HER HONOUR: This is an application in the duty list brought by Cushman & Wakefield Agency (Vic) Pty Ltd (Cushman & Wakefield) by summons filed on 2 June 2021. The time for service of the summons was abridged and the matter was brought back on an urgent basis. What is sought this afternoon is effectively interlocutory relief to restrain the defendant, James Patterson, from conduct falling within what I might refer to as a non-compete clause in the defendant's employment contract with Cushman & Wakefield.
By way of background and by reference to the matters to which Mr Matthew Bouw, the Chief Executive Officer for the Asia Pacific region for the Cushman & Wakefield group of companies has deposed, the plaintiff is a global commercial real estate services firm with its headquarters in Chicago, Illinois (Matthew Bouw's affidavit affirmed 2 June 2021 at [7]). Its principal activity is to operate as a multi-service commercial real estate agency providing services to the commercial property market in various areas (at [8]). Mr Patterson was, prior to his redundancy in February this year, employed by the plaintiff as the Chief Executive, Australia and New Zealand (ANZ) Transactions. He had formerly been employed by the plaintiff as the Chief Executive Officer, Australia and New Zealand. His executive service agreement is dated 20 March 2020 (at [14]). It contains within it what I might describe as relatively uncontroversial post-employment restraint clauses and clauses in relation to restraint on use of confidential information, as below (see Ex A at 25-28):
10 CONFIDENTIAL INFORMATION
10.1 The Executive must keep confidential all Confidential Information other than Confidential information:
a. the Executive is required to disclose in the proper performance of the Employment Duties;
b. which was public knowledge as at the date of this Agreement or became so at a later date (other than as a result of a breach of confidentiality by the Executive);
c. or that the Executive is required by law to disclose (but only after first informing the Company).
10.2 The Executive may:
a. use Confidential Information solely for the purpose of performing the Executive's duties with the Company;
b. and disclose Confidential Information only to persons who:
i. are aware of and agree that the Confidential Information must be kept confidential;
ii. or have signed any confidentiality agreement required by the Company from time to time;
and either:
iii. have a need to know (and only to the extent that each has a need to know);
iv. or have been approved by the person or persons nominated by the Company from time to time.
10.3 The Executive must not use Confidential Information for a purpose other than for the benefit of the Company or a Group Company and must maintain effective security measures to protect all Confidential Information.
10.4 The Executive must immediately notify the Company of any suspected or actual unauthorised use, copying or disclosure of Confidential Information and take all steps directed by the Company to either remedy or restrict further breach in relation to the material.
10.5 The Executive must provide all assistance reasonably requested by the Company in relation to any proceedings the Company may take against any person for unauthorised use, copying or disclosure of Confidential Information.
10.6 The Executive agrees that the Executive's obligations under this clause will survive the cessation of the employment for any reason whatsoever and will be enforceable at any time at law or in equity and will continue to the benefit of and be enforceable by the Company.
14 RESTRAINT ON THE EXECUTIVE'S CONDUCT
14.1 The Executive must not, without the prior written consent of the Company for the Restraint Period in any Restrained Capacity;
a. participate in, carry on, assist or otherwise be directly or indirectly concerned with, as a director, consultant, adviser, contractor, principal, agent, manager, employee or partner, any business or activity that directly competes in the Restraint Area with any part of the business of the Company or the Group with which the Executive was involved at any time during the Relevant Time;
b. solicit or encourage any director, contractor or employee of the Group with whom the Executive has worked or had dealings at any time during the Relevant Time to leave his or her employment or engagement with the Company or the Group;
c. solicit, canvass, approach or accept any approach from any person or entity who was at any time during the Relevant Time, a customer, supplier, distributor or licensee of or to the Company or the Group with whom the Executive has worked or had dealings with a view to establishing a relationship with or obtaining the custom of that person or entity in a business which is the same as or substantially similar to that part of the Company's or the Group's business in which the Executive was involved at any time during the Relevant Time;
d. interfere or seek to interfere, directly or indirectly, with the relationship between the Company or any member of the Group and its customers, suppliers, distributors, licensees, directors, employees, contractors or agents in the conduct of the Company's or Group's business;
e. counsel, procure or assist any person to do any of the acts referred to in subclauses 14.1 (a) to (d).
14.2 Relevant Time means the period of 12 months prior to the earlier of;
a. the date of termination of the Employment; or
b. the date from which a direction under clause 9.2(c) applies.
14.3 Restraint Area means anywhere within;
a. Australia, but if that is not enforceable;
b. New South Wales, but if that is not enforceable;
c. the greater metropolitan area of Sydney.
14.4 Restraint Period means at any time after cession of the Executive's employment with the Company for any reason for a period of;
a. 12 months, but if that is not enforceable;
b. 9 months, but if that is not enforceable;
c. 6 months, but if that is not enforceable;
d. 3 months.
14.5 Clauses 14.1(a), 14.1(b), 14.1(c), 14.1(d) and 14.1(e) each have effect as if they consist of separate provisio each resulting from combining each geographic area in the definition of Restraint Area with each time peri in the definition of Restraint Period. If any of those separate provisions is invalid or otherwise unenforceable for any reason, the invalidity or unenforceability shall not affect the validity or enforceability of any of the other separate provisions or other combinations of those separate provisions of 14.1(a), 14.1(b), 14.1(c), 14.1(d) and 14.1(e).
14.6 Each restriction in clause 14.1 is intended to be separate and severable. If any of these are found to be invalid but would be valid if some part was deleted then such parts shall apply with such modifications as maybe necessary to make them valid.
14.7 The Executive acknowledges that each restriction specified in clause 14.1 is in the circumstances reasonable and necessary to protect the Company's and the Group's legitimate interests and that damages are not an adequate remedy for any breach of the restrictions by the Executive.
14.8 The Executive agrees that the Executive's obligations under this clause will survive the cessation of the employment for any reason whatsoever and will be enforceable at any time at law or in equity and will continue to the benefit of and be enforceable by the Company.
The term of the employment is not defined in the executive service agreement. It commenced on 1 April 2020 and it was to continue until terminated in accordance with the agreement (see cll 3, 9). Pursuant to cl 9 of the agreement, either party was able to terminate the employment at any time and for any reason by giving to the other party three months' written notice. Relevantly, I set out here cll 9.1 and 9.2:
9 NOTICE OF TERMINATION
9.1 Either party may terminate the Employment at any time and for any reason by giving to the other party 3 months' written notice.
9.2 After either party has given notice pursuant to clause 9.1, the Company in its absolute discretion may:
a. terminate the Employment immediately and make a payment to the Executive equal to the Executive's current Total Remuneration; or
b. require the Executive to work part of the notice period any pay the current Total Remuneration for the balance of the notice period; or
c. direct the Executive for all or part of the notice period not to perform any work, to remain away from its premises and/or not to contact any customers or clients of the Group and/or to perform alternative duties, including less senior or significant duties, which the Executive agrees will not constitute a repudiation of this Agreement.
Mr Bouw deposed that the defendant's roles and responsibilities with Cushman &Wakefield included (at [17]): (i) to lead and manage Cushman & Wakefield businesses in ANZ; (ii) to develop and implement strategy; (iii) to build on existing market strengths; (iii) to identify suitable acquisition/merger targets in ANZ; (iv) together with others, to lead the staff in five offices across Australia; (v) to manage the ANZ support group (i.e. Finance, HR, IT) in partnership with various global leaders; (vi) to directly manage the profit and loss for ANZ. The defendant reported directed to the CEO of the Asia Pacific Region, being Mr Bouw since 2017 (at [18]). Mr Bouw says that the defendant: had direct operational and management oversight of all transactional service lines within ANZ with an objective of growing the transactional service lines (at [19]); and was required to maintain critical client relationships and represent the Cushman & Wakefield brand in the industry as it relates to transactional services in ANZ.
Mr Bouw has deposed that in his position, the defendant had access to "highly confidential information", including: the strategic plan and strategic priorities for Asia Pacific; annual operating plans for ANZ; merger and acquisition (M&A) targets through to the end of 2021; strategy for M&A targets and implementation; recruitment plans; regular financial data of the ANZ businesses; and forward looking financial data (at [22]-[23]).
At [24]-[25] of Mr Bouw's affidavit, he deposed to his observation as to the development by the defendant of close relationships with some of Cushman & Wakefield's most significant Australian clients and potential clients.
I make it clear that I am making no findings of any disputed questions of fact in these ex tempore reasons.
By letter dated 9 February 2021 from Mr Bouw, Mr Patterson was advised that the outcome of a recent review by Cushman & Wakefield of its operational requirements in the ANZ region and a restructure of the ANZ Transactions leadership team, meant that Mr Patterson's position with the company as Chief Executive ANZ Transactions was no longer required and Mr Patterson was made redundant (Ex A at 31-32).
The letter continued to state that, as there was no suitable alternative employment for him with the company or its related entities, the company had decided to terminate the employment and the company invoked cl 9.1 of the executive service agreement in that regard. The company also informed Mr Patterson, pursuant to cl 9.2 of the employment contract, that the company had decided to make a payment in lieu of his entire notice period and, accordingly, his employment with the company would come to an end on 9 February 2021, that being the date of the letter.
Mr Patterson was paid various sums, including a payment in lieu of three months' notice of termination (which was calculated using his higher prior base salary rather than his current salary - as, it was said, a gesture of goodwill). He was also paid other amounts, including a contractual redundancy pay, accrued, but untaken annual leave and his pro-rata entitlement to long service leave. The letter reminded him of his post-employment obligations in relation to matters such as confidentiality, intellectual property and post-employment non-compete and non-solicit obligations.
There has been a dispute not resolved between the parties as to whether the circumstances in which, or the manner in which, the defendant's employment was terminated, are such that in fact (pursuant to cl 9.2 of the executive service agreement), Mr Patterson was entitled to 12 months' salary, as opposed to the three months' salary in lieu of notice that he received. That is an issue that will need to be determined at another date. Suffice it to note that in correspondence between the parties' solicitors, it has been asserted for Mr Patterson that the conduct of the company in this regard amounts to a repudiation of the executive services agreement, and the company does not accept that it does.
What has transpired is that the defendant has accepted employment with Knight Frank Australia Pty Ltd (Knight Frank Australia). It is not disputed that Knight Frank Australia Pty Ltd is a competitor of Cushman & Wakefield. The defendant informed Mr Bouw by email on 22 May 2021 that he had accepted the CEO position with Knight Frank Australia, but the plaintiff emphasises that that letter simply said he would commence "sometime soon" and did not specify the date on which he would commence with Knight Frank Australia (Ex A at 52).
An announcement that was made by Knight Frank Australia on 27 May 2021 also did not provide a commencement date but merely stated the defendant would commence "shortly" (Mr Bouw's affidavit affirmed 2 June 2021 at [31]). Further, the announcement referred to Mr Patterson's extensive experience and leadership credentials, his role at Cushman & Wakefield, the robust expansion strategy that had increased that company's transactional business over a period of years and stated that Mr Patterson was "one of the most well-connected people in the property sector with an extensive network of clients and contacts" (at [31]).
It was not until a letter dated 31 May 2021, that the defendant's lawyers notified the plaintiff's lawyers that the employment would commence on 2 June 2021 and that led to the urgent application in the duty list yesterday, being the first day of Mr Patterson's employment as CEO at Knight Frank Australia.
Exhibited to Mr Bouw's affidavit of 2 June 2021 is correspondence both from solicitors for the defendant and solicitors acting for Knight Frank in relation to the current situation (Ex A). In particular, Mr Patterson has in writing confirmed that he is not aware of any confidential information belonging to the Cushman & Wakefield that he could use at Knight Frank Australia, that he does not have any possession of or control any such confidential information and that he will not use any such confidential information (Ex A at 56). Further, Mr Patterson has confirmed in writing that he will provide an undertaking not to solicit any clients or employees of Cushman & Wakefield for a period of 12 months following the termination of his employment with Cushman & Wakefield. (The defendant on this application places reliance on the fact that he has proffered undertakings which would address each of the subclauses of the post-termination obligations, other than - relevantly for the present purposes - cl 14.1(a).)
Knight Frank has also, through its solicitors, denied any allegation it has or will induce any breach of Mr Patterson's post-employment obligations and has indicated that it has not requested and does not require him to breach his obligations in any way.
[2]
Plaintiff's submissions
For the plaintiff, emphasis is placed on the senior role that Mr Patterson played at Cushman & Wakefield. I have been taken to authorities that support the reasonableness of a non-compete covenant of the kind that is here in question. In particular, I was referred to John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [36]-[37] (a decision of Brereton J; as his Honour then was); to the Full Court of the Federal Court decision in Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111 at [49]-[51], (their Honours there quoting from an earlier decision of Brereton J in Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [25]) and finally, to the decision of Brereton J in Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [83]-[84].
The plaintiff emphasises that the risk of inadvertent or unconscious disclosure or use of confidential information of the kind defined in the executive services agreement, which would include matters such as clients, or a "pipeline" of client, work and the like, is such as to amount to a reasonable justification for a non-compete clause and, as I say, has referred to the line of authority to the effect that providing undertakings in relation to non-solicitation of customers and non-use of confidential information is inadequate to address the information in the head of any employees which could be used consciously or unconsciously in the new role.
It is noted that it has been recognised in the authorities that it may be difficult to distinguish between confidential or non-confidential information or to enforce restraints of that kind, and that the justification for non-compete obligations recognises the difficulty of enforcement (and the temptation that might otherwise be available) if the former employee is not restrained from competing.
It is submitted that it is clear that Mr Patterson was a senior employee and is moving to the most senior role of a competitor in the industry. Reference, as I say, is made to Mr Bouw's affidavit as to his knowledge of and access to key confidential information, including financial data, key marketing and strategies and targets and key elements of what might be of use in the new business. It is accepted that seeking to prohibit Mr Patterson from working with Knight Frank Australia (for the period up to a final expedited hearing of the matter, or a hearing of the interlocutory injunction application), would be of prejudice to Mr Patterson. However, the plaintiff has proffered an undertaking to pay the defendant the wages he received immediately prior to the termination of his employment with the plaintiff, until such time as the matter is heard (either on an interlocutory or expedited final basis) and the plaintiff is prepared to proceed as quickly as practicable to an expedited final hearing.
[3]
Defendant's submissions
The defendant's solicitor has emphasised the provision by the defendant of undertakings that address the post-termination obligations in relation to non-solicitation of clients and employees and the non-use of confidential information, and that the only thing that is here in controversy, on this afternoon's application, is the restraint under cl 14.1(a) of the executive services agreement.
Emphasis is placed on the fact that reasonableness of such a restraint is to be determined at the time of the contract and the submission is made that the contract is only ten months old. It is said that the plaintiff chose not to vary its earlier contract, but to require entry into a new contract and it is said that what the plaintiff is seeking now is a restraint for longer than the time of employment under the most recent contract.
In circumstances where the termination (and it is emphasised that this is a case where the defendant was made redundant), was not for any kind of misconduct or the like, it is submitted that the Court, in the exercise of its discretion, is unlikely to give effect to the restraint (reference is made in that regard to the decision of Brereton J in Ecolab Pty Ltd v Garland [2011] NSWSC 1095 (Ecolab) at [31] in particular). In response to that, I would interpose to note reference is made by the plaintiff to the decision of Sackar J in Dundoen Pty Ltd v Richard Wills (Real Estate) Pty Ltd [2020] NSWSC 1534 (Dundoen).
It is submitted for the defendant that in circumstances where he, as a senior employee, has proffered the undertakings in relation to confidential information and Knight Frank has similarly proffered those undertakings, that should be sufficient protection for the plaintiff in the period of four weeks between now and when a potential final expedited hearing can be heard.
It is noted that Mr Patterson's employment has already been at an end for a period of now nearly four months and it is submitted that he is well cognisant of his obligations in relation to post-termination conduct. It is submitted that, in effect, what the plaintiff is here saying (in seeking an interlocutory injunction), is that in the next four weeks there could be a risk that there would be inadvertent use or disclosure of information to Knight Frank Australia in circumstances where Knight Frank Australia has given an undertaking not to require anything of that kind. It is also submitted that it is relevant to take into account the prejudice that Knight Frank Australia may suffer if an interlocutory injunction is granted, in circumstances where it will then be left with its most senior employee not able to work for the period of time.
In that regard, I note that there really is no evidence before me as to Knight Frank Australia's position, other than the communications from its lawyers in which it makes clear that it denies any allegation of inducement of breach of contract. There is also no evidence as to how long Knight Frank Australia may already have been without a chief executive officer (and I note that Mr Patterson has only just started in the last day).
[4]
Plaintiff's reply submissions
In submissions in response, the plaintiff emphasises that the reasonableness of the restraint is to be tested at the time of the making of the agreement. The plaintiff says that the fact that four months has expired of the highest level of the restraint period of 12 months, does not gainsay that there is a proper interest in enforcing the non-compete clause. Emphasis is placed on the fact that here it is not a junior employee, but one of the most senior employees in question, moving to a competitor. It is submitted again that the kind of confidential information that the defendant may have is information that is not of a kind that would go stale in the period of four months.
The plaintiff emphasises, as per Mr Bouw's affidavit, the kinds of information to which Mr Patterson would have had access to and as to the kind of damage which it is said that Cushman & Wakefield may suffer if there is a breach of the non-compete clause. The plaintiff reinforced the difficulty in trying to supervise the enforcement of non-compete clauses and the risk of that which is recognised in the caselaw that supports the reasonableness of non-competition clauses. The fact that the contract is only ten months old is said not to be of relevance, for two reasons: first, that reasonableness is to be tested at the time of making of the agreement, not how long the agreement lasted for; and second, that there are predecessor contracts of employment with the defendant. As I say, reference is also made to the decision of Sackar J in Dundoen.
As to the position of Knight Frank Australia, apart from the lack of evidence in relation to its position, it is said that in the context, Knight Frank Australia no doubt was aware at the time that it employed Mr Patterson that he was subject to post-employment restraints. (I have no evidence that it was, although it might well have been expected that it was likely that he would have been subject to post-employment restraints.)
[5]
Determination
The test to be satisfied on an application such as this for an interlocutory injunction is as to whether or not there is serious question to be tried, or a sufficiently seriously arguable case for a final injunction to justify the grant of interlocutory relief. Regard must be had to the balance of convenience and whether damages would be an inadequate remedy. In this case it seems to me, and certainly based on the authorities to which I have been taken, that conclusion must follow that there is a serious question to be tried as to whether a final injunction would be granted and, if so, the ambit of that final injunction.
I accept that there are issues that may be raised as to the reasonableness of the restraint. I accept also that there may be issues raised as to whether or not there was repudiation of the contract, such as to mean that there was no ongoing ability to enforce the post-termination obligations. However, those are matters that will have to be dealt with on a final basis and, at this stage of the proceedings, I think it is clear that there is a seriously arguable question to be tried in relation to those matters.
As to whether damages would be an inadequate remedy, the case law in this area makes clear that the difficulty of determining whether there is a breach and/or of the damages that might be suffered, or have been suffered as a result of that breach, mean that damages would be an inadequate remedy.
It really to my mind turns on the question of the balance of convenience. On the one hand, enforcing the restraint, the non-compete clause by way of an interlocutory injunction at this stage, if an injunction were to be granted and later found wrongly to have been made, would mean that Mr Patterson was out of employment effectively for a (short) period of time and it would be something that would no doubt be prejudicial to the interests of Knight Frank Australia. That prejudice is, however, met (at least in relation to Mr Patterson) by the proffering of the undertaking to pay his wages for the period of time up to an expedited final hearing. While I take into account the fact that it may be disruptive to Knight Frank Australia's business for Mr Patterson to have commenced and then to be restrained from working for a period of less than a month, I think balancing those matters out, that would not be determinative of the issue.
On the other hand, if I do not grant an injunction of this kind, and it is found later that the restraint is valid and that such an injunction should be granted, then one might say colloquially that the horse by then will have bolted as Mr Patterson would have been with Knight Frank Australia for a month. Consequently, even in circumstances where there is no suggestion that Mr Patterson has not been complying with the non-solicitation and non-use of confidential information covenants and has offered an undertaking in that regard, there would be a risk of damage through inadvertent use of information he has gleaned during his role at Cushman & Wakefield.
The fact that Mr Patterson was made redundant, and that he has effectively been placed in the position where he needs to obtain further employment, is something that I take into account, but I also note what was said by Sackar J in that regard, and that in Ecolab, to which reference was made, the fact of redundancy was in a quite a different context to the current context (that being a case where the redundancy was due to the refusal of the employee to accept a reduction in his wages).
Balancing the issues to which I have referred above, and having regard to the fact that it is a relatively short period of time before I will be able to set the matter down for a final expedited hearing, I am of the view that the interlocutory relief sought should be granted.
[6]
Orders
For those reasons, I make the following orders:
1. The plaintiff to file and serve any further evidence it relies upon in support of its claim for final relief by 4:00pm 11 June 2021.
2. The defendant to file and serve any evidence it relies upon in response to the plaintiff's claim for final relief by 4:00pm 22 June 2021.
3. The plaintiff to file and serve any evidence in reply by midday 24 June 2021.
4. The parties to file and serve written submissions addressing the claim for final relief by 5:00pm 25 June 2021.
5. The plaintiff's claim for final relief be listed for expedited hearing on 28-29 June 2021 before Parker J with the usual order as to hearing subject to any amendments in these orders.
6. Upon the plaintiff, by its Counsel, giving the usual undertaking as to damages and the Plaintiff undertaking to pay the Defendant the wages he received immediately prior to his dismissal with the Plaintiff until judgment following the hearing commencing on 28 June 2021 is handed down, the defendant is restrained from:
1. anywhere in Australia, participating in, carrying on, assisting or otherwise being directly or indirectly concerned with, whether as a director, consultant, adviser, contractor, principal, agent, manager, employee or partner, any business or activity that directly competes in Australia with any part of the business of the plaintiff or its related bodies corporate with which the defendant was involved at any time during the twelve months preceding 12 February 2021 (including that the defendant not be engaged by Knight Frank Australia Pty Ltd or its related bodies corporate).
2. soliciting or encouraging any director, contractor or employee of the plaintiff or its related bodies corporate with whom the Defendant worked or had dealings at any time during the twelve months preceding 12 February 2021 to leave his or her employment or engagement with the plaintiff or its related bodies corporate;
3. soliciting, canvassing, approaching or accepting any approach from any person or entity who was at any time during the 12 months preceding 12 February 2021 a customer, supplier, distributor or licensee of or to the plaintiff or its related bodies corporate with whom the defendant worked or had dealings with a view to establishing a relationship with or obtaining the custom of that person or entity in a business which is the same as or substantially similar to that part of the plaintiff's or its related bodies corporate's business in which the defendant was involved at any time during the 12 months preceding 12 February 2021;
4. interfering with or seeking to interfere with, directly or indirectly, the relationship between the plaintiff or any of its related bodies corporate and their customers, suppliers, distributors, licensees, directors, employees, contractors or agents in the conduct of the plaintiff's or its related bodies' corporate businesses; and
5. counselling, procuring or assisting any person to do any of the acts referred to in paragraph (b) to (d) above.
1. Costs are reserved.
2. The parties are granted liberty to apply on short notice.
3. These orders be entered forthwith.
[7]
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Decision last updated: 10 June 2021