11 While the same general principle applies in all cases of restraint of trade, a stricter and less favourable view is taken in respect of covenants in restraint of trade between employer and employee than in commercial agreements for sale of goodwill [ Nordenfelt , 566; Mason v Provident Clothing & Supply Co Limited [1913] AC 724, 731, 738; Herbert Morris Ltd v Saxelby ; Geraghty v Minter (1979) 142 CLR 177, 185; Woolworths Limited v Olson , [38]; J D Heydon, The Restraint of Trade Doctrine , 2nd Ed, pp68-69]. An employer is not entitled to be protected against mere competition, and the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary interests [ Vandervell Products Ltd v McLeod [1956] RPC 185, 192; Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659, 664], including the employer's trade secrets and confidential information, and the employer's goodwill including customer connection. In this case, Cactus seeks to support the restraint on solicitation of customers on the basis of protection of both its confidential information and its customer connection.
13 I adopt that reasoning. When one approaches the matter in accordance with these principles, then, as it is clear the present conduct of the defendant is in breach of the restraint provisions, it is necessary to determine whether the restraint, in its application to the present conduct and contemplated conduct in breach, is contrary to public policy.
14 It is, I think, important to realise that the shareholders agreement is far more than an employment contract. Kowalski is a shareholder in Immer. No doubt he has worked hard to build up the value of Austress and thus Immer. Freyssinet has presumably paid a proper price for the shares it has obtained in Immer as a result of the first shareholders agreement and subsequent purchases from the shareholders. Although the second agreement brought to an end all rights under the first agreement it is not irrelevant that the first contained a restraint covenant, somewhat similar to, but not as wide as the present covenant. The original agreement was primarily a commercial agreement for the acquisition of the shares, but it involved an employment agreement. The existing shareholders agreement should be treated in the same way. One of its purposes was to ensure that Kowalski would not be locked into Immer as a minority shareholder, but would be entitled to require Freyssinet to purchase his shares at a price fixed by a negotiated formula. That option can be exercised by Kowalski now but the call option cannot be exercised by Freyssinet until 2009. There is no time limit by which either option must be exercised.
15 The main argument advanced by Mr P M Wood for the plaintiff was that the purpose of the restraint was to retain the value not only of the business of Austress and Immer if Kowalski left, but to maintain the value after the put or call option was exercised. While it might appear strange to have a restraint period which could continue at least until 2012 and probably longer - although Kowalski by putting his shares at the time he was removed as managing director, could have limited it to 2008 - this was justified because it was important to Freyssinet to keep value in its investment in both Austress and Immer, particularly as it could be required to, and had the right to, increase its investment in Immer. That argument may seem strange at first blush, because if the company became worth less as a result of Kowalski's involvement in competing businesses then the option exercise price would be less, but in fact the argument has considerable strength. Kowalski could put his shares to Immer, taking advantage of the exercise of the price at the date (which depended in part on results over the past three years), but his activities with the new companies could well result in lower earnings and less profits for Austress and thus Immer in the future. This is not a pure employment restraint upon which the court frowns. It is a restraint originally entered into (but in somewhat different terms) in 1992 as a business arrangement between vendor and purchaser of shares in Immer, protecting the interests of the purchaser. Later, in the second agreement, it continued such protection as part of the arrangement for the obligations and rights under the put and call options, protecting a legitimate interest in retaining the value of a business important either for future earnings or for future sale. Vendors of business or of shares in companies managing businesses may have proper reason to enter into restraint covenants to add value to what they are selling; see cases listed in para 11 of Cactus and Connors Bros Ltd v Conners [1940] 4 All ER 179 at 191-2. The same reasoning applies to persons negotiating put and call options. Such a restraint is, in my view, not contrary to public policy. Freyssinet's interest was to secure the value of its investment and probable increased investment in Immer and in Austress directly or through Immer. It was not argued that it was not a valid restraint as it was to protect a subsidiary and sub-subsidiary: Stenhouse Australia Ltd v Phillips [1973] 2 NSWLR 691. I defer consideration of the extent of restraint until later in this judgment.
16 It is also argued that the restraint is justified to protect information which is confidential to the plaintiff. There is a specific undertaking about this at the end of clause 16.1 of the shareholders agreement which I think is more relevant to relief by way of injunction or damages going to breach of contract. However, the fact a person has access to confidential information may justify restraint, in both a business sale type situation and an employment situation. In the present case it is information of past or budgeted proposed margins and methods of pricing and pricing systems which is claimed to be of value to a competitor. While that may be true, I agree with the argument of Mr Simpkins SC, for the defendant, that such information quickly goes out of date and is of little value, particularly in this case where the information of Austress is already two years old. It was Austress which had the information, not Immer, although Immer would have been aware of it in a general way. In view of the decision to which I have come, this does not really matter. The existence of and access to confidential information could justify some restraint but would be of less strength than the restraint appropriate for the purpose of retaining the value of the business. I consider a two year time period from dismissal a maximum, so that while this argument could justify an injunction now, that would be for a term written down in accordance with the Restraints of Trade Act 1976. The case on retaining the value of the business supports a longer restraint.
17 I turn to the scope of the restraint. While the agreement does explicitly not provide for termination it is apparent that the agreement will end if and when one or other of the put or call options is exercised. Thus Kowalski can bring it to an end at any time by exercising the rights under the put option and Immer can bring it to an end at any time after 1 July 2009. The time period and geographical area of restraint must be considered bearing this in mind.
18 I return to the extent of restraint. The area of restraint is unlimited. It seems to me that this is obviously unreasonable. Neither Austress nor Immer was operating worldwide at the time of the agreement. There was nothing to show either company intended to do so. It is accepted a restraint over Australia would be reasonable if there were no other objection to the restraint. The evidence is sparse but it does establish operations and carrying out of contracts in Australia, New Zealand, Hong Kong and Indonesia and at some time in the Philippines. The company profile, which is in evidence, sets out the area of operations as Australia, Indonesia, Hong Kong, Malaysia, New Zealand, the South Pacific Islands, Vietnam and the Philippines. While the evidence of Mr Grolimund, the chief financial officer of Freyssinet, is somewhat vague as to this, the profile is in evidence. Mr Kowalski gave no evidence to challenge its contents, but as Mr Grolimund had no idea what was meant by the "South Pacific Islands" and there was no evidence of any work being done there, I think it must be excluded. Apart from that, the restraint should be limited to the areas claimed as areas of operation.
19 I turn to the time. In considering this the following matters are significant: (a) the period was agreed after negotiation; (b) Kowalski did get substantial benefits from the shareholders agreement, including the put option, a good salary and a degree of independence from the board; (c) the benefit of the put option enures for his estate; (e) Freyssinet had a real interest in maintaining the value of its business, particularly after Kowalski left; (f) Kowalski had been with Austress and in this type of business for over 20 years so that departure to a competitor could be thought to be very detrimental to the value of Immer as a company. The present breach should be restrained in any event as the restraint has been in operation for only about 17 months and I consider a restraint beyond that time reasonable. There is an obvious conflict while Kowalski remains a director of NT Pre-Stressing. However, it is necessary to determine in relation to future contemplated conduct whether the constraint period is reasonable or contrary to public policy.
20 Three years may seem a long time, especially when one looks at it from 2009. However, by then Kowalski will be only 59 or 60 years of age, not a person due to retire, still able to be involved with a competing business; and as I have said, it was open to him to bring about a position where the restraint period would in fact have ended in December 2008. The fact that he has not done so would indicate that he considers that his shares are worth keeping. The plaintiff's aim is to ensure that they remain of value when and after it acquires those shares by its choice, or when forced to do so. In the particular facts of this case and the somewhat strange and particular contract, I do not consider the longer period unreasonable.
21 The restraint from being a shareholder in a competing company is too wide as it could prevent investment in major publicly listed construction companies. The restraint in this aspect should not restrict Mr Kowalski from being a shareholder in a public company listed on the Stock Exchange of any country.
22 An order should be made restraining Kowalski from acting in breach of the restraint clause. The alternate order sought is thus not required nor is it, I think, an appropriate order at least so far as it seeks to restrain conduct of a director which may required as a matter of law by a director.
23 The plaintiff should bring in a draft order to give effect to the judgment. I will then make the injunction and give directions for the conduct of the balance of the action.