Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd
[1998] QDC 283
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- Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd[1998] QDC 283
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Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd[1998] QDC 283
Secpro Holdings Pty Ltd v KBK Enterprises Pty Ltd[1998] QDC 283
IN THE DISTRICT COURT HELD AT BRISBANE QUEENSLAND | Plaint No 4002 of 1998 |
[Before Robin DCJ]
[Secpro Holdings P/L v KBK Enterprises P/L]
BETWEEN:
SECPRO HOLDINGS PTY LTD t/a GUARDRITE SECURITY SERVICES | Plaintiff |
AND:
KBK ENTERPRISES PTY LTD | Defendant |
JUDGMENT
Judgment delivered: | 5 November 1998 |
Catchwords: | Contract – breach of contract – injunctive relief sought – plaintiff company operated security service focused on traffic control – defendant company contracted to provide services to plaintiff – restraint of trade clause in contract – defendant provided services to former client of plaintiff direct after plaintiff withdrew services – contract also allows for contractor to work for others – whether plaintiff's client still a client after the withdrawal of services – whether clause uncertain as to meaning of “clients” – defendant asserted its contract with plaintiff terminated before it provided services on its own account – in any event defendant's services were provided to an entity distinct from plaintiff's former client – if it covered that situation, restraint of trade clause was unreasonably wide – whether defendant company (a “one man” company) should be treated as an employee who was a natural person considered – plaintiff's claim fails. |
Counsel: | Mr NJ Thompson for plaintiff Mr B G Cronin for defendant |
Solicitors: | Smith Whitehead Morwood Payne for plaintiff Pilgrim Geddes for defendant |
Hearing Date(s): | 26th, 27th, 28th October 1998 |
IN THE DISTRICT COURT HELD AT BRISBANE QUEENSLAND | Plaint No 4002 of 1998 |
BETWEEN:
SECPRO HOLDINGS PTY LTD t/a GUARDRITE SECURITY SERVICES | Plaintiff |
AND:
KBK ENTERPRISES PTY LTD | Defendant |
REASONS FOR JUDGMENT - ROBIN D.C.J.
Delivered the 5th day November 1998
On 19th October 1998 the plaintiff applied in chambers for an interlocutory injunction restraining the defendant from:
“(a) canvassing the Plaintiff's clients;
- (b)providing a service which the Plaintiff provides to its clients, including but without limiting the Plaintiff's clients, namely Gold Coast City Council, Neale Wilson and/or Wilsons Excavations Pty Ltd and/or United Energy Systems;
- (c)contacting or communicating with any of the Plaintiff's contractors or staff in relation to the commercial enterprise of the Plaintiff being security provider and traffic controller.”
The plaint sought similar injunctive relief for a period of twelve months commencing 18th September 1998, also damages for breach of contract and interest. In practical terms, the defendant is the one man company of Mr Noel Schulz. If granted, the injunction would prevent his earning an income by providing services to one or more of the persons named in (b) above under arrangements with Wilsons Excavations Pty Ltd now on foot, which bode to continue for up to a year. The availability of other income producing activities in practice (as opposed to in theory) has not be explored. Early resolution of the whole action seemed desirable. Thanks to the co-operation of the parties and their legal advisors, it proved possible to have a trial of the action over the first three days of the following week.
Over the last five or six years, the plaintiff company, whose principals and Mr and Mrs McPhillimy, has established a successful business, using the trading name Guardrite Security Services. Its activities include the provision of traffic control services of the kind frequently required where works or construction are in progress necessitating partial closure of roadways and, in consequence, management of traffic flow. One aspect of the plaintiff's business has been the operation of “school” which is able to issue certificates of competence in traffic control which, in practice, qualify those who hold them to seek employment in the field. Mr Schulz retired from the police force four or five years ago and established the defendant company which operates KBK Security Services. Mr Schulz got the idea it would be useful to enrol in the plaintiff's school (which now may be run an associated company of the plaintiff) and obtain a certificate as, indeed, happened about November 1997. He advised the plaintiff he would be interested in obtaining work with it in the field. Nothing was immediately available.
In February, 1998 Mrs McPhillimy contacted Mr Schulz to advise the availability of work with the plaintiff. As is becoming a customary in modern times, the plaintiff is moving away from old-fashioned employment relationships and working through “Contractors”, who are required to sign a standard agreement with it as “Principal”. The present action is based on such an agreement in which the “Contractor” is described, in Mr Schulz's expression, as “Noel Selwyn Schulz of KBK Enterprises Pty Ltd t/a KBK Security Service”. The parties both executed under seal. Mrs McPhillimy remembers Exhibit 12 becoming about because it was unusual for a “Contractor” to be a company and because Mr Schulz took the agreement away for purposes of having the defendant's common seal affixed. I have some hesitation about accepting Mrs McPhillimy's evidence that particular provisions of Exhibit 12, and in particular clause 20, were brought to Mr Schulz's attention. She said she went through this process with every contractor. She purported to recall Mr Schulz expressing his acceptance of clause 20 as “normal”. Otherwise I accept the evidence of Mr and Mrs McPhillimy, with the qualification that it is not possible to have great confidence in the exercise they performed under some pressure during the trial of attempting to identify the overheads of the plaintiff's business to be taken into account when working out profits lost through the defendant's alleged breach of contract. The defendant was paid $12 per hour for its services (although a higher rate might have been applicable in special defined circumstances); the plaintiff charged its clients $17.30 per hour for such services. The plaintiff's claim was that fixed overheads worked out at something like a dollar per hour, this being established in a rather unsatisfactory exercise which allocated overheads between the plaintiff and the new company which runs the school. From some points of view, it was said, the overheads were the same whether or not any particular job undertaken by the plaintiff was considered, no particular job affecting the overheads.
Whether or not Mrs McPhillimy obtained the specific concurrence of the defendant through Mr Schulz to Clause 20, both of them must be treated as fully aware of it, and the defendant as bound by it according to its proper construction. The defendant agrees that Clause 20 is an unreasonable restraint by trade and invalid.
I would say one of the central purposes of the plaintiff in requiring the execution of Exhibit 12 and its counterparts is to provide protection against its being held an employer of any “Contractor” for any purpose. Exhibit 12 contains many deficiencies. The “commencement date” is left blank. By Clause 2:
“This agreement shall come into effect on the commencement date and shall continue for a period of years from the commencement date.”
Thus far, there is no commencement date, and no term. By Clause 3:
“The Principal hereby agrees to accept the services of the Contractor which shall be provided by the Contractor either personally or through the employment of other persons and the Contractor hereby warrants and acknowledges that in the performance of his duties and obligations hereunder he in no way is or is intended to be an employee of the Principal but is intended to be at all times an independent Contractor.”
Somewhat repetitively, Clause 6 provides:
“The Principal acknowledges that the Contractor is an independent Contractor and that the Contractor contracts to supply the services referred to in the Schedule hereto and further that in no circumstances shall the Contractor be deemed to be an employee, servant or agent of the Company. The Contractor acknowledges that it has no claim upon the Principal in respect of annual leave, public holidays, sick leave, long service leave, superannuation, other entitlements or otherwise in respect of any claims under any relevant Workers Compensation legislation or any other Legislation or Regulations affecting or relating to the relationship between an employer and employee.”
Mr Cronin, for the defendant, placed considerable emphasis on Clause 11, which necessarily obliges the plaintiff to accept that a Contractor may work otherwise than for the plaintiff. (Indeed, this may well be essential to the Contractor's survival, as nothing whatever in the agreement requires the plaintiff to give the contractor any opportunity to provide services.) Clause 11 is:
“11. The Contractor acknowledges that he does not provide contract services exclusively to the Principal.”
Either party might determine the agreement on not less than 30 days written notice, but the Principal had an additional right “to terminate this Agreement without notice at any time where there has been a breach of the terms and conditions hereof by the Contractor.” By Clause 15(c):
“The determination of this Agreement shall not effect the rights of the parties accrued before or upon or as a result of termination.”
The plaintiff's case is based on Clause 20:
“THE CONTRACTOR SHALL NOT:—
- (a)Canvass the Principals Clients or
- (b)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.”
The double negative may be thought to create a problem. Reading the clause strictly, if the Contractor refrained from the proscribed activities for a month, a day, or even an hour, that would suffice, literally, because occurring (or not occurring) “for a period no longer than twelve (12) months.” It might be thought to the defendant's credit that it took no technical points along these lines, and no point based on the possibility that the agreement may never have commenced. The case presented by Mr Cronin was that Clause 20 went further than the reasonable protection of the plaintiff's proper interests, in light of case such as Lindner v Murdock's Garage (1950) 83 CLR 628, Aloha Shangri-la Cruises Pty Ltd v Gaven (1970) Qd.R. 438 and Smith v Ryngiel (1988) 1 Qd.R. 179. The restraints which failed as too wide in a geographical or temporal sense prevented the covenantor's utilising his particular skills and experience at all, not being limited by reference to the customers or clients of the covenantee. The third authority mentioned illustrates the point advanced by Mr Thompson on behalf of the plaintiff that covenants in restraint of trade limited (as Clause 20 is) to canvassing or working for clients of the covenantee are looked upon more kindly from the point of view of being held enforceable than more general restraints. Mr Thompson cited Drake Personnel v Beddison (1979) VR 13, 25.
An extremely useful discussion, replete with authorities is to be found in Heydon, The Restraint of Trade Doctrine (Butterworths 1971) at 152-54. I am grateful to adopt it, reproducing case references found in only one of the footnotes:
“The third type of covenant is a covenant not to solicit the employer's customers. This kind of covenant is often held or assumed to be valid, and a court which finds such a covenant satisfactory is unlikely to strike it down for excessive duration. Obviously it is more precise than an area covenant in the sense that at least the employee is not being restricted more than is necessary to protect the employer's business. But such covenants are excessive in that they may prevent the employee from soliciting customers who were not his customers and over whom he had no hold; in other words the employer has no right to be protected against competition from his employee with respect to those customers. This arises in an extreme form where the covenant restrains the employee from dealing with those who were the employer's customers at any time in the past or future, not merely during the employment. The courts may construe such covenants as limited to customers during the employment, but if they do not, it is not settled that such covenants are bad; they give the employer excessive protection and they place the covenantor in the awkward position of being likely to break his covenant unknowingly. As to covenants which restrain the employee from dealing with persons who were at one time customers during the employment but have ceased to be, the Court of Appeal has held these to be valid. HARMAN, L.J., said: if a man was a customer at the beginning of the employment I do not see why hope should be abandoned of his being a customer again at the end of it and why, therefore, people who have, for the time being at any rate, ceased to be customers have fallen outside the proprietary interest.’
The fourth kind of covenant involves a promise not to solicit any of the employer's customers with whom the employee dealt, sometimes within a limited time before the employment ceases. Some courts approve such covenants; others regard them as the only legitimate covenants, and regard the third kind as bad. (Woodmasons' Melrose Dairy Pty., Ltd. v Kingston [1924] V.L.R. 475 (Vic. S.C.F.C.); Stephens v. Kuhnelle (1926), 26 S.R.N.S.W. 327 (N.S.W.S.C.). See also the dicta of HARVEY, J., in Farmers' and Graziers' Co-operative Grain Insurance & Agency Co., Ltd. v. Bridge (1919), 20 S.R.N.S.W. 1 (N.S.W.S.C.).) Certainly the latter view is the only one strictly compatible with the customer connexion theory; it also ensures that the employee is in a position to know whether he is breaking his covenant. The employee's knowledge is not perhaps very important, since an innocent breach can be avoided by the employee making enquiries, and in any event it is likely to result only in nominal damages and not to be enjoined. But the point that a covenant against soliciting the employer's customers in general is incompatible with the customer connection theory is a substantial and not merely a pedantic one.”
The author goes on to bemoan the decision of the (English) Court of Appeal, arguing persuasively it is unsound.
Much depends on the identification of the plaintiff's “clients”, as referred to in Clause 20. If the expression is given a meaning such that the protection claimed by the plaintiff is unreasonably wide, is an unreasonable restraint of trade, the action fails. The foregoing discussion indicates it may be possible to allow the clause effect if an appropriately confined meaning is the correct one. One interpretation, which would be upheld on the basis of one of the findings in Smith v Ryngiel, is that the only clients referred to are those who were clients of the plaintiff at the date of the agreement, which may be taken to the mark the commencement of the provision of services by the defendant to the plaintiff. This interpretation would be a fairly useless one for the plaintiff in the present case, because the customer identified in the prayer for relief did not come to the plaintiff until about 20th July 1998. Adopting another interpretation would identify clients as persons doing business with the plaintiff during the course of the present parties' contractual relationship. A difficulty of that for the plaintiff is that its operations were considerable in their scope, the defendant being but one of up to 70 Contractors, so that it (and Mr Schulz) would be likely to come into contact with some only of the clients, at least in a way that might present an opportunity to favourably impress them. There is a particular problem in respect of many such clients outside the limited circle of those for whom the plaintiff did a great deal of work; it is difficult to see that the plaintiff could reasonably require protection against the defendant's canvassing or providing service to a client for whom the plaintiff had supplied a minimal service, involving no contribution by the defendant. (The case is quite unlike that of the accountant in Smith v. Ryngiel who would presumably have access to the records of all clients served by the relevant practice and kept at its premises. It was not suggested Mr Schulz had any general knowledge of or access to full client lists.) The industry of Mr Thompson led him to the third meaning of “clientele” in the three volume Webster's Dictionary as “those who habitually adhere or resort to a person, as a lawyer or doctor, for professional advice or the like.” He submitted that this convenient definition explained the meaning of “Client” in Clause 20 and had the effect of excluding the one-off or occasional customer, with the consequence that Clause 20 could be seen as reasonable. I think it wrong to go through such contortions. If the plaintiff was content with a qualification of the ordinary meaning of “client”, it ought to have included its own dictionary in the agreement to make that clear. In saying this, I do accept Mr Thompson's submission that I should treat the agreement as the work of lay people who cannot be expected to produce drafting of the standard a competent lawyer should.
Another interpretation open is that the proscribed clients include any who were served by the plaintiff at any time until the expiration of the 12 month period of operation of Clause 20, even if they became clients for the first time after the termination of the parties' agreement. I have already indicated my view, agreeing with Heydon, that this would render Clause 20 an unreasonable restraint. The same view was taken in Smith v. Ryngiel of a restraint in terms of serving any person “who became during the three years following the cessation of the (relevant) agreement a client of the plaintiff's firm”. It was not possible to read down the provision in question. By the well known “blue pencil” rule, a Court may strike out words that appear in a restraint with a view to leaving a more limited, but acceptable restraint. There was no scope for the Court (there is none here) to construe such a provision as limited to persons becoming clients during the period of operation of the agreement between covenantor and covenantee. This situation may be contrasted with that described as applicable to some of the jurisdictions under the heading “Antipodean Legislation” in Jefferson, “Restraint of Trade” (Wiley 1996) 152-53; in some contexts, courts in some other places have a power to rewrite restraints.
Yet another interpretation is that the proscribed clients are those who were clients of the plaintiff at the time of determination of Exhibit 12. This interpretation would be of little practical use to the plaintiff, given the finding which has to be made that the “client” referred to in the prayer for relief ceased to be the plaintiff's client at about 7 a.m. on 14th September 1998 in circumstances where the prospect of commercial relations being resumed is so negligible it may be disregarded - before termination of the parties' relationship under Exhibit 12, which was determined, on any view, after about 1.45 p.m. on that day, perhaps on a later day. This interpretation seems to me somewhat strained; to work in a practical way, the reference to client would have to bring in persons who, although not presently using the plaintiff's services, could be regarded as “likely”, according to some test or other, to come back. Further, as I understand conditions in the relevant trade or business, the plaintiff required the protection of Clause 20 during the currency of Exhibit 12, to restrict the general consent given in Clause 11 to the Contractor's providing contract services to persons other than the plaintiff. I appreciate that if a contract provision is capable of a meaning, the arguability of multiple meanings does not render the provision void for uncertainty, because the provision will have the meaning a court ultimately assigns to it, and that courts ought to declare a provision void for uncertainty only where there is no alternative. See Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429. However, there is much about Clause 20 to make apposite the conclusion of Romer J. in Jenkins v Reid (1948) 1 All. E.R. 471, 481:
“I do not really know what was intended by this restriction and I do not feel inclined to guess at some narrow meaning which would save it from defeat, especially having regard to the fact that these covenants are construed contra preferentes. My conclusion, accordingly, is that the second part of the covenant is bad, both because it is too extensive in its scope and because of the uncertainty in which the language is couched.”
It is convenient to set out, as indicating the general principles to be applied, an extract from Kitto J's reasons in Lindner 83 CLR 653-54:
“Any contractual restraint of trade is prima facie unlawful and invalid. “It is not that such restraints must of themselves necessarily operate to the public injury, but that it is against the policy of the common law to enforce them except in cases where there are special circumstances to justify them. The onus of proving such special circumstances to justify them. The onus of proving such special circumstances must, of course, rest on the party alleging them. When once they are proved, it is a question of law for the decision of the judge whether they do or do not justify the restraint. There is no question of onus one way or another’: Herbert Morris Ltd. v. Saxelby (1916) 1 A.C. 688, at p.706, 707 per Lord Parker of Waddington; Routh v. Jones (1947) 1 All E.R. 758, at p.763 per Lord Greene M.R.
The validity of the restraint must be decided as at the date of the agreement imposing it. “The question is not whether experience gained during the service has shown the restriction to have been excessive or insufficient. The question is whether the covenant was a reasonable one for the parties to agree to at the outset of the service on the best estimate which they could then make of the future’: Putsman v. Taylor (1927) 1 K.B. 637, at p.643.
The work for which in feet the appellant was employed was variously described in the evidence as that of a mechanic, a mechanic in charge, a working foreman or a working head mechanic. His work might naturally be expected to bring him constantly into close touch with the respondents' customers who came to the place where he would be working from time to time, but it could not be expected to give him any association with or knowledge of the customers who attended only a place of business where he was not working.
In these circumstances it is necessary to consider what it was for which, and what it was against which, the respondents needed protection: Herbert Morris v. Saxelby (1916) 1 A.C., at p. 708. The answer is that they needed protection for their business connection against the possibility of its being affected by the personal knowledge of and influence over the customers which the appellant might acquire in their employment (1916) 1 A.C., at p. 709. (I put on one side the preservation of trade secrets because on the evidence I do not think that there were any trade secrets that required protection). To adapt the words of Lord Birkenhead in Fitch v. Dewes (1921) 2 A.C., 158, at p.164, the respondents might claim for their protection that that business which was theirs, and to which they were admitting the appellant in the manner defined in the agreement, should continue to be theirs, and that if at any time the contract of employment between themselves and the appellant should come to an end, on such determination the latter should not be in a position to use ‘the intimacies and the knowledge’ which he had acquired in the course of his employment in order to create or assist a competing business in the same area and by doing so undermine the business connection of the respondents. The knowledge referred to does not include the technical knowledge and skill which the appellant might acquire in the employment: Sir W.C.Legn & Co.Ltd. v. Andrews (1909) 1 Ch. 763, at p.773; Mason v. Provident Clothing & Supply Co. (1913) A.C. 724, at p.740; Herbert Morris Ltd. v. Saxelby (1916) 1 A.C., at pp. 703, 705; for an employer cannot validly preclude his employee from competition perse, that is competition apart from the divulging or use of trade secrets and enticing away of old customers by solicitation or such other means: Herbert Morris Ltd. v. Saxelby (1916) 1 A.C., at p. 702, per Lord Atkinson. The knowledge which, because its use may deprive the employer of the business connection which he is entitled to preserve as his own, he may require his employee to abstain from using, is objective knowledge of customers, their peculiarities, their credit and so forth: (1916) 1 A.C., at p. 714; cf. Routh v. Jones (1947) 1 All E.R., at p. 761. Against the prejudice likely to result from such intimacies and knowledge the respondents were entitled to protect their business by means of a contractual restraint of a width reasonable in reference to the interests of both parties: Attorney-General of the Commonwealth of Australia v. Adelaide Steamship Co.Ltd. (1913) A.C. 781, at p.795; Herbert Morris Ltd. v. Saxelby (1916) 1 A.C., at p. 716. But to be valid, such a restraint ‘must afford no more than adequate protection to the party in whose favour it is imposed’: Herbert Morris Ltd. v. Saxelby (1916) 1 A.C., at p. 707; Mason v. Provident Clothing and Supply Co.”
In this case there was no suggestion that the defendant or Mr Schulz gained access to any trade secrets or other confidential information, even client lists, or that his activities played the slightest part in the plaintiff's obtaining business.
Although proceeding along cautious lines in formulating its Clause 20 by reference to clients, the plaintiff has risked trouble by avoiding any definition of its clients. The provision is important to the plaintiff for protection of its client connections. In this case, it is not necessary to the result, nor would it be just to the plaintiff, to declare Clause 20 invalid, although the plaintiff may be well advised to redraft it or expand it by a definition. The facts of the present case are most unusual. They may reflect badly on the defendant and Mr Schulz in particular; they do not reflect badly on the plaintiff or Mr and Mrs McPhillimy with the exception of outrageous demands sent out after determination of Exhibit 12 for a charge of $3,332.00 per hire of the plaintiff's equipment (which the evidence persuades me the defendant was instructed to use, rather than its own) in performance of Exhibit 12 and for $50,000 “pursuant to...the Defamation Act...for damage to my (P.J. McPhillimy) professional reputation by statements made by Mr Noel Selwyn Schulz on various occasions during the period 16th March 1998 and September 1998.” It is easy enough to sympathise with the anger the plaintiff's principals must have felt at Mr Schulz.
My conclusion is that Clause 20 does not apply to the alleged “Client(s)” named in the prayer for relief. If on its proper construction Clause 20 does so apply, then, in my view, it necessarily follows that Clause 20, so construed, is an unreasonable and unenforceable restraint.
The plaintiff's goal in the action is to get the defendant enjoined from providing traffic control services in a large project underway in residential areas at Mermaid Beach. Although this may be a project of the Gold Coast City Council, which is the plaintiff's major client, for purposes of the action, notwithstanding the terms of relief sought by the plaintiff, the Council was not regarded as a client. The principal contractor for the project (which seems to involve upgrading of water reticulation, and to be likely to take about a year to complete) is United Energy Systems Pty Ltd. It has subcontracted most of the work on site to Wilsons Excavations Pty Ltd. United Energy Systems retained responsibility for such traffic control as might be needed when work was being undertaken, but apparently left it to its subcontractor, represented by Mr Neale Wilson in particular, given his being the person on the spot, to locate and engage on its behalf a provider of traffic control services. Mr Wilson apparently contacted the Gold Coast City Council and was given the plaintiff's name, and at least one other name, of a Mr Taylor. He knew neither. His telephone call to Mr McPhillimy led to a telephone contact with Mrs McPhillimy, who does most of the administration for the plaintiff, and to her arranging to provide the services required, I think from the next morning. It seems clear she was told that United Energy Systems was the client, although she got its name wrong over the telephone. There was no written agreement. I understand 20th July 1998 was the first day on which services were provided.
United Energy Systems did not pay the plaintiff's invoices. This was explained at the trial by Mr Kolanski in terms of the plaintiff having sent its invoices at first (presumably on instructions from Mr Wilson) to an address which was not the most appropriate, and to delays within United Energy Systems, which contained a branch in Queensland without authority to pay accounts; it forwarded them to the accounting department in Sydney where, in turn, there seemed to have been various steps to be gone through before a cheque would be drawn and sent. It appears the plaintiff has not yet been paid in full, and that it may have received a cheque which has been dishonoured. (These matters were not within Mr Kolanski's sphere.) Exhibit 6 is a copy of the plaintiff's Magistrates Court Plaint dated 18th September 1998 claiming $5,851.40 against United Energy Systems and Mr Wilson.
The defendant (by Mr Schulz) worked on the job for the first time on 4th September 1998, a Friday. Mr Schulz was there four days in the following week. On Monday, 14th September 1998, he turned up on the site again, ready to start providing traffic control services at 7 a.m. Over the preceding weekend, the plaintiff had made contact with Mr Wilson. Perfectly understandably, given its expectation of having its invoices paid within seven days, an ultimatum was delivered that services would not be provided on Monday, 14th September unless payment was made. Mr Wilson said he would provide a personal cheque for a couple of thousand dollars, that being the best that could be arranged on short notice. Mr McPhillimy sent the plaintiff's foreman, Mr Darren Anthes, to the site first thing Monday morning, with instructions that services were to be withdrawn unless a cheque was provided. None was. Mr Wilson was there, and his foreman, Mr Darren Rittorni. The best Mr Wilson could offer was some arrangement whereby he would proceed to his bank and return in a couple of hours with something for the plaintiff. That did not suffice. Mr Anthes instructed Mr Schulz and another Contractor of the plaintiff's who was there to leave the site. He left himself on some errand, and found when he returned to the site that Mr Schulz was still there, although not providing any services. Again, he told Mr Schulz to leave, and Mr Schulz did leave. The foreman refused to sign a docket (which Mr Anthes had asked Mr Schulz to present) to cover the “minimum” period of four hours' traffic control for that morning. Mr Wilson was, understandably, angry, although it might be thought he had contributed to the situation by promising a cheque first thing. He or his company had expensive equipment and operators there, unable to work in the absence of traffic control. He had to make other arrangements so that work could go ahead, and, ultimately, engaged Mr John Taylor, who also provided traffic control services on the next day. Wednesday was apparently a rest day. On Thursday, 17th September 1998, the defendant, by Mr Schulz and another person (who seemed to have been another Contractor of the plaintiff's previously) was providing traffic control services on the site, at a rate of $16 per hour, which would have been attractive when compared with the plaintiff's rate of $17.30 per hour. The Court did not hear what was Mr Taylor's rate, but it may comfortably be inferred it was $16 per hour (per man) or more.
Mr Schulz has made no attempt to muddy the waters on his side of the transaction, acting through the defendant company, rather than, as he might have done, use a new company or his wife or daughter, Mrs Cobby. One of the aspects in the case which intrigued me was the interposition of the defendant company in the first place. It seemed to me this might have some effect on the approach to be taken to Clause 20. The parties made no submissions on the matter, apparently content to have the case treated as an employee/employer one, effectively disregarding the participation of a company (for whose interests I had theorised that the courts might have less tenderness than for those of a person of flesh and blood). Counsel were probably correct. Gilford Motor Company Limited v Horne (1933) Chancery 935 is a well known case in which the device of using a company, J.M. Horne & Co.Ltd. was of no avail to enable Mr Horne to disregard a restraint he had agreed to in terms of “soliciting persons who were customers of or in the habit of dealing with the (plaintiff) company”. The appropriate course, I have assumed, is to assimilate the defendant company's position with that of a flesh and blood employee. The reality probably is that the defendant is Mr Schulz, although, not being a party in the proceedings, he is not amenable to an order. Mr Horne's case would suggest to me that if an injunction did go against the present defendant, it might not be difficult for the plaintiff to prevent Mr Schulz from acting to deny the plaintiff the full benefit of such an injunction.
On the “client” side of the new transaction, Mr Schulz does appear to have been active, although the timing suggests it may have been a reaction to Mr McPhillimy's demand (Exhibit 7) faxed at 4.15 p.m. on 17th September 1998 according to an imprint on the document. At 5.40 p.m. on that date, according to a like imprint on Exhibit 5, Mr Kolanski of United Energy Systems sent the plaintiff the following facsimile:
“SUBJECT TRAFFIC CONTROL - GOLD COAST.
Please be advised that as per your request on the morning of Monday the 14th of September, United Energy Systems ceased to be a client of Guardrite Security Services and Investigations. As such no contractual agreement between our companies exist with the exception of payment for your services.
Regards C Kolanski”.
It is difficult to avoid the inference that Mr Schulz, having received Exhibit 7, was instrumental in getting Exhibit 5 sent. The evidence shows that Mr Schulz was aware sometime during the week preceding these dramatic events, through Mrs McPhillimy, that United Energy Systems was not paying the plaintiff.
The defendant's case was that United Energy Systems was the plaintiff's client, a correct proposition, and that its client is Mr Wilson's company, another correct proposition. The plaintiff looked to its client for payment, the defendant looks to Wilsons Excavations Pty Ltd, and has, indeed, been paid by it. That is how things have toned out. I cannot see that it matters that the physical work of traffic control the two companies required may have been the same work. The two potential clients have agreed between themselves that, for good practical reasons, Wilsons Excavations Pty Ltd ought to take over responsibility for traffic control, including paying for it, invoicing United Energy Systems identical amounts, for payment by it in turn; this suits its account payments system better. It would appear that Mr Wilson's company is prepared to stand in the middle, effectively making its funds available to allow United Energy Systems the credit period it apparently craves by this indirect means.
I was not much impressed by Mr Schulz's determined efforts to establish he had never approached or sought to negotiate with United Energy Systems. Exhibit 14 is a facsimile dated 15th September 1998 from the defendant to that company incorporating a curriculum vitae of Mr Schulz, a description of the defendant's capabilities and a “confirmation of our verbal quote” addressed to “Clem Kolanski, United Energy Systems”. Mr Schulz claimed that Exhibit 14 was directed as it was because it was his only way of contacting Mr Wilson who (or whose company) was the party with whom he was in negotiation. One would expect Exhibit 14 to make some reference to the Wilson interests. It does not. Mr Cronin's efforts to elicit some corroboration from Mr Kolanski and/or Mr Wilson, both of whom he called, were unavailing. Whatever transpired in the context, it seems Mr Schulz was in contact with both Mr Wilson and Mr Kolanski during the exciting events of the week commencing 14th September 1998. It is silly to think Mr Schulz could have had any influence over the way in which those two gentlemen varied their companies' arrangements regarding traffic control. It may be that Mr Schulz would have been perfectly willing to negotiate with United Energy Systems (indeed, it seems he was), but Mr McPhillimy's communications would certainly have alerted Mr Schulz, if he had not thought about it before, that it might be advantageous for the defendant to avoid seeking or transacting business with United Energy Systems, whose status was, as I have held, former client, rather than client, from 7 a.m. on 14th September. Mr Kolanski was not receptive to suggestions United Energy Systems might use the plaintiff's services again.
While I have an impression that the plaintiff, probably through Mr Anthes, became suspicious on 14th September that Mr Schulz was trying to take over work it had refused to do (in a final refusal, on my view of the probabilities, rather than, as Mr Thompson suggested, one that would not last beyond receipt of United Energy Systems' cheque), there is no evidence to support a finding to that effect. On that day, Mr Anthes quickly found another job for Mr Schulz, which ran from 7.30 a.m. to 11.30 a.m. Mr Schulz was summoned again by Mr Anthes, about lunchtime, to another job; while on the way there, he was contacted again by Mr Anthes and informed the job had been cancelled, that he should rendezvous with him at a service station and hand over the two radios of the plaintiff's and bats (stop/slow signs) which he was taking for use on the job. He had carried those for several months and was justified in assuming that losing his status of radio-carrier severely blighted his future with the plaintiff. Radio-carriers were regarded as in a superior position over other Contractors, although not paid more. On the evidence, they were given preference in being offered work. Mr Anthes would not respond to Mr Schulz' enquiry whether he should hand in his official vest and other clothing (hat and shirts) supplied by the plaintiff, referring him to Mr McPhillimy. Mr Schulz made some further enquiries, but Mr McPhillimy did not contact him, as Mrs McPhillimy had said would happen, on the afternoon of 14th September. Although radio-carriers were, from time to time, asked to hand over radios, for maintenance purposes, or because they were required elsewhere, the plaintiff offered no credible explanation in those terms for the action taken in respect of Mr Schulz this day. He was offered no work on the Tuesday or Wednesday, which represented a break in the pattern established over preceding weeks, when he had been used almost full-time. I can well understand why Mr Schulz regarded talk of the job in the afternoon as a ruse to get him on the road so that he could be stripped of the plaintiff's radios.
There was a rather pointless contest at the trial wherein the defendant attempted to establish that Exhibit 12 came to an end by 2 p.m. on 14th September 1988 (as I find to be the case), while the plaintiff attempted to show it still had the status of Contractor under Exhibit 12 until much later in the week, indeed, until after it had taken overwork which it (by Mr Schulz) had previously been doing at Mermaid Beach for the plaintiff. In the end, I do not think anything turns on whether Mr Schulz acted honourably, avoiding any improper approach to United Energy Systems or Mr Wilson until the defendant was freed of good faith or other obligations it might owe the plaintiff as a Contractor, or whether, as the plaintiff would have it, he was, while still subject to those obligations, whatever they were, disloyally trying to get the benefit of the plaintiff's verbal contract in relation to the Mermaid Beach job for himself or the defendant.
It is obviously to Mr Schulz' benefit to carry out the kinds of services he physically provided on site for himself, rather than as a subcontractor to somebody else, who would want to make a profit. The evidence shows Mr Schulz had been involved in discussions with Mr Anthes with a view to interesting him in working for the defendant, and I would say it is likely he had sounded out other Contractors of the plaintiff's as well. No legal reason appears why he was not entitled to do that; Clause 11 would appear to permit it. Nor do I think that, after 7 a.m. on 14th September, if the topic arose whether Mr Schulz or the defendant could take over the work the defendant had so firmly refused to do, Mr Schulz was bound to protest that obligations to the plaintiff meant he could not even talk about it.
Much about the rights and wrongs of the case is murky. I can see nothing craven or devious about the defendant sending Mr Schulz' daughter to the plaintiff's office on 17th September 1998 seeking payment of the defendant's invoice for its past fortnight's services, as the plaintiff suggested there was. Mrs Cobby had been engaged in that exercise from the outset, the only family member available to do banking and like tasks on the relevant days. On the other hand, it is possible that there was a consciousness of having engaged in sharp practice which led Mr Schulz to decline to accept Mr McPhillimy's invitation or challenge to come along to discuss things himself, and send along Mrs Schulz and Mrs Cobby instead. They returned uniforms, but got no cheque; indeed, the defendant still has not been paid for its last fortnight's work for the plaintiff.
A topic on which I invited submissions was whether a lack of utility or benefit to the plaintiff from any injunction it sought and might be entitled to was a ground for refusing an injunction, in the exercise of the Court's discretion. There is surprisingly little that is readily locatable on this subject, although in various places Sharpe, Injunctions and Specific Performance (1983 Canada Law Book Limited) suggests it is appropriate to consider how the benefit to the plaintiff if granted an injunction compares with the burden imposed on the defendant, in particular at 1214. My concern was that any injunction granted would be of no benefit to the plaintiff, because Wilson Excavations Pty Ltd was never its client, even if it or Mr Wilson had been some kind of intermediary for United Energy Systems, and because, even if an injunction went to prevent transactions or negotiations with United Energy Systems by the defendant, there was no possibility worth considering that it would return to the plaintiff as a client. I find it odd to contemplate an injunction being granted in the circumstances, but it may well be that a plaintiff with a strong case for an injunction is not to be denied because its victory might prove hollow. Mr Thompson reminded me of the statement in Meagher, Gummow and Lehane, Equity Doctrines and Remedies (3rd) 2141 that:
“The contractual injunction is of immense practical importance. There is virtually no contract to which it may not apply in some way or other. It has proved particularly useful in enforcing contracts validly operating in restraint of trade.”
There must be many situations in which the chief satisfaction derived by a “successful” plaintiff is that the defendant is prevented from doing something it has contracted not to do, even if the plaintiff gains no other satisfaction. An interesting passage in Spry, Equitable Remedies (4th) 131 suggests that lack of benefit to the plaintiff is not of itself a reason for refusing an injunction:
“It has sometimes been suggested that courts of equity never order specific performance of a contract if performance would be futile. So it was on one occasion said by Kindersley V.—C. that “this court will not make any order in vain”. However since questions of degree are often involved it is less satisfactory to state absolutely that futility is a defence, than to state that the extent to which the proposed order of the court will be efficacious in obtaining benefits for the plaintiff is taken into account in several ways. So, for example, the nature of appropriateness of damages at law. And again, the nature of those benefits is relevant if questions of hardship are involved, or if there may be difficulties in enforcement of performance, or if other such discretionary considerations arise. But if a lack of substantial benefits or advantages to the plaintiff from performance does not lead to a refusal of relief on one of these grounds, it ought not to be refused on the ground of futility. Prima facie a party to a contract is entitled to performance of its terms and should not be denied relief on the ground that he will obtain little benefit thereby, unless some special discretionary consideration renders specific enforcement unjust.”
If there ever was a case for an injunction by reference to United Energy Systems, it is too late. There is no suggestion, now, that the defendant wishes to canvass or transact with United Energy Systems, whatever it might have done in the past. It must be accepted that the plaintiff would have been entitled, by a “reasonable” restraint provision, to keep the defendant away from United Energy Systems. Clause 20, however, on any interpretation which would do that, is unreasonably wide, and not enforceable.
The consequence of all of this is that the plaintiff's claim fails. I will hear the parties, which have agreed that “interlocutory” arrangements reached by them at the hearing in Chambers should continue until judgment, as to what orders ought to be made.