Firstnamed Plaintiff Secondnamed Plaintiff Thirdnamed Plaintiff v Firstnamed Defendant Secondnamed Defendant Thirdnamed Defendant Fourthnamed Defendant

2 The plaintiffs and other associated companies within the BDO Group carry on an accountancy and advisory professional business in Victoria, New South Wales and the Australian Capital Territory, specialising in audit and advisory, tax and private clients and advisory and insolvency.

3 The first defendant, Wayne Houlyon Ngo ("Ngo"), and the third defendant, Damien James Beechey ("Beechey"), are directors of BDO (NSW-VIC) Pty Ltd,[1] and are based in the Melbourne office of the BDO Group. Both Ngo and Beechey are presently attending for work at this Melbourne office, or were when this application was heard.

4 The plaintiffs seek interlocutory injunctive relief against the defendants Ngo and Beechey in the terms set forth in the plaintiffs' summons, which was dated and filed on 31 March 2010, until the hearing and determination of the matter.

5 The plaintiffs brought their application because Ngo advised of his intention to leave as a Director in the BDO Group on 16 May 2010 and Beechey advised an intention to leave as a Director in the BDO Group on 4 June 2010. Each intends to work for a firm which the plaintiffs say is a direct competitor, "Daniel Allison & Associates", a firm established by a former BDO Group Director, Daniel Allison ("Allison"). Both Ngo and Beechey refused to provide undertakings to the plaintiffs confirming their respective willingness to abide by various restraint covenants contained in a sale agreement, a unitholders deed and an employment agreement.

6 The first of these agreements is a "Share and Unit Sale Agreement" dated 21 September 2007, which was entered into between various named individuals, who were described as "Related Principals" and also various named individuals, who were described as "Seller Unitholders" and BDO Kendalls Group (Vic) Pty Ltd as trustee of the BDO Kendalls Group (Vic) Unit Trust as seller and BDO Kendalls Group (Investments) Pty Ltd as buyer ("the Sale Agreement"). The individuals described as "Related Principals" included both Ngo and Beechey.

7 The second of these agreements is the agreement styled "Unitholders Deed" dated 20 November 2007 between various named "Unitholders" and various named individuals as "Related Principals" and BDO Kendalls Group Pty Ltd as trustee of the BDO Kendalls Holding Unit Trust as owner, and various other parties ("the Unitholders Deed"). Both Beechey and Ngo were, as individuals, named as "Related Principals" and were thereby named as parties, together with their family trust companies, which were named as Unitholders. These companies are WHN (ODB) Nominees Pty Ltd as trustee for the WHN (ODB) Family Trust, which is apparently a reference to the Ngo family, and DJB (ODB) Nominees Pty Ltd as trustee for the DJB (ODB) Family Trust, which is apparently trustee for the Beechey family. Both these companies are defendants in the present proceedings, being the second defendant and the fourth defendant, respectively.

8 The reference to the Employment Agreement is a reference to two such agreements entered into between BDO Kendalls (NSW-VIC) Pty Ltd, as employer, and Ngo and Beechey as "The Director", in two separate agreements, both dated 1 July 2008. As it has not been suggested that there is any difference in terms between these agreements, it is convenient to refer to both as "the Employment Agreement".

9 Each of the Sale Agreement, the Unitholders Deed and the Employment Agreement contain various restraint covenants which, broadly speaking, purport to prevent individuals such as Ngo and Beechey from working for an entity or person other than one within the BDO Group, competing with an entity or person within the BDO Group or canvassing, inducing, encouraging or enticing the custom of any client of an entity or person in the BDO Group without prior consent.

10 The plaintiffs' position is that the present application is made seeking to maintain the status quo while the Court considers the dispute between the parties, which is scheduled for trial commencing on 19 July 2010. In so doing, the plaintiffs say that it is their objective to ensure that the defendants, Ngo and Beechey, do not work for any person or entity other than a member of the BDO Group, that they do not compete with any person or entity in the BDO Group and do not deal with clients of any person or entity within the BDO Group until the validity of the contractual restraints in the Sale Agreement, the Unitholders Deed and the Employment Agreement has been determined. In the meantime, the plaintiffs have offered to pay the defendants their normal remuneration, including entitlements to profit distributions, to give them professional work if they so choose and not to sue either of them for damages for breach of duty if they do not attend for work in the period from 16 May 2010 (in the case of Ngo) or from 4 June 2010 (in the case of Beechey) until the hearing and determination of the proceeding.

11 The fact that a trial of all matters in dispute is due to commence within approximately two months of the date upon which the application for interlocutory injunctive relief was heard is a significant consideration in the context of the present application. Otherwise there may have been an argument mounted successfully by the defendants that the practical effect of the granting of interlocutory injunctive relief would be to put an end to the proceeding as the plaintiffs would thereby obtain all they seek. In these circumstances it would be necessary to investigate the strength of the plaintiffs' case more fully than might otherwise have been required.[2] Having regard to this position, it is also appropriate that the Court assume that any conflicts between the evidence of the parties should be resolved in favour of the plaintiffs for the purpose of this interlocutory application, insofar as it goes to establishing whether or not there is a serious question to be tried.[3] It follows that the views expressed in this judgment are directed to issues raised in this application and may not be maintained as a result of the trial of all matters in dispute in this or any related proceeding.**

P300 Transaction and the relationship between the three agreements

**12 The plaintiffs seek to enforce restraints contained in the three agreements, the Sale Agreement, the Unitholders Deed and the Employment Agreement. These agreements were entered into as part of one major transaction, which is referred to as the P300 Transaction.

13 The P300 Transaction involved the Victorian accountancy practice of BDO Kendalls (formerly Horwath) merging with the New South Wales and Australian Capital Territory accountancy practice of the BDO Group to form the combined practice. As a result, indebtedness of $65,190,000 was incurred by the BDO Group for the purpose of acquiring the practices for a goodwill price of approximately $75 million (calculated by application of a multiple of 5.5 by forecast EBIT) which, the plaintiffs submitted, enabled very large cash distributions and other benefits to be received by the directors and partners of the merged practices. There was some suggestion in the submissions on behalf of the defendants that the extent of the cash distributions and other benefits as set out in the plaintiffs' evidence was inaccurate and overstated. Nevertheless, it was not suggested that the cash distributions and other benefits were not significant, though perhaps not as large as the plaintiffs' evidence might indicate.

14 The background to the restraint provisions in the three agreements was addressed by the plaintiffs in their submissions, and summarised as follows:[4]**

"10. The P300 Transaction was initially proposed by Daniel Allison (Allison),[5] and both he and Beechey were closely involved in its implementation.[6] Although Beechey downplays the extent of his involvement in the transaction, the contemporaneous documentation is replete with references to his involvement and he (along with Allison and the CEO, Brown) and no other director received a $50,000 bonus for their efforts and 'leadership' in relation to the transaction.[7]

11. In particular, Allison and Beechey were responsible for providing instructions to Arnold Bloch Leibler (ABL) in relation to the restraint provisions contained in the above agreements. For example, a proposal prepared by Allison and Beechey entitled 'Project 300 - A distinctively different integration proposal' observed that the protection mechanisms for the proposed merger would include 'tight restraint arrangements for founding equity directors'.[8] In relation to a draft of clause 14 (Ceasing to be a Unitholder) of the Unitholders Deed, Beechey raised the following query:

"14. Ceasing to be a unitholder.

• 14.2 - Is it better to have a 1 year notice period in this agreement, with a more stringent approach taken in the sale agreements in relation to founding directors?"[9]

12. Further, a number of meetings of the principals of the Victorian practice took place at which the substance of the key agreements was explained principally by Allison and Beechey. Prior to a meeting called for 31 August 2007, Allison and Beechey distributed a folder entitled 'Project 300 Director Information Pack 31 August 2007' (the Information Pack).[10] The Information Pack included a memorandum prepared by Beechey which observed, in relation to the restraints contained in the Sale Agreement, that 'These provisions are deliberately tight, in particular the non-compete clause, in order to provide adequate protection to Newco of the Value of the business being acquired ....' (our emphasis)."

**15 The practice that became the BDO Kendalls practice in Victoria as a result of the P300 Transaction was, prior to that transaction, carried on by a number of entities which were owned, ultimately, by Horwath Group (Vic) Pty Ltd as to 68% with the balance owned by family trusts associated with some of the principals of the Victorian practice. It is not necessary, for the purposes of the present application, to explore the structure in any detail, save to note the plaintiffs' submissions that the Victorian practice, though not legally structured as a partnership, operated internally in much the same way. Some evidence of this is provided by the terminology used in Schedule 4 of the Sale Agreement, which does use the terms "Director" and "Partner", apparently interchangeably. The plaintiffs submitted that, in contrast to the position in Victoria, the New South Wales and Australian Capital Territory practice of the BDO Group had operated as an actual partnership prior to the P300 Transaction.

16 The background or context in which the three agreements were entered into is of some significance in the context of the present application. Although the defendants made no submissions in relation to these background facts, circumstances and context, they emphasised the restrictions sought to be enforced as restrictions in an employment agreement and, in so doing, gave the Employment Agreement pre-eminence.

17 In my view, this was to give the Employment Agreement such pre-eminence as, in effect, to ignore the context and effect of its operation as part of a wider network of agreements, including the Sale Agreement and the Unitholders Deed. In support of this view, the defendants made reference to recital B of the Employment Agreement, which states that: "This Employment Agreement is to be read in conjunction with the Unitholders Agreement". This was, as I understood the submissions, cited in support of the position that the Employment Agreement provisions were to be given some pre-eminence with respect to the restraint provisions contained in the Sale Agreement and the Unitholders Deed. Although the construction issues arising with respect to the restraint provisions in all three agreements and the associated provisions of those agreements is clearly a matter for detailed and final consideration at trial, my preliminary view is that recital B of the Employment Agreement indicates its subsidiary nature with respect to the Unitholders Deed, even assuming that it is to be construed as indicative of the relative "priorities" of the provisions of these agreements.

18 These broad construction issues do, in my view, raise a serious question to be tried as a result of the manner in which the defendants met the plaintiffs' submissions that the proposed departure from the BDO Group by Ngo and Beechey was more akin to a dissolution of partnership, rather than a cessation or termination of employment.

19 The Sale Agreement provides, in clauses 3 to 5, for the sale of shares and units to the BDO Group and consideration for payment of the purchase price, which was to be calculated in accordance with an agreed formula and apportioned as provided for in clause 4. The actual terms of payment are set out in clause 5. As the purchase price was to be payable exclusive of any payment or adjustment for plant, equipment and debtors, the price in its entirety was a price payable for goodwill; a position which is reflected in the formula for its calculation, being a multiple of 5.5 by forecast earnings before interest, tax and appreciation (EBIT).[11] The evidence of the plaintiffs was to the effect that the price payable for the Victorian practice was approximately $75 million, which was said to be an "extremely high goodwill price" having regard to the fact that an offer from Delloitte had been received in the 2004-5 financial year to buy the practice for a goodwill price of $20 million.[12]

20 The plaintiffs emphasised the point that the Sale Agreement was a sale of goodwill. Consequently, it was said, the agreements between the parties had to include provisions designed to protect the value of that goodwill, otherwise the purchaser, BDO Group, might be left in the position of having paid a very significant sum of money by way of purchase price for an asset that could be substantially devalued as a result of acts of destructive competition by individuals or entities associated with the vendor companies or by a failure by those individuals or entities to continue to support the business which had been sold, at least for an agreed period. The plaintiffs submitted that this agreed period of support was required so that BDO Group could make any necessary transitional arrangements, on the departure of such an individual, to ensure that business was retained by other directors or employees within the group. In this vein, evidence was led by the plaintiffs by way of an affidavit from John Leonard Blight, currently a director of BDO Securities (NSW-VIC) Pty Ltd, which included the following statement:[13]**

"Allison said in substance that as a result of the principals taking cash off the table (from the proceeds of sale to the new entity), each of the directors would be subject to handcuffs for the next five years and if they left within that period would have to pay back the money the director had received (or in certain circumstances more than the cash received) and that in addition tight restraint arrangements would apply to departing directors. He said that there may be some circumstances where the Board may not enforce those obligations such as where the director was ill or retiring or was embarking on a complete career change."

Consequently, as the plaintiffs submitted, comprehensive restraint provisions in the agreements constituting the P300 Transaction were a key feature of the transaction.

21 The Unitholders Deed contains detailed provisions which regulate the relationship between unitholders. These include provisions whereby the "Former Related Principal" and a "Former Unitholder" under the Victorian practice arrangements prior to the P300 Transaction would be allocated a number of units of various types and to which various rights would attach under the new arrangements constituted by this Deed. More particularly, the Deed includes provisions for the management of the business and the devolution of powers to the Board, the Unitholders and the "Firm Council", being a representative body of unitholders elected pursuant to the provisions of the Unitholders Deed.[14] Each of the unitholders is entitled to distribution on the terms set out in clause 18 of Unitholders Deed; with entitlements in part dependent upon the nature of the units held. Provision is made in clause 14.2 for retirement of a unitholder, on notice:

"Any Unitholder can retire from the Business by giving not less than one years' prior notice in writing to the Board but the Board can agree a shorter period of notice in any individual case."

The Unitholders Deed also contains restraint covenants[15] and damages provisions for a breach of the retirement by notice requirements of clause 14.2.[16]

**22 The Employment Agreement contains provisions prescribing the duties of the Director, including obligations to avoid conflict of interest and obligations to maintain confidentiality.[17] It also includes provisions for a fixed annual remuneration of $169,000, together with other remuneration.[18] The provisions for termination reflect the termination provisions of the Unitholders Deed in that they provide for termination on 12 months' written notice by the Director to the employer.[19]

23 In broad terms, the relationship between the operation of the Unitholders Deed and the Employment Agreement was the subject of the evidence of John Leonard Blight, which was relied upon by the plaintiffs.[20] This evidence was conveniently summarised by the plaintiffs, as follows:[21]**

"32. The Relevant Related Principal of each unitholder who is a party to the Unitholders Deed receives remuneration and entitlements in part by receipt of ordinary salary, which is paid pursuant to an employment agreement entered into between the Relevant Related Principal and his employer and pursuant to which each director receives identical salary (in the case of Allison and the defendants, each is a party to an employment agreement entered into with BDO (NSW-VIC) by which they receive an annual salary of $169,000 per annum) (reduced to $109,000 per annum effective 1 April 2009).[22]

33. In addition, each unitholder receives distributions of profit, made by the parent company (BDO Group) as trustee, to the unitholders in the New Trust. Each unitholder is allocated to a band and receives an amount of ordinary units in the Unit Trust which corresponds to the unitholder's particular band with the higher the band the greater the number of units hence the greater share in the profits. The ordinary units which correspond to each band are identified in Schedule 2 to the Unitholders Deed. In the case of Allison he was a band 7 unitholder and as such held 240 ordinary units in the BDO Group Unit Trust. Beechey is a band 4 unitholder and holds 120 ordinary units AND Ngo is a band 3 unitholder and holds 80 ordinary units.[23]"

Further detail of the operation of the remuneration provisions of the Unitholders Deed was also provided in the plaintiffs' evidence.[24]

24 The relevant features of the three agreements which constituted the P300 Transaction, the Sale Agreement, the Unitholders Deed and the Employment Agreement were submitted by the plaintiffs to be as follows:[25]

"(1) the restraints entered into by the Directors are contained in a related group of commercial contracts were no bargaining inequality existed;

(2) the agreements were approved unanimously by the Victorian and NSW principals;

(3) the restraints were given to provide appropriate protection for the Buyer, BDO Group Investments, which paid approximately $75 million on account of goodwill for the Victorian practice sold by interests associated with the Directors;

(4) as a result of the P300 Transaction the Buyer, BDO Group Investments, was left with an indebtedness of $65 million supported very largely by the assurances reflected in the restraint provisions;

(5) each of the vendor Directors and their associated entities, including the defendants, was paid large sums of money and receive Special A Units (Overflow Units) and Special B Units, which derive the Equity Return and Capital Raise Return respectively, and which are redeemable at their subscription price( $1 par value) (in the case of the Special A Units, upon cessation as a unitholder) and in the case of the Special B units, subject to the Board's approval, at the later of 30 November 2016 or the date upon which the unitholder ceases as Related Principal arising from the sale of the Victorian practice of BDO Kendalls;

(6) the restraints operated equally in respect of all Directors and none of them could tell in advance whether he or she might find himself or herself in a position of being a departing Director subject to those restraints;

(7) the restraints were similar to restraints imposed upon the Directors for many years under the contracts regulating the Victorian practice of BDO Kendalls and Horwath;

(8) given Beechey's active involvement in the P300 Transaction he was well aware of the linkage between the restraint provisions and the benefits received by the Victorian Directors of BDO Kendalls."

25 For the purposes of the present application, I regard the plaintiffs' summary of the relevant features of these agreements as indicating an interrelationship between their provisions which makes it very difficult, and possibly quite inappropriate, to treat the provisions of the Employment Agreement in isolation and focus the critical issues to this application on the extent to which an employee has the right to terminate an employment agreement or relationship and the extent to which he or she may be restrained from doing so, at least on an interlocutory basis, in proceedings by the employer. The final determination of these matters requires construction of and consideration of the operation of critical provisions of the three agreements at trial. In the meantime, these matters go to the issue whether there is presently a serious question to be tried.

26 Reference has already been made to clause 14.2 of the Unitholders Deed and to clause 11.1 of the Employment Agreement which, in substance, require one years' prior notice in writing before any Unitholder can retire from the business or any Director can terminate the employment agreement. Clause 17.1 of the Sale Agreement is somewhat more stringent:

"17.1 Commitment

In consideration of the Buyer agreeing to purchase the Shares and the Units on the terms of this Agreement, at the request of Seller, each of the Related Principals agrees and undertakes that they will:

...

(b) not retire from their employment with the Buyer Group at any time prior to 30 June 2014 unless they give 2 year's prior notice in writing to the Buyer (unless the Buyer agrees to a shorter period of notice)."

The "Buyer" is BDO Kendalls Group (Investments) Pty Ltd and the "Buyer Group" is defined in clause 1.1 as meaning "each entity Controlled by the Buyer as well as each of the Audit Company, the Finance Unit Trust and the Contingent Trusts".

**27 The defendants contend that the 12 month notice period is "harsh, unjust and unfair" and is "entirely unnecessary in order to reasonably protect the business interests of the employer or business owner". It was further submitted that the notice period operates as a quasi restraint provision which is void for public policy reasons.[26]

28 The plaintiffs, on the other hand, submitted that the notice requirement provided for under the three agreements is to allow the other party or parties a reasonable period in which to adjust their affairs so as to minimise the impact of the termination. In this respect, the plaintiffs rely upon evidence to the effect that the provision of professional services in the BDO Group practice is based on a relationship of trust and confidence between directors and clients which is nurtured over many years. Consequently, it was said, any "client handover" as a result of the departure of a director is not a mere mechanical process whereby another director capable of performing the work is simply substituted for the departing director. Rather, it was said that the process is one of ensuring that the client develops a level of trust and confidence in the handover director over many months and with the assistance of the departing director so that the client is satisfied with the transition. Further, it was submitted that the reasonableness of a 12 month notice period was supported by the fact that this is the notice period which applied to arrangements between the directors of BDO Kendalls in Victoria prior to the merger.[27]

29 Issues were raised as to whether the restraint of trade doctrine was applicable in the current circumstances with respect to notice provisions in employment contracts.[28] This issue was not, however, pressed or relied upon by the defendants substantively in this application and, accordingly, I simply treat the plaintiffs' submissions in this respect as going to a matter or matters which are likely to be in issue at trial. The issue with respect to the notice periods which was explored and relied upon by the defendants in opposition to this application was the question whether specific performance or injunctive relief could be obtained to enforce notice provisions in employment contracts.

30 The defendants submitted that a court will not, save in exceptional circumstances, order specific performance of a contract for personal services.[29] The defendants submitted that an example of an exceptional circumstance warranting an order for specific performance is where both the employer and employee retain mutual confidence in one another, but the contract is brought to an end at the behest of a third party, such as a trade union.[30] Consequently, the defendants submit that although the employer might, in the present circumstances, contend that it maintains confidence in the defendants and wishes them to continue in employment, this is to no avail as both defendants have made it clear that they do not wish to remain employees.

31 The defendants also submitted that a provision in a contract of employment which a court will not enforce by specific performance does not become enforceable simply because the employer chooses to express it in negative terms.[31] Concluding with respect to this point, the defendants submitted:[32]**

"9. Assuming, for the purposes of the interlocutory hearing, that the provision of three months notice by Ngo and Beechey constitutes a repudiation of their contracts of employment, this provides no basis for the orders sought. Non acceptance by an employer of repudiatory conduct by an employee may result in the contract of employment remaining on foot. However, the employment relationship will be at an end: Visscher v Giudice and Others [2009] HCA 34; (2009) 258 ALR 651 at [53] to [55] per Heydon, Crennan, Keifel and Bell JJ.

10. An employee has a right to unilaterally terminate the employment relationship albeit that where such termination involves repudiatory conduct, the employer can elect to keep the contract on foot. In the present case, both Defendants have exercised their unilateral right of termination of the employment relationship. If the Defendants' conduct constitutes a breach of contract, the Plaintiffs' means of redress lies in damages. The orders sought by the Plaintiffs are an attempt, contrary to an overwhelming weight of authority, to specifically enforce the notice provisions of the contract of employment."

**32 The plaintiffs conceded that in the past Courts have refused to grant injunctive relief in respect of a contract of employment where it would effectively amount to an order for specific performance.[33] It was submitted that the principal reasons for this approach was the policy against forcing the continuance of a personal relationship against the will of one of the parties, loss of confidence between the parties and the need for continuing supervision. It was submitted, however, that it is now clear that there is no automatic rule that prevents the granting of an injunction, even if it has the effect of amounting to an order for specific performance in these circumstances.[34]

33 The plaintiffs relied particularly on the decision of the English Court of Appeal in Evening Standard Co Ltd v Henderson.[35] Mr Henderson was employed on the London Evening Standard for about 17 years. In 1979, he had been appointed Production Manager of the production room and his contract of employment provided for one year's notice on either side. The contract also contained a provision preventing Mr Henderson, as an employee, from working for anyone else during the currency of the contract. Mr Henderson sought to take up employment with a competitor of the Evening Standard and gave notice well short of the contractual period, namely two months' notice, in order to take up this employment. The plaintiffs brought an action seeking an injunction restraining Mr Henderson from undertaking employment with any competitor in breach of his contract of employment. Pending trial, an interlocutory injunction was sought to restrain the defendant. The Evening Standard, however, undertook to perform its part of the contract of employment, to which Lawton LJ (with whom Balcombe LJ agreed) said:[36]**

"Another aspect of this matter which was offered by the plaintiffs, to my personal surprise, was that they would be willing to have the defendant working for them as their Production Manager in their production room. When Mr Boswood said that, I felt it was an unrealistic offer because it seemed to me that the probabilities were that the relationship between the higher management of the plaintiffs and the defendant would be so bad that working together would be virtually impossible. To my surprise, I was told that the defendant has in fact been working as Production Manager, in some degree at any rate, ever since he sent in his letter of resignation until today. So it is not altogether impossible that if the defendant, if he wanted job satisfaction, could go back to the Evening Standard tomorrow and do the job which he has been doing for the last seven years."

**34 In the present circumstances, the plaintiffs have put forward an offer to Ngo and Beechey in substantially the same terms as the offer made by the Evening Standard whereby these defendants would not be forced to work for the BDO Group or be reduced to a condition of "starvation or idleness". If they do not choose to work for the BDO Group, they would still receive the same entitlements as if they attended for work.

35 Lawton LJ continued, in the Evening Standard case, with respect to the question of the balance of convenience:[37]**

"What we have to ask ourselves is: what, in the circumstances of this case, is the balance of convenience? If the defendant leaves the employment of the plaintiffs today as he says he intends to do, and takes himself off straightaway or very shortly to the rival newspaper, the plaintiffs, in my judgment, will undoubtedly suffer damage but, as I have already said ... it will be almost impossible to quantify that damage. It follows, on the face of it, that the defendant ought not, pending trial, to be allowed to do the very thing which his contract was intended to stop him doing, namely, working for somebody else during the period of his contract. But that has got to be balanced against what I have said is the trite law. The injunction must not force the defendant to work for the plaintiffs and it must not reduce him, certainly, to a condition of starvation or to a condition of idleness, whatever that may mean on the authorities on this topic. But all that ... is overcome by the fact that the plaintiffs have made the offer they have. The defendant can go back to work for them. If he elects not to go back (and it will be a matter entirely for his election: there will be nothing in the judgment which forces an election on him) he can receive his salary and full contractual benefits under his contract until such time as his notice would have expired had it been for the proper period."

36 The relevant constraint provisions are contained in the Sale Agreement as follows:

"16.1 Restriction

In consideration of the Buyer agreeing to purchase the Shares and the Units on the terms of this Agreement, at the request of the Seller, each of the Related Principals agrees and undertakes that they will not and each of their Associates will not:

(a) directly or indirectly;

(b) by themselves or jointly with or on behalf of any person, corporation or trust;

(c) through an agent, independent contractor or employee; or

(d) of any account or pretext or by any means whatsoever,

conduct any of the Restricted Activities within the Restriction Area for the Restriction Period.

16.2 Restricted Activities

The Restricted Activities are:

(a) subject to clause 16.5, carrying on, assisting, promoting or otherwise being engaged or concerned in any business or activity which is or may be competitive with the Business (whether as a member, shareholder, optionholder, unitholder, director, consultant, adviser, contractor, manager, employee, associate, proprietor, trustee, beneficiary, servant, agent, principal, partner or in any other capacity whatsoever);

(b) canvassing, soliciting, inducing or encouraging or enticing away from the Business or the Buyer Group or accepting the custom of any client, customer, identified prospective customer, representative or agent or correspondent of the Business or the Buyer Group;

...

16.3 Restriction Area

Subject to clause 16.6, the Restriction Area is any of the following areas:

(a) Australia;

(b) New South Wales, Australian Capital Territory, Victoria, Queensland and South Australia;

(c) New South Wales, Australian Capital Territory, and Victoria and

(d) Victoria.

16.4 Restriction Period

Subject to clause 16.6 the Restriction Period is the period from the Completion Date to the first to occur of the relevant Related Principal's Cessation Date and:

(a) 5 years after the Completion Date;

(b) 4 years after the Completion Date;

(c) 3 years after the Completion Date;

(d) 2 years after the Completion Date;

(e) 1 year after the Completion Date,

and after the Related Principal's Cessation Date, the following periods:

(f) 5 years after the relevant Related Principal's Cessation Date;

(g) 4 years after the relevant Related Principal's Cessation Date;

(h) 3 years after the relevant Related Principal's Cessation Date;

(i) 2 years after the relevant Related Principal's Cessation Date;

(j) 1 years after the relevant Related Principal's Cessation Date; and

(k) 6 months after the relevant Related Principal's Cessation Date.

...

16.6 Effective Restriction Area and Restriction Period

Unless the resulting covenants and restrictions are or become invalid or unenforceable for any reason, the Restriction Area and Restriction Period that will be effective between the parties in relation to any Restricted Activity will be those referred to in clauses 16.3(a) and 16.4(a) If a covenant and restriction is or becomes invalid or unenforceable because the Restriction Area or Restriction Period applying to a Restricted Activity is considered unreasonably large or long, the Restriction Area or Restriction Period will be reduced to the subsequent area or period listed in clause 16.3 or 16.4.

16.7 Severability

In this clause 16:

(a) each of the restrictions resulting from the various combinations of a Restricted Activity, Restriction Area and Restriction Period has effect as a separate and independent covenant and restriction;

(b) each of the Related Principals agree and acknowledge that each covenant and restriction is reasonable in the circumstances and necessary to protect the Buyer and the goodwill of the Business; and

(c) if any of those covenants and restrictions are or become invalid or unenforceable for any reason, they will be severed from this Agreement without effecting (sic) the validity or enforceability of any other covenant and restriction."

**37 The defendants submitted that a covenant in restraint of trade is presumed to be void and that such restraints will only be enforced when it is established that the restraint does no more than that which is reasonably necessary to protect the legitimate interests of the parties for whose benefit the restraint is imposed. This was common ground, as was the position that the onus rests with the party seeking to enforce the restraint to establish its validity.[38] The defendants submitted that a restraint that seeks protection against competition per se from a former employee will be held to be invalid.[39] Further, the defendants submitted that where, as in this case, as it was said, of the Sale Agreement and the Unitholders Deed, a restraint in identical terms is imposed upon a group of individuals, the validity of the restraint is not to be determined by personal considerations which apply to some, but not all, of those who are subject to the restraint.[40] In this vein, it was submitted that evidence led by the plaintiffs in relation to the involvement of the defendants in the drafting of the Sale Agreement and the Unitholders Deed is, consequently, irrelevant to the question of the validity of the restraints contained in those agreements. Further, it was submitted that the reasonableness of a restraint must be tested not by reference to what the parties had actually done or intended to do, but by what the restraint entitles or requires the parties to do.[41]

38 The defendants' submissions in this respect are, as noted previously, based on the characterisation of the critical relationship between the parties as that of employer and employee, regulated principally by the Employment Agreement. The importance of the manner in which the critical relationship is characterised is emphasised by the plaintiffs' submissions with respect to the restraint provisions in the Sale Agreement.

39 The plaintiffs submitted that restraints which are ancillary to the sale of goodwill of a business are approached very differently to employee restraints. In this respect, reference was made to the following observation of Dixon CJ in Butt v Long:[42]**

"A distinction is drawn between the position of the purchaser of the goodwill of a business taking a covenant in restraint of trade from his vendor and the case of the owner of a business taking such a covenant from his servant or apprentice. The goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment and if the purchaser is to take over such goodwill with all its advantages it must in his hands remain similarly immune. Without, therefore, a covenant on the part of the vendor against competition, a purchaser would not get what he is contracting to buy, nor could the vendor give what he is intending to sell. The covenant against competition is therefore reasonable if confined to the area within which it would in all probability enure to the injury of the purchaser."

Similarly, in Nordenfelt v Maxim Nordenfelt and Ammunition Co Ltd,[43] in the context of a restraint clause which precluded the vendor's involvement in the munitions industry for a period of 25 years after the sale of its munitions business, Lord Macnaghten said:[44]

"Now, in the present case it was hardly disputed that the restraint was reasonable, having regard to the interests of the parties at the time when the transaction was entered into. It enabled Mr Nordenfelt to obtain the full value of what he had to sell; without it the purchasers could not have been protected in the possession of what they wished to buy."

**40 It is not necessary, for present purposes, to refer in great detail to the authorities cited by the plaintiffs in support of their submissions that the restraint provisions of the Sale Agreement are reasonable. In the context of the sale of a business, the approach of the courts is, essentially, based on commercial fairness and the need to hold parties to the bargain which they made. Consequently, a court will be reluctant to hold a restraint unreasonable if that would enable the vendor to obtain[45] the purchase price without providing the whole of the consideration bargained for by the purchaser.[46] It is also clear from the cases that it is also relevant, when considering whether a restraint is reasonable, to have regard to the relative bargaining positions of the parties to the contract.[47] In Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd, it was said that when "free and competent parties agree and the background provides some commercial justification on both sides for their bargain", the onus of establishing the reasonableness of the restraint should be easily discharged.[48]

41 The approach of the courts to restraints in agreements for the sale of goodwill was, the plaintiffs submitted, very different from the approach sometimes adopted with respect to employee restraints, as is clear from a number of other decisions.[49] There is good reason for the difference in approach, which is evident in the reluctance of the courts to save employee restraints by reading down any unreasonably wide terms, by severance or otherwise, to give those restraints some operation. The reason for this is clear from the speech of Lord Moulton in Mason v Provident Clothing & Supply Co Ltd:[50]**

"It would in my opinion be pessimi exempli if, when an employer had exacted a covenant deliberately framed in unreasonably wide terms, the Courts were to come to his assistance and, by applying their ingenuity and knowledge of the law, carve out of this void covenant the maximum of what he might validly have required. It must be remembered that the real sanction at the back of these covenants is the terror and expense of litigation, in which the servant is usually at a great disadvantage, in view of the longer purse of his master."

Where parties have equal bargaining power and enter into a contract for the sale of goodwill, these considerations do not apply. In the present circumstances, there is no evidence before the Court for the purposes of this application which, in my opinion, would indicate any inequality of bargaining power in the relevant sense. Indeed, the plaintiffs led evidence that Allison, with whom the defendants Ngo and Beechey seek to be associated, had a significant role in instructing with respect to the drafting of "tight" restraint provisions in the agreements.

**42 The defendants made various submissions in relation to the proper construction of the restraint provisions of clauses 16.2(a) and (b). First, it was said that clause 16.2(a) is simply a restraint against competition which is not expressed to be linked to any legitimate interests capable of protection. Secondly, it was said that the restraint extends to any "business or activity which is or may be competitive with the Business". It was submitted that it is unclear as to how it is to be determined whether a business activity "may be" competitive. Thirdly, it was submitted that the restraint in clause 16.2(a) is subject to the restraint period as prescribed in clause 16.4(a) to (e), which, it was said, is unintelligible.

43 In my opinion, these submissions are not decisive of any particular construction of clause 16.2(a) but, rather, highlight that there are significant issues and argument to be raised, heard and determined at the trial of this matter. In other words, there is a serious question to be tried with respect to the proper construction of clause 16.2(a). It is not necessary, for present purposes, to indicate any preliminary views with respect to the construction issues, save to note that the first objection is likely to raise the proper characterisation of the nature of these restraints and the extent to which they are linked to a legitimate interest capable of protection, such as the goodwill of the business sold. In relation to the expression "may be", issues of severance are likely to arise, as foreshadowed at the hearing of this application. Similarly, there will be argument as to the interpretation of clause 16.4(a) to (e) and whether those provisions do produce an intelligible restraint period.

44 A further issue that arises with respect to the construction of clause 16.2(a) arises from the issue raised by the defendants as to which entity is the employer of Ngo and Beechey, having regard to the fact that they are now paid by BDO Payroll (NSW-VIC) Pty Ltd, which is arguably not a member of the "Buyer Group" as defined in clause 1.1 of the Sale Agreement. This may raise an issue as to whether the words "from time to time" should be read into the provisions of clause 16.2(a) to give it the effect argued for by the defendants.

45 In relation to clause 16.2(b) of the Sale Agreement, the defendants argued, in addition to the limitation on the application of the restraint provisions in that clause arising from the fact that BDO (NSW-VIC) Pty Ltd is no longer a member of the "Buyer Group", that the restraint is not enforceable for a number of other reasons. First, it was submitted, clause 16.2(b) imposes a restraint on "accepting the custom" of any client, customer, identified prospective customer, representative or correspondent of the Business or the Buyer Group. It is said that the restraint on "accepting the custom" includes accepting custom arising from unsolicited approaches and, as such, is a restraint in competition per se and is therefore unenforceable. Secondly, it was submitted that the reference to "identified prospective customer" of the Business or Buyer Group means that the restraint goes well beyond the protection of legitimate interests. It was said that the definition of "Buyer Group" in clause 1.1 extends to the field of operation of the restraint to protection of customers of entities well beyond BDO (NSW-VIC) Pty Ltd, the employer of the defendants. Consequently, it was said, that the defendants are left in the position where they are not able to know who has been identified as a prospective customer of the business or Buyer Group. Further, it was submitted that the evidence establishes that the BDO group of companies has a very large number of clients throughout Australia, which makes the restraint unreasonable as Ngo and Beechey have had contact with only a very small number of these clients. The question whether BDO (NSW-VIC) Pty Ltd is, within the terms of the Sale Agreement, no longer to be regarded as a member of the "Buyer Group", is a matter for determination at trial, as are the arguments with respect to the construction of clause 16.2(b) and the reasonableness or otherwise of the restraint.**

46 The relevant restraint provisions in the unitholders deed, are as follows:

"22.1 Restriction after exit

No Unitholder, Former Unitholder or Related Principal may:

(a) directly or indirectly;

(b) by themselves or jointly with or on behalf of any person, corporation or trust;

(c) in any capacity (whether as employee shareholder, beneficiary, advisor, financier or otherwise); or

(d) on any account or pretext or by any means whatsoever;

conduct any of the Restricted Activities for the Restriction Period.

22.2 Restricted Activities

The Restricted Activities are:

(a) canvassing, soliciting, inducing, encouraging or enticing away from the Group or the business or accepting the custom of any person who during the 2 years before the commencement of the Restraint Period, or during the Restraint Period, was a client, identified prospective client, representative or agent of the Group or the Business;

...

(c) otherwise interfering with the relationship between the Group or the Business and its employees, contractors, suppliers or clients.

22.3 Restriction Period

Subject to clause 22.4, the Restriction Period is any of the following periods:

(a) in respect of Unitholders and their Related Principals, from the Commencement Date, to the relevant Cessation Date; and

(b) in respect of Former Unitholders and their Related Principals:

(i) two years after the Cessation Date;

(ii) one year after the Cessation Date;

(iii) six months after the Cessation Date; and

(iv) three months after the Cessation Date.

22.4 Effective Restriction Period

Unless the resulting covenants and restrictions are or become invalid or unenforceable for any reason, Restriction Period that will be effective between the parties in relation to any Restricted Activity will be the Periods referred to in clauses 22.3(a) and 22.3(b)(i). If a covenant and restriction is or becomes invalid or unenforceable because the Restriction Period specific in clause 22.3(b)(i) is considered unreasonably long, the Restriction Period will be reduced to the subsequent period listed in clause 22.3(b).

22.5 Acknowledgment

Each party agrees and acknowledges that the covenant and restriction in this clause 22 is reasonable in the circumstances and necessary to protect the goodwill of the Business."

47 The plaintiffs submitted that in the present circumstances, the enforceability of the restraint provisions contained in the Unitholders Deed should be considered in the light of the defendants still being subject to the service period specified in the Unitholders Deed. In such circumstances, it was submitted, the Court should be very slow to find that a provision of this nature constituted an unreasonable restraint.[51] Additionally, it was submitted that the evidence establishes that, in essence, the Unitholders Deed established a partnership between the Directors and, consequently, the validity of the restraints as they apply to former Unitholders (and the relevant related principals) should be approached on the footing that they restrain the activities of departing partners.[52] Further, it was submitted that partnership restraints are usually mutual, and this assists the conclusion that they are reasonable. In this respect, reference was made to the following statement of Mason J in Geraghty v Minter:[53]

"In a partnership agreement the covenant is usually expressed to be given by the outgoing partner, whomsoever he may be. In general his identity will not be known until the partnership is determined because the identity of the outgoing partner will depend on the manner and circumstances of the determination of the partnership. The fact that the covenant is entered into by each of the partners and may become binding on any of them, depending upon the events which happen, is a factor which is to be taken into account in assessing whether it is reasonable between the parties."

**48 In relation to the Unitholders Deed, the plaintiffs submitted that it was entered into concurrently with the Sale Agreement in order to protect the goodwill of the Victorian practice sold to BDO Group Investments. Further, it was submitted that, by clause 22.5 of the Unitholders Deed, each party acknowledged that the covenants in clause 22 were reasonable in the circumstances and necessary to protect the goodwill of the business being sold. Thus, it was submitted, the factors which support the validity of the sale restraints provide equal support for the restraints in the Unitholders Deed.

49 The defendants also appeared to approach the restraint provisions in the Unitholders Deed on the basis that they were to be treated in much the same way as the restraints imposed in the corresponding provisions of the Sale Agreement. In this respect, they repeated the submissions made with respect to clause 16.2(b) of the Sale Agreement and, additionally, noted that clause 22.2(a) of the Unitholders Deed operates in respect of any person "who during the 2 years before the commencement of the restraint period" was a client, identified prospective client of the BDO Group or the Business. Further, it was submitted by the defendants that the restraint period as prescribed in clause 22.3 is "from the Commencement Date to the relevant Cessation Date" which, it was submitted, extends well beyond the protection of legitimate business interests.

50 In my opinion, the submissions with respect to the operation of the restraint provisions of the Unitholders Deed, as in relation to the restraint provisions of the Sale Agreement, raise questions of construction which need to be determined at trial.**

Restraint provisions in the Employment Agreement

51 The relevant restraint provisions in the Employment Agreement are contained in the following provisions:

"14. After termination

14.1 The Director may not:

(a) directly or indirectly;

(b) by themselves or jointly with or on behalf of any other person, corporation or trust; or

(c) in any capacity (whether as employee, director, shareholder, Unitholder, beneficiary, advisor or otherwise);

conduct any of the Restricted Activities within the Restriction Area for the Restriction Period.

14.2 For the purposes of this clause 14, the Restricted Activities are:

(a) canvassing, soliciting, inducing, encouraging or enticing away from the Employer of the Group or accepting the custom of any person who during the Restriction Period or during the 2 year period before the commencement of the Restriction Period, was a client, identified prospective client, representative or agent of the Employer or the Group of their predecessors;

...

14.3 Subject to clause 14.5, the Restriction Area is any of the following areas:

(a) Australia;

(b) Victoria, New South Wales and the Australian Capital Territory; and

(c) Melbourne, Sydney and Canberra.

14.4 Subject to clause 14.5, the Restriction Period is any of the following periods:

(a) from the commencement of this Agreement to the date of termination of the Director's Employment; and

(b) in respect of the period after termination of the Director's employment:

(i) two years after the termination of this Agreement;

(ii) one year after the termination of this Agreement;

(iii) six months after the termination of this Agreement; and

(iv) three months after the termination of this Agreement.

14.5 Unless the resulting covenants and restrictions are or become invalid or unenforceable for any reason, the Restriction Area and Restriction Period that will be effective between the parties in relation to any Restricted Activity will be those referred to in clauses 14.3(a) and 14.4(b)(i). If a covenant and restriction is or becomes invalid or unenforceable because the Restriction Area or Restriction Period applying to a Restricted Activity is considered unreasonably large or long, the Restriction Area or Restriction period will be reduced to the subsequent area or period listed in clauses 14.3 or 14.4(b)."

**52 The plaintiffs noted in their submissions that employee covenants are regarded more strictly by the restraint of trade doctrine than covenants between partners or covenants arising on the sale of goodwill.[54] Nevertheless, it was submitted that in the present circumstances, the restraints in the Employment Agreement are part of the composite package of agreements comprising the Sale Agreement, the Unitholders Deed and the Employment Agreement. Reference was made to recital B of the Employment Agreement which states that the agreement is to be read in conjunction with the Unitholders Deed. As noted previously, there was argument as to the significance of this recital.[55]

53 The defendants submitted that clause 14.2 of the Employment Agreement is in similar terms to clause 22.2(a) of the Unitholders Deed and is unenforceable for the same reasons that, as the defendants submitted, that clause is unenforceable.**

54 For the reasons indicated with respect to the restraints and other provisions of the Sale Agreement, the Unitholders Deed and the Employment Agreement, I am of the opinion that there is a serious question to be tried in relation to the proper construction of the restraint and associated provisions of those agreements. This will involve, at trial, a careful consideration of any relevant aspects of the "factual matrix" of those agreements, which appears likely to include the nature of and the background to the P300 Transaction. These are, however, issues to be argued and determined at trial on the basis of evidence which has been tested and considered fully in the light of submissions on the proper construction of relevant provisions in this context. Without expressing any concluded views, it would seem, on the basis of submissions made in the course of the hearing of this application, that the proper characterisation of the restraint provisions as those in the context of the sale of the business and the protection of goodwill, partnership-type arrangements or mere employee restraint provisions, is likely to be critical in this respect.

**55 The plaintiffs submitted that the requirement of balance of convenience is sometimes expressed by saying that the balance of justice must favour the grant, rather than the refusal, of the injunction or that the court must determine whether the granting or withholding of interlocutory relief carries a lower risk of doing an injustice to one party or the other.[56]

56 The plaintiffs also submitted that they had demonstrated a powerful case for the enforcement of the restraints and that, more generally, contractual obligations are to be enforced by injunction, save in exceptional cases. In this respect, reference was made to the statement of Lord Cairns in Doherty v Allman:[57]**

"If parties for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which is already the contract of the parties. It is not then a question of balance of convenience or inconvenience, or of the amount of damage or of injury - it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves."

The plaintiffs submitted that the statement is not completely accurate for reasons which have been discussed in a number of authorities.[58] The plaintiffs further submitted that if the words "save in exceptional cases"[59] or "other than for compelling discretionary reasons"[60] were to be inserted into the quotation, it would be closer to the true principle. By "negative stipulation", the authorities mean a stipulation which is negative in substance not necessary in form.[61]

57 Applying the Doherty principle to the particular circumstances of this matter, the plaintiffs submitted:[62]

"(1) the defendants are professionals who understood the significance of their contractual obligations;

(2) the restraints were freely entered into for very valuable consideration;

(3) Beechey was actively involved in preparing the relevant agreements and recommending comprehensive restraints;

(4) the restraints were mutual;

(5) absent enforcement of the restraints BDO Group Investments would be left as a highly indebted and vulnerable company;

(6) no inequality of bargaining power attended the P300 Transaction;

(7) the bargain constituted by the P300 Transaction is fundamentally fair."

In conclusion, the plaintiffs submitted that, far from this being an exceptional case, this was a classic instance in which the parties should be held to their bargain.[63]

**58 The defendants argued that the balance of convenience did not favour the granting of interlocutory injunctive relief. In this respect, though not joining issue with the plaintiffs with respect to the principles applicable, as indicated above, the defendants concentrated on the particular circumstances of the relationship between Ngo and Beechey and the plaintiffs, and also with Allison, a former senior director of the plaintiffs.

59 The defendants submitted that Ngo and Beechey worked closely with Allison while he was associated with the plaintiffs as a senior director and that Ngo, Beechey and Allison, together with another director sought, towards the end of 2009, to negotiate a departure from BDO on agreed terms. It was said that on 1 December 2009, Allison's employment was summarily terminated by the BDO Group and that he has since established a practice under the name Daniel Allison & Associates.

60 The defendants also referred to an application made in February 2010 by the plaintiffs against the defendants in proceedings commenced in the Court by Allison against BDO[64] in which they sought an injunction against Allison to enforce part of the restraint clause relating to him employing former employees of BDO Group. The defendants submitted that the plaintiffs, specifically and expressly, did not seek to enjoin Allison from competing with the BDO Group or soliciting, inducing or accepting the custom of BDO clients. Reference was made to the ex tempore decision of Judd J in that matter, as follows:**

"The applicants' stated intention is to protect the goodwill of the business for 6 months. In my opinion the application is designed to interrupt Mr Allison's efforts to establish his own practice to service former clients of the Defendants and these are matters expressly said not to be the subject of any application from injunctive relief.

In its written submissions the applicants say the following: 'BDO does not seek to restrain by injunction Mr Allison from establishing such a firm nor does it seek to restrain Mr Allison from competing with it for clients although BDO pursues such remedies as it has for such breaches and damages. However BDO does seek to enforce and by its injunction application to restrain Mr Allison from breaching non solicitation covenants in relation to existing employees of BDO'.[65]

"Having regard to the Defendants' position in relation to the alleged breaches of restraints (a) and (b), I am persuaded that properly analysed it would be incorrect to decide other than that damages would be an adequate remedy in relation to any breach of clause 16.2(c)."[66]

It was submitted that the plaintiffs have been inconsistent in now seeking to enforce the restraints in clause 16.2(a) and (b) of the Sale Agreement against Ngo and Beechey, which they did not seek to enforce against Allison, as a result of Ngo and Beechey now seeking to resign as directors and to work with Allison after leaving the BDO Group.

**61 The defendants submitted that Allison started to perform the work of a number of former clients of the BDO Group and that Ngo and, to a lesser extent, Beechey worked with those clients with Allison while he was at BDO Group, and wish to pursue their careers with Allison. Further, the defendants submitted that the present application is indistinguishable from the application made by the plaintiffs in the Allison proceedings[67] and is, in substance, designed to interrupt Allison's efforts to establish his own practice and service former clients of the BDO Group. In my opinion, whether or not this position is established at trial is not a significant matter with respect to this application. It is not, for example, a matter or argument which goes to the issue whether or not there is a serious question to be tried on the basis of the matters actually raised and argued by the plaintiffs in this application with respect to these proceedings, rather than the Allison proceedings.[68] Although a matter such as this may go to discretionary considerations in relation to this application, I am not satisfied on the basis of the material before me in this application that the suggestion of the defendants in this respect is more than speculative. Consequently, I am of the view that it is not a matter to which I should attach any weight.

62 The matters raised by the defendants also go to the question of relative hardship, an aspect of the question of the balance of convenience. The hardship pointed to on behalf of the defendants, Ngo and Beechey, is, in substance, that they would be prevented by the grant of injunctive relief sought from pursuing their careers with Allison, rather than the BDO Group as they now wish. This submission or claim must, of course, be considered in the context of the actual relief sought by the plaintiffs and the terms upon which that relief is sought.

63 The plaintiffs propose, as a condition of the grant of interlocutory relief sought, that the defendants Ngo and Beechey would continue to be remunerated at their current rates, whether or not they attend for work for the BDO Group. Further, by "current rate", the plaintiffs made it clear that this meant not only their current salary, but also distributions of profit at their present band level. Also, the plaintiffs said that they would not seek to claim any damages against these defendants for any period that they did not attend for work, but that if they did choose to attend for work for the BDO Group, they would be provided with professional work. It will be recalled that this is much the same offer that was the subject of the proceedings and relief sought in the Evening Standard case.[69]

64 Consequently, the plaintiffs submit that the only hardship which will be suffered by the defendants is to be restrained from breaching their contractual obligations for a few months until the trial and determination of this proceeding, but that in the meantime they will be fully paid, as indicated. Further in this vein, the plaintiffs submitted:[70]**

"104. This restriction may be compared to the position of BDO were interlocutory relief to be denied - in practical terms BDO would lose its ability to obtain final injunctive relief at trial. Important clients of the firm may be lost.[71] The business of BDO may be damaged by a perception among Directors that any one of them may choose to leave the firm in breach of their contractual obligations.[72] Staff may be lost.[73] Problems may arise in BDO's relationship with Bankwest.[74]

105. It is farfetched to suggest that an interlocutory injunction for a few months would impede the professional development of the defendants. Even were this to be relevant, the court will place little or no weight on hardship suffered by defendants where they are the authors of their own misfortune,[75] all the more so where the alleged 'hardship' arises not by reason of the injunction, but by the conscious choice of the defendants not to attend for work during the period of the injunction. Likewise it is unfounded speculation for Ngo to suggest that Allison may retract the position offered to him. Allison is plainly in the defendants' camp and an adverse inference should be drawn from the failure of the defendants to call any evidence from Allison.

106. Although Beechey and Ngo recite (the formulaic incantation) that their relationship with BDO 'has irretrievably broken down',[76] this is inconsistent with the evidence.[77] Each of them has attended for work since giving noticed of their resignations on 16 February 2010 (in the case of Ngo) and 1 March 2010 (in the case of Beechey) without apparent difficulty and notwithstanding this proceeding being commenced on 5 March 2010."

**65 In my opinion, the position put by the plaintiffs on the basis of their offer of remuneration to the defendants Ngo and Beechey indicates that no relevant hardship would be suffered by Ngo and Beechey if the interlocutory relief as sought were granted. As against the plaintiffs' arguments, the defendants' position, in substance, is that the injunctive relief would thwart a desire of Ngo and Beechey to pursue their career with Allison, rather than the BDO Group and that there was some inconsistency or ulterior purpose in the plaintiffs seeking this relief, which is to interrupt Allison's attempts to establish his own practice and service former clients of the BDO Group. As indicated, I regard the latter suggestion as in the nature of speculation and the desire of Ngo and Beechey to pursue their careers must be moderated by observance of contractual arrangements by which they are bound, the proper construction of which is to be determined at trial.

66 In my view, the relative prejudice that may be caused to the plaintiff as a result of the departure of the defendants, Ngo and Beechey, unrestrained by any interlocutory orders, is likely to be serious as a result of possible further director and staff departures and also as a result of financing difficulties with Bankwest. There appears to me to be a significant risk that unrestrained departures of directors and staff may tend to have a significant adverse effect on the value of the goodwill of the BDO Group business which it acquired and which is the only security Bankwest holds for its financial accommodation to the BDO Group.**

**67 The defendants submitted that damages would be an adequate remedy and, in this respect, referred to the decision of Judd J in the Allison proceedings[78] where this view was taken. It should be noted, in this respect, that the relevant provision the subject of the application before Judd J in the Allison proceedings was clause 16.2(c) of the Sale Agreement and not clause 16.2(a) or (b) of that agreement. The plaintiffs argued that the calculation of damages under the provisions of clause 16.2(c) was likely to be a relatively easy matter as compared with the calculation of damages for breach of clause 16.2(a) or (b). I am inclined to think that this submission is correct having regard to the nature of the prohibition in clause 16.2(c) as compared to the prohibitions in clauses 16.2(a) and (b). Nevertheless, it is not necessary to determine this issue with respect to the present application as this application is based differently from that before Judd J and, in my opinion, does raise significant difficulties with respect to the calculation of loss and damage, as set out in the plaintiffs' written submissions.[79] Having regard to these difficulties, it is, in my view, not appropriate to allow a situation to develop where these difficulties will arise, to the possible prejudice and expense of both parties, where they can be avoided at this stage by a grant of interlocutory injunctive relief to maintain the status quo pending an early trial of this matter commencing on 19 July 2010.

68 Finally, the defendants relied upon the existence of liquidated damages provisions in the agreements as a basis for the view that damages are adequate remedy, in lieu of injunctive relief. The defendants submitted that, "As Habersberger J said in Bearing Point Australia Ltd v Hillard, a plaintiff cannot seek to have the best of both worlds by including in a contract a term purportedly containing a genuine pre-estimate of loss and at the same time maintain that damages are not an adequate remedy.[80]" The plaintiffs submitted, on the other hand, that a liquidated damages provision is only to be interpreted as having effect in this way where it is clear from its terms and the context of the agreement in which it is found that it is intended to provide the parties, particularly the party alleged to be in breach, with a pre-agreed estimate of loss, in other words, a pre-determined "price" for a breach of the agreement. In this respect reliance was placed on the following passage from the judgment of Griffith CJ in Hamilton v Lethbridge:[81]

"Another point taken was that the stipulation about the ₤2,000 damages had the effect of depriving the plaintiff of any right that he might otherwise have had to an injunction. That point was discussed in the case of the National Provincial Bank of England v Marshall.[82] In that case there was in the contract a covenant by the defendant who was in the employment of the plaintiff bank. He entered into a bond that if he should enter into a specified employment within a prescribed distance he should forfeit ₤1,000, and the contention was that was only a contract to pay ₤1,000, and that if he was willing to pay the ₤1,000 there was an end of it. But the Court held that the real nature of the transaction was an agreement between the parties that he should not enter into such employment, and the Court granted an injunction. In the plaintiff's case there is an express obligation not to practise."

On the basis of this approach the plaintiffs submitted that the presence of the liquidated damages provisions does not affect the question whether damages are adequate remedy. Further, it was submitted that the comments of Habersberger J which were relied upon by the defendants were made as a passing reference and without any reference to or consideration of relevant authority. In my view, the liquidated damages provisions contained in these agreements are not provisions directed to a situation of breach or impending breach, as in the present circumstances.

69 For the reasons submitted by the plaintiff, I am of the view that the liquidated damages provisions in the agreements do not detract from the view that in the present circumstances damages are not an adequate remedy.**

**70 In my opinion, for the reasons indicated, it is appropriate that interlocutory injunctive relief be granted as sought by the plaintiffs at the conclusion of the hearing of this application and substantially in the form presently contained in the Interim Order of 14 May 2010. In other words, the interim order should now be made as an interlocutory injunction on the same basis and on the same undertakings which supported the interim order. The present Interim Order reserves costs, but for the purposes of the order by way of interlocutory injunction, I will hear further submissions on costs.

71 A further matter is that when the Interim Order was made on 14 May, there was no basis to make any order restraining Beechey in the same terms as he did not intend to leave as a Director until 4 June 2010. Consequently, I will also hear submissions as to whether similar interlocutory injunctive relief should now be granted against Beechey in the event that he still proposes to leave as a Director on 4 June 2010.

72 Finally, I note that the plaintiffs undertook during the hearing of this matter to make application forthwith to join BDO Payroll (NSW-VIC) Pty Ltd as an additional plaintiff in these proceedings as it appears that this company is now the employer of Ngo and Beechey. This undertaking was made in response to a submission by the defendants that BDO (NSW-VIC) Pty Ltd may no longer be the relevant employer and, consequently, that this was an obstacle to the relief sought.[83]**

[1] See the affidavit of Nicholas James Edward Fletcher, sworn 31 March 2010, paragraphs [7] and [8] respectively.

[2] Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536; Brilliant Lighting (Aus) Pty Ltd v Baillieu [2004] VSC 248 at [8]; Otis Elevator Company Pty Ltd v Nolan [2007] NSWSC 593 at [7].

[3] 1st Fleet Pty Ltd v Australian Cooperative Foods Ltd [2006] NSWSC 881 at [5].

[4] Plaintiffs' Written Submissions dated 13 May 2010, paragraphs 10 to 12.

[5] Allison is the first plaintiff in the related proceeding SCI 2009 10625.

[6] Affidavit of Christine Fleer sworn on 14 April 2010 (Fleer), [3]-[18]; Blight 1, [38]-[57], (Scheiber 2), [7].

[7] Supplementary affidavit of John Leonard Blight sworn 7 May 2010 (Blight 2), "JLB-15".

[9] Fleer, [4]-[13], Exhibit "CF-3".

[10] Blight 1, [53]-[57], Exhibit "JLB-6".

[12] See Plaintiffs' Written Submissions, paragraph 24.

[13] Affidavit of John Leonard Blight, sworn 15 April 2010, paragraph 49.

[14] See Unitholders Deed, clauses 5, 6, 7, 8 and 9.

[17] See Employment Agreement, clauses 3, 4 and 5.

[18] See Employment Agreement, clause 6.

[19] See Employment Agreement, clause 11.1.

[20] See the affidavit of John Leonard Blight, sworn 15 April 2010, paragraphs 79 and 80.

[21] Plaintiffs' Written Submissions dated 13 May 2010, paragraphs 32 and 33.

[23] Blight 1, [80]. The additional monthly distributions payable to the Unitholders are a minimum of $3,500 per month (fully franked) and $5,000 per month (unfranked). These distributions do not include the returns on the Special A Finance Units and the Special B Units nor the top up distribution: Affidavit of Pat Andrew Donato sworn 7 May 2010 (Donato 2), [20].

[24] See Plaintiffs' Written Submissions, paragraphs 34 to 44.

[25] Plaintiffs' Written Submissions, paragraph 50.

[26] See the affidavit of Nicholas James Edward Fletcher, sworn 31 March 2010, paragraphs 13 to 15, and also the Defence in Counterclaim, paragraph 20.

[27] See the affidavit of John Leonard Blight, sworn 15 April 2010, Exhibit "JLB-14", clause 15.2 (being a copy of the "previous Unitholders Deed").

[28] See Plaintiffs' Written Submissions, dated 13 May 2010, paragraphs 60 to 62.

[29] Referring to Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 428 (Brennan CJ and Dawson and Toohey JJ); and Gregory v Phillip Morris Limited (1988) 80 ALR 455 at 481-2 (Wilcox and Ryan JJ).

[30] See Hill v CA Parsons & Co Ltd [1972] Ch 305.

[31] See Tullet Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414, at [70] and [83].

[32] Defendants' Outline of Argument, dated 13 May 2010, paragraphs 9 and 10.

[33] De Francesco v Barnum (1890) 45 Ch D 430 at 438; Gordon v State of Victoria [1981] VicRp 26; [1981] VR 235 at 239;, Heine Bros (Aust) Pty Ltd v Forrest [1963] VicRp 53; [1963] VR 383 at 385.

[34] CH Giles & Co Ltd v Morris [1972] 1 All ER 960; Turner v Australasian Coal & Shale Employees Federation [1984] FCA 275; (1984) 55 ALR 635 at 649; Gregory v Phillip Morris Ltd (1988) 80 ALR 455 at 482; Curro v Beyond Productions Pty Ltd, supra, at 346-347; Evening Standard Co Ltd v Henderson [1987] FSR 165; Provident Financial Group and Whitegates Estate Agency v Hayward [1989] 3 All ER 298; cf BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115 at [149]. As to changing attitudes to the issue of constant supervision of injunctions by the courts, see Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1988] AC 1 at 12-15; Patrick Stevedores Operations (No. 2) v Maritime Union of Australia, supra, at [78]-[80]; Liristis Holdings Pty Ltd v Kew-Corp Marine Pty Ltd [2001] NSWSC 418 at [4]- [6]; Corporate Transport Services v Toll [2005] NSWSC 166; (2005) 214 ALR 644 at [34]- [36].

[35] [1986] EWCA Civ 9; [1987] ICR 588.

[36] [1986] EWCA Civ 9; [1987] ICR 588 at 593.

[37] [1986] EWCA Civ 9; [1987] ICR 588 at 594.

[38] Hartleys Limited v Martin [2002] VSC 301 at [86] (Gillard J).

[39] Referring to I.F. Asia Pacific Pty Ltd v Galbally [2003] VSC 192 at [102] per Dodds-Streeton J; Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628 at 633 per Latham CJ, 647 per Webb J; Hartleys Limited at [92]; Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9 at [46] (Brereton J).

[40] Referring to Adamson v New South Wales Rugby League Limited [1991] FCA 425; (1991) 31 FCR 242 at 290 (Gummow J).

[41] Adamson v New South Wales Rugby League Limited [1991] FCA 425; (1991) 31 FCR 242 at 285 (Gummow J).

[42] [1953] HCA 76; (1953) 88 CLR 476 at 486.

[43] [1894] AC 535.

[44] [1894] AC 535 at 573-4.

[45] Brown v Brown [1980] 1 NZLR 484 at 490; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd, supra, at 306 and 316; Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; [1968] AC 269 at 300 (Lord Reid) and 323 (Lord Pearce); ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 672.

[46] Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; [1968] AC 269 at 335-6 (Lord Wilberforce).

[47] Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; [1968] AC 269 at 300 (Lord Reid).

[48] Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; [1968] AC 269 at 324 (Lord Pearce); and see Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd [1947] HCA 62; (1974) 77 CLR 574 where the fact of an agreement between a retailer and a manufacturer did not operate unfairly against the retailer was relevant to the reasonableness of the clause where the parties had bargained on equal terms.

[49] Attwood v Lamont [1920] 3 KB 571; I F Asia Pty Ltd v Galbally [2003 VSC 192 at [174], [177], [182]; Ronbar Enterprises Ltd v Green [1954] 2 All ER 266 at 270 ("similar to or competing with"); Goldsoll v Goldman [1914] 2 Ch 603 ("real or imitation jewellery"); McPherson v Moiler (1920) 20 SR (NSW) 535 at 543 ("Corowa or 50 miles thereof").

[50] [1913] AC 724 at 745.

[51] See Buckenara v Hawthorn Football Club Ltd [1988] VicRp 5; [1988] VR 39 at 44 (Crockett J).

[52] Heydon, The Restraint of Trade Doctrine (3r Ed), p 92 observes that in seeking to distinguish partnership and employee covenants it may be necessary to "go behind the form of the transaction".

[53] (1979) 142 CLR 177 at 198; approved in Bridge v Deacons [1984] 1 AC 705 at 716.

[54] Referring to Heydon, The Restraint of Trade Doctrine (3rd Ed), pp 86-90; and see above, paragraphs 39 to 41 and 47 to 48.

[56] Referring to Young, Croft, Smith On Equity (2009), p 1043.

[57] (1878) 3 App Cas 709 at 719-720.

[58] Referring to Dalgety Wine Estates Pty Ltd v Rizzon [1979] HCA 41; (1979) 141 CLR 552 at 560 and 573; Curro v Beyond Productions Pty Ltd, supra, at 346; Otis Elevator Co Pty Ltd v Nolan, supra, at [18]-[29]; Young Croft, Smith On Equity (2009), pp 1028-1029; Meagher, Gummow & Lehane Equity Doctrines & Remedies (4th Ed) [21-195]-[21-210].

[59] Spry, Equitable Remedies (2007), pp 585-588.

[60] Otis Elevator Co Pty Ltd v Nolan, supra, at [29].

[61] J C Williamson Ltd v Lukey [1931] HCA 15; (1931) 45 CLR 282 at 299.

[62] See Plaintiffs' Written Submissions, dated 13 May 2010, paragraph 100.

[63] Referring to Allison v BDO (NSW-VIC) Pty Ltd [2010] VSC 35, Judd J ex tempore held that BDO was not entitled to injunctive relief retaining Allison from giving effect to an employment contract which Allison entered into with one of BDO's employees, who wished to leave BDO. Judd J held inter alia that the balance of convenience favoured renegotiation of the right of the employee (who was not bound by any relevant restraint).

[65] 11 February 2010 transcript p 37 121- p 38 1.12.

[66] 11 February 2010 Transcript p 40 11.16-20.

[69] Evening Standard Co Ltd v Henderson [1986] EWCA Civ 9; [1987] ICR 588.

[70] Plaintiffs' Written Submissions, dated 13 May 2010, paragraph 104 to 106.

[71] Scheiber 1, [14]-[17] and [23].

[75] Bulldogs Rugby League Club Ltd v Williams, supra, at [65]; John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [65].

[77] Donato, [4], Scheiber 2, [24].

[78] Allison v BDO (NSW-VIC) Pty Ltd [2010] VSC 35.

[79] See Plaintiffs' Written Submissions, dated 13 May 2010, paragraph 110.

[80] See Bearing Point Australia Ltd v Hillard [2008] VSC 115 at [151].

[81] [1912] HCA 20; (1912) 14 CLR 236 at 246.