Investment Managers Pty Ltd v Cullen

Craig Cullen, the defendant, was employed by Investment Managers Pty Limited, the plaintiff, until a date in January 2006. He is now the authorised dealer for AAA Shares Pty Ltd.

Shane Allan Rose, the sole director and shareholder of Investment Managers, alleges that from conversations he has had with representatives of various clients of Investment Managers, they are now served by Mr Cullen, in his new position. Mr Cullen says much the same. He lists those customers of Investment Managers whom he now serves, those customers being nine in number, the commissions from which, thus far, total some $14,000.00.

In 2005, during the time that Mr Cullen was employed by Investment Managers, a business investigation established that it had in excess of 1,400 clients. The business in which Investment Managers and Mr Cullen are involved is financial planning services.

In his contract of employment with Investment Managers, there was a restrictive covenant, the material parts of which are as follows: “(a) The Employee warrants that he will not at any time during the employment or for a period of 12 months after termination of employment, personally or by advertisements or letters or otherwise, obtain customers, whether past, current, or prospective (but in relation to prospective customers only those which have been contacted by the Company prior to the termination of this agreement) of the Company within for any person, firm or other company or organization carrying on the business of providing financial planning services. (b) Not at any time, either during the employment or afterwards whether on his or her account or for any other person, firm or other company or organization to solicit, interfere with or endeavour to entice away from the Company any person, firm or organization who or which at any time during the employment has been a customer or employee of the Company.”

Investment Managers seeks interlocutory relief by way of an order that Mr Cullen be enjoined until further order from personally or by advertisements or letters or otherwise, obtaining customers, whether past, current or prospective (in that they have been contacted by the plaintiff prior to 30 January 2006) of the plaintiff for any person, firm or other company or organisation carrying on the business of financial planning services. It also seeks an interlocutory order that the defendant be enjoined until further order from, whether on his own account or for any other person, firm or other company or organisation soliciting, interfering with or endeavouring to entice away from the plaintiff any person, firm or organisation who or which at any time during the employment had been a customer or employee of the plaintiff. There is also a claim for an interlocutory order preventing Mr Cullen from disclosing to any third party information relating to customers of the plaintiff.

Negative stipulations in contractual arrangements can be enforced by way of injunction. Restrictive covenants will not be enforced to the extent that they are unreasonable. If there is an unreasonableness based upon public policy, s 4(1) of the Restraints of Trade Act 1976 has the effect of reading down the restriction to the extent to which it is reasonable. The terms of the interlocutory relief clearly had in mind the restrictive covenants in Mr Cullen’s employment contract.

Mr Cullen says that at this interlocutory stage it should not be determined how the Restraints of Trade Act 1976, s 4(1) should apply to read down the provisions to the maximum reasonable extent. He submits that is a matter for a substantive hearing.

Investment Managers submits that the portion of the restrictive covenant that deals with past and prospective customers can be excised and the provision given a meaning that is not unreasonable.

The situation in which covenants of this order have been regarded as bad and as being capable of being read down without re-writing the covenant, are discussed in J D Heydon, The Restraint of Trade Doctrine , 2nd ed, Butterworths, Sydney, 1999 at 125 to 126, and the effect of the Restraints of Trade Act 1976, s 4(1) is discussed at 235.

In my view, the inclusion of customers past and prospective in the first of the restrictive covenants makes it unreasonable, the unreasonableness clearly arising from the lack of knowledge by Mr Cullen of such customers who were past and of such new customers of Investment Managers as are gained by it in the twelve month period within which the restrictive covenant is to operate. It does not seem to me by amputating those words that a logical restrictive covenant remains.

Furthermore, the word “current” is ambiguous in a context where the words “past and prospective” are excised. It could mean current at the time the employment contract was entered into. It could mean current at the time of termination.

It does not seem to me that an appropriate provision can be substituted for the provision except by re-writing it, which is not permitted: see Heydon, op cit .

In circumstances where, during the course of Mr Cullen’s employment, Investment Managers had in excess of 1,400 customers, damages are a sufficient remedy for the small number of customers whom Mr Cullen has taken over and, at least at this interlocutory stage, I am not convinced that Investment Managers has demonstrated a sufficient breach to warrant the granting of the interlocutory relief sought.

I therefore dismiss the notice of motion. I order the plaintiff to pay the defendant’s costs.