WP (Noble Park) Pty Ltd v Issak
[2016] VSC 205
•9 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2015 05496
| WP (NOBLE PARK) PTY LTD (ACN 105 075 170) | Appellant |
| v | |
| MUHUMMAD MATEEN ISSAK | Respondent |
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JUDGE: | McDONALD J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 27 April 2016 |
DATE OF JUDGMENT: | 9 May 2016 |
CASE MAY BE CITED AS: | WP (Noble Park) Pty Ltd v Issak |
MEDIUM NEUTRAL CITATION: | [2016] VSC 205 |
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EMPLOYMENT – Contract of employment – Non-solicitation clause operative upon termination of employment in any circumstances whatsoever – Whether clause inoperative where employee resigned – Whether clause invalid as unreasonable restraint of trade.
APPEAL – Nature of appeal under s 109 of the Magistrates’ Court Act 1989 – Appeal limited to questions of law in respect of matters determined by Magistrate – No argument before Magistrate that non-solicitation clause invalid as an unreasonable restraint of trade – Question of validity of non-solicitation clause to be determined upon remittal of proceedings to Magistrates’ Court.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr J Foster | Borchard & Moore |
| For the Respondent | Mr LP Wirth | NOH Legal Pty Ltd |
HIS HONOUR:
Muhummad Issak commenced employment with WP (Noble Park) Pty Ltd (‘Wilson Pride’) on 18 July 2012. He resigned from his employment in early November 2013.[1] Throughout this period Wilson Pride conducted business as Century 21st Wilson Pride (Noble Park). Mr Issak was employed as a property manager.
[1]There is an issue as to the precise date when his resignation took effect. Mr Issak contends it was 4 November 2013. Wilson Pride contends that it was 8 November 2013. For the purposes of this judgment, nothing turns on this issue.
Mr Issak signed a written contract of employment.[2] The contract contained a non-solicitation clause (cl 8.4(b)) as follows:
Upon termination of your employment in any circumstances whatsoever, you shall not at any time or for any purpose:
(b)For a period of nine months after such termination either on your own account or for any other person, firm or corporation or directly or indirectly and in connection with the business of a real estate agent, solicit or endeavour to obtain the custom or [sic] any person, firm or corporation who or which at any time is a client of the Employer.
[2]Affidavit of Anthea Quill sworn 21 October 2015, “AQ-3”.
Immediately following his resignation as an employee of Wilson Pride, Mr Issak commenced operating his own real estate business. Wilson Pride contends that in the 9 month period subsequent to his resignation, Mr Issak breached cl 8.4(b) of his contract of employment by soliciting clients of Wilson Pride.
By an amended statement of claim filed in the Magistrates’ Court, Wilson Pride claims damages of $59,040.45. By his amended defence Mr Issak contends that cl 8.4(b) is unenforceable for two reasons. First, that it is ‘unreasonable and not necessary to protect the legitimate interests of the plaintiff and ought to be declared void and unenforceable’.[3] Second, that cl 8.4(b) does not apply in circumstances where Mr Issak had resigned, as opposed to being terminated at the initiative of Wilson Pride.[4]
[3]Respondent, Amended Notice of Defence to Amended Statement of Claim, 23 March 2015 [14].
[4]Ibid [15].
Mr Issak contended that the operation of cl 8.4(b) was constrained by cl 17, headed ‘Termination of this Agreement’. He contended that cl 17 prescribes the only circumstances in which the agreement could be terminated. Relevantly, those circumstances do not include the employment coming to an end by reason of resignation.
The proceeding was heard before Magistrate Smith on 22 September 2015. A transcript of the proceedings was tendered in evidence.[5] The transcript is incomplete. However, it does record that at the outset of the proceedings the parties addressed the Magistrate in respect of the second ground upon which Mr Issak contended that cl 8.4(b) was invalid: that it did not operate where Mr Issak had resigned from his employment. The Magistrate accepted this contention. His Honour then proceeded to make orders dismissing the complaint and ordered Wilson Pride to pay the witness expenses of a number of individuals who had been summonsed to give evidence.
[5]Affidavit of Anthea Quill sworn 21 October 2015, “AQ-9”.
I have concluded that the Magistrate erred in concluding that cl 8.4(b) did not operate in circumstances where Mr Issak resigned from his employment.
Putting to one side the terms of cl 17, there is no doubt that the phrase ‘termination of your employment in any circumstances whatsoever’ in cl 8.4(b), includes termination of employment by reason of resignation. In the Magistrate’s ex tempore reasons, his Honour concluded that ‘termination’ in cl 8.4(b) is ‘defined’ in cl 17. His Honour concluded that cl 17 ‘is detailed, it is clear, it is unambiguous as to what termination means. It does not include resignation or notice to be given by the defendant.’[6]
[6]Ibid T34 LL22-24.
Having regard to the conclusion set out above, it is appropriate to set out the terms of cl 17 in full:
17. Termination of this Agreement
17.1At any time during this Agreement, the Agreement may be terminated:
(a)by the Company giving written notice in accordance with sub-paragraph (b) hereof or payment in lieu or a combination of both notice and payment in lieu of such shorter period of notice as may be agreed between you and the Company;
(b)the required period of notice for the purposes of sub-paragraph 17.1(a) is as follows:
Employees Period of Continuous Service Period of Notice
Not more than 1 year 1 week
More than 1 year but not more than 3 years 2 weeks
More than 3 years but not more than 5 years 3 weeksMore than 5 years 4 weeks
(c)by the Company if you were to be incapacitated by physical or mental illness, accident or any other circumstance beyond your control for a period of three consecutive months or an aggregate period of three months in any one year during this Agreement upon the giving of written notice in accordance with sub-paragraph 17.1(b) hereof or payment in lieu or a combination of both notice and payment in lieu;
(d) by the Company immediately if you:
(i) commit any serious breach of this Agreement;
(ii)become bankrupt or compound with your creditors or assign your estate for the benefit of your creditors;
(iii)are convicted of any breach of the law for which you can be imprisoned;
(iv)repeat, or continue, a breach of this Agreement, or any other agreement you have with the Company, after the Company has requested you not to do so;
(v)are guilty of conduct which tends to bring you, the Company or a related company into disrepute;
(vi)disobey or neglect any lawful and reasonable order or direction of the Company;
(vii)die or become of unsound mind or are placed under control of a committee or officer in accordance with a law relating to mental health;
(viii)are guilty of discriminatory behaviour as referred to in Clause 16 of this Agreement such as to amount to a serious breach of your employment obligations.
(e)In circumstances where you have failed to correct behaviour or improve performance following verbal and written warnings, the Company may make the decision to dismiss you in accordance with sub-paragraph 17.1(b).
17.2If the Company ends this Agreement on any of the grounds set out in this Clause during this Agreement, you will be entitled to any notice period or payment in lieu of notice provided under the relevant sub-clause but you will not be entitled to any further compensation in respect of this Agreement ending.
Clause 17 does not include any express statement that it defines the meaning of ‘termination’ where that word appears in the agreement. Rather cl 17 prescribes discrete grounds upon which the agreement may be terminated by the employer:
(a) by the giving of written notice in accordance with cl 17(b) and/or payment in lieu thereof; and
(b) immediately, in the circumstances prescribed by cl 17(d).
Clause 17 is silent as to the right of Mr Issak to terminate the agreement by way of resignation. Plainly he had a right to do so. In circumstances where the agreement was silent as to the period of notice which he was required to provide his employer, the agreement contained an implied term that he provide reasonable notice.[7] In a contract of employment such a term is implied by operation of law, rather than pursuant to the business efficacy test.[8]
[7]Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567.
[8]Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 448-449 (McHugh and Gummow JJ).
Clause 17 is neither expressly nor by necessary implication a definition of ‘termination’ where that term is used elsewhere in the agreement, including cl 8.4(b). Clause 17 prescribes the circumstances in which Wilson Pride may terminate Mr Issak’s employment summarily.
In the absence of an express statement that cl 17 defines the meaning of ‘termination’ there is no proper basis for ascribing to cl 17 the status of a definition. Objectively construed, the phrase ‘in any circumstances whatsoever’ in cl 8.4(b) is consistent with an intention of the contracting parties that the obligations imposed thereby operate irrespective of whether termination is at the initiative of the employer or the employee.
The Magistrate construed the phrase ‘in any circumstances whatsoever’ as constrained by the specific circumstances listed in cl 17. However, this approach is inconsistent with the ordinary meaning of the words of cl 8.4(b). In lieu of ‘whatsoever’, it would have been a very simple matter for the contract to have stated, ‘prescribed in clause 17’.
Viewed objectively, the purpose of cl 8.4(b), which would have been apparent to both parties when the contract was signed, was to confer a benefit upon Wilson Pride and a burden upon Mr Issak during the period of 9 months post termination of his employment. To construe the obligations imposed upon Mr Issak by cl 8.4(b) as not applying in circumstances where he resigned, seriously undermines the benefit conferred upon Wilson Pride and the burden imposed upon Mr Issak. There is no rational reason why the restrictions imposed upon Mr Issak by cl 8.4(b) should not be activated upon his resignation. Indeed, as occurred in the present case, a non-solicitation clause is equally, if not more, likely to have work to do in circumstances where a former employee has resigned, establishes his or her own business, and is looking to build a client base.
The appeal must be upheld, the orders of the Magistrate set aside and the proceeding remitted to the Magistrates’ Court to be heard by a Magistrate other than Magistrate Smith.
The grounds of appeal are confined to the Magistrate’s finding that cl 8.4(b) did not impose any obligation upon Mr Issak in circumstances where he resigned. An appeal pursuant to s 109 of the Magistrates’ Court Act 1989 is an appeal strictly so called. It is not in any sense an appeal by way of rehearing.[9] Consequently, the Court is not at liberty to express any concluded view on the question of whether cl 8.4(b) is invalid by reason of being an unreasonable restraint of trade. Upon the remittal of the proceeding, the Magistrate hearing the matter will have to determine whether Wilson Pride had discharged the onus of establishing that the restriction imposed by cl 8.4(b) is no wider than is reasonably necessary to protect its legitimate interests.[10] In this respect, the following matters are pertinent:
(i)Clause 8.4(b) has a period of operation of 9 months, which is 3 months longer than the restraint imposed by cl 8.1(a). In considering the reasonableness of this duration it is relevant to note that Mr Issak’s base salary was $55,000 per annum.
(ii)There is no definition of ‘client’ in the contract. Prima facie, the restraint upon solicitation imposed by cl 8.4(b) is not limited to clients with whom Mr Issak had direct dealings whilst an employee of Wilson Pride.[11]
(iii)The restraint operates in respect of persons/companies who become clients of Wilson Pride during the 9 month period subsequent to Mr Issak’s cessation of employment.
[9]Romas v Green [2015] VSC 95, [23]-[25] and the cases cited therein.
[10]Hartleys Ltd v Martin [2002] VSC 301, [86].
[11]Ibid at [72]-[73] and [125]-[126]. See also Allison v BDO (NSW-Vic) Pty Ltd [2010] VSC 35, [28].
The matters set out above put in issue the enforceability of cl 8.4(b). However, by reason of the nature of an appeal under s 109 of the Magistrates’ Court Act, the Court is not in a position to express any concluded view regarding the enforceability of the clause.
It is regrettable that the argument before the Magistrate as to the enforceability of cl 8.4(b) was confined to the question of whether it was unenforceable by reason of Mr Issak’s resignation. As a result of this judgment, it will still be necessary for the Magistrates’ Court to rule on the question of whether cl 8.4(b) is unenforceable by reason of being an unreasonable restraint of trade. Whilst it would have been preferable for the Magistrate to have heard all submissions relevant to the enforceability of cl 8.4(b), no criticism can be levelled at either his Honour or Wilson Pride for the manner in which the proceeding was conducted at first instance. Counsel for Mr Issak could have made submissions on the question of whether cl 8.4(b) constituted an unreasonable restraint of trade, but did not do so. Counsel for Wilson Pride simply responded to the argument which was advanced, and has succeeded in the current appeal in establishing a legal error on the part of the Magistrate in resolving that issue. In those circumstances, Wilson Pride should not be deprived of an order that Mr Issak pay its costs of the appeal on a standard basis. However, I shall order that Mr Issak is entitled to an indemnity certificate pursuant to s 4 of the Appeal Costs Act 1998.
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