Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd
[2008] WASC 238
•24 OCTOBER 2008
WORKPAC PTY LTD -v- STEEL CAP RECRUITMENT PTY LTD [2008] WASC 238
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WASC 238 | |
| Case No: | CIV:2176/2008 | 15 OCTOBER 2008 | |
| Coram: | TEMPLEMAN J | 24/10/08 | |
| 24 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | WORKPAC PTY LTD (ACN 111 076 012) STEEL CAP RECRUITMENT PTY LTD JAMIE SEMPLE PIRIE DAVID KENNETH ALLEN EMMA DAVIS |
Catchwords: | Equity Injunctions Employees resign and compete with employer Temporal and geographical restraint of trade clauses in employment contracts Employer's proposed order effectively seeking final relief Whether employer has strong case for final relief Whether clauses genuinely assess need for protection or leave the court to make a contract for the parties Whether temporal restraints excessive Misuse of confidential information alleged Whether cured by undertakings Whether severance Damages inadequate Burdens greater for employees than employer if injunction granted and employees succeed at trial |
Legislation: | Nil |
Case References: | Attwood v Lamont [1920] 3 KB 571 Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (Unreported, NSWSC, 14 April 1997) Davies v Davies (1887) 36 Ch D 359 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643 Mason v Provident Clothing & Supply Co Ltd [1913] AC 724 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169 T Lucas & Co Ltd v Mitchell [1972] 3 All ER 689 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
STEEL CAP RECRUITMENT PTY LTD
First Defendant
JAMIE SEMPLE PIRIE
Second Defendant
DAVID KENNETH ALLEN
Third Defendant
EMMA DAVIS
Fourth Defendant
Catchwords:
Equity - Injunctions - Employees resign and compete with employer - Temporal and geographical restraint of trade clauses in employment contracts - Employer's proposed order effectively seeking final relief - Whether employer has strong case for final relief - Whether clauses genuinely assess need for protection or leave the court to make a contract for the parties - Whether temporal restraints
(Page 2)
excessive - Misuse of confidential information alleged - Whether cured by undertakings - Whether severance - Damages inadequate - Burdens greater for employees than employer if injunction granted and employees succeed at trial
Legislation:
Nil
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr M H Zilko SC & Mr P D Quinlan
First Defendant : Mr M G Pendlebury
Second Defendant : Mr M G Pendlebury
Third Defendant : Mr M G Pendlebury
Fourth Defendant : Mr M G Pendlebury
Solicitors:
Plaintiff : Jackson McDonald
First Defendant : HLS Legal
Second Defendant : HLS Legal
Third Defendant : HLS Legal
Fourth Defendant : HLS Legal
(Page 3)
Case(s) referred to in judgment(s):
Attwood v Lamont [1920] 3 KB 571
Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (Unreported, NSWSC, 14 April 1997)
Davies v Davies (1887) 36 Ch D 359
Herbert Morris Ltd v Saxelby [1916] 1 AC 688
Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533
Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472
Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643
Mason v Provident Clothing & Supply Co Ltd [1913] AC 724
Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535
Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126
Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169
T Lucas & Co Ltd v Mitchell [1972] 3 All ER 689
(Page 4)
1 TEMPLEMAN J: This is an application for an interlocutory injunction in which the plaintiff seeks to restrain former employees from competing with it and making use of its confidential information. The plaintiff contends that the defendants are in breach of restraint of trade and confidentiality provisions in their respective contracts of employment.
2 The contracts are expressed to be governed and construed in accordance with the law of Queensland: and the parties have submitted to the non-exclusive jurisdiction of the Queensland courts. However, no point has been taken in relation to these provisions. I therefore assume that the law of Queensland is relevantly the same as the law of Western Australia.
The plaintiff
3 In support of its application for injunctive relief, the plaintiff relies substantially on the evidence of its industrial relations director, Theresa Deanne Moltoni. In her first affidavit, sworn 13 September 2008, Ms Moltoni says that the plaintiff carries on business as a recruitment agency. It locates and places individuals with its clients in the industrial market, which is said to include industry sectors such as construction, mining, trades, heavy and light engineering, manufacturing and transport. Ms Moltoni says also that the plaintiff operates throughout Australia. The extent of the plaintiff's operations is disputed by the second defendant, Jamie Semple Pirie. In his affidavit sworn 26 September 2008, Mr Pirie contends that the plaintiff has 26 offices throughout most of Australia, but not in Tasmania or the Australian Capital Territory. It is not necessary to resolve this dispute for present purposes. I proceed on the basis that the plaintiff has at least 26 offices in Australia.
The defendants
4 The second, third and fourth defendants are former employees of the plaintiff. Mr Pirie commenced his employment in March 2002 as a recruitment co-ordinator in the plaintiff's Kalgoorlie office. In about June 2002, Mr Pirie was promoted to the position of business development manager at that office: and in about September 2003, he was promoted to the position of manager of the plaintiff's Bunbury office. In about October 2006, Mr Pirie was promoted to the position of south west regional manager for Western Australia. He then became responsible for the plaintiff's offices in Perth, Bunbury and Rockingham. In November 2007, Mr Pirie also took over the management of the north west area, in which there were a further five offices.
(Page 5)
5 Mr Pirie's last place of employment was the plaintiff's Perth office. As I understand it, he moved to Perth from Bunbury when he was appointed south west regional manager.
6 Mr Pirie's evidence is that on 21 April 2008, he made 'a snap decision to resign from the plaintiff'. He says he did so because of the stress involved in the position of regional manager. He left the plaintiff's employment on 16 May 2008.
7 On 12 August, Mr Pirie incorporated a company known as Steel Cap Recruitment Pty Ltd, the first defendant (Steel Cap). He reserved that name on 30 July. Mr Pirie is the sole director and secretary of Steel Cap. All its 10 issued shares are held by his wife.
8 Mr Pirie has not himself given any evidence about the activities of Steel Cap. However, it is Ms Moltoni's evidence, which has not been disputed, that Steel Cap carries on business in Bunbury as a recruitment company; and that it commenced its business in about September 2008. Ms Moltoni exhibits advertisements appearing in the Bunbury Mail on 3 and 10 September in which Steel Cap is described as:
The South West's newest recruitment company will be taking registration of interest for upcoming work in Bunbury and surrounding areas.
9 The advertisements refer to various positions being available in a number of fields in which the plaintiff operates. Steel Cap therefore appears to be in direct competition with the plaintiff in the Bunbury region.
10 The third defendant, David Allen, was employed by the plaintiff from 12 June 2006 until 20 August 2008. Initially, Mr Allen was the plaintiff's business development manager at its Bunbury office. However, in January 2008, he was promoted to the manager of that office.
11 Mr Allen's evidence is that when he left the plaintiff's employment, he did not have any other employment in prospect. He says he was telephoned by Mr Pirie on 23 August; and that on 30 August, Mr Pirie offered him the position of branch manager for Steel Cap. Mr Allen says he commenced employment with Steel Cap on 1 September 2008.
12 The fourth defendant, Emma Davis, was employed by the plaintiff from 13 February 2006 until 10 September 2008. Ms Davis was initially a recruitment co-ordinator in the plaintiff's Bunbury office. However, in August 2007, she was promoted. Her evidence is that her new position
(Page 6)
- was recruitment co-ordinator/team leader. Ms Moltoni describes it as recruitment team leader.
13 Ms Davis' evidence is that on or about 27 August 2008 she saw a job application for a recruitment specialist advertised in the Bunbury Mail newspaper. Ms Davis applied for that position without realising that the potential employer was Steel Cap, or that Mr Pirie was involved.
14 Ms Davis says she accepted an offer of employment from Steel Cap on 10 September. She resigned from the plaintiff's employment on the same day. In circumstances to which it is not necessary to refer for present purposes (and which are, in any event, the subject of some dispute) Ms Davis was asked to leave the plaintiff's employment immediately, which she did. It is not clear when she commenced employment with Steel Cap.
The employment contracts
15 Each of Mr Pirie, Mr Allen and Ms Davis entered into contracts of employment with the plaintiff: Mr Pirie on 30 October 2006, when he was appointed as south western regional manager; Mr Allen on 3 January 2008, on his appointment as manager of the plaintiff's Bunbury office; and Ms Davis on 11 March 2008, on her appointment as a recruitment team leader.
16 Each of the contracts contains identical terms under the headings 'Confidential Information' and 'Competition and Customers of the Company' (the company being the plaintiff). The numbers of the relevant clauses differ as between the contracts. The relevant provisions are in cl 12 and cl 13 of Mr Pirie's contract which are in the following terms:
12. CONFIDENTIAL INFORMATION
12.1 The Employee hereby acknowledges that the Employee will acquire certain information in the ordinary course of the Appointment and that such information remains the property of the Company. This includes information which is Confidential Information. The Employee acknowledges that the Confidential Information and the Company's Documents have been, and will be, acquired by the Company at considerable effort and expense and that the Company has and will also expend, considerable effort and money in establishing its customer base and Employee skills. Accordingly, the Employee acknowledges that it is reasonable for the Employee to enter into covenants and be subject to the restrictions set out in this clause and clause 13.
(Page 7)
- 12.2 The Employee hereby agrees and undertakes that the Employee:-
12.2.1 either during the continuance of the Appointment or after termination, for whatever reason, except in the proper course of the Duties or as required by law or the Company, will not use or divulge to any person whomsoever any Confidential Information; and
12.2.2 must use the Employee's best endeavours to prevent the publication or disclosure of any Confidential Information concerning the products, business, finances, customers or trade connections of the Company or any of its dealings, transactions or affairs; and
12.2.3 will use the Employee's best endeavours to prevent the use or disclosure of any such Confidential Information by third parties.
12.3 The Employee shall, immediately upon the termination of the Appointment, however caused, deliver up to the Company all property belonging to the Company which may be in his possession. This includes, (without limitation), the Company's Documents.
13. COMPETITION AND CUSTOMERS OF THE COMPANY
13.1 The Employee hereby agrees and undertakes that the Employee will not, either on his/her own account or for any other person, firm or company carrying on any like business or in competition with the Company, canvass, solicit, interfere with or endeavour to entice away from the Company:-
13.1.1 the custom of any person, firm or company who at any time during such period is or has been a customer of or in the habit of dealing with the Company, or any employee of the Company during the term of this agreement; and
13.1.2 for each of the Restraint Periods after the termination of the Appointment, however caused, the custom of any person, firm or company who at the date of such termination or in the immediately preceding 12 months was a customer of or in the habit of dealing with the Company or any member of the Workpac Group and who has a place of business within any of the Restraint Areas.
13.2 As a separate and discrete agreement between the Company and the Employee, the Employee agrees and undertakes that the Employee will not in any manner whatsoever without the prior consent or agreement in writing of the Company, either directly or indirectly, be concerned or interested (including as a shareholder, beneficiary
- or holder of units in a trust) either alone, in partnership with or as manager, servant or agent for any other person, company or corporation carrying on any like business or any other business of a similar nature in competition with the Company, within the Restraint Area for the Restraint Period.
- 13.3 Each of the restraints in clause 13.1.2 and clause 13.2, resultant from the various combinations of the Restraint Period and the Restraint Area, constitute and are to be construed as separate, severable and independent provisions from the other restraints.
13.4 Nothing in this clause 13 is to prevent any court of competent jurisdiction from reading down the Restraint Area or the Restraint Period if required in order to validate these restraints.
17 These provisions contain some defined terms. 'Company' means:
Workpac Pty Ltd; the expression includes where the context permits each of its wholly owned subsidiaries and all of Workpac Pty Ltd's and their successors and permitted assigns.
18 'Restraint Areas' is defined as:
the area within each of (severally):-
5 kilometres
10 kilometres
50 kilometres
100 kilometres
- 500 kilometres
of each of (severally):-
any and all Workpac offices
- the Workpac office where the Employee was based.
each of the following periods commencing on termination (for whatever reason) of the Appointment:
• Twelve months;
• Nine months;
• Six months;
• Three months.
(Page 9)
20 The contract contains a severance provision in the following terms:
20.1 In the event that any term or provision of this Agreement for any reason whatsoever be acknowledged by the parties, or be adjudged by a Court of competent jurisdiction or be held or rendered by any competent Government authority to be invalid, illegal or unenforceable, such term or provision shall be severed from the remainder of the terms and provisions of this Agreement and shall be deemed never to have been part of this Agreement and the remainder of the terms and provisions of this Agreement shall subsist and remain in full force and effect unless the basic purpose or purposes of this Agreement would thereby be defeated.
The plaintiff's case
21 The plaintiff has brought its claim against Mr Pirie, Mr Allen and Ms Davis on two broad bases. These are alleged breaches of the contractual provisions relating to confidential information and those provisions relating to competition. In its statement of claim, the plaintiff seeks to restrain Mr Pirie, Mr Allen and Ms Davis for a period of 12 months from the dates on which each of them left the plaintiff's employment, from being involved in the business of a recruitment agent within a radius of 500 kilometres from the plaintiff's Perth office (Mr Pirie) or the plaintiff's Bunbury office (Mr Allen and Ms Davis).
22 The plaintiff seeks orders restraining those defendants from 'inducing, soliciting, or encouraging customers of the plaintiff' whose places of business are within 500 kilometres of the same radii.
23 The plaintiff seeks also, orders restraining each of those defendants from using or disclosing any confidential information of the plaintiff.
24 The plaintiff seeks an order against Steel Cap that it be restrained from continuing business as a recruitment agent within a radius of 500 kilometres from the plaintiff's Perth office for so long as any of the other defendants are interested in or employed by it.
25 By its chamber summons, the plaintiff sought to place similar restraints on each of the defendants as those sought by its writ (although within a radius of 500 kilometres from Bunbury, not Perth, in the case of Steel Cap). However, as will appear, it does not now pursue that relief in its entirety.
26 There is an issue between the parties as to the nature and extent of the plaintiff's business as a recruitment agent. However, it is common ground that the plaintiff does not operate generally in that field. As I have
(Page 10)
- noted above, the plaintiff claims to be active only in the construction, mining, trades, heavy and light engineering, manufacturing and transport fields. The plaintiff contends that the contracts of employment should be construed on that basis. However, the width of the relief sought by the plaintiff in its chamber summons prompted a response from each of Mr Pirie, Mr Allen and Ms Davis to the effect that if required to work outside the recruitment industry, they would have minimal prospects of obtaining employment at the levels of remuneration to which they had become accustomed.
27 On the eve of the hearing of the plaintiff's application for interlocutory relief, its solicitors wrote an open letter to the defendants' solicitors enclosing a minute of proposed orders setting out orders to which the plaintiff would consent in order to resolve their pending application. The minute of proposed orders is based only on cl 13.2 above. It seeks to restrain Mr Pirie, Mr Allen and Ms Davis for periods of 12 months from their respective dates of departure from the plaintiff's employment from being employed directly or indirectly as a recruitment agent for:
Trades and professional personnel in the industry sectors of construction, mining, heavy and light engineering, manufacturing and transport.
- The proposed area of restraint for Steel Cap and Mr Pirie was within a radius of 500 kilometres from the plaintiff's Perth office: and for Mr Allen and Ms Davis within a radius of 500 kilometres from the plaintiff's Bunbury office.
28 The solicitors' letter enclosed also a document produced by the Australian Bureau of Statistics, entitled 'Australian Standard Classification of Occupations'. This document, of 45 pages, listed a very large number of occupations. The solicitors had highlighted occupations which would be within the proposed restraint. It was said that all other areas would remain open to the defendants. However, there is no evidence as to the extent to which employers use the services of recruitment agents in respect of the listed occupations.
29 The defendants rejected the plaintiff's offer. However, at the hearing of the application, senior counsel for the plaintiff submitted, in substance, that it was an entirely reasonable proposal because it left open to the defendants the opportunity of working as recruitment agents in all but the relatively narrow field in which the plaintiff operated.
(Page 11)
30 Although narrower in its scope than sought originally, the proposed order effectively seeks final relief against the defendants. This is, therefore, a case in which it is desirable for the court to evaluate the strength of the plaintiff's case for final relief: see Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 536.
The restraint of trade provisions
31 The starting point is the proposition, established in Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535, 565, that although contracts in restraint of trade are presumed to be contrary to public policy and therefore void, they may be justified by the special circumstances of the particular case.
32 In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126, the majority of the High Court held that:
… at least since Nordenfelt, the common law in this field has fixed the appropriate balance between the competing claims and policies generally in favour of striking down restraints unless they can be justified [37].
- It is therefore for the plaintiff to demonstrate that the restraint of trade provisions in the present case are reasonable: Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 700.
33 In order to consider whether a restraint is reasonable, it is necessary to identify the interests of the plaintiff which it seeks to protect and the effect of the contract by which the plaintiff seeks to achieve that result. In the present case, the plaintiff submits that the restraints are enforceable to protect its client connection and to avoid the use of its confidential information. This is a legitimate objective. However, as Young J held in Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd(Unreported, NSWSC, 14 April 1997):
Where that interest is the employer's customer connection, a restraint that enures after the time taken for a reasonably competent new employee to master the job and be able to demonstrate to customers that he or she is effective and efficient, will be too long (13).
34 Although this observation is directed only to customer connection, an employer may legitimately protect its confidential information by a restraint of trade provision. Senior counsel for the plaintiff referred to Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169, where mention was made of Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472. There, Lord Denning MR said:
(Page 12)
- But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not: and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period (1479). (emphasis added)
35 As I have noted above, the restraint of trade provisions (exemplified by cl 13.2 of Mr Pirie's contract) seek to impose restraints on each of Mr Pirie, Mr Allen and Ms Davis which would prevent them from soliciting any customer of the plaintiff who has a place of business within any of the Restraint Areas (cl 13.1); and being involved in any business in competition with the plaintiff within the Restraint Area for the Restraint Period (cl 13.2). There are five Restraint Areas, ranging from 5 to 500 kilometre radii from any of the plaintiff's offices: and there are four Restraint Periods, ranging from 12 to three months. Because the plaintiff has 26 offices, there are 520 different possible combinations of potential restraint. These provisions are all subject to the severance provisions contained in cl 20.
36 For the purposes of this application, the plaintiff does not seek to enforce cl 13.1, nor the full provisions of cl 13.2. As I have noted above, it confines the relief sought to restraints of 12 months' duration in a radius of 500 kilometres from the last office at which Mr Pirie, Mr Allen and Ms Davis were employed. Further, it seeks to restrict the meaning of the words 'like business or any other business of a similar nature' to the industrial market in which the plaintiff operates. There is an issue as to whether this is the appropriate construction, but I will assume, without deciding, that this is the correct approach.
37 Senior counsel for the plaintiff dealt with the possibility that the proposed restraints might be considered unreasonable by inviting me, if I took that view, to impose some lesser restraint: 300 kilometres and six months, for example (ts 58, 107). In so doing, counsel was clearly relying on the severance provision to which I have referred above. However, the courts will not necessarily give effect to a severance provision. As Spender J said in Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643:
In my opinion, the question whether a technique of defining covenants in restraint of trade by combining different variables of conduct, time and space, and providing that each of the covenants so 'generated' is subject to
(Page 13)
- severance, is successful in defining enforceable restraints or is unsuccessful in so doing, comes down to whether the exercise amounts to a genuine attempt to define the covenantee's need for protection, with the agreement as to severance as a precaution against the 'all or nothing' nature of the court's tests for reasonableness, or whether the exercise is simply one where the parties have left to the court the task of making their contract for them.
One might think the more numerous the variables, and the more mechanical and indiscriminate the combination of variables, the more likely would be a conclusion that the exercise is of the latter kind (680).
38 Spender J went on to refer to the 1971 edition of The Restraint of Trade Doctrine by Heydon, now Heydon J of the High Court of Australia. At page 285, the learned author said that one justification for the court's refusal to adhere to a wide doctrine of severance is the 'basic view that it is for the parties to make their contracts, not the courts'. That passage now appears in page 230 of the 2nd edition, where (as previously), there is a reference to Davies v Davies (1887) 36 Ch D 359. There, the Court of Appeal held that a covenant not to compete 'so far as the law allows' was too vague to be enforced.
39 Spender J referred also in his judgment to the speech of Lord Moulton in Mason v Provident Clothing & Supply Co Ltd [1913] AC 724 where his Lordship said:
It would in my opinion be pessimi exempli if, when an employer had exacted a covenant deliberately framed in unreasonably wide terms, the courts were to come to his assistance and, by applying their ingenuity and knowledge of the law, carve out of this void covenant the maximum of what he might validly have required. It must be remembered that the real sanction at the back of these covenants is the terror and expense of litigation, in which the servant is usually at a great disadvantage, in view of the longer purse of his master (745).
40 A factor which suggests that a series of cascading covenants is not a genuine attempt to define a covenantee's need for protection is that the restraint of trade provisions are in a standard form. In Attwood v Lamont [1920] 3 KB 571, Younger LJ (with whom Atkin LJ agreed) said that:
This system of printed covenants prepared beforehand for signature by every future employee, irrespective of the nature of his employment or his personal qualifications, is to be deprecated in the interests of fair play, and the system is only likely to disappear if it be thoroughly understood by employers that such covenants will not be assisted in cases where in their integrity they are found to be oppressive (596).
(Page 14)
41 At page 232 of the 2nd edition of his work, Heydon expresses the view that the force of Lord Moulton's reasoning has been qualified by T Lucas & Co Ltd v Mitchell [1972] 3 All ER 689 'holding in effect that severance is possible in employee cases even though the excess is more than merely trivial' (693 - 694).
42 In T Lucas & Co Ltd v Mitchell, the Court of Appeal referred to:
… the apparent views of Atkin and Younger LJJ in Attwood v Lamont, founded on obiter dicta of Lord Moulton in Mason v Provident Clothing & Supply Co Ltd, that there is a third step to be taken by the court when it finds two restraints in collocation which are severable - which we apprehend means that the parties have agreed to two restraints separate one from the other, and not dependent the one on the other nor constituting only one integral obligation.
- The court went on to say that the 'third step' supposed that it was for the court in 'a master and servant case' to decide whether or not to treat the two restraints as separate 'by enforcing the valid and ignoring the invalid'. The court continued:
The foundation of this approach seems to be that the vulnerable position of an employee must - as the general policy of the law towards restraints of trade by servants shows - be rigorously safeguarded, and that a master cannot be allowed to bluff (unintentionally or not) a servant into possible fearful compliance with too wide a restraint but at the same time be entitled to enforce a legitimate restraint against him.
But their whole approach, based on policy and the undesirability of permitting a system by which an employer might cow an employee into submission to unenforceable restraints and at the same time (if accused of too wide a claim) successfully assert a narrower, would it seems to us be equally applicable to a case in which two restraints were indubitably separate and distinct, being for example in two different clauses … After all, once a situation is reached as a matter of construction that two restraints in collocation are in truth separate and severable, are they not as if they were in separate clauses?
44 Ultimately, the court stated:
Our preference for a system of law which holds that if you find two restraints which as a matter of construction are to be regarded as intended by the parties to be separate and severable, and the excision of the unenforceable restraint being capable of being made without other additional modification, there is no third question, even in master and servant cases.
(Page 15)
45 In my view, it is significant that this proposition is concerned with cases in which the potential for severance is very limited: two restraints, one valid and one invalid. In such a situation, I think it can be said more readily that the parties have made a genuine attempt to define the area of protection, than they have in a case such as the present. I do not, therefore, regard the qualification established by T Lucas & Co Ltd v Mitchell as assisting the plaintiff in the present case.
46 Clearly, there is a serious question to be tried as to the validity of the restraint of trade provisions in issue here. In assessing the strength of the plaintiff's case, I consider that there is considerable merit in the submission made by counsel for the defendants, based on Mason v Provident Clothing & Supply Co, that the provisions do not reflect a genuine attempt to define the plaintiff's need for protection. If that was the conclusion reached at trial, the court would not sever the restraint of trade provisions, which would therefore be uncertain and hence, unenforceable.
47 If the court did give effect to the severance provisions, it would be necessary to consider the extent of the plaintiff's customer connections which it seeks to protect.
48 Mr Pirie entered into his contract of employment on being appointed south west regional manager. In Ms Moltoni's first affidavit, she said that the role of the south western regional manager generally included:
(a) overseeing and developing the plaintiff's existing branch offices in Bunbury, Rockingham and Perth;
(b) investigating potential new offices and establishment of new offices; and
(c) monthly reporting.
49 In Mr Pirie's responsive affidavit, he said that as regional manager he rarely carried out client service calls. Consequently, he had very little direct dealing with clients of the plaintiff. He said the business development managers and branch managers were the main points of contact for the plaintiff's clients. His role, essentially, was to manage and support the branches and their managers, rather than dealing directly with the plaintiff's clients.
50 This evidence is consistent with that given by Ms Moltoni. However, in her second affidavit, she referred to the regional manager 'position description' in which it is said that regional managers should
(Page 16)
- have a responsibility to the clients of the office they control and should maintain a programme of visits to those clients on a regular cycle. It was said also that regional managers should be able to identify key decision-makers and should have the ability to develop strong business relationships with clients and potential clients.
51 Ms Moltoni went on to say that between October 2006 and May 2008, Mr Pirie, as regional manager, 'made significant client contact including attending 97 sales meetings, 50 service calls and making 75 phone calls to clients'.
52 In response, Mr Pirie said that on the basis of his experience, it was never considered common practice for regional managers to call on clients on a regular basis. Further, while the position description might have required regional managers to have 'strong client relationships', this did not happen in practice: the branch managers and business development managers carried out this function.
53 Mr Pirie did not deny the extent of client contact attributed to him in Ms Moltoni's second affidavit. However, he disagreed that this was 'significant'. He said that on average, these figures amounted to less than two meetings per week with clients and less than one phone call to clients per week. He said the majority of the meetings and phone calls would have occurred over about a three-month period between May and July 2007 when he was training a new business development manager in Rockingham where, at the time, there was no branch manager.
54 On the evidence as it now stands, I do not think the plaintiff has made out a strong case for justifying the imposition of a lengthy restraint on Mr Pirie. I consider that there is merit in the submission of counsel for the defendants, that a restraint of more than three months' duration could not be justified for the protection of the plaintiff's client connections. That does not address the issue of confidentiality as a basis for a restraint of trade provision, but the length of time such information (properly so called) might be of use to the defendants or kept in their respective heads is far from clear. But, as will be seen, the defendants have proffered undertakings not to use confidential information in any event.
55 Mr Allen is in a different position. He entered into his employment contract on being appointed manager of the plaintiff's Bunbury office.
56 In Ms Moltoni's first affidavit, she said that in his role as branch manager Mr Allen was responsible for:
(Page 17)
- (a) leading the Business Development Team, otherwise known as the Sales Team;
(b) conducting sales tasks personally, including conducting meetings with clients; and
(c) managing the staff and running the office.
- Ms Moltoni said that as a sales person, Mr Allen had 'strong relationships with the plaintiff's clients'.
57 Mr Allen does not dispute this. However, he contends that he was replaced by competent personnel, Nathan Potter and the unrelated Robbie Potter as business development manager and business account manager respectively. Mr Allen has given an explanation of the steps he took to ensure that each Mr Potter was familiar with the clients with whom Mr Allen had been dealing: and of the steps he took, including face to face meetings to introduce Mr Nathan Potter to clients, and telephoning them and subsequently emailing, to ensure that their work would be handled by whichever Mr Potter was appropriate.
58 Mr Allen says that his intention was to ensure that when he ceased his employment with the plaintiff, there was a proper handover and smooth transition of the plaintiff's clients to the Messrs Potter. He said that Mr Nathan Potter had dealt previously with many of his clients when he had taken annual or sick leave or attended management meetings.
59 Mr Allen said:
I thought that it would take Mr N Potter and Mr R Potter about one month to develop a solid relationship with these clients in the event of my departure. I formed this belief based on my knowledge of these clients and the fact that I had found them to be easy to manage; the existing relationships which Mr N Potter already had with some of the clients and the relative expertise of both Mr N Potter (as a Recruitment Co-ordinator and BDM) and Mr R Potter (who had extensive prior recruitment experience).
60 The plaintiff does not dispute that Mr Allen took the steps summarised above to protect its interests on his departure. However, in a responsive affidavit, Ms Moltoni said she believed Mr Allen had underestimated the time it would take a business development manager or branch manager to develop a relationship with a client. She said it took Mr Pirie three years as branch manager of the Bunbury branch and Mr Allen two years as business development manager and then branch
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- manager of the Bunbury branch to develop the strong relationships they had with the Bunbury branch clients.
61 I do not see this dispute as involving only questions of credibility: it is also a matter of expert evidence. However, Ms Moltoni's qualification as an expert in this field has not been established. Ms Moltoni said in her first affidavit that she has been employed by the plaintiff only since 19 July 2006, initially as its human resources director and then, from 19 February 2008, as its industrial relations director.
62 I note that in an affidavit sworn by Mr Nathan Potter, he said that in his opinion it can take up to 12 months 'to develop a solid relationship with a client' (emphasis added). Mr Potter did not say that, as the new manager of the Bunbury office, he expected to take that length of time. He said only that the departure of Mr Allen and Ms Davis had resulted in a loss of experience from the branch
and we are now struggling to find time to sustain the branch as well as maintain and grow the client relationships.
- This does not suggest that the plaintiff's relationships with its clients have come to an end as a result of the defendants' activities.
63 My impression, at present, is that Mr Allen's evidence has not been significantly disputed. I therefore consider that, at the time the contract of employment was entered into, it would have been within the contemplation of the parties that a reasonably competent new employee who replaced Mr Allen would be able to develop a sufficient relationship with the plaintiff's customers within about one month.
64 In these circumstances, I do not think the plaintiff has made out a case for a restraint of more than one month's duration as against Mr Allen.
65 Ms Davis is in a different position again. She entered into a contract of employment on 10 August 2007 when she was promoted to the position of recruitment co-ordinator/team leader. However, the plaintiff relies on a contract made on 11 March 2008. Nothing appears to turn on this discrepancy. Apart from changes to Ms Davis' remuneration, the contracts are in identical terms.
66 In Ms Moltoni's first affidavit, she said that in Ms Davis' role as a recruitment team leader she was responsible for:
(a) managing the team of recruitment staff in the plaintiff's Bunbury branch who fill the orders for staff from the plaintiff's clients; and
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- (b) conducting recruitment tasks personally, including conducting meetings with potential employees.
- Ms Moltoni went on to say that as 'a recruitment person' Ms Davis 'had strong relationships with the plaintiff's labour hire employees'. It is therefore clear that Ms Davis was not dealing with the plaintiff's clients, but with those persons who would be recruited to fulfil the client's requirements.
67 This is confirmed by Ms Davis' responsive affidavit in which she said that she did not have any direct contact with the plaintiff's clients other than telephone contact for the purpose of obtaining information about the client organisations, so that the employees who had been recruited by the plaintiff would know whom to contact.
68 Ms Moltoni in a later affidavit refers to various parts of Ms Davis' position description which Ms Davis herself had exhibited to her affidavit. However, I see nothing in the position description which is inconsistent with Ms Davis' evidence.
69 I therefore conclude that Ms Davis' client connection was relevantly minimal and not such as to justify any post-employment restraint.
70 Having concluded that the restraint of trade provisions may seek to impose excessive temporal restraints, it is not necessary to consider the geographical restraints. However, in relation to these restraints also, senior counsel for the plaintiff invited me to fix a radius if I considered that the proposed order was unreasonably wide.
Confidential information
71 As I have noted above, each of the employment contracts contains provisions designed to prevent employees from using, divulging or publishing information confidential to the plaintiff. Confidential information is a defined term. It means:
All information in any way related to the [plaintiff] and the Workpac Group including, but without limiting the generality of the foregoing, the [plaintiff's] Documents, trade secrets, knowhow, techniques, company accounts, balance sheets, financial statements, financial information, business and marketing plans and projections, arrangements and agreements with third parties, customer information proprietary to customers, customer lists, concepts not reduced to material form, designs, plans, development programmes, processes, methods and procedures of operations.
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72 'Company's Documents' is also a defined term. In effect, it includes every record or document whether stored or recorded in paper, electronic or any other form.
73 The plaintiff's business appears to be highly computerised. Ms Moltoni's evidence is that she has reviewed the plaintiff's computer records and identified emails sent by each of Mr Pirie, Mr Allen and Ms Davis before the termination of their respective employments.
74 Ms Moltoni discovered that Mr Pirie had sent a file containing the plaintiff's confidential branch modelling simulator to his sister on 15 May 2008; and via another employee, to his wife on 16 May.
75 In her second affidavit, Ms Moltoni says she instructed the plaintiff's systems analyst to conduct a search of client records accessed by Mr Pirie, Mr Allen and Ms Davis in the months prior to the termination of their respective employments. According to Ms Moltoni, the results of this investigation disclosed that there was substantial access to client files by each of Mr Pirie, Mr Allen and Ms Davis in circumstances which give rise to an inference that they had planned to commence a business in competition with the plaintiff (ts 33).
76 Mr Pirie, Mr Allen and Ms Davis do not dispute the results of the computer analysis to which Ms Moltoni referred in her evidence. However, in responsive affidavits, each provided an explanation which, if accepted, would lead to the conclusion that their use of the plaintiff's confidential information was entirely innocent, being intended to benefit the plaintiff.
77 Senior counsel for the plaintiff submitted very strongly that these explanations should not be believed, particularly in the light of subsequent evidence from Ms Moltoni which is said to demonstrate the falsity of the explanations, at least in some cases.
78 Counsel accepted that if this was the trial of the action, Mr Pirie, Mr Allen and Ms Davis would be cross-examined about these matters. Counsel accepted that his submission that their explanations should not be believed was based on the proposition that when cross-examined about these matters, they would not be able to provide satisfactory answers (ts 52).
79 However, the evidence on which the plaintiff relies has not been tested by cross-examination: and without cross-examination I am not
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- prepared to assume that the evidence given by Mr Pirie, Mr Allen and Ms Davis is false.
80 Counsel accepted that on an application such as this, it was inappropriate to make adverse credibility findings against a defendant. However, he submitted that it would be open to me to say that the conduct of Mr Pirie, Mr Allen and Ms Davis gave rise to a concern about their intentions (ts 31).
81 In the circumstances of this case, I do not think I should do more than express the view that there is a serious question to be tried as to the use or misuse by Mr Pirie, Mr Allen or Ms Davis of what may properly be regarded for present purposes as information confidential to the plaintiff. That being so, I do not think I can properly anticipate the result of cross-examination and thereby express a view about the strength or otherwise of the plaintiff's case in relation to this aspect of the matter.
82 In any event, I consider that this is something of a side issue, having regard to the way the matter has developed. That is because, at the first return of the plaintiff's application before Newnes J, the defendants proffered undertakings not to use or disclose confidential information of the plaintiff, that term being defined in a way that was satisfactory to the plaintiff at the time. The defendants have offered to give the undertakings in terms of the orders proposed by the plaintiff at the hearing of this application (ts 66).
Would damages be an adequate remedy?
83 Two broad considerations arise in relation to this issue. The first is the extent of the damages likely to be suffered by the plaintiff if its claim is justified. The second is the ability of the defendants to satisfy any judgments which might be awarded against them.
84 It is always difficult to quantify damages in cases such as this: and the plaintiff has not attempted to do so. In her first affidavit, Ms Moltoni expresses concern about the potential loss suffered by the plaintiff's Bunbury branch if the defendants go into business in competition with the plaintiff 'with the knowledge that they have of all areas of the plaintiff's business'.
85 There is evidence that the plaintiff's business is profitable and that the plaintiff's Bunbury branch has been profitable in its own right. In the interests of the plaintiff's confidentiality, I will not refer to the figures. However, senior counsel for the plaintiff submitted, on the basis of that
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- evidence, that the plaintiff's gross revenue from a number of 'good clients' runs into 'hundreds of thousands of dollars'. Counsel submitted that the collective loss could be 'in the millions'.
86 This submission is, of course, based on the proposition that the defendants have confidential information available to them, and that they will use it in their business enterprise. If that is not so, then presumably the plaintiff would not expect its loss to be as great.
87 In any event, with all respect to senior counsel, I consider that the submission contains an element of hyperbole. I find it hard to accept that three employees of the plaintiff operating a business which is apparently based in Bunbury, could inflict a loss 'in the millions' on the plaintiff, which operates from 26 branches throughout most of Australia, particularly when, as appears to be the case, the plaintiff employs competent staff in its Bunbury branch. Further, the plaintiff's potential loss will be minimised by ensuring that the action is tried in the relatively near future.
88 I suspect that the extent of any loss which might be suffered by the plaintiff is academic in any event. Although there is no evidence about the profitability or otherwise of Steel Cap, each of Mr Pirie, Mr Allen and Ms Davis say they have substantial financial commitments. I very much doubt whether they would be able to meet any award of damages even approaching the magnitude foreshadowed by the plaintiff.
89 In these circumstances, I accept that damages would not be an adequate remedy. I therefore turn to consider the balance of convenience.
The balance of convenience
90 In this context, it is necessary to consider, on the one hand, the plaintiff's likely position if no injunction is granted and it is successful at trial: and on the other hand, the defendants' likely position if an injunction was granted and they were successful at trial.
91 If no injunction was granted, the defendants would be free to continue a business in competition with the plaintiff: but not to make use of the plaintiff's confidential information. They have undertaken not to do so. It follows that if the plaintiff is to succeed at trial, it must do so on the basis that there has been a breach of confidentiality and that the restraint of trade clauses in the relevant contracts of employment are valid and enforceable. However, for the reasons given above, I do not think the plaintiff has a sufficiently strong case to justify the grant of an
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- interlocutory injunction, particularly having regard to the undertakings proffered and accepted by the defendants: and I do not think the plaintiff is likely to have suffered any great loss by reason of any previous breach of the confidential information provisions of the employment contracts.
92 If the plaintiff was successful at trial, it would no doubt be entitled to damages or an account of profits: yet to be quantified, but probably with little hope of recovery. Given that the trial would take place in the relatively near future, I do not think the plaintiff would suffer irreparable harm if it was not granted an interlocutory injunction.
93 If an interlocutory injunction was granted, what would be its effect on the defendants? It will be recalled that until the eve of the hearing of this application, the plaintiff was seeking to restrain Mr Pirie, Mr Allen and Ms Davis from working as recruitment agents. Such a restriction, they said, would effectively mean that they would be unable to work in their chosen field.
94 In response to the eleventh hour change in the plaintiff's position, Mr Pirie has maintained that he would still be unable to work effectively in the recruitment industry. He says that he worked in the mining industry for 14 years before he was employed by the plaintiff. He says that while in the plaintiff's employ, his work largely involved dealing in the construction, mining, heavy and light engineering, manufacturing and transport industries, from which the plaintiff now wishes to exclude him. Mr Pirie says that the recruitment and placement of candidates in those industries requires specialist knowledge and experience of the requirements and practices of the relevant employers and employees. Mr Pirie says he has gained this knowledge and experience from his previous employment in the mining industry. He says he does not have any significant understanding of the requirements and practices of other industries, including hospitality, education, medical, tourism, gambling and finance.
95 Mr Allen and Ms Davis have not responded to the plaintiff's revised proposal. Senior counsel for the plaintiff submitted that their silence 'speaks louder than words in many respects' (ts 97). Counsel submitted that Mr Allen and Ms Davis did not feel that they could make the same response as Mr Pirie.
96 In my view, that is too harsh a judgment, given that the plaintiff's change of position came so late in the proceedings. It does not follow from the fact that Mr Pirie was able to respond, that Mr Allen and
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- Ms Davis have had a sufficient opportunity of considering their respective positions in order to do so.
97 I accept the submission of senior counsel for the plaintiff that Mr Pirie, Mr Allen and Ms Davis have skills in the recruitment industry which could be applied in branches of that industry other than those in which the plaintiff operates. However, I think it would be unreasonable in the short term (pending trial) to expect these defendants to re-enter the recruitment industry at a different point, when there is a doubt whether the restraint of trade provisions of their respective contracts will be upheld.
98 In all the circumstances, I conclude that the balance of convenience favours the defendants. I therefore decline to grant the injunction sought by the plaintiff, either in its terms or in any narrower scope.
99 However, I will require the defendants formally to give to the court, the undertakings proffered by their counsel in relation to confidential information, on the plaintiff's cross-undertaking as to damages.
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