Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd
[1999] QCA 257
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- Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd[1999] QCA 257
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Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd[1999] QCA 257
Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd[1999] QCA 257
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 11590 of 1998
Brisbane
[Secpro Holdings P/L v. KBK Enterprises P/L]
BETWEEN:
SECPRO HOLDINGS PTY LTD
ACN 003 952 118
(Plaintiff)
Appellant
AND:
KBK ENTERPRISES PTY LTD
ACN 067 184 909
(Defendant)
Respondent
McMurdo P
Pincus JA
Demack J
Judgment delivered 13 July 1999
Judgment of the Court
APPEAL DISMISSED WITH COSTS
| CATCHWORDS: | TRADE AND COMMERCE GENERALLY - RESTRAINT OF TRADE - RESTRAINT BY AGREEMENT - construction of agreement in restraint of trade - contract for traffic control services - whether restraint clause may be read down so as to be in a narrower and valid form - whether amended clause would be reasonable as between the parties Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 |
| Counsel: | Mr N Thompson for the appellant Mr B Cronin for the respondent |
| Solicitors: | Smith Whitehead Morwood Payne for the appellant Pilgrim Geddes for the respondent |
| Hearing Date: | 11 June 1999 |
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 11590 of 1998
Brisbane
| Before | McMurdo P Pincus JA Demack J |
[Secrpo Holdings P/L v KBK Enterprises P/L]
BETWEEN:
SECPRO HOLDINGS PTY LTD
ACN 003 952 118
(Plaintiff)
Appellant
AND:
KBK ENTERPRISES PTY LTD
ACN 067 184 909
(Defendant)
Respondent
REASONS FOR JUDGMENT - THE COURT
Judgment delivered 13 July 1999
- This is an appeal against a judgment of the District Court dismissing an action brought by the appellant against the respondent based on a contractual restraint of trade. The primary judge held that the provision in the contract relied on was unreasonably wide and provided no valid restraint. It is the correctness of that view which is the principal, although not the sole, issue raised in the appeal.
- On 11 February 1998, the appellant and the respondent made a written agreement under which the appellant agreed to engage the respondent as a "contractor", not an employee. The agreement made no provision as to its length, nor did it oblige the appellant to engage the contractor in any defined way. Under cl 11 of the contract the respondent acknowledged that he did not "provide contract services exclusively to" the appellant; nor did the appellant agree to engage no-one other than the respondent to perform those services. Under cl 13 the agreement was made terminable by either party on 30 days written notice. It would therefore have been lawful for the appellant to put an end to the agreement 30 days or more after it was made, whether or not it had ever engaged the respondent to provide the services contemplated by the agreement.
- The dispute between the parties on this appeal is principally, although not wholly, the issue of the validity of cl 20 of the agreement, reading as follows:-
"THE CONTRACTOR SHALL NOT:-
- Canvass the Principals Clients or
- Provide a Service which is provided by the Principal to the Principal's Client -
For a period no longer than twelve (12) months from the termination of this agreement unless the consent is given by the Principal in Writing".
As was pointed out by the primary judge, because of the use of the expression "no longer than 12 months from the termination of this agreement" the respondent could have complied with cl 20, read literally, by refraining from doing the things it proscribes for a day, or a minute, after the termination of the agreement. The case has been litigated on the assumption that the expression "no longer than" should be read as "of" and that assumption appears to us to be correct: cf. Fitzgerald v Masters (1956) 95 CLR 420. A more difficult problem, debated before us and below, is the intended meaning of the words "clients" and "client" in cl 20. The most natural reading of "clients" in cl 20(a) would treat it as referring to any person who happens to be a client of the appellant at the very time of the canvassing, whether or not the appellant or respondent had any previous dealing with, or knowledge of, that client; but there are other possibilities, carefully dealt with in the reasons of the primary judge. If one rejects the reading just mentioned, then the word "clients" could be read down to confine it, for example, to those who are at the time of the canvassing regular customers of the appellant; to those who were regular customers during the currency of the agreement; to those customers, regular or not, with whom the respondent came into contact by reason of his connection with the appellant. The possibility that cl 20 is simply too uncertain to be enforced was not the subject of argument.
- The essential facts relied on by the appellant are that for some months until 14 September 1998, the appellant supplied traffic control services to a large project on the Gold Coast. The supply of such services was one of the activities contemplated by the agreement to which we have referred, others being "all recognised forms of security". Because the customer did not pay the appellant's fees in time, there was an altercation culminating in the appellant's services being dispensed with. The respondent, who had been working under his agreement with the appellant as a traffic controller on the Gold Coast project, arranged to take the appellant's place as supplier of such traffic control services. The judge explained that the plaintiff's goal in the action was to get the respondent enjoined from providing those services on the project; however, its claim for relief extended beyond that purpose.
- It is not clear that it would be a proper exercise of discretion now to grant an injunction restraining the respondent from continuing to provide services on the project; to do so would perhaps adversely affect the interests of the person for whom the respondent has been working there and that person has been given no opportunity to be heard on the question whether its arrangements with the respondent should be brought to an end. There is nothing before the Court to show what relationship, if any, the respondent presently has with that person.
- To return to the principal point, counsel for the appellant, Mr Thompson, did not attempt to argue that cl 20 could be supported as written; his argument was that it should be read down so as to be in a narrower, and valid, form. If construed in what we have suggested to be the most natural way, the clause would plainly enough be invalid. A central point in Mr Thompson's argument was that this Court had power to, and should, read a rather elaborate limitation into the clause on which the parties agreed. This, Mr Thompson said, would be in accordance with the judgment in the English Court of Appeal in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, and other English decisions. The Littlewoods judgment, although ex tempore, appears to be the leading authority for taking such a course; it suggests that a wide agreed restraint may be cut down by a process of interpretation. To use the language of Lord Denning MR, "limiting words ought to be read into the clause so as to limit it to the part of the business for which the plaintiffs are reasonably entitled to protection" (1483). There was discussion before us as to whether the Littlewoods decision can be reconciled with that taken in the High Court in Butt v Long (1953) 88 CLR 476. Adopting the Littlewoods approach would make the law in this State akin to that which applies, by virtue of statute, in New South Wales: see the Restraints of Trade Act 1976 (NSW) s 4(1) considered in Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564. Professors Carter and Harland in their work "Contract Law in Australia", 3rd ed, Butterworths, 1996, p 557, raise the question whether the process of ignoring improbable circumstances, in considering the validity of a restraint clause, was taken too far in Littlewoods; further, we note that the current edition of "Chitty on Contracts" in a discussion of this topic (vol 1, 27th ed, Sweet & Maxwell, 1994, at para 16‑078) says:
"The courts will attempt to construe a covenant so as to achieve the parties' intention where there has been a 'mere want of accuracy of expression' with the consequence that the covenant will be upheld as not being too wide. However, for this principle to apply it must be clear from the contract and the surrounding circumstances what exactly are the terms of the more limited covenant".
It is unnecessary in the present case to determine to what extent the process of reading down a wide restraint to save it from invalidity is justifiable; for here the reading down suggested substantially alters the effect of what the parties explicitly agreed. Further, the limitation we are invited to read in, supposedly by a process of construction, has an arbitrary character in that there is no particular reason to think that it, rather than what the parties said or some other limitation, represents their true intention.
- What the appellant contends for would convert the part of cl 20 on which principal reliance is placed into the following form:
"The contractor shall not -
- canvass the principal's clients being persons with whom the principal has had business dealings in relation to supply of traffic services during the currency of the contract".
That restraint would operate during the agreed one-year period. The words emphasised are those which we are invited to add. It is difficult to see why this addition should be thought reasonable, under this rather peculiar contract. As we have explained, the contract does not require the appellant to provide any work whatever for the respondent. It does not prevent the respondent from attempting to gain work, during the currency of the agreement, from clients of the appellant; nor would the general law necessarily do so. But after termination of the agreement - which as we have pointed out may take place 30 days from its inception - the restraint we are invited to enunciate and enforce would make any client of the appellant with whom the appellant had had dealings during the currency of the agreement unapproachable by the respondent for 12 months. That would be so whether or not the respondent had had anything to do with that client, or indeed any other client of the appellant, during the currency of the agreement.
- Although Mr Thompson did not rely upon implication as a means of reading in the emphasised words set out above, they could only be read in if they pass the ordinary implication tests. It is by no means evident that the "officious bystander" would have regarded cl 20 as necessarily requiring the quarantining for 12 months of all the persons who would be covered by the emphasised words, particularly having regard to the circumstance that the agreement in truth obliged the appellant to do nothing for the respondent, unless it chose to engage it from time to time. In Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, and in other authorities, it is pointed out that a restraint of the present kind, to be valid, must be reasonable in the interests of the parties and the question of reasonableness depends in part upon the "quantum of consideration received by the covenantor". (316) One does not consider fanciful possibilities in determining reasonableness, but the possibility that the respondent would have gained little or nothing under the agreement is not a fanciful one. The appellant might have found that it could get its work done better and cheaper by others.
- In our opinion the appellant's case might have had more strength if the restraint had been confined to canvassing clients of the appellant for whom the respondent had worked, as the contractor of the appellant, during the currency of the agreement. Such a restraint might perhaps have survived scrutiny and been enough for the protection of the appellant's goodwill.
- According to the view of the primary judge, the person from whom the respondent obtained work on the project we have mentioned was never a client of the appellant. It is unnecessary to discuss the correctness of that. It is in our opinion plain that the appeal must fail because the suggested reading of the relevant clause, which is in substance an amendment of it, goes well beyond any legitimate process of construction of such a clause and in any event the amended clause would be invalid, as unreasonable as between the parties.
- We dismiss the appeal with costs.