Grace Worldwide (Australia) Pty Limited (ACN 070 345 845) v Steve Alves

1. [1]

   The plaintiff, Grace Worldwide (Australia) Pty Limited (“Grace”), provides local and international removal and relocation services, records management services and other ancillary services principally in Australia and New Zealand. With its subsidiaries, Grace Records Management Limited and Grace Worldwide (New Zealand) Limited, Grace operates 55 storage facilities across Australia and New Zealand and has an approximate annual turnover of $198 million.

2. [2]

   In January 2010 the defendant, Mr Steve Alves commenced employment as Grace’s National Manager - Quality, Risk and Environment. He was first employed under a contract entitled “Statement of Terms and Conditions of Employment” dated 11 January 2010 (“the Employment Agreement”). By mid-2017 he was working as Grace’s General Manager Operations, one of three national managers responsible to Grace’s Managing Director, Mr Stephen Brown.

3. [3]

   On 10 July 2017, Mr Alves gave notice to Grace that he was leaving its employ to take up a new position as the CEO of one of Grace’s principal competitors, Kent Relocation Group Pty Limited (“Kent”). Shortly afterwards, Grace utilised a three-month notice clause in the Employment Agreement to notify Mr Alves that he should proceed on “garden leave” until 10 October 2017.

4. [4]

   Mr Alves immediately contested Grace’s right to place him on garden leave. On 28 July 2017, Grace commenced these proceedings seeking: final relief declaring that Mr Alves’s Employment Agreement continues for three months until 10 October 2017; and injunctions based on 12-month post-employment restraints in the Employment Agreement, prohibiting Mr Alves from engaging in conduct in competition with Grace until 9 July 2018.

5. [5]

   In the events that occurred, Mr Alves said that the Employment Agreement did not bind him because of his changed roles with Grace since 2010; disputed that a three-month notice period for termination applied to him; contested that he is contractually bound by a 12-month post-employment restraint, principally on the ground that Grace repudiated the Employment Agreement; and contended that were he otherwise bound by the claimed 12-month restraint, that the restraint exceeds the legitimate protection of Grace’s business interests, is contrary to the public interest and should be read down under the Restraints of Trade Act 1976 (NSW) (“Restraints of Trade Act”).

6. [6]

   Interlocutory relief was granted in the proceedings by consent on 30 July 2017 when the proceedings were set down for urgent final hearing on 17 and 18 August.

7. [7]

   Mr A. Goot SC and Mr M. Rennie instructed by Holding Redlich appeared for the plaintiff, Grace. Mr A. Moses SC leading Ms V. Bulut, instructed by Mills Oakley appeared for the defendant, Mr Alves. The Court has been greatly assisted by the careful and thorough submissions of the legal representatives on both sides in these proceedings.

Grace employs Mr Alves as a senior executive – 2010 to 2017

1. [8]

   Grace employed Mr Alves in 2010 as a member of Grace’s Executive Management Team. He became one of the three national managers immediately responsible to Grace’s Managing Director, Mr Brown.

2. [9]

   Mr Alves commenced in 2010 on a base salary of $140,000 under the Employment Agreement. He also had entitlements to bonuses, a car allowance, superannuation benefits, and a mobile phone.

3. [10]

   Mr Alves signed the Employment Agreement on 19 January 2010. He commenced in the role of National Manager Quality, Risk and Environment on 1 February 2010, the same date that the Employment Agreement was signed on behalf of Grace. The Employment Agreement included a Schedule A entitled “Remuneration Schedule”, which in turn had two attachments.

4. [11]

   The Position Description attached to Employment Agreement, Schedule A, detailed the particular duties in each area within Grace for which Mr Alves was responsible, including: quality assurance, risk, environment, workplace management (including occupational health and safety), compliance and training, the “Quality Work Group”, business planning and special projects. It also listed the principal objectives to be pursued through the role of National Manager - Quality, Risk and Environment.

5. [12]

   The Employment Agreement, Clause 3 specified his appointment and place of work (by reference to Schedule A). Clause 3 provided that Grace could change Mr Alves’s title and duties at any time during his employment under the contract; and/or require him to carry out services for any company associated with Grace. Its full provisions were as follows:

6. [13]

   Employment Agreement, Clause 4 required Mr Alves to (a) “devote [his] full attention and best endeavours to furthering the development, reputation and business of the Company”, (b), “to observe all lawful directions, orders, or instructions given to you by the Directors of the Company”, and (c), to comply with all applicable laws governing his conduct.

7. [14]

   Employment Agreement, clauses 5, 6 and 7 covered the use of Grace’s confidential information. They provided as follows:

8. [15]

   Employment Agreement, Clause 8 prohibited Mr Alves from being involved in competing engagements. It provided as follows:

9. [16]

   The total remuneration payable under the Employment Agreement is provided for under the heading “TOTAL REMUNERATION” in clauses 10 to 15, as follows:

10. [17]

    The full text of Schedule A is set out later in these reasons.

11. [18]

    Employment Agreement, clauses 22 and 23 provide respectively for the parties’ mutual rights of termination of the Employment Agreement by notice other than for cause and for the circumstances in which Grace could terminate Mr Alves’s employment without notice for misconduct, and limitations on Mr Alves’s rights upon such termination, as follows:

12. [19]

    The Employment Agreement, Schedule A specified a three-month notice period for the purposes of clause 22: Schedule A, paragraph 5(b). Another period of notice could be mutually agreed between Grace and Mr Alves under Clause 22(c). But it is common ground that no other Clause 22 notice period was ever agreed between Grace and Mr Alves.

13. [20]

    Clause 24 provided post-employment restraints prohibiting Mr Alves from soliciting Grace employees to terminate their employment, from soliciting business from Grace customers; or from working for a competitor of Grace for “the restraint period”, which Schedule A defined as 12 months. The full text of clause 24 provides:

14. [21]

    Many obligations under the Employment Agreement are only completed by reference to Schedule A, which provides as follows:

15. [22]

    The detail of the Bonus Scheme, Attachment B is set out later in these reasons. The Grace Mobile Phone Policy applicable to Mr Alves, one of the policies referred to in Schedule A, at the time provided for the use of the company mobile telephone issued to Mr Alves. The relevant provisions of that policy provided as follows:

16. [23]

    Mr Alves considered the Grace-supplied mobile phone to be a component of his base salary and argued that its removal at the time he was directed to take garden leave was a repudiation of the Employment Agreement.

17. [24]

    Employment Agreement, clauses 18 and 19 cover annual leave and sick leave respectively. Employment Agreement, clause 20 provides that leave, not falling within the categories of annual leave or sick leave, must be approved by Grace in accordance with the Grace Removals Leave Policy. Upon analysis, the Grace Removals Leave Policy covers annual leave, leave over the busy (in the removals business) December/January period, sick leave, bereavement leave, parental leave, carer’s/family leave and jury service leave, long service leave and leave without pay. But the Grace Removals Leave Policy does not cover garden leave, or any form of leave during periods that an employee is under investigation for any kind of misconduct. The Grace Removals Leave Policy does not therefore appear to be relevant to the issues in these proceedings.

18. [25]

    From 2010, Grace progressively restructured its senior management positions. It re-named the senior managers on its Executive Management Team, commencing to use the term “General Manager” for each of them.

19. [26]

    In about November 2014, Mr Alves’s role was redesignated as General Manager Operations (“GMO”). Mr Alves says this was in substance a promotion and that the functions assigned to his role significantly changed with the change in job title.

20. [27]

    Mr Alves claimed with the change in title to GMO that he assumed additional responsibilities in national costs management and the service delivery aspects of Grace’s corporate mobility division and that he acquired a number of direct and indirect reports.

21. [28]

    But upon these changes Grace did not provide him with a new written employment contract. When the hearing commenced Mr Alves contended that these changes meant that the terms of the original Employment Agreement signed in January 2010 no longer applied to him. But as will be seen, Mr Alves did not ultimately press this contention.

22. [29]

    At the time of his notice of termination in mid-July 2017, Mr Alves was being paid a base salary of $205,000, had a car allowance of $18,000, superannuation entitlements, access to a mobile phone and the opportunity to receive a bonus. Mr Alves claimed that this bonus could be as much as $141,450. But Grace’s calculations, detailed later in these reasons show that the figure was probably significantly lower.

23. [30]

    On the afternoon of 10 July 2017, Mr Alves telephoned Mr Brown and told him he was resigning from Grace to commence employment as the CEO of Kent. Earlier that same day, Mr Alves had signed an employment agreement with Kent to become its CEO.

24. [31]

    Kent competes with Grace in domestic and international relocations, and in a number of associated niche sub-markets. The nature of their competition is detailed later in these reasons when the validity of the post-termination restraints is discussed. But I accept, as Mr Brown stated, that Kent is Grace’s “direct and major competitor”.

25. [32]

    Mr Alves gave written notice of termination to Mr Brown at Grace by email late the same day. Under the subject heading “Steve Alves letter regarding resignation” Mr Alves wrote, “Steve, a copy of the letter handed to you today”. The attached letter stated:

26. [33]

    The resignation letter did not refer to any period of notice. Mr Alves said that this was because “I did not have a period of notice as far as I was aware in my contract in relation to my current role”. Grace contended that this statement was deliberately false. But I do not accept that it was. By the time Mr Alves was writing this letter he was not convinced that the terms (including the three-month notice period) of the Employment Agreement applied to him.

27. [34]

    Grace replied on 18 July. Mr Brown delivered this reply in person at a meeting he held at Grace’s Head Office with Mr Alves and Grace’s Financial Director, Mr Warren Elsworth.

28. [35]

    Mr Brown’s 18 July reply letter confirmed Grace’s position: that Mr Alves was still subject to the terms of the Employment Agreement including a three-month notice period, and the post-employment restraints. Under the heading “Restraints”, the 18 July letter continued:

29. [36]

    Grace’s 18 July letter also stipulated that Mr Alves’s employment was to “terminate formally” on 10 October 2017, being three calendar months from the date of his resignation on 10 July 2017.

30. [37]

    The following day, 19 July, Mr Brown directed an investigation into Mr Alves’s usage of Grace’s computers since 10 July. That investigation ultimately led to Grace making allegations against Mr Alves in the proceedings of misuse of Grace’s confidential information. These allegations were later withdrawn during the hearing after proving inconclusive. The making of these allegations became an additional basis for Mr Alves to claim that Grace had repudiated the Employment Agreement and that, as a result, the Employment Agreement’s post-employment restraints were no longer binding upon him.

31. [38]

    On 21 July, Mr Alves’s solicitors, Mills Oakley, responded to Grace’s 18 July letter. They disputed on his behalf that Mr Alves was bound by the Employment Agreement, the three-month Clause 22 notice period and any of the post-employment restraints; and Mills Oakley contended that Grace had repudiated the Employment Agreement.

32. [39]

    On 24 July, Grace issued a written direction to Mr Alves, placing him on “garden leave” for the duration of the three-month notice period. Grace’s 24 July letter asked Mr Alves to return all of its confidential information and intellectual property including a laptop and the mobile phone, which Grace had issued to him, as well as all other company documents and equipment in his possession. Mr Alves was also directed not to attend work or deal with customers, staff or clients of Grace.

33. [40]

    Mr Alves alleges that several of Grace’s directions in this letter of 24 July 2017 were conduct that repudiated the Employment Agreement. The full text of the letter is important and is set out below.

34. [41]

    Grace acted quickly. It approached the Court through the Equity Duty List. It filed the Summons seeking interlocutory and final relief against Mr Alves on 27 July 2017.

35. [42]

    The proceedings were returned to the Equity Duty List on 31 July 2017. The Court made procedural orders and directions that day, and listed the matter for an urgent final hearing on 17 and 18 August 2017. The fixing of an early final hearing allowed the parties to agree on an interlocutory regime upon Grace’s undertaking as to damages in which Mr Alves gave undertakings to the Court in the following terms:

36. [43]

    Mr Alves’s undertakings of 31 July 2017 (and Grace’s corresponding undertaking as to damages) continue to apply up until the making of orders following upon this judgment.

37. [44]

    When the trial commenced the parties were in contest about whether or not the Employment Agreement continued to apply to Mr Alves’s employment or whether it had been superseded. But on the second day of the trial the defendant’s senior counsel, Mr Moses SC, indicated the defendant would not contest the continuing application in 2017 of the terms of the Employment Agreement as made in 2010. The concession was well made as the point did not appear to be the defendant’s strongest and the concession had the incidental effect of allowing greater focus on the more contestable issues.

38. [45]

    The Court need not further consider whether Mr Alves’s change in title and role in 2014 altered the application of the Employment Agreement. It is agreed that the Employment Agreement continues to apply and this issue is resolved. A consequence of this is that there is also no issue between the parties that the three-month Clause 22 period of notice for termination other than for cause applies to the giving of notice by Grace and by Mr Alves.

39. [46]

    The issues remaining in dispute may now be briefly stated:

    1. (1)

       Did Grace repudiate the Employment Agreement by its conduct in sending Mr Alves on garden leave on or about 24 July 2017?

    2. (2)

       Did Grace repudiate the Employment Agreement by requiring Mr Alves to return the mobile phone, which Grace had issued to him?

    3. (3)

       Did Grace repudiate the Employment Agreement by any other conduct identified during the trial?

    4. (4)

       Did any repudiation by Grace absolve Mr Alves from compliance with the post-employment restraints in the Employment Agreement?

    5. (5)

       To what extent are the post-employment restraints in the Employment Agreement valid and reasonable, as not being contrary to the public interest? If not, can they be read down under the Restraints of Trade Act?

40. [47]

    With this factual overview the remaining issues for trial may now be considered together with their associated factual findings.

Analysis of the issues for Trial

1. [48]

   Mr Alves contends that Grace repudiated the Employment Agreement by sending him on garden leave on 24 July. This argument in turn raises the issue whether or not Grace had the right under the Employment Agreement to direct that Mr Alves be sent on garden leave.

2. [49]

   There is no express right in the Employment Agreement to allow Grace to send Mr Alves on garden leave. But Grace argues that despite the lack of an express right, a right to send Mr Alves on garden leave is implied in the Employment Agreement. Grace argues that its entitlement to send Mr Alves on garden leave arises at law because the terms of the Employment Agreement do not enliven any of the recognised exceptions to an employer’s ordinary obligation merely to pay the agreed remuneration without also permitting the employee to work.

3. [50]

   Mr Alves’s rejoinder to this is that the lack of an express right in the Employment Agreement is indicative of the absence of any right to send Mr Alves on garden leave. These various contentions are analysed below after the relevant law is examined.

4. [51]

   The applicable legal principles may be shortly stated. The law as to whether an employer is required as a matter of contractual obligation to provide an employee with work, or merely to pay the employee the amount required under the employment contract when the employee is ready, willing and able to perform the work is “a vexed one”: Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32 (“Wesoky”) at [16]. The question in each case is one of construction of the contract in question. Where the contract provides that benefits accrued to the employee as a consequences of the work, courts have more readily implied a contractual obligation on the part of the employer to provide the work, unless the employer has an express contractual right not to do so: Wesoky at [16].

5. [52]

   Any modern analysis of this issue is assisted by reference to the judgment of Morritt LJ in William Hill Organisation Limited v Tucker [1999] ICR 291 (“William Hill”). The question in that case was whether the employment of a senior dealer in a betting business required the employer merely to retain the dealer in service, or to give him actual work to be done. Observing that the question will always depend upon the particular contract, Morritt LJ stated (at 298 – 299) that the cases did illustrate certain categories and trends that were of assistance. Morritt LJ pointed to the common feature of the cases that the courts are more ready to find an obligation to provide work in theatrical engagements and then went on as follows:

6. [53]

   In William Hill, Morritt LJ posed (at 301) the same question in this field as Sir John Donaldson posed in Langston v Amalgamated Union of Engineering Workers (No. 2) [1974] ICR 510, which Morritt LJ conveniently summarised for his own purposes in William Hill as follows:

7. [54]

   Wesoky, considered earlier, was a modern Australian example of a case where a court found there was no right to send the employee on garden leave. In Wesoky, the employee was employed for a specific and substantial project, namely the establishment of certain multi-screen cinema complexes in Europe. A unique European post had been created for him away from the US where he had gained his principal experience. The nature of Mr Wesoky’s employment (indeed a consultancy, which was treated in the case as the equivalent of employment) was such that the maintenance of his niche skills in the cinema exhibition market required continuing work to keep them current. And finally, on the proper construction of the contract in Wesoky, Mr Wesoky was entitled to an equity interest in the projects which he was involved in developing, to provide him with an incentive to bring the projects to fruition. He would not have been able to earn this equity interest when placed on garden leave. Merkel J concluded from these circumstances in Wesoky (at [26]) as follows:

8. [55]

   Mr Alves argued that several considerations in the present case prevent the implication of a term into the Employment Agreement that Grace is entitled to send Mr Alves on garden leave, such that Grace’s direction of 24 July to do so deprived him of his contractual opportunity to work and therefore repudiated the Employment Agreement.

9. [56]

   First among these considerations is the question of whether or not Mr Alves was entitled to a bonus by reason of performing work, from which bonus he would be precluded were he placed on garden leave. The case was brought on for urgent final hearing and became a fast-moving proceeding. As a result there was not a clear consensus between the parties about the nature of Mr Alves’s bonus entitlements, even during final submissions. But the parties co-operated admirably and provided a consensus position to the Court after the conclusion of the hearing. Their consensus was reflected in exchanges of letters and emails that ultimately became Exhibits C and D. Findings concerning the bonus scheme applicable to Mr Alves and the bonus payments made to him over time appear below.

10. [57]

    Features of the Bonus Scheme applicable to Mr Alves as General Manager make clear that it was not discretionary but was, as he contended, a remuneration entitlement. The structure and operation of the Bonus Scheme are consistent with it being an entitlement. But as will be seen upon analysis, it was an entitlement that Mr Alves could never have earned, even if he had worked through his whole three-month notice period.

11. [58]

    The “Bonus Rules” of the Bonus Scheme applicable in July 2017 to Mr Alves in his role as General Manager Operations were as follows:

12. [59]

    The Bonus Scheme can be adjusted by Grace but only on a six-monthly basis. The Scheme provided “the Company [Grace] will review the structure and rules [of the bonus scheme] quarterly, reserving the right to make adjustments on a six monthly basis”. Grace’s operations for the second half of the 2017 calendar year, as demonstrated by the evidence, do not indicate that any adjustment of these Bonus Rules occurred before 1 July 2017. Grace could not now unilaterally make adjustments to the Bonus Scheme as it applies to Mr Alves, until 31 December this year.

13. [60]

    It is not necessary to go in detail into the variables that make components of the Bonus Scheme other than to observe that they are all mathematically based and are capable of exact calculation. They include the following performance indicators: the numbers of responses by customers within Mr Alves jurisdiction to a particular loyalty question posed to them, the cost of national sales in comparison to Grace’s budget, trading profit as a percentage of net revenue, and the incidence of payment of claims against Grace arising out of its operations. The mathematical specification of a bonus through the Bonus Rules is more consistent with a bonus entitlement rather than a discretionary bonus. The language of the Bonus Rules is consistent with Mr Alves having a right to a bonus. The Bonus Rules nowhere say that the bonus may be refused in Grace’s discretion.

14. [61]

    These rules were similar to but not identical with the Bonus Rules that applied when Mr Alves first signed the Employment Agreement in 2010: Schedule A Attachment A of the Employment Agreement. The original rules were superseded by the above version of the rules, probably in 2014 when he was made General Manager Operations. But the important first three clauses of the Bonus Rules (discussed below) and their mathematical and non-discretionary structure were all present in substance in the original 2010 Bonus Rules.

15. [62]

    These Bonus Rules operated in a predictable way throughout Grace’s employment of Mr Alves. After the hearing, at the Court’s direction, the parties agreed on the bonuses paid to Mr Alves over the periods of 12 months ending 30 June 2011 ($24,161.70), 30 June 2012 ($11,000.00), 30 June 2013 ($27,060.00), 30 June 2014 ($40,970.00), 30 June 2015 ($34,070.00), 30 June 2016 ($43,010.00).

16. [63]

    In the current financial year Mr Alves became entitled to a $25,480 bonus in respect of the six month period between 1 July 2016 and 31 December 2016, which was paid to him on or about 30 April 2017. Grace has calculated Mr Alves’s accrued bonus for the six-month bonus appraisal period up to 30 June 2017 at $16,400 (Exhibit C). This is payable under the Bonus Scheme rules within three months of 30 June 2017, that is by 30 September 2017. The payment is not yet due. It is not clear that Mr Alves accepts the accuracy of that calculation. And he indicated a willingness to waive his June 2017 bonus, if he were able to leave Grace within a shorter period as he proposed.

17. [64]

    The Bonus Rules fully answer Mr Alves’s argument that placing him on garden leave would impair his right to earn a bonus under the Bonus Scheme. The Bonus Rules provide that an employee “will be paid only for a complete six-month appraisal period”. The bonus is assessed and paid in six-monthly periods “one being January to June”. And the bonus will be paid only after the completion of each six-month appraisal period.

18. [65]

    Had Mr Alves worked on past 10 July throughout that notice period to 10 October, rather than proceeding on garden leave, Mr Alves’s work could not have earned him any bonus under Grace’s Bonus Scheme: his entitlement was contingent on him working a “complete six-month appraisal period”, an outcome he could never achieve.

19. [66]

    Mr Alves would not have been be entitled to a bonus had he worked through the three-month notice period, as distinct from taking garden leave in accordance with Grace’s direction. The taking of either of these courses would have led Mr Alves to exactly the same result: he would have worked through part of an incomplete six-month bonus appraisal period and because the period was incomplete, he would not have earned a bonus. If his entitlement to a bonus for the period July to December 2017 is nil whether or not he is placed on garden leave for three months, Mr Alves’s argument against an implied employer’s right to place him on garden leave for that relatively short period is gravely weakened.

20. [67]

    Moreover, Mr Alves originally contended that he was not bound by the terms of the Employment Agreement. He submitted that the appropriate notice period for termination of his contract was 28 days. The end of that 28-day period was also not the end of any appraisal period under the Bonus Scheme. Had he left within the notice period for which he himself originally contended, he would also not have been entitled to a bonus, by reason of the same logic that obtains in relation to Grace’s three months’ notice.

21. [68]

    The Court heard very little argument that considerations other than Mr Alves being unable to earn a bonus prevents the implication of a term into the Employment Agreement that Grace may direct Mr Alves to take garden leave for three months. The absence of argument on other considerations reflects the reality: Mr Alves’s position is not one that attracts the requirement for Grace to permit Mr Alves to do the work of its Operations Manager. The position is not unique. It represents one of three positions that report to the CEO, Mr Brown. The skills in question are general management skills albeit where the industry knowledge possessed by Mr Alves, or another with his experience, is an immense advantage.

22. [69]

    Grace did not repudiate the Employment Agreement by directing Mr Alves on 24 July to go on garden leave.

23. [70]

    One incidental issue arises from the Court’s findings here about the Bonus Scheme. Mr Alves claims that he is entitled to a bonus under the Bonus Scheme that should have been paid to him on 15 August 2017. So far as the Court is aware that bonus payment (which Grace calculates at $16,400) has not been made. The issue of its payment only arose in the course of the post hearing email exchanges that became exhibits C and D. The Court has not had the opportunity to hear submissions or examine the question of Grace’s actual liability to pay that bonus. But the Court has concluded here that Grace’s Bonus Scheme is non-discretionary. Once the bonus is earned by the reaching of the benchmarks for a particular six-month bonus appraisal period (in this case before 30 June 2017 and before Mr Alves gave notice on 10 July) Mr Alves would in the ordinary course have an entitlement to the payment of the earned bonus for that period.

24. [71]

    If after the delivery of these reasons the parties continue to be in dispute about the calculation or payment of a bonus to Mr Alves then the Court can deal with the matter. The Court has a duty to resolve all issues between parties before it and to bring proceedings between them to finality: Supreme Court Act 1970 (NSW) (“Supreme Court Act”), s 63. If requested, the Court will accept short written submissions on this issue on the basis of agreed facts. If there are disputed issues of fact the proceedings may have to be relisted for short argument.

25. [72]

    Mr Alves argued that Grace repudiated the Employment Agreement by demanding in its 24 July letter that Mr Alves return the company-supplied mobile telephone that was part of his remuneration package. Mr Alves says that such repudiation, if established, would have absolved Mr Alves from compliance with the Employment Agreement’s post-employment restraints. But for the reasons that follow, repudiation on these grounds is not made out.

26. [73]

    Mr Alves returned his mobile phone on 24 July. Grace contests that the return of the phone early and before 10 October was pursuant to Grace’s directive on 24 July. But Mr Alves anticipated he would have to return the phone. Acting on that expectation, he wiped information from it that was entirely personal to him.

27. [74]

    I accept Mr Alves’s evidence that prior to the meeting between himself and Mr Brown on 24 July, Mr Brown had communicated to Mr Alves that he [Mr Alves] might be able to electronically access data for purposes not associated with work on behalf of Grace. Mr Alves appreciated before the meeting on 24 July that he would probably be sent on garden leave. He described this as, “a reasonable possibility”. He reasonably concluded this based upon correspondence from Grace on 18 July that Grace was considering that option.

28. [75]

    The formal direction by letter from Grace on 24 July was given to him during a meeting between himself and Mr Brown on that date. He first read it when it was received and given to him at that meeting. But by then in my view he had reached the common sense and co-operative view that the phone would not be much use to him on garden leave. He had by then decided it would be best for him to clear his personal data and information and return it to Grace, which he did by giving it to a colleague.

29. [76]

    Mr Alves was an impressive witness, whose evidence I accept. He struck the Court as a co-operative obliging and committed individual who felt a continuing sense of moral obligation to Grace, notwithstanding the notice that he had given on 10 July. In my view, he took complete steps to wipe the data from the mobile phone and return it in a decided spirit of co-operation with Grace before he was formally directed to do so. I do not think the 24 July direction made any difference to his conduct.

30. [77]

    But even if the return of the mobile phone was pursuant to such a direction, in my view the 24 July direction was not a repudiation of the Employment Agreement.

31. [78]

    It is by no means clear that upon a proper construction of Grace’s Mobile Phone Policy that Mr Alves was entitled to keep his mobile phone whilst on garden leave. Given that his period on garden leave would not involve him doing any work for Grace whatsoever, it is difficult to understand how his continued possession of the mobile phone could have served Grace’s interests and the intent of the Mobile Phone Policy at all. While there is little doubt he was entitled to a mobile phone, his entitlement was always subject to Grace’s Mobile Phone Policy. The policy, as earlier set out in these reasons, makes it quite clear in several places that the use of the mobile phone was “by an employee for work purposes”. The rationale of the policy was that a mobile phone would be issue only where “it has been identified there is an adequate need or sufficient benefit to the company”. But once Mr Alves was on garden leave, it was difficult to understand what “benefit to the company” he could have provided by use of the mobile phone other than to the very limited extent of passing on to Grace information about incoming business calls. But the company could just as readily fulfil that objective by taking possession of the phone. But none of the other stated examples of the need for a mobile phone as declared in the Mobile Phone Policy apply to an employee on garden leave. There was no requirement, for example, for Mr Alves to be “contacted out of normal office hours”. There was no need for him to give “enhanced client service or greater efficiency through the flexibility offered by a mobile telephone”.

32. [79]

    Mr Alves’s case that his mobile phone was a significant component of his remuneration fails to take into account the true value of the telephone to an employee such as Mr Alves. Once on garden leave, if he complied with Grace’s Mobile Phone Policy, that policy contractually directs that “private use is kept to a minimum”. Thus, the value of the mobile phone to Mr Alves on garden leave is not even the equivalent of a commercial phone contract to acquire a substitute phone. It is far less valuable than that. The mobile phone issued to him was not one in respect of which he had unlimited private usage. He was in substance expected to keep his personal calls to a minimum on the company-issued phone and to conduct his ordinary personal calls of any length on another device.

33. [80]

    In my view, even if the phone was returned in response to the 24 July directive, the loss of value to Mr Alves associated with the deprivation of the phone was so minimal that it totally lacked the characteristics required for contractual repudiation, particularly in circumstances where there was no doubt that Grace was continuing to otherwise pay Mr Alves his full remuneration whilst on garden leave: see Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No. 3) [2017] FCAFC 102 at [58] to [84].

34. [81]

    In my view the analysis of Bell J in Actrol Parts Pty Ltd v Coppi (No. 2) [2015] VSC 694; (2015) 257 IR 179 at [23] is of assistance here. His Honour there found that it was permissible for an employee to receive even slight diminution in bonus payments during a period of garden leave without displacing the conclusion that a term allowing garden leave is reasonable and equitable and necessary to give business efficacy to an employment contract so as to avoid contact between an employee and a competitor. Seeking the return of the mobile phone is consistent with the overall purposes of sending Mr Alves on garden leave. Causing Mr Alves to enjoy a little less of private phone usage which was otherwise to be “kept to a minimum”, whilst he was on garden leave is not repudiatory conduct. The provision of the mobile phone is not an essential term. Nor is it a serious breach of an intermediate term of the contract. Nor is it conduct which signals in the circumstances an intention no longer to be bound by the Employment Agreement.

35. [82]

    Mr Alves argued that Grace repudiated the Employment Agreement by its conduct during this litigation in making allegations of serious misconduct against Mr Alves, which were without foundation and which were withdrawn before the end of the hearing. Mr Alves says that such repudiation, if established, would have absolved Mr Alves from compliance with the Employment Agreement’s post-employment restraints. But for the reasons that follow, repudiation on these grounds is not made out.

36. [83]

    In its written outline of opening submissions dated 15 August 2017, Grace contended that on or about 17 July 2017 Mr Alves used and copied Grace’s confidential information in a manner inconsistent with his duties, thereby causing Grace irreparable loss and damage. Oral submissions to the same effect were ultimately withdrawn on the second day of the hearing, 18 August 2017. Mr Alves submits that the making and maintenance of that allegation, until it was withdrawn, was a repudiation of the Employment Agreement.

37. [84]

    The submission was only alive for three days, but attracted considerable controversy in final submissions. In my view, when the circumstances surrounding the making and withdrawal of the allegation are considered, Grace’s conduct is not a repudiation of the Employment Agreement.

38. [85]

    Context is important. These proceedings were brought on for hearing rapidly. There was limited time to examine and double-check technical evidence. When the lack of basis for the submission was made clear, it was immediately withdrawn by the responsible legal representatives for Grace in a manner which was properly accepted by the responsible legal representatives for Mr Alves. It seems to be that little public harm could befall Mr Alves from the making and quick withdrawal of allegations of this nature, and this judgment records that Grace now does not allege that Mr Alves took or misused any of its confidential information.

39. [86]

    In the oral opening of counsel for Grace on 17 August, it was alleged that Mr Alves had downloaded information to a USB drive or drives including after he had given notice of his resignation to what was described as an “F” drive on Grace’s computer system. Senior Counsel for Grace contended that Mr Alves had “no business to do that downloading” and that he “didn’t need any of the documents for the performance of his duties at that time”.

40. [87]

    But the contention never went any further than this. There was never any contention that the material downloaded had gone further than those thumb drives. There was an evidentiary basis for Grace’s submission that the downloading to the “F” drive had occurred. Mr Peter Hole, an employee of Grace examined its computer system and ascertained that someone using Mr Alves’s account had copied approximately 25 documents into a folder entitled “SALVES” on the “F” drive between what was thought to be 17 and 20 July 2017.

41. [88]

    But Mr Hole was effectively cross-examined by Mr Moses SC, counsel for Mr Alves, and Mr Hole later agreed to conduct an examination of Grace’s computer system overnight on 17 August. It emerged from that examination that the data logs available to Mr Hole were not sufficiently clear for Mr Hole to be able to differentiate between the folders in question being moved or being accessed. All that Mr Hole was able to conclude was that the logs showed activity on the days in question but he could prove that they had been moved, viewed or copied. With that Mr Hole, and then Grace, withdrew any assertion that Mr Alves had copied information to the “F” drive between 17 and 20 July 2017. Counsel for Grace made it clear that there were no allegations being made even of any “attempts to export confidential information”.

42. [89]

    In an affidavit made on 8 August 2017 in response to Mr Hole’s 3 August affidavit, Mr Alves gave a wholly innocent explanation of his use of the “F” drive, being the drive upon which his work files were stored. The Court accepts his evidence on this subject, including that any moving of files that he did was associated with attending to outstanding matters to complete his work on behalf of Grace.

43. [90]

    Mr Hole was criticised in submissions for failing to pass on to persons such as Mr Brown deficiencies in the quality of information available to him. But in my view there was nothing deliberate in neither his nor Mr Brown’s conduct on this issue that was intended to do harm to Mr Alves. They were both suspicious of Mr Alves’s activities, but were not acting in bad faith. They were witnesses of substantive truth on this and other subjects.

44. [91]

    It was put on behalf of Mr Alves that Grace had repudiated the contract by breaching an implied term of mutual trust and confidence but the common law of Australia does not recognise such an implied term: Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 (“Barker”).

45. [92]

    Grace then submitted it relied upon an implied term of good faith, which had not been ruled out in Barker. But even if such an implied term of good faith were to be implied, Mr Alves has not shown that Grace was motivated by bad faith or dishonesty: Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 at [235] – [238] and Overlook v Foxtel [2002] NSWSC 17 at [63] – [80].

46. [93]

    This question does not have to be answered. The Court has found that Grace did not repudiate the Employment Agreement on any of the grounds that Mr Alves alleged for such a repudiation. The Court does not have to examine in theory whether if any of the alleged repudiations had taken place, whether that would have absolved Mr Alves from compliance with the post-employment restraints within the Employment Agreement.

47. [94]

    The 12-month post-employment restraints in the Employment Agreement are not affected by any acts of Grace that may have repudiated the Employment Agreement. So the contractual restraint is operative subject to the operation of the common law and the Restraints of Trade Act, s 4. In the State of New South Wales the common law doctrine of the avoidance of restraints of trade on grounds of public policy is modified by the Restraints of Trade Act, s 4, which relevantly provides as follows:

48. [95]

    The parties did not dispute that the contract is governed by the law of this state.

49. [96]

    The applicable legal principles may be shortly stated. I am indebted to McDougall J’s useful summary of those principles that his Honour set out in Stacks Taree v Marshall [No. 2] [2010] NSW SC 77 at [44], which relevantly provides as follows:

50. [97]

    Mr Alves disputed that the post-employment restraints were reasonable and submitted they could not be justified as protecting Grace’s legitimate interests. Mr Alves put his argument on a number of grounds.

51. [98]

    Mr Alves submitted that in the event the Court did not find repudiation of the Employment Agreement by Grace that he would undertake until 9 January 2018 not to directly or indirectly solicit any person who had been a customer of Grace between April and October 2017, nor accept or carry out business for such a person.

52. [99]

    Effective though this offer was it does not fully address Mr Alves’s customer connections with Grace’s customers coming into the busy December/January period in this industry. Of the eight key customers identified in the proceedings, whilst the identity of the customers may not be confidential, in my view, Grace is entitled to a restraint in respect of those customers for protection of its legitimate business interests. Mr Alves is well aware of the many price points and rebates in relation to these and other potential customers of Grace in many different areas of its business. The significance of these current price points and rebates will in my view abate in significance after approximately six months. The evidence of Mr Brown suggests that such price point and rebate information is changed monthly, quarterly or annually. But in my view Mr Alves’s position with respect to these will become less significant and they are only entitled to legitimate protection through a limited period of change for about six months.

53. [100]

    Mr Alves is the public face of Grace, dealing with customers in his area and could utilise that connection to the immediate disadvantage of Grace’s legitimate business interests. But the evidence of customer turnover is such that protection of that interest should not continue for more than six months.

54. [101]

    Whilst there is no evidence that Mr Alves is going to solicit employees of Grace, in my view such a protection should also continue.

55. [102]

    Grace’s supplier agreements are another basis to continue the protections sought. Although some of them are expiring. Four of the six major supplier agreements expire in 2019 or 2020 but in the short term these are still valuable relationships deserving of protection from such a senior employee as Mr Alves for a period of legitimately no more than six months ending 9 January 2018. All the Clause 24 restraints will be so modified to that period.

Conclusions and Orders

1. [103]

   The effect of the Court’s reasons and orders may be shortly stated. The parties ultimately did not dispute that the Employment Agreement Mr Alves signed in January 2010 governed the terms of his employment by the plaintiff, Grace in July 2017. The Court has found that the Employment Agreement contains an implied term entitling Grace to direct Mr Alves to take garden leave for the three months clause 22 notice period for termination other than for cause. Grace’s direction of 24 July to Mr Alves for him to take garden leave was not a repudiation of the Employment Agreement.

2. [104]

   Grace’s conduct in demanding in its 24 July letter that Mr Alves return the company-supplied mobile telephone that was part of his remuneration package did not repudiate the Employment Agreement.

3. [105]

   Grace’s conduct during this litigation in making allegations of serious misconduct against Mr Alves, which were ultimately seen to be without foundation and which were withdrawn before the end of the hearing did not repudiate the Employment Agreement.

4. [106]

   Mr Alves is bound contractually under the Employment Agreement by the 12 month post-employment restraints in the Employment Agreement. But the restraints in question are more than what is reasonable to protect Grace’s legitimate business interests and would be void at common law but the restraints should be read down under the Restraints of Trade Act so as to be valid to the extent they would otherwise have been valid, which in this case the Court finds is a period of six months.

5. [107]

   Unless the parties’ interlocutory undertakings are withdrawn they will continue until the Court makes final orders, or accepts final undertakings. The better course in the circumstances is to allow the parties a short opportunity to see if they can agree upon a form of final orders. If they cannot agree the matter can be listed next week by agreement with my Associate.

6. [108]

   If after the delivery of these reasons the parties continue to be in dispute about the payment of a bonus to Mr Alves for the period ending 30 June 2017, then the Court can still deal with the matter. The Court has a duty to resolve all issues between parties before it and to bring proceedings between them to finality: Supreme Court Act s 63. If requested, the Court will accept short written submissions on this issue on the basis of agreed facts. If there are disputed issues of fact the proceedings may have to be relisted for further argument.

7. [109]

   On the question of costs, the parties have had a mixed result. Grace has been successful in upholding its post-employment restraint. But Mr Alves has been successful in having the length of that restraint reduced by about half under the Restraints of Trade Act. The parties may yet need to argue about the final incidence of costs. And one or other party may seek a special costs order. A short opportunity will be allowed to the parties to see if they can come to agreement about costs. The matter will be listed for directions in early November on a date suitable to the parties and fixed by arrangement with my Associate.

8. [110]

   If the parties cannot agree on the exact form of the orders to be made they should provide their competing versions to the Court. Liberty to apply for that purpose will be granted.

9. [111]

   Accordingly, the Court makes the following orders and directions:

   1. (1)

      Direct that the parties bring in short minutes of order to give effect to these reasons.

   2. (2)

      The Court notes that the respective undertakings of the parties continue until the making of final orders.

   3. (3)

      The question of whether any bonus is due and payable to Mr Alves for the six-month bonus appraisal period ending 30 June 2017 and the question of the costs of these proceedings are reserved for further consideration.

   4. (4)

      If the questions of costs and the payment of bonus to Mr Alves for the period ending 30 June 2017 cannot be agreed, then the proceedings will be listed for directions or further argument on those questions in early November on a date suitable to the parties and fixed by arrangement with my Associate.

   5. (5)

      Grant liberty to apply in relation to the form of final orders.