Metalhill Pty Ltd v Klein[2001] QDC 37

[2001] QDC 037

District Court of Queensland

Forde

Metalhill Pty Ltd v Neale Klein

No 4139 of 2000

JUDGMENT

HIS HONOUR: The plaintiff in this matter is Metalhill Pty Ltd trading as Queensland Business Machines. The defendant is Neale William Klein.

The plaintiff seeks the following orders in the claim:

1. 1.An injunction restraining the Defendant by his servant agents or otherwise from conducting any business the same or similar to that of the Plaintiff within a 20 kilometre radius of the Brisbane General Post Office.
2. 2.Further damages for breach of a certain Deed of Restraint entered into between the Plaintiff and the Defendant.
3. 3.Further or alternatively an account of all profits derived by the plaintiff as a consequence of the breach of the Deed of Restraint.
4. 4.An order that the Defendant deliver to the Plaintiff all books and records relating to the business conducted by the Defendant in breach of the agreement.

The claim arises out of a deed of restraint entered into between the parties on or about 25 February 2000. The defendant had formerly worked for the plaintiff and in fact was until 25 February 2000 a director of the plaintiff. The other director was Anthony Hirst who has given evidence in this case.

The business carried out by the plaintiff was the sale and maintenance of office equipment. The parties agreed that the defendant would part ways with the plaintiff and as a result of that proposals were put to him. These were either a payment of $26,000 to allow the purchase of a motor vehicle from the business, a transfer of his shareholding to Robert Page, his resignation as a director and his removal of his name from the business and execution of a restraint of trade clause.

Alternatively if the defendant did not wish to enter into a restraint of trade then $16,000 was to be paid. The other alternative was to allow the company to go into liquidation.

The plaintiff elected to proceed to take the $26,000 and did in fact execute the deed of restraint. The deed of restraint is set out in the paragraph 4 of the plaint and reads as follows:

1. “1.That he (Klein) will not either:—

1. (a)
   during the term of two (2) years from the date of this Deed; or
2. (b)
   during the term of one (1) year from the date of this Deed; or
3. (c)
   during the term of six (6) months from the date of this Deed; or
4. (d)
   during the term of three (3) months from the date of this Deed;

either:

1. (i)
   alone; or
2. (ii)
   jointly with or on behalf of any other person, firm or corporation as independent contractor, partner, joint venturer, employee or agent or otherwise; or
3. (iii)
   by means of agent, independent contractor or employee of any firm or corporation in which he is interested as director, shareholder, beneficial owner of shares or otherwise; or

either:

1. (aa)
   within a radius of 30 (sic 20) kilometres extending out from the General Post Office in Brisbane in the State of Queensland;
2. (bb)
   within a radius of 15 kilometres extending out from the General Post Office in Brisbane in the State of Queensland;
3. (cc)
   within a radius of 5 kilometres extending out from the General Post Office in Brisbane in the State of Queensland;

either:

3. (1)
   carry on or engage in any business venture of the same or similar nature to that carried on by Metalhill during the term of Klein's employment with Metalhill; or
4. (2)
   be directly concerned with or interested in any business venture which competes with that of Klein during the term of his employment with Metalhill.

1. 2.Each of the covenants (a) to (d), (i) to (iii) (aa) to (cc), (1) and (2) set out in the preceding clause shall be given effect to separately so that the first to occur of the covenants shall be given effect to and, only in the event that that covenant is held after due recourse to appeal facilities if exercised, to be void or invalid as being unreasonable, then the next to occur of those covenants shall be given effect to, and if that is so held void, then next and so on.
2. 3.Klein covenants and agrees that he shall not:—

1. (a)
   during a period of two (2) years from the date of this Deed; or
2. (b)
   during the term of one (1) years from the date of this Deed; or
3. (c)
   during the term of six (6) months from the date of this Deed; or
4. (d)
   during the term of three (3) months from the date of this Deed;

solicit or deal with any of the customers, clients or referral sources or former customers, clients or referral sources of Metalhill.

1. 4.Each of the covenants (a) to (d) set out in the preceding clause shall be given effect to separately so that the first to occur of the covenants shall be given effect to and, only in the event that that covenant is held after due recourse to appeal facilities if exercised, to be void or invalid as being unreasonable, then the next to occur of those covenants shall be given effect to, and if that is so held void, then next and soon.
2. 5.In this Deed (including the Recitals) the expression Metalhill shall be deemed to include Mr Tony Hirst (“Hirst”) and Mr Robert Page (“Page”) and the parties hereto acknowledge that this Deed is executed by them for their own benefit and that of Hirst and Page.”

Having received these moneys it is common ground that the defendant proceeded to trade in a limited way contrary to the restraint. It is admitted by him that he received at least the sum of $990 over a three to four month period.

In the defence, paragraph 2.5, it is alleged that the deed of restraint in so far as it asserts a restraint radius of 15 and 20 kilometres from the GPO is unreasonable and unnecessary restraint of the defendant's trade and is contrary to public policy and illegal.

Facts Relevant to Restraint of Trade

On the defendant's evidence the plaintiff had some 5 per cent of its overall trade outside the 20 kilometre radius. Some 10 per cent was in the 10 to 20 kilometres. (T.10.58) As far as Mr Hirst is concerned it was more in the realm of 10 per cent and included the areas of Cleveland, Caboolture, Strathpine and the Redland - and particularly up to the 20 kilometres in the Redlands District and the National Bank which of course operates throughout the State. Therefore it is not an insignificant amount that the trade was up to 10 per cent, was in the 10-15 kilometres area, and I so find.

Whether it is unreasonable or not depends upon factors which have been discussed in cases to which I have been referred, Lloyds Ships and Davros (1987) 72 ALR 643 at 649; a decision of Hawkesbury Baker and Moses (1965) New South Wales Reports 1242 at 1246; Clarke v. Newlands [1991] 1 All E.R. 397.

The latter case is particularly relevant, where the plaintiff is attempting to protect the goodwill of the business. I find that this was the case in the present instance, as the defendant had an intimate knowledge of customers throughout that area, because of his job, which involved repair work and face to face contact with customers. That in this case is a significant factor. The distance is not as extreme as that in Reck v. Gilham [1995] 1 Qd.R. 302. Unlike the present case it had no bearing on any knowledge of customers which was gained in the course of the agreement.

When one looks at the other principles which are involved, whether it amounts to interference with the individual liberty, action often may be justified in special circumstances. Whether it is unreasonable or not in this case can depend upon various factors, for example, in Geraghty and Minter (1979) 142 Commonwealth Law Reports 177, the question was posed:

“Did the clause provide at the time it was given, no more than reasonable protection of the interest of those in whose favour it was entered into, bearing in mind its possible operation according to its terms properly construed?”

The clause must be construed as at the time of the making as such. The plaintiff had to protect its goodwill, even though the market in areas 10 to 20 kilometres radius was some 10 per cent according to Mr Hirst. Often, that is a significant part of the profits. There is no evidence here as to the overall profitability, but it is not insignificant in a gross sense. Mr Hirst said that some 10 per cent of the plaintiff's trade was outside the 20 kilometres. I accept Mr Hirst's evidence. Some 70 per cent of the work is in the 5-10 kilometres radius.

When one looks at a map which has been put before me, Exhibit 3, and the areas not covered by the restraint, I form the view that the 20 kilometres radius, in the circumstances, is not unreasonable and was a necessary term to preserve the position of the plaintiff vis-a-vis the defendant, who had been a principal of the company for some time.

Duress

The defendant also raises the fact that he signed the agreement under “duress”. This point is not unrelated to the previous point, in that prior to his signing the agreement the defendant had a firm of solicitors acting for him. They, on his behalf, negotiated the distance from 30 kilometres to 20 kilometres.

He signed after receiving their advice.

Looking at his financial position, he had real property at the time and another asset, a motor vehicle. It could not be said that his position was such that he had no alternative but to sign this agreement, particularly in view of the negotiated settlement. I find that, notwithstanding it has not been pleaded, that even if it had, duress has not been established: Smith v. William Charlick Ltd (1924) 34 CLR 38; “Contract Law in Australia” by Lindgren et al 1986 ed. paras 1311-1313.

The fact is that although the defendant has been in breach, as far as the plaintiff is concerned, these breaches, on the face of it, seemed to be fairly minor and so any damages which it suffered, would be reflected by the quantum. Even if one accepts that half of the sales of $990 was profit, that would amount to some $445.

On the defendant's evidence, which seems not to be able to be directly contradicted, a maximum some four months of the 24 months of the restraint period was breached. This, in effect, was about one-sixth at the time. The amount that he received in relation to the settlement of $26,000, included, by a matter of arithmetic, some $10,000, relative to the restraint clause, which I find that he breached.

One-sixth of that is in the realm of $1,660. If one adds that to the other amount of $445, a figure of $2,000 is arrived at.

I assess damages at $2,000. The orders will be:

1. 1.A declaration that the Deed of Restraint, dated 25 February 2000 is valid and enforceable.
2. 2.A declaration that the defendant, Neale Klein, has breached the said Deed of Restraint, by carrying on a business the same as that carried on by the plaintiff, in the period from 18 April until 28 August 2000.
3. 3.It is ordered that the defendant do pay to the plaintiff the sum of $2,000 in damages, to include loss of profits and in lieu of any injunction.
4. 4.The defendant pay the plaintiff's costs of and incidental to this action, on the Supreme Court scale, to be assessed up until and including 3 October 2000 and on the District Court scale, to be assessed, from 4 October 2000, together with the plaintiff's reserve costs of the application before the Supreme Court, on 28 August 2000 and the application in the District Court, on 14 November 2000.

As these reasons are ex tempore, I may add the other authorities referred to in the course of revising the judgment.