Electroboard Administration v O'Brien

Appellant: D J Hammerschlag COUNSEL : Respondent 1: D A Smallbone Respondent 2: D Ryan /C Champion Appellant: Gilbert Tobin, Sydney SOLICITORS : Respondent 1:Jennifer Darin, Chatswood Respondent 2:Middletons Moore & Bevins, Sydney CATCHWORDS : Contract of employment; Employing company part of company group; Restraint of trade; Breach of contract; Company party to contract not employing company Restraints of Trade Act,1976(NSW) ACTS CITED : Contracts Review Act,1980(NSW) The Lord Cairns Act Supreme Court Act,1970(NSW) DECISION : Appeal dismissed

IN THE SUPREME COURT OF NEW SOUTH WALES SYDNEY REGISTRY COURT OF APPEAL ED No. 1416 of 1998 CA No. 40185 of 1998

10 DECEMBER 1999 ELECTROBOARD ADMINISTRATION PTY LIMITED AND ANOR V SHEILA O'BRIEN AND SONY LIMITED

CONTRACT OF EMPLOYMENT-EMPLOYING COMPANY PART OF COMPANY GROUP-RESTRAINT OF TRADE-BREACH OF CONTRACT-COMPANY PARTY TO CONTRACT NOT EMPLOYING COMPANY

Facts: Electroboard was a company group consisting of four members. Mrs O'Brien was employed by Electroboard Pty Limited, although all the administrative details pertaining to her employment were dealt with by Electroboard Administration Pty Limited. After some time with the former company she was asked to sign a restraint of trade document. She initially refused to do so, but succumbed to a significant amount of pressure, and so eventually signed. Ms O'Brien then left Electroboard and went to work for Sony Limited. Electroboard Pty Limited and Electroboard Administration Pty Limited brought action against Mrs O'Brien and Sony Limited in order to enforce the covenant in restraint of trade. This was unsuccessful, the trial judge holding no breach had occurred as the new term was not supported by any consideration. The two Electroboard companies appealed against this decision.

Held: per Meagher JA (Mason P and Priestley JA agreeing) The trial judge erred in finding there was no consideration. On the evidence there had been a significant amount of pressure on Mrs O'Brien to sign the new agreement. The trial judge accepted that Mrs O'Brien signed because she felt her position was in jeopardy. Hence there was a benefit flowing to the employing company in her signing the document, just as there was a benefit flowing to Mrs O'Brien by retaining her employment position. However there was no breach of contract. Mrs O'Brien signed a document that had been printed on letterhead signifying an agreement with Electroboard Administration Pty Limited. This company carried on the business of engaging personnel. Mrs O'Brien was employed by Electroboard Pty Limited, an electrical sales and distribution company. In moving to Sony Limited therefore, Mrs O'Brien committed no breach of contract with the administration company. ORDERS

1. Appeal Dismissed
2. No order as to costs.

• 1 - THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

FRIDAY 10 DECEMBER 1999 ELECTROBOARD ADMINISTRATION PTY LIMITED AND ANOR v SHEILA O'BRIEN AND SONY LIMITED JUDGMENT

1 MASON P: I agree with Meagher JA. 2 PRIESTLEY JA: I agree with Meagher JA. 3 MEAGHER JA: This is an appeal by two unsuccessful parties in litigation before Cohen J , where judgement displeased them. They (or to be more precise, each of them) sought to enforce a covenant in restraint of trade against the first respondent, Mrs O'Brien and consequentially … against the second respondent, Sony Australia Limited, for its action in procuring the first respondent to commit a breach of contract. 4 It is first necessary to differentiate between the various entities in the Electroboard "group" of companies. This is an easy task, because it is all set out in an affidavit of a Mr Warren Bolton of 26 February 1998, which says:

"1.My company's structure consists of the following different company entities of

a) Electroboard Services Pty Ltd is a finance company used to finance products to clients and to hire training rooms to clients of Electroboard Pty Ltd. b)Electroboard Pty Ltd which distributes and sells products. Electroboard Administration Pty Ltd is solely a consultancy company providing personnel to Electroboard Pty Ltd and Electroboard Services Pty Ltd and Electroboard Import Pty Ltd d) Electroboard Import Pty Ltd which solely imports goods from overseas."

5 Each company has an issued share capital of $2. The shareholders and directors of each company are Mr and Mrs Bolton. It follows that no company was a "subsidiary" of any other company, and that each company was a "related company" of each other company. This initially was not challenged by either of the respondents. 6 Mrs O'Brien was engaged by one (or perhaps more than one) of these companies. Her letter of appointment emanated from Electroboard Administration Pty Limited, the first appellant; but the work which she did was selling and distributing "products". This seems to have been the business of the second appellant, Electroboard Pty Ltd. The "products" were liquid crystal display projectors and video conference equipment. These were sold and distributed in all states, and the business was a flourishing one. 7 Mrs O'Brien commenced employment with the first plaintiff on 30 October 1995 as a sales representative. She was obviously successful and in March 19996 she was promoted to account manager. On each occasion she received a letter of appointment on the letterhead of Electroboard Administration Pty Limited. The letter in each case set out details of her duties, remuneration and other matters relating to the conditions of her employment. In each of the letters there was a paragraph dealing with confidentiality in which it was said in effect that the employee must not discuss or disclose any confidential information during the period of employment and must give to Electroboard any confidential material which might be obtained. The letters in each case were signed by Mrs O'Brien. 8 On 23 January 1997 she was asked to sign a letter which would add an additional term to her contract. That, insofar as it is relevant is in the following form: "Addendum to letter of Offer Restraint of Practise . During your employment or for three months after termination of your employment for any reason or by any means whatsoever you shall not without written authority of the Directors: a)undertake to carry on alone, in partnership nor be employed or interested directly or indirectly in any capacity whatsoever in a business of the same kind or similar to the business carried on by ELECTROBOARD or its subsidiaries during your employ, immediately prior to the termination of your employment, and for three months following your termination."

She continued working without signing any document, apparently for the whole of 1997, and under mounting pressure from the applicants to sign a document signifying acceptance of this new term. 9 Eventually she capitulated and signed. There were different versions of the conduct of various sellers employees towards Mrs O'Brien, and of their conversations with her. His Honour's conclusion was "It is clear that Mrs O'Brien only signed because she was concerned that she might lose her employment". 10 She later went into the employment of the second respondent, which also sells crystal display projectors and video conference equipment. This according to the appellants, constitutes a clear breach of the terms of the restraint of trade agreement. They lost before Cohen J because his Honour held that the new term was not supported by any consideration. In my view the appellants are correct in submitting that his Honour fell into error. On his Honours own finding the appellants said to Mrs O'Brien "We shall dismiss you if you don't sign", or alternatively "We shall not dismiss you if you do sign", I cannot see how such an agreement lacks consideration: this is a benefit to the employers in obtaining the signature, and a benefit to the employee in diverting the prospect of imminent dismissal. 11 However, I cannot see any breach. She agreed "not to carry on……or be employed by… a business of the same kind or similar to the business carried on by ELECTROBOARD or its subsidiaries". 12 The company referred to as "ELECTROBOARD" is, of course, the first appellant, on whose letterhead the new form appeared. Has the first respondent, Mrs O'Brien, carried on, directly or indirectly, the business of the first appellant? No, its business is that of engaging personnel; Mrs O'Brien in her new job does not, it would appear, engage personnel. Has she carried on the business of any "subsidiary"? No, because there are no subsidiaries. There's no promise not to compete with related companies. There is no promise not to sell a third party's "products" being display projectors or video conference equipment. 13 For these engagingly simple reasons, I would dismiss the appeal. 14 Since my reasons differ from his Honour's, and since his Honour did, in my view, err think there should be no order as to costs. ********

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