Cushman & Wakefield Agency (NSW) Pty Ltd v Hudson

1. [1]

   On 7 March 2023, the Court granted an ex parte interlocutory injunction against the defendant, restraining her from competing with the plaintiff, attending its premises or contacting its customers or clients until 3 May 2023, which is the date her employment with the plaintiff ends following the expiry of the 3-month notice period under her contract of employment.

2. [2]

   On 10 March 2023, the defendant made an oral application to have the interlocutory injunction discharged. On 13 March 2023, I dismissed the application and indicated that I would publish my reasons separately. These are my reasons.

Background

1. [3]

   The plaintiff, which is a member of a multinational group of companies known as the Cushman & Wakefield Group (the Group) conducts an office leasing business in New South Wales.

2. [4]

   The defendant commenced employment with the Group in early 2016, in the position of Manager – NSW Leasing. Following a series of changes in her role, salary, working hours and other conditions, the defendant entered into a new contract of employment with the plaintiff on around 12 August 2022, with the title Director Office Leasing, New South Wales. Before referring to relevant terms of that contract, it is necessary to set out some of the history of the defendant’s employment arrangements with the Group:

3. [5]

   The new contract of employment which the defendant entered into with the plaintiff on 12 August 2022 (the Contract) included the following:

4. [6]

   The term “Employment” is defined in cl 2.1 to mean “the employment of the Executive by the Company according to the terms of this Agreement.”

5. [7]

   There were a number of differences between the terms of the Contract and her prior contract. First, under cl 8.1 the period of notice of termination was extended from 1 month to 3 months. Second, cl 12.1 extended the period of the post-contract restraint from 1 month to periods from 3 to 12 months. Third, the term of her remuneration, both as to base salary and commission, were improved.

6. [8]

   The defendant gave evidence, which was not contested on this interlocutory application, that the first two changes were not made known to her by the plaintiff before she signed the document (beyond the fact that she received by email the letter attaching the Contract for signature referred to at [4(h)]), and that she did not read any part of the Contract apart from the 2 page Schedule A appearing at the end of the document, on which her signature appeared. She thought from all of her discussions and email correspondence that it was not necessary for her to read the document because no other terms were changing. However, the plaintiff does not give evidence that any representatives of the plaintiff said to her that none of the terms of her employment contract were changing apart from her salary and commission in Schedule A and there is no email correspondence in evidence which could be relied on for that purpose.

The defendant’s resignation

1. [9]

   On 2 February 2023, the defendant gave written notice to the plaintiff of her resignation by an email to Mr Molchanoff attaching a letter of resignation dated 31 January 2023. In that letter the defendant said that she was providing the plaintiff with her “4 week notice period effective from today”, and that her last day with the plaintiff would be 1 March 2023.

2. [10]

   On 6 February 2023, the plaintiff sent an email to defendant attaching a letter from the plaintiff responding to the defendant’s resignation which stated:

3. [11]

   The letter also drew the defendant’s attention to the fact that due to her resignation, 50% of her retention payment was now due to be repaid to the plaintiff, and stated that “the Company reserves the right, to the extent permitted at law, to withhold any moneys owed by you to the Company from any moneys due from the Company to you.” (The existence of this letter is the reason for the amendment to Order 8 referred to at [45] below.)

4. [12]

   Subsequently, the defendant entered into an employment agreement with Jones Lang LaSalle (NSW) Pty Limited (JLL) which provides that her employment with that company will start on 2 March 2023.

5. [13]

   The defendant’s resignation letter of 2 February 2023 was a repudiation of the Contract because it purported to give only 4 weeks notice. The plaintiff was entitled to accept the defendant’s repudiation and terminate the Contract but was not bound to do so, and was entitled to instead keep it on foot: Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; 175 IR 414 at [25]; Metcash Ltd v Jardim (No 3) [2010] NSWSC 1096; 273 ALR 407 at [43]. The plaintiff, by its letter of 3 February 2023 took the latter course. Accordingly, under the Contract the defendant was bound to observe the requirements of the gardening leave provision in cl 8.2(b) of the Contract. There is no evidence to suggest that the Contract was terminated by mutual agreement. Nevertheless, it is clear that while the Contract remained on foot, the employer/employee relationship came to an end by reason for the defendant’s resignation: Tullett at [30]; Metcash at [43]. Contractual provisions that require the employee to engage in “garden leave” such as cl 8.2(b) of the Contract are considered to be restraints of trade despite the contract of employment remaining on foot: Tullett at [65]; Metcash at [43].

6. [14]

   There is no dispute that the defendant continues to be entitled to her salary and commission during this period of gardening leave.

Ex parte injunctive relief

1. [15]

   On 7 March 2023, the plaintiff commenced proceedings in this Court seeking urgent interlocutory relief because the plaintiff became aware on 6 March 2023 that the defendant had joined JLL. The Court granted an ex parte interlocutory injunction in the following terms:

2. [16]

   The matter was listed for directions on 10 March 2023 to permit the defendant to make an application for the discharge of Order 5, and such an application was made on that day.

Relevant principles

1. [17]

   It was not in dispute that in order to be entitled to (and maintain) the interlocutory relief in Order 5, the plaintiff bears the onus of establishing that there is a serious question to be tried for final relief; that damages would not be an adequate remedy; and that the balance of convenience favours the grant of an injunction on an interlocutory basis.

2. [18]

   In a restraint of trade case, whether there is a serious question to be tried for final relief depends on whether it is seriously arguable that: (1) there is a valid contractual restraint; (2) there is a breach or apprehended breach of it; and, (3) the Court would, as a matter of discretion, grant injunctive relief in respect of that breach: John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [5].

3. [19]

   In the present case, the first of these matters is in dispute, but not the second or third. Generally speaking, an injunction will be granted to enforce a negative contractual stipulation, with damages rarely being an adequate remedy: John Fairfax Publications Pty Ltd v Birt at [45].

4. [20]

   The principles relevant to the validity of restraint of trade clauses were not in dispute. The onus is on the plaintiff to show that the restraint goes no further than is reasonably necessary to protect the plaintiff’s legitimate interests. The validity and reasonableness of the restraint is to be determined at the time it is entered into (in this case, 12 August 2022), but when exercising its discretion to grant and fashion relief, the Court considers matters as at the date of the hearing which are relevant to the discretion to withhold relief: Birt at [46].

5. [21]

   The effect of s 4(1) of the Restraints of Trade Act 1976 (NSW) is that in New South Wales a restraint is valid to the extent to which it is not against public policy, even if not in severable terms. The Court must determine first, whether the alleged breach (independently of public policy considerations) will infringe the terms of the restraint properly construed; second, whether the restraint in its application to that breach is contrary to public policy; and third, if it is not, the restraint is valid in its application to the alleged infringing conduct unless the Court makes an order under s 4(3) of the Restraints of Trade Act: Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 at 355 at [61] – [63].

6. [22]

   The legitimate interests which are capable of protection by a restraint of trade include the employer’s goodwill (including customer connection) and confidential information. However, an employer has no legitimate interest in merely preventing a former employee from taking employment with a competitor: Tullett at [47].

Serious question to be tried

1. [23]

   The first issue is whether the plaintiff has established a serious question to be tried that the defendant has breached the restraint in cl 4.2 of the Contract which applies during her period of garden leave. It is clear that JLL is a competitor of the plaintiff and that if the defendant was to work for the plaintiff during the period of her gardening leave she would be in breach of cl 4.2. Two arguments were put by Ms Nolan, counsel for the defendant, in support of the proposition that the plaintiff has not established a serious question to be tried or, if it has, that it is weak.

2. [24]

   First, the defendant argued that she is not bound by the 3-month notice period specified in cl 8.2(b), so that when she terminated the Contract she was only bound by a 1-month notice period. The basis for this argument was that when the defendant signed Schedule A, she was not aware that the terms of the contract of which it formed part were being altered, apart from her salary and commission entitlements (both of which had increased). It was also submitted that the defendant had negotiated an increase in her base salary and commission because of the increased fee income she had generated for the plaintiff, and not in return for giving more extensive restraints.

3. [25]

   However, it is clear that where there is no suggested vitiating element and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms and it is immaterial that the person has not read the document: Toll (FGGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [57]. There is no suggestion in the evidence of any vitiating element (such as a misrepresentation by the plaintiff) or any claim for equitable or statutory relief. Hence, the defendant is bound by the terms of the Contract, for which the plaintiff gave good consideration, notwithstanding that she did not read it and it is irrelevant that no consideration was specifically allocated to the change to the period of the restraint in cl 8.2(4). Further, in so far as it was suggested that the defendant had only signed the 2-page Schedule A and not the entirety of the contract, it is clear that the cover letter from the plaintiff referred to [4(h)] above drew her attention to the fact that the entire document would replace her existing contractual arrangements and she signed on the only page where she could sign the Contract (which was the last page of it).

4. [26]

   For these reasons, the defendant’s first argument is very weak.

5. [27]

   Second, the defendant contended that cl 8.2(b) is void as an unreasonable restraint of trade because a 3-month notice period went further than was necessary to reasonably protect the plaintiff’s legitimate business interests in respect of its goodwill and confidential information.

6. [28]

   In relation to customer connection and confidential information, the plaintiff relies on the evidence of Mr Molchanoff, the Head of Office Leasing, ANZ of the plaintiff with over 25 years experience in office leasing in the Sydney CBD and North Shore markets. His evidence can be summarised as follows:

7. [29]

   In addition, the plaintiff points to the defendant’s email referred to at 4(g) above where she stated that during the previous year (which I take to be the financial year ended 30 June 2022), she had written some $2.4m in fees for the plaintiff and that she considered that she would remain one of the top fee earners for the plaintiff, which is evidence of her strong personal relationships with clients of the plaintiff.

8. [30]

   The defendant’s evidence in her affidavit relevant to these matters can be summarised as follows:

9. [31]

   In my view, the plaintiff has established that there is a serious question to be tried that cl 8.2(b) read with cl 4.2 goes no further than is reasonably necessary for the protection of the plaintiff’s customer connection. First, the defendant is a senior employee of the plaintiff (with the title Director – Office Leasing) who, at the time the Contract was entered into, was a very significant fee earner for the business. The evidence indicates that she had developed personal connections with key personnel within clients of the plaintiff responsible for asset management and, while she may not have a personal relationship with senior executives at the level of chief executive officer or chief operating officer, that does not detract from the significance of the personal relationships which she did have with key clients of the plaintiff.

10. [32]

    Second, an accepted approach to determine whether the period of 3 months in cl 8.2(b) is reasonable is to have regard to the period reasonably required to recruit and train a suitable replacement who could take over dealings with the employer’s customers and have an opportunity to win their confidence: Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [36]; Label Manufacturers Australia Pty Ltd v Chatzopoulos [2022] NSWSC 1059 at [137]. In the present case, the evidence indicates that it would take the plaintiff at least 3 months in which to find a replacement who can re-establish the connection which the defendant had with its landlord clients.

11. [33]

    Third, while the evidence of Mr Molchanoff regarding the defendant’s access to the plaintiff’s confidential information is at a fairly high level of generality, the Court can infer that her role gave her access to confidential information about tenders and other activities for clients which the plaintiff has a legitimate interest in protecting. It is established that a restraint on competition may be justified by the employer’s legitimate interest in protecting its confidential information: Woolworths Ltd v Olson [2004] NSWCA 372 at [67]. The information referred to at [28(f)] above is arguably confidential information which a non-compete provision can legitimately protect.

Balance of convenience

1. [34]

   Turning now to the balance of convenience, it is necessary to consider what course is best calculated to achieve justice between the parties, bearing in mind the consequences to the defendant of the grant of the injunction in support of relief which the plaintiff might not ultimately obtain and the consequences to the plaintiff of refusing the injunction in support of relief which it might ultimately be held to be entitled: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535. Relevant matters to be taken into account include whether damages are an adequate remedy; the defendant’s right to a livelihood, delay, the impact on third parties; whether the employee was warned and went into the position with “eyes wide open”; whether any hardship that would be visited on the defendant has come about because he or she is the author of his or her own misfortune; the strength of the case; and any undertakings that have been given: HiTech Group Australia Ltd v Riachi [2021] NSWSC 1212.

2. [35]

   In relation to the adequacy of damages, it is rare that damages will be considered to be an adequate remedy where a negative covenant is sought to be enforced: see [19] above. Given the role of the defendant within the business of the plaintiff, there is a risk that damages will not be an adequate remedy.

3. [36]

   In relation the defendant’s right to a livelihood and potential hardship, it is clear from her evidence that she has significant financial commitments. However, the defendant has given an undertaking that during the period of the defendant’s gardening leave, she will continue to be paid her salary and commission entitlements in accordance with the Contract, without any deduction in respect of amounts said to be owing by the defendant to the plaintiff, in respect of the retention claw-back or otherwise. Accordingly, the status quo in respect of her financial position as it was before she gave notice of her termination will be retained during the period that the interlocutory injunction is on foot.

4. [37]

   While the defendant states in her affidavit that she believes she will lose her sign-on bonus and her job with JLL if she is unable to commence employment with JLL on 2 March 2023, this is not supported by any evidence of correspondence from JLL to that effect, nor is there any evidence from an officer of JLL as to its position. Given the fact that the interlocutory injunction only extends until 3 May 2023, and the evidence as to the defendant’s skills and ability which clearly attracted JLL since it has agreed to pay her a very significant sign-on bonus, I cannot be satisfied that a delay of approximately 2 months before the defendant commences employment with JLL is likely to lead JLL to terminate its contract with her.

5. [38]

   In relation to delay, the defendant gave notice in writing of her resignation on 2 February 2023, and the plaintiff responded on 6 February 2023, with its letter of 3 February 2023 setting out its position clearly. There followed correspondence between the parties in which the plaintiff sought certain undertakings from the defendant which were not forthcoming, and led to these proceedings being commenced on 7 March 2023. This does not involve any material delay.

6. [39]

   In so far as impact on third parties is concerned, the only relevant third party is JLL, which has entered into a contract to employ the defendant commencing on 1 March 2023. A delay of some 2 months in her starting date does not appear to be material.

7. [40]

   As to whether the defendant was warned, and went into the present situation with her eyes wide open, the position is that the Contract is quite clear that the defendant must give 3 months written notice of termination of the Contract. While, according to her evidence, she was not aware of the change from a 1 to 3-month notice period in the Contract, that is something which she should have checked before entering into discussions with JLL and then terminating her Contract with the plaintiff. It seems clear that the defendant is the author of her own misfortune in so far as she is being required by the plaintiff to respect her contractual obligations to it. It is clear that the defendant was warned that the plaintiff expected her to work out her 3 months of gardening leave in accordance with the Contract (by the letter sent to her on 6 February 2023). The evidence does not establish whether this warning was given before she entered into her new employment contract with JLL, but this is not a matter which is in her favour in the balance of discretionary factors. The prudent course before resigning her position with the plaintiff and entering into a new contract to work for JLL would have been to check the terms of her contract to make sure that she was able to enter into the new contract with JLL.

8. [41]

   In relation to the strength of the case, where the injunctive relief is likely in a practical sense to have the effect of granting final relief, the Court may analyse the strength of the plaintiff’s case: e.g. Kolback at 536. For the reasons given above, I do not accept the defendant’s submission that the plaintiff’s case is weak. The interlocutory relief only protects the plaintiff during the defendant’s 3 months of gardening leave and, for the reasons given above, provides reasonable protection for the plaintiff’s customer connection during the period in which it seeks to find a suitable replacement, and is not simply designed to prevent the defendant from competing with the plaintiff. The interlocutory relief does not seek to protect any of the post-employment restraints. While each case turns on its own facts, I note that a 3-month period of gardening leave for a broker in the financial services industry was accepted as reasonable in Tullett at [66].

9. [42]

   In relation to undertakings, the plaintiff has given an undertaking to continue to pay the defendant’s salary and commission entitlements during the period of gardening leave and provides the usual undertaking as to damages should it fail to obtain final relief. The first undertaking preserves the status quo as it existed immediately before the defendant resigned. The second undertaking protects the defendant from her potential loss if JLL should terminate her new contract due to her inability to commence work on 2 March 2023 (see [37] above).

10. [43]

    Taking into account all of the above considerations, in my view, the balance of convenience favours the grant of interlocutory relief for the period of the defendant’s gardening leave of 3 months.

Conclusion

1. [44]

   For the above reasons, the plaintiff has shown there is a serious question to be tried that cl 8.2(b) of the Contract is valid. While the employer/employee relationship has terminated as a result of the defendant’s resignation, she is bound by the requirement to remain on gardening leave for 3 months. This is on the basis that the plaintiff has established that 3 months is a reasonable period for the restraints imposed on the defendant during her period of gardening leave. Also, in my view, the balance of convenience favours the grant of interlocutory relief to enforce that restraint.

2. [45]

   Accordingly, the Court makes the following orders:

   1. (1)

      Application of the Defendant for the discharge of the interlocutory injunction in Order 5 made on 7 March 2023 is dismissed.

   2. (2)

      Order 8 made 7 March 2023 be amended to read:

   3. (3)

      The Plaintiff to file and serve any notice of motion and supporting affidavit evidence seeking expedition of the proceedings by 5:00pm on 14 March 2023 (Expedition Application).

   4. (4)

      The defendant to file and serve any affidavit evidence in relation to the Expedition Application by 5:00pm on 16 March 2023.

   5. (5)

      By 5:00pm on 16 March 2023, the parties’ legal representatives to confer and attempt to agree on a timetable for the preparation of the matter to trial and an accurate estimate of the necessary hearing time, on the assumption that the Expedition Application is successful.

   6. (6)

      The Expedition Application be listed before the Expedition Judge on 17 March 2023.

   7. (7)

      Costs in respect of the application for discharge of the interlocutory injunction be costs in the cause.