreement by return email when you have a moment?”
On Thursday 29 May 2008 Mr Campbell sent to Mr Whelan a draft deed of separation saying, among other things, that he should review it and “take any advice you feel necessary”. At that time Mr Whelan was in New Zealand at the Australian/New Zealand landfill tour referred to in his email to Mr Campbell.
On 2 June 2008 Mr Whelan advised Anthony Wright of some minor changes to the draft deed.
The deed of separation was executed on 2 June 2008. It provided for termination of employment on 30 June 2008. Mr Whelan ceased work for TPI on 2 July 2008.
Mr Whelan’s dealings with Hi-Quality
On 7 April 2008, Mr Whelan sent Mr Pat Hallinan of Hi-Quality an email from his home email account attaching his curriculum vitae. Mr Whelan was looking for another job.
The email of 7 April 2008 is very short. It advises that the CV is attached. It then has the following comment: “Pat, just spoken to David and will give you a call shortly re Sydney (Enviroguard)”. The reference to Pat is a reference to Mr Pat Hallinan, and the reference to David is a reference to Mr David Nagel. Enviroguard is a reference to a landfill site at Erskine Park in Sydney operated by a company in the Transpacific group. The facility is operated in competition with Hi-Quality’s landfill business in Sydney. When asked in cross-examination what his reference to Enviroguard in the email was about, Mr Whelan said he could not recall.
On 11 April 2008, again from his home email account, Mr Whelan sent Mr Hallinan at Hi-Quality an email setting out proposals in relation to a remuneration package and comparing what he proposed with what he was paid at TPI. A significant part of his proposal in relation to remuneration was a performance bonus. The email contained the following statement:
“I am pretty confident that I can pay my way as I go – in 2005 the cleanaway landfills made 1.4 million, this year we will make around 7.5 million.”
It was put to Mr Whelan in cross-examination that the $7.5 million profit projection was confidential information of Transpacific’s, and he agreed. When asked why he disclosed it to a competitor he said it was to show that he would be capable of achieving a performance bonus over time. When asked whether he had seen anything wrong with conveying that confidential information to Mr Hallinan, he said he had not. It was put to him that looking back on it now it was a mistake, and he agreed. It was put to him that it was wholly inappropriate and wrong for him to have disclosed that confidential information to Mr Hallinan. He agreed that that was so.
On 4 June 2008 Mr Whelan sent to Mr Hallinan and Mr Nagel at Hi-Quality a revised proposal in relation to salary should he take up employment with them. At that time Mr Whelan was pursuing employment possibilities with other companies as well. He received an offer of employment from Hi-Quality Victoria dated 16 June 2008. He did not accept that offer but he did accept a subsequent offer in which the job description was the same. He began working for Hi-Quality Victoria on 28 July 2008.
Transpacific’s complaint and Mr Whelan’s response
On 21 August 2008 Mr Wright (general counsel of Transpacific group) wrote to Mr Whelan expressing concern that he was working as an employee for a competitor, being the Hi-Quality group, and asking Mr Whelan to advise in writing “exactly what you are doing for Mr Hallinan”.
Mr Whelan responded in writing, 6 days later. He advised that he was working for Hi-Quality Victoria “in a managerial position”. He said Hi-Quality Victoria was a separate company to the Hi-Quality companies in Sydney. He referred to Hi-Quality Victoria’s activities and to the fact that the Transpacific group was not engaged in similar activities in Victoria.
Mr Whelan maintains in this proceeding that Hi-Quality Victoria is not a competitor of the Transpacific group. This is because Hi-Quality Victoria operates the Bulla site which can only take category C contaminated soils. The Transpacific group has no landfill site in Victoria which takes category C contaminated soils.
Mr Whelan’s conversation with Mr Roderick after executing the deed
Mr Whelan was not the first former employee of TPI who had taken up employment with Hi-Quality Victoria. In April 2008 Ms Catherine Gunthorpe had resigned from TPI and had taken up a position with Hi-Quality Victoria.
Mr Whelan maintains that several days after executing the deed he spoke by telephone with Mr Roderick. He says that Mr Roderick told him: “You can move on now. You can always go and join Cath at Hi-Quality, because that’s one of the few companies we don’t compete with”. Mr Roderick denies saying any such thing.
Ms Gunthorpe gave evidence. She said, among other things, that on a date she can no longer recall Mr Whelan phoned her and told her that Tony Roderick had told him he could now go and work at Hi-Quality.
Ms Gunthorpe also gave evidence that she did not consider Hi-Quality Victoria to compete with the Transpacific group because Hi-Quality Victoria accepts only category C contaminated soil at the Bulla site and the Transpacific group does not have any landfills in Victoria which accept category C contaminated soil.
The possibility of summary dismissal: duress and consideration for the restraint
In the proceeding before me Mr Whelan maintained that the deed of separation signed on 2 June 2008 was executed by him under illegitimate pressure and economic duress. The argument was that the suggestion by Mr Campbell that Mr Whelan could be summarily dismissed was without any proper foundation and was made so as to illegitimately pressure him into signing a deed which gave him no more than his lawful entitlement to six months’ notice and which purported to impose upon him an onerous restraint.
The principles applicable to economic duress were usefully summarised by Coldrey J in Deemcope Pty Ltd v Cantown Pty Ltd.[2] I have also had regard to the judgment of McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation[3] and to Parkesinclair Chemicals (Aust) Pty Ltd v Asia Associates Inc.[4]
[2][1995] 2 VR 44, 47-8.
[3](1988) 19 NSWLR 40, 46.
[4][2000] VSC 362 at [47].
Parties are often under pressure of one sort or another when they make agreements. Economic duress arises only where there is an element of wrongful or unlawful conduct constituting illegitimate pressure.
I reject the argument that there was illegitimate pressure placed upon Mr Whelan here.
Mr Campbell had received legal advice that there were grounds for summary dismissal. He used this advice in the negotiations regarding Mr Whelan’s termination to obtain the best deal he could for the Transpacific group. In the circumstances I do not consider that was illegitimate.
In any event I do not consider that Mr Whelan entered into the deed, rather than taking some other course, because of any illegitimate pressure. The email he wrote immediately after the meeting is, in my view, inconsistent with the suggestion that he was labouring under illegitimate pressure. Further, when complaint was made about his employment with Hi-Quality Victoria, he did not suggest in his written response that he had signed the deed under illegitimate pressure. By the time he wrote that response he was in a new position. If he had signed the deed under illegitimate pressure I would have expected him to say so in that response, as it could not be that he was still under the same pressure at that time.
A converse argument concerning the same issue was put on behalf of the plaintiffs. In substance, the argument was that Mr Whelan was in fact liable to summary dismissal because of the matters that had arisen concerning the EPA and that accordingly the agreement to pay him six months’ notice represented a significant concession in his favour and a substantial consideration moving from TPI to him, the price for which was the restraint clause.
I reject this submission as well. As I have indicated, my finding is that if the Transpacific group executives considered before 23 or 27 May 2008 that Mr Whelan was liable to summary dismissal, they never told Mr Whelan that. In fact, in my view they gave him precisely the opposite impression in the contemporaneous emails. I do not see the six months’ notice payment as a significant concession on their part, the price for which was the restraint clause.
Significance of Mr Roderick’s comment
On behalf of Mr Whelan it was contended that Mr Roderick’s comment to him about working with Cath for Hi-Quality meant that an estoppel arose which precluded the plaintiffs from now complaining about his new employment.
On the issue of whether the comment was made I prefer the evidence of Mr Whelan. On the balance of probabilities I find that Mr Roderick did say what Mr Whelan says he did. I have reached this conclusion because in my view Mr Roderick struggled to explain how it is that Hi-Quality Victoria is currently a competitor of TPI in Victoria.[5] Before he had to think about it for the purposes of this case, my assessment is that he may well have thought that what Mr Whelan says he said was true. Further, Ms Gunthorpe gave evidence of a contemporaneous confirmation of the conversation by Mr Whelan.
[5]Transcript 35-38 and 84-85.
Nothing turns on this comment of Mr Roderick. The estoppel contended for is that described by Brennan J in Walton Stores (Interstate) Ltd v Maher.[6] A necessary matter the person contending for such an estoppel must prove is that he or she acted or refrained from acting in reliance on an assumption or expectation which the party said to be estopped created, and that that action or inaction will occasion detriment if the assumption or expectation is not fulfilled.
[6](1988) 164 CLR 387, 428-9; and see Outline of Submissions of the Defendant dated 28 September 2008 at [44].
Mr Whelan did not say in his evidence that he went to work for Hi-Quality Victoria because of what Mr Roderick had told him, nor did he say that if he had not been told what Mr Roderick told him he would have acted differently. It is not unconscionable for the plaintiffs to insist upon compliance with the deed, notwithstanding what Mr Roderick said, because Mr Whelan has not proved he acted to his detriment on the basis of what Mr Roderick said.
The restraint provision in the deed
The restraint provision in the deed of separation is in clause 5.1. It reads as follows:
“5.1 Restraint
To protect the interests of the Current Employer (and its Related Body Corporates) in the goodwill of and the legitimate interests of their businesses, the Employee convenants with and undertakes to the Current Employer (and its Related Body Corporates) that he will not, directly or indirectly, do any of the things outlined in clauses (a) and (b) within the territory described in clause (c) for the period set out in clause (d), namely:
(a)(i) undertake, carry on or be engaged in or concerned with
or interested in any business which is directly or indirectly competitive with the Current Employer’s (and its Related Body Corporates’) businesses;
(ii)canvass or solicit any person who or which at any time during the 6 months immediately preceding the effective date is or was a client or customer of the Current Employer’s (and its Related Body Corporates’) businesses;
(iii)be a lender to or guarantor for any person, firm or company which is engaged in any business referred to in clause 5.1(a) in competition with the Current Employer’s (and its Related Body Corporates’) businesses;
(iv)canvass or solicit any employee of the Current Employer’s (and its Related Body Corporates’) businesses to leave their employment with same;
(v)counsel, procure or otherwise assist any person to do any of the acts referred to in any of the above paragraphs of this clause 5.1(a);
(b)(i) on its own account;
(ii)jointly with or on behalf of any other person, firm or company;
(iii)as an employee, manager, director, shareholder, member, partner, joint venture participant, consultant, or in any other capacity;
(c)within Australia;
(d)for the period of six months from the effective date.”
The “Current Employer” is TPI. The expression “Related Body Corporate” is a defined expression in the deed. Clause 1.1 defines it as having the same meaning as the meaning ascribed to it in the Corporations Act 2001 (Cth). Section 50 of the Corporations Act defines “related bodies corporate”. Under that definition TIG and all of its subsidiaries are related to each other.
Mr Whelan gave the following evidence before me, which was unchallenged:
“I am aware that the activities of the TPI Group are not limited to the waste management industry. Included within the activities of the group are businesses such as the importation and distribution of Western Star Trucks, MAN trucks and bus chassis, industrial cleaning, facilities management, energy and manufacturing divisions. Details of these activities are provided on the TPI website: I have had no involvement in these businesses, although the Deed purports to prevent me working in competition with such businesses.”
Extracts from the Transpacific group website which reflect Mr Whelan’s evidence were tendered.
It is well established that a restraint of trade is prima facie unlawful and invalid. The restraint is valid only if it can be shown to be reasonable. In the employment context, for a restraint to be reasonable it must not exceed what is necessary to adequately protect the legitimate business interests of the employer. The onus rests on the employer to establish that the restraint is necessary for this purpose.
TPI has legitimate interests to protect. The plaintiffs’ written submission articulates the interests which it was said the plaintiffs might legitimately protect.[7] Six business interests were specified. Four of them were specifically confined to what was described as the “landfill business” or “landfill businesses”. The two interests not specifically confined to landfill were described as:
“(d)the commercial terms upon which the plaintiffs deal with their customers;
….
(f)the plaintiffs other confidential information and trade secrets in respect to waste management to which Whelan was privy as a consequence of his employment and in particular [some specified subject matters].”
[7]Submissions of the Plaintiffs dated 30 September 2008 at [16].
The plaintiffs’ written submission contends that the justification for the restraint provision is protection of the plaintiffs’ “waste management businesses”.[8]
[8]Submissions of the Plaintiffs dated 30 September 2008 at [18].
The inclusion of related entities within the protection purportedly afforded by restraint clauses in the employment context can create significant obstacles in the path of the party endeavouring to discharge the onus of proving that the restraint does not exceed what is necessary to protect the legitimate interests of the employer. These obstacles were analysed in depth by Dodds-Streeton J in IF Asia Pacific Pty Ltd v Galbally,[9] a decision which I followed in Courtenay Polymers Pty Ltd v Deang.[10] Before me, counsel on both sides submitted that the analysis in those decisions was correct.
[9][2003] VSC 192.
[10][2005] VSC 318.
Unlike the position in Courtenay Polymers v Deang, it was not contended before me that Rentokil Pty Ltd v Lee[11] applied so as to render the clause reasonable. Unlike the position in IF Asia Pacific v Galbally, it was not contended before me that the clause could be severed.
[11](1995) 66 SASR 301.
The obstacle which the plaintiffs must overcome is that the clause in this case, just like the clauses in Courtenay Polymers v Deang and in IF Asia Pacific v Galbally, by its terms imposes restraint in relation to businesses with which the employee has had no connection, conducted by companies by whom the employee has never been employed.
Counsel for the plaintiffs submitted that the clause here was reasonable because, as a matter of construction, the reference to the “Current Employer (and its Related Body Corporates)” is to be confined to the four plaintiffs, and the references to “businesses” are to be confined to waste management businesses.
In support of the submission that the reference to the “Current Employer (and its Related Body Corporates)” is to be confined to the four plaintiffs, counsel for the plaintiffs relied upon recital A to the deed which recited Mr Whelan’s employment with TPI as “Landfill Manager, Tullamarine”; recital B which recited his previous employment with Brambles Australia Limited (subsequently renamed); recital E which says: “Transpacific is a Related Body Corporate to the Previous Employer and Current Employer”; and the definition of “Employment” in clause 1.1 which reads:
“’Employment’ means the employment of the Employee by the Current Employer, the Previous Employer or any Related Body Corporate, where relevant.”
The argument made is untenable. There is an express definition in the deed of the expression “Related Body Corporate”. The term cannot be confined in the way contended for by the plaintiffs. It covers all related companies within the meaning of s 50 of the Corporations Act. This means TIG and all its subsidiaries.
The plaintiffs’ submission that the “businesses” referred to in the restraint provision must be confined to waste management businesses is not supported by the provisions of the deed. There is no warrant in the deed for confining the plain words of the restraint clause to waste management businesses only.
Extensive reference was made by the plaintiffs’ counsel to what was said to be the factual matrix, or the context in which the deed was executed. The argument put in relation to context does not advance the plaintiffs’ position. It is certainly the case that Mr Whelan worked for TPI in waste management businesses conducted by companies in the Transpacific group, and that he was specifically concerned with landfill. In this respect this case is no different to IF Asia Pacific v Galbally or Courtenay Polymers v Deang. The problem arises precisely because the ambit of the employee’s activities is demonstrably narrower than the ambit of the restraint.
Counsel for the plaintiffs also contended that there was ambiguity in the provision, and relied upon the observations of Dixon CJ in Butt v Long[12] in submitting that it was proper to take into account the law relating to the validity of covenants in restraint of trade in resolving the ambiguity. As was the position in Courtenay Polymers v Deang and in IF Asia Pacific v Galbally, there is no relevant ambiguity. The conclusion that Dodds-Streeton J reached in IF Asia Pacific v Galbally is equally applicable here. She said: “[t]here is no evident ambiguity in the text which requires resolution; rather, there are general words”.[13]
[12](1953) 88 CLR 476, 487.
[13][2003] VSC 192 at [127].
The plaintiffs have failed to establish that the restraint in clause 5.1 of the deed of separation is reasonable. It does exceed what is necessary to protect the legitimate business interests of TPI because it purports to protect businesses with which Mr Whelan has had no relevant connection. Therefore, the clause is invalid.
Given this conclusion, it is unnecessary for me to decide whether the clause is invalid because of its duration or its geographic width. It is also unnecessary for me to determine whether Hi-Quality Victoria is, on analysis, a competitor of the plaintiffs or any of them, and whether Mr Whelan’s engagement as an employee constitutes a contravention of the clause.
Confidential information
The plaintiffs seek an injunction against Mr Whelan on the basis that there is a real threat or danger that he will misuse or reveal confidential information of the plaintiffs.
In Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd[14] Gowans J said:
“In this field a distinction has to be maintained between information and knowledge acquired in confidence by an employee during his employment which he uses or discloses for his own advantage while he is still an employee, and information and knowledge so acquired which he uses for his own advantage after his employment is finished. A further distinction has to be drawn between information which forms part of the employee's stock of general knowledge, skill and experience, and that which should fairly be regarded as a separate part of the employee's stock of knowledge (whether it be identifiable as ‘particular’ or ‘detailed’ or ‘special’) which a man of ordinary intelligence and honesty would regard as the property of the former employer.”
[14][1967] VR 37, 40.
Recently, in GlaxoSmithKline Australia Pty Ltd v Ritchie & Anor,[15] Harper J emphasised the importance of differentiating between activities while still employed and activities after the employment has terminated. He explained that knowledge which forms part of an employee’s “stock of knowledge” can quite properly be drawn upon when working for a new employer, but this does not apply where the knowledge constitutes a trade secret, which is information which can fairly be regarded as a separate part of an employee’s stock of knowledge which a person of ordinary honesty and intelligence would recognise to be the property of his old employer.
[15][2008] VSC 164 at [46]-[50].
Because it is necessary to differentiate, and to clearly identify, the kind of knowledge which is in issue, the more general the description of the information which a plaintiff seeks to protect, the more difficult it will be for the Court to satisfy itself that the information imparted or retained by the employee is subject to a continuing obligation of confidence.[16] Usually a plaintiff will be required to identify with particularity and with clarity precisely the information which it is alleged is or may be misused.[17]
[16]Independent Management Resources Pty Ltd v Brown [1987] VR 605, 609.
[17]Liberty Financial Pty Ltd v Scott (No 3) (2004) 11 VR 621, 626-627.
Perhaps because of the urgent manner in which this proceeding came on for hearing, the plaintiffs did not plead the confidential information in issue with the particularity which is usually required.
A great array of matters were put to Mr Whelan in cross-examination as being confidential. He would usually agree that they were. The description of the matters put was often broad, encompassing information which the law might well not regard as confidential in the relevant sense, particularly after termination of employment. The evidence does not enable me to differentiate between information which is publicly available and information which is not; information which is current and information which is not; and between information which might be said to now form part of Mr Whelan’s general stock of knowledge on the one hand, and information which is special so that a person of ordinary honesty and intelligence would recognise it as the property of the plaintiffs on the other.[18]
[18]In this respect I am referring to the cross-examination on:
(a)the Transpacific group business model: Transcript 263-266.
(b)aspects of landfill financial data Australiawide: Transcript 268, 271-276, 289-291.
(c)financial data concerning Tullamarine: Transcript 269-270.
(d)potential acquisition sites: Transcript 278-285.
(e)the Earthpower management committee: Transcript 297-298.
(f)the steel recycling program: Transcript 298-299, 323-326.
(g)South Australian data: Transcript 299-301.
(h)recycling possibilities: Transcript 301-304.
(i)a materials recovery facility: Transcript 307-308.
(j)Whelan’s “involvement” in matters set out by Roderick: Transcript 413-417.
I am not intending to be critical of any of the legal advisors in making these observations. Counsel and the parties made every endeavour to address the issues in as full and detailed manner as was possible.
Having heard the evidence and the submissions, my conclusion is that there are three areas where there is an evidentiary basis for a concern about the misuse or disclosure of confidential information.
The first is the reference to Enviroguard in Mr Whelan’s email to Mr Hallinan of 7 April 2008. Mr Whelan said he could not recall what the reference to Enviroguard was about. When he was asked what possible purpose there could be in calling Mr Hallinan about Enviroguard he responded: “I have answered the question and I said I cannot recall”.[19]
[19]Transcript 316.
It cannot be that everything about Enviroguard is confidential. There will be publicly available information about it.
It is significant that the email was written while Mr Whelan was still an employee of TPI.
The second area of concern is the breach of confidence which Mr Whelan acknowledges occurred in the email of 11 April 2008 when he told Mr Hallinan the projected profit for the landfill business in that year. I accept Mr Whelan’s explanation that he disclosed the information so as to demonstrate that he could meet the performance bonus. He was candid in conceding that he now sees that the disclosure was a mistake, and that it was inappropriate and wrong.
The final matter is the evidence given in camera by Mr Woods. It is not confidential that the Transpacific group has had an interest in considering the Bulla site for acquisition. Mr Woods is concerned that Mr Hallinan may possess internal Transpacific group information which is relevant to that. Mr Whelan denies he has ever discussed those matters with Mr Hallinan or disclosed any information on that topic.[20]
[20]Transcript 251-253, 408-413.
I do not find that Mr Whelan has misused or disclosed any information about the matters referred to by Mr Woods. But the plaintiffs have legitimate grounds for concern about that matter given its sensitivity, given its particular relevance to Mr Whelan’s current employer, and given that it has been proved that Mr Whelan did on an occasion prior to leaving his employment with TPI, while pursuing the possibility of employment with the Hi-Quality group, disclose to Mr Hallinan a confidential matter that he should not have disclosed.
In Printers and Finishers Limited v Holloway (Confidential Information)[21] Cross J said:
“The second part of the injunction sought against Holloway is directed to the use or disclosure by him of information in his head, and the question whether or not it should be granted involves the consideration of the principles on which the court should act in a case of this kind. … The mere fact that the confidential information is not embodied in a document but is carried away by the employee in his head is not, of course, of itself a reason against the granting of an injunction to prevent its use or disclosure by him. If the information in question can fairly be regarded as a separate part of the employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with it, then the court, if it thinks that there is a danger of the information being used or disclosed by the ex-employee to the detriment of the old employer, will do what it can to prevent that result by granting an injunction.”[22]
(Emphasis is mine)
[21][1965] RPC 239.
[22][1965] RPC 239, 255.
Counsel for Mr Whelan submitted that before an injunction could be granted it was necessary for the plaintiffs to prove, in the words of Gummow J in Corrs Pavey Whiting & Byrne v Collector of Customs (Vic)[23] that “… there is actual or threatened misuse of that information”. He submitted actual misuse of the information concerning Hi-Quality and possible acquisition had not been proved. I accept that. He also submitted it was not threatened. I accept that no threat has been uttered, but a “threat” also exists where there is a source of danger. In my view the plaintiffs have established there is a relevant source of danger in relation to the plaintiffs’ plans and strategies concerning Hi-Quality.
[23](1987) 14 FCR 434, 443.
In the course of the hearing counsel for the plaintiffs handed up a proposed order which they sought in relation to both enforcement of the restraint provision and enjoining Mr Whelan from copying, disclosing or using specified categories of information. In final submissions the same draft order was annexed to their written submission.
I consider that I should make a permanent injunction restraining Mr Whelan from disclosing or using confidential information in relation to the plaintiffs’ plans and strategies concerning the Hi-Quality group. The information which Mr Whelan has about the plaintiffs’ plans and strategies concerning the Hi-Quality group is in my view information which should be regarded as a separate part of his stock of knowledge, and is information which a person of ordinary honesty and intelligence would recognise to be the property of TPI. As indicated, I do not find that Mr Whelan has misused or disclosed any of this information but because of the legitimate grounds for concern about the matter to which I have referred, I think there is a danger of the information being used or disclosed and that it is appropriate that I prevent that by granting an injunction.
I have considered the other categories of information in the plaintiffs’ draft order. It seems to me that all of them suffer from the problem that the necessary particularisation of what is confidential (supported by appropriate evidence) is lacking. I think it likely that there would be publicly available information about all of the various specified matters which would fall within the terms of the proposed injunction, save for the fact that the “confidential” label is attached to the category. Further, I am not persuaded that such an order should be made when there is no proper basis which is apparent to me whereby I can distinguish between information now forming part of Mr Whelan’s stock of knowledge which he can properly use and that which he cannot. Finally, there does not seem to me to be the same danger of disclosure in relation to the specified categories other than the plaintiffs’ plans and strategies concerning the Hi-Quality group.
I emphasise, of course, that the injunction I will grant does not in any way limit Mr Whelan’s ongoing obligations of confidence pursuant to the agreements to which he is a party and the law.
I record that Mr Whelan offered on 19 September 2008, before the trial began, to give an undertaking as to confidentiality provided particulars of what was said to be confidential were provided. I will grant the injunction I have indicated. Mr Whelan’s offer may be relevant on the question of costs. I will hear the parties further on the form of the necessary orders and any other consequential matters.
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