Elders Rural Services Australia Ltd v Gooden (No 2)
[2014] QDC 110
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- Unreported Judgment
- Elders Rural Services Australia Ltd v Gooden (No 2)[2014] QDC 110
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Elders Rural Services Australia Ltd v Gooden (No 2)[2014] QDC 110
Elders Rural Services Australia Ltd v Gooden (No 2)[2014] QDC 110
[2014] QDC 110 | |
DISTRICT COURT OF QUEENSLAND | |
CIVIL JURISDICTION | |
JUDGE BAULCH SC | |
No 140 of 2014 | |
ELDERS RURAL SERVICES AUSTRALIA PTY LTD and ANOTHER | Applicants |
and | |
ANTONY JOHN GOODEN | Respondent |
TOWNSVILLE | |
10.01 AM, FRIDAY, 28 MARCH 2014 | |
JUDGMENT |
HIS HONOUR: On the 28th of February this year, I gave judgment in this application in Brisbane. The matter had proceeded before me over six hearing days, and because the respondent was subject to an interim injunction restraining him from entering into employment with his desired employer, it seemed to me to be appropriate that I announce a decision then and deliver reasons at a later date. I concluded that the restraints relied upon by the applicants were void for uncertainty, wider than was necessary to protect the applicant’s legitimate interests, and unable to be remedied either by reading them down or severing parts of them to leave an enforceable remainder. It followed that the applicants could not succeed in the claim for an injunction or in respect of the claim for damages which had been added by leave. Accordingly, I ordered on that day that the originating application filed the 16th of December 2013 and amended by leave be dismissed and that the order of Judge Ryrie made the 15th of January 2014 and varied by me be dissolved. For completeness insofar as any restraint depended on an undertaking, I order that the respondent be released from any undertaking given during the proceedings.
These are my reasons for making those orders. The application concerns an attempt by an employer and a related company to enforce a restraint clause against an employee. The respondent, Mr Gooden, worked for Elders for more than a quarter of a century before giving notice to terminate his employment in September 2013. He gave three months notice in accordance with his contract and was required by his employer to work out the period of notice. In December 2013, the present proceeding was commenced by originating application, and subsequently, Judge Ryrie in the District Court made an interim order and set the matter down for trial in the District Court at Brisbane, commencing Monday the 10th of February 2014. It was anticipated then that the hearing would be finalised during that week. As things turned out, it could not be completed in the available time and was resumed on the 26th of February and completed on the 27th of February this year.
Mr Gooden commenced his employment with the Elders group on 12 January 1987. He was initially employed as an administrative trainee. On the 1st of June 1987, he was appointed to a position of salesman, where he remained until he was appointed as a territory sales manager on the 30th of June 1990. On 15 February 1994, he was appointed a branch manager and remained in that position until appointed an area manager on 6 July 1998. He became the livestock manager for South Australia and the Northern Territory on the 15th of March 2001 and was later appointed state livestock manager on the 1st of July 2001. He became an executive sales manager on the 1sts of October 2008 before being further appointed, first to the position of executive sales manager on the 10th of October 2011. I mention that it is the contract signed in respect of that appointment that is the source of this litigation. And then finally, he was appointed to a position of senior marketing manager, international live export, on the 5th of October 2012. His final appointment was recorded in a memo, but no new contract was entered. He remained in that position until the termination of his employment consequent upon his resignation.
Mr Malcolm Geoffrey Jackman, who was then chief executive officer of Elders and occupied that position between September 2008 and November 2013, was involved with the second last appointment of Mr Gooden at the entry into the contract in respect of that position. He regarded Mr Gooden’s performance on behalf of the group as exemplary and said that even during the period of his notice, it was his view that Mr Gooden conducted himself with the utmost honesty and integrity. (TRS 2-39). As I’ve said, it was the second last of Mr Gooden’s appointments and the contract that was entered into then which gives rise to this proceeding. The contract contains the following clause:
19. Restraint after employment.
19.1: From the date on which your employment with us ceases, you may not, without our prior written consent, for the restraint period and in the restraint area specified, either directly or indirectly as a sole practitioner, partner, manager, employee, director, beneficiary or with any other entity in which you may at any time have any interest do any of the following:
(a) provide services to, accept a position with, represent or assist in each case whether as employee, director, officer, independent contractor, agent, consultant, and in any other capacity, any entity that carries on business in competition with us or any Elders Limited entity, including, to avoid doubt, any other pastoral house or stock and station agency or real estate business;
(b) interfere with, disrupt, or attempt to disrupt the relationship, contractual or otherwise, between us or any Elders Limited entity with any client or identified prospective client of ours or an Elders Limited entity to whom you were introduced or in respect of whom you carried out work during the last 12 months of your employment;
(c) induce, encourage, or solicit any of our employees, partners, contractors, agents, or suppliers with whom you worked or have had a business relationship or about whom you have acquired knowledge at any time within the past 12 months of your employment to cease their employment, engagement, or agency with us or any Elders Limited entity or to cease providing services to us or an Elders Limited entity; or
(d) procure, council, or otherwise assist any person to do any of the acts referred to in clauses 19.1(a), 19.1(b), or 19.1(c).
Clause 19.2 provided that in any dispute over the application of this clause 19, priority should be given to the restraint period over the restraint area.
19.3: You agree that
(a) the restraints set out above shall apply as if they consisted of several separate covenants and restraints consisting of each of clauses 19.1(a), 19.1(b), and 19.1(c) combined with each separate restraint period;
(b) each separate covenant is a fair and reasonable restraint of trade that goes no further than is reasonably necessary to protect our goodwill and business;
(c) you have received substantial and valuable consideration for each separate covenant and restraint in this clause directly and indirectly including your employment and remuneration entitlements; and
(d) any combination of the acts referred to above for each separate restraint period will be unfair and calculated to damage our goodwill and business and would lead to substantial loss to us.
19.4: You warrant that you have sought independent legal advice on this clause to the effect that the terms of this restraint are reasonable and enforceable. We rely upon this warranty in agreeing to enter into this agreement with you on the terms set out herein including the quantum and composition of your total remuneration.
19.5: This clause continues to apply after this agreement ceases to operate for whatever reason.
19.6: This clause applies to you in addition to any other ongoing obligation you may have under clause 7 of this agreement.
The definitions found in the contract reveal that the expressions we, us, and our mean Elders Rural Services Australia Limited, and that Elders Limited entity means any corporation that is related to Elders Limited pursuant to the Corporations Act 2001.
Clause 29 defines the restraint period as follows:
24 months; or if held to be invalid,
18 months; or if held to be invalid,
12 months; or if held to be invalid,
6 months,
and the restraint area to be
Australia and Indonesia; or if held to be invalid,
the state or territories in which clients of the kind described in clause 19.1(b) are located; or if held to be invalid,
the states or territories in which you were primarily employed by us in the last 12 months of your employment;
or if held to be invalid, the region as defined by our business structure in which you were primarily employed by us in the last 12 months of your employment.
The separate restraint clauses were referred to during the course of the hearing by adopting short forms of description, employment restraint, client interference restraint, employee solicitation restraint, and procuring restraint.
It should also be noted that clause 29 of the contract defines Elders Limited entity to mean any corporation related to Elders Limited pursuant to the Corporations Act, and the Corporations Act at section 50 sets out how corporations are related to each other for the purposes of that Act.
I should mention the mater of jurisdiction. After the hearing had commenced, I became concerned about whether the application was properly heard and determined in the District Court, because it seemed to me that section 68 of the District Court Act did not give a District Court power to grant an injunction in proceedings in which no other relief was sought. I invited submissions from the parties, and the matter was ultimately resolved by the applicants being granted leave to read and file an amended originating application which included a claim for damages for breach of the contract of employment by entering into a contract with Ruralco Holdings Limited, the damages claimed being nominal damages in the amount of $10.00
It is, however, necessary to set out something about the way in which the proceeding came to be in the District Court. The originating application was filed in the Supreme Court at Brisbane and came on for hearing before the Senior Judge Administrator on the 14th of January this year. It was transferred to the District Court, and that transfer led to the making of the interim order that I have referred to. It does not appear that any detailed consideration was given to the question of jurisdiction at the time of transfer, and in my opinion, the relevant provisions of the District Court Act do not confer jurisdiction on a District Court to grant an injunction in an application where no other relief is sought. In that regard, see the wording of section 68 and the decision in Startune Proprietary Limited v Ultra-Tune Systems Australia Proprietary Limited (1991) 1 Qd. R 192.
It seemed to me that if the matter proceeded as it was, any decision that I made would in consequence of that be a nullity.
The applicant asserted the proceeding was a claim arising out of a contract, and it followed that such a claim was arguably a personal action. I reject that argument because it ignores the qualifying words that follow the words personal actions in section 68.1 of the Act.
The applicant further asserted that this court derived jurisdiction from section 31 of the Civil Proceedings Act in consequence of the transfer order made in the Supreme Court. I reject that argument, because it seems to me the Civil Proceedings Act is an act dealing with procedural matters, and in particular, that act does not purport by its terms to grant general jurisdiction to a District Court in a matter in which the District Court would not otherwise have jurisdiction. (see s. 25 of the act.)
The parties gave consideration to and made some submissions concerning whether or not the difficulty could be resolved pursuant to section 72 of the District Courts Act. Although there was some attraction to dealing with the matter in that way, by consent, the respondent’s counsel correctly pointed out that there was significant difficulties in regularising everything that had happened up to this stage at which the matter was raised, particularly in view of the fact that an interim injunction had been granted, arguably without jurisdiction. But when I indicated that it seemed to me that the most attractive way of resolving the issue was by allowing an amendment to make a claim for nominal damages, the parties did not oppose my making that order and proceeding with the hearing without giving detailed reasons in respect of the other matters raised. I have, however, for completeness, set out the views that I took about section 68 and the jurisdiction it confers.
I should mention, though, that I concluded that had the matter not been able to be resolved in the way in which it was, it would not have been appropriate for a District Court to make an order transferring the application to the Supreme Court and I would have, if necessary, followed the procedure mentioned in R v Mellor (1914) The K. B 588 at 599. In accordance with that judgment, I would have simply set out the grounds upon which I concluded that the Court was without jurisdiction and adjourned the matter so that either party could raise the matter of jurisdiction with the Supreme Court.
I turn now to the legal issues. I heard argument concerning uncertainty, the reasonableness of the restraint clause, the question of whether the restraint clause could be read down and the application of what is referred to in litigation of this sought as the blue pencil test. The respondent submitted that the clause was void for uncertainty because of the way in which it was drafted, which meant that its meaning could only be determined by a Court. Further, it was said that the defections and terms used in the clause itself were so uncertain as to render the whole clause void for uncertainty.
I was referred to a decision of Wooten J. in Austra Tanks Proprietary Limited v Running (1982) 2 NSWLR 840. That case concerned a contract with some similarities to the present in that the definitions contained numerous alternatives to operate if the preceding definition “be unenforceable”. Wooten J. was asked to determine as a preliminary question whether the restraint sought to be imposed was void for uncertainty. He expressed the view that one of the categories of uncertainty in contracts is where the parties to a contract deal with the matter but, instead of defining their obligations precisely or presently, use words which call for some inquiry. The matter may be left for determination by some nominated authority, even by one of the parties themselves or for calculation by reference to future events or information not presently available or for determination by reference to a standard.
In all of those cases, Wooten J. took the view that the fundamental approach is that the contract is good if the inquiry for which the words call is one that will lead to a sufficiently certain result. He referred to Davies & Davies (1887) 36 Ch D 359, mentioned in an article by JD Heydon, entitled The Restraint of Trade Doctrine (1971). It was said that there is much to be said for the view expressed in that case that it is for the parties to make an agreement and have it upheld or struck down and not for the Court. A reversal of those views expressed in that case might result in more litigation and increase an employer’s power of oppressing his employees. However, in the case that he had to consider, Wooten J. considered the matter could be disposed of as a question of uncertainty, rather than one of public policy. In that case, it must be remembered that there were some 163 possible combinations arising from the wording of the contract. In the course of giving his judgment, his said this:
“But the agreement contemplates only one covenant. Which one is intended? The problem is not to be solved by saying that the widest enforceable covenant is intended because, in the absence of any statement as to the priority of the application of the variables, it is not possible to say which covenant is widest. Does a 100 kilometre radius for one year give a wider covenant than a 10 kilometre for five years? How are 10 years of tanks in situ to be weighed against four years of all listed products.
The case is in this respect similar to Davies v Davies where the Court of Appeal held a covenant to retire from business so far as the law allows to be void. Cotton L.J. said (p 387) that the parties must themselves fix the limits within which there is to be no carrying on of the trade and then they do it at their peril… There is no definite fixed rule as to the limits within which trade can be restrained. That must depend upon the circumstances of each case… Are we again and again to have this question to arise on the covenant where the parties have left the covenant entirely indefinite and have sought to get the court without risking the validity of the covenant from time to time to say whether a particular space and a particular time is within the limits.
I also note that Bowen L.J. in Davies said (at p 393 of the report):
Supposing the law will allow certain restrictions, there may be twenty different restrictions all of which might serve a purpose of parties and all of which would be absolutely inconsistent with each other or all of which the law would allow. How do we know which of those particular restrictions the parties intended to impose? They leave it absolutely uncertain and for the best of all reasons, because they have not made up their own minds.
In the present case, it may be said that the parties attempted to deal with the question of uncertainty by the insertion of clause 19.2 which provides that in any dispute over the application of the clause, priority should be given to the restraint period over the restraint area. Whilst it might be said that that indicates that the parties regarded time as more important than area, it does not, in fact, reduce the number of possible interpretations of the clause as the possibilities remained at 16 notwithstanding that that clause directed attention to the priority in which the restraint should be considered.
Contract results are from the agreement of the parties and it’s frequently been said that Courts are not to draft a contract for parties where they’ve failed to reach agreement themselves. In such cases, the parties may consider they have reached finality, but a Court may not regard them as having passed beyond a stage of negotiation. There are two related principles involved. First, the language used may be such that the Court is unable to attribute to it a sufficiently precise and clear meaning in order to identify the scope and the rights and obligations agreed to. Second, although the language used is clear there may be some important part of the transaction yet to be agreed upon so that there is, despite appearances, in truth no completed agreement. It is not unusual that there might be elements of both uncertainty and incompleteness in any given case. (see Carter and Harland Contract Law in Australia 3rd edition, paragraph 258).
I’m conscious of the fact that the Courts have tended to be more willing than previously to find ways to uphold agreements, especially commercial agreements, and that Courts should interpret the language so as to place a reasonable meaning on it unless that is utterly impossible. In my opinion, it is utterly impossible to interpret a clause where the parties make no effort at defining the words used to describe the way in which the clause might be breached, the types of relationships other than contractual relationships which are sought to be protected, or the entities in respect of which the clause might be breached.
Mr Jackman was unable to name all of the entities involved by the use of the expression “Elders Limited entity”. It seems that at one time there were about 700 of them. More recently, the number has reduced to about 70. Importantly, it seemed to me there was no restriction on the fact that the number of related entities might increase again in the future.
The negotiations in this case ceased when the respondent decided that he would sign the contract, having been unsuccessful in obtaining any modification to it.
I accept the respondent’s submission. Not only was the scope of the clause so wide and ill-defined as to be without meaning, but the terms used were very vague and undefined. For example, “interfering with”, “disrupting” and “attempting to disrupt” were not defined, and the attempt to create a prohibition in respect of a relationship “contractual or otherwise” was not explained at any point in the document. But, importantly, the expression “any Elders Limited entity” extends the restraint to an unspecified number of companies engaged in various businesses and no one but the applicants in this case would possibly know the full extent of the restraint because of the failure to name or otherwise describe the way in which the clause might be breached and types of relationships other than contractual relationships sought to be protected or the entities in respect of which the breach might occur.
The framing of the clause to deal with entities rather than activities has two consequences, it seems to me. First, one must know which entities are related entities and, second, the entities and, hence, the activities which are prohibited will be capable of changing day to day with the incorporation of new entities or the dissolution of existing ones. And on that basis it seems to me that the contract was an uncertain one which could not be upheld by the Court.
It is nonetheless necessary to consider other issues that were agitated in the trial before me.
I was referred to a large number of cases dealing with contracts in restraint of trade. It seems to me that the important starting point is that the general rule is that a contract in restraint of trade is void and the onus is on the employer to demonstrate that the clause does no more than protect its legitimate interests.
Employment contracts are still subject to a stricter approach than contracts in respect of the sale of a business, as appears from Carter and Harland, Contract Law in Australia 3rd edition at paragraph 1648 and following. The explanation for the Court’s approach to employment contracts is because of the impact that such a clause has in the context of employment and the greater danger there is of abuse of a superior bargaining condition. In such contracts it is said that it is first necessary to identify the properly protectable interests of the employer. In that context, the nature and geographical spread of the employer’s operations, the location of the clients and the nature of the goodwill of the business are all relevant considerations.
Second, the status, functions and duties of the particular employee must be determined. Their degree of contact between a particular employer and the clients, the level of seniority and responsibility within the structure of the employees’ operations and the possession of or access to trade secrets and confidential information belonging to the employer are all relevant factors when considering this second question.
Third, a decision must be made as to whether in the light of those matters a particular restraint goes no further than to safeguard the employer’s properly protectable interest.
In Lindner v Murdock’s Garage (1950) 83 CLR 628, the High Court made it clear that the policy of the common law is not to enforce contractual restraints of trade unless there are special circumstances that justify them. The onus of proving those special circumstances must, of course, rest on the party seeking to enforce the clause. It is a question of law for decision of the judge whether or not they justify the restraint.
In JQAT Proprietary Limited v Storm (1987) 2 Qd R 162 the relevant clause contained a number of different restraints, all expressed to operate separately. None of them depended upon another one being found to be invalid. At page 163 to 164 Connolly J. said:
“The question is a short one. There are 18 possible combinations resulting in 18 notional separate subclauses. Despite strenuous argument by Mr O'Donnell, I am not persuaded that clause 6.3 contains any indication that these 18 notional subclauses are either alternative statements of obligation or what is probably the same thing, that the intention of the parties was that only one of them should operate at a time. Thus the restraint is against the activity specified in each of those notional subclauses and ranges from being involved as specified, in the introductory paragraph, in the provision of personnel human resource services for three months in both Queensland and New South Wales, to engage in the specified activity in any business of like or similar kind to that engaged in by the appellant for one month in either Queensland or New South Wales.
On a proper construction of those provisions, however, the employee is restrained from all the activities the subject of the notional subclauses for all of the periods and in both states. Is there any uncertainty in this? It is true that the obligations the subject of the notional subclauses will overlap but that does not make them inconsistent if it is proper to regard them as cumulative. The fact that the obligations are imposed upon a former employee by a series of overlapping covenants does not mean that the obligations are uncertain. He is subject to all 18 as a matter of construction”.
And a little later on he said:
“It was not doubted in argument that the way in which these provisions are drafted is designed to facilitate severance should this be necessary. That, however, does not mean that the obligation which attaches to the employee under the contract is not clear. It is, in my judgment, an obligation to abstain from the activity specified in the commencing words in relation to the activities in which he was engaged as an employee an din relation to a business similar to that engaged in by the appellant for three months in both Queensland and New South Wales”.
In Dooley v Others v Scotney and Others (2010) QSC 179, Margaret Wilson J. dealt with an application for an interlocutory injunction arising from a restraint clause which restrained the respondent from a certain activity within a 500 kilometre radius of the city of Townsville for a period of five years or the maximum permitted by law. It was argued there that the clause was invalid because it was uncertain because the obligation was not clearly enough defined and also that it was invalid on public policy grounds because it left it to the court to fix the measure of the restraint. Justice Margaret Wilson said:
“The critical question on this application is whether there is a sufficiently strong argument that the offending words could be severed so as to give rise to a triable issue as to the validity of the restraint”.
She went on:
“Here the duration of the restraint has not been left completely to the Court's determination. If it were, it would be invalid as against public policy - see Davies v Davies. Nor is this a series of cascading alternatives which, provided they were sufficiently certain, might be capable of severance - see JQAT v Storm and Lloyds Ships Holdings Pty Ltd v Davros.
Rather the covenant is expressed as five years or the maximum permitted by law. In my view this sets clear alternatives and it is possible to apply the blue pencil to the latter. Thus I think severance is sufficiently open for there to be a serious question to be tried.”
Her Honour also expressed a tentative view that the clause might be read down by ignoring the offending words. It should be noted that her Honour was dealing with an interlocutory application there.
I found a good deal of assistance in reading the judgment of Justice Spender in Lloyd’s Ships Holdings and Another v Davros Proprietary Limited (1987) FCA 70. In particular I note that at paragraph 67 he said,
“In my opinion, the question whether a technique of drafting covenants in restraint of trade by combining different variables of conduct, time and space and providing that each of the covenants so generated is subject to severance is successful in defining enforceable restraints or is unsuccessful in doing so comes down to whether the exercise amounts to a genuine attempt to define the covenantee's need for protection, with the agreement as to severance as a precaution against the all or nothing nature of the Court's test for reasonableness, or whether the exercise is simply one where the parties have left to the Court the task of making their contract for them.
One might think the more numerous the variables and the more mechanical and indiscriminate the combinations of variables, the more likely their conclusion would be that the exercise is of the latter kind.”
Justice Spender also reminds us of a statement attributed to Lord Moulton in Mason v Provident Clothing and Supply Company Limited (1913) AC 724, where he said:
“It would in my opinion be pessimi exempli if, whenan employer has exacted a covenant deliberatelyframed in unreasonably wide terms, the Courts wereto come to his assistance and, by applying theiringenuity and knowledge of the law, carve out ofthis void covenant the maximum of what he mightvalidly have required. It must be remembered thatthe real sanction at the back of these covenantsis the terror and expense of litigation, in whichthe servant is usually at a great disadvantage, inview of the longer purse of his master.”
It is notable that the clause in this case is not one in which each restraint period or area is separately asserted, but rather one in which a consideration of step-down restraints arises only where the earlier restraint has been found to be unenforceable. This, in my view, distinguishes the case from the one considered in the JQAT case, where there were 18 notionally separate covenants all coexisting, none dependent upon the failure of the other.
I turn to the questions of reading down and severance. It seemed during the course of addresses (TRS– 6- 26) that senior counsel for the applicants accepted that Mr Gooden’s activities during the whole of his employment were focused on the operations of the first applicant and on no other Elders Limited entity.
It followed that there were two ways it was urged for the applicant in which the matter might be resolved. First it was said that the clause could be read down by reference to the words in brackets following the words “Elders Limited entities”. Second it was said that the blue pencil test might be applied to remove the reference to Elders Limited entities, leaving a restricted covenant referring only to Elders Rural Services Australia Limited. The applicants replied upon the decision in Haynes v Doman (1899) 2 Ch 13, where Lindley L.J. said that:
“Such agreements cannot be properly held to apply to cases which, although covered by the words of the agreement, cannot reasonably be supposed ever to have been contemplated by the parties and which, on rational view of the agreement, are excluded from its operation by falling in truth outside and not within its real scope. But even if some extreme case of a technical breach producing no injury to the party to be protected could be proved, sound principle requires not that the agreement should be void in toto, but only insofar as it is really unreasonable. Even if the restrictions could not be so construed as to exclude such a case, no jury would give the plaintiff any damages and no Judge would grant an injunction.”
As to the blue pencil test, reliance was placed on the decision in Attwood v Lamont (1923) KB 571.
The blue pencil test, as I understand it, can be applied where severance is possible by cutting out offending words without the need to redraft the contract. I note that in Mason v the Provident Clothing Company, referred to earlier, the Court refused to substitute the phrase “in Islington” for the phrase “within 25 miles of London”. In other cases, it has been possible to apply the test by excluding words, the only qualification being that the essential nature of the contract must be retained.
I note that in Attwood v Lamont the suggestion was that the clause could be made reasonable by cutting out a number of trades and leaving the trades that were acceptable.
The Court of Appeal declined to do so in that case, treating the covenant as an entirety intended to cover all aspects of the plaintiff’s business. It was said there that to sever it would be to affect the nature of the contract.
Mr Gooden, as I’ve said, had worked for the first applicant for many years. He was promoted in the year 2010 and employed on a contract which contemplated his employment only in Australia. The contract which is the subject of this proceeding replaced that contract and was entered into in late 2011.
The contract the subject of this application differs from all of the other contracts offered by the applicants to their employees, in that it contains the restraint concerning employment as well as the client interference restraint, the employee solicitation restraint and the procuring restraint.
The first mentioned restraint is not found in any contract which was the subject of evidence, save for contracts made on the termination of employment in respect of Mr Jackman and Mr Dage. The differences between the considerations relevant on the commencement of employment and those relevant on termination of employment, as well as the differences between those relevant upon commencement of employment and those relating to franchises and the like, are illustrated by the discussion in the decision in Miles v Genesys Wealth Advisers Limited (2009) 201 IR 1.
The way in which the contract came into existence was the subject of evidence from Mr Jackman and Mr Gooden.
Mr Jackman (in his first affidavit sworn 12th of December 2013) deposes (at para 26 and following) to the part that he took in negotiating the final contract with Mr Gooden. He says that the agreement provided for significant increases in the value of Mr Gooden’s remuneration and other benefits and deposes to a two-way conversation with Mr Gooden in which he raised a matter of a restraint clause and Mr Gooden told him that he didn’t want to leave the company and would be happy to sign that sort of restraint. He says he told Mr Gooden that he would want him to sign a contract which confirmed that he had legal advice about the contract, including the restraint.
Mr Gooden gives a different version of the conversation, saying that Mr Jackman had agreed to give him what he wanted concerning the vehicle which had been the subject of some discussion, but that he wanted a two year restraint clause in response. Mr Gooden says that he said he had no plans to leave and he just wanted to maintain his existing conditions, and if he was sent a contract he would look at it. He says he took legal advice over the telephone in which he was advised that it was unlikely that the proposed restraint could be enforceable. He says he subsequently became concerned about Elders’ stability, including financial stability, and eventually made a decision to leave.
A number of emails that passed between Mr Gooden and a Mr Fasikas seemed to confirm that the motor vehicle provided to Mr Gooden was a significant issue of discussion during the first part of 2011.
Further, the content of the legal advice provided to Mr Gooden gives some support to his account that he was told that the restraint clause might be difficult to enforce.
As I have mentioned, the evidence shows that restraint clause in Mr Gooden’s contract was significantly wider than any restraint clause inserted in the contracts offered to other employees at about the same time. The only explanation for that comes from Mr Jackman himself. He said he had an appreciation of the commercial value and importance of Mr Gooden’s accumulated knowledge of Elders business and the strength of his relationship with customers (TRS 2-30. He said he had in mind particular customers in Indonesia. Mr Jackman was pressed about the basis upon which he decided that the restraint clause had to be inserted in Mr Gooden’s contract.
He asserted (TRS 2 - 32) that he had been in positions of leadership and management all of his adult life and was able to build impressions of people. He said he used his innate ability as a leader and manager to form opinions about the strength of people’s relationships. Mr Jackman conceded (TRS 2- 35) that the question of the two-year restraint arose in a discussion concerning Mr Gooden’s motor vehicle and that Mr Gooden was agitated because his own perception was that he was taking on more and more responsibility in the company, but his conditions were being diluted. Later, Mr Jackman conceded that the two-year non-employment restraint was his idea, and he did not discuss it with anybody else, including Belinda Harding or any other officers of Elders Limited or Elders Rural Services Australia Limited (TRS 2 - 38).
Mr Jackman was a very confident witness, and he was confident that he could assess the value of an employee to an organisation in which he’d been involved, and he thought that that was one of his significant skills which equipped him to act as the chief executive officer of major enterprises. He was, however, unable to explain how this ability was exercised in respect of Mr Gooden, and it seemed to me that his evidence that Mr Gooden was an employee with special skills and knowledge was arrived at as a matter of instinct rather than real assessment. He spoke of his observation of Mr Gooden during a taxi ride, at some place in Indonesia where a foot massage was had and of people in Indonesia referring to Mr Gooden by using the term “Pack”. It seemed to me that those things probably occurred after the relevant contract was entered into.
Mr Gooden, on the other hand, was careful and measured in his evidence. He was cross-examined at some length. He seemed to me to be at pains to make sure that he understood the question so that he did not fall into error. Email correspondence concerning the contract seems to reflect his dissatisfaction about the terms of his employment, particularly those concerning the motor vehicle. And his discussions with his lawyer confirm his frustrations and, ultimately, what he says was his wish to put the matter to bed rather than to continue what were becoming acrimonious discussions.
Having regard to the fact that Mr Gooden signed the contract and did so voluntarily, it seems to me there was limited significance in the differences in the evidence concerning the contractual negotiations.
However, where the evidence differs, I preferred the evidence of Mr Gooden, because it was consistent with the correspondence that I have referred to because of
the very unusual nature of the restraint required from Mr Gooden and the curious way in which it was negotiated without any reference to any other senior executive of the company, and because Mr Gooden’s account is consistent with the account of the solicitor who provided him with the legal advice concerning the likely enforceability of the restraint clause. Further, I have difficulty accepting Mr Jackman’s statement that he never read the decision in earlier litigation in which his evidence was not accepted by a Court.
Were the party’s at arm’s length or was there an inequality of bargaining position as is commonly the case in employer/employee negotiations?.
Mr Gooden says that he gave up after a period of negotiation when he seemed to be getting nowhere. He said he was anxious to protect the entitlements he had, and they were significant entitlements, so it is not difficult to imagine his predicament. That said, in my view, it is clear that the parties should not be seen as conducting an arm’s length negotiation as is sometimes the case in franchise agreements, or in agreements such as that discussed in Miles v Genesys Wealth Advisers Limited (2009) 201 IR 1.
I accept that Mr Gooden gave up his attempts to negotiate a better agreement and that part of the reason he did that was the superior bargaining position occupied by his employer. The clauses that I’ve referred to acknowledging the reasonableness of what was in the contract must therefore be given only very limited weight.
It is said that the content of the legal advice given in fact works against Mr Gooden and his credit in this case. As the case unfolded, it was relied upon more as to credit because Mr Gooden, it was said, was in no doubt when initially consulting the solicitors that he was in possession of a good deal of information that could properly be described as confidential information. It is clear, it seems to me, that he was in possession of information which the employer would want to protect. Whether the information would properly be regarded as confidential or not, it was information which the employer had an interest in protecting. Mr Gooden was probably in no better position than any other layperson to determine whether it was confidential in the way in which that expression is used in litigation of this sort.
His answer literally was less than certain, because it appears from the evidence given of the legal advice that he used words “of that sort”or some words to that effect. What is clear is that when he entered the contract, he had some assurance that the clause might prove difficult to enforce. The asserted admission does not, in my view, because of the technical nature of the question, significantly impact on Mr Gooden’s credit.
It must be noted that the restraints in clause 19 occur in the context of a contract which provides some substantial protection for the employer apart from the restraints. Clause 14 protects the employer’s confidential information, which is defined in clause 29. Clause 15 protects intellectual property conceived, developed or produced by the employee in connection with his employment. And clause 16 contains a consent to the employer and its related entities infringing upon the employee’s moral rights in respect of any works made by the employee in connection with his employment. A reading of those clauses demonstrates that the employer has very substantial protection even absent the restraint clause, and Mr Jackman acknowledged that that was so (TRS 2 - 17 and 20).
The respondent submits that the terms of the contract itself sufficiently protect any confidential information to which Mr Gooden had access. That is probably so, but the employer would still have had a legitimate interest in protecting itself from competition. Against that background, it’s necessary to examine the clause and resolve the question whether they were reasonably necessary to protect the employer’s legitimate interest – see the approach taken initially by the Chief Justice in EzyDVD Proprietary Limited v Lahrs Investments (2009) QC 227 and on appeal by the Queensland Court of Appeal at [2009] QCA 389.
The nature and extent of the various business carried on by the applicants at the relevant times is set out in exhibit 4 and was the subject of some evidence from Mr Jackman. It included much more than live cattle export, the area in which Mr Gooden was employed and the area in which he is said to be in possession of valuable information and contacts. But the applicants carried on the business in many other areas ( exhibit 4, pages 3 and 13) and there were very significant parts of its business in which Mr Gooden had no role at all. I mention real estate and insurance services, real estate and property services, financial services, Elders Fine Food Importation into China and wool trading. In that regard, see also the evidence of Mr Jackman (TRS 2 – 9).
All of the evidence seems to show that Mr Gooden had access to some valuable information. By the time his employment was terminated, his relationships with Indonesian customers and his contacts in that country were significant. The question whether the information was properly described as confidential is, in my view, a little more difficult. It is easy to accept that the information was information of value to the applicants, but much more difficult to accept it is properly described as confidential because of Mr Gooden’s position in the chain of command, the fact that others had at least equal access to all of the information and the fact that the information was information that changes fairly regularly.
I turn to the question whether the restraint clause was an appropriate way to protect the information. It is to be noted that the four separate restraints are set up by the contract. It is relevant to note that it was wider restraint than was imposed on any other employee, even on those employees who were higher up the chain of command than Mr Gooden. This seems to me to be curious, and it is also curious that there were other employees described in the company’s documentation as “key personnel” while Mr Gooden was not. In that regard, see exhibit 4.
It seems to me the clause was included in Mr Gooden’s contract because Mr Jackman had a view that he was of particular importance, notwithstanding that he reported to Mr Browning who reported to Mr Dage who in turn reported to Mr Jackman. Having regard to the fact that Mr Gooden performed hands-on negotiation with producers at the time the contract was entered into and later with customers in Indonesia, it doesn’t seem unreasonable to conclude that he would have occupied a special position in the company hierarchy which justified the company in wishing to restrain him from competing; soliciting clients and employees, contractors and the like; or attempting to do any of those things in respect of cattle and the live cattle export trade.
It is more difficult to see how such a restriction could reasonably be required in respect of all of the activities of the first applicant, let alone all of the activities of the first and second applicants. While at the time the contract was entered into, Mr Gooden’s employment was described as being within Australia and in connection with the North Australian Cattle Company, it probably was reasonably foreseen that his employment might continue on a basis which would involve travel to and contact with people in Indonesia. However that might be, it does not seem that the matters relied upon by Mr Jackman, as I’ve mentioned, could have been relied upon him at the relevant time as it seems that they occurred after the contract was entered into. See Mr Gooden’s affidavit filed 7 January 2014 at paragraph 26.
The width of the protection sought to be written into the contract by the employer is, in my view, the most important aspect of this case.
The employer has sought to relate the restraint to corporate bodies and their activities rather than to the actual activities which Mr Gooden was asked to perform. It seems to me that what was necessary, from the employer’s point of view, was a restraint which would prevent Mr Gooden during whatever period was reasonable and in whatever area was reasonable from being employed in a position which competed with the employer’s interest in the live cattle trade.
By drafting the restrictive covenant by reference to corporate bodies rather than to employment activities the employer has, in my opinion, cast a net much wider than was necessary to protect its legitimate interest in the cattle trade and particularly the live cattle trade.
It must be acknowledged that some of the evidence about this part of the matter was somewhat unsatisfactory and as I remarked to counsel during the course of the addresses it was perhaps unfortunate the action was not conducted on the basis of the pleadings which might have resulted in the real issues being identified before we came to the final addresses.
I say that because the matter of the application of the blue pencil test not only to the period and area provisions, but also to the prescription of the various companies to which the clauses relate arose only during addresses and I was not certain that that distinction had been borne in mind at all times during the evidence.
I’m not at all sure that it’s appropriate to approach the matter in that fashion having regard to the fact that the clear intention of the draftsman of the relevant clause seems to be to create only one restrictive covenant and not to create a number of covenants that might stand side by side pending determination of whether some or all of them are invalid. If it had been the intention of the draftsman that severance should be available not only as to area and time but also as to relevant entities it would have been a simple matter to word the clause so that that intention was obvious.
Here it does not seem to me to be obvious or even apparent that such an outcome entered the mind of the draftsman of the clause.
However, I think it is not necessary to finally resolve that matter because in my view even if one were to approach the matter on that basis the clause could be written down by the elimination of the words “and other Elders entity”. It could not be read so as to eliminate all of the activities undertaken by the first applicant and described in exhibit 4. I note that Mr Jackman describing the activities as the first applicant (TRS 2- 9) described it as:
A combination of the Australian network, the Elders international trading business and Elders New Zealand.
He went on to say that:
The Elders network was on the supply side of life in both Australia and New Zealand and spoke of them providing livestock services, buying and selling of livestock, buying and selling of wool on behalf of farmers, sale of farm inputs, everything from fertilizer to dog tucker, financial services, banking, sale of insurance products and the sale of financial planning to farmers.
There was simply no evidence that Mr Gooden was involved in anything other than the cattle trade and in my opinion the employer’s legitimate interests to restrain him began and ended with that trade. A restrictive covenant that prohibited him from being involved in wool-broking, general farm supplies, fertiliser, banking services and financial advice imposed a restriction which was much wider than was necessary to protect the employer’s legitimate interests.
The period of time during which a restraint might properly have endured is more difficult to assess. Plainly, the employer would wish to have an opportunity to maintain its relationships and the like without interference for a reasonable period.
The applicant submitted that 12 months or alternatively six months would be appropriate. That was a significant concession having regard to the terms of the contract. The applicant maintains, however, that the concession doesn’t mean that it conceded that the longer period should be seen as unreasonable. It simply did not seek to support them. Because the witnesses acknowledged that the information with which we’re concerned changed regularly and because I assume that the customer base would change regularly, I think a period of six months would probably have been an adequate protection of the employer’s interests.
As to the area involved the employer plainly had an interest in customers in Indonesia and it is more difficult to see that a restraint involving Australia and Indonesia would be regarded as unreasonable if the activities restrained were appropriately described.
But, as I have said, the most difficult part of the clause from the employer’s point of view and that which leads me to conclude that it is invalid is that dealing with the entities in respect of which the clause seeks to prohibit competition. As I have said, at one time there were 700 of them. At the relevant time there were probably about 70, but there is no means of knowing how the numbers might fluctuate at any given time.
It cannot be said that it was reasonably necessary for the employer to prohibit Mr Gooden from competing in those other areas. I note the discussion in the case Home Counties, Dairies v Skilton (1971) WLR 526. That case is often cited as authority for the proposition that the courts might enforce a restraint where the only basis for invalidity is an improbable application of the clause, but it does demonstrate the way in which the clause might be framed so as to protect only the employer’s legitimate interests. So for the reasons that I’ve set out I conclude that while the first applicant did have a legitimate interest in protecting information in possession of the respondent concerning the cattle trade and, particularly, the live cattle trade and a clause confining a restraint to those activities might have been appropriate, the clause here is much wider than that and it is not necessary to protect the employer’s legitimate interest.
Even if I accepted that it might be read down in the way suggested or the blue pencil test might be applied in the way suggested, it would still leave a restraint clause which was unnecessarily wide. It cannot, in my opinion, be imagined that the parties or the draftsman, for that matter, intended the restrictions contained in the clause should apply only to cattle or the live cattle trade. It would have been a most simple matter to say so if that was the intention. Whilst it would be grammatically possible to remove some words, the result, in my view, would not be that we would have reached an enforceable restraint, so the exercise would be a futile one.
Is it convenient or is it anyone’s desire to deal with the matter of costs now?
…
HIS HONOUR: So far as costs are concerned I direct that the respondent file and serve a written submission concerning costs on or before the close of business on the 18th of April next and that the applicants file and serve their response to that on or before the close of business on Friday the 2nd of May.
MR DUFFY: Thank you, your Honour.
MS PIECHOCKI: Thank you, you Honour.
HIS HONOUR: And unless the written submissions contain suggestions to the contrary I will deal with the matter of costs on the basis of those written submissions without hearing further oral submissions.
MR DUFFY: Yes, your Honour, I think we – perhaps if there’s some compelling reason to ask for it, either party could ask for an oral hearing in their written submissions.
HIS HONOUR: Yes. That’s what I’m intending, if I didn’t say it clearly, that you should say in the written submission if you wish to have a further oral hearing about it.
MR DUFFY: Yes. Thanks.
MS PIECHOCKI: That’s suitable, your Honour. Thank you.
HIS HONOUR: Very well. Thank you. Well, thank you for joining in by telephone. You’re welcome to terminate the connection now, and we’ll adjourn the court until 11.30.
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