Tullett Prebon (Australia) Pty Ltd v Purcell - [2008] NSWSC 852

No judgment structure available for this case.

Reported Decision:
175 IR 414

New South Wales

Supreme Court

CITATION: Tullett Prebon (Australia) Pty Ltd v Simon Purcell [2008] NSWSC 852
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 30 June, 1 July 2008

JUDGMENT DATE :
21 August 2008

JURISDICTION: Equity Division
Expedition List

JUDGMENT OF: Brereton J

DECISION: Employee repudiated employment contract by resignation. Employer did not accept repudiation but elected to affirm. Employer did not repudiate, nor was there a mutual agreement to terminate. Contract remains on foot, but resignation terminated employer/employee relationship. Doctrine of restraint of trade applies during employment as well as after termination. Contractual prohibitions on engagement with third parties operative after actual employment ends but while contract remains on foot, including during periods of notice and gardening leave, are restraints of trade, and valid only insofar as they are reasonable. Relevant prohibitions in employee’s contract are reasonable during the currency of actual employment, and for three months after expiry of term, but only for six months after actual employment brought to an end by resignation. Injunctive relief restricted to particular field of endeavour in which employee was engaged does not amount to specific enforcement, directly or indirectly, of obligation to render personal services. It is not just that employer be left to remedy in damages. If restraints were not valid and enforceable only for six months after end of actual employment, as a matter of discretion injunctive relief beyond that period would still be declined as no longer serves a legitimate protectable interest. Declaration that contract remains on foot. Injunction enforcing restraints for a period expiring six months after the end of actual employment.

CATCHWORDS: CONTRACTS – EMPLOYMENT – REPUDIATION/TERMINATION – fixed term contract where defendant employee prematurely resigned before conclusion of fixed term of employment to work for competitor employer – where employer elects to affirm contract – whether employment contract repudiated by employee or terminated by mutual agreement – distinction between contract of employment and relationship of employer/employee – whether employment relationship terminated by resignation – whether plaintiff employer can reinstate employment relationship by affirming contract. - CONTRACTS – EMPLOYMENT – RESTRAINT OF TRADE – whether restraint of trade doctrine operates during contract of employment – whether restraint of trade clauses void – where employee on gardening leave – legitimate protectable interests – whether and for how long after end of actual employment restraints are reasonable – where employer continues to remunerate employee notwithstanding employee’s termination of employment relationship. - INJUNCTIONS – injunction enforcing restraint of trade – discretion to decline injunction to enforce a negative contractual provision – whether granting injunction amounts to requiring employee to render personal services – special services – whether special services involve element of public performance – where employer continues to pay employee – whether injunction should be declined on discretionary grounds – whether injunction would not protect legitimate interests of employer – whether damages adequate remedy – where contract provides for liquidated damages in event of premature termination by employee – where damages difficult to quantify – whether deterrent effect of granting injunction a relevant discretionary consideration – whether granting injunction would occasion hardship to employee.

LEGISLATION CITED: (NSW) Restraints of Trade Act, 1976, s 4(1)

CATEGORY: Principal judgment

CASES CITED: A Schroeder Music Publishing Co Ltd v Macaulay (formerly Instone) [1974] 1 WLR 1308
Atlas Steels (Australia) Pty Ltd v Atlas Steels Ltd (1948) 49 SR (NSW) 157
Australian National Airlines Commission v Robinson [1977] VR 87
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319
Bath & North East Somerset District Council v Mowlem PLC [2004] EWCA Civ 115
BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115
Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339
Broken Hill Proprietary Co Ltd v Hapag-Lloyd Aktiengesellschaft [1980] 2 NSWLR 572
Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717
Commercial Plastics Ltd v Vincent [1964] 3 WLR 820
Consolidated Press Ltd v Thompson (1952) 52 SR (NSW) 75
Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337
Dalgety Wine Estates Pty Ltd v Rison (1979) 141 CLR 552
Daly Smith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (NSWSC, Young J, 14 April 1997, unreported; BC 9701250)
Davis v Foreman [1894] 3 Ch 654
De Francesco v Barnum (1890) 45 Ch D 430
Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 73 IPR 326
Ehrman v Bartholomew [1898] 1 Ch 671
Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269
Euro Brokers Ltd v Rabey [1995] IRLR 206
Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349
GFI Group Inc v Eaglestone [1994] IRLR 119
Gunton v Richmond-on-Thames London Borough Council [1981] 1 Ch 448
Hawthorn Football Club Ltd v Harding [1988] VR 49
Heine Bros (Aust) Pty Ltd v Forrest [1963] VR 383
Herbert Morris Ltd v Saxelby [1916] 1 AC 688
Hill v C A Parson & Co Ltd [1972] Ch 305
Huhtamaki Australia Ltd v Botha [2004] NSWSC 386
JC Williamson Ltd v Luke & Mulholland (1931) 45 CLR 282
John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 99
Kazzi v Raptime Pty Ltd [2006] NSWSC 1261
Kirchner & Co v Gruban [1909] 1 Ch 413
Kone Elevators Pty Ltd v McNay (No 1) (1997 ATPR 41-563; (1997) Aust Contract R 90-079
Koops Martin Financial Services v Reeves [2006] NSWSC 449
Lindner v Murdock’s Garage (1950) 83 CLR 628
Lumley v Wagner (1852) 1 De G & M 604
Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2006] NSWCA 258
Masterclass Enterprises Pty Ltd v Bedshed Franchisors (WA) Pty Ltd [2008] WASC 67
McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd [2008] NSWSC 542
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535
Otis Elevator Co Pty Ltd v Nolan [2007] NSWSC 593
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1953) 90 CLR 235
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
Petrofina (Great Britain) Ltd v Martin [1966] Ch 146
Philton Distributors Pty Ltd v Kemalex Pty Ltd (SASC, Full Court, 24 March 1988)
Provident Financial Group PLC & Whitegates Estate Agency v Hayward [1989] ICR 160
Rely-a-Bell Burglar and Fire Alarm Co v Eisler [1926] Ch 609
Tank Lining Corporation v Dunlop Industries Ltd (1982) 140 DLR (3D) 659
The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445
Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227
Tradition Australia Pty Ltd v Gunson [2006] NSWSC 298; [2006] 152 IR 395
Turner v Australian Coal and Shale Employees’ Federation (1984) 6 FCR 177
Vanderwell Products Ltd v McLeod [1957] RPC 185
Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209
Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32
Whitwood Chemical Co v Hardman [1891] 2 Ch 416
William Hill Organisation Ltd v Tucker [1998] EWCA Civ 615; [1999] ICR 291
William Robinson & Co Ltd v Heuer [1898] 2 Ch 451
Woolworths Limited v Olson [2004] NSWCA 372
Young v Timmins (1831) Cr&J 331; 148 ER 1446

TEXTS CITED: Carter on Contract (2008)
Equity Doctrines and Remedies, Meagher, Gummow and Lehane, 4th ed

PARTIES: Tullett Prebon (Australia) Pty Ltd (plaintiff)
Simon Purcell (defendant)

FILE NUMBER(S): SC 2305/08

COUNSEL: Mr JJE Fernon SC w Mr DFC Thomas (plaintiff)
Mr SJ Rushton SC w Mr MR Elliott (defendant)

SOLICITORS: Freehills (plaintiff)
Horton Rhodes (defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Thursday, 21 August 2008

2305/08 TULLETT PREBON (AUSTRALIA) PTY LTD v SIMON PURCELL

JUDGMENT

1 HIS HONOUR: The plaintiff Tullett Prebon (Australia) Pty Ltd (TPAust) carries on business as a brokerage in the wholesale financial market, facilitating trading activities between major dealers such as commercial and investment banks. The defendant Simon Purcell is a 44-year-old broker who has, since 1985, been employed as a broker in the interest rates swaps and derivatives market – since 1999 by TPAust, most recently under a fixed term contract made on 29 July 2007 for an initial term of two years expiring on 31 July 2009. However, on 4 April 2008, Mr Purcell resigned his employment with TPAust in order to take up employment with BGC Partners (Australia) Pty Ltd (BGC), a competitor of TPAust. In these proceedings, TPAust claims injunctions restraining Mr Purcell from contravening express and implied negative stipulations in his contract of employment, which prohibit him from working for a competitor of TPAust, or soliciting its clients or employees, until the expiration of the term of the contract on 31 July 2009. The main issues may conveniently be stated as follows:

· Does the contract of employment between TPAust and Mr Purcell remain on foot (as TPAust contends) – or has it been terminated (as Mr Purcell contends) either by Mr Purcell for repudiation by TPAust, or by mutual agreement? I conclude that the contract has not been terminated and remains on foot, but that the relationship of employer and employee was terminated on 4 April 2008;

· Are the contractual prohibitions void, in whole or in part, as unreasonable restraints of trade at common law? I conclude that the prohibitions are restraints of trade, and that they are reasonable and valid for so long as the employment relationship (as distinct from the contract) subsists and for up to six months thereafter, but not otherwise;

· To the extent that the prohibitions are valid, will equity nonetheless decline to enforce them by injunction on the basis that to do so would have the effect of specifically enforcing an obligation to render personal services? I conclude that the prohibitions, insofar as they are valid, are enforceable in equity, and that their enforcement would not amount to specific performance of an obligation to render personal services; and

Background

2 Mr Purcell commenced employment with TPAust on 4 January 1999. In April 2006, he and TPAust executed a written contract of employment, in terms substantially identical to the later 2007 contract, for a fixed term of three years at a salary of $300,000 per annum. The contract incorporated TPAust’s “Schedule of Standard Terms”, which included a restraint, during and for six months following the term, on taking up employment with a competitor, or soliciting clients or employees of TPAust.

3 In July 2007, Mr Purcell was approached by BGC with a view to his moving to BGC. Negotiations between them proceeded over the period 16-19 July 2007, concurrently with negotiations between Mr Purcell and TPAust, which culminated on 24 July 2007 with TPAust making Mr Purcell an offer of a new contract. Mr Purcell signed TPAust’s letter of engagement on 29 July 2007, which, like its predecessor, incorporated TPAust’s Schedule of Standard Terms. The commencement date was 1 August 2007, and the term was defined as:

The period to the 2nd year anniversary of the Commencement Date and continuing thereafter unless earlier terminated in accordance with this Agreement.

4 Under the heading “Notice”, the letter provided:

Your employment with TPAust may be terminated by either party giving to the other at least three month’s notice to that effect. Save in respect of termination in accordance with this Agreement, such notice is not to expire before the 2nd year anniversary of the Commencement Date. TPAust may in its absolute discretion give you a payment of your Base Remuneration only in lieu of such notice.

5 The effect of those provisions, in conjunction with the Standard Terms, was that neither party was entitled to terminate, except for breach by the other, before 1 August 2009.

6 The Standard Terms obliged Mr Purcell to perform his duties “faithfully and diligently” (clause 10.1), and to devote the whole of his working time and attention to TPAust (clause 10.2). Clause 10.3 provided:

During the Term you shall not, directly or indirectly, accept employment with or render services to, or enter into or in any manner take part in or lend your name, counsel or assistance to any person doing business whether as proprietor, principal, investor, partner, director, officer, employee, consultant, adviser, agent, independent contractor or in any other capacity whatsoever for any purpose which would or could reasonably be expected to be competitive with any business of TPAust or any other Group company.

7 Clause 10.4 provided:

You acknowledge that TPAust is relying upon you providing your services for the full Term so that TPAust is entitled to insist upon strict compliance by you with the terms of your employment during the Term. You also acknowledge

· the vital interest of TPAust in engaging and retaining its employees and that the level of your benefits, including base remuneration and bonuses (if any), constitutes adequate consideration for your obligations and commitments under this Agreement;

Accordingly, if your contract of employment is terminated for breach or repudiation on your part, including if you resign or otherwise seek to leave the employment of TPAust without serving TPAust with the required notice for the period to the Contract End Date, without prejudice to any additional rights or remedies available to TPAust, you shall on the day following termination of your employment (Date for Payment) pay to TPAust, as a debt due and owing, an amount calculated as follows:

50% x Your Average Net Brokerage x No. of whole months from the date that you cease providing services to TPAust to the Contract End Date.

You further agree that such amount is a genuine pre-estimate of the loss that TPAust is likely to suffer as a result of premature termination of your employment, and that from the Date for Payment interest at the Reserve Bank of Australia base lending rate (from time to time) plus 2% shall accrue on such amount until it is paid.

8 Clauses 11.4 and 11.5 provided for what is commonly known as “gardening leave”, as follows:

11.4 If TPAust wishes to terminate your employment, or if you wish to leave the employment of TPAust, and whether or not either party has given notice to the other, it may not be appropriate for you to continue performing your duties for TPAust having regard not only to your position but also your access to, and knowledge of, confidential information and trade secrets about the business of TPAust and other companies in the Group and the need to protect the trading connections and proprietary information of TPAust and the other companies in the Group. You therefore agree that in such circumstances TPAust shall not be required to provide you with any work and that, whilst it continues to meet your contractual entitlements, TPAust may require you not to attend for work during the remainder of the Term or any period of notice. If you are required not to attend for work under this clause you shall not be entitled to be compensated for any bonus or profit share (other than any guaranteed minimum bonus accruing thereafter) which, because it is determined directly by reference to your personal performance, you may thereby be prevented from earning. For so long as you are not required to work you will remain employed by TPAust and be bound by all the terms of this Agreement. You will not directly or indirectly work for any person, have any contact with any Client or any Employee without the prior written consent of TPAust provided that TPAust reserves the right to require you to mitigate loss during your notice period including that you seek and accept alternative employment that TPAust considers acceptable.

11.5 You may be required to perform other duties not within your normal duties or special projects during the Term if TPAust wishes to terminate your employment, or if you wish to leave the employment of TPAust, and whether or not either party has given notice to the other.

9 Clause 12.1 provided:

During the Term and for a period of 3 months following the termination of your employment, you irrevocably agree that you shall not, either directly or indirectly, and whether on your own behalf or on behalf of another person or entity, do or attempt to do any of the following:

(a) entice, induce or encourage a Client to transfer or remove business from TPAust;

(b) solicit or accept business from a Client for a business similar to a Restricted Business in competition with TPAust; or

(c) entice, induce or encourage an Employee to terminate the Employee’s employment with TPAust, whether or not the Employee would commit a breach of that Employee’s contract of employment.

10 Clause 12.2 provided:

During the Term and, subject to Clause 12.3, at TPAust’s option for an additional period of 3 months following the termination of your employment, you shall not, either directly or indirectly, and whether on your own behalf or behalf of another person or entity, do or attempt to do any of the following:

(a) undertake, carry on or be employed, engaged or interested in any capacity in a business similar to a Restricted Business, which trades or an objective or anticipation of which is to trade in the Territory in competition with TPAust;

(b) employ, engage or retain the services of an Employee of TPAust for the purpose of a business which competes in the Territory with a Restricted Business.

11 Clause 12.3 provided:

The option of TPAust to elect that you will not be engaged in the activities referred to in Clause 12.2 for an additional period of 3 months following the termination of your employment will apply in the following circumstances:

(a) where TPAust elects to exercise the option no later than 10 working days after the date of termination of your employment; and

(b) where TPAust pays you, subject to any differing tax treatment, an amount equivalent to your pre-termination monthly base remuneration (at such times as this remuneration would have been paid had your employment not been terminated).

12 Clause 12.4 provided:

If you are required by TPAust not to attend work under Clause 11.5, the period of such exclusion shall be set against the period of post termination restriction under Clause 12.2.

13 The reference in clause 12.4 to clause 11.5 is an obvious mistake, and should be construed as a reference to clause 11.4.

14 Clause 1.6 of the Standard Terms includes the following relevant definitions:

’Client’ means a person:

(i) who is at the expiry of the Relevant Period a client of TPAust and to whom at any time during the Relevant period TPAust was actively and directly supplying or seeking to supply services for the purpose of a Restricted Business; and

(ii) with whom (directly or indirectly through subordinates or colleagues) you had dealings at any time during the Relevant Period and/or for whom you were responsible or about whom you were in possession of confidential information, in any such case in the performance of your duties to TPAust…

‘Employee’ means a person who, at any time during the Relevant Period, is employed by or who renders services to TPAust or a Restricted Business in a managerial or broking capacity or who was responsible for Clients and/or had influence over them or who was in possession of confidential information about Clients and who had dealings with you during that period…

‘Relevant period’ means the period of 6 months ending on the day when you cease performing duties for TPAust or any Group company.

‘Restricted business’ means a business of TPAust from time to time in which, pursuant to your duties, you acted as a broker, manager or had direct personal managerial, supervisory, analytical or material involvement, at any time during the Relevant Period.

‘Territory’ means New South Wales and Victoria. A business in which you are involved will be operating within the Territory if it is located or will be located in the Territory or is conducted or is to be conducted wholly or partly within the Territory.

15 By 17 March 2008, Mr Purcell had again been approached by BGC. On 30 March 2008, he accepted employment with BGC as a senior broker on their IRS (long term interest rate swaps) and STIRS (short term interest rate derivatives) desks, by signing a contract of employment for a term of four years on a salary of $400,000 per annum (plus bonuses), and a “loan” of $200,000 payable within 30 days of commencement of employment if he had in fact commenced working, and repayable only if he ceased employment with BGC or purported to resign without complying with the contract’s notice provisions. The contract contained a six-month post-employment restraint.

16 On 3 April 2008, Mr Webster of BGC informed Mr Dennahy, TPAust’s regional manager in Singapore, that BGC was going to “lift staff” from TPAust. Mr Neil Tullett, in TPAust’s Sydney office, was informed of this, and thought it possible that Mr Purcell might be one of the staff involved. On 4 April 2008, Mr Purcell spoke to his supervisor at TPAust, Mr Sheldon Finn, relevantly as follows:

Purcell: Sheldon, can I have a moment with you?

Finn: So when are you leaving?

Purcell: Pretty much straight away. How did you know I was leaving?

Finn: I heard that Webster had contacted Dennahy so I knew someone would be leaving. My best guess was that it would be you, but I had hoped it wasn’t going to be.

Purcell: They’ve made me a very good offer. I’ve been given the opportunity to join the second strongest desk in the market. I’ve also been offered more money.

Finn: Have you told Neil about this?

Purcell: No, not yet. I wanted to tell you first.

Finn: He’s going to have mixed emotions about this because of your expenses. What are you going to do at BGC?

Purcell: I’m going to have to pull my head in.

Finn: Did you want me to be in the office with you when you tell him? Or did you want to tell him on your own?

Purcell: No, if you don’t mind I’d like you to come with me to tell him.

17 Mr Purcell then had a conversation with Mr Tullett in the latter’s office, in the presence of Mr Finn, relevantly to the following effect:

Purcell: Neil, I’m resigning. I’m going to BGC.

Tullett: The first thing that comes to mind is that you’ve got about 18 months to run on your contract. I have to ask, is there anything I can do to change your mind?

Purcell: No, I’ve already made up my mind and I’ve signed a contract.

Finn: So Neil, as far as the rest of the day goes, what do we physically do? Does Simon stay until lunch, or does he go straight away?

Tullett: He goes straight away. [To Purcell] I’ll have to talk to our legal counsel, Paul Kelly, about this and find out the process for moving forward. We’ll probably give you a call over the weekend.

Purcell: I understand Mark Webster is going to give you a call to arrange a meeting. I assume to talk about what needs to be done next.

Finn: Well, I’ll go with Simon to his car to collect his access card.

18 On 6 April 2008, TPAust’s solicitors hand-delivered a letter to Mr Purcell, relevantly as follows:

Under the terms of your employment as contained in the Letter, you are not entitled to terminate your employment at this time. TPAust elects to continue your employment in accordance with its terms. However, given the circumstances, for the period from today until such date as you advised on behalf of TPAust, and consistent with the terms of your agreement with TPAust set out in clause 11.4 of the Schedule to the Letter, you will not be required to attend for work. You are required to comply with your other obligations to TPAust under the Letter and pursuant to the general law, and you will continue to be paid your base remuneration.

19 Mr Purcell’s solicitors replied on 9 April 2008, setting out his version of the events of 4 April 2008, and concluding:

In these circumstances, in our opinion, your client has evinced its intention to no longer be bound by the employment agreement by summarily dismissing our client. Our client accepts that repudiation.

Kaufman v McGillicuddy

Our client will be mitigating his loss and reserves all of his rights to seek any damages for his unlawful termination of employment.

20 On the same day, 9 April, Mr Purcell commenced to work in the offices of BGC. He continued to do so on 10 and 11 April, during which period he carried out at least eight trades, of which seven were with receiving traders employed by St George or Citibank, clients for which he had been primarily responsible at TPAust.

21 On 11 April 2008, as Duty Judge, I granted an ex parte injunction restraining Mr Purcell from, inter alia, working for BGC. On 23 April 2008, McDougall J extended the injunction on an interlocutory basis until the hearing [Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 437].

Does the contract remain on foot, or has it been terminated?

22 Mr Purcell contends that the contract of employment was terminated:

· by his acceptance of TPAust’s repudiation; or

23 The relevant conversations and correspondence are set out above. For Mr Purcell, Mr Rushton SC submits that insofar as Mr Tullett sought to attribute to Mr Purcell an assertion that he was resigning “immediately”, that should not be accepted in the light of Mr Tullett’s oral evidence (in which, when asked to relate the conversation, he did not use the word “immediately”), and Mr Finn’s version (which did not attribute to Mr Purcell use of that word). For present purposes, I am content to accept that the word “immediately” was not expressly used. Nonetheless, the contention that this was not an immediate resignation, but the giving of notice in accordance with the terms of the contract, is untenable. If Mr Purcell really was intending to leave only when permitted to do so at the end of the two-year term, then there was no occasion for all the urgency of the announcement, some sixteen months in advance, that he was leaving. Had that been his intention, one would have expected him immediately to clarify it when told he would have to leave the office. Moreover, he had already signed a contract with BGC, which – although the “start date” remained blank – contained an indemnity from BGC, which would have been superfluous had he intended to comply with his contractual obligations to TPAust.

24 A unilateral resignation by an employee, other than in accordance with the terms of the contract of employment, is a repudiation. However, repudiation only results in termination of a contract if the innocent party accepts it. Although, at least in the United Kingdom, there was once a view that an exceptional rule applied to contracts of employment – that repudiation of itself brought the contract to an end without any requirement for its acceptance – that notion is now out of favour [Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227, in which Megarry VC rejected the doctrine of automatic termination of employment contracts; Gunton v Richmond-on-Thames London Borough Council [1981] 1 Ch 448, 467-9 (Buckley LJ), 474-5 (Brightman LJ)]. In Australia, it never prevailed [Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, 450-3, 461-3, 465-7; Consolidated Press Ltd v Thompson (1952) 52 SR (NSW) 75; Australian National Airlines Commission v Robinson [1977] VR 87; Turner v Australian Coal and Shale Employees’ Federation (1984) 6 FCR 177, 191-3].

25 Accordingly, TPAust was entitled to accept Mr Purcell’s repudiation and terminate, but it was not bound to do so. The direction that Mr Purcell not thereafter attend the office was not inconsistent with the contract remaining on foot; it was consistent with engagement of the “gardening leave” provision. Although much was made of the withdrawal of Mr Purcell’s access card, that too was substantially consistent with the “gardening leave” provision. Even if, in effectively precluding him from access to a parking space as well as the office premises, it went beyond what the “gardening leave” provision authorised – which I do not accept, as use of a car parking space was an incident of attendance at work – it would not follow that it was repudiatory: not every breach is a repudiation, and repudiation is not lightly to be inferred [Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319, [74], and the cases there cited].

26 Moreover, even if, contrary to my view, TPAust’s conduct was repudiatory, any such repudiation was retracted, before it was accepted, by its solicitor’s letter of 6 April, received by Mr Purcell on the same day. Mr Purcell first purported to “accept” TPAust’s alleged repudiation on 9 April 2008, after his receipt of the retraction in the 6 April letter. As any repudiation was retracted before Mr Purcell purported to accept it, it is not available to found termination [Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1953) 90 CLR 235, 250 (Kitto J)].

27 As to mutual agreement to terminate, that would require the making of a new contract which had the effect of discharging, rescinding or abandoning the employment contract, in which case the new contract must be supported by consideration [Philton Distributors Pty Ltd v Kemalex Pty Ltd (SASC, Full Court, 24 March 1988, 20)]. I accept that such a termination by agreement may be inferred from conduct [Carter on Contract (2008), [32-080]]. However, the evidence wholly fails to support the making of any such new contract. It does not support at all the proposition that the parties intended to create a new agreement on 4 April 2008 dispensing with all the provisions of the existing agreement, let alone to release all such rights as TPAust might have had under the existing contract.

28 It follows that the contract of employment was not terminated, either by Mr Purcell for breach, or by mutual agreement. Although repudiated by Mr Purcell’s resignation, TPAust elected to keep it on foot. The contract remains on foot.

29 However, that is not a complete description of the situation, because employment contracts have unique characteristics, including that the relationship of employer and employee may be brought to an end by a unilateral repudiation, even though the repudiation is not accepted and the contract itself is not terminated. As will be seen, this can have implications for the reasonable duration of a restraint of trade.

30 Rejection of the doctrine of “automatic termination” – to accommodate the application, to the idiosyncrasies of the contract of employment, of the conventional rules of contract law in respect of repudiation – had to also accommodate acceptance of the rule that, where the consideration for wages is the performance of work, and the employee is unwilling to perform or the employer refuses to permit performance of work, no claim for wages can be brought and the parties are left to remedies for unliquidated damages (with concomitant obligations to mitigate), even though the innocent party elects to affirm the contract and does not accept the repudiation [Automatic Fire Sprinklers v Watson, 450-2, 461-2, 465, 476; Gunton v Richmond-on-Thames, 467-9 (Buckley LJ), 474-5 (Brightman LJ); Turner v Australian Coal and Shale Employees’ Federation, 192]. In endeavouring to explain this anomaly, the cases have drawn a distinction between the contract of employment on the one hand, and the relationship of employer and employee on the other, so that although the contract survives repudiation unless and until accepted or otherwise terminated, the relationship of employer and employee – which for convenience I shall call the “actual employment” – does not, because the substratum of trust and confidence inherent in that relationship no longer exists, and the obligation to render services will not be specifically enforced [Automatic Fire Sprinklers v Watson, 450-2, 456-7 (Latham CJ), 463 (Starke J), 469 (Dixon J), 476-7 (Williams J); Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339, 364-5; Hill v C A Parson & Co Ltd [1972] Ch 305, 313-4 (Lord Denning MR: notice by an employer not in accordance with the contract is ineffective to terminate it unless accepted, but the relationship of employer and employee is ordinarily at an end because it is inconsistent with the confidential nature of the relationship that it should continue contrary to the will of one of the parties); Gunton v Richmond-on-Thames, 467-9 (Buckley LJ), 474-5 (Brightman LJ); see also Re Associated Dominions Assurance Society Pty Ltd (1962) 109 CLR 516, 518-9 (a winding up operates as a wrongful dismissal of the company’s employees, but does not terminate the contract of employment, which remains on foot for certain purposes)].

31 The better view of the events of 4 April is that Mr Purcell repudiated the contract by conveying, in substance, that he did not intend any longer to render services to TPAust under the contract. Ordinarily, in those circumstances he would not thereafter have been entitled to remuneration – even though TPAust elected to affirm the contract – because he was neither rendering services, nor ready and willing to render them. However, in this case, TPAust not only elected to affirm but also invoked clause 11.4 to place him on “gardening leave” – and under this clause the employee is entitled to remuneration if required to stay at home on “gardening leave”. Although, in his oral evidence, Mr Tullett asserted that Mr Purcell was welcome – but not required – to return to work and remain at his desk until the end of the term of his employment contract, I must say that I doubt the sincerity of that evidence, given Mr Tullett’s immediate actions upon being told that Mr Purcell proposed to leave, and in any event the requirement that he not attend work has never since been formally revoked.

32 Accordingly, Mr Purcell repudiated the employment contract by his resignation. TPAust did not accept the repudiation, but elected to affirm the contract. TPAust did not itself repudiate the contract, nor was there a mutual agreement to terminate it. The contract remains on foot. However, Mr Purcell’s resignation had the effect of terminating the employer/employee relationship, and TPAust could not unilaterally reinstate it by electing to affirm and sending him on “gardening leave”.

Are the contractual prohibitions void restraints of trade?

33 The contract contained express negative stipulations, to the effect that during the Term and for three months following termination of his employment, Mr Purcell would not:

· accept business from TPAust’s clients, or solicit those clients, on behalf of a competitor (Standard Terms, clauses 12.1(a) and (b)) (the solicitation restraint);

· encourage TPAust’s employees to terminate their employment with TPAust (Standard Terms, clause 12.1(c) (the employee disruption restraint);

· accept employment with a competitor of TPAust (Standard Terms, clauses 10.3 and 12.2(a) (the competing employment restraint); and

34 However, the operation of the competing employment restraint and the recruitment restraint extended to after termination of employment (as distinct from during the Term) only if TPAust exercised its option to that effect and continued to pay the remuneration to which Mr Purcell would have been entitled had he remained in employment (Standard Terms, cll 12.2, 12.3).

35 For TPAust, Mr Fernon SC submitted that the contract also contained implied terms that imposed obligations on Mr Purcell during the Term not to work for a competitor in a manner prejudicial to the employer, not to solicit the employer’s employees to work for a competitor, and not to solicit the employer’s customers to switch to a competitor, these being aspects of the employee’s duty of good faith and fidelity. As those matters are each covered by express contractual terms, it is unnecessary to consider further the suggested implied terms. Consequently, it is unnecessary to consider the correctness of those cases which suggest that, at least in the field of contracts of employment, only express as distinct from implied negative stipulations of this kind will be enforced by injunction [Whitwood Chemical Co v Hardman [1891] 2 Ch 416, 426-428; Atlas Steels (Australia) Pty Ltd v Atlas Steels Ltd (1948) 49 SR (NSW) 157; cf Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th ed, [21-200]].

36 For Mr Purcell, Mr Rushton SC contended that the contractual prohibitions were void as unreasonable restraints of trade. The first question in addressing this submission is whether the prohibitions are “restraints of trade” to which the doctrine applies.

37 In Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, Lord Reid said that only in very unusual circumstances would a promise not to engage in other employment be void during the period of a contract of employment (at 294):

Young v Timmins

38 To similar effect, Lord Morris said (at 307):

39 And in A Schroeder Music Publishing Co Ltd v Macaulay (formerly Instone) [1974] 1 WLR 1308, Lord Reid said that during the period of a contract a promise to give exclusive services to the employer, thus restricting his ability to serve anyone else, normally required no justification (at 1314):

Any contract by which a person engages to give his exclusive services to another for a period necessarily involves extensive restriction during that period of the common law right to exercise any lawful activity he chooses in such manner as he thinks best. Normally the doctrine of restraint of trade has no application to such restrictions: they require no justification.

40 Thus it has been questioned whether the restraint of trade doctrine applies during the term of the contract of the employment as distinct from after its expiry [cf Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, 341-342]. However, the qualifications expressed by Lord Reid in Esso v Harper’s Garage and in A Schroeder Music Publishing Co – in particular, the reference to Young v Timmins (1831) Cr&J 331; 148 ER 1446 – support the analysis that the doctrine does apply to restrictions during the currency of an employment contract, but that the pendency of the contract will usually be sufficient justification of their reasonableness, though they may be unreasonable and void in exceptional circumstances. Indeed, Young v Timmins is an illustration of the application of the doctrine to invalidate an unreasonable restraint during the currency of a contract. The facts were that JW & S Timmins of Birmingham had undertaken to continue to employ one Ireland (whose trustee in bankruptcy was Young) to execute their orders for a brass foundry, and Ireland had agreed to do so during the joint lives of the Timmins, and not to work for any other person without their consent, with the exception of persons residing in or within six miles of London. Lyndhurst LCB said that the agreement could not be supported (at 339; 1450):

Where one party agrees with another to employ him, and the latter agrees not to work for any third person, such agreement is a partial restraint of trade, and must be supported by an adequate consideration.

41 Bayley B concurred (at 340; 1451):

I am of opinion that there is no sufficient consideration to support this agreement, though only in partial restraint of trade

42 Vaughan B was of the same opinion, observing (at 343; 1452):

It is clear, that a general restraint of trade is void; it is equally clear that a partial restraint of trade may be good or may be bad, and that the question whether it is good or bad depends on the adequacy of the consideration.

43 Bolland B likewise agreed, adding (at 344; 1452):

This is an agreement between persons in the situation of factors, and another person who was a workman; and the stipulation was, that the latter should work for the former exclusively, within certain limits. They claim a large right over this person; and I am of opinion, that, to maintain such a restraint, there ought to be a mutuality between the parties.

44 The references in Young v Timmins to the adequacy of consideration and to mutuality should now be regarded, in the light of the subsequent evolution of the law in this area, as relating to the reasonableness of the restraint having regard to the interests of the parties.

45 Moreover, in Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126, the High Court of Australia has held that the common law doctrine of restraint of trade may apply to an ordinary commercial contract for the regulation and promotion of trade, during the existence of the contract, even though any prevention of work outside the contract is directed towards the absorption of the relevant party’s capacity, as distinct from its sterilisation, and that such a restraint, like any other, must be justified by reasonableness if it is to be valid, disapproving Esso v Harper’s Garage in that respect [esp at [24]-[26], [34]-[39]]. In that light, it must now be accepted that the doctrine of restraint of trade does apply to restrictions imposed on trade with a third party during the currency of a contract – although they will more easily be justifiable during the term of a contract than after its termination, particularly where directed to the absorption rather than the sterilisation of the employee’s capacity. The pendency of the contract of employment is relevant to whether the restraint is reasonable [Petersville, [36]; see also Masterclass Enterprises Pty Ltd v Bedshed Franchisors (WA) Pty Ltd [2008] WASC 67, [77]-[79]].

46 Accordingly, the contractual prohibitions are restraints of trade, within the doctrine, during the term, as well as after termination of the employment. The next question, then, is whether, being restraints of trade, they are void as unreasonable.

47 In New South Wales, a restraint of trade is valid to the extent that it is not against public policy [(NSW) Restraints of Trade Act, 1976, s 4(1); Koops Martin Financial Services v Reeves [2006] NSWSC 449, [26]-[27]]. A restraint of trade is not contrary to public policy if it is reasonable as between the parties, and not unreasonable in the public interest, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public [Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 706- 707; Lindner v Murdock’s Garage (1950) 83 CLR 628, 653]. Whether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest. A covenantee is not entitled to be protected against mere competition; the legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter [Vanderwell Products Ltd v McLeod [1957] RPC 185; Tank Lining Corporation v Dunlop Industries Ltd (1982) 140 DLR (3D) 659, 664], including trade secrets and confidential information, and goodwill including customer connection. The validity of a restraint is to be judged at the time at which the contract is made, by reference to what the restraint entitles or requires the party to do, rather than what they intend to do or have actually done [Nordenfelt, 573-574; Commercial Plastics Ltd v Vincent [1964] 3 WLR 820, 829; Curro v Beyond Productions, 344; Woolworths Limited v Olson [2004] NSWCA 372, [40]].

48 Accordingly, it is next necessary to consider whether the prohibitions protect a legitimate interest of TPAust, as distinct from merely precluding competition. Conventionally, the interests that may be the subject of such protection include proprietary information (for example, of an employer), and goodwill or customer connection of an employer or of a business.

49 Here, the competing employment and client solicitation restraints are supported at least by TPAust’s interest in its customer connection – which the evidence establishes is very important in this industry, and in which, in the case of Mr Purcell, TPAust invested considerable amounts by way of entertainment and related expenses. I reject entirely the suggestion advanced on behalf of Mr Purcell that in this industry the clients are somehow clients of the individual employee broker and not of the employer, and that the customer relationships belong to Mr Purcell rather than to TPAust, and that it was therefore inappropriate to analyse TPAust’s protectable interest with respect to customer connection through the prism of a conventional employment relationship. To the contrary, this is a classic case in which the individual broker is the persona of the employer in dealing with clients, but the employer invests considerable sums in building customer connection, including by funding a substantial expense account for the employee. Just because particular clients are regarded as having a close connection with a particular individual broker does not mean that the broker is entitled to treat the client as his or her own. Indeed, to do so would be quite contrary to the terms of the employment contract [as to which see clause 12.1(a), and the definition of “Client” in clause 1.6, of the Standard Terms, set out above].

50 However, I am unpersuaded that TPAust has made good its contention that a legitimate interest in the protection of confidential information also supports the restraints. The only matters of substance that were ultimately said to be confidential were brokerage revenues, rates, business volumes and the identity of clients. However, the evidence revealed that brokerage rates could be worked out by deduction, did not differ widely, and while not irrelevant were usually not the most important factor in winning business; and that brokers were well aware of who were the traders in the market, Mr Finn accepting that the identity of the traders with whom Mr Purcell dealt was not confidential.

51 The employee disruption restraint and the recruitment restraint are supported by the employer’s interest in staff connection – that is, in maintaining a stable workforce [Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717, [43]-[59]; John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995, [32]; McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd [2008] NSWSC 542, [45]; Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 73 IPR 326, [130]]. The interest in staff connection legitimately supports the restraints in cll 12.1(b) and 12.2(c) of the Standard Terms.

52 The next question is whether the restraints are no more than reasonable for the legitimate protection of the relevant interests. There is no difficulty in concluding that the relevant contractual prohibitions are reasonable in the interests of the parties during the continuation of actual employment. However, although TPAust does not seek to enforce the post-employment restraint – accepting that it is offset by credit for the period of “gardening leave” under clause 12.4 – in the view I take it is necessary to decide what period after actual employment comes to an end is reasonable for a restraint. Conventionally, this involves a period sufficient to permit the employer to replace the employee and allow the replacement a reasonable opportunity to prove his or her competence to customers.

53 In my opinion, the contractual post-employment restraints for a period of three months are reasonable. In a relatively small industry such as this, in which the various players are well known to each other (so that clients might well seek out the former employee in his new employment even in the absence of active solicitation), a restraint on accepting employment with a competitor within the territory, as well as on solicitation of clients and recruitment of staff, is reasonable, at least for the stipulated period of three months following termination of employment, to permit the employer to replace the employee, establish a relationship between the replacement and the clients, and prove the replacement’s competence. The reasonableness of a period of three months is supported not only by the agreement of the parties to that term in a contract apparently negotiated at arms length, but also by the circumstance that a longer period of six months was provided by the Standard Terms incorporated in Mr Purcell’s previous contract, and that his contract with BGC also contains a post-employment restraint period of six months. It is further supported by the level of remuneration to which Mr Purcell was entitled, and by the expenditure incurred by TPAust on Mr Purcell’s expenses, which amounted to some $85,000 for 2007 and $20,000 for 2008 to date [cf Euro Brokers Ltd v Rabey [1995] IRLR 206; GFI Group Inc v Eaglestone [1994] IRLR 119].

54 However, particularly in the context of fixed-term contracts, the periods of actual employment and post-employment restraints do not necessarily exhaust the possible scenarios. Fixed-term contracts present the additional scenario that actual employment may be brought to an end prematurely by either party – by wrongful dismissal by the employer, or wrongful resignation by the employee. As has been seen, although such repudiations do not bring to an end the contract of employment, they sever the relationship of employer and employee, and terminate the entitlement of the employee to receive and the liability of the employer to pay wages, for which is substituted a right to damages for wrongful dismissal. Conceivably, as in the present case, the residual period of the term of the contract after the cessation of actual employment could be much longer than that of a reasonable post-employment restraint of trade. Wrongful dismissal by the employer does not present a difficulty, because it renders the restraints unenforceable [Kaufman v McGillicuddy (1914) 19 CLR 1]. But if an employee prematurely resigns, is the employer entitled to enforce contractual restraints that prohibit an employee from working for a competitor or soliciting customers or employees during the remainder of the contractual term, notwithstanding that the reasonable protection of the employer’s legitimate interests does not require so extensive a prohibition, and the employee is no longer actually rendering services to the employer?

55 In my opinion, such a prohibition, to the extent that it exceeds what is necessary for the reasonable protection of the employer’s legitimate interests, is void (consistently with the effect of (NSW) Restraints of Trade Act, s 4(1)). In principle, once it is accepted that the doctrine of restraint of trade applies during the term of a contract (including any period of notice or of “gardening leave”) as well as afterwards, that conclusion is inevitable: a prohibition on being employed by third parties is a restraint [Petrofina (Great Britain) Ltd v Martin [1966] Ch 146, 180]; it is therefore valid to the extent that it is not contrary to public policy, but no further. The mere circumstance that the parties have agreed to it cannot of itself provide the requisite justification, else every contractual restraint would be justified; the question must be whether the restraints are more extensive in scope, area or duration than necessary for the reasonable protection of the employer’s legitimate interests. This is not inconsistent with the rule that an employer is not bound to provide work for an employee, and (in ordinary cases) may require an employee to remain idle. Although no restraint is involved in the employee not being provided with work, a restraint is involved in precluding the employee from seeking work elsewhere.

56 This conclusion is consistent with authority: the cases show that even while the contract remains on foot – during a notice period or a period of “gardening leave” – restraints are enforced only to the extent that they are reasonable. In Provident Financial Group PLC & Whitegates Estate Agency v Hayward [1989] ICR 160, the defendant employee had given six months notice, and after two months was placed on “gardening leave” on full pay. Three months before the notice period, he proposed to take up employment with a competitor. Dillon LJ referred to the potential for abuse of “gardening leave” clauses, and said that the willingness of the employer to continue to pay was not a sufficient answer (at 168):

It is not enough [to make it appropriate as a matter of discretion to grant an injunction] just that the employee has contracted in certain terms and will not starve if the terms are enforced against him while the employer continues to pay him in full. The employee has a concern to work and a concern to exercise his skills. That has been recognised in some circumstances concerned with artists and singers who depend on publicity, but it applies equally, I apprehend, to skilled workers and even to chartered accountants.

57 An injunction was declined, notwithstanding that the employer was willing to continue to pay the employee his full salary until the expiry of the notice period. Although this was expressed as being on discretionary grounds, it is significant that this was so even while the contract remained on foot and before the notice period expired – although after notice had been given and the employee sent on “gardening leave” – and the language was redolent of the considerations which inform the public policy against restraint of trade.

58 In William Hill Organisation Ltd v Tucker [1998] EWCA Civ 615; [1999] ICR 291, Morritt LJ, with whom Robert Walker and Stuart-Smith LJJ agreed, observed that “gardening leave” clauses had to be justified on similar grounds to those applicable to post-employment restraints (at [25]):

Credit Suisse v Armstrong

59 In GFI Group Inc v Eaglestone, an interlocutory injunction was granted to enforce restraints only for 13 weeks of a 20 week notice period, on the basis that no more was “absolutely necessary” to protect the plaintiff employer. In Euro Brokers v Rabey, an interlocutory injunction was granted to enforce restraints during a six month “garden leave” period, but on the basis that six months was a reasonable period for a post-employment restraint, not just because the contract remained on foot. And in Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32, Merkel J said (at [86]):

William Hill

60 Mr Fernon SC cited a number of cases to illustrate the long-term enforcement of contractual restraints while the contract remained on foot, but on examination they do not detract from the view that such restraints are enforced only to the extent necessary for the reasonable protection of the covenantee, even while the contract remains on foot – although I acknowledge that in this area there is some overlap, if not confusion, of the common law doctrine of restraint of trade, and the equitable discretion to decline specific relief.

61 In Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209, the well known actress Bette Davis was contracted with a film company for a term, during which she agreed to render her exclusive services as an actress to that company, and not to render any services for any other stage or motion picture production or business. With up to six years of the contractual term yet to run, Ms Davis contracted with a third person to appear as a film artist. She was restrained by injunction from rendering services in any motion picture or stage production for anyone save the original employer, but the injunction was granted only for up to three years, although the contract might have run for six years, on the basis that the lesser of three years or the actual term would reasonably protect the plaintiff against the consequences of the defendant’s breach. It is clear that Branson J took this course on the footing of equity’s discretion to decline to grant more than the minimum relief necessary, and does not appear to have considered the restraint of trade doctrine.

62 In Hawthorn Football Club Ltd v Harding [1988] VR 49 an injunction was granted for the remaining three years of the contractual term of a professional footballer. However, the doctrine of restraint of trade was not considered.

63 Although the contract in Thomas Marshall v Guinle was for a term of ten years – of which about five were left to run when the employee purported to resign – only an interlocutory injunction was in issue, and the case is silent as to the appropriate duration of any final injunction. The case appears to have proceeded on the basis that the doctrine of restraint of trade was not applicable while a contract remained on foot, an approach that cannot survive Petersville. TPAust invoked the dicta of Sir Robert Megarry VC (at 243):

Above all, I think the courts must be astute to prevent a wrongdoer from profiting too greatly from his wrong. If without just cause a servant who has contracted to serve for a term of years refuses to do so, it is easy to see that the court is powerless to make him do what he has contracted to do: neither by decreeing specific performance nor by granting an injunction can the court make the servant perform loyally what he is refusing to do, however wrongfully. If such an order were to be made, the ultimate sanction for disobedience is committal to prison; and this, far from forcing the servant to work for his master, would effectively stop him from doing this. But why should the court’s inability to make a servant work for his employer mean that as soon as the servant refuses to do so the court is forthwith disabled from restraining him from committing any breach, however flagrant, of his other obligations during the period of its contract?

64 However, and with the very greatest respect, in the present context some qualification of those words is required. First, his Lordship’s observations were made in the context of considering and rejecting the “doctrine of automatic determination” of an employment contract by repudiation, and without regard to the doctrine of restraint of trade – presumably because it was thought not applicable while the contract remained on foot, but at least in this country Petersville authoritatively establishes the contrary. Secondly, while I entirely agree that courts should not be astute to strike down as unreasonable restraints that have been freely negotiated between the parties, that is just what the restraint of trade doctrine does, and the public policy aspects of that doctrine afford a reason, not considered by his Lordship, for not necessarily restraining the employee from committing even blatant breaches of obligations under the employment contract – or, more accurately put, for holding that certain of those obligations are not valid and enforceable. A further reason is the notion of mutuality, which – although I accept it is not conclusive – is not irrelevant in this field [cf Curro v Beyond Productions, 348]. To my mind, considerations of mutuality suggest that courts should not be astute to specifically enforce fixed-term contracts at the suit of the employer, at least beyond what is necessary for the reasonable protection of the employer’s legitimate interests, when they will not do so at the suit of the employee.

65 Accordingly, I conclude that while, during actual employment, with the employee rendering services to the employer, the employee’s duty of fidelity will typically support extensive restraints on competing with the employer and soliciting its customers, after the end of actual employment – when, notwithstanding that the contract of employment remains on foot, services are no longer being rendered, wages are not being earned, and the relationship of employer and employee with its concomitant substratum of trust and loyalty has been destroyed – contractual restraints which prohibit employment with a competitor or soliciting clients for longer than is necessary for the protection of the employer’s legitimate interests are not reasonable in the interests of the parties or the public.

66 Here, I have no difficulty in concluding that the restraints were reasonable so far as they operated during any period of “gardening leave” which Mr Purcell was required to take during the contractual three month notice period – particularly as the period of any such “gardening leave” was to be credited against the post-employment restraint. Moreover, the considerations which informed my conclusion that a post-employment restraint of three months would be reasonable, similarly support the conclusion that a restraint during a period of “gardening leave” for at least up to three months would be reasonable.

67 An additional circumstance relevant to the reasonableness of the duration of a restraint in the context of a “fixed-term contract” such as Mr Purcell’s is Mr Tullett’s evidence that, in the case of such contracts, it was his practice to approach employees six to nine months before the end of the fixed term, so as to allow “more time” to make alternative arrangements if the broker did not intend to stay. But he did not say how long was really needed to replace such a broker, and the circumstance that the contract provides a notice period of three months and a post-employment restraint of three months is the best objective evidence on this point.

68 The agreement of the parties that three months was a reasonable post-employment restraint period (in substitution for the six months provided by the Standard Terms) contemplated that the fixed term would be served and the contract regularly terminated, and thus that TPAust would have the benefit of the three-month notice period to find and install a replacement, before the three-month restraint period commenced. Although, upon the employee giving notice, TPAust could if it wished invoke the “gardening leave” provision – in which case it must be offset against the post-employment restraint, so that there would still only be a period of three month’s restraint in all – there is no obligation to invoke gardening leave, and TPAust would be entitled to have the employee work out his notice period, still bound by his obligations of fidelity to TPAust, while the replacement was found and installed and introduced, and then have the benefit of a further three month’s post-employment “protection”. Although, in the context of a regular termination of employment, only the agreed three month post-employment restraint period would be enforceable, where, as here, there has not been a termination of the contract, I am satisfied that a restraint for a period of up to six months after actual employment comes to an end is not unreasonable, so as to afford the employer the benefit of the notional three-month notice period and the three-month post-employment restraint period for finding, installing and training a replacement and allowing him or her an opportunity to develop a relationship with customers and demonstrate competence.

69 Accordingly, the contractual prohibitions are not unreasonable insofar as they operate for up to six months after Mr Purcell’s departure on 4 April 2008. However, a period of six months should be ample to permit TPAust to install replacement brokers to handle the clients for which Mr Purcell was previously primarily responsible, and to develop a relationship with the clients. There is simply no evidence that a period of longer than six months is necessary for that purpose.

70 TPAust also sought to invoke, as a relevant legitimate interest capable of protection by covenant, that of “staff connection”. However, while such an interest has been accepted as supporting restraints in the nature of “non recruitment covenants” that prevent a former employee from soliciting the employer’s staff with whom the former employee has established a connection and influence during and as a result of his employment, this “interest” has not previously been engaged to support a restraint on the particular employee leaving the employment. Equity will not enforce a covenant not to give notice or terminate a contract of employment, since to do so would amount to specific enforcement of a contract for personal services [Davis v Foreman [1894] 3 Ch 654; Kirchner & Co v Gruban [1909] 1 Ch 413]. Nor will equity lend its aid to achieving indirectly what it will not permit directly. In my view, there is no “legitimate interest” in preventing a particular employee from leaving employment that will support a restraint of trade. As Barrett J has observed (in Tradition Australia Pty Ltd v Gunson [2006] NSWSC 298; [2006] 152 IR 395, [30]), with reference to the judgment of Fry LJ in De Francesco v Barnum (1890) 45 Ch D 430 at 438, in this field courts “are bound to be jealous, lest they should turn contracts of service into contracts of slavery”.

71 I am, therefore, prepared to accept that, insofar as the contract prevents Mr Purcell from accepting competing employment, soliciting TPAust’s clients or recruiting its employees for a period of six months from the end of his actual employment, it is reasonable as between the parties, and not unreasonable in the public interest, and therefore not contrary to public policy, but valid. But beyond that, I am unsatisfied that it is no more than reasonably required for the protection of TPAust’s legitimate interests. To the contrary, beyond that period it serves only to sterilise the employee, albeit at a handsome remuneration, and prevent competition. The industry is one in which, particularly for senior brokers, ongoing contact with clientele is important, and a period of “sterilisation” could have a serious adverse impact on the remuneration package that he might subsequently attract. The restraints would “sterilise” Mr Purcell and preclude him from seeking alternative competitive employment or soliciting customers for more than six months after the end of actual employment, and to that extent, having not been shown to be reasonable in the interests of the parties, they are contrary to public policy and void.

Are the contractual prohibitions unenforceable in equity because to enforce them would be to enforce an obligation to render personal services?

72 Mr Purcell contended that the contractual prohibitions, to the extent that they are valid, are not enforceable by injunction, because to enforce them would amount to specific enforcement of a contract for personal services.

73 The doctrine of restraint of trade is one of the common law. But it does not follow that every valid restraint will be enforced in equity: it is not in doubt that equity does not specifically enforce contractual obligations to render or receive personal services. In Curro v Beyond Productions, the Court of Appeal considered the relationship between the rule that equity almost as of course enforces by injunction negative contractual stipulations, with the rule that equity will not enforce a contract of personal service. Ms Curro had purported to resign from her employment with Beyond Productions seven months before her contract expired, and took up employment as a presenter for a competing television program. In dismissing Ms Curro’s appeal from the grant of an injunction restraining her from acting in breach of negative stipulations in the contract of employment for that seven-month period, the Court of Appeal said (at 346-347):

Doherty v Allman

Lumley v Wagner

Doherty v Allman

Dalgety Wine Estates Pty Ltd v Rizzon

Hill v C A Parsons & Co Ltd

Evans Marshall & Co Ltd v Bertola SA

Turner v A/asian Coal and Shale Employees' Federation

Gregory v Philip Morris Ltd

As to the third rule, which is in question here, Lumley v Wagner has been much discussed. It has, with varying degrees of enthusiasm, been followed by Australian courts. This is so in New South Wales (see Atlas Steels (Australia) Pty Ltd v Atlas Steels Ltd (1948) 49 SR (NSW) 157; 66 WN(NSW) 67, Warner Brothers Pictures Inc v Ingolia [1965] NSWR 988, Harrigan v Brown [1967] 1 NSWR 342), in Victoria (see Buckenara v Hawthorn Football Club Ltd [1988] VR 39, Hawthorn Football Club Ltd v Harding [1988] VR 49), and in England ( Warner Brothers Pictures, Inc v Nelson [1937] 1 KB 209). The argument for the appellants that this Court should not follow Lumley v Wagner cannot be accepted.

74 Although Mr Fernon SC submitted that the effect of the first and second “rules” was that, so long as an injunction enforcing a negative stipulation did not compel the performance of a contract of personal service, it was unnecessary to resort to the third “rule” and the notion of special services, since it operated only as an exception to the second “rule”, in truth the third is an application of, rather than an exception to, the second [cf Meagher, Gummow & Lehane’s Equity Doctrines and Remedies, 4th ed, [20-055]]. Equity will ordinarily enforce an express negative contractual stipulation [JC Williamson Ltd v Luke & Mulholland (1931) 45 CLR 282, 299; Broken Hill Proprietary Co Ltd v Hapag-Lloyd Aktiengesellschaft [1980] 2 NSWLR 572, 581-2; Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2006] NSWCA 258, [62]; Otis Elevator Co Pty Ltd v Nolan [2007] NSWSC 593, [17], [29], [40]]. However, one of the exceptional circumstances in which equity will not do so is where to grant such relief would have the effect, directly or indirectly, of enforcing a contractual obligation to perform personal services. A court of equity will not permit an injunction to be used as an instrument of achieving indirectly what it would not enforce directly by a decree of specific performance. While equity will enforce by injunction negative contractual stipulations notwithstanding that they are terms of a contract for personal services, it will not do so in such a manner as has the practical effect of compelling performance of a contractual obligation to render personal services. The point is illustrated by the following cases.

75 In Lumley v Wagner (1852) 1 De G & M 604, Ms Wagner, who had contracted to sing for a period for Mr Lumley and not to sing for anyone else, but then agreed to sing for someone else for a larger sum, was restrained from doing so. As has been pointed out, however, she was not restrained from engaging in other employment, only from singing [Curro v Beyond Productions, 347; Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th ed, [21-220]]:

As the judgment in the case points out, this would not involve forcing Miss Wagner to remain in Mr Lumley’s employ at Covent Garden, because she could, conformably with the injunction, cease to be employed by him; nor would it involve her remaining idle if she left Mr Lumley’s employ, for she could, without infringing the injunction, take employment with someone else provided it did not involve her singing in public.

76 In Whitwood Chemical v Hardman, Lindley LJ (at 427) accepted that Lumley v Wagner had established that the court could enforce an express negative prohibition of the relevant kind by injunction, though his Lordship insisted that an express as distinct from implied prohibition was necessary. In Ehrman v Bartholomew [1898] 1 Ch 671, a traveller was employed by a firm of wine merchants under a contract for a term of ten years to devote the whole of his time during usual business hours to the firm’s business and not to employ himself in any other business or transact any business with or for any other person. Within a year he left and entered the service of competitors. Romer J refused an injunction restraining him from being engaged or employed in any other business, on the ground that the restriction was too wide, extending as it did to all businesses and not merely to “special services” as had been the case in Lumley v Wagner. This is where the notion of “special services” as a limiting requirement appears to have had its origin in this context.

77 In William Robinson & Co Ltd v Heuer [1898] 2 Ch 451, Mr Heuer was engaged as a clerk for five years to devote his whole time to the company’s service and not during his engagement to engage as principal or servant in any business relating to goods of any description sold or made by the company. He left after three years and became employed by other manufacturers in the same line of business as the company. At first instance, an injunction was refused on the authority of Ehrman v Bartholomew, but on appeal the Court of Appeal granted an interlocutory injunction restraining him from carrying on or being engaged in a business relating to goods of a description sold or made by the company. Thus what was upheld was the prohibition on engagement in the particular business in which the employer was engaged.

78 In Warner Brothers v Nelson, Ms Davis was restrained by injunction from rendering services in any motion picture or stage production for anyone save the original employer. Again, the prohibition was confined to the particular line of employment in which Warner Bros had engaged her.

79 In Atlas Steels, Sugerman J, after reviewing the authorities, explained (at 166) that what was meant in this context by “special services” was employments or businesses of the same kind as those in which the employee was engaged under the employment contract:

Lumley v Wagner

80 In Thomas Marshall v Guinle, Megarry VC, granting interlocutory injunctions restraining the defendant from soliciting orders from or otherwise dealing with any customer of the plaintiffs for goods of the nature sold by the plaintiffs and from disclosing or using confidential information of the plaintiffs, emphasised (at 236B) that the case was not one in which the company sought to restrain the defendant from engaging in any competing work, but one in which it merely sought restraints against solicitation of customers and breaches of confidence.

81 Although it has sometimes been supposed that for a contract to be one of “special services” it must be one in which exposure of the employee to the public is important (as for a professional singer in Lumley v Wagner, or a TV presenter in Curro v Beyond Productions), there is no apparent reason why such a characteristic should have any connection with the enforcement of a negative contractual stipulation. If anything, the importance of the employee’s ongoing exposure to the public would tell against, rather than in favour of, enforcing a prohibition in such a case. “Special services” cannot have that meaning. Rather, the concept of ‘special services’ is concerned with the scope of the services, as distinct from any particular type of service in which publicity is important. Consistent with what Sugerman J said in Atlas Steels, all that is meant by the concept of “special services” is that the prohibition relates to a specific line of work or employment, and does not preclude employment generally, in other fields. Equity enforces (to the extent that they are valid) prohibitions on specific – “special” – lines or fields of employment, since to do so leaves open to the employee other fields of endeavour, from which he or she may derive a living, and does not indirectly compel the employee to render the contracted services by having idleness as the only alternative.

82 In this, it is beside the point that those other fields of endeavour might be far less remunerative for the employee, or that the employee might only be qualified for the “special” field – otherwise, none of Ms Wagner, Ms Davis nor Ms Curro would have suffered injunctions against them. As Branson J said in Warner Bros v Nelson (at 219-220):

It was also urged that the difference between what the defendant can earn as a film artiste and what she might expect to earn by any other form of activity is so great that she will in effect be driven to perform her contract. That is not the criterion adopted in any of the decided cases. The defendant is stated to be a person of intelligence, capacity and means, and no evidence has been adduced to show that, if enjoined from doing the specific acts otherwise than for the plaintiffs, she will not be able to employ herself both usefully and remuneratively in other spheres of activity, though not as remuneratively as in her special line. She will not be driven, although she may be tempted, to perform the contract, and the fact that she may be so tempted is no objection to the grant of an injunction.

83 However, equity will not enforce a prohibition on all other employments, because the practical effect of doing so is to compel performance of the contract of services by excluding every alternative but idleness [cf Ehrman v Bartholomew; William Robinson v Heuer; Rely-a-Bell Burglar and Fire Alarm Co v Eisler [1926] Ch 609; Heine Bros (Aust) Pty Ltd v Forrest [1963] VR 383]. As Dillon LJ said in Provident Financial v Hayward, (at 165):

Rely-a-bell Burglar and Fire Alarm Co Ltd v Eisler

William Robinson & Co Ltd v Heuer

84 In the present case, the relevant contractual prohibitions are limited to the field of endeavour pursued by TPAust. If enforced, other fields of employment and endeavour would remain open to Mr Purcell. It follows that the prohibitions in Mr Purcell’s contract, insofar as they are valid notwithstanding that they are in restraint of trade, may be enforced by injunction.

85 For TPAust, Mr Fernon SC emphasised that TPAust had indicated that it would continue to pay Mr Purcell his base salary until the effluxion by time of the contract. Does it make any difference if the employer continues to pay the employee during the period of the restraint? In Provident Financial v Hayward, Dillon LJ, after the passage just quoted, continued:

Those were all cases, however, in which no pay was being offered by the employer to the employee while the employee was away from the employer’s business.

86 It is true that in Evening Standard Ltd v Henderson [1987] ICR 588, in allowing an appeal from a refusal of an interlocutory injunction to restrain the defendant from working for any rival of the plaintiff for the contractual notice period of one year, the Court of Appeal took into account an undertaking given by the plaintiff that the defendant would be paid his contractual entitlements for the remainder of the term and would be invited but not required to return to his job at the paper (at 594):

It follows, on the face of it, that the defendant ought not, pending trial, to be allowed to do the very thing which his contract was intended to stop him doing, namely, working for somebody else during the period of its contract. But that has got to be balanced against what I have said is trite law. The injunction must not force the defendant to work for the plaintiffs and it must not reduce him, certainly, to a condition of starvation or to a condition of idleness, whatever that may mean on the authorities on this topic. But all that, in my judgment, is overcome by the fact that the plaintiffs have made the offer they have. The defendant can go back to work for them. If he elects not to go back (and it will be a matter entirely for his election: there will be nothing in the judgment which forces an election on him) he can receive his salary and full contractual benefits under his contract until such time as his notice would have expired had it been for the proper period.

87 That, however, was an application for an interlocutory injunction, in which the balance of convenience and prejudice was very important. In Curro v Beyond Productions, on the other hand, the Court of Appeal said that the processes of the court could not be used to buy an injunction to which a party was not already entitled, so that where an employee had resigned and the employer had refused to accept the repudiation, the employer could not “purchase” an injunction by offering to continue to pay salary to which the employee was not entitled (because the employee was no longer rendering the services which attracted the entitlement to salary). The present case might be distinguished on the basis that, if Mr Purcell is on “gardening leave” pursuant to clause 11.4, or if TPAust is to be regarded as having exercised its option under clause 12.3, then TPAust remains contractually obliged to pay his wages. However, the answer is provided not by the equitable rule that obligations to render personal services will not be specifically enforced, but by the common law doctrine of restraint of trade. A covenant by which a person undertakes to work for no-one is a restraint of trade. However generous the consideration, it remains a restraint, and is valid only to the extent that it is not contrary to public policy. Compensation for remaining out of the market, however generous, does not create a legitimate protectable interest where none otherwise exists. For example, a contract by which a skilled person (never employed by the covenantee) covenanted not to work for anyone in the covenantee’s industry, would – no matter how handsomely rewarded – merely sterilise the covenantor, taking him or her out of the industry, without protecting any recognised legitimate interest of the covenantee, and, however well-remunerated, would be an unreasonable restraint of trade and void. I therefore do not accept that the circumstance that the employer is willing to continue to remunerate the employee during the period of the restraint can justify a restraint which exceeds what is reasonably required for the protection of a legitimate interest.

Should relief be declined as a matter of discretion?

88 Even where a restraint is valid, equity retains a discretion as to whether and if so how far to enforce it. Mr Fernon SC does not dispute that the grant of an injunction, whether on an interlocutory or final basis, to enforce a negative contractual stipulation made for consideration is discretionary [Dalgety Wine Estates Pty Ltd v Rison (1979) 141 CLR 552], although exceptional or compelling reasons will be required to persuade the court to decline injunctive relief in relation to the enforcement of such stipulations [Maitland Main Collieries v Hunter Valley Coal, [62]; John Fairfax v Birt, [45]; Otis Elevator v Nolan [2007] NSWSC 593, [17], [29], [40]]. The discretion to decline injunctive relief has been recognised in the context of applications to enforce restraints of trade [John Fairfax v Birt, [45]; Otis Elevator v Nolan, [26]-[29]]. In exercising the discretion to grant or withhold injunctive relief, the court has regard to the circumstances as at the date of hearing [Kone Elevators Pty Ltd v McNay(No 1) (1997) ATPR ¶41-563; (1997) Aust Contract R 90-079; reversed but not on this point 19 March 1997); Daly Smith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (NSWSC, Young J, 14 April 1997, unreported; BC 9701250)].

89 A number of discretionary factors were advanced on behalf of each of TPAust and Mr Purcell, respectively in favour of and against the grant of injunctive relief, but they can be conveniently reduced to three main considerations:

· Does the restraint no longer serve to protect the legitimate interests of TPAust?

· Should TPAust be left to a remedy in damages?
· Hardship.

90 Does the restraint no longer serve to protect the legitimate interests of TPAust? For Mr Purcell, it is contended that, whether or not the restraint was reasonable at the time at which the contract was made, as at the date of hearing it no longer serves to protect the legitimate protectable interest of TPAust, or at least will not do so for the duration of the period to 1 August 2009.

91 Even where, judged as at the date of the contract, a restraint is reasonable and valid, the court may on discretionary grounds withhold injunctive relief if at the date of the hearing there is no protectable interest – for example, if despite contemplation at the date of contract that the employee would have access to confidential information, that did not eventuate [John Fairfax v Birt, [46]] – or if in the events which have happened (as distinct from those foreseeable at the date of contract) the restraint is wider than necessary for the reasonable protection of the covenantee’s legitimate interests. As Branson J explained in Warner Bros v Nelson (at 219):

There is all the difference in the world between declining to make an illegal covenant good by neglecting that which makes it contrary to law and exercising a discretion as to how far the Court will enforce a valid covenant by injunction.

92 This distinction may be of reduced practical significance in New South Wales, because of the effect of Restraints of Trade Act, s 4(1), but conceptually it remains valid. Equity will enforce valid restraints of trade, even during the continuation of a contractual term, only to the extent necessary for the reasonable protection of the covenantee’s interest. In Warner Bros v Nelson, Branson J continued (at 221):

Then comes the question as to the period for which the injunction should operate. The period of the contract … will, if [the plaintiffs] exercise their options to prolong it, extend to about May, 1942. As I read the judgment of the Court of Appeal in Robinson v Heuer , the Court should make the period such as to give reasonable protection and no more to the plaintiffs against the ill effects to them of the defendant’s breach of contract.

93 The relevance of the duration of a restraint to its enforcement in equity, even while a fixed term contract remains on foot, is also illustrated by the following passage in Curro v Beyond Productions (at 347-348; emphasis added):

Lumley v

Wagner

Page One Records Ltd v Britton

Lumley v Wagner

The injunction sought was for four years which is a long time in this context

Warren v Mendy

the injunction sought was for about two and a half years

Lumley v Wagner

94 The evidence establishes that Mr Purcell has not worked for TPAust (or anyone else) since 11 April 2008 – a period now of four months. Mr Purcell’s client lines were immediately reassigned to other brokers within TPAust, some of whom already had a relationship with the client as the “second” on the line when Mr Purcell was away, and they were encouraged to develop the relationship. By the time of the hearing, these other brokers (including four experienced brokers, three junior brokers and a trainee broker) had contacted all of the clients that Mr Purcell managed, with a view to developing relationships with them, and have now had four months in which to demonstrate their competence to, and establish a rapport with, the clients. For reasons already explained, there is nothing in the evidence to suggest that, following departure of a broker, more than six months is required for replacement brokers to be found, recruited, installed, demonstrate their competence and develop a rapport with the client.

95 In those circumstances, an injunction extending for more than six months after Mr Purcell ceased working in the office of TPAust would not serve to protect any legitimate interest of TPAust, but would merely sterilise Mr Purcell and prevent competition. The reasonable protection of TPAust’s legitimate interests does not now require enforcement by injunction of the restraint for more than six months from the date of cessation of his actual employment.

96 Moreover, as has been pointed out, were it TPAust who wrongfully dismissed Mr Purcell early in the fixed-term contract, Mr Purcell would not have been entitled to an injunction requiring TPAust to continue to pay his remuneration, but would have been left to an action for damages for wrongful dismissal, with a commensurate duty to mitigate. This is an additional reason for concluding that the restraint ought not be specifically enforced for longer than reasonably necessary for the protection of TPAust’s legitimate interests, that is to say more than six months from the end of Mr Purcell’s actual employment on 4 April 2008.

97 Should TPAust be left to a remedy in damages? Although it is often said that equity will decline specific relief where damages are a sufficient remedy, the preferable enunciation of the test is in the terms “Is it just in all the circumstances that the plaintiff should be confined to a remedy in damages?” [Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349, 379 (Sachs LJ); The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445, [48]; Kazzi v Raptime Pty Ltd [2006] NSWSC 1261, [18]]; in the context of negative contractual stipulations, that will be so only in an exceptional case.

98 Clause 10.4 of the contract provides a mechanism for calculating the loss occasioned to TPAust by Mr Purcell’s failure to work for his full term. It is true, as Mr Fernon SC points out, that the operation of that clause is conditional on termination of employment, reading as it does “if your employment is prematurely terminated as a result of you resigning, or otherwise leaving your employment … [or] for breach or repudiation on your part”, whereas in the present case the injunctive relief is sought on the basis that the contract remains on foot. Nonetheless, the plain words apparently cover the present situation, in that Mr Purcell’s employment has been prematurely terminated as a result of him resigning. Even if that is not so, if specific enforcement is declined, then TPAust will be entitled to terminate for breach or repudiation on Mr Purcell’s part, and upon doing so to avail itself of the contractual formula for measuring damages. Clause 10, if applied, would require Mr Purcell to pay approximately $503,000.

99 Mr Rushton, SC in the context of clause 10.4, invokes the words of Habersberger J in BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115 (at [151]):

Refusal of the injunctions would leave the plaintiff with a claim for damages should Mr Hillard breach the employment contract by leaving BearingPoint’s employment and commencing work for Deloitte before the expiration of the 180 day notice period. The employment contract contained a term for the calculation of the damages payable by Mr Hillard to BearingPoint in such a situation. Arguably, the amount of money which Mr Hillard would have to pay made it a penalty. But that term was neither pleaded nor relied on by BearingPoint in this proceeding. On the contrary, the plaintiff pleaded that it would be ‘difficult to identify and quantify’ the loss which would be suffered by it were Mr Hillard not held to his contractual period of notice. It seems to me that BearingPoint has sought to have the best of both worlds by including in the employment contract a term purportedly containing a genuine pre-estimate of its damage whilst at the same time maintaining that damages were not an adequate remedy. In the circumstances, I do not see why BearingPoint should not be limited to its remedy of damages.

100 However, clause 10.4 is expressed to operate “without prejudice to any addition or rights or remedies available to” TPAust, which plainly preserves the availability of injunctive relief. Moreover, a liquidated damages clause such as this does not preclude the court from concluding that damages are an inadequate remedy where a party seeks to enforce the contract by way of injunction [Bath & North East Somerset District Council v Mowlem PLC [2004] EWCA Civ 115, esp at [15] (Mance LJ)]:

The Council accepts – indeed it asserts – that it would be bound in any claim for damages by its contractual agreement regarding liquidated and ascertained damages. The Council is not seeking to avoid that agreement, but to rely on it. It is the reason why the Council seeks an injunction, and why the Council submits that interlocutory injunctive relief is appropriate. Mowlem is not entitled to breach its contract. The agreement on liquidated and ascertained damages is not an agreed price to permit Mowlem to do so, and it does not preclude the court granting any other relief that may be appropriate.

101 One consideration that often tells in favour of a plaintiff not being left to a remedy in damages is that there may be difficulty in estimating damages, or that certain areas of damage cannot be taken into monetary account [Evans Marshall & Co Ltd v Bertola SA, 380; GFI Group Inc v Eaglestone, [29]-[32]]. The loss occasioned to an employer by the departure of a senior employee with a strong customer connection is typically seen as being in this category [GFI Group Inc v Eaglestone, [29]-[32]; Euro Brokers v Rabey, [16]; Huhtamaki Australia Ltd v Botha [2004] NSWSC 386, [17]].

102 In the present case, the relevant damage will largely pertain to TPAust’s goodwill and customer connection, and it may not be easy to quantify how many transactions TPAust would lose due to Mr Purcell’s employment by a competitor, their value, and the impact on TPAust’s market share. Such damage is not reasonably capable of precise quantification. Mr Rushton SC submitted that, even without clause 10.4, a conventional analysis could be undertaken of business records to calculate what profit TPAust lost by reason of Mr Purcell accepting employment elsewhere [cf Tradition Australia Pty Ltd v Gunson, [31] (Barrett J)], but such an analysis would require assumptions to be made, which TPAust would have to prove, as to what business Mr Purcell would have retained and secured for TPAust – which is not necessarily the same as the business he would gain for BGC – and such matters are not easily proven. In these circumstances, compensation for a breach is plainly an inferior remedy to prevention of the breach. While the fact that there is a “liquidated damages” provision arguably removes one factor which would otherwise tell in favour of the inadequacy of damages – namely, difficulty of calculation – it does not make it any more just that Mr Purcell should be able to escape from his contractual obligations at the price of paying damages. Equity holds parties to their agreements, rather than allowing them to escape from them at the price of damages.

103 Although it was also argued that the departure of Mr Purcell for a new employer despite the terms of his contract, unless restrained, was likely to have a flow-on effect to other employees and destabilise TPAust’s business, I doubt that the demonstrative or deterrent effect of relief in this type of proceeding is a permissible consideration. However, for the other reasons explained above, I conclude that it would not be just to leave TPAust to a remedy in damages, to the extent that the restraint is valid.

104 Hardship. Finally, Mr Ruston SC invoked the proposition that, where the jeopardy to the plaintiff from declining an injunction was slight, and the hardship occasioned by an injunction to the defendant was disproportionately great, the Court may as a matter of discretion decline injunctive relief, even in the context of a breach of a negative stipulation [cf Otis Elevator v Nolan].

105 As to the hardship to Mr Purcell, although Mr Fernon SC submitted that no evidence had been adduced by Mr Purcell that he would suffer any prejudice if injunctive relief were granted, I am satisfied, as Mr Rushton SC submitted, that the grant of an injunction will confine Mr Purcell to his garden for some months, damage his immediate circumstances by precluding him from plying his trade at the higher level of remuneration BGC has offered him and earning bonuses, and his long term prospects by degrading his client relationships and his currency as a quality broker. So long as any injunction is in force he would lose the benefit of employment by BGC at a significantly higher salary, and his connections with clients, professional standing and currency would be degraded, with a consequential impact on his capacity to command a salary. Although it was said that Mr Purcell was unlikely to suffer any material injury – as TPAust would continue to pay him his contractual entitlement of $325,000 per annum, and he would be invited but not required to recommence work in TPAust’s office on the same basis as before his purported resignation and therefore has the opportunity of preserving his standing in the industry – there is a material difference between $325,000 and $400,000 per annum, and the proposal that he could resume actual employment with TPAust and maintain his client connection is an unrealistic one.

106 However, for substantially the same reasons as those for concluding that it is not just to leave TPAust to a remedy in damages, I am quite unpersuaded that the jeopardy to TPAust from declining an injunction is slight.

107 Accordingly, I would not decline on discretionary grounds to grant injunctive relief in respect of the contractual prohibitions to the extent that I have found them to be valid, namely for a period of six months after Mr Purcell’s actual employment came to an end on 4 April 2008. However, even if I were wrong to conclude that, in their application beyond that period, the prohibitions were invalid as unreasonable restraints of trade, I would as a matter of discretion limit injunctive relief to a period of six months after 4 April 2008, on the basis that no more was necessary for the reasonable protection of the interests of TPAust.

Conclusion

108 My conclusions may be summarised as follows.

109 Mr Purcell repudiated the employment contract by his resignation. TPAust did not accept the repudiation but elected to affirm the contract. TPAust did not itself repudiate the contract, nor was there a mutual agreement to terminate it. The contract remains on foot. However, Mr Purcell’s resignation had the effect of terminating the employer/employee relationship.

110 The doctrine of restraint of trade applies during employment as well as after termination, although, because of the employee’s duty of fidelity, the circumstance that the employment remains on foot is highly relevant to the reasonableness of the restraint during the currency of the employment. It follows that contractual prohibitions on engagement with third parties that are operative after actual employment ends but while the contract remains on foot – including during periods of notice and “gardening leave” – are restraints of trade, and valid only insofar as they are reasonable.

111 It was not unreasonable for the contract to contain prohibitions based on the assumption that the parties would perform the contract. The relevant prohibitions in Mr Purcell’s contract are reasonable in their application during the currency of actual employment, and in accordance with their terms for three months after expiry of the term of the contract. In addition, in their application during the term but after actual employment comes to an end (by resignation), they are not unreasonable for a period of six months after resignation. However, prohibitions that would operate for more than six months after the end of Mr Purcell’s actual employment (whether by repudiatory resignation, or if he were sent on gardening leave), exceed what is reasonably necessary for the protection of TPAust’s legitimate interests.

112 As the injunctive relief sought is restricted to the particular field of endeavour in which Mr Purcell was engaged at TPAust, so as to leave open to him other fields of employment, the grant of the injunctive relief sought would not amount to the practical specific enforcement, directly or indirectly, of an obligation to render personal services. Injunctive relief would not be refused on that ground.

113 Insofar as the contractual prohibitions are valid, it is not just that TPAust be left to a remedy in damages. However, from the expiry of six months after the end of Mr Purcell’s actual employment, an injunction would no longer serve a legitimate protectable interest of TPAust, but merely sterilise Mr Purcell and prevent competition. In those circumstances, if I were wrong in concluding that the restraints were valid and enforceable only for a period of six months after the end of actual employment or three months following expiry of the term of the contract – whichever is the shorter – I would nonetheless, as a matter of discretion, decline injunctive relief beyond that period.

114 I therefore propose to declare that the contract remains on foot, and grant injunctive relief for a period expiring six months after the end of actual employment, which will expire on 4 October 2008, but I will hear counsel on the precise form of the orders if they wish. Prima facie the plaintiff has substantially succeeded, though not to the full extent that it sought, and is entitled to costs, but I will also hear Counsel on that question if they so wish.

115 Accordingly, subject to any such submissions, I propose to make the following orders: -

1. Declare that the contract dated 24 July 2007 between the Plaintiff and the Defendant has not been terminated and remains on foot.

2. Order that until 4 October 2008 the Defendant be restrained from directly or indirectly accepting employment with or rendering services to, or entering into or in any manner taking part in or lending his name, counsel or assistance to BGC or any other person doing business whether as proprietor, principal, investor, partner, officer, employee, consultant, adviser, agent, independent contractor or in any other capacity whatsoever or for any purpose which would or could reasonably be expected to be competitive with any business of the Plaintiff or any subsidiary of Tullett Prebon plc.
3. Order that until 4 October 2008 the Defendant be restrained from, either directly or indirectly, and on his own behalf or on behalf of another person or entity, doing or attempting to do any of the following:

(a) entice, induce or encourage a Client to transfer or remove business from the Plaintiff; or

(b) solicit or accept business from a Client for a business similar to a Restricted Business in competition with the Plaintiff; or
(c) entice, induce or encourage an Employee to terminate the Employee’s employment with the Plaintiff, whether or not the Employee would commit a breach of that Employee’s contract of employment.

4. Order that until 4 October 2008 the Defendant be restrained from, either directly or indirectly, and on his own behalf or on behalf of another person or entity, doing or attempting to do any of the following:

(a) undertake, carry on or be employed, engaged or interested in any capacity in a business similar to a Restricted Business, which trades or an objective or anticipation of which is to trade in the Territory in competition with the Plaintiff; or
(b) employ, engage or retain the services of an Employee of the Plaintiff for the purpose of a business which competes in the Territory with a Restricted Business.

5. In these orders:

(a) ’Client’ – means a person:

(i) who is at the expiry of the Relevant Period a client of the Plaintiff and to whom at any time during the Relevant Period the Plaintiff was actively and directly supplying or seeking to supply services for the purposes of a Restricted Business; and
(ii) with whom (directly or indirectly through subordinates or colleagues) the Defendant had dealings at any time during the Relevant Period and/or for whom the Defendant was responsible, in any such case in the performance of the Defendant’s duties, or his subordinates’ or colleagues’ duties, to the Plaintiff;

(b) ‘Employee’ – means a person who at any time during the Relevant Period was employed by or renders services to the Plaintiff or a Restricted Business in a managerial or broking capacity or who was responsible for Clients and/or had influence over them and who had dealings with the Defendant during that period;

(c) ‘Relevant Period’ – means the period of six months ending on 4 April 2008;

(d) ‘Restricted Business’ – means a business of the Plaintiff from time to time in which, pursuant to the Defendant’s duties, the Defendant acted as a broker, manager or had direct personal managerial, analytical or material involvement, at any time during the Relevant Period;

(e) ‘Territory’ – means New South Wales and Victoria, and a business in which the Defendant is involved will be taken to be operating within the Territory if it is located or will be located in the Territory or is conducted or is to be conducted wholly or partly within the Territory.
References to acting directly or indirectly include acting alone or jointly with or on behalf of or by means of another person and/or giving advice or providing services with a view to assisting another person.

6. Order that the Defendant pay the Plaintiff’s costs.

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22/09/2008 - Changes to orders to include additional definition and correct typographic errors. - Paragraph(s) 115

22/09/2008 - Typographical error - Paragraph(s) 115

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Citations

Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852

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Automatic Fire Sprinklers Pty Ltd v Watson [1946] HCA 25

O'Byrne v Panegyres [2003] FCA 1328

CITATION:	Tullett Prebon (Australia) Pty Ltd v Simon Purcell [2008] NSWSC 852 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	30 June, 1 July 2008
JUDGMENT DATE :	21 August 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
DECISION:	Employee repudiated employment contract by resignation. Employer did not accept repudiation but elected to affirm. Employer did not repudiate, nor was there a mutual agreement to terminate. Contract remains on foot, but resignation terminated employer/employee relationship. Doctrine of restraint of trade applies during employment as well as after termination. Contractual prohibitions on engagement with third parties operative after actual employment ends but while contract remains on foot, including during periods of notice and gardening leave, are restraints of trade, and valid only insofar as they are reasonable. Relevant prohibitions in employee’s contract are reasonable during the currency of actual employment, and for three months after expiry of term, but only for six months after actual employment brought to an end by resignation. Injunctive relief restricted to particular field of endeavour in which employee was engaged does not amount to specific enforcement, directly or indirectly, of obligation to render personal services. It is not just that employer be left to remedy in damages. If restraints were not valid and enforceable only for six months after end of actual employment, as a matter of discretion injunctive relief beyond that period would still be declined as no longer serves a legitimate protectable interest. Declaration that contract remains on foot. Injunction enforcing restraints for a period expiring six months after the end of actual employment.
CATCHWORDS:	CONTRACTS – EMPLOYMENT – REPUDIATION/TERMINATION – fixed term contract where defendant employee prematurely resigned before conclusion of fixed term of employment to work for competitor employer – where employer elects to affirm contract – whether employment contract repudiated by employee or terminated by mutual agreement – distinction between contract of employment and relationship of employer/employee – whether employment relationship terminated by resignation – whether plaintiff employer can reinstate employment relationship by affirming contract. - CONTRACTS – EMPLOYMENT – RESTRAINT OF TRADE – whether restraint of trade doctrine operates during contract of employment – whether restraint of trade clauses void – where employee on gardening leave – legitimate protectable interests – whether and for how long after end of actual employment restraints are reasonable – where employer continues to remunerate employee notwithstanding employee’s termination of employment relationship. - INJUNCTIONS – injunction enforcing restraint of trade – discretion to decline injunction to enforce a negative contractual provision – whether granting injunction amounts to requiring employee to render personal services – special services – whether special services involve element of public performance – where employer continues to pay employee – whether injunction should be declined on discretionary grounds – whether injunction would not protect legitimate interests of employer – whether damages adequate remedy – where contract provides for liquidated damages in event of premature termination by employee – where damages difficult to quantify – whether deterrent effect of granting injunction a relevant discretionary consideration – whether granting injunction would occasion hardship to employee.
LEGISLATION CITED:	(NSW) Restraints of Trade Act, 1976, s 4(1)
CATEGORY:	Principal judgment
CASES CITED:	A Schroeder Music Publishing Co Ltd v Macaulay (formerly Instone) [1974] 1 WLR 1308 Atlas Steels (Australia) Pty Ltd v Atlas Steels Ltd (1948) 49 SR (NSW) 157 Australian National Airlines Commission v Robinson [1977] VR 87 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319 Bath & North East Somerset District Council v Mowlem PLC [2004] EWCA Civ 115 BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115 Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339 Broken Hill Proprietary Co Ltd v Hapag-Lloyd Aktiengesellschaft [1980] 2 NSWLR 572 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 Commercial Plastics Ltd v Vincent [1964] 3 WLR 820 Consolidated Press Ltd v Thompson (1952) 52 SR (NSW) 75 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Dalgety Wine Estates Pty Ltd v Rison (1979) 141 CLR 552 Daly Smith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (NSWSC, Young J, 14 April 1997, unreported; BC 9701250) Davis v Foreman [1894] 3 Ch 654 De Francesco v Barnum (1890) 45 Ch D 430 Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 73 IPR 326 Ehrman v Bartholomew [1898] 1 Ch 671 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 Euro Brokers Ltd v Rabey [1995] IRLR 206 Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 GFI Group Inc v Eaglestone [1994] IRLR 119 Gunton v Richmond-on-Thames London Borough Council [1981] 1 Ch 448 Hawthorn Football Club Ltd v Harding [1988] VR 49 Heine Bros (Aust) Pty Ltd v Forrest [1963] VR 383 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 Hill v C A Parson & Co Ltd [1972] Ch 305 Huhtamaki Australia Ltd v Botha [2004] NSWSC 386 JC Williamson Ltd v Luke & Mulholland (1931) 45 CLR 282 John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 99 Kazzi v Raptime Pty Ltd [2006] NSWSC 1261 Kirchner & Co v Gruban [1909] 1 Ch 413 Kone Elevators Pty Ltd v McNay (No 1) (1997 ATPR 41-563; (1997) Aust Contract R 90-079 Koops Martin Financial Services v Reeves [2006] NSWSC 449 Lindner v Murdock’s Garage (1950) 83 CLR 628 Lumley v Wagner (1852) 1 De G & M 604 Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2006] NSWCA 258 Masterclass Enterprises Pty Ltd v Bedshed Franchisors (WA) Pty Ltd [2008] WASC 67 McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd [2008] NSWSC 542 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 Otis Elevator Co Pty Ltd v Nolan [2007] NSWSC 593 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1953) 90 CLR 235 Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 Petrofina (Great Britain) Ltd v Martin [1966] Ch 146 Philton Distributors Pty Ltd v Kemalex Pty Ltd (SASC, Full Court, 24 March 1988) Provident Financial Group PLC & Whitegates Estate Agency v Hayward [1989] ICR 160 Rely-a-Bell Burglar and Fire Alarm Co v Eisler [1926] Ch 609 Tank Lining Corporation v Dunlop Industries Ltd (1982) 140 DLR (3D) 659 The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445 Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227 Tradition Australia Pty Ltd v Gunson [2006] NSWSC 298; [2006] 152 IR 395 Turner v Australian Coal and Shale Employees’ Federation (1984) 6 FCR 177 Vanderwell Products Ltd v McLeod [1957] RPC 185 Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209 Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32 Whitwood Chemical Co v Hardman [1891] 2 Ch 416 William Hill Organisation Ltd v Tucker [1998] EWCA Civ 615; [1999] ICR 291 William Robinson & Co Ltd v Heuer [1898] 2 Ch 451 Woolworths Limited v Olson [2004] NSWCA 372 Young v Timmins (1831) Cr&J 331; 148 ER 1446
TEXTS CITED:	Carter on Contract (2008) Equity Doctrines and Remedies, Meagher, Gummow and Lehane, 4th ed
PARTIES:	Tullett Prebon (Australia) Pty Ltd (plaintiff) Simon Purcell (defendant)
FILE NUMBER(S):	SC 2305/08
COUNSEL:	Mr JJE Fernon SC w Mr DFC Thomas (plaintiff) Mr SJ Rushton SC w Mr MR Elliott (defendant)
SOLICITORS:	Freehills (plaintiff) Horton Rhodes (defendant)