Brilliant Lighting (Aust) Pty Ltd v Baillieu [2004] VSC 248

Nordenfelt v Maxim Nordenfelt Guns & Ammunitions Co Ltd [1894] AC 535, considered.

2. This is an application for interlocutory injunctive relief, brought by summons dated 23 June 2004. The plaintiff is the former employer of the defendant and seeks to enforce a restraint of trade clause against the defendant, who is now employed by a competitor of the plaintiff.

5. By the summons, the plaintiff seeks to restrain the defendant from engaging either directly or indirectly in any of the following conduct anywhere in Australia.

"(a) carry on, advise or be engaged or interested in or associated with any business or activity which is directly or indirectly competitive with the plaintiff; (b) establish any business or organisation in competition with the plaintiff; (c) employ any employee who is involved in the immediate business of the plaintiff; (d) entice, solicit or endeavour to entice or solicit any employee, contractor or consultant of the plaintiff or of any related corporation away from their employment or engagement with the plaintiff or with such related corporation respectively; (e) solicit business from any customer or client of the plaintiff; (f) be employed by any business or organisation which is directly or indirectly competitive with the plaintiff; or (g) whether as principal, representative, agent, consultant, employee or otherwise, use the name of the plaintiff or any related corporation in connection with his own or any other name calculated to suggest that he is connected with the plaintiff's business or the business of any related corporation nor in any way hold himself out as having such connections."

9. There is no evidence whatsoever of proposed conduct in breach of paragraphs 1(b), (c), (d) or (g) of the summons. There is some evidence, however, in relation to paragraphs 1(a), (e) and (f).

12. The defendant is a former lighting sales representative of the plaintiff. He was employed by the plaintiff for some 15 months, ceasing in May of this year. Prior to taking up his employment with the plaintiff, he worked for about nine years for First Lighting in Springvale as its national sales manager, as State manager for another company for one year and sales consultant for two years with another lighting company before that. His employment by the plaintiff involved some demotion in his duties from his previous employment. I note that the plaintiff paid the defendant a base salary of approximately $40,000 per annum together with commissions, the amount and rate of which are not known to me.

15. In May of this year the defendant informed the plaintiff that he proposed to leave and to take up employment with a competitor of the plaintiff, Martec Pty Ltd ("Martec). It is common ground that Martec is a company which is involved in the selling of lights, as well as other electrical goods which are not sold by the plaintiff. When he announced that he would be leaving the plaintiff's employment, the managing director of the plaintiff pointed out to him that he had signed a contract containing a confidentiality clause and a restraint of trade clause, upon the commencement of his employment with the plaintiff.

18. I pause at this point to note that although the affidavit of Norman Levin, the managing director of the plaintiff, did refer to some confidential information which is said to have been given to the defendant, I note that neither in the writ nor the summons is any relief actually sought for alleged misuse of confidential information or breach of the confidentiality clause. On that basis then I treat this matter purely as an application to enforce the restraint of trade clause.

21. Whilst the test of "serious question to be tried" is not a particularly onerous one, in a case such as this the party moving for the injunction faces a higher test. The reason for that is conveniently set out in the judgment of Gillard J in Hartleys Limited v Martin[1]. That case was similar to this case in certain respects. There was a three month restraint of trade clause in that case seeking to restrain former brokers and analysts from engaging in competition with their former employer. I quote from paragraphs 32 and following of that judgment.

"32. However, there are exceptions to the general rule [in relation to serious or substantial question to be decided], and depending upon the circumstances, a party claiming an interlocutory injunction may have to establish something more than the fact that there is a serious question to be tried in the principal proceeding. By way of example, where a party seeks a mandatory interlocutory injunction or seeks, in effect, final relief at the interlocutory stage. 33. In those circumstances the court is bound to consider something more than a serious question to be tried. 34. Where the most likely outcome is that if the granting of relief on an interlocutory application will have the practical effect of putting an end to the proceeding because the plaintiff will obtain all that he seeks, then the general rule is that this court should consider the likelihood of the plaintiff succeeding in his proceeding."

25. In the case before me, the proposed restriction on employment is only to operate for some three months, until September of this year. It is highly unlikely, if not impossible, that this matter could be heard and determined on a final basis before that date. In those circumstances, this application for interlocutory relief will effectively determine the proceeding. Accordingly, I find that the plaintiff has to satisfy me that there is a likelihood of the plaintiff succeeding in this proceeding.

28. The general principles in cases such as this one are well established and were discussed by Gillard J in the Hartleys case which I mentioned earlier[2]. At common law, in the absence of any restrictive provision, when an employee leaves employment, he or she is free to set up a directly competing business, indeed even in the immediate locality. Employees are entitled to approach former employer's customers and solicit business from them. They are entitled to use for their own purposes any information which they carried in their heads regarding the identity of the employer's customers or contacts or indeed the nature of the employer's product requirements. They are entitled to use information concerning pricing policies, providing the information was acquired honestly, in the ordinary course of their employment, and they did not, for example, deliberately seek to memorise lists of names for the purposes of their own business. That is the general common law position.

31. Restraint of trade clauses seek to modify the common law position. They are regarded as prima facie void, for the public policy reasons which have been discussed in many cases, including Nordenfelt v Maxim Nordenfelt Guns & Ammunitions Co Ltd[3]. The presumption of invalidity may be rebutted by showing that the restraint was justified because it is reasonable in the interests of the parties and the public.

34. A party who seeks to enforce a restraint of trade provision bears the onus of proving that the provision goes no further than is reasonable to protect its legitimate interests. Relevant considerations include:

(1) The scope of the restraint in terms of both the geographic area and duration;

(2) The activities covered by the restraint;

(3) The relative bargaining power of the parties;

(4) The consideration paid in exchange for the restraint; and

(5) The context of the contract.

40. Clause 3 of the Employment Agreement, which is Exhibit NL1 to the affidavit of Norman Levin sworn 22 June 2004, is in the following terms:

"3. Conditions of Termination The Employee covenants that he shall not, for a period of three months from the date of termination of his employment, anywhere in Australia, either directly or indirectly, singularly or jointly with or on behalf of any other entity, without the prior consent of Brilliant Lighting: 3.1. carry on, advise or be engaged or interested in or associated with any business or activity which is directly or indirectly competitive with the Company; or 3.2 establish any business or organisation in competition with the Company; or 3.3 employ any employee who is involved in the immediate business of the Company; or 3.4 entice, solicit or endeavour to entice or solicit any employee, contractor or consultant of the Company or of any related corporation away from their employment or engagement with the Company or with such related corporation respectively; or 3.5 solicit business from any customer or client of the Company; or 3.6 be employed by any business or organisation which is directly or indirectly competitive with the Company; 3.7 whether as principal, representative, agent, consultant, employee or otherwise, use the name of the Company or any related corporation in connection with his own or any other name calculated to suggest that he is connected with the Company's business or the business of any related corporation nor in any way hold himself out as having such connections."

44. I note that the essential features of the clause include, as I have already mentioned, a three month prohibition. Three months is not an unreasonable period of time in the present circumstances.

47. However, the geographical restraint is "anywhere in Australia". The geographical restraint is far too wide. The only evidence before me is that the plaintiff carries on business in Victoria and Mount Gambier.

50. The restraint of trade clause also purports to exclude the defendant from any employment of any nature whatsoever with a direct or indirect competitor. It is not limited in its subject matter to salesmen's duties or indeed the lighting business. For example, the clause would stop him working in any capacity for any organisation which could be said to be directly or indirectly competitive with the plaintiff. He could not even perform clerical, secretarial or delivery functions for such a competitor. He could not sell toasters or other electric appliances of a type sold by his new employer but not sold by the plaintiff. That prohibition seems to go further than reasonably necessary to protect the plaintiff's legitimate business interests.

53. The prohibition in clause 3.5 on soliciting business from "a customer or client of" the plaintiff is also problematic, for several reasons. This would, for example, prevent the defendant from seeking to sell any product (including products completely unrelated to lights) to Bunnings or any other business which happened to buy lights from the plaintiff. There may also be ambiguity as to who is a customer or client of the plaintiff. On its face, the term would apparently include a customer who made a single purchase, or very small purchases, or purchases of quite specific goods. The plaintiff bears the onus of establishing that such a restriction in reasonable in the circumstances. There are bald assertions in the plaintiff's affidavit that the defendant is likely in his capacity as a salesman with Martec to approach or solicit former customers of the plaintiff. The only detailed evidence before me which is directly on point is in the larger affidavit of the defendant sworn 24 June 2004. In that, he deposes to the fact that due to his prior experience as a salesman, he came to the plaintiff's employment with substantial customers of his own or already known to him and his previous employers. He says in paragraph 8 of his affidavit that the very reason he was hired was because he had customers, and he was given no training for the job by the plaintiff. The defendant deposes that approximately 95 per cent of the customers with whom he dealt whilst employed by the plaintiff were ones with whom he had already dealt before. He sets out in some detail in his affidavit details of customers with whom he has dealt for periods in the vicinity of eight or nine years prior to his employment by the plaintiff.

56. Mr Millar, counsel for the plaintiff, told me that the plaintiff wished to take issue with that evidence. However, the plaintiff chose not to put detailed affidavit material on that issue before me. The plaintiff chose to bring this application on with considerable haste and elected to have me deal with it on the materials before me. The plaintiff has not discharged the onus of establishing that the restriction on customer solicitation is no wider than is reasonably necessary to protect its legitimate interests.

59. That makes this case very different from the facts which faced Gillard J in Hartleys v Martin, the case to which I have already referred. In that case the evidence was, quite clearly, that the two analysts had been trained entirely at Hartleys, and their entire contact with customers and clients had come from Hartleys.

62. Further problems with the restraint of trade clause are that the concept of "indirect" competition is too vague, and the concept of being "associated with" may well be too broad, in the circumstances.

65. There is no evidence that the clause was the subject of any negotiation between the parties, rather, the plaintiff simply required the defendant to sign it at the commencement of his employment.

68. For all of those reasons, the plaintiff has not satisfied me that it is likely to succeed at trial in establishing that the restraint of trade clause is valid. Although there is a severability clause later on in the employment agreement, the way the restraint of trade clause is drafted does not lend itself to severance of the offending parts.

71. If I am wrong in relation to that matter, I turn to the question of balance of convenience and discretionary matters. In my opinion, those matters favour the defendant in this case.

74. The alleged harm which might flow to the plaintiff if it cannot enforce the restrictive covenant has only been set out in the most general terms in the plaintiff's affidavit. Given that the affidavit does not really descend to particulars in describing the relevant products, market and the like, it is hard to assess how substantial any damage to the plaintiff's business and goodwill might be. I do accept that there may be difficulties in the plaintiff establishing at trial that it has lost particular clients or business over the 3 month period, and in proving particular monetary loss.

77. The plaintiff submitted that the defendant's loss and damage would be easy to calculate, being simply 3 months' remuneration. The defendant's shorter affidavit of 24 June 2004, which was uncontradicted, deposes that he has no other employment, no other funds to support himself and his family, and if he is prevented from continuing his employment with Martec, he will not be able to support himself and his family. A damages award at some future trial may not be sufficient to redress that harm in the interim. Indeed, if the interlocutory injunction is granted, there may never be a trial of the plaintiff's claim, because it will have obtained the relief it seeks.

80. A further matter to which I have had regard in considering the balance of convenience is the written undertakings which have already been given in an open manner by the defendant ("the undertakings").[4] By the undertakings the defendant undertakes amongst other things:

* Not to perform any work as a sales representative in relation to lighting products for Martec;

* Not to make any attempt to solicit lighting product business from any of the plaintiff's customers with whom he dealt during his employment by the plaintiff;

* Not to entice or solicit any employee, contractor or consultant of the plaintiff or its related companies,

in Victoria or Mt Gambier during the relevant 3 month period.

87. I note that the undertakings have been signed and, in the terms of the covering letter, are unconditional. They are not merely an "offer" which was not accepted by the plaintiff (as Mr Bevan-John contended), but open, unconditional undertakings. They and the covering letter differ from earlier correspondence which was in the nature of an offer only. In my opinion, the undertakings go far enough to protect any legitimate interest that the plaintiff might have. I note that the defendant was not prepared to offer them as an undertaking to the Court unless he was awarded costs on an indemnity basis in return for doing so. The undertakings may not be easily enforced in their current form, but a trial judge may well take a dim view of the defendant were he not to abide by them.

90. Turning to discretionary matters, finally, as I have already indicated, the plaintiff's application and affidavit contain sweeping generalisations and does not descend to particulars. This is in the context where the plaintiff has known at least since the middle of May that the defendant was proposing to go and work for a competitor. True it is that there was some coyness on the part of the defendant's solicitors in answering a direct question as to whether he had actually commenced employment. I also note as a discretionary matter that the plaintiff did not put before me any of the correspondence relating to the undertakings and the proposals to resolve this matter without coming to court.

93. For all those reasons, I decline to grant injunctive relief. I propose to order that the summons dated 23 June 2004 be dismissed and that the plaintiff pay the defendant's costs of the application.

97. Although I had considered the possibility of ordering on a solicitor/client basis, certainly not an indemnity basis, I propose to order costs on a party/party basis. Whilst I think the plaintiff, or the plaintiff's lawyers, have shown some lack of judgment in bringing on this application as quickly as they did, and on such poor material, in my opinion, the consequence they suffer is not getting the relief the plaintiff seeks. I do not see any conduct on their part that is sufficient to justify solicitor/client or indemnity costs. Accordingly, I will order that the summons be dismissed and the plaintiff pay the defendant's costs on the usual basis.

[1] [2002] VSC 301

[3] [1894] AC 535

[4] Exhibit "AJM8" to the affidavit of Anthony Massaro sworn 23 June 2004.