Date of Agreement. 31 March 2007
Dissolution date: 31 March 2007
Stephen Bruce Bromhead Michael Noel Crozier John William Walker"
10 Mr Bromhead and Mr Walker discussed the contents of the deed with Mr Crozier in the last week of March 2007. Mr Crozier had become ill in about February of that year and his practice plans were uncertain. He did, however, indicate that he wanted to take over some client files and deed packets of the partnership. He said he would like to take the deed away and think before signing anything. Mr Bromhead said he and Mr Walker then executed the deed in the expectation that it would be executed by Mr Crozier. However, Mr Crozier did not execute the deed. He has made other proposals as to the way in which assets, including client files, should be distributed. Those negotiations have not been concluded and will not be concluded until the completion of these proceedings.
11 It was submitted that the statement as to dissolution of the partnership in the termination letter was consistent only with the employment relationship, and hence the contract of employment, coming to an end as at 31 March 2007.
12 I reject that submission. The letter clearly specified 27 April 2007 as the last day of employment.
13 It was submitted that neither option in cl 20.1.6 of Mr Graham's employment contract was exercised. Clearly, the letter did not purport to terminate the contract by payment in lieu of notice. The other option was to terminate the employment by giving one month's notice. It was submitted that the direction to take annual leave infringed the provision because there was no suggestion that Mr Graham was to work out the notice period. It was submitted that the suggestion of four weeks' annual leave was illusory because at that time Mr Graham was owed no more than six days. It was submitted that by failing to comply with cl 20.1.6, the partners had repudiated Mr Graham's employment contract.
14 There is nothing in cl 20.1.6 that requires an employee given one month's notice to carry on working for the partners if they forego that requirement, as they did in instructing Mr Graham to take four weeks' annual leave. Nor is it to the point that Mr Graham was owed no more than six days at the time. The partners were not precluded by any provision in the contract from granting Mr Graham the indulgence of not having to work out his period of notice. And, no doubt, there were good practical reasons why he should not.
15 I reject the argument that the direction to take annual leave constituted a repudiation of Mr Graham's employment contract.
16 In the expectation that the partnership would be dissolved by mutual consent, Mr Walker set up a new business in the premises that had been occupied by the partners at Taree under the name Walker Smith Solicitors Taree. Mr Bromhead used the premises formerly used by the partners in Forster and set up a new business under the name Walker Smith Solicitors - Forster.
17 Later on 3 April 2007, Mr Graham asked Mr Bromhead for a reference. Mr Bromhead obliged with a letter dated 3 April 2007 that he gave to Mr Graham the next day. The letter was on the letterhead of Mr Bromhead's new firm. It commenced: "I provide this reference for Ian Graham who leaves this firm with our best wishes."
18 It was submitted that the issuing of the reference on the letterhead of Mr Bromhead's firm constituted a repudiation of Mr Graham's contract of employment. I do not think it did. The use of the wrong letterhead did not alter the fact that the reference was provided to Mr Graham on behalf of the partners and in glowing terms in respect of his performance of duties for the partners.
19 Mr Bromhead asked Mr Graham to return the keys he had to Forster premises. Mr Graham did so. It was submitted that demanding the keys from Mr Graham was tantamount to locking him out and constituted a repudiation of his contract of employment.
20 I do not view the incident in that way. Mr Graham was not required to work further at the Forster premises and a set of keys was needed for Mr Rider who was to attend to those premises more frequently.
21 On 4 April 2007, Mr Graham was paid for the first week of his holiday including leave loading and he was paid and accepted his full entitlements on 27 April 2007. That is hardly consistent with an alleged earlier repudiation of the contract of employment constituted by one or other or a combination of a number of the grounds relied upon.
22 Nor do I regard Mr Graham's handing over of the keys as an acceptance by him of a repudiation of his contract of employment.
23 It is unnecessary for me to consider the authorities relied upon for the proposition that a covenant in restraint of trade does not survive an employer's wrongful repudiation of a contract of employment.
Dissolution of partnership
24 In Mr Graham's behalf a series of admissions was relied upon to ground the submission that the partnership had been dissolved.
25 There is the statement in the notice of termination of 30 March 2007. By the time the letter was handed to Mr Graham, 31 March 2007 had come and gone and Mr Bromhead did not say to Mr Graham that the partners were still discussing the question of dissolution. In cross-examination, Mr Bromhead said he expected the partnership would be dissolved by mutual consent. In re-examination, he said that he did not consider the contents of the letter between time it was written and signed by him and the time he handed it to Mr Graham.
26 Reliance is placed upon the deed of dissolution that speaks of a dissolution date of 31 March 2007.
27 In his first affidavit of 19 April 2007, Mr Bromhead said that on 31 March 2007 each of the partners executed a deed of dissolution and the partnership was dissolved. In cross-examination, Mr Bromhead said the affidavit had to be sworn quickly and he made a mistake.
28 The next day, Mr Bromhead swore another affidavit in which he said that Mr Crozier took a few criminal matters from the firm on dissolution of the partnership. It falls into the same category of what Mr Bromhead asserted was a mistake brought about by haste.
29 On 20 April 2007, the matter came before Hamilton J on an ex parte basis when the two affidavits were read. It was submitted that, expressly or implicitly, on the various occasions the injunction had been modified and extended, the assertions formed part of the plaintiff's case until trial.
30 That is not so. In his third affidavit of 24 April 2007, Mr Bromhead swore to the chain of events with respect to the discussions between the partners as to the dissolution of their partnership, the execution by two of them of the deed of termination and Mr Crozier's subsequent proposals with respect to the assets of the partnership.
31 It was also submitted that the clear distinction between the letterhead used by Mr Bromhead for the notice of termination and the letterhead used by him for the reference constituted an admission that the partnership had been dissolved on 31 March 2007. I have already indicated that while on the letterhead of Mr Bromhead's new firm, the reference was clearly written on behalf of the partners.
32 I do not regard these matters, singly or collectively, as outweighing the evidence of Mr Bromhead as to what happened between the partners in their discussions of dissolution of the partnership.
33 In his affidavit sworn on 4 June 2007, the first day of the trial, Mr Bromhead said that he and Mr Walker are managing files of the partnership in addition to their participation in their respective new firms. It was submitted that Mr Bromhead's evidence in this regard should not be believed. It was submitted that it was a vague new assertion unsupported by any corroborative evidence. It was also submitted that the assertion was equivocal and equally consistent with the partnership having been dissolved.
34 But Mr Bromhead had said, in his affidavit of 24 April 2007, that the partnership had continued to cover Mr Graham under its workers' compensation policy and that the partnership continued to employ Mr Rider as a practice manager for the purpose of managing matters associated with the ongoing dissolution of the partnership, a process likely to continue for 18 months to two years.
35 Mr Bromhead repeated these assertions in his affidavit of 22 May 2007, stating that he and Mr Walker continued to manage files of the partnership and Mr Crozier was managing other files and the dissolution of the partnership will not be resolved prior to the termination of these proceedings. Mr Bromhead indicated that the partnership continued to employ Ms Kelly Stevens as an assistant to Mr Rider and the partnership proposes to continue employing Ms Stevens so long as Mr Rider needs assistance. The partnership continues to maintain its trust account and workers' compensation cover.
36 In his affidavit of 1 June 2007, Mr Bromhead indicated that the partnership accounts will continue to be kept and records of the trust account of the partnership maintained.
37 In his affidavit of 4 June 2007, Mr Bromhead described in detail exhibits from the business records of the partnership dealing with matters affecting the partnership since 31 March 2007. The exhibits were not tendered as they go to any inquiry as to damages.
38 I reject the submission that Mr Bromhead's evidence of management of the files of the partnership should be rejected. And I reject the submission that the assertion is equivocal. The exhibits from the business records of the partnership described by Mr Bromhead are consistent only with its continuation past 31 March 2007.
39 There was no written partnership agreement. The Partnership Act 1892, s 32 provides, relevantly for present purposes, that a partnership is dissolved if entered into for an undefined time by any partner giving notice to the other or others of the partner's intention to dissolve the partnership. A partnership is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is mentioned, as from the date of communication of the notice.
40 As is pointed out in Lindley & Banks on Partnership, 18th ed, Sweet & Maxwell, London, 2002 at [24-21] a dissolution notice must be clear and unambiguous. Hence a proposal to dissolve on terms that are not accepted will not be effective (Hall v Hall (1855) 20 Beav 139 (52 ER 555)).
41 The proposal contained in the deed of dissolution was not accepted by Mr Crozier. On that basis, the deed did not terminate the partnership. Furthermore, the deed constituted a proposal for the dissolution of the partnership by agreement between the partners. It did not take the form of a notice by Mr Bromhead and Mr Walker to Mr Crozier giving notice of intention to dissolve the partnership if agreement was not reached. In my view, the deed of dissolution did not answer the description of a notice of intention to dissolve the partnership and the Partnership Act 1892, s 32 did not apply to it.
42 Reference was made to Palmer v Moore [1900] AC 293 and to Ryder v Frohlich [2004] NSWCA 472 at [102] for the proposition that if a party to a working partnership abandons his or her commitment to working in the partnership, that abandonment can amount to notice of termination of the partnership. But that is not the situation in the instant circumstances. Mr Crozier's agreement with his co-partners to seek to protect partnership assets shows that he does not abandon his commitment to working in it. And neither do Mr Walker or Mr Bromhead. The partners continue to engage Mr Rider and Ms Stevens as practice manager and assistant with Mr Bromhead looking after the bulk of the Forster files, Mr Walker looking after the bulk of the Taree files and Mr Crozier looking after some of the files.
43 I reject the submission that the partnership has been dissolved.
44 It is unnecessary for me to consider the proposition that dissolution of an employer partnership has the effect of repudiating contracts of employment, for which Brace v Calder [1895] 2 QB 253 was cited as authority.
Fiduciary duty
45 It was submitted in Mr Graham's behalf that since he ceased to be an employee on 3 April 2007, the partners' case that he had breached his fiduciary duty must fail.
46 I reject that submission. Mr Graham continued in the employment of the partnership until 27 April 2007 and in that time he was bound by express and implied fiduciary duties of fidelity and confidence. The relationship between employee and employer is one of the accepted fiduciary relationships. An employee is subject to a general duty to serve an employer with good faith and fidelity (Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] 1 Ch 169). Contractual and fiduciary obligations may co-exist between the same parties (Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97).
47 In canvassing the clients of the partnership before 27 April 2007, Mr Graham breached his obligations of fidelity and confidence and there should be an inquiry as to damages.
Public policy
48 In Australian Regional Wholesalers v Stafford [2007] NSWSC 572, I had cause to consider the principles associated with restrictive covenants. At [29] I adopted the summary of the principles by Brereton J in John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [6]. I pointed out at [34] that the question whether the non-solicitation provision in this case, in its application to Mr Graham's breaches of it, is against public policy, raises two questions: does the employer have a legitimate interest to protect and is the restraint no more than reasonable for that protection? It is the latter of those matters that Mr Graham attacks.
49 It was submitted that the non-solicitation provision in Mr Graham's contract of employment was no more than a restraint on competition and against public policy. I do not agree. Mr Graham's profile had been developed as the face of the partnership. He had a close personal relationship with clients of the partnership he served and he was in a position to affect the partnership's client connection. It was, therefore, not unreasonable, at the time Mr Graham signed his contract of employment, that he not exploit the confidential information and client connection of the partnership.
50 It may be that the non-solicitation provision was excessive in its application to all clients of the partnership as distinct from those served by Mr Graham. I do not have to decide that point because the Restraints of Trade Act 1976, s 4(1) would preserve so much of the non-solicitation provision as is not against public policy and I am of the view that, at the least, the application of the restrictive covenant to those clients of the partnership served by Mr Graham would not infringe public policy. The injunctive relief sought is limited to those circumstances. What is sought is the enforcement of the provision in relation to those clients of the partnership served by Mr Graham in the 18 months preceding the termination of his contract of employment.
51 It was submitting that a 12 month restraint was excessive. In support of its reasonableness, it was submitted that consideration should be given to the time it might reasonably take a replacement employed solicitor to build up the client connection exercised by the departing employee.
52 In my view, a six month restraint is adequate protection of the client connection of the partnership. Forster and its surrounds, from which partnership clients might be drawn, is a relatively small area and I see no reason why a similar build up of the profile of a replacement solicitor to that which the partners extended to Mr Graham, together with the canvassing of existing clients, could not re-establish client connection in a six month period.
53 In terms of the Restraints of Trade Act 1976, s 4(1), I am of the view that the non-solicitation provision limited to a restraint for a period of six months is not against public policy.