You are here:
AustLII >>
Databases >>
Supreme Court of New South Wales - Court of Appeal >>
2011 >>
[2011] NSWCA 409
[Database Search]
[Name Search]
[Recent Decisions]
[Noteup]
[Download]
[Help]
Jardin and Jardim Investments Pty Ltd v Metcash Ltd and Metcash Trading Ltd [2011] NSWCA 409 (22 December 2011)
Last Updated: 10 January 2012
|
Case Title:
|
Jardin and Jardim Investments Pty Ltd v Metcash Ltd
and Metcash Trading Ltd |
|
|
|
Medium Neutral Citation:
|
|
|
|
|
Hearing Date(s):
|
|
|
|
|
Decision Date:
|
|
|
|
|
Jurisdiction:
|
|
|
|
|
Before:
|
Campbell JA at [1] Young JA at [39] Meagher JA
at [41] |
|
|
|
Decision:
|
(1) Grant leave to appeal and cross-appeal. (2)
Appeal dismissed. (3) Cross-appeal allowed. (4) Set aside Order 4 made
by Ball J on 29 September 2010. (5) Order that the appellants pay the
respondents' costs of the appeal and of the cross-appeal. [Note: The
Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court
otherwise orders, a judgment or order is taken to be entered when it is recorded
in the Court's computerised
court record system. Setting aside and variation of
judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18.
Parties should in particular note the time limit of fourteen days in Rule
36.16.] |
|
|
|
Catchwords:
|
CONTRACT - interpretation - effect of entry into
deed of release on operation of employment agreement - whether employee entitled
to terminate by giving three months' notice - whether restraint of trade clause
continued to apply - distinction between termination
of employment relationship
and termination of employment contract EMPLOYMENT- whether restraint of trade
clauses reasonable and enforceable REMEDIES - injunctions to enforce
covenants in restraint of trade - whether "springboard" doctrine provides basis
for injunction beyond
period of contractual restraint - basis for injunctive
relief against company not bound by covenants APPEAL - practice and procedure
- whether leave to appeal required - interpretation of s 101(2)(r)(ii) Supreme
Court Act - whether should exercise discretion to grant leave - considerations -
whether proceedings moot - whether any question of principle
- costs incurred in
proceedings below |
|
|
|
Legislation Cited:
|
|
|
|
|
Cases Cited:
|
|
|
|
|
Texts Cited:
|
J D Heydon, The Restraint of Trade Doctrine, 3rd
ed Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed |
|
|
|
Category:
|
|
|
|
|
Parties:
|
Joao Louis Jardin (First Appellant) Jardim
Investments Pty Ltd (Second Appellant) Metcash Ltd (First
Respondent) Metcash Trading Ltd (Second Respondent) |
|
|
|
Representation
|
|
|
|
|
Counsel: I M Neil SC / R Gration
(Appellants) J J Fernon SC / M S White (Respondents) |
|
|
|
- Solicitors:
|
Solicitors: Clamenz Corporate Lawyers
(Appellants) Freehills (Respondents) |
|
|
|
File number(s):
|
|
|
|
Decision Under Appeal
|
|
|
|
- Court / Tribunal:
|
|
|
|
|
|
|
|
|
|
- Date of Decision:
|
|
|
|
|
|
|
|
|
|
- Court File Number(s)
|
|
|
|
|
Publication Restriction:
|
|
JUDGMENT
- CAMPBELL
JA : There is a preliminary question in these proceedings about whether
leave to appeal was needed, and if so, whether it should be granted.
For the
purpose of considering those matters, I will state in summary form some of the
salient facts notwithstanding that they appear
more fully in the judgment of
Meagher JA.
- Mr
Jardin had been an employee of Metcash. After he had fallen out with Metcash,
and a dispute had arisen about the basis on which
he and Metcash should part
company, they entered into a Termination Deed. While it remained on foot,
Metcash was obliged to pay him
$56,185.75 per month, and he was bound by certain
restrictive covenants that had been set out in his contract of employment ("
the Employment Deed ").
- Mr
Jardin gave three months notice on 26 July 2010, terminating the Employment
Deed. There was a dispute in the court below about
whether Mr Jardin was
entitled to bring the Employment Deed to an end by three months notice, or
whether (save in the case where
he was summarily dismissed, a possibility that
did not arise) the Employment Deed would not terminate until 1 March 2011.
- Before
26 July 2010, Mr Jardin had taken some preparatory steps towards commencing an
association with SPAR Australia, a competitor
of Metcash. In the court below,
Metcash sought injunctions to enforce the restrictive covenants.
- The
primary judge held that Mr Jardin was entitled to give the three months notice
of termination of the Employment Deed, and thus
that the Deed had come to an end
on 16 October 2010. However, he held that the restrictive covenants should be
enforced not only
for the period to 16 October 2010, but also for an additional
period of 35 days expiring on 30 November 2010. He explained that additional
period as being justified under the "springboard" or "head start"
doctrine, and as arising from the fact that over a period of 35 days in July
and early August 2010 Mr Jardin had been conducting discussions
with SPAR
Australia concerning his proposed role with that company.
- On
29 September 2010 the primary judge made orders that restrained Mr Jardin and
his family company up to 30 November 2010. Thus,
the effective length of the
restraint was a little over two months.
- In
broad terms, the injunctions prohibited Mr Jardin from either acquiring more
than a 5 percent interest in SPAR Australia, or taking
any position as an
employee, director or officer of SPAR. The effect of the injunction against Mr
Jardin acquiring an investment
in SPAR, was that a transaction then on foot
whereby Mr Jardin's family company would invest $2 M in SPAR could not proceed
until
the injunction expired.
- On
22 December 2010 Mr Jardin and his family company filed a Notice of Appeal. It
sought, in the most extensive of the claims for
relief it made, that all the
primary judge's orders be set aside.
- On
20 January 2011 Metcash filed a Notice of Cross Appeal. It sought orders
extending the injunctions up until 1 March 2011, and sought
the setting aside of
a declaration made by the trial judge to the effect that Mr Jardin had been
entitled to terminate the Employment
Deed by three months notice.
- By
the time the Notice of Appeal was filed, the injunctions that it sought to set
aside had in any event expired by effluxion of time.
- If
the Notice of Cross Appeal could have been heard as soon as it was filed, and if
it had succeeded, the extension of the injunctions
up to 1 March 2011 would have
provided a practical point to the cross-appeal. However, by the time the matter
actually came on for
hearing in September 2011, that practical point had
disappeared.
- Both
the Notice of Appeal, and the Notice of Cross Appeal, purported to be filed
without leave. Notwithstanding the requirements of
UCPR 51.22 (which
applies to cross appeals pursuant to UCPR 51.3), no affidavit was filed
setting out the material facts on which either the Appellant or the Cross
Appellant relied to show that
there was an appeal, or cross-appeal, as of right.
- The
filing of such an affidavit is no mere technicality. The jurisdiction of this
Court to hear appeals exists only because it is
conferred by statute. There are
numerous types of decisions of courts or tribunals concerning which no right of
appeal exists at
all, and many types of decisions concerning which a right of
appeal exists only if this Court grants leave to appeal. Orderly conduct
of
appeals requires that whether the Court has jurisdiction to hear a particular
purported appeal, and if so the basis on which it
has that jurisdiction, be
established, and established early.
- The
Appellants, after being reminded by the court, sought to remedy their default by
filing an affidavit of the Appellants' solicitor
in court on the day of the
hearing of the appeal. The Court had raised the matter because of a concern
about whether it was appropriate
for the matter to proceed at all if success on
the part of either side would have no practical consequences.
- Failure
to seek leave, in cases when it is required, can lead to a purported appeal
being dismissed as incompetent: Coles v Wood [1981] 1 NSWLR 723 at 727;
Southern Cross Exploration NL v Fire & All Risks Insurance Company Ltd
(No. 2) (1990) 21 NSWLR 200 at 210 (Kirby P), 214 (Mahoney JA), 218 (Handley
JA). That is the consequence of the court lacking jurisdiction to hear the
appeal
if leave is needed but has not been granted. However, in cases where a
respondent did not object to competency, or did not object
to competency until
the hearing of a purported appeal, the court has on occasions been willing to
treat the purported appeal as an
application for leave to appeal: Carolan v
AMF Bowling Pty Ltd [1995] NSWCA 69 at 3; Falamaki v Wollongong City
Council [2001] NSWCA 55 at [18]. In the present case, the court permitted
the hearing to proceed as a concurrent hearing.
- The
affidavit of the Appellants' solicitor propounded two bases upon which the
Appellants contended that the appeal by Mr Jardin was
competent, and a separate
basis upon which the appeal by his family company was contended to be competent.
- All
those ways of justifying the competence of the appeal depended on s
101(2)(r)(ii) Supreme Court Act 1970 . There is an appeal as of
right pursuant to that subsection concerning an appeal:
"(ii) that involves (directly or directly) any claim, demand or question ...
respecting any ... civil right amounting to or of the
value of $100,000 or
more."
- The
first basis on which the Appellants contended that s 101(2)(r)(ii) is satisfied
is that Mr Jardin commenced employment with SPAR Australia on 1 December 2010. A
corporate entity associated with him
has been paid approximately $256,666
(including GST) concerning that employment for the period 1 December 2010 to 1
March 2011. I
would infer that, had he not been restrained by the injunction, Mr
Jardin would have taken up employment with SPAR Australia approximately
two
months earlier than when he actually took up that employment. Had he taken up
the employment, the remuneration during those two
months would have been of the
order of $128,333.
- However,
I do not accept that that is sufficient to attract s 101(2)(r)(ii).
- The
relevant question, for s 101(2)(r)(ii) is the value of the right involved in the
appeal, not the value of any right that was involved in the proceedings below.
That is
a significant respect in which s 101(2)(r) differs from the provisions
of s 35 Judiciary Act 1903 (Cth) on which it is loosely based:
Blackmore v Browne; Kara Kar Holdings Pty Ltd v Blackmore [2011] NSWCA
114 at [31]- [32]; Hansen v Slattery Transport (NSW) Pty Ltd [2011] NSWCA
193 at [2]; Jensen v Ray [2011] NSWCA 247 at [10]- [12].
- In
Pawlowska v Zajglic [2011] NSWCA 118 at [14]- [21] I set out authorities
to the effect that an appeal involves a claim, demand or question concerning a
civil right amounting to or
of the value of $100,000 or more only if success on
the appeal would confer on the Appellant a benefit worth $100,000 or more.
Success
on the present appeal would not result in Mr Jardin having an
entitlement to be paid the $128,333 that would have been paid had he
been free
to take up employment with SPAR from 29 September 2010.
- Another
basis that the Appellants put forward is that if Metcash had succeeded in the
court below in its contention that the Deed
of Release continued until 1 March
2011, Metcash would have been liable under the terms of the Deed of Release to
pay to Mr Jardin,
during the additional period of 27 October 2010 to 1 March
2011, an amount slightly more than $224,743.
- In
my view, that fact does not show that the appeal is competent. On the appeal,
the Appellants do not assert any claim that the Deed
of Release did not
terminate until 1 March 2011. That fact does not provide a reason why the
Appellants would be better off to the
extent of $100,000 by succeeding in the
appeal.
- The
third basis on which competency is put forward is that the proceedings below
also involved a claim, demand or question in respect
of the family company's
civil right to make an investment in SPAR Australia. It is contended that the
value of that civil right was
$2 m, the amount proposed to be invested.
- If
the proposed appeal in the present case were to succeed it is not as though that
would enable the Appellants to make an investment
in SPAR that they could not
otherwise make. All the injunction did was to delay their making of that
investment for approximately
two months, and those two months have now passed.
- Further,
(if this matters, which I suspect it does not) even though the capital amount of
the investment proposed to be made was $2
m, there is no evidentiary basis
before us for concluding that a two-month delay in making a capital investment
of $2 m itself has
a value of more than $100,000.
- The
primary judge ordered Mr Jardin to pay the costs of Metcash insofar as those
cost related to the claim against him, and made no
order as to the costs between
Metcash and the family company. The affidavit that seeks to establish competency
shows that Metcash's
solicitors have claimed in excess of $686,000 from Mr
Jardin pursuant to the costs order. Mr Jardin's own costs in the court below
exceed $300,000, while Mr Jardin's family company's costs exceeded $100,000.
- The
amount of those costs is not a matter that goes to whether s 101(2)(r) has been
satisfied. Costs are left out of account for the
purpose of calculating whether
the $100,000 threshold has been passed, as that threshold concerns the amount at
stake in the subject
matter of the claim: Gurr v Robinson (NSW Court of
Appeal, 10 February 1986, unreported) at 2-3 per Kirby P; Harbrett Pty Ltd v
Butler (NSW Court of Appeal, 14 December 1989, unreported) per Gleeson CJ,
Clarke and Meagher JJA agreeing); Built Interiors Pty Ltd v Three Dinosaurs
Pty Ltd [2003] NSWCA 290 at [35] (Mason P, Meagher and Ipp JJA agreeing);
Coshott v Shipton Lodge Cobbitty Pty Ltd [2006] NSWCA 316 at [14] (Basten
JA).
- Thus,
the appeal is not one that can proceed as a matter of right.
- The
court always has power to act to ensure that its processes are not abused. One
aspect of this power is that it can act to halt
proceedings (including an
appeal) that pose a question that has become moot, ie that will produce no
foreseeable consequence for
the parties. White J collected authorities
concerning that principle in State of South Australia v Lampard-Trevorrow
[2008] SASC 370 at [20]- [24].
"Courts do not ordinarily, as a matter of principle, determine proceedings
which involve issues which are not live as between the
parties. The aversion of
courts to determining issues which are moot, hypothetical or academic is well
known: Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175
CLR 564 at 582; Bass v Permanent Trustee Co Ltd [1999] HCA 9 at [45]
[49][1999] HCA 9; , (1999) 198 CLR 334 at 355-357; Victims Compensation Fund Corporation v
District Court of New South Wales [2002] NSWCA 355 at [27]; Rapson v
WorkCover Corporation [2007] SASC 172 at [10]- [16], [2007] SASC 172; (2007) 98 SASR 86 at
90-92. In relation to an appeal, it was said by each of Mason J and Aickin J in
Gardner v The Dairy Industry Authority of New South Wales (1978) 52 ALJR
180 that the Court should not determine an appeal which would produce 'no
foreseeable consequences for the parties': Ibid at 188, 189
The authorities reveal a number of circumstances in which appeals have been
dismissed or stayed because they had no practical utility.
In Sun Life
Assurance Co of Canada v Jervis [1944] AC 111 an insurer was granted leave
to appeal to the House of Lords upon its undertaking to pay the costs of the
appeal as between solicitor
and client in any event, and upon its further
undertaking not to ask for the return of any money ordered to be paid under the
order
which was the subject of the appeal. The House of Lords held that it was
inappropriate to hear to the appeal. Viscount Simon LC said:
'The difficulty is that the terms put on the appellants by the Court of
Appeal are such as to make it a matter of complete indifference
to the
respondent whether the appellants win or lose. The respondent will be in exactly
the same position in either case. He has
nothing to fight for, because he has
already got everything that he can possibly get, however the appeal turns out,
and cannot be
deprived of it. I do not think that it would be a proper exercise
of the authority which this House possesses to hear appeals if
it occupies time
in this case in deciding an academic question, the answer to which cannot affect
the respondent in any way. If the
House undertook to do so, it would not be
deciding an existing lis between the parties who are before it, but would merely
be expressing
its view on a legal conundrum which the appellant which the
appellants hope to get decided in their favour without in any way affecting
the
position between the parties ... Ibid at 113.'
Similarly, in Hole v Insurance Commissioner [1962] VR 394 the Full
Court of the Victorian Supreme Court refused to hear an appeal on learning that
the judgment debt had been paid by the defendant
prior to the hearing of the
appeal and that the parties had agreed that the money should not be repaid, nor
a retrial sought, should
the appeal succeed. I note, however, that in GIO
General Ltd v Newcastle City Council (1996) 38 NSWLR 558 at 566 the New
South Wales Court of Appeal did not appear to consider the agreement of the
insurer not to dispute its liability to
indemnify the insured in relation to
certain claims to be an impediment to the hearing and determination of one of
the appeals then
before it.
The decision in Sun Life Assurance Co was applied by Starke J in
Cadbury-Fry-Pascall Pty Ltd v Federal Commissioner of Taxation [1944] HCA 31; (1944) 70
CLR 362 at 386 in relation to taxation which the Commissioner had undertaken not
to seek to recover, and was referred to with approval by
Mullighan J, at first
instance, in NZI Insurance Australia Ltd v Baryzcka and Anor [2002] SASC
16 at [6], [2002] SASC 16; (2002) 85 SASR 482 at 485.
Other examples of circumstances in which courts have refused to hear appeals,
or to grant permission to appeal, when the determination
of the appeal would
produce no practical consequence include Harrington v Rich [2008] FCAFC
61; (2008) 166 FCR 440; Secretary to the Department of Human Services v
Magistrates' Court at Melbourne [2002] VSCA 171; at [19]-[21] [2002] VSCA 171; (2002) 6 VR
140 at 147-8; Hope Downs Management Services v Hamersley Iron Pty Ltd
[1999] FCA 1652 and Beitseen v Johnson (1989) 29 IR 336 at 338."
- Even
concerning an appeal that was begun without any need for leave, the court has
power to stay the appeal if later events show that
the questions involved in it
have become moot between the parties: Hope Downs Management Services v
Hamersley Iron Pty Ltd [1999] FCA 1652 at [13]; Tchoylak v Minister for
Immigration and Multicultural Affairs [2001] FCA 872; (2001) 111 FCR 302;
AMACSU v Ergon Energy Corporation Ltd [2005] QCA 351 at [77].
- However,
the Court also has a discretion to permit such an appeal to proceed, if a
practical point would be served by doing so: Bonan v Hadgkiss [2007]
FCAFC 113; (2007) 160 FCR 29 at [8]. One circumstance that has been held to
provide such a reason for proceeding with the appeal is if the decision is
likely to affect
other cases: People with Disability Australia Inc v Minister
for Disability Services [2011] NSWCA 253 at [6], [13]-[15]; Long v
Minister for Immigration and Multicultural and Indigenous Affairs [2002]
FCAFC 438; Minister for Immigration and Multicultural and Indigenous Affairs
v Al Masri [2003] FCAFC 70; (2003) 126 FCR 54; Hope Downs Management
Services v Hamersley Iron Pty Ltd ; Bonan v Hadgkiss ; Marion
White Ltd v Francis [1972] 1 WLR 1423 (where the enforceability of a
standard form of restrictive covenant was in question - 1428B). Another is if a
live question of costs
depends on the outcome of the appeal:
Lampard-Trevorrow at [25]-[27]. However, it is a question for the court
whether a live issue in respect of costs should result in an otherwise moot
appeal proceeding to full hearing and determination: Long v Minister for
Immigration and Multicultural and Indigenous Affairs .
- These
principles apply equally to whether it is appropriate to grant leave to appeal
concerning a matter in which the question of
whether the principal relief
claimed should be granted has become moot.
- Mr
Neil SC, counsel for the Appellants, submits that there are three matters that
justify the grant of leave to appeal. The first
is that there is a question of
principle involved concerning whether the judge was correct in using the
springboard doctrine as a
basis for granting an injunction restraining the
Appellants until a date that was 35 days later than the date until which they
had
contracted to restrict their activities. The second is that, even if the
amount claimed by Metcash's solicitors under the primary
judge's costs order is
reduced somewhat on assessment, the costs order is likely to involve a very
large sum of money. The third
is that the correctness of the costs order turns
on whether the judge was correct in restraining the Appellants at all, or
alternatively
in restraining them for the extra 35 days beyond the end of the
contractual period. There is particular significance in those extra
35 days
because the Appellants had made a Calderbank offer to restrict their activities,
in the same respects as the restrictive
covenant required, for five days beyond
the end of the contractual period.
- Even
though I accept that there is an important question of principle about the
availability of the springboard doctrine in crafting
an injunction to enforce a
contractual obligation, I will not to base my decision about the granting of
leave to appeal solely on
the importance of that question of principle. It could
only be in rare circumstances, if ever, that a court was justified in reaching
a
decision on legal question that had no practical consequences for either of the
parties: Gardner v Dairy Industry Authority of New South Wales [1977] 18
ALR 55 at 60, 69. However, in the present case, the judge's application of the
springboard principle is one of the matters that is relevant
to his decision
concerning costs. For that reason it, at least in the potential way in which the
matter should be considered when
deciding whether to grant leave to appeal, has
practical consequence for the parties.
- In
my view this is a case in which it would be appropriate to grant leave to
appeal, even though the only practical consequence of
success for the Appellants
might be modification of the costs orders made below. The sums of costs involved
are alarmingly large.
The Respondent's claimed costs and disbursements for
preparation and the hearing itself, average more than $100,000 per hearing date.
That is an amount which makes one wonder whether, if that is the cost of
litigating in the Supreme Court, the court is continuing
to perform its public
function of providing a forum for resolution of disputes that is in practical
terms available to citizens who
are in dispute. Even for a successful business
executive like Mr Jardin the total amount of costs at stake would be
significant.
Notwithstanding the usual reluctance of the court to permit appeals
that in practical terms relate only to costs, in the present
case the sheer size
of the costs is such that justice requires that the Appellants be given the
opportunity to question the legal
basis on which those costs were awarded.
- The
competence of the cross-appeal has not been demonstrated. However, the issues
that arise on the cross-appeal are so bound up with
the issues that arise on the
appeal that granting leave to appeal concerning the appeal requires the grant of
leave to appeal concerning
the cross-appeal.
- I
have read the draft reasons of Meagher JA concerning the substantive issues
raised in the appeal and cross-appeal. I agree with
those reasons, and with the
orders his Honour proposes.
- YOUNG
JA: I affirm my agreement with Campbell JA on the preliminary issue as to
the need for leave to appeal and the grant of such leave.
- On
the merits of the appeal and cross appeal I agree with Meagher JA.
- MEAGHER
JA: This appeal from a decision of Ball J concerns the enforcement of
restraints given in the context of the termination of the employment
relationship between Metcash Trading Ltd ( Metcash Trading ) and Lou
Jardin ( Mr Jardin ).
- Metcash
Trading is a wholly owned subsidiary of Metcash Ltd ( Metcash ), the
listed holding company of a group which markets and distributes food and other
consumer goods to independent grocery and liquor
retailers. Metcash's principal
operating subsidiary is IGA Distribution Pty Limited ( IGA Distribution )
which markets and distributes those consumer goods to IGA branded and
non-branded grocery stores and accounts for over 80 percent
of Metcash's net
earnings.
- Mr
Jardin commenced employment in the Metcash business in September 1997. In May
2000 he was appointed CEO of IGA Distribution. On
1 October 2004 Mr Jardin
entered into an Employment Deed with Metcash Trading (the Employment
Agreement ) under which his employment continued until terminated under cl
12. Clause 12.1(a) permitted Mr Jardin to terminate by three months'
written
notice. Clause 12.1(b) permitted Metcash Trading to terminate by nine months'
written notice. Clause 12.2 permitted Metcash
Trading to terminate summarily in
the event of serious misconduct.
- Clause
3 of the Employment Agreement set out Mr Jardin's duties and what he was
prohibited from doing. It provided:
"3.1 Duties
The Employee must:
(a) perform the duties as may be specified by the Company from time to time
whether for the Company or any Related Body Corporate;
...
3.2 Prohibitions
Without limiting the Employee's duties to the Company, the Employee must not:
(a) act in conflict with the Company's best interests;
(b) accept or commence any other employment or engagement without the prior
written consent of the Company;
(c) compete with the business of the Company or any Related Body Corporate; or
(d) hold or be interested in any investments which amount to more than 5 percent
of the issued investments of any class of any one
company except where agreed to
by the Company or to the extent that any excess over 5 percent is attributable
to his position as
a representative of the Company."
- Clause
10 contained covenants as to the use and disclosure of confidential information
which was defined. Clause 15 dealt with what
should happen after the termination
of employment. Clause 15(c) provided that Mr Jardin's obligations under cl 10
continued after
termination other than in respect of information that was part
of his "general skill and knowledge". The Employment Agreement did
not otherwise
contain restraints which continued to operate after the termination of
employment.
- In
August 2006, Metcash agreed to pay Mr Jardin a long term cash incentive in
respect of the five year period ending 30 April 2010
provided certain earnings
targets were exceeded. That amount was payable only if Mr Jardin was in
full-time employment as at 30 April
2010.
- Over
the period to January 2010, tensions developed between Mr Jardin and Mr Andrew
Reitzer, the CEO of the Metcash group. On 3 February
2010, Mr Jardin was
informed that Metcash had decided to terminate his services. From 5 February
2010 he ceased to perform any of
the duties of the CEO of IGA Distribution.
- On
19 February 2010, Metcash and Mr Jardin entered into a Deed of Release. Clause
8(a) provided that Metcash executed it as the agent
and trustee for its Related
Bodies Corporate which included Metcash Trading and IGA Distribution. That
agreement was negotiated by
experienced workplace and employment lawyers acting
for each of the parties. There are issues as to its interpretation and as to
how
it affected the continued operation of the Employment Agreement.
- On
17 February 2010, Metcash appointed Mr Silvestro Morabito as CEO of IGA
Distribution. On 1 June 2010, in accordance with cl 1(a)
of the Deed of Release,
Metcash Trading gave Mr Jardin nine months' written notice terminating his
employment.
- On
1 July 2010, Mr Jardin commenced discussions with Mr Leigh Carson, the CEO of
SPAR Australia Ltd ( SPAR Australia ), in relation to an investment in
that business. Those negotiations continued over the period from 1 July to 4
August 2010. SPAR
Australia is a franchisor in the retail grocery industry. In
mid-2010 it had about 150 franchisee stores similar to the IGA Distribution
stores licensed by Metcash. It was a competitor of Metcash.
- On
16 July 2010, a number of things happened. Mr Jardin gave a written notice to
Metcash Trading purporting to terminate the Employment
Agreement "with immediate
effect". Jardim Investments Pty Ltd ( Jardim Investments ) was
incorporated. Its sole shareholder and director was Mr Christopher Jardim, who
is Mr Jardin's son and was at the relevant time
a medical student. SPAR
Australia also issued a Media Release which stated:
"Former CEO of IGAD and Executive Director of Metcash Limited, Lou Jardin,
has offered to take a majority shareholding in SPAR Australia
Limited in a deal
the company says will significantly improve the competitiveness of its
retailers.
According to SPAR Australia Chairman, Miles Hedge, a Heads of Agreement was
signed with Lou Jardin today and the Board will recommend
the offer be accepted
when it is put to shareholders at an Extraordinary General Meeting to be
convened."
- At
the time the Media Release was issued, there was a draft Binding Heads of
Agreement between Mr Jardin and SPAR Australia. Later,
on 16 July 2010, Jardim
Investments was substituted for Mr Jardin as a party to that agreement. At the
same time Mr Jardin replaced
Mr Christopher Jardim as sole director of that
company. He then signed the Binding Heads of Agreement on its behalf. That
agreement
provided for the acquisition by Jardim Investments of a 51 percent
interest in SPAR Australia together with the grant of a call option
to acquire
the remaining interest. Clause 4 provided:
"The Parties agree to negotiate in good faith and to the exclusion of
negotiations with all others to enter into a Subscription Agreement
and a pro
forma Call Option Agreement by Friday August 13 th 2010 or such later date
agreed between the Parties."
- On
21 July 2010, Metcash commenced proceedings against Mr Jardin in the Equity
Division of this Court. On that day, Mr Jardin gave
certain undertakings to the
Court. On 26 July 2010, Mr Jardin gave a further written notice purporting to
terminate the Employment
Agreement with effect from 26 October 2010. He did so
relying upon cl 12.1(a). On 12 August 2010, Mr Jardin resigned as a director
of
Jardim Investments and was replaced by his wife. On 20 August, Mr Christopher
Jardim sent a circular communication to the shareholders
in SPAR Australia
describing what his "family" wanted to achieve by investing in that company and
stating that as a "family business
we are in this for the long term" and aim "to
ensure the long term sustainability of the independent supermarket industry
through
ensuring that your stores are profitable and price competitive".
- Metcash
Trading and Jardim Investments were added as parties to the proceedings and
Metcash sought injunctions against Jardim Investments
restraining it from
entering into any agreement for the acquisition of shares in SPAR Australia. On
31 August 2010, following a contested
application, the primary judge made orders
that Jardim Investments be restrained "from acquiring or otherwise becoming
interested
in more than 5 percent of the issued investments of any class of SPAR
Australia": [2010] NSWSC 936.
Issues before the primary judge which arise on appeal and cross-appeal
- There
were six issues resolved by the primary judge by his judgment delivered on 28
September 2010 ([2010] NSWSC 1096) which are the
subject of this appeal. It is
convenient to identify and deal with those issues in the following order.
- The
first issue is whether, following the entry into the Deed of Release, Mr Jardin
was entitled to terminate the Employment Agreement
by giving three months'
written notice as he purported to do on 26 July 2010. That issue turns upon the
interpretation of the Deed
of Release and the Employment Agreement. The primary
judge held that Mr Jardin was entitled to give such a notice and that as a
result
the Employment Agreement came to an end on 26 October 2010: [32]-[37].
The primary judge's resolution of that issue is the subject
of grounds 1, 2 and
3 of Metcash's amended notice of cross-appeal. If the primary judge erred in his
interpretation of these provisions,
a question arises as to what relief, if any,
should be granted in view of the fact that the periods for which extended
injunctions
were sought have expired.
- The
second issue is whether the restraints in cl 3.2 of the Employment Agreement
applied after 5 February 2010 or alternatively after
16 July 2010. There were
two steps in this argument. The first was that as a matter of interpretation of
the provisions in the Employment
Agreement and the Deed of Release, the
covenants in cl 3.2 of the Employment Agreement ceased to apply if the
employment relationship
had come to an end. The second was that the employment
relationship came to an end on 5 February 2010 or alternatively on 16 July
2010
by reason of Mr Jardin's written notice given on that day. The primary judge
rejected the first step in the argument: [44].
It was unnecessary for him to
consider the second. The primary judge's resolution of this issue is the subject
of ground 1 of the
notice of appeal.
- The
third issue is whether any of the restraints in cl 3.2 of the Employment
Agreement were unreasonable restraints of trade and to
that extent
unenforceable. It was common ground that this question was to be assessed at the
time the Deed of Release was entered
into: Woolworths Ltd v Olson [2004]
NSWCA 372 at [40]. The primary judge held that the restraints in cll 3.2(a), (b)
and (c) were reasonable as between the parties and not unreasonable
in the
public interest because each was reasonably necessary to protect interests with
respect to Metcash's customer relationships
and confidential information. In
relation to cl 3.2(d), the primary judge held that it was reasonable to the
extent that it prevented
Mr Jardin from taking more than a 5 percent interest in
a competitor of Metcash. The primary judge held that the duration of the
restraints was reasonable even if they operated for a period of 12 months from
the date of the Deed of Release: [46]-[55]. Those
holdings are challenged by
ground 2 of the notice of appeal.
- The
fourth issue is whether the "springboard" or "head start" doctrine, which has
its foundation in the judgment of Roxburgh J in
Terrapin Ltd v Builders'
Supply Co (Hayes) Ltd [1967] RPC 375, provided a basis for an injunction to
enforce the negative covenants in cl 3.2 beyond 26 October 2010 and for a
further period of
35 days. That period represented the primary judge's
assessment of the "head start" which Mr Jardin obtained as a result of his
breach
of cl 3.2(a) of the Employment Agreement in engaging in dealings with
SPAR Australia between 1 July and 4 August 2010: [59]-[62].
That holding is the
subject of ground 5 of the notice of appeal. It is also the subject of Metcash's
notice of contention.
- The
fifth issue is whether the primary judge should, in the exercise of his
discretion, have refused the injunctions sought by Metcash
on the basis that at
the time of the final hearing it was not appropriate to grant injunctions in the
terms and for the periods sought.
The primary judge held that it was appropriate
to grant injunctive relief to 30 November 2010: [71]. That conclusion is the
subject
of ground 3 of the notice of appeal which is only pressed on the basis
that by September 2010, Metcash's customer relationships and
confidential
information no longer required protection.
- The
sixth issue is whether orders should be made against Jardim Investments
restraining it from being actively involved in the affairs
of SPAR Australia as
an investor. The primary judge decided this issue in favour of Metcash on the
basis that Jardim Investments
proposed to undertake an active role in the
affairs of SPAR Australia as the agent or alter ego of Mr Jardin: [68]-[69].
That conclusion
is the subject of ground 4 of the notice of appeal.
Preliminary question as to whether leave to appeal is necessary
- The
question whether leave to appeal was required, and if so, whether it should be
granted, was raised at the commencement of the
appeal. I agree for the reasons
given by Campbell JA that leave to appeal was required and that the
circumstances justify a grant
of leave. I also agree that there should be a
grant of leave to cross-appeal.
Was Mr Jardin entitled to give a notice terminating the Employment
Agreement following his entry into the Deed of Release?
- It
is convenient first to set out the relevant provisions of the Deed of Release.
The recitals and cl 1 provided:
"Background
1 The Executive has been employed by the Group since 22 September 1997 and is
currently employed in the position of Chief Executive
Officer IGA Distribution
of the Company.
2 The Executive's employment with the Company will terminate on the
Termination Date.
3 The parties have agreed to formalise their separation on the terms set out
in this deed.
4 Both parties have had the opportunity of obtaining legal advice prior to
entering into this deed.
This deed witnesses that in consideration of, among other things, the mutual
promises contained in this deed, the parties agree as
set out in the Operative
part of this deed.
1 Arrangement between the parties
(a) The Company will on 1 June 2010 provide the Executive with 9 months'
written notice of termination of his employment in accordance
with clause
12.1(b) of the Employment Agreement.
(b) The Executive's Employment will terminate on the Termination Date.
(c) During the period of time between the date of this deed and the
Termination Date, the Company may:
(1) appoint an interim or new Chief Executive Officer IGA Distribution; or
(2) change the position and responsibilities of the Executive; or
(3) require that the Executive not attend the office, not undertake any work
or undertake only limited work.
(d) ...
(e) If either party considers it necessary to make a public announcement
regarding the termination of the Executive's employment,
it will be made on the
terms attached in Schedule 3 of this deed.
(f) The Executive acknowledges and agrees that, prior to the Termination
Date, he continues to be bound by the obligations contained
in the Employment
Agreement in accordance with the terms of the Employment Agreement. For the
avoidance of doubt, the Executive will
continue to receive the remuneration and
any other benefits payable to the Executive under the Employment Agreement up to
and including
the Termination Date.
(g) The Executive agrees to execute, and return to the Company as soon as
practicable after the Termination Date, the Deed Poll.
(h) In the event that the Employment is terminated before the Termination
Date in circumstances justifying summary dismissal, notwithstanding
any
provision of this deed, the Company is not obliged to make any payment or
provide any benefits to the Executive other than the
Executive's remuneration
and statutory entitlements accrued to the date of cessation of the Employment."
- Schedule
1 to the Deed of Release included the following definitions:
"Termination all of the circumstances relating to or connected with the
termination of the Employment of the Executive, including
negotiations relating
to the terms and conditions upon which that event would occur.
Termination Date 1 March 2011."
- The
Deed Poll referred to in cl 1(g) was Schedule 2 to the Deed of Release. It
relevantly recited:
"2. The Executive and the Company have reached agreement regarding the
termination of the Executive's employment, the details of which
are recited and
the terms of which are described in a deed executed by the Executive and the
Company dated on or about 17 February
2010 (the First Deed)."
- Clause
5(c) of the Deed of Release provided:
"The Company agrees that any enquiries relating to the Executive will be
directed to the Chief Executive Officer of the Group, currently,
Andrew Reitzer.
The Company will make reasonable efforts to ensure that the Chief Executive
Officer of the Group responds to such
enquiries in a manner consistent with the
announcement in Schedule 3 to this deed."
- The
public announcement referred to in cll 1(e) and 5(c) was Schedule 3 to the Deed
of Release. It relevantly provided:
"Metcash and Lou Jardin, CEO IGA Distribution, a Division of Metcash, have
agreed that Mr Jardin's employment will cease effective
1 March 2011.
..."
- By
cl 7, Mr Jardin warranted and acknowledged as follows:
"(a) The Executive warrants that:
...
(3) he has had full opportunity to consult his legal advisers concerning the
nature, effect and extent of this deed;
...
(b) The Executive acknowledges that:
(1) clauses 10 and 11 of the Employment Agreement regarding confidentiality
and intellectual property will continue to operate after
the Termination in
accordance with the terms of the Employment Agreement and are taken to
constitute terms of this deed; and
..."
- Clause
8(c) provided -
"Except as otherwise provided in this deed, this deed and the Deed Poll
constitutes the entire agreement between the parties as to
its subject matter to
the exclusion of any prior agreement whether written or oral, express or in any
way implied."
- The
principles to be applied when addressing this question of construction are not
in issue. The meaning of the provisions of the
Deed of Release is to be
determined by what a reasonable person would have understood them to mean. In
circumstances such as here
where the language is susceptible of more than one
possible meaning, regard should be had not only to the text but also to the
background
knowledge which would have been available to the parties and the
purpose and object of the transaction: Codelfa Construction Pty Ltd v State
Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Royal
Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5;
(2002) 240 CLR 45 at [39]; Pacific Carriers Ltd v BNP Paribas [2004] HCA
35; (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd
[2004] HCA 52; (2004) 219 CLR 165 at [40]; Byrnes v Kendle [2011] HCA
26; (2011) 243 CLR 253 at [53], [98].
- The
primary judge concluded that the Deed of Release modified the continued
operation of the Employment Agreement but not with respect
to the availability
of cl 12.1(a) which entitled Mr Jardin to terminate his employment by three
months' notice. He reasoned as follows:
First, cll 1(a) and (h) assume that the
termination rights in cll 12.1(b) and 12.2 of the Employment Agreement continue
in effect;
secondly, cl 1(f) assumes the continued operation of other provisions
of the Employment Agreement relating to obligations imposed
upon Mr Jardin and
his entitlement to receive remuneration and other benefits; thirdly, none of the
other provisions of the Deed
of Release and specifically cll 1(b), 1(f) and
8(c), expressly or by necessary implication exclude the continued availability
of
cl 12.1(a).
- In
my view, the primary judge's conclusion as to the operation of the Deed of
Release does not pay sufficient attention to cl 8(c)
which provides that except
as otherwise provided in the Deed of Release, it and the Deed Poll constitute
"the entire agreement between
the parties as to its subject matter to the
exclusion of any prior agreement".
- In
the period after 5 February 2010, there were negotiations between the lawyers
acting for Mr Jardin and Metcash as to the resolution
of the issues which had
arisen concerning the termination of Mr Jardin's employment. By their letter of
9 February 2010, the solicitors
for Mr Jardin suggested the following course:
"To commence at the earliest opportunity, there should be a rational process
of discussion directly between Mr Jardin and the Company,
with a view to
resolving the matter amicably and allowing our client to transition away from
the Company in a dignified manner;
By their response dated 10 February 2010, the lawyers for Metcash said:
"... After the announcement was made on Monday we again attempted to arrange
to meet with your client's representative in an effort
to reach an amicable
resolution of the matters between our clients.
...
We remain willing to meet to discuss the matter at a mutually convenient time
in an effort to reach an acceptable resolution. We confirm
that Metcash agrees
that your client will be on paid leave until the end of this week without
consequent reduction in his accrued
annual leave. Your client is directed not to
speak to employees, customers or suppliers of Metcash group until advised
otherwise.
We also ask that you remind your client of his continuing obligations
to Metcash as a senior employee."
- That
context is reflected in the paragraphs reciting the Background to the Deed of
Release which acknowledged that Mr Jardin was currently
employed, provided that
his employment would terminate on 1 March 2011 and noted that the parties had
agreed "to formalise their
separation" on the terms of that deed. That the
"subject matter" of the Deed of Release is the termination of Mr Jardin's
employment
with Metcash also appears from the operative provisions of the Deed
of Release.
- The
Deed Poll also recites by Background paragraph 2 that the parties "have reached
agreement regarding the termination" of Mr Jardin's
employment, the terms of
which are described in the Deed of Release.
- The
identification of that subject matter is significant not only because it gives
content to cl 8(c). It also makes it unlikely that
having addressed the
termination of Mr Jardin's employment, the parties would have agreed to an
outcome which remained uncertain
as to the time when, and circumstances in
which, that termination might take effect.
- Reading
cl 8(c) as referring to that subject matter, it provides that the Deed of
Release and the Deed Poll constitute the entire
agreement as to the termination
of Mr Jardin's employment "to the exclusion of any prior agreement". The
operation of the clause
is subject to the qualification "[e]xcept as otherwise
provided". The provisions of cl 12 of the Employment Agreement address the
manner in which Mr Jardin's employment might be terminated. It is necessary,
therefore, to consider whether the Deed of Release provides
otherwise in respect
of the continued operation of any part of cl 12.
- There
are no provisions in the Deed of Release which expressly provide for the
continuation of Mr Jardin's right of termination under
cl 12.1(a). In addition,
his giving a notice under that clause would be inconsistent with the agreements
in cll 1(a) and (b). By
cl 1(a) the parties agreed that Metcash "will" give a
notice under cl 12.1(b) of the Employment Agreement. That is sufficient to
preserve the operation of that clause for that purpose only. By cl 1(b) they
agreed that the employment "will" terminate on 1 March
2011. By these agreements
the parties must be taken to have agreed, in the absence of express provision
otherwise, that nothing should
happen or be done by either of them which would
have any different consequence: see Byrne & Frew v Australian Airlines
Ltd [1995] HCA 24; (1995) 185 CLR 410 at 448; Secured Income Real Estate
(Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144
CLR 596 at 607-608. The giving by Mr Jardin of a notice under cl 12.1(a) would
produce a different outcome and accordingly his continued
entitlement to do so
is inconsistent with the agreements in cll 1(a) and (b).
- None
of the other provisions of the Deed of Release is consistent with the
termination of the employment at a time earlier than 1
March 2011 other than in
the event of summary dismissal. Clause 1(c) addresses what Mr Jardin may be
required or not required to
do during the period to 1 March 2011. Clause 1(e)
provides for the making of an announcement which states that there is agreement
that the employment should cease effective 1 March 2011. Clause 1(f) contains an
acknowledgement by Mr Jardin that prior to 1 March
2011 he continues to be bound
by the "obligations" contained in the Employment Agreement in accordance with
its terms. It also provides
that Mr Jardin continue to receive remuneration and
other benefits "up to and including the Termination Date". There is no
qualification
to the operation of cl 1(f) other than in the circumstances
addressed by cl 1(h). Clause 1(g) provides for the execution of the Deed
Poll
"as soon as practicable" after 1 March 2011.
- Clause
1(h) assumes a right of termination in circumstances justifying summary
dismissal. To that extent it provides for the continued
operation of a right in
terms of cl 12.2 of the Employment Agreement. In the event of a summary
dismissal, it also provides that
Metcash is not obliged to make any payment or
provide any benefit to Mr Jardin, other than by way of remuneration and
statutory entitlements
accrued to the date of summary dismissal. If the Deed of
Release was to be construed as permitting a continued right of termination
under
cl 12.1(a), it would have been necessary also to address the consequences of
such a termination, particularly having regard
to the terms of cl 1(f). The
primary judge considered that cl 1(f) was consistent with the continued
existence of the right under
cl 12.1(a) because it provides for the continuation
of other obligations and entitlements under the Employment Agreement: [34]. That
is so. Those are respects, however, in which the Deed of Release otherwise
provides within the introductory words to cl 8(c).
- Finally,
cl 5(c) is consistent with the Employment Agreement being terminated in
accordance with cll 1(a) and (b). It provides that
any inquiries relating to Mr
Jardin will be responded to in a manner "consistent with the announcement in
Schedule 3".
- The
primary judge observed that the Deed of Release was drafted in the expectation
that it was "unlikely" that the other termination
rights contained in the
Employment Agreement would be exercised and consequently "on the assumption"
that those rights would not
be exercised: [36]. For the reasons I have given, I
consider that expectation or assumption to be inconsistent with the express
provisions
of the Deed of Release. It is also extremely unlikely that the
parties would have agreed to such an uncertain outcome.
- For
these reasons, Mr Jardin was not entitled to give a notice terminating the
Employment Agreement following his entry into the Deed
of Release. It follows
that the primary judge should have held that the written notice which Mr Jardin
gave on 26 July 2010 was of
no effect and that the Employment Agreement
terminated on 1 March 2011, as a result of the notice given by Metcash Trading
on 1 June
2010. This conclusion makes it unnecessary to deal with Metcash's
notice of contention which seeks to uphold restraints to 30 November
2011, if
the issue concerning the "springboard" doctrine is decided adversely to it.
Did the prohibitions in cl 3.2 of the Employment Agreement apply after 5
February 2010 or alternatively after 16 July 2010?
- I
agree with the primary judge's conclusion that these prohibitions continued to
apply after these two dates for the reasons he gave:
[44].
- By
cl 1(f) of the Deed of Release, the parties agreed that in the period from 19
February 2010, Mr Jardin continued to be bound by
the "obligations" in the
Employment Agreement "in accordance with the terms" of that agreement. Those
obligations included that he
comply with the prohibitions in cl 3.2.
- Mr
Jardin argued that as a matter of construction, the prohibition in cl 3.2 of the
Employment Agreement only applies whilst the employment
relationship subsists.
That argument relies on the distinction between the termination of an employment
relationship and the discharge
of a contract of employment: Visscher v
Giudice [2009] HCA 34; (2009) 239 CLR 361 at [53]- [55]; Purcell v Tullett
Prebon (Aust) Pty Ltd [2010] NSWCA 150 at [19]- [20]. The Employment
Agreement does not, however, make that distinction in imposing duties and
prohibitions. It imposes those duties and
obligations upon Mr Jardin as
"Employee" and by cl 2.2 provides that his "employment" under the agreement
should "commence" on 1
October 2004 and "continue" until terminated under cl 12.
In other words, it imposes the duties and obligations during the period
that the
contract of employment remains current.
Were the restraints in cl 3.2 of the Employment Agreement unreasonable and
to that extent unenforceable?
- Before
this Court it was common ground that the restraints in cl 3.2 of the Employment
Agreement by which Mr Jardin continued to be
bound in accordance with cl 1(f) of
the Deed of Release were subject to the Restraints of Trade Act 1976. The
correct approach to the application of s 4(1) of that Act is settled: Wright
v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 328, 337; Woolworths Ltd v Olson
at [42].
- There
was no issue on appeal that the terms of the injunction sought against Mr Jardin
described conduct which would infringe the
terms of cl 3.2 properly construed.
The issue between the parties was whether restraints in the terms sought were
against public
policy. The answer to that question depends on whether those
restraints did not exceed what was reasonably necessary for the protection
of
the legitimate interests of Metcash and, while affording adequate protection to
Metcash, were not injurious to the public: Heron v Port Huon Fruit-Growers
Co-operative Association Ltd [1922] HCA 20; (1922) 30 CLR 315 at 324;
Buckley v Tutty [1971] HCA 71; (1971) 125 CLR 353 at 376-377; Curro v Beyond
Productions Pty Ltd (1993) 30 NSWLR 337 at 344. It was also accepted that
this question is to be addressed at the time the Deed of Release was entered
into.
- The
primary judge held that restraints applying for 12 months after 5 February 2010
in terms of cll 3.2(a), (b) and (c), and in narrower
terms than cl 3.2(d), were
reasonable and justified by Metcash's interest in protecting its customer
connections and confidential
information. In relation to cl 3.2(d), the primary
judge held that as drawn, it was "unreasonably broad" but that a narrower
restraint
against having an investment of 5 percent or more in a competing
business was reasonable and justified as protecting the same legitimate
interests: [52]-[55].
- Mr
Jardin argued that those conclusions were wrong for three reasons. First, the
primary judge's findings were not sufficient to justify
conclusions as to the
existence of legitimate interests which justified the restraints. Secondly, the
narrower restraint based on
cl 3.2(d) was not justified by reference to the
principles applied in Littlewoods Organisation Ltd v Harris [1977] 1 WLR
1472 at 1479, 1485; and by this Court in Kone Elevators Pty Ltd v McNay
(1997) Aust Contract R 90-080 at 90,595, 90,597; Woolworths Ltd v Olson
at [67] and Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at
[24], [25], [43], [64]. Finally, the 12 month period of the restraints was not
reasonable.
- As
to the first reason: it is well established that an employer has a legitimate
interest in protecting its customer connections and
confidential information. In
some circumstances, a restraint may be justified as protecting more than one
legitimate interest. For
example, where an employee having a close relationship
with and influence over particular customers also holds confidential information
as to their terms of trade or as to the future plans of the business which may
adversely affect the interests of those customers,
a restraint on dealing with
those customers could be justified as reasonably necessary to protect both
interests. In relation to
the confidential information, such a restraint would
operate in the same way as the covenant which was upheld in Littlewoods
Organisation Ltd v Harris .
- The
primary judge made the following findings as to the relationship between Mr
Jardin and Metcash's customers. None of those findings
is challenged on appeal:
"52. In my opinion, the evidence establishes that, over a period of 10 years,
Mr Jardin developed close relationships with a number
of important customers of
Metcash. Although Mr Jardin was reluctant to concede the point, it was clearly
an important part of his
job to build relationships with customers. Others in
the company also had responsibility for establishing and maintaining relations
with customers. However, as CEO of IGA, Mr Jardin played an important role in
maintaining those relationships. He was the person
to whom customers could turn
in the event that they could not get satisfaction elsewhere in the organisation.
He travelled frequently
to visit customers and entertained them often - all at
Metcash's expense. On occasions, his wife joined him - again at Metcash's
expense. It is clear from the evidence that he gave that he had built up a
detailed knowledge of many of Metcash's customers; and
it is clear from emails
he sent and received following the termination of his position of CEO that he
had developed strong personal
relationships with a number of them. ......
However, if Mr Jardin had been free from the time he ceased to be CEO of IGA to
approach
customers, he would have been in a position to undermine the
relationships between those customers and Metcash and, in doing so,
he would
have increased the likelihood that some of them would ultimately leave Metcash
for a competitor. Metcash was entitled to
protect itself against that
happening."
- Mr
Jardin submitted that these findings were not sufficient to justify the
conclusion that Metcash had a legitimate customer connection
interest to protect
because it was necessary for Metcash to establish that Mr Jardin had acquired
"an enduring influence over its
customers such as to enable him to 'control' the
customers' connection with Metcash as a 'personal asset'". It was suggested that
this meant that Mr Jardin had to be shown to "control" that connection in the
sense of being able to direct whether the customer
stayed with Metcash after his
employment was terminated.
- In
support of this argument, Mr Jardin relied on statements which describe the
necessary relationship as being one in which the employee
is the "human face" of
the employer or, quoting the words of Hoover J in Arthur Murray Dance Studios
of Cleveland Inc v Witter (1952) 105 NE 2d 685 at 706, is in a position "to
control the customer's business as a personal asset". Reference was made to J D
Heydon, The Restraint of Trade Doctrine , 3 rd ed, pp 121-122 as well as
to other cases relying on the same or similar expressions including
Twenty-First Australia Inc v Shade (unreported Supreme Court of NSW,
Young J, 31 July 1998) at p 12; Koops Martin Financial Services Pty Ltd v
Reeves [2006] NSWSC 449 at [34]; Cactus Imaging Pty Ltd v Peters
[2006] NSWSC 717; (2006) 71 NSWLR 9 at [25]; Australian Regional Wholesalers v Stafford
[2007] NSWSC 572; (2007) ATPR 42-168 at [58]; and Informax International
Pty Ltd v Clarius Group Ltd (2011) 192 FCR 210 at [27]-[29].
- Expressions
which describe the necessary relationship as one in which the employee is the
"human face" of the employer do so to emphasise
that the source of the influence
must be the personal relationship which is likely to develop, or has developed,
between the employee
and customer as a result of dealings between them on behalf
of the employer and its business. In Stenhouse Australia Ltd v Phillips
[1973] UKPC 1; [1973] 2 NSWLR 691; [1974] AC 391 at 400 the Privy Council emphasised the
distinction between the use of the employee's personal skill or experience,
against which
the employer is not entitled to be protected, and the use of some
advantage or asset inherent in the business which can properly
be regarded as
the employer's property which might legitimately be protected from appropriation
by an employee for his or her own
purposes. In Miles v Genesys Wealth
Advisers Ltd , this Court adopted that statement of principle and described
the relationship between a senior employee and customers with whom
that employee
had fostered close and productive relationships as being "to a substantial
extent" the property of his employer notwithstanding
that the relationship had
also developed and been supported at least in part by the employee's own
qualities of skill and experience:
at [38], [41], [54], [55].
- The
reference by Hoover J to controlling the customer's business "as a personal
asset" describes the ability of the employee to use
the relation of influence,
which can properly be regarded as the employer's property, for the employee's
purposes as distinct from
those of the business. Thus, the subject of the
"control" referred to is the ability to influence, which may be legitimately
protected.
It is not the customer's behaviour or allegiance, although each may
be the subject of the ability to influence.
- These
statements are not, however, to be understood as requiring that the employee be
proved to be in a position to control whether
the customer remain with or leave
the business. The employer is entitled to protection against the use of
"personal knowledge of
and influence over" its customers, which the employee
might acquire in the course of his or her employment, so as to undermine its
customer connections: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at
709; Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628 at 635, 636, 645, 647,
654. It is against the "possibility" of its business connection being adversely
affected by the use of that
"personal knowledge and influence" that the employer
is entitled to be protected: Lindner v Murdock's Garage at 636, 645, 654.
Latham CJ (dissenting) summarised the relevant principle as follows (at 636):
"Where an employee is in a position which brings him into close and personal
contact with the customers of a business in such a way
that he may establish
personal relations with them of such a character that if he leaves his
employment he may be able to take away
from his former employer some of his
customers and thereby substantially affect the proprietary interest of that
employer in the
goodwill of his business, a covenant preventing him from
accepting employment in a position in which he would be able to use to his
own
advantage and to the disadvantage of his former employer the knowledge of and
intimacy with the customers which he obtained in
the course of his employment
should, in the absence of some other element which makes it invalid, be held to
be valid."
- The
primary judge's unchallenged findings justified his conclusion that Mr Jardin
had acquired, in the ten years that he was a senior
employee in the Metcash
business, sufficient knowledge of and influence over Metcash's customers to
justify a restraint directed
to protecting its customer connections.
Specifically he found, looking at the matter as at February 2010, that an
important part
of Mr Jardin's job had been to build relationships with customers
and that he had developed such personal relationships with a number
of customers
and built up detailed knowledge about them. He also found that Mr Jardin was in
a position to undermine the relationships
between those customers and Metcash
and that by doing so he could have increased the likelihood that some of them
would ultimately
leave Metcash for a competitor: [52].
- The
primary judge also made findings as to confidential information held by Mr
Jardin:
"[53] The evidence also establishes that Mr Jardin had access to confidential
information. Indeed, Mr Jardin does not dispute that
fact. For example, Mr
Jardin emailed some of those documents to his home email address on 19 January
2010. In cross-examination,
he accepted that some of those documents were
confidential. He retains possession of them - so that there can be no question
that
he has forgotten their contents. Instead, what Mr Jardin says is that that
information is now out of date. Although that may be true
of some of the
information, I do not think that can be said of all of it. The information
includes board papers, the commercial terms
on which IGA deals with its
customers and Metcash's business strategies and plans. I accept the evidence
given by Mr Morabito that
substantial parts of those documents remain current
and that they could be used to Metcash's competitive disadvantage. Mr Morabito
conceded in cross-examination that it was possible that anyone well versed in
the industry could come up with similar business plans.
But I do not think that
that demonstrates that the information is not confidential. What is important is
the conclusions that Metcash
reached in its business plan. Knowing that
information would assist a competitor to react to those plans. In addition,
knowing any
of Metcash's weaknesses would assist a competitor to target those
weaknesses."
- Mr
Jardin does not challenge any of the findings that prior to February 2010 he had
access to confidential information about Metcash's
"business strategies and
plans" and the "commercial terms on which IGA deals with its customers". He
does, however, challenge the
primary judge's finding in [53] that this
information "could be used to Metcash's competitive disadvantage". Mr Jardin's
submissions
were directed only to that finding in so far as it related to
"business strategies and plans". It was said that there was no evidence
to
support the conclusion that they could be used in the manner described by the
primary judge and that Mr Morabito had not given
evidence to that effect. It was
also said that the absence of post-employment restraints on the use of
confidential information by
Mr Jardin was some evidence from which it might be
inferred that Metcash did not regard the disclosure of such information to be
detrimental. This last point may be dealt with shortly. The Employment Agreement
and Deed of Release did impose obligations with
respect to the disclosure of
confidential information which survived the termination of the contract of
employment.
- It
is correct that Mr Morabito did not in terms say that the business strategies
and plans could be used to Metcash's competitive
disadvantage. However, he
identified the strategy documents which Mr Jardin had seen which remained
current. Those documents described
what were perceived to be the principal
threats to the Metcash business and its responses to them, as well as
initiatives for growing
the Metcash business. The primary judge was entitled to
infer that knowledge of those analyses and initiatives could be used by a
competitor in understanding the weaknesses or perceived weaknesses in the
Metcash business and developing competitive actions to
exploit those weaknesses
or respond to proposed competitive activity of Metcash.
- Mr
Jardin does not challenge the primary judge's finding that information as to the
commercial terms on which IGA dealt with its customers
could be used to its
competitive disadvantage. The evidence indicated that the IGA business had
approximately 3,000 customers. Of
those customers, less than half were on
arrangements by which they agreed to purchase required products from Metcash if
its pricing
was competitive. The arrangements between those customers and
Metcash included the provision of financial and other assistance in
the form of
cash loans, stock loans, extended credit, rate rebates and marketing assistance.
Knowledge of those terms would permit
a competitor to target particular
customers and to formulate favourable offers, in each case potentially to
Metcash's competitive
disadvantage. The primary judge was also justified in
concluding that this information which could be used to Metcash's competitive
disadvantage.
- As
to the second reason: the primary judge held that Metcash was entitled to
protect its confidential information and customer relations
by procuring a
restraint against Mr Jardin taking more than a 5 percent investment in a
competitor of Metcash: [54]. Mr Jardin submits
that he was wrong to so conclude
and that cases such as Kone Elevators v McNay and Woolworths Ltd v
Olson do not support that conclusion. I do not agree. Those cases recognise
that an employee may validly be restrained from taking a position,
whether of
employment or which involves having any proprietary or pecuniary interest in a
competitor, where to do so would give rise
to an incentive in the employee to
disclose confidential information or otherwise take advantage of the employer's
customer relations.
For example, in Rentokil Pty Ltd v Lee [1995] SASC 5318; (1995) 66 SASR
301 a restraint on an employee from having any involvement as a shareholder or
unitholder or financier in a competing business was held
to be reasonable and
valid. Doyle CJ (dissenting) formulated the relevant question in relation to
covenants which restrain an employee
from taking a position or being engaged in
a particular activity as follows (at 305):
"... an employer with a relevant protectable interest can restrain an
employee from accepting a position the nature of which is such
that the employee
would be likely to utilise confidential information or trade connections which
have been acquired in the course
of the employment. ... if [however] the
employer identifies positions as subject to the restraint, being positions which
do not give
rise to the relevant risk, then it seems to me that on its face the
restraint has gone too far."
- By
cl 3.2(d) of the Employment Agreement the parties recognised that an investment
of more than 5 percent was a significant one likely
to require some ongoing
interest or attention on the part of Mr Jardin. The primary judge was justified
in concluding that there
was a risk that if Mr Jardin took such an investment of
more than 5 percent in a competitor of Metcash, there was a risk that he
would
use confidential information or his influence over Metcash's customers for the
benefit of that competitor.
- As
to the third reason: the primary judge found that the restraints imposed by the
Deed of Release for a period of one year were not
unreasonable: [55]. Mr Jardin
argues that because there were no restraints of that duration in his Employment
Agreement or in the
agreements of other employees, such as Mr Morabito, it
should be concluded that restraints longer than six months in duration were
not
justified.
- The
primary judge did not err in concluding that addressing the matter in February
2010, a restraint for a period of 12 months was
not unreasonable in order to
protect Metcash's interests. Mr Jardin had occupied the position of CEO for a
period of 10 years, had
built up personal relationships with customers and had
confidential information as to Metcash's business plans and strategy as well
as
to its arrangements with customers. The 12 month restraint was to operate in
circumstances where Mr Jardin was to continue to
be employed and paid and was
the outcome of negotiations in which both parties were represented:
Queensland Co-operative Milling Association v Pamag Pty Ltd [1973] HCA 24; (1973) 133
CLR 260 at 268; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty
Ltd [1973] HCA 40; (1973) 133 CLR 288 at 294, 316; Woolworths Ltd v Olson at [39].
The fact that shorter restraints had been imposed on other employees could have
been of some relevance. However, the evidence
did not suggest that any of those
employees occupied a position equivalent to that occupied by Mr Jardin. The fact
that there had
been no similar restraint on the expiry of Mr Jardin's Employment
Agreement was consistent with Metcash not having secured by that
agreement
protection to which it was reasonably entitled. The more persuasive indication
of reasonableness was that the restraint
was freely agreed in the Deed of
Release.
- For
these reasons, the primary judge's conclusion as to the reasonableness of the
restraints in cl 3.2 of the Employment Agreement
involved no error.
Did the 'springboard' doctrine provide a basis for an injunction to
enforce the negative covenants in cl 3.2 beyond 26 October 2010
for a further
period of 35 days?
- Because
of my views in relation to the first and second issues, it is not necessary to
address this question as the prohibitions in
cl 3.2 continued to apply as a
matter of contract beyond the date to which the primary judge granted an
injunction relying in part
on the existence of the "head start" or "springboard"
advantage: [61]-[62]. However, as the point was fully argued and is an important
one, I propose to deal with it.
- The
primary judge erred in concluding that the fact that Mr Jardin had obtained an
advantage by breaching cl 3.2(a) provided a basis
for granting an injunction to
restrain breaches of cl 3.2 beyond the date that the primary judge had held that
Mr Jardin remained
bound by the employment contract and therefore by those
prohibitions. Metcash did not rely on any breach of any equitable as distinct
from contractual obligation as justifying the grant of that injunction. Had it
done so, different principles would have applied.
- The
primary judge reasoned as follows. The Deed of Release affirmed the prohibitions
imposed on Mr Jardin by cl 3.2 of the Employment
Agreement: [45]. Those
prohibitions continued until that Deed was terminated: [44]. Mr Jardin had
terminated the Employment Agreement
with effect on 26 October 2010: [59].
Accordingly, Metcash was entitled to an injunction to restrain a breach of the
negative covenants
in cl 3.2 until 26 October 2010: [59]. Mr Jardin breached cl
3.2(a) of the Employment Agreement between 1 July and 4 August 2010:
[61]. By
reason of his doing so he obtained an advantage by commencing and continuing his
negotiations with SPAR Australia. The measure
of that advantage was a period of
35 days: [62]. In the circumstances, the injunction should be continued up to
and including 30
November 2010, ie. 35 days after 26 October 2010, to take
account of the advantage obtained by reason of the breach. The primary
judge
referred to the decision of Young CJ in Eq in Landmark Underwriting Agency
Pty Ltd v Kilborn [2006] NSWSC 1108 as justifying that conclusion. However,
as will appear from the analysis below, it does not do so. That was a case in
which the "springboard"
doctrine was relied upon to justify as reasonable the
grant of an injunction to restrain soliciting of clients and involvement in
a
competing business during a period when the contractual restraint to that effect
continued to apply.
- In
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC
203, Lord Greene MR held (at 215) that, even if there was no contractual
obligation of confidence, there was in the circumstances of
that case, a breach
of an equitable obligation of confidence. That breach was in using drawings,
which had been disclosed in confidence,
for the manufacture of leather punches
notwithstanding that the punches could be purchased in a shop and, with the
assistance of
an expert draughtsman, used to produce drawings for the
manufacture of the same leather punches. Whilst the drawings remained
confidential,
by their use in breach of confidence the defendants saved
themselves "a great deal of labour and calculation and careful draughtsmanship".
- In
Terrapin Ltd v Builders' Supply Co (Hayes) Ltd , Roxburgh J rejected an
argument that the equitable obligation to treat certain drawings as confidential
had been discharged when
the general features of the portable building units
which were the subject of the drawings had been published in a brochure or could
be ascertained by inspection of units which had been offered for sale. In doing
so he described as a "springboard", the advantage
which the confidant had
obtained by use of the drawings: at 390-392. Referring to the decision of the
Court of Appeal in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd
, he said (at 392) that in such circumstances the confidant "must be placed
under a special disability in the field of competition
to ensure that he does
not get an unfair start".
- That
advantage is secured if the confidant commences to use the information before it
loses its confidential character and becomes
common knowledge. In that
circumstance, the confidant may be restrained from using the information for the
period during which the
unfair advantage is reasonably expected to continue:
British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR
448 at 452; United States Surgical Corporation v Hospital Products
International Pty Ltd [1983] 2 NSWLR 157 at 230; Roger Bullivant Ltd v
Ellis [1987] FSR 172 at 183-184, 185-188; or may be ordered to pay
compensation or required to submit to an account of profits for that period:
Seager v Copydex Ltd [1967] 1 WLR 923 at 931-932; RLA Polymers Pty Ltd
v Nexus Adhesives Pty Ltd [2011] FCA 423; (2011) 280 ALR 125 at [174].
However, if the confidant does not commence to use the confidential information
until after it has ceased to be confidential there
is no "springboard"
advantage: Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd
[1964] 1 WLR 96 at 104; British Franco Electric Pty Ltd v Dowling
Plastics Pty Ltd at 450-452; Aquaculture Corporation v New Zealand Green
Mussel Co Ltd (1985) 5 IPR 353 at 383.
- Whether
a confidant has been released from an equitable obligation of confidence by the
making public of the relevant information
may differ depending on the
circumstances of disclosure, and particularly, the circumstance whether the
publication was by the confider
as distinct from a third party:
Attorney-General v Observer Ltd [No. 2] [1990] 1 AC 109 at 268, 285-286;
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR
181 at [46]- [48].
- In
United States Surgical Corporation v Hospital Products International Pty Ltd
[1982] 2 NSWLR 766, McLelland J applied the "springboard" doctrine as a
measure of the liability of the defaulting distributor to account for profits
made by breaches of fiduciary duty: at 815. On appeal this Court found that
damages assessed on a "headstart" basis, or an "equivalent
accounting of
profits", was not the appropriate form of relief because the gain "was not a
headstart": United States Surgical Corporation v Hospital Products
International Pty Ltd [1983] 2 NSWLR 157 at 233. In the course of dealing
with this question, the Court reviewed (at 228-233) a number of the relevant
authorities and concluded
(at 233):
"This review shows that the headstart approach to damages or other relief is
not based on some artificial or arbitrary doctrine, to
be applied regardless of
the facts of the case. It is a principle applied in conformity with the more
general principle that a person
misusing confidential information must answer
for his default according to his gain. A headstart may often be the gain in
these cases.
If it is the gain, damages will be assessed accordingly and any
other relief, such as injunction, will be moulded. If it is not the
gain the
method of assessing damages or the appropriateness of some other remedy has to
be considered in the light of what that gain
is."
- These
statements are made in relation to equitable remedies, including injunctions,
for breaches of equitable as distinct from legal
rights or obligations. Although
in some cases the relationship between the parties with respect to confidential
information may be
equitable as well as contractual, it remains necessary to
keep firmly in mind the distinction between the grant of an injunction
in
relation to an equitable obligation of confidence and that in aid of a legal
right arising in contract: see generally Meagher,
Gummow & Lehane's
Equity: Doctrines and Remedies (4 th ed.) at [21-010], [21-015],
[21-025], [21-035]; Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999)
198 CLR 380 at [28], [30]; Australian Broadcasting Corporation v Lenah Game
Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 at [88]-[91]. In the latter
case, an injunction may be granted to restrain the breach of a duty,
imposed by
the contract, to refrain from doing some act "whether the duty is imposed by a
term of the contract expressed in negative
or affirmative language": JC
Williamson Ltd v Lukey [1931] HCA 15; (1931) 45 CLR 282 at 299, 301 per Dixon J.
- In
restraining the doing of some act which the party enjoined has contracted not to
do, a court of equity gives the "sanction of the
process of the Court to that
which already is the contract between the parties": per Lord Cairns LC in
Doherty v Allman & Dowden (1878) 3 App Cas 709 at 720. Whilst the
question whether an injunction will be granted depends upon circumstances
including the nature of the stipulation
and contract containing it and the
effect of enforcement on the parties to the contract, it remains fundamental
that there be a negative
covenant in a contract, the breach of which is sought
to be restrained by the injunction: Dalgety Wine Estates Pty Ltd v Rizzon
[1979] HCA 41; (1979) 141 CLR 552 at 560, 573-574; Cardile v LED Buildings Pty Ltd
at [30]; ABC v Lenah Game Meats Pty Ltd at [90]-[91]. If the period
during which the covenant operates has ended, there can be no actual or
threatened breach to which such
an injunction could be directed.
- In
this case, the injunction granted by the primary judge, to the extent that it
went beyond 26 October 2010, was not to restrain
any breach of a negative
covenant, which on the primary judge's analysis, applied beyond that date. For
that reason, the primary
judge erred in extending the operation of the
injunction beyond the period of the contractual restraint. His doing so was not
supported
by the decision in Landmark Underwriting Agency Pty Ltd v Kilborn
. There an injunction was sought to enforce against ex-employees a covenant
not to solicit clients or be involved in a competing business.
That covenant was
expressed to operate during a series of time periods including one ending on 4
February 2007: [4], [5]. When addressing
whether the covenant was reasonably
necessary for the protection of the legitimate interests of the employer and the
period during
which any injunction should be granted, Young CJ in Eq took
account of the misuse of confidential information by the defendants before
their
employment was terminated and the advantage which had accrued to them as a
result: [82]-[97]. The injunction which Young CJ
in Eq indicated he would grant
was one to 4 February 2007 which was within the period that the negative
covenant had contractual
effect.
- The
foregoing does not mean that the concept of a "headstart" advantage may not be
relevant in the context of a contractual relationship
governing the use of
confidential information. There are at least two respects in which it may be
relevant. The first is that the
possibility of a "headstart" advantage could
provide a legitimate ground for justifying the reasonableness of a covenant in
restraint
of trade: Wright v Gasweld Pty Ltd at 338; Industrial
Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 at
[181]- [182], [191]. The second is that the likelihood of such an advantage may
be a circumstance relevant to the construction of a contractual
constraint and
whether it is subject to any temporal limitation: Maggbury Pty Ltd v Hafele
Australia Pty Ltd at [50].
Whether the primary judge erred in granting injunctive relief to 30
November 2010
- This
ground is only pressed on the basis that, addressing the matter as at September
2010, there was nothing that "could legitimately
have been protected by the
restraints". The primary judge rejected that argument on the basis that the
restraints continued to have
utility because the existing interests which he had
found justified those restraints: [71]. In particular, he held that Mr Jardin
possessed information which at that time was confidential and not out of date
and had close personal relationships with customers
and suppliers of Metcash
which had developed over a number of years. In light of these findings, the
primary judge did not err in
concluding that there was utility in granting
injunctions to 30 November 2010.
Whether restraining orders should have been made against Jardim
Investments
- The
primary judge made orders against Jardim Investments which restrained it from
competing with the business of Metcash, including
by contacting employees,
customers or suppliers of Metcash, or providing services to SPAR Australia, or
soliciting customers or employees
of Metcash for the benefit of SPAR Australia
or disclosing the contents of Metcash's documents held by Mr Jardin. Those
orders were
in substantially the same form as the restraining orders made
against Mr Jardin.
- Jardim
Investments argues that the primary judge should not have made orders against it
for two reasons. First, it is said that the
evidence did not support an
inference that if Jardim Investments sought to supply or make available to SPAR
Australia the marketing
and distribution expertise of Mr Jardin, it would be
doing so "to avoid the restraints imposed" on him and "as his agent". Secondly,
it submitted that there was no finding and no evidence to support a finding of a
threat that Jardim Investments proposed to act in
this way. Jardim Investments
did not contend that if the primary judge was justified in making orders against
it, the orders made
were too wide or not sufficiently confined to conduct on its
part which would constitute a contempt of the court's orders against
Mr Jardin.
- The
primary judge justified the restraining orders made against Jardim Investments
on the following basis. First, in connection with
Jardim Investments' taking a
shareholding interest in SPAR Australia, it was proposed that Mr Jardin would
take an active senior
management role with that company: [24], [68]. Secondly,
the Jardin family, through Jardim Investments, proposed to have an active
role
in the affairs of SPAR Australia beyond being a passive investor with a view to
ensuring the long term sustainability of SPAR
Australia and its stores: [68],
[69]. Thirdly, no other member of Mr Jardin's family had any real experience in
the marketing and
distribution of groceries and none of them, apart from Mr
Jardin, had any experience which could be used to ensure that SPAR Australia's
stores were "profitable and price competitive": [68], [69]. In the
circumstances, he concluded that in becoming involved in the way
proposed,
Jardim Investments would have to call on and use the marketing and distribution
experience and knowledge of Mr Jardin.
The primary judge held that in so doing,
Jardim Investments would be engaging in that conduct "on behalf of Mr Jardin"
and "to avoid
the restraints imposed" on him: [69].
- The
primary judge identified the basis upon which Jardim Investments might be
restrained as being to prevent threatened conduct which
would involve a contempt
of the Court's orders made against Mr Jardin: [64] citing ICT Pty Ltd v Sea
Containers Ltd (1995) 39 NSWLR 640 at 655-657. It is a contempt to engage in
conduct which knowingly prevents an order of the Court achieving its intended
object: Seaward v Paterson [1897] 1 Ch 545 at 555; Reid v Howard
(1993) 31 NSWLR 298 at 308-309; Cardile v LED Builders Pty Ltd at
[30]; Zhu v Treasurer of the State of NSW [2004] HCA 56; (2004) 218 CLR
530 at [121]. The object of the orders made against Mr Jardin was to prevent his
disclosing confidential information of Metcash or seeking to
take advantage of
its customer connections by dealing with Metcash customers for the benefit of
SPAR Australia. Conduct of Jardim
Investments which involved its making Mr
Jardin's expertise and knowledge available to SPAR Australia or using that
expertise and
knowledge for its benefit would defeat the purpose of the orders
made against Mr Jardin. As the primary judge observed, the only
reason why
Jardim Investments would do what Mr Jardim could otherwise do directly, would be
"to avoid the restraints imposed" on
him. To adopt the words of Lord Hanworth MR
in Gilford Motor Co v Horne [1933] Ch 935 at 955, Jardim Investments
would be the "channel through which" Mr Jardin was making available his
expertise and knowledge to SPAR
Australia. That is the sense in which company
would be "acting as agent" for Mr Jardin: ICT Pty Ltd v Sea Containers Ltd
at 657.
- The
primary judge's finding ([29], [69]) that the other members of the Jardin family
who were the directors of Jardim Investments
had no real experience in the
marketing and distribution of groceries is not challenged. Nor is the finding
([68], [69]) that Jardin
family through Jardim Investments proposed to take an
active role in the affairs of SPAR Australia beyond that of a passive investor.
Those findings justified the primary judge's inference that any such involvement
would necessarily include the use of Mr Jardin's
knowledge and experience for
the benefit of SPAR Australia and that Jardim Investments would be the means by
which that knowledge
and experience would be provided.
- For
these reasons the primary judge did not err in concluding that Metcash was
entitled to restraining orders against Jardim Investments.
The foregoing
discussion should not, however, be taken to endorse the form of the orders made
against Jardim Investments (see [74]).
Those orders could only restrain the
company from doing what would constitute a contempt of the orders made against
Mr Jardin. It
is not necessary to address further the form of the orders because
it was not a ground of appeal relied upon by Jardim Investments
for setting them
aside.
Proposed orders
- The
primary judge made orders, other than as to costs, on 29 and 30 September 2010.
The orders made on 29 September 2010 included
a declaration that Mr Jardin was
entitled to give three months notice of termination of the employment deed
(Order 4) and orders
restraining Mr Jardin and Jardim Investments up until 30
November 2010 (Orders 5 and 7). On 25 November 2010 the primary judge made
orders that Mr Jardin pay Metcash's costs of the proceedings so far as they
related to Metcash and Mr Jardin and that there be no
order for costs as between
Metcash and Jardim Investments.
- In
the appeal to this Court, Mr Jardin and Jardim Investments have failed on four
of the five grounds of appeal. Mr Jardin has succeeded
on his argument that the
"springboard" doctrine did not provide a basis for the extension of the
injunctions beyond the period of
the contractual restraints as held by the
primary judge. However, because Metcash has succeeded on its cross-appeal, the
primary
judge was justified in restraining Mr Jardin, and Jardim Investments, to
30 November 2010. For that reason, the cross-appeal must
be allowed and the
appeal dismissed.
- Metcash,
by its amended notice of cross-appeal, not only seeks an order that the
declaration be set aside, but also that the restraining
orders be amended so
that the periods of restraint continue to 1 March 2010. Alternatively, Metcash
seeks a declaration that restraints
in the terms imposed were reasonable and
enforceable up to 1 March 2011.
- In
circumstances where the appeal was heard well after the expiry of the extended
period of restraint contended for by Metcash, there
is no utility in varying the
restraining orders which were made or in making a declaration that such
restraints would have been reasonable
and enforceable up to 1 March 2011. The
present case is not like Marion White Ltd v Francis [1972] 1 WLR 1423
where there was arguably utility in making a declaration as to the
enforceability of a restraint, which had expired, because it was
in a standard
form and applied to a number of other current employees of the appellant. That
is quite unlike the present case.
- There
is no reason to vary the orders for costs made by the primary judge.
- Accordingly,
the orders I propose are as follows:
(1) Grant leave to appeal and cross-appeal.
(2) Appeal be dismissed.
(3) Cross-appeal be allowed.
(4) Set aside Order 4 made by Ball J on 29 September 2010
(5) Order that the appellants pay the respondents' costs of the appeal and of
the cross-appeal.
**********
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/nsw/NSWCA/2011/409.html
