Helensburgh Property Management Pty Ltd v Brady

The plaintiff, Helensburgh Property Management Pty Ltd, operates a real estate agency providing property management services in Helensburgh, New South Wales. It is owned by the McGrath Property Management Trust. The office at Helensburgh is different from the usual McGrath business operation in that it has no McGrath branding and it has a shared arrangement for both administration and business referrals with Ray White Real Estate at the same address.

The first defendant, Emma Elizabeth Brady (the defendant), was employed by the plaintiff as a Property Manager from 2010 until 8 September 2015. The second defendant, All Over Rentals Pty Ltd (All Over Rentals), is a company established by the defendant on 22 July 2015 operating in Helensburgh and competing with the plaintiff in the management of rental properties.

The plaintiff seeks declaratory relief against the defendant regarding her obligations in respect of confidential information and a restraint of trade covenant pursuant to her Employment Agreement with the plaintiff dated 29 June 2012 (the Agreement). The plaintiff also seeks to restrain All Over Rentals from using confidential information which has been provided to it by the defendant.

The proceedings were commenced by Summons filed in Court before the Duty Judge on 9 November 2015. When the matter was returned before the Court on 13 November 2015 the defendants gave undertakings that they would: maintain records of all dealings involving property management; produce those records to the plaintiff on a confidential basis by 5pm on 27 November 2015; refrain from using the confidential information of the plaintiff other than as permitted by law; and until further order not solicit or attempt to solicit property management or sales business from certain identified persons and entities.

On 13 November 2015 the proceedings were expedited and listed for final hearing on liability on 3, 4, 7 (and if necessary, 9 & 10) December 2015. The matter was heard on 3 and 4 December 2015 when Mr TS Hale SC leading Ms J Gatland, of counsel, appeared for the plaintiff and Mr RA Parsons, of counsel, appeared for the defendants.

During the proceedings the defendant admitted that she approached a number of the plaintiff’s clients both before and after the termination of her employment to entice them to give their business to All Over Rentals. There is no issue that All Over Rentals has now secured the business of at least twenty-five former clients of the plaintiff who own between them approximately fifty-four properties.

Although judgment was reserved on 4 December 2015, it was clear that the plaintiff had established that the defendant was in breach of her Agreement (and had made admissions to that effect) by at least: using the plaintiff’s confidential information to establish her own business; establishing her own business whilst still employed by the plaintiff for the purpose of competing with the plaintiff; enticing the plaintiff’s clients away from the plaintiff to All Over Rentals while she was still employed with the plaintiff and immediately thereafter; and by failing in her duty of loyalty and good faith to her employer. Orders were made restraining the defendant from soliciting or accepting instructions from certain identified clients of the plaintiff for a period to be revisited at the time of the hearing on damages that is listed on 11 February 2016. Other orders were made cocooning the fees earned from eight of the plaintiff’s former clients; requiring notice to the plaintiff of any proposed sale of the business or assignment of rights under the property management agreements; and the keeping of records.

The defendant has worked in the real estate industry since 1995. She was initially employed in an administrative capacity with a real estate agency in Campbelltown, NSW and then trained in property management and has worked in that field since that time.

The defendant entered into an Employment Agreement with the plaintiff on 9 July 2010 in respect of her employment as a Property Management Representative commencing on 8 July 2010 on a base wage of $49,780 plus 9% superannuation, with a motor vehicle allowance of $12,220. The defendant was to receive a fee of $200 gross for the introduction of new business to the plaintiff together with a $50 bonus if management of the new client was signed at full fee. The defendant was also entitled to $25 gross for effecting each letting.

The Agreement provided:

Employment could be terminated by the giving of one week’s notice in writing to the plaintiff (cl 15.1). The Agreement also provided for a six month period of probationary employment (cl 17.2). It also provided:

Item 12 of the Reference Schedule provided that clause 18 was applicable. The work that the defendant performed included managing residential and commercial properties leased by clients of the plaintiff, collecting rents, dealing with tenants, undertaking rent reviews and lease renewals and arranging for rental agreements and leases to be entered into between landlords and tenants. The defendant was the sole property manager of the plaintiff throughout the period of her employment at Helensburgh. However it is clear that in 2015 the plaintiff introduced another employee into the Helensburgh office who may well have been seen as the defendant’s protégé. The defendant’s base salary was increased to $55,000 in about July 2011.

In about March 2012 the General Manager of the plaintiff, Colin Wayne Rodgers, instigated discussions with the defendant and other employees in the property management business of MCG Property Management (McGrath) relating to proposed changes to their remuneration packages. The other offices for which Mr Rodgers was and is responsible are in the Sutherland Shire being in Cronulla, Engadine, Illawong and Sylvania.

In March 2012 Mr Rodgers and the General Manager of McGrath Estate Agents of the Sutherland Shire Group, Warren Campion, met with the defendant at Mr Campion’s office at Cronulla. The evidence given by Mr Campion and Mr Rodgers was that they informed the defendant that they were reviewing salary packages and looking to implement a bonus scheme to “incentivise” the property managers for the purpose of encouraging them to build the business and to reward people who did so. The defendant indicated that she wished to ensure that her basic salary was not reduced and was assured that this would not happen. Mr Campion advised the defendant that it was proposed to increase her base salary to $60,000 plus a car allowance with a quarterly bonus of 15% of the management fee income over $302,160 per year. They also advised that in addition the defendant would still receive the same referral and reletting fees together with the bonus for the introduction of new business. Mr Campion advised the defendant that he and Mr Rodgers were discussing the process with all the property managers to make sure everyone was comfortable with the new proposals. He also said that once “we have everyone aligned with the new scheme” new contracts would be issued to reflect the arrangement.

In June 2012 Mr Rodgers and Mr Campion met again with the defendant. Mr Campion gave evidence that at this meeting he said to the defendant (emphasis added):

Mr Rodgers’ recollection of the conversation was that Mr Campion said (emphasis added):

The defendant gave evidence that the documents provided to her to take with her included a copy of the Agreement, a document described as “Individual Flexibility Agreement” and a document entitled “Commission Structure”. Not surprisingly the defendant concentrated on the income and incentives that were included in the documents and gave close attention to the figures that impacted on her income. Indeed the defendant picked up two errors in the Commission Structure and raised them with the Human Resources Manager (ironically to the plaintiff’s favour). The defendant’s unchallenged evidence was that she had no clear recollection of studying the whole of the proposed new Employment Agreement in detail having recalled the conversation with Mr Campion that it was otherwise similar to the 2010 Agreement that she had signed previously.

It is not in issue that there was no discussion at any stage between the plaintiff and the defendant, either in March 2012 or June 2012, or at all, that the plaintiff intended to change the restriction on the defendant’s post-employment activities.

On 29 June 2012 Mr Rodgers received the Employment Agreement between the plaintiff and the defendant signed by the defendant and dated that day. Mr Rodgers signed that Agreement on 10 August 2012. That Agreement included the same clause 13 in respect of Confidential Information that was contained in the 2010 Agreement. It also included the following:

Once again Item 12 in the Reference Schedule provided that clause 18 is applicable. Mr Rodgers claimed that he did not notice at the time that he signed the Agreement that clause 18.2 was limited to “within the Sutherland Shire”. His evidence was that all of the property managers employed by McGrath who entered into “similar” contracts worked within the Sutherland Shire. He claimed that most of the properties managed by the plaintiff were within 15 kilometres of the Helensburgh office, located in Wollongong in the Illawarra region and not in the Sutherland Shire. Mr Rodgers said that if he had noticed the restriction being limited to “within the Sutherland Shire” in clause 18.2 he would have changed the reference to “Illawarra region” or “15km from the Office of the Employer”.

The defendant’s unchallenged evidence was that at the time of her resignation, she was managing 300 properties: 80% (240) of which were within 15 kilometres of the Helensburgh office; 10% (30) of which were in the Sutherland Shire; and 10% (30) of which were in the Illawarra region, outside the 15 kilometres from the Helensburgh office.

It appears that some tension developed in the defendant’s relationship with her employer because of a lack of administrative support for her as she grew the business. The plaintiff decided to remove the defendant’s photograph and contact details from its webpage and replace them with the photograph and contact details of the person who was supposedly assisting the defendant with her workload. This caused the defendant some concern having regard to the possible impact on her capacity to earn commission and generate business. It is clear that the defendant became disenchanted with her employment with the plaintiff and decided to set up her own business.

On 22 July 2015 the defendant established a company that was originally named Helensburgh Rentals Pty Ltd. However on 14 September 2015 the defendant caused that name to be changed to All Over Rentals Pty Ltd. The defendant gave notice terminating her employment with the plaintiff on 1 September 2015. Her last day of employment was 8 September 2015. The defendant did not inform the plaintiff that she intended to set up a business in competition with it.

The plaintiff claims that on a proper construction of the Agreement clause 18.2 would be understood as including the restriction of not only within the Sutherland Shire but also in the Illawarra region. In support of this contention the plaintiff submitted that this construction can be gleaned objectively by reference to the text, the context in which the agreement was executed and its purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 at [46]. In this regard the plaintiff emphasised the following passage of the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35]:

Clause 18.3 refers to the Sutherland Shire and the Illawarra region. That clause provides that the restraint, in clause 18.2, was not intended to prevent the defendant from working in those areas for any similar business. It noted that the restraint was aimed at protecting the plaintiff’s confidential information of the business. The plaintiff submitted that having regard to the circumstances of the defendant not working in the Sutherland Shire but working in Helensburgh in the Illawarra region, it was intended to include both the Sutherland Shire and the Illawarra region. It was also submitted that the omission of the words “or Illawarra region” from clause 18.2 bring about an absurdity of restraining the defendant’s post-employment activities in an area in which she did not work whilst employed with the plaintiff. It was submitted that the parties intended that the relevant area for the post-employment restraint would clearly have been the area where the defendant worked.

The objective purpose of the Employment Agreement was to govern the terms of the defendant’s employment and her obligations to the plaintiff both during her employment and after it ceased. Objectively the restraint was to protect the plaintiff’s business from the influence that the defendant would have over its customers for what should be a reasonable post-employment restraint.

The plaintiff called in aid a copy of the contract that was signed by all of the other property managers in McGrath’s Sutherland Shire offices at the time that the new contracts were introduced. The clause in those contracts is identical but for the reference in the defendant’s contract to the plaintiff’s office in Helensburgh in clause 18.2 (a) to (c) and the words “or Illawarra region” in clause 18.3. The Illawarra region is a very large area covering at least on the regional map in evidence from the southern boundary of the Sutherland Shire as far south as Gerroa just north of the south coast region.

In ascertaining the intention of the parties in circumstances where previously there had been but a 15 kilometre restraint, it is difficult to conclude that each of the parties intended that the defendant would be restrained in respect of such a very large area of the Sutherland Shire and the Illawarra region. Where a restraint is imposed on an employee, great care needs to be taken to ensure that the provisions of that restraint are clear so that the employee understands the confines within which that employee must work and must behave post termination.

The surrounding circumstances and the purpose of introducing the 2012 Agreement was focused upon the change in the remuneration structure with the new incentives for the property managers to build McGrath’s business. The statements made to the defendant by both the General Manager of the plaintiff and the General Manager of McGrath Estate Agents of the Sutherland Shire Group made it clear that the intention was that but for the changes to the remuneration structure, the Agreement was “the same style of contract” with “all the normal terms and conditions” as the previous agreement but “updated” and was “basically on the same terms” as the existing contract. Had there been any other intention, in particular, to include in clause 18.2 not only the whole of the Sutherland Shire but the whole of the Illawarra region and the increase in the restraint period to 12 months, it is incomprehensible that there would not have been some discussion about such a change. A large organisation such as McGrath would surely not (and it is not so suggested) make such a change in a contract without first discussing it with the employee and/or alerting the employee to the existence of the vast new area of restriction and the longer restraint period in such a contract.

The fact that clause 18.3 noted that the defendant was not prevented from working in the Sutherland Shire or the Illawarra region in the circumstances described does not support the conclusion that the parties intended that clause 18.2 should include the expression “Sutherland Shire or the Illawarra Region”. Having regard to the circumstances of the defendant’s location of employment, it might be argued that clause 18.2 was intended to read only “Illawarra region” and not “Sutherland Shire”; and that clause 18.3 was intended to read only “Illawarra region” and not both “Sutherland Shire” and “Illawarra region”. I am not satisfied that clause 18.3 requires one to read clause 18.2 as including the Illawarra region.

I am not satisfied that the construction for which the plaintiff contends is justified.

The plaintiff contends (slightly differently from its pleading) that the words “or Illawarra region” were omitted from clause 18.2 by mistake. The plaintiff accepts that it must establish such a mistake on a high level of certainty: Betts v Conolly (1970) 120 CLR 417 at 421-2 per Barwick CJ (in dissent, but not on principle). The plaintiff also accepts that the mistaken omission and the substitution sought should be obvious: Noon v Bondi Beach Astra Retirement Village Pty Ltd [2010] NSWCA 202 at [191] per Young JA. It also accepts that without the construction for which it contends the clause must be seen to be absurd or inconsistent with the contract read as a whole: Westpac Banking Corp v Tanzone Pty Ltd (2000) 9 BPR 17, 521 at [22]-[23]. It is of course not suggested the defendant was aware or knew of the mistake that the plaintiff now claims to exist.

To achieve rectification of clause 18.2 of the Agreement the plaintiff must prove that through common mistake the contract as signed did not give effect to their mutual intention or true agreement: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 (per Barwick CJ at 345 and Mason J at 350). In Aspro’s Pty Ltd v Hayter & Ors [2005] ANZ ConvR 425 the following was said at 428:

There was no affidavit evidence given by either Mr Rodgers or Mr Campion of the process by which the Agreement was drafted. In cross-examination Mr Rodgers gave evidence that the Agreement was drafted by the Real Estate Employers’ Federation (tr 12). However Mr Rodgers then gave evidence that the content of the Agreement was a standard template from the Real Estate Employers’ Federation (tr 13). He then said that the provisions of clause 18.2 (a) to (d) were drafted by the company’s lawyers (tr 15). Mr Rodgers also said that an officer in the plaintiff’s Human Resources department was also involved in the drafting of the Agreement and that they “all sat down when we reviewed the document together with the team” (tr 16). The team to which Mr Rodgers referred was himself (and probably Mr Campion) and the individual property managers (tr 16). Mr Rodgers gave evidence that the main things that he was doing in vetting the document was ensuring that the company name was correct, the employee’s name was spelt correctly and the dollars and cents as far as the package and incentive payments were correct (tr 17).

Not only has there been no cross-examination of the defendant as to her understanding of the restraint clause at the time that she signed it in June 2012, there was no proper explanation as to why it would be that the whole of the Illawarra region would be included in clause 18.2 of the Agreement.

As has already been observed, the evidence establishes that when Mr Rodgers and Mr Campion discussed the Agreement with the defendant she was advised that it was “basically on the same terms as your existing contract but has been updated to our latest employment contract version”. There is no doubt that the parties were turning their minds only to the remuneration package and did not give proper consideration or perhaps any consideration in the case of the defendant to the appropriate restrictions to be placed upon her post-employment activities. On the other hand the draftsperson clearly decided to amend clause 18.2 to include the reference to the Helensburgh office and then to insert the “Illawarra region” in clause 18.3. I should record that it was not until 2015 at the time that the defendant decided to terminate her employment and set up a business in competition with the plaintiff that she noticed the terms of clause 18.2 of the Agreement. Not surprisingly at this time she formed the view that she was “not at all perturbed” by it and was “quite prepared to comply” with it.

The plaintiff did not call any evidence from any person in the Human Resources department. Nor did it call any evidence from the company’s lawyers who apparently drafted the sub paragraphs of clause 18.2. It was not suggested by Mr Rodgers that the lawyers drafted the chapeau to clause 18.2 and it is not clear who did so. The plaintiff did not put into evidence the so-called “template” that was provided to it by the Real Estate Employers’ Federation. Nor did the plaintiff call any evidence to establish the terms of the previous contracts with the other property managers in the Sutherland Shire. In those circumstances it is not possible to know whether those employees’ restraints on post-employment activity changed at all. It may well be that there was no change to those employees’ restraint clauses.

In any event the overwhelming effect of the evidence is that both the plaintiff and the defendant understood that the only changes to be made in the 2012 Agreement related to the remuneration package, the incentives and the commission structure. Although Mr Rodgers gave evidence that had he noticed clause 18.2 he claimed he would have changed it to remove the Sutherland Shire and include the Illawarra region or to include a geographical restraint 15 kilometres from the Helensburgh office, I am not satisfied that such a claim should be preferred over the clear evidence of the intention expressed by Mr Rodgers and Mr Campion to the defendant at the time that they discussed the new Agreement with her.

I am satisfied that both the plaintiff and the defendant intended that the clause in the 2010 Agreement in relation to the restraint on post-employment activities would be included in the 2012 Agreement. I am satisfied that this mutual intention was not effected in the 2012 Agreement.

I am also satisfied that the terms of clause 18.2 in the 2010 Agreement are reasonable in all the circumstances and are not against public policy: s 4 Restraints of Trade Act 1976. The restraint of 15 kilometres from the office in Helensburgh provides an appropriate balance to protect the plaintiff’s confidential information and to provide the freedom for the defendant to establish a viable business.

The plaintiff has failed to make out its case for rectification to include within clause 18.2 the words “within the Sutherland Shire or the Illawarra region”. Although the plaintiff has not sought specifically to rectify the Agreement by including the terms of clause 18 of the 2010 Agreement, I am satisfied that it is appropriate in all the circumstances to rectify the 2012 Agreement by deleting therefrom clause 18 and by inserting therein the provisions of clause 18 of the 2010 Agreement.

The defendant established All Over Rentals (known then by its previous name) approximately two months before she terminated her employment with the plaintiff. If preparatory work carried out by an employee whilst still employed would result in damage to the employer if the work were successful, it would be in breach of the employee’s duty of fidelity to the employer: Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275; Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169. In this instance this was more than benign preparatory work to engage in competition with the plaintiff: Wessex Dairies Ltd v Smith [1935] 2 KB 80.

In a rather disarming series of answers in cross-examination the defendant agreed that: it was her intention on 22 July 2015 when she established the company to compete with the plaintiff; she knew that she needed clients and the “easiest source” was the plaintiff’s clients (tr 43); she adjusted the plaintiff’s rental records to mislead the plaintiff as to what was happening (tr 45); she held discussions with certain of the plaintiff’s clients whilst she was still employed with the plaintiff to convince them (some successfully) to give their business to All Over Rentals (tr 45-46); she knew at the time that what she was doing was wrong (tr 46); whilst still employed with the plaintiff she was quite aggressive in her attempts to obtain the business of one particular client (tr 47); and she continued the process of approaching the plaintiff’s clients to entice them to her new business immediately after she terminated her employment.

There is no issue that the defendant has breached the terms of her Employment Agreement. Those breaches include acting in breach of her implied duty of loyalty and good faith and using the plaintiff’s confidential information other than in the performance of her duties. The defendant obtained a springboard for her own business by poaching the plaintiff’s clients. This was done in part by misusing the plaintiff’s confidential information and providing it to All Over Rentals for the purpose of establishing the business by poaching the plaintiff’s clients. Although there is no specific claim pleaded against All Over Rentals, the parties have proceeded at trial on the basis that it knowingly received the confidential information.

Once again in these all too prevalent circumstances it is apt to refer to Peter Smith J’s observations in First Conferences Services Ltd v Bracchi [2009] EWHC 2176 (Ch) at [25] as follows:

The plaintiff is entitled to have the 2012 Agreement rectified by deleting therefrom clause 18 and replacing it with clause 18 of the 2010 Agreement. The plaintiff has established that the defendant is liable to it for breach of contract. I will hear the parties in respect of the appropriate finding on liability against All Over Rentals. The hearing on damages is listed on 11 February 2016. Any costs argument will be heard at the conclusion of the proceedings.