Thinkstorm Pty Ltd v Farah

In proceedings commenced by summons, and conducted on an expedited basis (during the Court’s vacation) without pleadings, the plaintiff seeks to enforce against the defendant (a former employee of the plaintiff) a contractual restraint of trade provision expressed to operate for a period of 12 months from termination of the defendant’s employment.

The proceedings were commenced by a summons filed in court with the leave of the Duty Judge on 24 November 2016. On return of the summons in the Duty List on 28 November 2016, the proceedings were adjourned to 6 December 2016 before the Duty Judge. On that date, an interlocutory injunction was granted in favour of the plaintiff; a timetable for the filing of affidavits and written submissions was ordered; the proceedings were listed for hearing on 23 January 2017; and, in the meantime, the proceedings were referred for mediation before a Registrar of the Court.

A mediation was held on 14 December 2016, without success.

At the time the proceedings were listed for final hearing, the time estimated as required for the hearing was one day. In the event, at no time during the week (commencing 23 January 2017) in which the proceedings were listed for hearing was a clear day available for its conduct.

In the course of dealing with other business, I heard the proceedings in snippets of time found on 23, 25 and 27 January 2017.

At the conclusion of the hearing, late in the afternoon of 27 January 2017, there was an opportunity for the parties to make short oral submissions, and directions were given for them to file and serve supplementary written submissions (which they did) on 28 January 2017, with a view to judgment being delivered this morning, 30 January 2017.

The time constraints within which the summons was required to be determined impacted on the course of the proceedings in at least two respects. First, the plaintiff limited its claims for relief to a claim for an injunction in support of a contractual restraint of trade, abandoning broader claims for injunctive relief (referable to alleged confidential information) and compensation. Secondly, a formal notation was made by the Court reserving for other proceedings (if other proceedings be required) such, if any, entitlements the defendant might have arising out of an unarticulated, disputed claim of entitlement to annual leave payments which could not, within the constraints within which the proceedings were required to be determined, be fairly determined.

The real question in dispute between the parties is whether, as the plaintiff contends and the defendant denies, the defendant can, and should, be restrained from providing services to “Queensland Health” (a department of the government of the state of Queensland), using “WorkBrain” computer software, for 12 months from 4 November 2016.

There is no dispute that:

The parties agree that their dispute is to be determined in accordance with the law of New South Wales. They accept that, if necessary and appropriate, resort may be had to the Restraints of Trade Act 1976 NSW to uphold the restraint provisions on which the plaintiff relies. Cf, JDF Heydon, The Restraint of Trade Doctrine (Lexis Nexis, Australia, 3rd ed, 2008), page 301.

Between 25 October 2011 and 30 June 2014 or thereabouts, the terms of the defendant’s employment by the plaintiff were governed, successively and uncontroversially, by three written contracts:

The parties are in dispute as to the terms of the contract that governed their relationship on and from 1 July 2014. They are, however, agreed that the contractual terms for which the document dated 23 September 2013 provided were displaced by a new contract, a significant feature of which was that the defendant’s “annual salary” equivalent was reduced from $241,647.60 to $188,400.

The necessity for a new form of contract arose from requirements of Queensland Health in its dealings with the plaintiff.

The plaintiff contends, and (by his counsel) the defendant denies, that the terms of the parties’ contract are found in a letter dated 30 June 2014, addressed by the plaintiff to the defendant, and ancillary documents.

The defendant’s denial is based upon the facts that: (a) introductory paragraphs of the letter characterise it as a “letter of offer”; (b) under the heading “acceptance of offer”, the letter invited the defendant to return to the plaintiff a signed copy of it “to confirm” his “acceptance” of the offer; and (c) the plaintiff has been unable to locate in its records any copy of the letter bearing the defendant’s signature as an endorsement of his acceptance.

Notwithstanding the absence of any copy of the letter bearing the defendant’s endorsement, subject only to one possible qualification, both parties conducted their relationship on the basis that the contract was governed by the letter dated 30 June 2014. Importantly, the defendant was paid, and he accepted that he had no entitlement to be paid more than, the reduced salary package for which the letter provided. In cross examination, he readily accepted that he had not, before commencement of the proceedings, disclaimed the contractual force of the terms contained in the letter. In giving evidence, he also freely conceded that he was not prepared, on oath, to deny that the terms of his contract with the plaintiff were to be found in the letter.

Over objections by counsel for the plaintiff, counsel for the defendant endeavoured, without any substantial forewarning, to run a case that alleged that, as the plaintiff had not paid to the defendant “annual leave entitlements” referred to in a document entitled “standard terms and conditions” forming part of the letter dated 30 June 2014 (incorporating, by reference, provisions of the Fair Work Act 2009 Cth and the Fair Work Regulations 2009 Cth), the Court could not safely conclude that the parties had conducted their relationship on the basis of the terms set out in the letter and ancillary documents.

When confronted in cross-examination with the proposition that the defendant had not been paid his annual leave entitlements, Mr CM Hughes (the sole director and secretary of the plaintiff) denied the allegation.

I am satisfied that, even if it be the fact (which I am not in a position to accept or reject) that the defendant was not paid annual leave entitlements due to be paid by the plaintiff, that fact does not stand in the way of a finding (which I make) that, by conduct, the defendant accepted the offer conveyed to him by the plaintiff in the letter dated 30 June 2014.

The absence of a copy of the letter signed by the defendant does not preclude a finding that the plaintiff’s offer was in fact, by conduct, accepted: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1998) 14 NSWLR 523.

The defendant’s acceptance of his salary reduction can be explained only as an acceptance that the terms of his employment on and from 1 July 2014 were governed by the documentation dated 30 June 2014. That he gave the plaintiff two weeks’ notice of termination of his employment might be said to be consistent with both the letter dated 30 June 2014 and the parties’ earlier contractual documentation, but the salary reduction cannot be explained away. If (despite Mr Hughes’ denial) the plaintiff did not pay to the defendant annual leave entitlements, that assumed fact is not, of itself, inconsistent with the letter dated 30 June 2014 having contractual effect.

So far as is material, the 2014 contract includes an undertaking given by the defendant to the plaintiff to the effect that he will not directly or indirectly for a period of 12 months from the termination of his employment (for whatever lawful reason):

The parties are agreed that a restraint of trade of this character is to be presumed to be invalid unless the plaintiff proves that it is reasonable.

The defendant contends that such proof is wanting. He says that the plaintiff lacks a “protectable interest” and, in any event, that the restraint is unreasonable because the plaintiff was, in substance, little more than an employment introduction agency.

There is no dispute between the parties that the principles to be applied can be found conveniently summarised by Brereton J in Portal Software v Bodsworth [2005] NSWSC 1179 at [63]-[68]:

Nor is there any dispute between the parties that the concept of “customer connection” to which Brereton J refers can be taken conveniently to have been explained by Meagher JA (with whom Campbell and Young JJA agreed) in Jardin and Jardim Investments Pty Ltd v Metcash Ltd and Metcash Trading Ltd [2011] NSWCA 409 at [95] and [97]:

There is no dispute about the construction of the restraint of trade provisions on which the plaintiff relies. On the proper construction of the parties’ contract, they were intended, inter alia, to prevent the defendant from working for Queensland Health’s Payroll Portfolio section, in the provision of WorkBrain services, during the 12 months following termination of his employment with the plaintiff.

I do not accept, as the defendant contends, that the plaintiff must fail for want of an interest able reasonably to be protected by these restraint of trade provisions. The defendant may well have exercised considerable autonomy in the performance of duties owed to Queensland Health; but he did so as an employee of the plaintiff and in the provision of services he was contracted by the plaintiff to provide to Queensland Health. Independently of him, the plaintiff had regular contact with Queensland Health, giving rise to commercial goodwill vis-a-vis Queensland Health, which chooses to obtain services through consultants. That goodwill is and was at all material times a “protectable interest”.

The nature of the plaintiff’s business (essentially, the provision of IT personnel to clients) is also such that the plaintiff required, by contractual restraints, to protect itself against an employee who, following placement, might change his or her employer to cut out the plaintiff.

The fact that Queensland Health has routinely retained consultancy services through a variety of corporations – not limited to the plaintiff – does not deprive the plaintiff of “goodwill” capable of being protected by a reasonable post-employment contractual restraint of trade affecting the defendant as the employee through whom it provided services to Queensland Health.

The greatest potential weakness of the restraints relied upon by the plaintiff is their duration for 12 months: JD Heydon, The Restraint of Trade Doctrine (Lexis Nexis, Australia, 3rd ed, 2008), pages 163-165 and 168-171. Twelve months appears to be at the outer limits of what would be a restraint of reasonable duration.

The defendant’s contract with Paxus Australia Pty Ltd includes a post-employment restraint for a term of only three months; but, as evidenced by statements made on behalf of Paxus Australia Ltd to the defendant during its negotiations with him (Exhibit P6, emails dated 15 September 2016), consultancy agreements in this area not uncommonly include a post-employment contractual restraint expressed to operate for 6-12 months.

Although the terms of the defendant’s contract with the plaintiff changed from time to time, each of the documents evidencing their contract included a 12 months post-employment restraint of trade. The fact that the defendant voluntarily agreed to such a restraint, more than once, and expressly agreed that it was no more than what was reasonable to protect the plaintiff’s legitimate interests, provides evidence in support of the reasonableness of the restraint: Russ Australia Pty Ltd v Benny [2006] NSWSC 1118 at [49].

Although by no means determinative, in the circumstances of this case, in an industry in which restraints of 6-12 months are not uncommon, the defendant’s express agreement that a 12 month restraint was reasonable should not lightly be discounted.

In its factual context, I find that the restraint is reasonable and, accordingly, valid.

In making that finding, I notice that the restraint does not constrain the defendant’s entitlement to provide his professional services to parties other than Queensland Health. I also take into account that the services which the defendant is qualified to provide require particular expertise, with commensurate remuneration; this is not a case of a unskilled worker, but a case of a highly-paid consultant whose services the Department chooses to acquire through corporations, known to it, responsible for procurement and employment of particular consultants.

In the circumstances in which the parties’ dispute about annual leave entitlements arose, the defendant’s allegation of non-payment of such entitlements cannot fairly bear upon the credit of Mr Hughes, or ground a discretionary bar asserted by the defendant (on the basis of “unclean hands”) to the grant of a final injunction to the plaintiff. The plaintiff was not given reasonable notice of the defendant’s allegation or a reasonable opportunity to counter it.

In formal terms, I reject the defendant’s tender of a selection of payslips from the plaintiff (MFI D8) which, the defendant contends, evidence a failure to acknowledge the defendant’s annual leave entitlements. If the payslips are otherwise admissible, I order (pursuant to section 135 of the Evidence Act 1995 NSW) that they not be admitted into evidence because their probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to the plaintiff and misleading.

It was not contended for the defendant that any unperformed obligation of the plaintiff to provide annual leave entitlements to the defendant was, on the proper construction of the parties’ contract, interdependent with the defendant’s obligation to comply with his restraint undertaking.

Nor has it been contended that the plaintiff was otherwise in breach of any obligation owed to the defendant. He was peeved that the plaintiff did not secure for him the position with Queensland Health he was able to secure through Paxus Australia Pty Ltd; but he did not contend that a perceived failure of the plaintiff to advance his interests as well as he might have hoped constituted a breach of contract or the like. It provides no ground for a refusal to hold the defendant to his contract with the plaintiff.

Making allowance for the parties’ submissions as to the form of any final injunctive relief to be granted to the plaintiff, I make the following orders:

I am not prepared to limit the injunction to which the plaintiff is entitled so as to permit the defendant to work within a particular “team” within the Payroll Portfolio section other than that within which he says he worked for the plaintiff. There is no sound reason for restriction of the restraint in that way. Throughout his employment by the plaintiff the defendant was engaged with Queensland Health as the plaintiff’s client, not limited to the particular team (within the department) of which he was a member.

Prima facie, with costs following the event, the defendant should pay the plaintiff’s costs of proceedings.

Counsel for the defendant seeks an opportunity (which I will allow) to submit that some allowance should be made in favour of the defendant for the plaintiff’s abandonment of claims for relief at the final hearing.