AGA Assistance Australia Pty Ltd v Tokody
[2012] QSC 176
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- Notable Unreported Decision
- AGA Assistance Australia Pty Ltd v Tokody[2012] QSC 176
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AGA Assistance Australia Pty Ltd v Tokody[2012] QSC 176
AGA Assistance Australia Pty Ltd v Tokody[2012] QSC 176
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial Division | |
PROCEEDING: | Trial |
ORIGINATING COURT: | |
DELIVERED ON: | 25 June 2012 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 31 May 2012; 1 June 2012; 4 June 2012; 5 June 2012 |
JUDGE: | McMurdo J |
ORDER: |
|
CATCHWORDS: | TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – VALIDITY AND REASONABLENESS – PARTICULAR CASES – EMPLOYMENT – where the defendant signed a contract of employment with the plaintiff which precluded the defendant from being employed in a similar or competing business after leaving the plaintiff’s employ – where the contract specified alternative periods of restraint – where the defendant claims that, under any of these alternatives, this was an unreasonable restraint upon trade and is therefore void – whether the restraint provision was reasonable in the interests of the parties and thereby enforceable, and if so for what duration – whether the period of any such restraint commenced on 22 July 2012 or on 22 October 2011 JD Heydon, Restraint of Trade Doctrine (3rd ed, 2008) A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308, cited Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, cited Artcraft Pty Ltd v Chandler [2003] QSC 102, considered Arthur Murray Dance Studios of Cleveland Inc v Witter (1952) 105 NE (2d) 685, cited Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2007) 71 NSWLR 9, considered Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg [2003] 1 Qd R 482, cited Herbert Morris Ltd v Saxelby [1916] 1 AC 688, cited Jardin and Anor v Metcash Ltd and Anor [2011] NSWCA 409; (2011) 285 ALR 677, considered Lindner v Murdock’s Garage (1950) 83 CLR 628, considered Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, cited Ross v IceTV Ltd [2010] NSWCA 272, cited Woodmason’s Melrose Dairy Pty Ltd v Kimpton [1924] VLR 475, cited Woolworths Ltd v Olson [2004] NSWCA 372, cited |
COUNSEL: | S Keim SC with Ms A Couthard for the plaintiff J Murdoch SC with G Sheahan for the defendant |
SOLICITORS: | Ashurst Australia for the plaintiff McCullough Robertson acting as Town Agent for Gilbert & Tobin Lawyers for the defendant |
[1] The plaintiff carries on business in Australia as an insurer. Much of its business is in travel insurance. From 2000 until some point last year, the plaintiff employed the defendant, most recently pursuant to a written contract dated 1 January 2011 but signed on 12 April 2011 (“the contract”). It contained a term which, on its face, precluded the defendant from being employed in a similar or competing business after leaving the plaintiff’s employ. By these proceedings the plaintiff seeks to enforce that provision.
[2] This provision specified alternative periods for the restraint of three months, six months and one year, each commencing on her leaving the plaintiff’s employ. She argues, under any of those alternatives, that this was an unreasonable restraint upon trade and therefore void. There is also a dispute as to when her employment by the plaintiff did end. Upon her case it ceased on 22 July 2011. The plaintiff says it ceased on 22 October 2011.
[3] It is common ground that she commenced employment with another insurer, Cover-More Travel Insurance (“Cover-More”), on or about 24 October 2011. The plaintiff says that the defendant has been in breach of the restraint provision since then and that she should be ordered to not work for Cover-More for the remainder of the duration of the restraint, which it says will end in October this year. The defendant says that until at least 22 January 2012, her work with Cover-More did not involve a breach of the restraint provision, if it was binding within that period. She concedes that after 22 January, her work with Cover-More was and is a breach of the restraint provision if binding.
[4] This is a trial of the plaintiff’s claim for declaratory and final injunctive relief, leaving the question of damages (if any) for another day. The matters for present determination are (1) whether the restraint provision was reasonable in the interests of the parties and thereby enforceable, and if so for what duration and (2) whether the period of any such restraint commenced on 22 July or instead 22 October 2011. Then there are further arguments as to whether the plaintiff should be granted an injunction, having regard to its suggested delay and other discretionary considerations.
The defendant’s work for the plaintiff
[5] From 2000, the defendant was employed in various capacities before being ultimately promoted to her position as described in the contract, which was Director Sales and Distribution Australia and Asia Pacific. That was something of a misdescription, because at least by the time of the contract, her work was largely limited to procuring business for the plaintiff as an insurer of persons in Australia. By an email on 8 March 2010, the defendant informed the plaintiff’s then CEO, Mr Edwards, that she wished to “remain in the Australian business”. From May 2011, her job description had become “Chief Sales Officer”, as she was described in an organisational chart for the plaintiff’s business which was prepared in July 2011. She is there shown as reporting to Mr Norris who had become the plaintiff’s CEO Australia.[1]
[6] The contract referred to a so-called Position Description which was said to be attached to the contract and to set out her duties and responsibilities.[2] However, there was no such attachment to the contract. But there is no real doubt or controversy as to her role, which is evidenced also by other contemporaneous documents. For example, on 21 April 2011, Ms Lake of the plaintiff emailed to the defendant a draft of a “PD” (standing for “Position Details”) for the defendant’s consideration. Ms Lake gave evidence that she had drafted this document based upon discussions she had had with the defendant. In cross-examination, the defendant agreed that this document accurately described her work where, against “Position Summary”, the following appeared:
“The Director Sales and Distribution role plays a key strategic and tactical leadership role in managing the sales and distribution of the Travel Claims, Assistance and Health products in Australia and New Zealand, and eCommerce initiatives for the entire Asia Pacific region. The role is responsible for:
»Strategic Sales and Distribution Direction
»Development and Monitoring of Sales Plans and Multi-Channel Activities
»Operations Management
»Relationship Management
»eCommerce Development.”
[7] On 29 April 2011, Ms Lake sent an email to the defendant attaching a summary of their discussion of that morning, which he described as “the Leadership interview”. She asked the defendant to let her know if there were any changes to be made to the draft. The defendant made some changes and the amended document thereby represented her understanding of her role. In this document,[3] it was said that some of the defendant’s “key achievements” were as follows:
“Key Achievements
- Researching internal and external environment, planning and market segmentation analysis to build a strategic plan, ensuring the right areas were of focus for sales and eCommerce solutions. Achieving the milestones set within the plan.
- Delivering $1m through eCommerce Solutions over 2 years
- Delivering $10m through eCommerce Solutions over 3 years
- Delivering $100m through eCommerce Solutions in 2010
- Building successful business plan which saw [the plaintiff] achieve growth but be less reliant on intermediaries …
- Securing key new client Virgin Blue – achieving 10% - 15% revenue on something which was forecast to be static
- Securing key new client Zuji for the APAC region – deployed multi-lingual sites over 5 countries.
- Building strong relationships with blue chip new clients and consistently persisting to win new business.”
In the same document her then role was described as follows:
“Current role: Director Sales and Distribution Australia and eCommerce Solutions Asia Pacific
Key strategic and tactical leadership role in managing the sales and distribution of the Travel Insurance, Assistance and Health products in Australia and New Zealand, and eCommerce initiatives for the entire Asia Pacific region.
The role is responsible for:
- Strategic Sales and Distribution Direction
- Development and Monitoring of Sales Plans and Multi-Channel Activities
- Operations Management
- Relationship Management
- eCommerce Development
- Leading large team of people
Highly autonomous role with responsibility to participate in regional steering committees (leads regional eCommerce Team and has Regional Leadership team input and responsibility; Fusion Teams regionally and globally).”
[8] The defendant’s seniority within the plaintiff was reflected in her remuneration. Apart from the CEO, no other employee was paid significantly more than she received. Her salary, according to her contract, was a base salary of $235,000 plus superannuation. In addition, cl 6.1 of the contract provided that “as a senior team member”, the defendant would be entitled to an annual bonus of 35% of her base salary upon achievement of certain performance indicators over the calendar year 2011. By cl 4.1, her remuneration was to be reviewed annually with an effective date of 1 January for increases resulting from such review. Her seniority was longstanding. In her evidence she agreed that for six years until her departure she had been at a level of management which reported directly to the CEO, at all times “in a sales and client relationship capacity”.[4]
[9] In the documents described in [6] and [7] above, there are frequent references to the defendant’s duties in relation to what is called “eCommerce”. In an organisational chart dated 30 November 2009,[5] the defendant was shown as the “Director eCommerce Australia and Asia-Pacific”. That was her title until 2 August 2010 when she became Director of Sales and eCommerce in Australia only. Her title was changed to Director, Sales and Distribution Australia and Asia-Pacific at the beginning of 2011, but it is common ground that her responsibilities remained the same. In this context, the term eCommerce refers to insurance which is arranged or agreed electronically. Sometimes that is by a consumer going to the internet and transacting directly with the plaintiff, although that involves only a small proportion of the plaintiff’s business.[6] More commonly, the consumer will acquire insurance, relevantly here travel insurance, by going to the website of an entity such as Malaysian Airlines. Pursuant to an agreement between the plaintiff and the airline, it would offer travel insurance on its website and make a contract on the plaintiff’s behalf. The software used by that airline facilitates the identification of the place from which the consumer is reaching its site. Upon identification then of an Australian consumer, the insurance is placed by the airline on behalf of the plaintiff company. Agents such as this airline are referred to by the plaintiff as its clients, and their custom in this way is of critical importance to the plaintiff’s business. These “clients” of the plaintiff are paid commissions for the insurance thereby effected. Mr Norris estimates that about 65% of the travel insurance sales made by the plaintiff are by this so-called eCommerce.[7]
[10] Over the years the defendant developed an extensive knowledge of this eCommerce business, although she has no expertise in computer programming. But from her experience with the plaintiff, she developed a particular understanding of the value of eCommerce and how it can be used to develop new business. She gave this evidence in chief:
“In various of your position titles, there’s a reference to eCommerce, can you explain in simple terms what eCommerce was, and I mean in relation to the various eCommerce positions you held in the group?-- It’s the targeting of a channel where people purchase online and to target that channel you need to develop platforms and technology pieces to be able to deliver that. So the eCommerce is the ability to be able to target that specific channel, not only directly for the business but also for clients, on behalf of clients.
And so far as the work you did with eCommerce, what exactly was your role? Did you develop Internet technology platforms or did you-----?-- No.
What did you do? I don’t want to lead you?-- No. I have a superficial understanding of the technology advancement so I can see where the technology external-facing approaches were going and then I would utilise specialists to actually advise how we could tap into that convergence or that movement to different areas in the eCommerce space.”[8]
[11] In the document referred to at [7] above, the defendant said that she “lead the introduction of numerous IT initiatives” including to “successfully turning Fusion on into Virgin Blue”. This was a reference to the initiation of an eCommerce platform through Virgin Blue as a client of the plaintiff.
[12] Most of the plaintiff’s travel insurance business is written through these clients such as Medibank Private and airlines, rather than through direct transactions with consumers. Some 60% of the plaintiff’s business is in travel insurance. Therefore the relationship between the plaintiff and certain key clients is critical for the plaintiff’s business. They are identified by the evidence as including 1Cover, Webjet, Virgin Airlines and AAA Autoclubs. The relevant contract between the plaintiff and such a client has no standard duration, but it is often for about three years. The defendant was involved in the tendering for or negotiation of contracts with the clients I have mentioned and others. She thereby became aware of the terms of those contracts, including details of the agreed commissions and fees to be paid by the plaintiff. She also attained a knowledge of the profitability to the plaintiff of the business through these clients, by becoming aware of the extent of claims from insurance issued through a certain client and other relevant information such as the prices for particular policies. I accept that she was not involved in setting the levels of premiums to be charged to consumers. None of this information as to contracts or profitability was publicly known. It could be very valuable to a competitor in negotiating a future contract with that entity. None of this was disputed by the defendant. But her evidence was that she does not have a recollection of all of this information and that, in a practical sense, the information would provide her with no particular advantage in seeking these companies as clients for her new employer. She added that this information would be relevant only for a limited time, or as it was put, it would have a limited shelf life.
[13] It may be accepted that her recollection of such information would be imperfect and that it has a limited shelf life. But the potential utility of this information is clearly a relevant factor in considering the reasonableness of a restraint upon her working for a competitor. So far as the possible duration of the restraint imposed by the clause in this contract is concerned, it was reasonable to suppose, as at the date of the contract, that such information would be able to be substantially recalled and would be relevant for at least 12 months (the longest of the alternative periods of restraint). The information as to the terms of the plaintiff’s contract with such a client, especially as to the amount of the agreed commissions and fees to be paid by the plaintiff to it, would be relevant in the next round of negotiations for a new contract. It could be very useful for a competitor to know what the plaintiff had been and was still paying, although it was paid according to an agreement made, say, three years earlier. I accept the evidence of Mr McGarvey, who is employed by the plaintiff as the defendant’s replacement, that information of this kind lasts “as long as the contract (with the client)”.
[14] The defendant had direct dealings with relevant representatives of the plaintiff’s key clients. The defendant acknowledged this within the document referred to in paragraph [7], where she described one of her key achievements as being “building strong relationships with blue chip new clients …”. In the evidence for the plaintiff, there were certain individuals from important clients who were identified as persons with whom the defendant had regular contact and was apparently on good terms. There was evidence of the defendant’s entertaining one or more of these people at sporting events and other similar occasions. It is important here that the defendant had this direct dealing with relevant individuals from the key clients. It would be surprising if that had not been the case, having regard to her position as the person in charge of sales for the plaintiff’s business. The particular strength of the personal association with a particular individual could not be fairly assessed here, at least from evidence as general as that the defendant seemed to get on well with the person. There was also evidence to the effect that some of these individuals would insist upon speaking to the defendant, rather than dealing with someone lower in the plaintiff’s organisation, as problems, such as a dissatisfied consumer complaining to the entity which had offered the relevant insurance, arose. In that context, the defendant was said to have been “a key escalation point”, that is to say someone to whom the client would go in order to resolve an issue which had escalated to more than an everyday issue.
[15] Although the strength of any of these particular relationships cannot be precisely assessed, what is important, in assessing the reasonableness of this restraint provision in its various forms, is that the defendant’s role with the plaintiff brought her into frequent contact with individuals within the plaintiff’s key clients, who were likely to be influential in granting new or further business for the plaintiff. This was by no means a case where the defendant managed her sales team from a distance and with anonymity.
[16] For the defendant it was submitted that she was not the “human face” of the plaintiff, adopting the phrase of Brereton J in Cactus Imaging Pty Ltd v Peters,[9] where he described such a person as one “who represents the business to the customer” or as one who had such a personal relation with the customer “as to enable the employee to control the customer’s business”.[10]
[17] The relevant interest to be protected in this respect is the value of the relationships which the defendant had developed with clients and which were acquired in the course of her employment. Such relationships are beneficial to the employer, and the benefit is treated as an interest which justifies some reasonable protection upon the cessation of the employment. A restraint upon competition is not justified simply from a history of contact between the employee and customers. There must be relationship of a kind which could make it a contributing factor in a customer’s decision to give its business to a competitor for whom the former employee now works. In Artcraft Pty Ltd v Chandler,[11] Muir J (as he then was) applied this passage from the reasons of the Court in Woodmason’s Melrose Dairy Pty Ltd v Kimpton,[12] which as he then noted, had been approved by Kitto J in Lindner v Murdock’s Garage:[13]
“There are many methods of enticing away customers beside the method of direct solicitation impossible of detection, and only known by results. But, apart altogether from any conscious exercise by the former employee of such knowledge and influence as he may have acquired in his former employment, the employer is entitled to protect himself against loss which may otherwise arise from the mere existence of a personal relation between his customers and his former servant. That relation, when resulting from the employment, is an advantage accruing to the employer and properly exercisable for his benefit so long as the service continues. The same relation would become a source of injury to the employer if the former servant were permitted to accept the custom which might voluntarily flow to him upon his opening an opposition business in the old locality. This danger is quite reasonably met, in our opinion, by a provision against serving the old customers for a limited period. The same reasoning is, we think, fully recognized by the common acceptation of a covenant against carrying on a rival business at all in a given locality. Such a covenant has been repeatedly held to be reasonable, though it obviously has nothing to do with solicitation.”
[18] I am satisfied that there were dealings and relationships between the defendant and individuals from key clients of the plaintiff which were of a kind which can be legitimately protected by a restraint against working for a competitor. In no case apparently was the connection so strong that the client saw the only attraction in dealing with the plaintiff as being the personal involvement of the defendant. But more probably than not, at least some of these relationships were such that there was a potential for the change in the defendant’s employment to contribute to a change in the insurer with whom the client did business. Plainly, occasions such as the defendant’s entertainment of individuals at the races were intended to further personal relationships of the relevant kind, that is to say where the relationship could make a difference to whether the plaintiff continued to enjoy the client’s business.
The restraint clause
[19] The restraint clause is cl 10.1, which it is necessary to set out in full:
“10.Restraint of Trade/Non-competition
10.1Restraint of Trade
In consideration of your remuneration and to protect the goodwill of Mondial Assistance, you agree that you will not in any capacity, directly or indirectly, during your employment with Mondial Assistance;
a)be directly interested or concerned (as an employee, independent contractor, shareholder, director, consultant, partner or in any other capacity) in a business substantially similar to the business of Mondial Assistance, or in competition with the business of the Mondial Assistance anywhere in Australia or Asia; or
b)encourage or persuade any Mondial Assistance independent Contractor’s or employees to resign; or
c)encourage or persuade any customers, clients or suppliers of Mondial Assistance to terminate or restrict their relationship with the company,
The Employee must not, during the following alternative periods, whichever enforceable period is longer, following the cessation of the engagement with Mondial Assistance:
a)for a period of:
- 1 year, or
- 6 months, or
- 3 months
b)In:
- Brisbane;
- Queensland;
- Australia;
c)
- be directly interested or concerned (as an employee, independent contractor, shareholder, director, consultant, partner or in any other capacity) in a business substantially similar to the business of Mondial Assistance, or in competition with the business of the Company anywhere within the above listed alternative areas.
- Induce other employees to resign
The preceding sub-clause will have a cumulative effect as several separate restraints for each activity listed in (c) combined with each area listed in (b) and for each period listed in (a). All possible combinations must be complied with.
The validity of each separate restraint will not be affected by the invalidity, if any, of any other restraint.
You may seek the consent of Mondial Assistance in writing to be released from any restraint and any such request will be reasonably dealt with.”
[20] There was no debate here as to the alternative geographical boundaries of the restraint. The defendant’s argument accepted that if the restraint was otherwise enforceable, it would be reasonable and thereby valid for the whole of Australia. That rightly recognised the national perspective of the plaintiff’s business, both in its dealings with clients and in its provision of insurance, most relevantly here travel insurance, to consumers throughout Australia.
[21] It is for the plaintiff to establish that there was within cl 10.1, in at least one of its various forms, a restraint which was no more than what was reasonable in the interests of the parties. The defendant disputes that any restraint was reasonable and says that this restraint, in any of its forms, was a mere restraint upon competition, that is to say one which is imposed without the existence of a relevant interest requiring protection. Alternatively, it submits that a reasonable restraint should be confined to a period of three or perhaps six months. Before going to those questions, however, it is necessary to discuss an issue of the proper interpretation of cl 10.1.
[22] The issue concerns the first “dot point” in the second of the subparagraphs (c). The restraint is upon the employee being “directly interested or concerned (as an employee …)” in a business. Two types of business are identified within this part of the clause. One is a business which is “substantially similar to the business of Mondial Assistance”. (The contract elsewhere identifies Mondial Assistance as the employer, that is to say the plaintiff company.) The other relevant business is one which is “in competition with the business of the Company …”, which again is a reference to the business of the plaintiff. At least at one point in the argument for the plaintiff, it was suggested that the word “business” here used was a reference to an entity, rather than to some established or going enterprise or concern. In my view, it is a reference to the latter.
[23] The issue of interpretation relates to the qualifying phrase “within the above listed alternative areas”. Clearly that qualification applies to the second type of relevant business, that is to say the competing business. Under that limb, the employee must not, within Australia, be directly interested or concerned in a business which competes with the plaintiff’s business anywhere within Australia. The defendant argues that those words also qualify the first type of business, that is to say a substantially similar business to that of the plaintiff. This is disputed by the plaintiff. In my view, the words “anywhere within the above listed alternative areas” should be understood as qualifying also the phrase “a business substantially similar to the business of Mondial Assistance”. That interpretation would be more readily reached had there been a comma after the word “Company”, but it is still preferable. Upon the plaintiff’s interpretation, the substantially similar business need not be one carried on within Australia. If that was so, it would be difficult to see how that part of the clause could be upheld as a reasonable restraint, because employment, albeit within Australia, in a business which operates in a market entirely outside Australia would not be, at least in every case, a proper concern for the plaintiff. It is preferable to interpret the clause in a way which will at least arguably provide a reasonable restraint, if the wording permits.
[24] In any event, this question of interpretation is inconsequential, because of what I see as the relevance of geography in the assessment of whether a business is “substantially similar”. Thus a business which is directed to a market wholly outside Australia would not be substantially similar to the business of the plaintiff.
An enforceable restraint?
[25] The starting point, of course, is that a restraint of trade is void as contrary to public policy unless it is reasonable in the interests of the parties and by reference to the interests of the public: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd;[14] Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd.[15] As to the interests of the public, the onus is upon the party which is subject to the restraint to establish that the restraint is harmful to the public: Herbert Morris Ltd v Saxelby.[16] In the present case, the defendant does not seek to discharge that onus.
[26] It is for the plaintiff to prove that the restraint it seeks to have enforced is nothing more than reasonable protection for a relevant interest of its own.[17] The question of reasonableness is a question of law: Amoco Australia Pty Ltd v Rocco Bros Motor Engineering Co Pty Ltd.[18] Therefore, as Justice Heydon has written:
“Strictly speaking the onus is not to prove reasonableness, but to prove special circumstances from which reasonableness can, as a matter of law, be inferred by the judge.”[19]
[27] The interests which can be protected by a restraint against a former employee include the benefits to the former employer in confidential information and as were derived from the employee’s personal dealings and relationships with its customers: Ross v IceTV Ltd;[20] Woolworths Ltd v Olson.[21]
[28] The validity of a restraint must be decided as at the date of the agreement imposing it: Amoco Australia Pty Ltd v Rocco Bros Motor Engineering Co Pty Ltd;[22] Lindner v Murdock’s Garage.[23] Accordingly, subsequent conduct of the employee asserted to be in breach of the company is irrelevant to the determination of this issue: Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg.[24] It is therefore irrelevant to consider at this point the scope of the defendant’s work with her new employer and the particular propensity for that to affect the plaintiff’s business.
[29] The contract contained a separate provision dealing with confidential information. Clause 9.1 provided that all information and other materials concerning the plaintiff’s business were confidential until such time as the information became part of information in the public domain. Clause 9.4 provided that during or after the termination of the defendant’s employment, she would not divulge directly or indirectly any knowledge or information, acquired during her service with the plaintiff, of any of the customers of the plaintiff or any business, property or transaction in which the plaintiff or any of its customers may have been concerned or interested.
[30] There was also cl 11.1, which provided that the defendant would not, without the plaintiff’s written consent, for a period of one year after termination of the employment, canvass, solicit or endeavour to entice away from the plaintiff, either directly or indirectly, any person who at any time during the term of the employment or at the date of termination of the contract was a customer of the plaintiff.
[31] Clauses 9 and 11 are of some relevance in the assessment of the validity of cl 10. But it cannot be said that they would leave no room for any proper protection to be provided by cl 10. Clauses 9 and 11 could be difficult to enforce in a practical sense, because of the need to prove particular conduct on the part of the employee in a particular context to which the plaintiff is likely to be a complete outsider. I did not understand it to be submitted that cl 10 must be unenforceable simply because of the protection offered by these other provisions.
[32] The plaintiff has established the existence of interests which warranted some protection, namely that the risk of the use of the connections between the defendant and particular clients and the use of information as to the plaintiff’s dealings with those clients, including the terms of contracts with them and information affecting the relative profitability of dealings with them. Those matters represent advantages which the defendant could bring to a new employer which, in the relevant sense, could be said to belong to the plaintiff because they were acquired for the benefit of the plaintiff in the course of her employment by it. Whilst the defendant remained employed by the plaintiff under the contract, it was likely, as at the date of the contract, that she would continue to have or further develop such connections with clients and to accumulate further relevant knowledge in relation to them. The likelihood of those matters was a factor which existed at the date of the contract, so that the scope of what could be protected extended beyond what was then known by the defendant and the relationships which by then she had developed.
[33] In this context it is relevant to consider the bargaining position of the parties: A Schroeder Music Publishing Co Ltd v Macaulay.[25] But as Justice Heydon has written, this is qualified by the fact that “not all employees are equally powerless”.[26] In the present case it far from appears that there was a marked inequality in bargaining power. The defendant had long occupied a senior position within the plaintiff company and had performed, it would seem, very well.
[34] In my conclusion, the protection of these interests of the plaintiff warranted a restraint which prevented the defendant from working in a competing business in Australia for a limited time. The question is whether this provision, in any of its alternative forms, provided no more than a reasonable protection.
[35] In assessing what is required by way of reasonable protection, there is a necessity to identify a relevant risk. It is the risk of the loss of business to a competitor, by the use of the personal connection with clients and information about those clients, which is relevant here. It is unnecessary for the plaintiff to prove that the defendant is in a position to control whether a customer will remain with or leave the plaintiff’s business, as Meagher JA (with whom Campbell and Young JJA agreed) explained in Jardin and Anor v Metcash Ltd and Anor.[27] Meagher JA said:
“97.These statements are not, however, to be understood as requiring that the employee be proved to be in a position to control whether the customer remain with or leave the business. The employer is entitled to protection against the use of ‘personal knowledge of and influence over’ its customers, which the employee might acquire in the course of his or her employment, so as to undermine its customer connections: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 709; Lindner v Murdock’s Garage [1950] HCA 48; (1950) 83 CLR 628 at 635, 636, 645, 647, 654. It is against the ‘possibility’ of its business connection being adversely affected by the use of that ‘personal knowledge and influence,’ that the employer is entitled to be protected: Lindner v Murdock’s Garage at 636, 645, 654. Latham CJ (dissenting) summarised the relevant principle as follows (at 636):
‘Where an employee is in a position which brings him into close and personal contact with the customers of a business in such a way that he may establish personal relations with them of such a character that if he leaves his employment he may be able to take away from his former employer some of his customers and thereby substantially affect the proprietary interest of that employer in the goodwill of his business, a covenant preventing him from accepting employment in a position in which he would be able to use to his own advantage and to the disadvantage of his former employer the knowledge of and intimacy with the customers which he obtained in the course of his employment should, in the absence of some other element which makes it invalid, be held to be valid.’”[28]
[36] It is relevant to consider the frequency of the contact with clients with which, viewed as at the date of the contract, the defendant had had and was likely to have. The extent of these contacts could be regarded as frequent, although it was not a frequent occurrence for them to discuss the terms of a renewed contract with the plaintiff. It is also relevant to consider that these contracts with clients had durations sometimes of several years. But depending upon when the defendant left the plaintiff’s employment, the negotiation of a new contract could be imminent. Therefore, it is not simply a matter of looking at whether any of these contracts with clients was due to expire within a particular period from 12 April 2011. Rather, what is required is some assessment of the time during which these advantages of personal connection and knowledge would diminish to a point when they would no longer be worthy of protection by a restraint against employment in a substantially similar or competing business. As to the advantage of the personal connections, the plaintiff would be expected to address that by the appointment of a replacement for the defendant and by the work of that person in building something of the same goodwill.
[37] I find that information as to contracts with clients, and in particular information about the payments to be made to the clients and the profitability of those contracts was, as at the date of the contract, likely to have had a “shelf life” of more than twelve months. It may be that some information as to the so-called “book” for a particular client was constantly varying so that its shelf life was less than 12 months. And the precise detail of that information would be more easily forgotten. But the essential terms of contracts with clients, particularly key clients, would remain relevant and likely to be recalled beyond a period of 12 months.
[38] In essence what was sought to be protected by this restraint provision was the risk that the extensive knowledge and personal influence which the defendant had acquired and developed over at least six years, as the person in charge of the work of attracting and retaining the plaintiff’s clients, would be able to be used by her in the service of a competitor. Because contracts with those clients are not made very often, usually extending well beyond 12 months, a restraint upon working for a competitor for 12 months is not excessive. I am persuaded to uphold the restraint as reasonable for a period of one year. Assessed as at the time of the contract, at least that amount of time was reasonably necessary to protect the plaintiff from a risk coming from the combined effects of the defendant’s use of relevant information about clients and developed personal relationships with individuals from those clients.
The period of restraint: when did it begin?
[39] Clause 10.1 provided that the period of restraint would run from “the cessation of the engagement with [the plaintiff]”. That engagement ceased in consequence of two conversations between the defendant and Mr Norris for the plaintiff. The first was on Monday, 18 July 2011, when, without any prior indication of her intentions, the defendant went to Mr Norris and told him that she was leaving to take a position with an entity which she did not identify other than to say that it was a “competitor”. At this meeting she handed Mr Norris a letter signed by her which was as follows:
“I hereby wish to tender my resignation effective as of the above date.
Thank you for the time we have worked together and I would like to extend my gratitude to the local and APAC teams.”
The “above date” was 18 July 2011.
[40] At this point it is necessary to set out, in part, cl 20 of the contract:
“20.Termination of Employment
20.1If you decide to resign from the Employer, you are required to give 3 month’s notice in writing. Should you not provide the notice period outlined above, Mondial Assistance reserves the right to withhold monies from your termination pay to the amount of your total notice period. Amounts to be withheld will be outlined to you at the time.
20.2The Employer may terminate your employment by either giving 3 month’s notice in writing or by giving pay in lieu of notice, at the Employer’s discretion.
20.3On termination you will immediately return all of the Employer’s property – including any confidential information – that is in your possession or control. In the event that you do not return property and/or confidential information belonging to Mondial Assistance, the company reserves the right to investigate the matter further and/or withhold monies from your termination pay. Amounts to be withheld will be outlined to you at the time.
[41] According to cl 20.1, the defendant was not entitled to resign with immediate effect, as she purported to do by her letter. She was entitled to resign only by giving three months notice. But it is common ground on the pleadings that she did give that notice.[29] I infer that the conversation on 18 July made it clear that this was a resignation upon three months notice.
[42] There are differences between the recollections of Mr Norris and the defendant about this conversation. But on either view, Mr Norris indicated that he did not want the defendant to be doing work for the plaintiff over those three months. According to Mr Norris, he then said that “there was a notice period that I would require her to serve out as gardening leave”.[30] He says he talked about the fact that “I’d been on gardening leave and I found it fairly therapeutic after I’d left a previous employer and she might enjoy some time on her own”.
[43] According to the defendant, at this first meeting she suggested to Mr Norris “that it would not be ideal for me to be in the organisation now that it was aware that I was leaving and that I should work on a handover document …”.[31] She was adamant that Mr Norris did not use the expression “gardening leave” at this meeting or in the meeting of 22 July.
[44] They met again at the plaintiff’s office on 22 July. The defendant then gave him the handover document.[32] It began with the words:
“This document has been written to provide a summarised perspective of current positioning for the Sales & Distribution function for Australia.”
It ran to some 15 pages and appears to have been a considered summary and set of recommendations to assist the plaintiff consequent upon the defendant’s departure. It is unnecessary to set out more of its terms here. It is sufficient to say that it was, as the name implied, a document which coincided with the defendant’s handing over her work and from that point doing nothing more for the plaintiff.
[45] At this meeting on 22 July, the defendant also handed over her mobile telephone, a security pass and a corporate credit card. (She recalled that when she left the building that day, she had difficulty leaving the car park without the security pass.) Mr Norris said that she then told him that her computer and other things were with her secretary and all relevant items had been left on her desk.
[46] In substance then, the difference between their respective recollections is whether she was told that she would be on “gardening leave”. It is difficult to resolve that inconsistency. Mr Norris and the defendant each impressed as an intelligent witness who was confident in his or her own memory. Each was alert to the ways in which his or her evidence might help or hinder one side or the other. It is quite possible that Mr Norris now thinks he referred to gardening leave but did not do so, just as it is possible that he did mention gardening leave but that the defendant has forgotten it.
[47] There was no further contact between Mr Norris and the defendant except by an exchange of emails in early August. The defendant sent an email to Ms Young of the plaintiff, asking for her to sign an attachment which would transfer her mobile phone number to her personally. That was passed to Mr Norris, who replied that she would not be allowed to use that number. He added “trust all is well and hope you are enjoying some me time”. This shows at least that he understood that she was not yet working elsewhere.
[48] The defendant relies upon other documents of July 2011, which were made by Mr Norris and others, as being consistent only with her case that her employment ended on 22 July. But this question is to be answered by reference to how the parties acted towards each other. So an internal memorandum or email within the plaintiff would be relevant only if it contained a statement by Mr Norris which was inconsistent with the effect of his “gardening leave” evidence. None of the documents is of that kind. There is an email from Ms Lake to the defendant dated 29 July 2011, setting out a calculation of what was plainly to be the defendant’s final pay.[33] It indicates that she was no longer working for the plaintiff, but of itself, it does not answer the present question. Then there is a document in the nature of a check list “prepared for [the defendant’s] departure”, which contains a note by an employee of the plaintiff in these terms:
“Paying in lieu of notice … .”
That represented the view which the author had of what was occurring. But it was not an unanswerable admission by the plaintiff.
[49] There are several indicators which together, in my view, strongly support the defendant’s argument. The first is that the defendant was paid out in full on or very shortly after her leaving the office on 22 July. Had she been on leave for three months, it is to be expected that she would have been paid her salary at the usual intervals over that period. The second is that it is clear that upon either version of the conversations, the parties were agreed that the defendant would not be required to work after 22 July and, indeed, she would not be permitted to return to the plaintiff’s office. Thirdly, she prepared and delivered the handover document, a further confirmation that she would be doing no more work for the plaintiff after 22 July. Fourthly, the defendant’s case is more easily reconciled with the operation of cl 20 of the contract. Clause 20.2 permitted the plaintiff to terminate her employment by giving her three months pay in lieu of notice. Thus the payment which was made upon her departure was entirely consistent with the plaintiff acting pursuant to that clause. Faced with the defendant’s announcement of her intended departure to work for a competitor, it is understandable that Mr Norris for the plaintiff would wish to completely sever the ties with the defendant, rather than leaving her as a nominal, although inactive, employee of the plaintiff for the next three months.
[50] Against these considerations, there are some matters which support the likelihood of “gardening leave”. Firstly, there is the fact that the defendant did not start work with Cover-More until 24 October, that is to say immediately upon the expiry of three months from 22 July. Had she believed that her employment had ended on 22 July, then she would have been expected to have started work within that three month period. Her evidence was that she was advised not to begin her new work until that point in late October. It was not revealed whether the advice was to the effect, say, that the restraint was valid but only for a period of three months. Assuming that she was acting upon advice not to start work for three months, that advice may have reflected some doubt in her mind, or that of her adviser, as to whether, strictly speaking, she remained employed by the plaintiff. But it does not follow from the fact that she chose not to start her new job for three months that she correctly believed that she was still employed by the plaintiff.
[51] A further indication in the plaintiff’s favour comes from her “LinkedIN” webpage, where she sets out her professional history. As I read what she there wrote, she has represented that she remained the Chief Sales Officer of the plaintiff until October 2011. In her evidence, she said that this was explained by the limitations of the software used for this page. I think the more likely explanation is that she wished to convey that she was in continuous employment through to October 2011, to avoid the impression that she was unemployed for three months.
[52] Remarkably, in July 2011 the plaintiff, particularly Mr Norris in these conversations, did not seem to advert to the restraint of trade provision. For example, the defendant was not told anything to the effect that she was restrained by the contract for any period. Mr Norris raised no objection to her working for a competitor. On neither his evidence nor the defendant’s evidence, did the defendant say when she would start her new job. As I have noted, he seems to have understood that she would not be working for the competitor at least immediately after her departure from the plaintiff’s office, which seems more consistent with the plaintiff’s case.
[53] It is for the plaintiff to prove that the restraint commenced in October rather than July 2011. Ultimately, I am not persuaded by this part of the plaintiff’s case. The plaintiff’s actions in requiring her to leave the office, handing over all company items (including her key to the office) and paying her out in full, were in accordance with cl 20 of the contract only if the plaintiff was terminating her employment immediately by three months pay in lieu of notice. It is difficult to accept that there remained a relationship of employer and employee after a point when there was no prospect of any work being requested from the employee or of any further payment being made to her. In terms of cl 10.1 of the contract, it is not proved that the “cessation of the engagement” post dated 22 July 2011. Accordingly, the period of one year commenced then.
The breach of cl10
[54] Cover-More’s business is in selling travel insurance. Most of its business, like that of the plaintiff’s travel insurance business, is in the so-called “B2B” (business to business) context, that is to say dealing with businesses through which consumers obtain insurance. The Defence denies that Cover-More operates a business substantially similar to that of the plaintiff. But at the commencement of the trial, the defendant through her counsel admitted that in the field of travel insurance, the business at Cover-More is in competition in Australia with the travel insurance business of the plaintiff.
[55] The defendant’s evidence is that she spent the first three months of her work with Cover-More in learning about its business, meeting “key stakeholders”, undertaking analysis on its technology capability and its finance models, researching some technological issues and reviewing overseas companies which were associated with Cover-More. She said that at no time within this period of three months was she involved with sales in Australia. In her pleading, she admits that from 22 January 2012 she was working with clients in the Australian market.[34] It follows from her own evidence and pleading that she has been in breach of cl 10 at least from 22 January 2012. It is unnecessary for the plaintiff to prove that Cover-More’s business is both in competition with and substantially similar to its business. The descriptions of substantial similarity and competition are alternatives within cl 10.1.
[56] The plaintiff appears to accept the defendant’s evidence as to the nature of her work with Cover-More in the three months from October 2011, although it did emerge in her evidence that on one occasion during that period, the defendant assisted others within Cover-More with some presentation to clients or potential clients. However, the plaintiff argued that even within this first three months of her new work, the defendant was in breach of the restraint because she was directly interested or concerned in a business substantially similar to its business. I am unable to accept that submission. On the face of the defendant’s evidence, the business in which she was then concerned was one which was aimed at overseas markets. As already discussed,[35] this difference in the location of the respective markets has the result of putting paid to what might otherwise be a substantial similarity for the purposes of this restraint. And as the restraint is upon involvement in a business in competition with the plaintiff within Australia, her work in a business or businesses focussed upon overseas markets would not have breached the alternative limb of the restraint.
[57] The isolated incident of assisting with the presentation to Australian clients does not warrant a finding that she then became sufficiently involved in a competitive business to be described as directly interested or concerned in that business.
[58] The result is that it is established that, as an employee of Cover-More, she has been directly interested or concerned in a business in competition with the business of the plaintiff within Australia since at least 22 January 2012. There should be a declaration accordingly.
An injunction?
[59] It also follows that unless she is restrained by an injunction, by acting in her employment she will continue to breach cl 10 until 22 July 2012. The plaintiff seeks an injunction, although the period in which it would operate is now so short. I accept that even within this period of three to four weeks, there is a real prospect that her acting in her present employment could be influential in advantaging her employer to the disadvantage of the plaintiff. I reject the submission that there is no prospect of damage so as to warrant an injunction. There is an evidentiary onus upon the defendant to show the absence of any risk, such that the plaintiff should be denied now the protection of the court in the enforcement of its contract. According to the evidence, a potential contract with at least one of the plaintiff’s key clients is soon to be renewed, so that the plaintiff does have a real basis for some concern as to what might happen by 22 July if the defendant is allowed to continue to breach her contract.
[60] The defendant pleaded that the plaintiff should be denied relief because any loss of clients would result not from her breach of contract, but from the plaintiff’s own poor performance in its business. In the evidence for the defendant and the cross-examination by her counsel, there were some attempts to prove that the plaintiff’s business, although very successful for some years, was now failing because of inadequacies in its pricing, its standard of client service and what was said to have been a consistent failure to “meet client expectations”. Those matters might be more relevant in an assessment of damages. But at least in relation to this claim for a final injunction, they provide no real assistance to the defendant. Assuming for the moment that the plaintiff’s business was becoming less competitive, if anything that would tend to increase the risk that the defendant’s work with the plaintiff’s competitor would be influential and to its disadvantage.
[61] It was further pleaded that an injunction would have no utility because of circumstances of the plaintiff’s own making. By that the defendant was referring to the plaintiff’s delay in commencing these proceedings until early 2012. Further, the plaintiff made no application for an interlocutory injunction. The plaintiff’s delay is not entirely explained. It may be accepted that it was reasonable for the plaintiff to wait to see where it was that the defendant had gone to work, so as to assess the likely impact of her doing so. It may also be some explanation of the delay that the defendant was not active in the Australian market, at least until 2012. But this is not a case where the plaintiff’s delay has made it unjust for the restraint to be enforced now by an injunction. For example, it is not said that the defendant or her employer have taken certain actions upon the assumption that the restraint would not be enforced.
[62] I am persuaded to grant a final injunction, although it will be necessarily limited to the period expiring on 22 July 2012. The injunction sought by the Claim was in terms by which the defendant would be required to terminate her employment with Cover-More. As was accepted by the plaintiff’s counsel however, the injunction should be limited to one which restrains the defendant from working in her employment by Cover-More, enabling her to retain that employment ahead of the expiry of the restraint next month. It was not suggested for the defendant that an injunction in those terms would cause any particular hardship.
[63] It is preferable for the injunction to be in terms which simply precludes her from working in her employment with Cover-More, rather than being in precise terms of cl 10. This would be simpler to enforce and would not exceed what is necessary to enforce the contract because, as the defendant concedes, for many months now her employment has involved a breach of the provision if it is valid.
[64] Although the plaintiff is seeking a final injunction, through its counsel it offered to effectively meet any loss of income suffered by the defendant from the grant of the injunction. That submission was relevant perhaps to the case that there should be an injunction granted until 22 October this year. It is of little relevance for an injunction to expire on 22 July. It was not submitted for the defendant that an injunction should be refused because she might suffer a loss of income if restrained for this limited period.
[65] Accordingly, it will be ordered that until 22 July 2012, the defendant be restrained from acting in her employment with Cover-More Travel Insurance. There will be a declaration as referred to in paragraph [58]. I will hear the parties as to other orders including costs.
Footnotes
[1] Exhibit 4.
[2] Clause 3.1 of the contract as well as item 1 in its page headed “Schedule 1”.
[3] Exhibit 31.
[4] T 3-37.
[5] Exhibit 2.
[6] T 1-32.
[7] T 1-33.
[8] T 3-15
[9] [2006] NSWSC 717 at [25]; (2007) 71 NSWLR 9 at 17.
[10] Ibid citing Arthur Murray Dance Studios of Cleveland Inc v Witter (1952) 105 NE (2d) 685 at 706.
[11] [2003] QSC 102 at [26].
[12] [1924] VLR 475 at 480, 481.
[13] (1950) 83 CLR 628.
[14] [1894] AC 535 at 565.
[15] (1973) 133 CLR 288 at 315-316.
[16] [1916] 1 AC 688 at 700, 707, 708.
[17] Ibid.
[18] (1973) 133 CLR 288 at 317 and the cases there cited.
[19] JD Heydon, Restraint of Trade Doctrine (3rd ed, 2008), at 35.
[20] [2010] NSWCA 272 at [88].
[21] [2004] NSWCA 372 at [38].
[22] (1973) 133 CLR 288 at 318.
[23] (1950) 83 CLR 628 at 638, 647 and 653.
[24] [2003] 1 Qd R 482 at 491 [25] per Williams JA with whom the other members of the Court agreed.
[25] [1974] 1 WLR 1308 at 1315 per Lord Diplock.
[26] JD Heydon, Restraint of Trade Doctrine (3rd ed, 2008), p89.
[27] [2011] NSWCA 409 at [97]; (2011) 285 ALR 677.
[28] Ibid.
[29] Statement of Claim, paragraph 8, Defence, paragraph 6.
[30] T 1-49.
[31] T 3-16.
[32] Exhibit 6.
[33] Exhibit 8.
[34] Paragraph 9(v).
[35] At [23].