Wentworth Partners Estate Agents Pty Ltd trading as RE MAX Gold v Gordony

[2007] NSWSC 1135

CITATION:	Wentworth Partners Estate Agents Pty Ltd trading as RE MAX Gold v Gordony [2007] NSWSC 1135
HEARING DATE(S):	17, 22 August 2007
JUDGMENT DATE :	15 October 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Injunction of 17 August 2007 restraining defendant from soliciting clients of plaintiff to remain in force until 2 January 2008.
CATCHWORDS:	EQUITY [363] Equitable remedies- Injunctions- To restrain breach of confidence- Estate Agent's rent roll- How far confidential information- Defendant claims many clients personal friends and acquaintances- Arguable case that defendant has plaintiff's confidential information- Appropriate to extend injunction. TRADE & COMMERCE [216]- Restraints of trade- Validity and reasonableness- Particular cases- Employment- Covenant provided, inter alia, that defendant would not engage in conduct detrimental to competitive position of plaintiff- Held covenant aimed at protecting plaintiff from competition- Invalid.
LEGISLATION CITED:	Restraints of Trade Act 1976
CASES CITED:	Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 Faccenda Chicken Ltd v Fowler [1987] Ch 117 Foster Bryant Surveying Ltd v Bryant [2007] 2 BCLC 239 Homburg Houtimport BV v Agrosin Ltd [2004] 1 AC 715 ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 536 Lowe v Lombank Ltd [1960] 1 WLR 196 Robertson v French (1803) 4 East 130; 102 ER 779 Wilkinson v Rogers (1864) 2 De GJ & S 62; 46 ER 298 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
PARTIES:	Wentworth Partners Estate Agents Pty Ltd t/as RE/MAX Gold (P) Adam Victor Thomas George Gordony (D)
FILE NUMBER(S):	SC 3875/07
COUNSEL:	G L Turner (P) D A Smallbone and J Cohen (D)
SOLICITORS:	McArdle Legal (P) Terence Stern (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Monday 15 October 2007

3875/07 – WENTWORTH PARTNERS ESTATE AGENTS PTY LTD t/as RE/MAX GOLD v GORDONY

JUDGMENT

1 HIS HONOUR: This is an application for interim injunction brought by the former employer of the defendant to prevent him from using confidential information and from soliciting former customers of the plaintiff.

2 The plaintiff’s estate agency trades as “RE/MAX Gold” at Bondi Junction. Although the plaintiff appears to operate in all the usual fields of a real estate agent, a principal part of its business appears to be the management of properties where the owner has made the property available for rental.

3 The plaintiff company has two principal directors and shareholders, Aishah Hundley-Jackson and George Savva. They are also principals of the business which the company operates.

4 On 21 July 2004, the plaintiff company entered into an agreement with the defendant shortly prior to the defendant being employed as its property manager. The defendant’s job was to superintend the lettings made through the plaintiff’s estate agency and also to be involved in those lettings “at the coal face”.

5 I should note that the defendant and the plaintiff entered into a further employment agreement in May 2007. This is in evidence. However, it is acknowledged by both parties that it is not binding because there has been non-compliance with the relevant industrial law. It has marginal relevance as to the realisation of the defendant of his obligations as an employee.

6 There does not appear to have been any problem between the parties up until June 2007. In fact, the defendant says that during his period of employment he increased the plaintiff’s business markedly.

7 The defendant says that on 9 June 2007, his assistant, a Mr Loewy, was asked to leave the business. The defendant says that he found out that, without any prior consultation, as from 25 June 2007, there would be a new employee, a Ms Corven, and that the rent roll would be split so that he and Ms Corven would each have responsibility for about half of it. The defendant did not find this arrangement to his liking, and he resigned.

8 According to the chronology of events, the defendant tendered his resignation on 27 June 2007. On the next day he emailed the plaintiff’s rent roll to his private email address and this was discovered by Ms Hundley-Jackson on 30 June.

9 When the defendant left his employment with the plaintiff, there were disputes between himself and the principals of the plaintiff.

10 Mr Savva says that he instructed the defendant on 30 June not to tell anyone he was leaving. However, from early July, the defendant was sending emails to various clients indicating that he was leaving and noting that the client would be informed as to where the defendant would be in due course.

11 On 26 July 2007, the defendant’s last day at the plaintiff’s office, there was a minor altercation between the defendant and Mr Savva over the defendant removing his diary which was compromised by the plaintiff retaining the diary and the defendant scoring out from it matters which were personal to him.

12 The defendant looked for other work in the same line and was made an offer of employment by a Julie Feller to be employed by her real estate agency. A formal Australian Workplace Agreement was entered into between the defendant and Ms Feller on 1 August 2007. Julie Feller Real Estate trades principally from Rose Bay.

13 The defendant admitted that he had emailed the rent roll to himself. After protest by the plaintiff, the defendant’s solicitors certified to the plaintiff that those lists had been destroyed and had not been disclosed to any person and no hard copy had been retained.

14 The plaintiff filed a summons seeking injunctive relief on 2 August 2007. An amended summons was filed on 17 August 2007.

15 Nicholas J granted an injunction to preserve matters between the parties when the matter came before him as Duty Judge in early August.

16 The matter came on before me as Duty Judge on 17 August, but as a result of late service of affidavits by the plaintiff, the matter could not be concluded on that day. I made a lesser injunction up until 22 August, when the matter was concluded. At the hearing, Mr G L Turner of counsel appeared for the plaintiff and Mr D A Smallbone and Mr J Cohen appeared for the defendant. I continued the lesser injunction until further order, but no later than 2 January 2008, and reserved my decision.

17 Although I encouraged the parties to have the matter determined on a final basis, the parties declined to do so on the grounds that further enquiries with respect to factual matters were still continuing. Accordingly, the matter was tried on an interlocutory basis.

18 As is well known, on an interlocutory application for injunction, the court does not ordinarily decide facts, but considers: (1) whether the plaintiff has shown a prima facie or arguable case; (2) whether the balance of convenience favours the grant rather than the refusal of an injunction; (3) whether damages are an adequate remedy; and (4) any special defences that might arise such as, for instance, failure on the plaintiff’s part to offer to do equity or to have “clean hands”. In the instant case, I need only to look at the first two matters as it is fairly clear that damages would not be an adequate remedy and there is no suggestion of any special equitable defences arising.

19 In the instant case, the probabilities are that the matter will not proceed past the interlocutory injunction stage. This is because the plaintiff has already made an open offer that it would be content with a restraint up to January 2008.

20 When the court is considering an interlocutory injunction, the fact that the injunction will terminate the dispute is a matter to be taken into account. In particular, this circumstance usually requires the court to some extent to evaluate the strength of the plaintiff’s case, as the likelihood of the plaintiff succeeding or not if the action goes to trial must be considered in weighing the risks that injustice may result from deciding the application one way rather than the other: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 536.

21 Although when considering whether there is an arguable case the court does not determine matters of fact, if questions of construction arise which can be dealt with without a close examination of the facts, the court often decides those questions rather than just assessing whether the arguments on construction have reasonable prospects of success.

22 There is a large amount of evidence before the court which goes into considerable detail. For instance, the plaintiff’s directors have purportedly analysed the defendant’s mobile phone calls and have indicated which of them is to an owner of property on the rent roll. Because of the way the court approaches interlocutory injunctions as I have outlined above, I do not need to analyse this material or make any findings of fact on it. The only significance it has is that it does show some general activity of the defendant which reinforces the plaintiff’s general allegations.

23 The key questions on the merits of the case are: (A) Whether the defendant has, or may arguably have, confidential information of the plaintiff; and (B) Whether the defendant is in breach of contract by soliciting former customers of the plaintiff. I will deal with each matter in turn.

24 (A) I should first set out the material provisions of the contract of employment.

25 Clause 7.5 of the employment agreement of July 2004, reads, so far as is relevant, as follows:

“7.5 On termination of his/her employment (for any reason), the Employee will immediately deliver up to the Employer all property and information belonging to the Employer, including, but without being limited to, past, current or prospective customer or client lists, property listings, files, business stationery, diary, manuals, unused business cards, legal documents, keys, books, plans, maps, tape recordings … and all other goods supplied to the Employee by the Employer.”

26 Section 8 of the document is headed “Duty of Confidentiality”. Clauses 8.1 to 8.3 are as follows:

“8.1 The Employee shall at all times treat as and keep confidential all information that is the property of the Employer that has not lawfully entered the public domain, which includes but is not limited to the names and other information contained within the Employer’s Database (as defined in clause 8.3), which the Employee may become aware of during the course of his/her employment;

8.2 The Employee shall not use or divulge any of the information referred to in clause 8.1 either during the period of employment or after employment ceases, other than:
(a) in the ordinary course of his/her employment;
(b) with the Employer’s prior written consent;
(c) for the purpose of obtaining legal advice as to confidentiality; or
(d) by compulsion of law.
8.3 In this clause ‘Database’ includes but is not limited to:
(a) names, addresses and phone numbers of sellers, buyers and prospective sellers and buyers or the names addresses and phone numbers of any property owner on whose behalf a property is managed by the Employer;
(b) financial information;
(c) budgets; and
(d) Employer’s contract information.”

27 The employment agreement had annexures to it, one of which is Annexure B headed “Confidentiality & Competition Agreement”. Clause 1 provides as follows:

“1. THE EMPLOYEE AGREES that he/she while he remains an employee shall not indirectly and whether jointly with or on behalf of any person in any capacity whatsoever … carry on operate or be engaged or interested or employed in any business which carries on a business similar or related to the business or any part thereof or any other business carried on by any of the companies and/or subsidiaries of RE/MAX Gold in the course of or arising out of the employment of the Employee with RE/MAX Gold, AND FURTHER THE EMPLOYEE AGREES that he/she shall not procure or attempt to procure orders, contracts for or promote any person who carries on a similar to or related to the said business of the said companies and/or subsidiaries or solicit, canvass or attempt to solicit, canvass or procure for himself/herself or for any other person whatsoever, an order, contract, request or service or business from any person with whom he/she of the said companies and/or subsidiaries have dealt in the course of or arising out of the employment with RE/MAX Gold.”

28 Clause 2 deals with confidentiality. It probably does not extend past what was said in the main part of the agreement, but I will set out clause 2.2:

“2.2 THE EMPLOYEE ACKNOWLEDGES that all Confidential Information is the property of RE/MAX Gold and the Confidential Information has been acquired by RE/MAX Gold by its initiative, expense and effort, AND FURTHER THE EMPLOYEE ACKNOWLEDGES that the use of the Confidential Information by the employee, either during or after cessation of the employment with RE/MAX Gold, other than for the purposes of advancing the business of RE/MAX Gold AND with the express permission of RE/MAX Gold can cause loss and damage to the business of RE/MAX Gold.”

29 Clause 5 of the agreement provides that the confidentiality and competition agreement will expire two years after the cessation of employment for any reason. Clause 6 provides that any provision or part of the agreement which is illegal, void or unenforceable shall be severed without prejudice to the balance of the other provisions or parts.

30 The confidentiality annexure contains a certificate stating that a solicitor has explained the agreement to the defendant before the defendant signed it.

31 As to confidentiality, I have already said that I do not think that the annexure takes the matter further than the main agreement. However, I must remark that it is not of the slightest use for a document to provide, even in capital letters, that the employee acknowledges that all confidential information is the property of the employer and that that information has been acquired by the employer by its initiative, expense and effort when both parties know that that is just not true. In the instant case, some of the information which was put into the plaintiff’s database originated from the defendant and by the defendant’s efforts. As was pointed out by the English Court of Appeal in Lowe v Lombank Ltd [1960] 1 WLR 196, such a clause cannot operate where the statement could not be believed to be true by both parties who signed it.

32 As I set out earlier, there is no doubt that the defendant originally emailed to himself the rent roll. His solicitor says that he has destroyed the electronic copy and has also destroyed all hard copies. The plaintiff says that it has great suspicion as to whether this is so. In particular, there is suspicion on the plaintiff’s side, which has not been removed by anything from the defendant’s side, that two clients’ lists appear to be in the defendant’s possession, one from the green folder and one from elsewhere, and only one has been accounted for.

33 There was argument before me as to the meaning of clause 8.1, specifically, whether what was to be kept confidential was: (a) the database itself, ie the list as a record of customers; or (b) the information in the database. Unfortunately, the use of the word “database” tends to obscure but the definition in clause 8.3 would seem to me to show that it is more likely than not that it means the information contained in the database rather than the database itself.

34 However, that does not fully deal with the issues that I have to decide because the mere fact that information is recorded in the database and that the database as a whole is confidential, does not mean that each and every piece of information is confidential. To illustrate; if, for instance, the Supreme Court was a client and its address was shown as Queen’s Square, Sydney, the fact that the Court’s address is Queen’s Square, Sydney, which is a notorious fact, could not be confidential information. Furthermore, if it was a matter of general knowledge that the Supreme Court dealt with a particular supplier, again, the mere fact that the Supreme Court was recorded in a list of that supplier’s customers would not make that confidential information.

35 The examples I have given, however, fall within the exception in clause 8.1. of information that has “lawfully entered the public domain”. The defendant says that the plaintiff’s promotional brochures show that a lot of the information in issue is in the public domain. In this connection, it would seem from Exhibit AJH2-1 that these brochures included testimonials from some of the people who appeared on the database.

36 However, the principal answer given by the defendant is that many of the people on the database were in fact friends and acquaintances of his and persons whom he had introduced to the estate agency and of whose existence he knew about quite independently of the database.

37 As a general rule, information with respect to names and addresses of customers and customers’ requirements will be classed as confidential information within the recent definition of the term in Faccenda Chicken Ltd v Fowler [1987] Ch 117, 131 and see Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317.

38 What constitutes “confidential information” in cases like the present was fully discussed recently by the Court of Appeal in Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172.

39 In that case Hodgson JA said:

“[37] However, in applying these general equitable principles to the particular case of post-employment use, by an ex-employee, of the confidential information of an employer obtained during employment, there are particular considerations which tend to qualify their operation. They are that very often an employee will necessarily through employment come to have knowledge which the employer would prefer not to have generally known, that often such knowledge will become part of the employee’s know-how (which the employee should be able to use after employment ceases), that very often it is difficult or impossible to isolate from the employee’s general know-how particular pieces of confidential information which the employee is not permitted to use while otherwise being free to use know-how generally, and that competition should not be prevented by preventing ex-employees using their know-how.
[38] Considerations such as these have led to a distinction being drawn … between two classes of confidential information, one of which an ex-employee cannot use (even in the absence of contractual restrictions), and the other of which an ex-employee can use, at least unless there is a valid contractual restraint.”

40 Campbell JA employed a different route to reach the same result and McColl JA agreed with them both.

41 It will thus be an interesting question at any final hearing as to whether the rent roll was confidential information in this particular case.

42 Any final hearing may also need to consider whether the more relaxed attitude to fiduciary duties of senior executives adopted by the English Court of Appeal in Foster Bryant Surveying Ltd v Bryant [2007] 2 BCLC 239 are applicable in Australia.

43 However, in my view, there is a strong arguable case that the rent roll was confidential information.

44 In the circumstances of this case, it would be more likely than not that the defendant would know the names and addresses of, and the properties that were owned by, a number of the persons with whom he dealt, particularly those with whom he had a personal relationship. However, the fact that he felt he needed to email himself the list provides some evidentiary material that he was unable to recall the complete list, or alternatively, felt that he might be unable to recall the complete list.

45 There is evidence that the defendant has been in touch with former customers, but again, it is unclear whether the customers who have been contacted are only those with whom the defendant had a personal relationship.

46 As would be expected at this stage of the proceedings, the evidence is not complete, but it seems to me that Mr Savva’s evidence, if accepted at the trial, would suggest that there has been a wider canvassing of customers than merely those whom the defendant knows personally.

47 It would seem to me that whilst all the names might in one sense constitute confidential information, it would be very difficult to charge the defendant with breaching his duty of confidentiality if he also had knowledge of these matters from other sources.

48 The situation appears to be that the defendant was not completely au fait with the names of his customers nor did he consider that he would be able to remember them so he emailed the database to himself.

49 I believe that the plaintiff is rightly suspicious as to whether the defendant has, as he has said through his solicitors, destroyed all that information. In my view, because of that abstraction and because the rent roll is something that is central to the plaintiff’s business, there is an arguable case for the plaintiff to restrain the defendant for breach of clause 8 of his employment agreement.

50 On the other hand, in my view the injunction should be more limited than that sought by the plaintiff because there are certainly some people who can be identified from the defendant’s evidence (and there may be others as well) with whom the defendant should be able to trade without it being said that he has breached confidential information. In this respect, it would be appropriate to continue the injunction in the more limited form which I granted on 17 August 2007.

51 (B) I now turn to the allegation of breach of contract in soliciting former customers of the plaintiff.

52 I have already set out, at [27], clause 1 of the Confidentiality & Competition Agreement. However, I must note that the words which I have set out in italics were, in the original, handwritten into the clause.

53 The significance of this is as Lewison points out in his Interpretation of Contracts, 3rd ed (Sweet & Maxwell, London, 2004) para 9.10:

“The printed form is designed to cope with a number of different contracts being made in different circumstances, whereas the written or typed clauses are designed to cope only with the particular contract in the course of being made. In such circumstances the court will place greater weight on the written clauses, and if necessary allow them to prevail against the printed clauses.”

54 This passage is well supported by authority from the classic statement of Lord Ellenborough in Robertson v French (1803) 4 East 130, 136; 102 ER 779, 782, up to the words of Lord Bingham in Homburg Houtimport BV v Agrosin Ltd [2004] 1 AC 715, 737.

55 Mr Smallbone for the defendant says that the handwritten words show that clause 1 is to be restricted to the period of employment. He also says that the words “have dealt” in the very last part of the clause are not an indication to the contrary as the words “have dealt” could easily mean have dealt up to the particular point of time when the employee decides to moonlight. In any event, what appears to be the case is that the second half of clause 1 covers the same ground as the first part only using different words, and because the first part is limited to the period of employment, so must the second part.

56 Other clauses of the annexure specifically mention the obligations after cessation of employment; see eg clauses 2.2, 2.3 and 2.4. On the other hand, the provision in clause 5 for the agreement to expire two years after cessation goes the other way.

57 There does not appear to be any facts which would impinge on the construction of clause 1 of the annexure, and, accordingly, even though this is an application for interlocutory injunction, the court should construe the clause. Although no construction is completely intellectually satisfying, it seems to me that where one has the handwriting and where one has a clause which, in Mr Smallbone’s submission (which I accept) contains two halves which are saying the same thing in different words, that one must restrict the clause to the period of employment.

58 I can see the other argument and the words “have dealt” at the end of clause 1 do tend the other way, but in my view the bulk of the indications are that clause 1 only applies during employment.

59 Mr Smallbone’s next point was that in any event clause 1 is far too wide. Just looking at the second half of it, it is badly worded in that various words have somehow or other got caught up in the text without meaning, but doing the best I can, it prevents the employee from attempting to procure orders, for himself or any other person, from any person with whom he has dealt in the course of, or arising out of, his employment with RE/MAX Gold if that person carries on a business similar or related to the business of RE/MAX Gold or any of its associated companies or subsidiaries. There is a case for actually reading the second part of clause 1 as void for uncertainty, but in a commercial agreement the court is bound to give it some meaning if that is at all possible and I have set out my best attempt.

60 However, even here the words “have dealt” present a problem. Does it mean “shall have dealt as at the date of making the agreement”? or does it mean “have dealt at the time of the attempt to solicit”? In my view, probably the second is meant.

61 There is little evidence as to what companies are related to, associated with or subsidiaries of RE/MAX Gold. The definition would appear to be that RE/MAX Gold means only the plaintiff company. Some of the material in evidence shows that there are RE/MAX Gold offices throughout the world, but whether these are associated with the plaintiff in the sense of all of the companies being franchisees or whether there is a closer connection I am not able to say. I will assume that other RE/MAX Gold companies throughout the world are not associated with the plaintiff in the relevant sense. I do not know what subsidiaries there are. However, it is clear from the evidence that the plaintiff does more than merely conduct a property letting business. It at least sells real estate.

62 Again, the persons whom the employee is prohibited from soliciting are persons that he dealt with in the course of, or arising out of, his employment, but not necessarily as customers. Literally, a person who was the teller at the company’s bank or the salesman from a stationery firm would come within the clause.

63 Next, it is to be noticed that there is no restriction on the area in which the covenant is to operate. It prevents the employee from doing things anywhere.

64 As is well known, restraints of trade are prima facie invalid. They will only be enforced by the law if they are reasonable and, in the present context, if they protect the employer’s confidential information, trade secrets or business connections. They are invalid if they are aimed at protecting the employer from competition. In the present case Recital B to the Confidentiality & Competition Agreement annexure itself suggests that this covenant is a covenant merely against competition. Recital B says:

“The Employee acknowledges that the real estate industry is highly competitive and that a breach of confidentiality or conduct against the competitive position of RE/MAX Gold … can cause serious loss or damage to … RE/MAX Gold.”

65 In my view, on the assumption that the covenant does operate after the cessation of employment, it is too wide and invalid.

66 I have considered the Restraints of Trade Act 1976, but in my view, to save the covenant under that Act would require a rewriting which is not permitted; see ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640, 674 and cases there cited. Accordingly, I do not consider that the covenant against solicitation is enforceable.

67 This means that I do not need to assess whether, on the facts as I have them to date, there is an arguable case that the defendant has been soliciting customers of the plaintiff. Certainly it appears that he has done so, but it would have been a nice question as to whether there is a seriously arguable case with respect to customers other than those who were personal associates of the defendant.

68 Accordingly, the injunction should only go to protect confidential information.

69 However, as the confidential information consists principally of the rent roll, the same field is covered as would have been also covered by a valid covenant against solicitation of customers.

70 I now pass to the second aspect of the case, that is, the balance of convenience.

71 First, I should note that it would seem that what business the plaintiff has lost through the defendant’s activities is now forever lost and the probability of further losses going forward is relatively slight.

72 Secondly, it is clear from the authorities that where a person makes a contract then, particularly where a prohibitory injunction can be granted, the court should ensure that he keeps the contract. Thirdly, where a plaintiff has established a prima facie case for an injunction, the injunction should be granted unless the defendant puts before the court sufficient reason why that should not occur: Wilkinson v Rogers (1864) 2 De GJ & S 62, 69; 46 ER 298, 301.

73 Mr Turner for the plaintiff, says this is a classic case where the defendant has used confidential information in order to set up his position with a competing business and the court should, in accordance with authority, prevent him from getting this advantage. An injunction to prevent him getting the advantage of what is sometimes called the springboard effect means that an injunction should be granted until 2 January next year.

74 Although it is a close call, in my view the just order to make is the one which I made on 17 August and which is currently continuing until further order, or alternatively, until 2 January 2008. That order was made upon the plaintiff giving to the court the usual undertaking as to damages.

75 I will have the matter listed before me on the first Thursday after I have delivered these reasons at 9.30 am so that the parties can let me know what directions they wish to make as to the continued hearing of the proceedings. The confidential exhibits will be returned on that date.

76 As to costs, the ordinary rule is that where an interlocutory injunction is granted the costs are the plaintiff’s costs in the cause. Whilst I will

entertain applications for costs and, indeed, I am bound to do so if there is to be no further action taken in these proceedings, that is the order that at this stage I feel inclined to make in the present case.

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