Victory Management Services Pty Ltd v Johnston
[2017] VCC 1839
•11 December 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-17-05469
| Victory Management Services Pty Ltd | Applicant |
| v | |
| Tania Johnston | Respondent |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 December 2017 | |
DATE OF RULING: | 11 December 2017 | |
CASE MAY BE CITED AS: | Victory Management Services Pty Ltd v Johnston | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1839 | |
REASONS FOR RULING
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Subject: PRACTICE AND PROCEDURE
Catchwords: Preliminary discover – whether “reasonable cause to believe” there is a right to obtain relief – whether “reasonable inquiries”
Legislation Cited: County Court Civil Procedure Rules 2008 r32.05
Cases Cited: Glezer v Deals.com.au [2014] VSC 202
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Dr T Alexander | M&K Lawyers Group Pty Ltd |
| For the Respondent | Mr R Cameron | Andrew Woolfe & Co |
HIS HONOUR:
1 Victory Management Services Pty Ltd (“Victory”) is a member of a group of associated companies known as the Victory Group, which operate businesses in the equipment hire, recruitment, construction, real estate and serviced office industries. Victory provides employment and management services to companies in the Victory Group, including Victory Realty Pty Ltd (“Victory Realty”). Victory alleges that Victory Realty is in the business of providing commercial and residential leasing.
2 By an employment agreement dated 27 February 2017, Victory engaged the respondent Tania Johnston as its full-time Leasing Director, commencing 1 March 2017. The employment agreement included as Schedule 3 extensive restraint terms and conditions, including (in clause 1.1(b)) provisions that purported to restrain Ms Johnston from certain specified dealings with clients and prospective clients.
3 This is an application by Victory by originating motion dated 21 November 2017 and summons dated 23 November 2017, seeking preliminary discovery from Ms Johnston pursuant to r32.05 in respect of documents that may disclose a breach by her of those restraint provisions. For the reasons below, I will grant the orders sought.
4 The application is supported by two affidavits. An affidavit of Dan Baxter, a director of Victory, sworn 20 November 2017 and an affidavit of Michael Harty, the lawyer at M&K Lawyers Group Pty Ltd (“M&K”) with the care and conduct of the application on behalf of Victory, also sworn on 20 November 2017.
5 Mr Baxter’s affidavit commences by providing a brief background to the Victory Group and the circumstances of the employment of Ms Johnston and exhibits Ms Johnston’s employment contract. He deposes that Ms Johnston gave written notice of her resignation as a director of Victory Realty on 21 October 2017 effective immediately and gave written notice of her resignation as an employee of Victory Realty on 26 October 2017, also effective immediately. Mr Baxter then describes two matters coming to his attention that suggest Ms Johnston may have been in contact with clients of Victory Realty, as follows:
· on 30 October 2017 an officer of Regus PLC (“Regus”) sent an email to Ms Johnston’s Victory Realty email address stating “Sorry missed your calls-can we catch up after month end?”; and
· on 3 November 2017 an employee of Victory Royalty spoke by telephone to an officer of Waterman Business Centres (“Waterman”), who confirmed that she had spoken to Ms Johnston after 26 October 2017.
6 Mr Baxter deposed that Regus cancelled its business with Victory Realty on 1 November 2017 and identifies in broad terms the revenue that Victory Realty will lose from this cancellation. Mr Baxter concludes by expressing his belief that Ms Johnston contacted Regus and has been contacting clients of Victory Realty in breach of the restraint in her employment contract “in order to either solicit, encourage or entice any clients of Victory Realty to cease (or reduce) doing business with Victory Realty.”
7 Mr Harty’s affidavit exhibits correspondence between M&K and Ms Johnston and her solicitor. In particular, Mr Harty’s affidavit refers to letters dated 3 and 10 November 2017 which included a request that Ms Johnston provide documents evidencing contacts between her and clients of Victory Realty, which occurred after her employment ceased, or alternatively an affidavit that no such documents exist. I accept that the response to these letters ultimately sent by Ms Johnston’s solicitors was, at best, equivocal.
8 In the course of submissions, Victory sought also to rely on evidence that Ms Johnston had received an email from a third client, namely, Servcorp, which asked Ms Johnston when she would next be in Sydney for the purposes of arranging a meeting. Ms Johnston responded to that email on Monday, 16 October 2017 confirming that she would be in Sydney on 9 and 10 November and suggested a meeting on one of those days. There was also evidence that Ms Johnston had forwarded that email chain to her personal email address on 19 October 2017, two days before Ms Johnston resigned as a director of Victory Realty.
9 Counsel for Ms Johnston did not object to me receiving that evidence, providing I accepted that his instructions were that the email traffic was all undertaken in the ordinary course of Ms Johnston’s employment with Victory. I received the evidence on that basis.
10 Ms Johnston filed and served an affidavit in response dated 7 December 2017. In that affidavit, Ms Johnston disagrees with a number of the matters deposed to by Mr Baxter concerning the nature of the Victory Realty business and Mr Baxter’s evidence concerning her role with Victory Realty. She also describes the circumstances in which she signed the employment agreement and of her resignation.
11 On the subject of her contact with clients of Victory Realty, Ms Johnston deposes that she has “not at any time since I finished employment with the Plaintiff acted in any way in breach of the Employment Contract which was with Victory Management Services Pty Ltd not Victory Realty Pty Ltd”. She goes on to confirm that she did have contact with offices of both Regus and Waterman but in substance denies that such contact breaches the terms of her employment agreement.
12 The principles to be applied in applications for preliminary or pre-action discovery are conveniently summarised in Glezer v Deals.com.au [2014] VSC 202 at [17]:
“The following general principles are not controversial. The rule should be construed benevolently, because it is intended to assist and applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits. I must be given the fullest scope its language will reasonably allow.
It is not necessary to show precisely what cause of action the applicant may have, merely that the facts are such form which it may reasonably be believed that the applicant may have a right to obtain relief. The wording ‘may’ indicates that the putative belief does not have to amount to a firm view that there is a right to relief. Although some ‘fishing’ enquiry is permitted, a ‘flimsy foundation’ or ‘mere hunch’ will not be sufficient to constitute reasonable cause. An applicant does not have to prove that there will be, only there may be, a real benefit from making the order. The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or alternatively, the possibly avoidance of unnecessary and fruitless litigation.”
13 Ms Johnston opposed the application on two grounds:
· first, that Victory has failed to establish that it may have the right to obtain relief from Ms Johnston as required by paragraph (a) of r32.05; and
· second, that Victory has not made “all reasonable enquiries” as required by paragraph (b) of r32.05.
14 In relation to the first ground, Ms Johnston submitted that the terms of the restraint contained in the employment agreement is contrary to public policy and therefore void. Ms Johnston relied in this regard on the principles summarised in the decision of Drake Personnel Ltd v Beddison [1979] VR 13. She submitted, in effect, that the restraint in this case offended those principles and thus would not be enforceable. She further submitted that while the provisions dealing with the restraint period and the restraint area could be severed in a way that rendered the restraint enforceable, the breadth of the conduct covered by the restraint set out in clause 1.1, could not be saved by the severability provision in clause 3 of the schedule.
15 While I agree that restraint clauses must be approached with caution and that many will offend the principles set out in Drake Personnel, I am satisfied that there is reasonable cause to believe that the restraint in this case is enforceable at least to the extent of constraining Ms Johnston in contacting Victory Realty clients in the weeks and perhaps months following her resignation. In particular, to the extent that a restraint of some of the conduct identified in clause 1.1 of schedule 3 might arguably be unenforceable, in my view the severability provision in clause 3 will likely operate to preserve other provisions.
16 Ms Johnston also argued in relation to the first ground that the evidence relied on by Victory that she may have been in breach of her employment agreement was deficient. In particular, there was no evidence that her contact with Regus was causally linked to Regus cancelling its business with Victory Realty and the evidence was that Waterman was still a client of Victory Realty.
17 Having regard to the general principles applicable to the application of r32.05 referred to above, I reject this submission. It is not in dispute that Ms Johnston has contacted at least two clients of Victory Realty since her resignation. Her reasons for doing so could be entirely innocent and Victory could yet decide that there is an insufficient basis for commencing a proceeding against her.
18 In the meantime, however, Victory has a sound basis to be concerned not only as to whether this admitted contact is in fact as innocent as Ms Johnston alleges, but also whether these are the only Victory clients that Ms Johnston has contacted. Indeed, if the evidence went further and did establish, for example, a causal connection between the contact with Regus and Victory’s loss of its business, Ms Johnston would have good grounds for opposing the application on the basis that Victory already had sufficient evidence for commencing a proceeding.
19 Turning to the second ground, Ms Johnston has argued that it would have been “reasonable” for Victory to contact both Regus and Waterman to ascertain the nature of the contact and determine whether or not it amounted to a breach by Ms Johnston of her employment agreement. Ms Johnston cited in support of this argument the decision of CGU Insurance Ltd v Malaysia International Shipping Corporation Berhad (2001) 187 ALR 279 at [25] and [30] to [32].
20 In reply, Victory has submitted that it is not reasonable to expect it to interrogate one recent former client and a current client for the purposes of “demanding answers” about a possible breach of agreement by a former employee. Victory has also argued that possible breaches by Ms Johnston of her employment agreement are not restricted to just two clients. There could be instances of other breaches that Victory is yet to discover, and the recent email amplifies this concern.
21 In my view, if a potential claim against Ms Johnston were limited to only the two clients identified in Mr Baxter’s affidavit, there would be some force in Ms Johnston’s submissions that failure to contact either of them falls short of “reasonable enquiries” within the meaning of r32.05.
22 However, as I understand the evidence of the contact with those two clients and also the email, this is not relied on as an exhaustive statement of the extent of the potential breach by Ms Johnston. Rather, Ms Johnston’s willingness to make contact with two or three Victory clients notwithstanding her employment agreement, supports an inference that she may well have contacted other clients. In my view, seen in that light, enquiries that Victory might have made of Regus and Waterman would not have materially advanced the issue. Victory would have continued to harbour legitimate concerns that Ms Johnston’s contact with clients was more widespread.
23 In the circumstances, I am satisfied that Victory has established sufficient grounds for the orders it seeks and I will make orders accordingly. I will hear further from the parties on the question of costs.
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Certificate
I certify that these 6 pages are a true copy of the ruling of His Honour Judge Woodward delivered on 11 December 2017.
Dated: 11 December 2017
Simon Bobko
Associate to His Honour Judge Woodward
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