Ecowize Holdings Pty Limited v Langley & Ors [2006] NSWSC 1291 | Case summary

5798/06 ECOWIZE HOLDINGS PTY LIMITED & ANOR v AARON JOSEPH LANGLEY & 3 ORS JUDGMENT 1 The plaintiffs, by summons filed on 13 November 2006, seek declaratory and injunctive relief consequential upon what they contend to be breaches of contract by each of the first defendant (Mr Langley), the second defendant (Mr Dunlop) and the third defendant (Mr Forrest) and knowing inducement or assistance of the breaches by the fourth defendant (Captive Services Pty Ltd). The contractual provisions in question are of a "restraint of trade" kind. 2 I am now dealing with the plaintiffs' claims to interlocutory relief in the form of injunctions pending determination of the claims for substantive relief. The interlocutory claims are advanced by the plaintiffs' notice of motion also filed on 13 November 2006. 3 There are two plaintiffs. The first plaintiff is Ecowize Holdings Pty Limited ("Holdings"). The second plaintiff is Ecowize Specialised Hygiene Services Pty Ltd ("ESHS"). The group of which the plaintiffs form part provides cleaning and sanitation services to the food processing industry, including abattoirs and processing and canning plants. 4 It is necessary to deal separately with the interlocutory applications relating to the several defendants. As a preliminary, however, it is convenient to deal with two matters of relevance to all cases: first, the general issue of the state of competition (if any) between the plaintiffs and the fourth defendant, Captive Services Pty Ltd ("Captive Services"); and, second, the general nature of the activities of the natural person defendants about which the plaintiffs complain. Competition 5 For reasons that will become clear when the individual circumstances concerning each natural person defendant are examined, it is relevant to consider the extent to which the businesses of Holdings and ESHS are competitive with that of Captive Services. That question may be too narrowly stated, in that the inquiry probably needs to extend to certain associates or affiliates of Captive Services. The apparent associates or affiliates are Five Ticks Cleaning Pty Ltd and Biogiene Pty Ltd. The precise connection between Captive Services and these two companies is unexplained, except to the extent that certain documents of each of the two carry a business address which corresponds with the principal place of business of Captive Services recorded in ASIC records (Level 7, 23 Berry Street, North Sydney) - added to which the evidence suggests that all three companies are engaged in cleaning businesses. In a document to be mentioned presently, there is reference to "Biogiene/Captive". 6 Evidence relevant to the nature and scope of the business of Holdings and ESHS was led by them in the form of a web-page related to "Ecowize" without specific identification of any entity. It is there made clear that Ecowize services "food manufacturing and processing plants" and specialises in "red meat", "poultry processing industry", "high risk added value processing", "fish processing industry", "canning industry", "breweries & beverages", "bakeries", "dairies" and "industrial kitchens". The material speaks of "specialised food hygiene solutions", "hygiene solutions tailored to meet individual customer needs", "delivering a clean factory every day", "a clean plant every time", "controlled cleansing practices to minimise risk of contamination", "reduction of the microbiological load in the processing area", "killing of pathogenic bacteria" and "substantial reduction or removal of any biofilm prescience [sic]". 7 This website content was supplemented by various descriptive material in Mr Maibom's affidavit regarding the employment histories of the natural person defendants. All those activities were related to cleaning of abattoirs, meatworks and other food processing plants. 8 The main evidence the plaintiffs have led as to the business of "Captive Services" consists of a copy of a website. The website begins by saying that "[c]leaning requirements vary greatly between industries". It goes on to say that the "Captive Services Group and its affiliates" are able to offer "industry specific solutions" for six specified kinds of organisation or entity, namely, "Corporate Organisations", "Government", "Distribution & Logistics Centres", "Retail and Shopping Centres", "Hotels and Serviced Apartments" and "Police Station". There is reference to delivery "to your premises [of] a reliable, high quality, cost effective cleaning service that will meet your premises cleaning requirements both now and in the future". 9 Subsequent pages of the website refer to particular industry sectors. The first is "Supermarkets, Shopping Centres & Car Parks". The next is "School and University Cleaning". There is then a section headed "Additional Cleaning Services" which refers specifically to carpet cleaning, "professional restoration services" (mentioning soot removal, water extraction, dehumidification, sanitizing, "deodorization" and upholstery and fabric restoration), window cleaning, sanitary and hygiene services (with reference to "washroom products", sanitary bins, air fresheners, nappy bins and change tables) and gardening services (several specific aspects of which are mentioned). 10 The next section of the website material is devoted to the "Quality program to ensure our service is second to none". Particular fields of operation or endeavour are not mentioned here. Next comes a section about occupational health and safety and environmental health and safety. Again, there is no reference to fields of operation or endeavour. Finally, there are a promotional page and a page giving contact details. 11 The clear purport of the evidence here is that the "Captive Services Group" is in the business of cleaning the general run of premises. The material refers to various kinds of premises, but the unmistakeable message is that any building which is used in an ordinary way and thereby subjected to the ordinary consequences of human occupation is the chosen business domain, so that the business is wholly concerned with cleaning and, to some extent, repairing and maintaining buildings and parts of the general run of buildings in a generic sense, without regard to any specialised use of buildings. In other words, anything with walls and floors requiring cleaning of an ordinary and routine kind - whether or not also containing lavatories requiring cleaning and whether or not having grounds or gardens requiring tending - represents the field of the "Captive Services Group's" activities. 12 On the evidence to which I have referred, the Ecowize business, by contrast, is very specialised and is concentrated on abattoirs, food processing plants and other premises where hygiene and cleansing measures beyond the ordinary are required. Captive Services Group's business, by comparison, is that of general cleaning of buildings without any component directed towards hygiene for food processing. The operator of a food processing plant seeking specialised hygiene and cleansing treatment to prevent contamination would not be attracted or responsive to the material on the Captive Services website. Likewise, the operator of a school or police station or office building requiring cleaning services would not be attracted or responsive to the special capabilities exposed on the Ecowize website. 13 There is, however, one further piece of evidence that must be taken into account. It consists of two documents (one a tender and the other a signed contract) making it clear that Biogiene Pty Ltd, which has its address at Level 7, 23 Berry Street, North Sydney (the principal place of business of Captive Services) has, as recently as August 2006, entered into a contract to provide cleaning and sanitation services to a meatworks in Tasmania. There is some commercial sensitivity about these documents. It is sufficient to say that they entail cleaning services of a specialised kind which appear to be the same as those advertised on the Ecowize website. The Biogiene tender document gives details of other contracts held (apparently by "Biogiene/Captive"). These all involve premises of the kind suggested by the Captive website, that is, premises not including specialised premises for the processing of meat or other foodstuffs which would call for special hygiene measures. It may therefore be inferred that, as at August 2006, Captive Services may have taken steps to expand its business to cover the particular food processing premises in Tasmania. 14 This introduces a territorial question. Mr Maibom's affidavit and its exhibits refer to various sites at which and customers to which Holdings and ESHS (and the Ecowize group more generally) provide cleaning services. It is clear that there are activities in New Zealand but, as far as Australia is concerned, all the activities mentioned appear to be within Queensland and New South Wales, although, in the latter case, with some concentration towards southern New South Wales which may well also extend to Victoria. 15 It follows that evidence of an apparent associate of Captive having taken up a contract for the provision in Tasmania of services similar to those provided by the Ecowize group is not necessarily indicative of Captive Services or its associates being in competition with Ecowize. This is the only instance of the provision by any entity apparently associated with Captive Services of cleaning services similar to those provided by the Ecowize group. That instance relates to a State in which Ecowize does not appear to operate. On the evidence as it stands, it does not seem to me to be open to find that the business of Captive Services (and its associates) is in competition with the business of Ecowize. Individual activities 16 It will be necessary to examine separately the recent activities of the three natural person defendants. As a prelude, however, it is useful to sketch some background. All were previously employees of Holdings or ESHS. Mr Langley's employment ended in May 2005. Mr Dunlop's employment ended in May 2006. Mr Forrest's employment ended in July 2006. 17 The first item of evidence about Mr Langley's relevant post-employment activities comes from a copy of a letter (unsigned) from the human resources manager of "Captive Services". The letter is dated 17 March 2006 and is addressed, "To Whom It May Concern". The letter says that "Aaron Langley is employed by our Company on a permanent full time basis". Also in evidence is a copy of a letter (also unsigned) to another of the natural person defendants (Mr Dunlop) from a company called "Five Ticks Cleaning Pty Ltd" offering Mr Dunlop employment as that company's State operations manager for Queensland. The letter is dated 19 April 2006 and carries beneath the blank space for signature: "Aaron Langley, Sales Manager". The letter of 17 March 2006 contains no address of the sender beyond a post office box at North Sydney. The letter of 19 April 2006 shows the address of Five Ticks Cleaning Pty Ltd as Level 7, 23 Berry Street, North Sydney which, as I have said, is recorded at ASIC as the principal place of business of the fourth defendant, Captive Services. The tender document associated with the Biogiene contract relating to the Tasmanian meatworks refers to Mr Langley as "Contact Person". 18 There is accordingly a basis for an inference that Mr Langley has, since March 2006, been employed by the fourth defendant (or an associate of it) and occupies a sales manager position and that he is the first point of contact for the Tasmanian meatworks client of Biogiene. 19 The evidence about Mr Dunlop's activities is the letter mentioned at [17] above suggesting that he was, on 19 April 2006, offered the position of State operations manager for Queensland with Five Ticks Cleaning Pty Ltd, plus a business card, found in Ecowize's office at some unstated time, showing Mr Dunlop to be "State Operations Manager" of "Captive Services" with an address at Mt Ommaney, a western suburb of Brisbane. There is also the hearsay evidence relevant to Mr Forrest that I am about to mention. 20 In the case of Mr Forrest, the only evidence of relevant post-employment activities is of a hearsay nature. Mr Maibom says in his affidavit that he was told certain things by Mr Mudannayake, the general manager of Teys Bros at Rockhampton. Mr Mudannayake is reported by Mr Maibom as having said that Mr Dunlop had contacted him (Mr Mudannayake) and had said that he was "working at a company called Captive Services with David Forrest cleaning shopping malls/supermarkets but that they were now getting into the red meat industry". 21 I proceed now to consider the case made against each of the natural person defendants. Mr Langley 22 The interlocutory order sought against Mr Langley is an order that he be restrained, pending trial, from: "(a) carrying on, operating, being engaged in, occupied or employed in any business firm company or other entity whether as principal, shareholder, joint venturer, employee, partner, independent contractor or agent which carries on any business (in whole or in part) which is the same or similar to business carried on by the First Plaintiff or Second Plaintiff on 13 May 2005 and in particular, being employed by the Fourth Defendant in Australia; (b) whether as principal, shareholder, joint venturer, employee, partner, independent contractor or agent, soliciting or attempting to solicit any person who was a client of the First Plaintiff or Second Plaintiff during the period of 2 months ending on 13 May 2005, to increase the amount of their business with a competitor of the First Plaintiff or the Second Plaintiff and in particular for or on behalf of the Fourth Defendant in Australia." 23 The contract with Mr Langley on which the plaintiffs rely is dated 10 May 2005. There are seven parties, of which two are Holdings and Mr Langley. The agreement is one for the sale by Mr Langley of shares in Holdings held and beneficially owned by Mr Langley (being 120 out of a total of 2060 shares) and shares in a New Zealand company beneficially owned by him (representing a 14% interest). The purchasers of the shares in Holdings are four of the other parties to the agreement. The purchaser of the shares in the New Zealand company is Holdings. The provisions of the contract on which the plaintiffs rely are clauses 6.2 and 6.3: "6.2 Not to Compete In consideration of the benefits which Aaron will receive as a result of and under this Deed, Aaron agrees that he will not and will procure that no person or business or trustee of a trust over which he has control in law or in equity or in fact will at any time during the period commencing on the Termination Date and ending on the date that is three (3) years after the Termination Date, and within the Territory directly or indirectly and whether jointly with or on behalf of any person or in any capacity whatsoever and without limiting the generality of the foregoing, whether as principal, shareholder, joint venturer, partner, employee, independent contractor or agent carry on, operate, be engaged, occupied or employed in any business, firm, company or other entity which carries on any business (in whole or in part) that is the same as or similar to or in competition with the Business, other than holding an investment in not more than five percent (5.0%) of the shares on issue in a company listed on the Stock Exchange. 6.3 Not to Solicit Aaron further agrees that he will not (and will procure that any person or trustee of a trust over which he has control in law, or in equity or in fact will not) at any time during the period that commences on the Termination Date and ending on the date that is three (3) years after the Termination Date and whether as principal, employee, director, shareholder, partner, agent or in any other capacity either directly or indirectly: (a) induce or attempt to induce any person who is or has been within the 2 months preceding the Termination Date for whatever cause an employee of Holdings and/or Ecowize NZ, to leave his or her employment or to enter into employment or a contract to provide services of whatever nature with any other person, firm, company or organisation. (b) solicit or attempt to solicit any person who was a client of Holdings and/or Ecowize NZ during the period of 2 months ending on the Termination Date, to reduce their amount of business with Holdings and/or Ecowize NZ or to increase their amount of business with any competitor of Holdings and/or Ecowize NZ." 24 The claim based on clause 6.3 is, by the express terms of the plaintiffs' notice of motion, confined to clause 6.3(b). The expression "Territory" used in clause 6.2 is defined as the whole of Australia and New Zealand but there are later provisions (clause 6.4 and 6.5) imposing multiple restraints in the terms of clause 6.2 but with respect to numerous shorter periods and smaller areas. The combination least onerous for Mr Langley involves a period of six months in the State of New South Wales. The claim based on clause 6.2 must be understood as encompassing any of the progressively narrower versions made operative by those provisions. 25 The agreement does not identify the parties to which the promises in clause 6 are given by Mr Langley, although there is a statement in clause 6.1 of acknowledgment by him that the restrictions "are necessary to compensate and protect the goodwill and business interests of Holdings, Ecowize NZ and the Purchasers". Given that, of all the persons thus identified, Holdings alone makes claims in these proceedings, it must be the contention of Holdings that it is in a position to require compliance by Mr Langley with the stated restrictions as they apply to Australian activities and locations, even though it contracts as a purchaser from him of shares in a New Zealand company. 26 Another aspect of the share sale agreement must be mentioned. The price for the shares in Holdings sold by Mr Langley to the four purchasers thereof was $85,000. The agreement provided for the payment of $45,000 on completion on 13 May 2005. The balance of $40,000 became payable by three instalments at annual intervals. Provision was made for payment of an instalment of $10,000 on 12 May 2006, an instalment of $10,000 on 12 May 2007, and an instalment of $20,000 on 12 May 2008. Provision was also made for the balance of $40,000 to be held in a solicitor's controlled moneys account. It was provided that if Mr Langley "has failed to comply with the obligations imposed on him under Part 6 of this Agreement", the moneys held by the solicitor, together with the interest earned, should be paid to the purchasers of the shares. It may be assumed, therefore, that if the plaintiffs are successful in this case (and if they show that Mr Langley has breached one of the clause 6 stipulations), he will not receive the remaining $30,000 out of the price of $85,000. 27 Mr Langley became an employee of Holdings in 2001. He became its operations manager and was responsible for all client contracts. In August 2004, he became operations manager of the New Zealand business. His employment came to an end in May 2005 at the same time as he sold his shares in Holdings and ESHS under the agreement of 10 May 2005. In the course of his employment, he obtained information about clients or customers, including their names, the revenues they generated, the profitability of contracts with them and Holdings approaches to pricing contracts. He also got to know people within clients involved in awarding contracts. Mr Maibom's affidavit describes Mr Langley as "the most experienced and senior operations manager in the group". The facts I have just stated come from the evidence of Mr Maibom led by the plaintiffs, which is at this stage uncontested. 28 The promises given by Mr Langley are not, in terms, promises given by an employee to an employer with a view to protection of the employer's interest in the trade secrets or the connection built up by the employee with the employer's customers. The promises are, it appears, promises given to Holdings by a holder of a shareholding interest of some 5.5% in Holdings itself in connection with the sale of that shareholding interest. The shareholding interest to which I refer is that formerly held by Mr Langley in Holdings, the party which, having regard to the way the proceedings are constituted, regards itself as the recipient and beneficiary of the clause 6 promises. It is clear that the present proceedings do not involve any assertion by the New Zealand company that it is entitled to enforce the clause 6 promises in connection with the sale of Mr Langley's 14% beneficial shareholding in that company. I say that because the New Zealand company is a party to neither the agreement of 10 May 2005 nor these proceedings. It is true that Holdings was the purchaser of the 14% interest in the New Zealand company but it appears from Mr Maibom's affidavit that the activities of that company are confined to New Zealand, with the result that the clause 6 promises concerned solely with Mr Langley's activities in Australia (or parts of Australia) cannot be seen as related to the sale of the shares in the New Zealand company by Mr Langley to Holdings. 29 I therefore approach the clause 6 promises on the following basis: 1. Because Holdings is the only party to the agreement which is a plaintiff in these proceedings, Holdings asserts that it was the recipient and beneficiary of the clause 6 promises. 2. The subject matter of the agreement in which Holdings had such an interest as to cause it to wish to be the recipient and beneficiary of the clause 6 promises is the 5.5% shareholding in its own share capital sold by Mr Langley under the agreement. 3. Because the restraints relate to Mr Langley's activities in Australia only, the preoccupation of Holdings must be protection of the value of its own share capital. 4. If Mr Langley is, upon a final hearing, found to have breached the clause 6 promises, he will forfeit the $30,000 balance of purchase moneys, which balance will be returned to the buyers of his shares in Holdings. 5. Mr Langley's employment by Holdings came to an end when he sold his shares. 30 Leaving to one side the possible relevance of item 5 in this list, there is no serious question to be tried regarding the existence of any legitimate interest of Holdings warranting protection by means of the clause 6 promises upon which Holdings relies. A person holding 5.5% of a company's shares does not, by virtue of that position, have any ability to compromise the company's goodwill or to harm its interests simply by selling his shares. A submission to the contrary based on Artedomus (Aust) Pty Ltd v Del Casale [2006] NSWSC 146 cannot be accepted. That case, while involving a share sale agreement, concerned a situation where an individual vendor gave a restraint promise through that agreement in return for a so-called "redundancy payment". 31 There, as here, the person concerned was a senior employee and the sale of the shareholding was accompanied by cessation of employment. In such a case it may well be appropriate to have regard to the composite nature of the relationship and to view the restraint which, on paper, relates to the sale of shares as applying in reality to matters related to the employment, so that the giving of the restraint promises was intended to protect Holdings in composite circumstances where Mr Langley was severing his ties with Holdings, including his employment tie. I say "it may be appropriate" in order to indicate that I consider there to be a serious question to be tried on the issue whether that is, in this case, the correct approach to the clause 6 promises and their effect. 32 On the basis I have outlined, the clauses 6.2, 6.3(b), 6.4 and 6.5 promises would be approached as instruments for the protection of an employer against deleterious conduct of a former employee. The legitimate scope of the promises, therefore, is prevention of the disclosure of trade secrets and use of connections built up by the employee with customers. Exclusion of the promisor from competing activities per se goes beyond that scope. The promises may operate validly only to the extent that they make reasonable provision for the protection of the interests of the employer in relation to those matters. 33 The complaint against Mr Langley is that he has become an employee of the fourth defendant, Captive Services. The basis for such a finding appears at [17] and [18] above. The relevant part of clause 6.2 (and clauses 6.4 and 6.5) for present purposes is therefore that which forbids his being "engaged, occupied or employed in any business, firm, company or other entity which carries on any business (in whole or in part) that is the same as or similar to or in competition with the Business" (as defined in a way I shall mention in due course). It is, of course, quite possible for someone to be employed by a company that competes in business with another company (or conducts a business that is "the same" or "similar") without the person's thereby taking advantage of trade secrets or using customer conditions built up in the course of the employment. Someone who had worked as a salesman with one company could, without any conceivable form of harm to that company, work as a bookkeeper or handyman with a company engaged in the same or similar business. No legitimate interest of the former employer would thereby be invaded. 34 It is nevertheless well-recognised that a restraint upon working for a competitor may be a proper restraint directed towards legitimate protection of the former employer's confidential information. As Lord Denning observed in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, experience demonstrates that it is unsatisfactory merely to take a covenant against disclosing confidential information because it is difficult to draw the line between information that is confidential and information that is not, as well as difficult to prove breach when the information is in the employee's head. 35 It is also pertinent to quote the following passage from the judgment of Mason P in Woolworths Ltd v Olson [2004] NSWCA 372 (at [66] - [68]): "[66] At the trial it became common ground that the information sent by the respondent to his wife's computer was a valuable trade secret of the appellant. Without having to resort to the respondent's conduct as an admission, it is clear that it was the sort of information that a rival enterprise like Franklins might covet. (I am not implying that the evidence suggests any involvement by Franklins in the sending of the e-mails.) The particular information is merely an exemplar of the type of valuable trade secret that Woolworths would have had a legitimate interest to protect, to the knowledge of the respondent, at the inception of the Service Agreement.

[68] This restraint goes beyond a mere covenant against competition. It protects a legitimate interest of the appellant as acknowledged in cl 10(a)(ii) itself. The restraint does not prevent the respondent from earning a living, particularly in light of the provision for Restraint Payment and the capacity of s4(1) to ensure that public policy is not contravened by allowing cl 10 to have unreasonable ambit." 36 Accepting that a covenant not to work in a competing business may thus represent a legitimate restraint in support of the former employer's confidential information, it becomes necessary to consider whether, if Mr Langley is in truth working as a sales manager for the fourth defendant (or an associate) and has been doing so since March 2006, he may have breached any of the clause 6 promises upon which Holdings relies in its interlocutory application. There is no evidence of any particular act of solicitation or inducement relevant to clause 6.3(b). Rather, the plaintiffs seem to rely on clause 6.2 (and the variants, as to time and area, in clauses 6.4 and 6.5) and inferences to be drawn from any finding that Mr Langley holds (and is working in) the sales manager position to which I have referred. Mr Langley's holding (and working in) the sales manager position could be a breach of clause 6.2 (or a clause 6.4 and 6.5 variant) only if the business of his employer was "(in whole or in part) … the same as or similar to or in competition with he Business" - that is, the "Business" as defined by clause 1.1, being the business "of providing food hygiene services to the food and beverage industry, as well as any other business(es) that Holdings and/or Ecowize NZ may be engaged in as at the Termination Date", which is defined as 13 May 2005. 37 In relation to clause 6.2 and the variants under clauses 6.4 and 6.5, I have already said that it does not seem to be open on the evidence to find that the business of Captive Services (and its associates) is in competition with that of Ecowize. But even if the businesses were in competition - or if that of Captive Services and its associates was "the same as" or "similar to" the business of Holdings and ESHS - the restraints would be valid, as a means of protecting the former employer's confidential information, only if the area and duration of restraint were reasonable measures for securing that protection; and that is to be determined by reference to circumstances as they existed when the promises were given. 38 It can be said at once that a restraint operating throughout "the Territory" - that, the whole of Australia and New Zealand - goes beyond such reasonable protection. On the evidence, Holdings and ESHS had customers at various locations in Queensland and New South Wales (and perhaps Victoria), as well as in New Zealand, when the promises were given. That was Ecowize's sphere of operations and therefore represents the greatest area in respect of which it could legitimately expect to be protected from the effects of application of confidential information otherwise than for its purposes. 39 The significance of particular locations must also be judged in the light of Mr Langley's own activities with the Ecowize group. For the last nine months or so of his employment, he was based in New Zealand and worked as operations manager of EcowizeNZ. That indicates a predominant legitimate interest in the protection of the Ecowize group's goodwill in New Zealand. In the year before taking up his New Zealand position, Mr Langley was operations manager in Australia with responsibility for three customers, Rockdale Beef, Cardgill Wagga Wagga and Fletcher international, indicating activity in New South Wales, including southern New South Wales which may have extended into Victoria. There would thus be a similar, but more remote, interest in protecting Ecowize in those areas. 40 It is then necessary to look at the way in which the promises involving areas smaller than "the Territory" as a whole are constructed. Clauses 6.4 and 6.5 are in the following terms: " 6.4 Alternate Restraints Without prejudice to its effect apart from this clause 6.4, clause 6.2 also has effect as if: (a) the words 'three (3) years' were omitted and the words 'two (2) years' were substituted therefor; (b) the words 'three (3) years' were omitted and the words 'one (1) year' were substituted therefor; (c) the words 'three (3) years' were omitted and the words 'six (6) months' were substituted therefor; (d) the words 'the Territory' were omitted and the words 'Commonwealth of Australia' were substituted therefor; (e) the words 'the Territory' were omitted and the words 'New Zealand' were substituted therefor; (f) the words 'Commonwealth of Australia' were omitted and the words 'States of New South Wales, Victoria and Queensland were substituted therefor; (g) the words 'Commonwealth of Australia' were omitted and the words 'States of New South Wales and Victoria' were substituted therefor; (h) the words 'Commonwealth of Australia were omitted and the words 'State of New South Wales' were substituted therefor. 6.5 Order of Alternate Restraints It is intended that the primary restraint be that contained in clause 6.2 and that clause 6.4 will be applied only so far as is necessary to construct a valid restraint. The sub-paragraphs (a), (b), (c), (d), (e), (f), (g) and (h) of clause 6.4 are separate alternatives and will be applied in the following order or priority until a valid restraint is constructed: (1) the Territory and clause 6.4(a); (2) the Territory and clause 6.4(b); (3) the Territory and clause 6.4(c); (4) the Commonwealth of Australia and clause 6.4(a); (5) the Commonwealth of Australia and clause 6.4(b); (6) the Commonwealth of Australia and clause 6.4(c); (7) New Zealand and clause 6.4(a); (8) New Zealand and clause 6.4(b); ( 9) New Zealand and clause 6.4(c); (10) three (3) years and clause 6.4(f); (11) three (3) years and clause 6.4(g); (12) three (3) years and clause 6.4(h); (13) two (2) years and clause 6.4(f); (14) two (2) years and clause 6.4(g); (15) two (2) years and clause 6.4(h); (16) one (1) year and clause 6.4(f); (17) one (1) year and clause 6.4(g); (18) one (1) year and clause 6.4(h); (19) six (6) months and clause 6.4(f); (20) six (6) months and clause 6.4(g); and (21) six (6) months and clause 6.4(h)." 41 Clause 6.5 thus prescribes the way in which the alternatives referred to in clause 6.4 are to be approached. Clause 6.5 sets out the "order or priority" in which the alternatives are to be considered. The process of consideration ceases (by virtue of the word "until") when a "valid restraint is constructed". Once that point is reached, none of the possibilities lower on the scale may be regarded as available or operative. 42 Bearing in mind what I have said about the geographical coverage of the Ecowize business and the geographical aspects of Mr Langley's own activities, the process of descending consideration prescribed by clause 6.5 would cause each of possibilities (1) to (6) to be discarded on the basis that restraint throughout the whole of Australia and New Zealand went beyond the legitimate protection of Ecowize and that restraint through the whole of Australia was likewise too wide. Next, in order of geography, would come the whole of New Zealand. The evidence about Mr Langley's position as operations manager for the whole of New Zealand would support a finding that the legitimate protection of Ecowize's goodwill and confidential information warranted his exclusion from relevant activities in New Zealand. 43 On that basis, a "valid restraint" would be "constructed", in terms of clause 6.5, when one of items (7), (8) and (9) was reached - which one would depend on further assessment. But whether it was the restraint in (7), the restraint in (8) or the restraint in (9) that was a reasonable restraint, clause 6.5 would preclude a finding that any of the restraints in items (10) to (21) was contractually operative. This is because once a valid restraint is encountered in the application of the clause 6.5 "order or priority", it is that restraint that is operative and none of the later restraints in the "order or priority" arises for consideration. This, as I have said, is the force of the word "until". 44 Order (a), as now sought on an interlocutory basis (see [22] above), would forbid, pending trial, the described forms of involvement by Mr Langley in any entity "which carries on any business (in whole or in part) which is the same or similar to business carried on by the First Plaintiff or the Second Plaintiff". Because such an order would involve no territorial element (and would restrain the relevant activities throughout the world), it would not be based on any version of the contractual restraint and could not properly be made. The order would also forbid Mr Langley's "being employed by" - presumably working as an employee for - Captive Services in Australia, pending trial. Having regard to what I have said about the construction of clause 6.5, a restraint in those terms is not imposed by the contract, even if, contrary to the opinion I have expressed, the business of Captive Services is the same as or similar to that of Holdings or ESHS or in competition therewith. 45 Accordingly and bearing in mind the evidence about Mr Langley's sole activity for the Captive Group being confined to Tasmania (plus the absence of any evidence of solicitation or threatened or attempted solicitation of any person covered by clause 6.3(b)), I am not satisfied that there is, on the evidence as it stands, a serious question to be tried as to breach by Mr Langley of any of the negative stipulations on which the plaintiffs rely. 46 Even if there were a serious question to be tried, it would be highly relevant to the balance of convenience that, according to the evidence as it stands, Mr Langley did not engage in conduct of a clause 6.2 kind for a period of ten months after termination and that 18 months have now elapsed since termination. There has accordingly been an appreciable and meaningful opportunity for the plaintiffs to introduce new staff members into relevant customer connections and thereby to consolidate those connections for themselves, thus substantially dulling (and, quite possibly, eliminating altogether) the continuing capacity of Mr Langley to be successful in taking advantage of information obtained as a result of his employment. This suggests that the hardship to the plaintiffs, if an interlocutory injunction is refused, may be at a level which has been significantly reduced by the passage of time. 47 Also in relation to the balance of convenience, I do not lose sight of the fact that, if Mr Langley is ultimately found to have committed a relevant breach of contract, he stands to lose the unpaid instalments of the purchase price for his shares. By this mechanism, the parties to the agreement of 10 May 2005 can be seen to have agreed upon their own system of sanctions for breach. 48 A case for the grant of an interlocutory injunction against Mr Langley has not been made out on the evidence now before me. Mr Dunlop 49 The second defendant, Mr Dunlop, is a former employee of the second plaintiff, ESHS. He commenced employment in June 2004 as site manager for the Teys Bros meat processing plant in Rockhampton. On 1 July 2005, he became area manager covering Teys Bros plants at Rockhampton and Beenleigh. His employment by ESHS ended on 8 May 2006. Teys Bros acquired cleaning services for its Rockhampton abattoir from ESHS between about 5 July 2004 and 31 August 2006. 50 Mr Dunlop's employment contract contained a provision as follows, appearing after a statement that, in the course of his employment he would have access to ESHS's "clients, methods, know how and other information and material which comprise the goodwill of Ecowize and or associated companies": "Therefore, you now covenant with Ecowize, that in the 12 months after the term of your employment you will not engage in any activity, which in Ecowize's reasonable opinion, is significantly competitive with a commercial activity in which Ecowize is engaged or proposed to engage in at the time of your employment." 51 The document does not make clear the identity of "Ecowize" but, given that it appears in a contract between ESHS and Mr Dunlop, "Ecowize" seems to refer to ESHS. 52 The interlocutory injunctions claimed by ESHS against Mr Dunlop are an injunction against "further breaching" the restraint provision set out above and an injunction against "approaching, inducing, soliciting or attempting to approach, induce or solicit any person or entity who was a client of [ESHS] during the period of 12 months ending on 8 May 2006 to cease doing business with [ESHS] or reduce the amount of business which that person or entity would normally do with [ESHS] and in particular to solicitor [sic] custom from such clients of [ESHS] for or on behalf of [Captive Services Pty Ltd, the fourth defendant] in Australia". 53 The evidence led on behalf of the plaintiffs is that Mr Dunlop had access to certain information in relation to the two particular Teys Bros sites at Rockhampton and Beenleigh, including, it is said, "[t]he revenues received from clients" (presumably this means "client" and refers to the single client with which Mr Dunlop was involved), the profitability of contracts, minimum profit hurdle which ESHS required, the expiry dates of contracts and the administrative systems used by ESHS to manage the two sites. 54 The somewhat scanty evidence concerning the present activities of Mr Dunlop is referred to at [19] above. 55 The claims against Mr Dunlop can only be based on the contractual provision quoted at [50] above. That being so, the contract between the parties is not framed in terms such as to justify an order directed against solicitation of clients (see the description of the second injunction at [52] above). The contractual provision is directed wholly at involvement in competitive activity and, for reasons mentioned, will be valid only to the extent that it may properly be seen as a means of protecting the employer's confidential information. 56 In the present case, the restraint is without territorial limitation. That of itself is sufficient to warrant a conclusion that it is void. And if, as was submitted on behalf of the defendants, the question of the contract's force and effect is to be determined according to Queensland law, that will be the end of the matter as there is no Queensland equivalent of this State's Restraints of Trade Act 1976 If, on the other hand, the covenant is susceptible to being read down, its operation will be confined to the sphere to which Mr Dunlop was exposed during his employment which was centred on the two Teys Bros plants in Queensland. Having regard to the differences between the activities of the Ecowize group and those of Captive and its associates to which I have referred and, in particular, the fact that, on the evidence as it stands, the latter's only entry into the specialist field in which the former operates has been in Tasmania, I do not regard the plaintiffs as having made out an arguable case that protection of the plaintiffs' confidential information would support an order restraining Mr Dunlop's working for the fourth defendant. 57 I am not satisfied that there is a serious question to be tried regarding breach of any enforceable promise given by Mr Dunlop to ESHS.

Ecowize Holdings Pty Limited v Langley & Ors

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Cases Cited (3)

Cited By (1)