SUPREME COURT OF QUEENSLAND

[1]  WILLIAMS JA: The circumstances giving rise to this appeal are fully set out in the reasons for judgment of Douglas J which I have had the advantage of reading.  I agree, for the reasons given by Douglas J, that the appeal should be dismissed with costs, but I add some brief observations of my own.

[2] Gleeson CJ in ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at 218 re-stated the principles governing the grant of an interlocutory injunction by quoting from Mason A-CJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153 where it was said:

"In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction."

[3] The learned Chief Justice at first instance in this case concluded that there was "adequate factual evidence of actual and likely breach" of the restraint clause giving rise to a "serious question to be tried whether the plaintiff has engaged and will engage in conduct in breach of a valid restraint clause".  Nothing said during the hearing of the appeal causes me to doubt the correctness of that finding.

[4] The interlocutory injunction granted by the Chief Justice was "appropriately limited" and it would not "prevent the plaintiff from carrying on his professional business".  Again those observations by the Chief Justice have not been demonstrated to be incorrect.  The interlocutory injunction was granted in the context that trial dates had been allocated and there could be a trial within a month from the making of the interlocutory order.  The fact that a trial has not yet been held does not alter the basis upon which the interlocutory injunction was originally granted.  The material suggested, and it was not challenged on appeal, that damages would not necessarily be adequate compensation.

[5] As is demonstrated by the reasons for judgment of Douglas J, the appellant challenged the granting of the interlocutory injunction on a number of grounds, including the validity of the restraint provision, which essentially raised issues which could be affected by findings of fact made at a trial.

[6] Against that background the Chief Justice was clearly entitled to conclude that the balance of convenience favoured the granting of an interlocutory injunction in the terms in which it was granted.

[7] The learned Chief Justice applied the appropriate test, directed his mind to the relevant issues, and it cannot be said that he erred in the exercise of his discretion in making the order which he did.

[8] The appeal should be dismissed with costs.

[9]  WILSON J: The appeal should be dismissed with costs for the reasons given by Williams JA and Douglas J. I wish to comment briefly only on the appellant’s submission that the Chief Justice ought to have determined the validity of the restraint.

[10]  The requirement that an applicant for an interlocutory injunction make out a prima facie case, in the sense of a sufficient likelihood of success to justify the preservation of the status quo pending trial,[1] encompasses questions of law and questions of fact.

[11]  By way of counterclaim the applicant first defendant (the respondent before this Court) sought permanently to restrain the plaintiff (the respondent to the application, and the appellant before this Court) from acting in breach of a restraint of trade. The first defendant sought an interlocutory injunction against the plaintiff. It was not for the Chief Justice who heard the application finally to determine the validity of the restraint, whether or not it was a case where evidence of the matrix of facts in which it was made would be admissible to assist in determining its true meaning.[2] All that the first defendant had to establish was that there was a sufficiently strong argument in favour of validity for there to be a serious question (as to validity) to be tried.

[12] Examination of the Chief Justice’s reasons shows that his Honour adopted this approach to the legal question of the validity of the restraint as well as to the factual question of actual and likely breach. He countered the plaintiff’s arguments that the restraint was impermissibly broad, and went on –

“I would summarise my critical views as follows.  For present purposes there is adequate factual evidence of actual and likely breach. There is a serious question to be tried whether the plaintiff has engaged and will engage in conduct in breach of a valid restraint clause. 

As to the validity of the restraint there is the significance of the plaintiff’s acknowledgement of its reasonableness in the agreement through clause 16.5. There is the circumstance that the provision restrains activities in relation to a range of recent clients. There is the circumstance that it was agreed upon by the plaintiff in the context of the acquisition of the business of Horvath’s. It applied to all partners. Reference might usefully be made in relation to that aggregation of circumstances again to Bridge v Deacons.”[3]

[13]  In my respectful opinion the Chief Justice addressed the proper questions, and did not err in the exercise of his discretion.

[14]  DOUGLAS J: Mr Rich, an accountant, was an equity partner of the accounting firm of BDO Kendalls from 1 November 2002, having previously been a director of Horwath Brisbane which merged with BDO Kendalls on that date.  He had earlier carried on his own accounting practice under the name Rich & Co.  He retired as a partner from BDO Kendalls on 30 June 2005 but became an employee of that firm until 30 June 2006 when he began to work as an accountant for Horwath Motor Industry Services Pty Ltd.  His work for that company was, allegedly, carried on in breach of a restraint clause in the partnership agreement between him and BDO Kendalls. 

[15]  In reliance on that clause the learned judge at first instance granted limited interlocutory injunctive relief restraining Mr Rich until the trial of the proceedings but, in any event, no later than 30 June 2009 from, amongst other things, providing any accountancy, tax or corporate regulatory advice or services to, or approaching in regard to such advice or services, identified former clients of BDO Kendalls.  That order was made on 3 October 2006 and included a further order that the proceeding be listed for trial for three days commencing 1 November 2006. 

[16]  Instead of going to trial, however, the appellant has brought this appeal seeking to argue two issues in particular; whether the restraint clause constitutes an unlawful restraint of trade and whether it is void for uncertainty.  The respondent contends, however, that the first issue to determine is whether his Honour erred in the exercise of his discretion in granting this limited interlocutory relief.

[17]  My conclusion is that the respondent's submission is correct and that his Honour's discretion was exercised correctly. To show why I reach that conclusion, however, it will be necessary to consider the arguments about the validity of the restraint clause and its claimed uncertainty. In performing that task, I am not to be taken as expressing any concluded view about the enforceability of the clause as it stands. That should be done at a trial for reasons I shall develop.

The restraint clause

[18]  The relevant clause reads as follows:

“16.RESTRICTION ON PRACTICE UPON RETIREMENT

16.1General

The provisions of this clause apply to the retirement, deemed retirement or expulsion from the Partnership of any Partner (‘Outgoing Partner’) subject to the Outgoing Partner having made an election under clause 17.1 and having complied with all of their obligations under clause 17.

16.2  Directorships & Employment

Where the Outgoing Partner acts as a Director of a client company or employee of a client with the approval of the Practice, Section 16 shall not be applied to the directorships or employment.

16.3  Agreement by Partners

In consideration of the Partners accepting this Policy the Partners agree with each other that:

16.3.1        this clause will have effect as if it consisted of several separate covenants and restraints for each separate period of time set out in paragraph 16.3.3 and if any of these several separate covenants and restraints are or become invalid or unenforceable for any reason then that invalidity or unenforceability shall not effect (sic) the validity or enforceability of any of the other separate covenants and restraints;

16.3.2     an Outgoing Partner will not whether directly or indirectly for the period specified in paragraph 16.3.3, accept work or business from, or give management, accounting or financial advice to any client of the Firm who was a client at the date of or during the period of 12 months prior to the retirement or expulsion of the Outgoing Partner or to any Association (sic) (as defined in the Corporations Law) of that client;

16.3.3          the periods of time referred to in paragraph 16.3.2 are:

(i) during the period of three years from the date of retirement or expulsion of the Outgoing Partner (‘departure’);

(ii) during the period of two years from departure;

(iii) during the period of 18 months from departure;

(iv) during the period of one year from departure.

16.4  Unfair Acts

The Partners agree that any of the acts referred to in the preceding sub-clause would be unfair and calculated to damage the Partnership business.

16.5  Reasonableness

The Partners agree that each separate covenant and restraint in this clause is reasonable and that valuable consideration has been received therefore both directly and indirectly by the parties to be restrained by these covenants and that each Partner affected by this clause has carefully considered it and approves its intention and its binding effect.

16.6  Direct or Indirect Involvement

The Partners agree that the words ‘directly or indirectly’ will be given the widest possible interpretation and will include (without derogation from their generality) management, with or without salary, advising or influencing a competitive business whether for direct remuneration or benefit or otherwise or establishing or being interested in or influencing a competitive business through any association or arrangement with any person, relative, nominee or trust in or over which any interest or influence (absolute or partial) is held, except where the Equity Partners Committee otherwise determines.”

[19]  There are also definitions in the partnership agreement that are relevant.  They include:

“‘Firm’ means the Partnership of BDO Kendalls and its successors, however named and the subsidiary companies and Trusts of the practice.  It means the same entities as the BDO Kendalls Group.

‘BDO Kendalls Group’ means the Partnership together with the companies and trusts set out in the Fifth Schedule or such other entities as may be agreed upon from time to time.”

[20]  The fifth schedule lists a number of companies, one, BDO Kendalls Services Pty Ltd, which is described as “trustee for the KMO Services Unit Trust”.  Another body referred to was the Evalumatics Unit Trust, as is another entity called BDO Kendalls Consulting (incorporating BDO Kendalls Business Intelligence).  Those entities, including all the companies listed in the fifth schedule, are also described in the second schedule as subsidiary entities, although, there, BDO Kendalls Services Pty Ltd and KMO Services Unit Trust are listed separately.

[21]  It is also common ground between the parties that the word “association” in subcl. 16.3.2 should be read as “associate”. 

Validity of the restraint clause

[22]  The restraint clause was criticised, among other reasons, for operating without territorial limitation, for failing to define the expression “client of the firm”, for not limiting the work restrained to work of a kind previously undertaken by BDO Kendalls or the clients affected by the restraint to those dealt with by Mr Rich personally and for extending over a period of between one and three years said to exceed any justifiable restriction on Mr Rich. 

[23]  It does confine itself to clients who were clients during the 12 months before the retirement of the outgoing partner but the criticism was that the extension to associates of the client included any director, secretary or related company or any related company’s director or secretary and became impermissibly wide.  The operation of the clause was also said to be broadened so much by subcl. 16.6 and its wide interpretation of the words “directly or indirectly” in subcl. 16.3.2 as to render the restraint clause invalid. 

[24]  An attempt was made to argue that the restraint should have been limited to clients served by Mr Rich, by analogy with cases dealing with former employees, but Mr Rich was formerly a partner and Bridge v Deacons [1984] AC 705 made it clear that the mutuality of the contract between partners and their shared ownership of the firm’s assets, including its goodwill, justified a restraint against acting for all clients of the firm; see at 716.  The appellant sought to distinguish that decision on the basis that he was engaged in one relatively narrow area of practice in a larger firm dealing with a wide variety of work, had been an employee rather than an equity partner for a year before his resignation and, notably, because this restraint was unlimited geographically where that in Bridge v Deacons was limited to Hong Kong. 

[25]  Against that, it was argued that this restraint’s limitation to clients of BDO Kendalls, a firm operating only in Queensland, but whose clients included national and foreign corporations in respect of their Queensland operations, brought its own limitations, some of which would be effectively local.  Closer analysis after a trial of the action, it was said, would allow any evidence relevant to the potentially wider geographical effect of the restraint clause to be examined more carefully. 

[26]  It was submitted by Mr Hugh Fraser QC for the respondent, in this context, that the background circumstances to the formation of the contract may confine its construction. For example, he pointed to Mr Rich’s age on entry into the partnership agreement, 58, his intention to continue and work until about the age of 63 or 65, the specialised and local nature of his work for motor dealers in Queensland and the length of his work in that specialised field, all as affecting the possible construction of the agreement.  This was in answer to the examples argued by Mr Morris QC for the appellant where he had pointed to the potential width of the restraint and its extension to any associates of a client wherever they were in the world as justifying striking it down.  Mr Fraser’s submission was that, in the contemplation of the parties, it was improbable or unlikely that such a situation would arise.

[27]  In that context he relied on a passage from the decision of this Court in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2000] QCA 172[4] at [19]-[20] which referred to the “flexible approach” to construction of restraint clauses in these terms:

“[19] … This has two aspects: first, reading restraint clauses down by rejecting words which consist of ‘unskilful drafting in which the draftsmen inserted rather too wide words’ and, secondly, leaving ‘improbable and unlikely events’ out of consideration when looking at validity (at 394). In Rentokil Pty Ltd v Lee (1995) 66 SASR 301, Doyle CJ was prepared to accept that restraints of the present kind should not be held void merely because of circumstances ‘falling within the restraint but either unlikely to occur or not within the contemplation of the parties’ (at 304). Matheson J read down the relevant covenant by consideration of what it was ‘aimed at’ (326) and a similar approach was taken by Debelle J (at 340). In New South Wales a statute permits a reading down to achieve validity: The Restraints of Trade Act 1976, s 4. In discussing it, Sheller JA said in Kone Elevators Pty Ltd v McNay (1997) 19 ATPR 41-564 at 43,833, that the statute ‘confirmed and enlarged the capacity of the Court to enforce just and reasonable covenants which may on their face be too widely expressed’.

[20] The High Court has in no case we have found given any encouragement to severance by this process of reading down; see Butt v Long (1953) 88 CLR 476 at 488. It appears that, nevertheless, this Court should follow the approach of the South Australian Full Court in the Rentokil case and apply the doctrines to which Mr Dean refers in his work. To do so will amount to making contractual excisions or additions to avoid outcomes which appear to be contrary to the parties' true intentions.”

[28]  He also relied on a passage in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 in the judgment of Gibbs J at 316-317 referred to by this Court in Maggbury Pty Ltd v Hafele Australia Pty Ltd at [15] to the effect that the law will allow the parties considerable freedom, where they are bargaining on an equal footing, to judge what is reasonable in their own interests.  That point is emphasised in this case by the presence of subcl. 16.5 by which the partners agreed that each restraint in the clause was reasonable; cf. Peters (WA) Limited v Petersville Ltd (2001) 205 CLR 126, 142-143 at [ 37]. 

[29]  Mr Fraser further submitted that evidence at the trial of Mr Rich’s history and of the nature of his clients and their associates would be potentially relevant to the proper construction of cl. 16 and to the meaning of words such as “work or business” and “management, accounting or financial advice” in subcl. 16.3.2 in particular.  In that context he relied on the views of Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201 reproduced in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 198 at [43] as follows:

“if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”

[30]  He also submitted that parts of the clause that may be too wide could be “blue pencilled” by a trial judge, such as the words “directly or indirectly” in subcl. 16.3.2, something also mentioned by the learned judge at first instance in this case.  The duration of the restraint may vary between one and three years because of the terms of the agreement and was said to be prima facie valid at least for the period of one year that was relevant to the interlocutory orders sought.  

[31]  From those propositions Mr Fraser submitted that the proper construction of this restraint clause was not something that could be determined as a pure question of law but should be examined at a trial of the action where the background circumstances relating to the formation of the contract could be the subject of further evidence, cross-examination and submissions.

[32]  The proper construction of a contract may depend to some extent on evidence of the surrounding circumstances when the agreement was made that may be admitted at a trial; see, e.g., D.T.R. Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 429; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 347-353; Royal Botanic Gardens and Domain Trust v South Sydney City Council(2002) 76 ALJR 436, 438-439 at [9]-[10].  It seems to me that many of the arguments about the validity of this clause that deal with the meaning of words and the potential width of the restraint are ones that may be affected by the possible admission of further evidence on those issues. 

[33]  The appellant's arguments about the width of the geographic extent of the restraint and the range of bodies or individuals to which it may extend are, on their face, more substantial than some of the other arguments advanced for him to do with the meaning of terms in the agreement. The authorities relied on by Mr Fraser, however, in particular the discussion in Maggbury Pty Ltd v Hafele Australia Pty Ltd in this Court referred to before, point to the need for a trial to explore the proper construction of those terms in the context of the evidence that will become available at such a hearing. To reach a conclusion that the restraint was invalid without affording BDO Kendalls the opportunity to develop an argument, based on further evidence, that those terms may perhaps be read down by reference to the circumstances surrounding the making of the contract would be incorrect. That approach supports the reasons for the orders appealed from.

Uncertainty

[34]  The terms of the restraint clause said to be uncertain included the expression “any client of the firm” in subcl. 16.3.2, the expression “the subsidiary companies and Trusts of the practice” in the definition of “firm” in cl. 1, the expression “a competitive business” in subcl. 16.6 and the expressions “influencing” and “influence” in subcl. 16.6.

[35]  The argument that the expression “client of the firm” was uncertain was based on the submission that it had at least two possible meanings, namely an entity for which BDO Kendalls performed work in the preceding year or one that appeared on their books for that year.  That approach was criticised by Mr Fraser for the respondent on the basis that it confused lack of certainty with ambiguity.  It is also inconsistent with the principles relevant to the construction of such contracts expressed, for example, by Barwick CJ in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, 436-437 as follows:

“But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co. Ltd. v. Arcos Ltd. ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G.) & Nephew Ltd. v. Ouston is not "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention", the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.”

[36]  Those principles were recently and usefully summarised by Muir J in this Court in Bellmere Park Pty Ltd v Benson [2007] QCA 102 at [9]-[14].

[37]  In this case the criticism of the expression “the subsidiary companies and trusts of the practice” meets similar problems and, in any event, the claimed lack of certainty of that expression may well be able to be resolved by reference to the second and fifth schedules of the partnership agreement. 

[38]  The criticism of the expression “a competitive business” and the words “influencing” and “influence” faces similar problems.  They are all common words which may have more than one possible meaning but will ultimately bear that meaning which the trial judge decides is the proper construction of them.  Evidence from the surrounding circumstances relevant to the making of the contract, for the reasons expressed earlier, may also affect the proper construction of these words.

[39]  The claimed lack of certainty does not seem to me to be of the type which should have persuaded the learned judge at first instance that this was a case where no interlocutory injunction should have been granted.

The exercise of the jurisdiction to grant an interlocutory injunction 

[40]  It will be clear from what I have said that, in my view, it was appropriate for the learned judge at first instance to grant an interlocutory injunction in the limited terms expressed by him.  The arguments made for the respondents reinforce the view that BDO Kendalls had a prima facie case that it would be entitled to relief at a trial or had shown, in other words, “a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial”; see Australian Broadcasting Corporation v O'Neill (2006) 80 ALJR 1672; [2006] HCA 46 at [65].  It is not for this Court to determine that the entire clause is invalid in the absence of such a trial. 

[41]  No more stringent test is required than that applied normally, in reliance on the decision of the High Court in Australian Broadcasting Corporation v O'Neill.  A submission was made that this injunction was closely equivalent to one having final effect because of its impairment of Mr Rich’s ability to work.  The ready availability of an early trial of the action counters such an argument.  The balance of convenience was such that the limited form of relief granted by his Honour was justified.  It was clear on the evidence that Mr Rich could have offered his services to many people other than the nominated clients of BDO Kendalls while still working in the specialised area to which he was accustomed. 

[42]  In my view the appeal should be dismissed with costs.