El Wazzi Group Pty Limited v Abdou Meate trading as Mobile Repair Hub

C. Background: default judgment on the statement of claim

1. The following facts are alleged in the statement of claim, either directly or indirectly, and can be presumed by reason of the default judgment.
2. El Wazzi Group sued four defendants: Abdou Meate, and three companies with which he was associated, namely, Accessories Kingdom (Australia) Pty Limited, The Fone Shop Liverpool Pty Limited and That Fone Shop Pty Limited, which I shall refer to as AKA, TFS Liverpool and TFS respectively.
3. Mr Meate was in 2015 engaged in a retail business involving the supply of mobile phone accessories and the repair of mobile phones at two shops in Westfield Shoppingtown Liverpool. One shop was managed and operated by AKA, the other by either or both of TFS Liverpool or TFS. Mr Meate told Mohammed El Wazzi, the director of El Wazzi Group, about his intention to sell the businesses at the two shops, whereupon Mr El Wazzi "registered the First Defendant" in order to purchase the two businesses from Mr Meate and AKA, TFS and TFS Liverpool. I might have inferred that the quoted reference to "First Defendant", being Mr Meate, was mistaken, and was intended to be a reference to the Plaintiff, El Wazzi Group, but for a later assertion in the pleading that in May 2016 the El Wazzi Group was registered. How Mr El Wazzi could "register" the first defendant, Mr Meate, or to what "First Defendant" in paragraph 9 of the statement of claim referred, was not explained by the evidence.
4. In late 2015, Mr El Wazzi agreed (apparently orally) with Mr Meate for Mr Meate to sell to El Wazzi Group "the two retail stores and the businesses conducted from them".
5. I infer that the reference to the two "retail stores" is a reference to taking over the leases at the two shops at Westfield Liverpool with the existing fit out.
6. The agreed purchase price was $200,000, and a written contract was prepared. El Wazzi Group and AKA "settled" a contract for the purchase of "the two retail stores and the businesses operated from them on 30 May 2016". On 31 May 2016 El Wazzi Group paid $180,000 consideration; the other $20,000 was met by forgiveness of a debt of $20,000 owed by Mr Meate to Mr El Wazzi. On that same day, El Wazzi Group commenced trading from the two stores under the names, That Fone Shop and Accessories Kingdom, engaging in the supply of mobile phone accessories and mobile phone repairs.
7. On 1 November 2016 El Wazzi Group registered the business name, "The Phone Project", and commenced trading under that name.

(a) The breach of restraint

1. Again, according to the statement of claim, the written contract operated to restrain Mr Meate from "trading in competition" with El Wazzi Group for three years from "the date of the contract". I infer that this date was 30 May 2016, which is the date recorded on the contract tendered in the damages trial. El Wazzi Group submitted that the contract was unsigned, but the execution clause at the conclusion of the Special Conditions [1] is signed by Mr Meate personally, and by him as sole director of AKA.
2. At the time of filing the statement of claim, El Wazzi Group conducted its business from three locations: the two shops indicated earlier at Westfield Liverpool and one further location. The two shops are leased from Westfield Liverpool by El Wazzi Group, having been "acquired…pursuant" to the written contract dated 30 May 2016. The further location is a retail store operated by El Wazzi Group in Westfield Liverpool known as shop 191 or "The Phone Project Store".
3. The statement of claim asserts that pursuant to the contract between El Wazzi Group and Mr Meate "and" AKA, Mr Meate and AKA were restrained from trading in competition with the plaintiff for three years. The explanation for this inconsistency between the contractual parties - being Mr El Wazzi and Mr Meate in the initial agreement, El Wazzi Group and AKA in paragraph 13 of the statement of claim and in the written contract, and El Wazzi Group, Mr Meate and AKA in paragraph 26 of the statement of claim - may be found in Mr Meate being defined as the "Key Person" in the written contract, and in him executing it.
4. Clause 47 in the Special Conditions of the written contract stated: "47. RESTRAINTS The Key Person referred to in clause 32 acknowledge unless employed by the Purchaser the restrictions agreed to the [sic] Key Persons by their execution of this Contract is for the period of Three (3) years from the Completion Date within the areas set out in the Deed of Restraint annexed to the Agreement. They Key Persons agree to execute a Deed in the form of the Annexure 'D' hereto to give effect to the restrictions herein imposed upon the Key Persons. This condition will not merge on completion." [2]
5. As indicated, both the "Key Person", namely Mr Meate, and El Wazzi Group executed the contract. An unsigned form of deed was annexed to the written contract.
6. In May 2017 Mr Meate commenced operating a mobile phone accessories and repair business within Westfield Liverpool, under the business name Mobile Repair Hub, registered 25 May 2017.
7. The statement of claim asserts a reduction in customers and income as a direct result of Mr Meate's breach and seeks, in paragraph 34, damages for the period May 2017 to the present, asserted to be in excess of $100,000, or, in paragraph 28, apparently inconsistently, damages from September 2017 to the present time when Mr Meate was "setting up in trade against me".

(b) Monies had and received

1. The statement of claim also includes a claim for monies had and received. In December 2016 El Wazzi Group agreed with Mr Meate for Mr Meate to be agent to negotiate a lease of the third shop, shop 191, at Westfield Liverpool. It was a term that El Wazzi Group "would pay [Mr Meate] a reasonable fee for the negotiation" of this lease. Mr Meate negotiated a lease of shop 191 for El Wazzi Group, and El Wazzi Group entered the lease. El Wazzi Group moved into shop 191.
2. Usually Westfield provides a fit-out contribution. Mr Meate denied any was payable when El Wazzi Group asked. But a fit-out contribution was paid to Mr Meate for shop 191, in the sum of $66,000.
3. Contrary to the assertion that El Wazzi Group "entered into the lease", the statement of claim then asserts that Mr Meate "was never given permission to acquire the lease…in the name of" AKA (implicitly asserting that Mr Meate did so), or to receive any benefit under the lease (presumably apart from the "reasonable fee").
4. Mr Meate directed "the lessor", Westfield (but perhaps this is an error and should be read as the lessee, AKA), to pay the $66,000 fit-out contribution to Westfield for outstanding lease payments owed by Mr Meate to Westfield, without El Wazzi Group's knowledge and consent, and El Wazzi Group seeks that sum.

D. Notice to the defendants

1. Proof of notice of the assessment hearing comprised a notice given by the Court on 23 September 2019 of the assessment hearing on 17 October 2019 and subsequently, and by the assertion of counsel that service of notice of the hearing on 25 October 2019 had occurred at 5pm on 24 October 2019, somewhat later than the 12 noon that had been ordered. The defendants are entitled to notice. [3] Although service of the notice was not in accordance with the orders, I am satisfied on the balance of probabilities that notice, if not knowledge, of the proceedings was given to the defendants.

E. Validity of the restraint clause

1. A contract by which a party promises to restrict their liberty to trade with persons who are not parties to the contract is a restraint of trade. [4] A restraint of trade is presumed at common law to be void. [5] If the restraint is void, the breach of it cannot sound in damages. The presumption can be displaced if the restraint is reasonably necessary for the protection of the parties and reasonable in the interests of the public. [6]
2. It might be doubted whether the existence of a default judgment requires the Court to presume that the restraint is valid. Validity is not pleaded, and rr 14.10 and 14.11 of the Uniform Civil Procedure Rules 2005 cannot assist the Court to presume the validity of a restraint that ordinarily is contrary to public policy and void. This indicates that validity must be established to prove that damages flow from the breach of the restraint. [7]
3. Section 4 of the Restraints of Trade Act 1976 (NSW) provides that a "restraint of trade is valid to the extent to which it is not against public policy". The application of s 4(1) requires the Court to determine if the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed, and then determine whether the restraint in its application to the breach is contrary to public policy. [8] If the restraint as it applies to the breach is not contrary to public policy, it is valid. [9] The power granted under s 4(3) for a restraint to be declared altogether invalid because of "a manifest failure" to "attempt to make the restraint a reasonable restraint" has no application here, both because that requires an "application by a person subject to the restraint" and that application must be made in the Supreme Court, neither of which has occurred.
4. Adopting this approach, does the alleged breach fall within the terms of the restraint? The pleading asserts that the restraint "was written so as to restrict Mr Meate from trading in competition" [10] with the El Wazzi Group. This may be the effect of the restraint but it leaves the specific wording of the restraint unspecified. The wording of the restraint is central to determining its validity.
5. To this end, the written contract was tendered by El Wazzi Group. The restraint clause refers to "restrictions agreed to" by Mr Meate by his "execution of this contract" and an agreement by him to execute an annexed deed to give effect to it.
6. There is some tension between the first two sentences in cl 47 of the contract quoted earlier.
7. By itself, the first sentence (in a context where both Mr Meate and AKA have executed the contract) seems to be enough to bind Mr Meate and AKA to the terms of the unexecuted but annexed Deed. Yet, the second sentence indicates execution of the Deed is necessary "to give effect to the restrictions", and the Deed has not been executed.
8. Because of the default judgment establishing the existence of a restraint, and because of the terms of the first sentence of cl 47, I propose to proceed on the basis that the default judgment requires me to assess the damages for the three-year period resulting from Mr Meate being concerned in business in Westfield Liverpool, if such a restraint is valid.
9. The unexecuted form of deed attached to the contract purports to bind Mr Meate and AKA. If valid it would restrain them: 1. from together owning more than 5% of the shares of a publicly listed company that engages in telephone accessory retailing; [11] 2. from being engaged in or concerned directly or indirectly in a business of a similar general nature in Liverpool (postcode 2170) for three years; [12] 3. from soliciting, canvassing or endeavouring to obtain as customers those who have been customers of the Business at any time in the past three years; [13] and 4. from enticing employees to leave the business. [14]
10. Both by the pleading and in submissions (though not by reference to the terms of the unexecuted Deed), El Wazzi Group asserted that the restraint would restrain Mr Meate and AKA from operating stores in Westfield Liverpool Shoppingtown. Thus, no reliance was placed upon items (a), (c) or (d), listed above, of the restraint in the unexecuted Deed. Item (b) above (Schedule 1 of the unexecuted Deed) has application to the restraint alleged, that Mr Meate and AKA would not compete in a similar telephone accessories retailing business. This restraint was confined in submissions to a limited area of Liverpool, namely the Westfield Liverpool shopping mall where the stores operated.
11. Thus, the alleged breach, competing with a similar business in the Westfield Liverpool shopping centre in a three-year period, does infringe the terms of item (b) above, being the restraint in Schedule 1 of the contract.
12. Turning to the second aspect of s 4(1) of the Restraints of Trade Act, will the restraint in its application to this breach be contrary to public policy? This is a question of reasonableness: is the restraint (in its application to the breach) reasonably necessary to protect the contractual parties and reasonable in the interests of the public. [15]
13. The restricted geographical area of Westfield Liverpool might seem to be reasonably necessary to protect the parties and reasonable in the public interest, and thus a valid restraint under the Restraints of Trade Act. Yet there was no evidence to assist in the determination of this question. The restraint would be reasonable if necessary to protect the goodwill of the businesses purchased by El Wazzi Group, but perhaps not so if it merely operated to stop Mr Meate from trading. The geographical proximity of the area of restraint to the location of the purchased businesses provides some support for validity.
14. The restraint is pleaded to operate for three years from the date of the contract. Again this might appear to be reasonably necessary and reasonable in the public interest, but without evidence it is difficult to assess for this type of business whether a three-year period of restraint within Westfield Liverpool is reasonable to protect the goodwill purchased, and does not merely prevent Mr Meate from trading.
15. For the purpose of assessing damages, I shall proceed on the basis that validity is established.

F. Period of breach

1. The pleading asserts that the breach commenced in May 2017 [16] (perhaps no earlier than 25 May when Mr Meate's business name was registered) [17] or September 2017 [18] and continues to "the present time". The pleading was filed in June 2019, but since a three-year restraint period would end in May 2019, the relevant period to assess damages is the period from late May 2017, or from September 2017, to 30 May 2019.

G. Evidence and assessment of loss

1. The sole evidence of loss is an affidavit by an accountant which annexes the financial statements for the financial years 2017, 2018 and 2019. There is no evidence from any person connected with the El Wazzi Group as to the effect of another similar business, or a competitor, in the shopping centre, or of the diminution in the trade of the El Wazzi Group from any particular day. Nor is there evidence to establish that wider economic conditions, local Westfield Liverpool trade, or conditions affecting mobile phone accessories shops generally, played no role in any change in the turnover or profits of the businesses. There is no evidence of the extent of customer connection or personal contact with Mr Meate. [19]
2. The absence of this evidence harms the case of the El Wazzi Group. No explanation for the absence of this evidence is given. Since the El Wazzi Group must establish causation and damages, I am not inclined to infer facts in its favour from an absence of evidence. [20] Rather, an available inference based on Jones v Dunkel [21] is that evidence not called would not have assisted the El Wazzi Group. Whether I draw an adverse Jones v Dunkel inference or not, still I would not be disposed to draw an inference in favour of the El Wazzi Group that all decline in trade was due to Mr Meate's business, without some evidence that would support such an inference.
3. Mr Todd Zani, a chartered accountant located in Perth (some significant distance from Westfield Liverpool), gave evidence in an affidavit dated 30 October 2019. That affidavit replaced an earlier affidavit dated 23 October 2019 that contained errors. The affidavit did not assert an agreement to be bound by the Expert Witness Code of Conduct, but on the final day of hearing, 31 October 2019, Mr Zani gave oral evidence by telephone to that effect. Mr Zani was the accountant and tax agent for the El Wazzi Group though gave no evidence of the period during which he had filled that role. There was no evidence that the later affidavit was served on Mr Meate, and of course Mr Meate had no notice of the oral evidence.
4. The substance of Mr Zani's evidence is contained in the financial statements. The following observations can be made about those statements.
5. The statements are for "TFS HQ Liverpool Pty Ltd". The connection between this company and the El Wazzi Group is that parts of the financial statements are specifically concerned with the "TFS HQ Liverpool Shops" which are said to be "the shops acquired from the defendant". I am prepared to conclude that the accountant is able to say what part of the business of the El Wazzi Group is reflected by a particular statement and so I accept on the balance of probabilities that the "TFS HQ Liverpool Shops" accounts pertain to the particular shops purchased by the El Wazzi Group.
6. Those "TFS HQ Liverpool Shops" accounts do not include the third shop of the El Wazzi Group, shop 191 or the Phone Project Store, which also operates at Westfield Liverpool. The possibility that another similar business and shop, owned by the El Wazzi Group, operating in Westfield Liverpool, could cause a decline in revenue at the two existing stores purchased from Mr Meate is obvious and appears not to have been considered in any evidence or submission. That business (without evidence of its size, location or marketing) might seem to be as likely to take sales from the two stores the subject of the TFS HQ Liverpool Shops accounts as any other similar store in Westfield Liverpool such as that operated by Mr Meate. The impact of the Phone Project Store plainly cannot be attributed to some breach by Mr Meate. Whether there are other such stores, not owned by any of the parties in the proceedings, that operated at Liverpool Westfield was not a matter dealt with in the evidence.
7. The Phone Project Store had sales increasing from $131,626 in 2017 to $239,260 in 2019 and increased profits over the same period from $31,937 in 2017 to $95,730 in 2019. The TFS HQ Liverpool Shops are shown to have decreased turnover from $701,341 in 2017 to $614,709 in 2019 with gross profits from trading decreasing from $476,729 in 2017 to $401,403 in 2019.
8. Adding the figures for the three stores shows a very modest decline in the El Wazzi Group's operations at the shops in Westfield Liverpool from the 2017 year to the 2019 year, from $508,666 to $497,133, a little over $11,000.
9. A larger decline occurred in net profit. That appeared to be due to significant rent increases in the centre, legal fees in 2019, and increased telephone expenditure, bank charges, insurance and other matters which cannot be attributed to Mr Meate.
10. It might be doubted whether it is appropriate to consider the sales or gross profit of the three stores of the El Wazzi Group, or only two. But I have no evidence to guide that determination.
11. There is no evidence that any diminished revenue or profit is attributable to Mr Meate rather than the other possibilities I have mentioned: wider economic conditions, local Westfield Liverpool conditions, the mobile phone accessories market, the presence of the Phone Project Store, the pleaded change of trading name to "The Phone Project" (presumably in all three shops); the possible presence of other such stores in the centre, or other reasons that I have not mentioned.
12. I cannot conclude without evidence that the presence of another mobile phone retailing shop of Mr Meate at Westfield Liverpool, retailing the same equipment, necessarily operates to diminish the business or profitability of the El Wazzi Group businesses. Perhaps it is located close to the El Wazzi Group stores, or perhaps it is located a distance away at the other end of the shopping centre. Mr Meate's store may be large, or small, significant or not. Sometimes a similar store adversely affects trade. On other occasions a collection of stores of a particular specialty might draw people to that shopping centre. These are matters for evidence but the El Wazzi Group has decided not to provide it.
13. Another difficulty with the evidence is that the 2018 and 2019 years do not correspond with the period of the breach. The pleading leaves unclear whether June, July, August and September 2017 were within the period of the breach yet the first of those months' sales are included in the control period of 2017, and the last three months are in the 2018 accounts. For this reason, it is inappropriate to treat 2017 as a period without the presence of Mr Meate's store, and 2018 as a period when Mr Meate was in business in Westfield Liverpool. Without evidence I do not think I should disregard this discrepancy between the period of breach and the period of the financial figures, especially in a circumstance where the loss might be very modest.
14. It has been said that "In the context of restraints of trade, damages are rarely a sufficient remedy… [and it] would be very difficult to prove and quantify the damage that may be suffered". [22] That difficulty is only exacerbated by the absence of evidence.
15. Bearing all these matters in mind, in particular the lack of evidence of the impact of Mr Meate's shop, of the impact of the extra shop of El Wazzi Group, the change of trading name, and the lack of correspondence between the financial figures and the particular period for which Mr Meate might be liable, I am not comfortably persuaded that there was any loss occasioned by Mr Meate's trade even if the restraint (in the limited operation claimed) was established to be valid.
16. In the absence of proof of loss, only nominal damages should be awarded, and I would award $100. [23]

H. Registrar's order and monies had and received

1. The other component of the alleged damages was for money had and received, in the amount of $66,000. This was properly a liquidated claim. The application filed sought "Default Judgment for Liquidated Damages". The decision of the Registrar to award default judgment with damages to be assessed (but not to award judgment for any liquidated sum) leaves open the conclusion that the Registrar was unpersuaded of the money had and received claim. This hearing for damages to be assessed is not an appeal from the decision of the Registrar.
2. The statement of claim asserts that "a fit out contribution had in fact been paid to the First Defendant pursuant to the lease of the third shop, shop 191, that the First Defendant had negotiated on behalf of the Plaintiff" and "[t]he sum of the fit out contribution paid to the First Defendant from the Lessor was $66,000.00". [24] These assertions might support the money had and received claim for the sum of $66,000. However, other facts asserted in the statement of claim complicate this conclusion.
3. First, Mr Meate opened another store for which he may have received a fit out contribution. The store was at 2098 Elizabeth Drive, Liverpool, part of Westfield Liverpool. [25] This may be answered by the allegation in the statement of claim that "a" fit out contribution was paid "pursuant to the lease of the third shop, shop 191", although it is not clear. [26]
4. Secondly, the $66,000 was not asserted to be payable under any lease to the El Wazzi Group. Apparently the El Wazzi Group holds no lease of shop 191. Rather, the statement of claim seems to allege that Mr Meate (apparently wrongfully) acquired the lease from Westfield of shop 191 in the name of his company, Accessories Kingdom. [27] Accepting the allegations in the statement of claim, it appears that Westfield paid Accessories Kingdom the fit out contribution as the lessee, in accordance with the lease. [28]
5. If this is so, El Wazzi Group may have lost the $66,000 or some other amount of fit out contribution and may also have suffered the damage of being denied the security of the lease of shop 191, apparently because of a breach of some agency contract by Mr Meate. The claim is not framed in this way.
6. On the other hand, if El Wazzi Group is not the lessee of shop 191, then it may be absolved from obligations to pay rent. It is not clear that the El Wazzi Group has a lease of shop 191, [29] although the accounts indicate that the rent or some of it is paid for the "Phone Project Shop". Perhaps the $66,000 was used to pay lease payments owed by Mr Meate to Westfield in respect of shop 191, [30] which El Wazzi Group has continued to occupy.
7. I also must take into account as the pleading asserts that Mr Meate was entitled to a reasonable fee for a negotiation of the lease. [31]
8. I am not persuaded that I should order a liquidated sum for money had and received in circumstances where an application was made for a liquidated sum, it was not ordered by the Registrar, and there is no appeal made from the Registrar's decision.
9. I am also not persuaded that damages should be awarded on this claim because El Wazzi Group does not allege damages for breach of contract in respect of the unpaid fit out contribution, and because I remain unpersuaded that any damages have been incurred by El Wazzi Group in not being paid a fit out contribution in respect of premises it might not have leased, in excess of the reasonable fee (not evidenced as to any amount) accepted to be payable by El Wazzi Group to Mr Meate.
10. It follows that the plaintiff is entitled only to a nominal amount of damages on the assessment. The operation of r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 and the absence of any of the defendants from the proceedings may impact on the finality of this decision, but that is not a reason for a judgment not to be given.

I. Costs

1. Rule 42.35 of the Uniform Civil Procedure Rules 2005 operates ordinarily to deny a plaintiff costs in cases where the judgment is small. The nominal damages of this judgment are another reason for the ordinary rule to apply. I would not make any order for costs.
2. In the event that the El Wazzi Group was entitled to costs, I would not award costs of and incidental to the appearances on 17, 21 and 25 October 2019, which were wasted hearing dates due to the El Wazzi Group not being ready for the hearing.

J. Orders

1. The orders of the Court are: 1. Judgment for the plaintiff against the first and second defendants in the sum of $100. 2. Proceedings otherwise dismissed. 3. No order as to costs.

Endnotes

1. Page 11 of 12.
2. Exhibit B, p 10 of 12 of Special Conditions.
3. UCPR 30.1 and Ritchie's Uniform Civil Procedure NSW at [30.1.5].
4. Petrofina (Gt. Britain) Ltd v Martin (1966) 1 Ch 146, 180.
5. Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535, 565.
6. Isaac v Dargan Financial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) [2018] NSWCA 163 at [59].
7. Cf Sneddon v State of New South Wales [2012] NSWCA 351 at [93].
8. Orton v Melman [1981] 1 NSWLR 583, 587.
9. Isaac at [61].
10. See statement of claim ("SOC") at [19].
11. See cl 3.3 and 1.1.
12. Schedule 1.
13. Schedule 2.
14. Schedule 3.
15. Isaacs at [59].
16. See [27].
17. See [29].
18. See [28].
19. See Heydon, J D, The restraint of trade doctrine (LexisNexis Butterworths, 4th, 2018) at p 224.
20. See e.g. Rail Corporation New South Wales v Donald; Staff Innovations Pty Ltd t/as Bamford Family Trust [2018] NSWCA 82 at [76]-[77].
21. (1959) 101 CLR 298.
22. John Fairfax Publications Pty Limited v Birt & 6 ors [2006] NSWSC 995 at [45].
23. Cf State of New South Wales v Stevens [2012] NSWCA 415 at [37].
24. SOC [45], [46].
25. See SOC [27], [29]-[31],
26. Cf SOC [27], [45] and [46].
27. SOC [47].
28. SOC [47]-[50].
29. Cf SOC [40] and [47].
30. See SOC [49].
31. SOC [38]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 November 2021