Gana Holdings v Renshaw

Judgment (ex tempore - revised 5 april 2013) 1HIS HONOUR: The plaintiffs (to whom I shall refer collectively as "GDL") carry on business in partnership under the name Gillis Delaney Lawyers. The first defendant (Mr Renshaw) is a former partner in that firm. Mr Renshaw has left the partnership. He has started a new legal practice known as McInnes Wilson Lawyers NSW ("MWL"). Mr Renshaw proposes to employ, in that practice, a former employee of GDL, Mr David McLachlin. GDL seeks interlocutory injunctive relief to restrain Mr Renshaw from so acting. 2It is undisputed that the work of GDL includes compulsory third party, or CTP, insurance work. It is likewise undisputed that Mr Renshaw has expertise and contacts in that area, in particular with the insurer generally known as QBE. That appears to be a reason why Mr Renshaw was appointed a partner of GDL. 3Mr Renshaw gave notice of termination of the partnership on 20 December 2012. The notice given was three months rather than the requisite one month. Mr Renshaw said, in his notice, that the three months "seems a necessary period to ensure an orderly transition". 4Before Mr Renshaw left the partnership, he had suggested that it employ Mr McLachlin. Mr McLachlin had been an in-house lawyer, apparently in charge of QBE's in-house CTP legal team. Mr Renshaw suggested to Mr Michael Gillis, a senior partner in GDL, that Mr McLachlin should be employed because of his experience and because of the strength of his connection with QBE. 5Ultimately, after Mr Renshaw had given his notice on 20 December 2012, GDL renewed their attempts to employ Mr McLachlin. It is clear that they did so in order to maintain the connection with QBE, in relation to CTP work. 6Mr McLachlin did accept employment with GDL. The circumstances in which he did so are a little difficult to disentangle. There is no doubt that he was made an offer of employment by an email from Mr Gillis dated 2 January 2013, and that he replied the next day accepting the offer. At that stage, apart from a basic description of Mr McLachlin's status and duties, and a stipulation as to his remuneration, there was no agreement on the detailed terms. 7After Mr McLachlin had accepted the offer of employment, Mr Gillis sent him by email a "letter of offer and the GDL Terms and Conditions". He asked Mr McLachlin to bring the signed documents with him when he started work (on 9 January 2013, the date nominated by McLachlin), and said that he would see Mr McLachlin "on my return on 21 January". 8It appears that Mr McLachlin did start on 9 January 2013. It appears, further, that he signed, by way of acceptance, a document purporting to be an offer of employment, and annexing the detailed terms of conditions of employment. 9The document signed by Mr McLachlin included, in cl 18, some restraints. Clause 18.3 specified, amongst other things, that Mr McLachlin would not during "the Restraint Period" (a defined term) canvass, solicit, or deal with, or counsel, procure or assist others to do so, any client of GDL with whom Mr McLachlin had had dealings during the last 12 months of his employment, "except QBE CTP". There was a similar restriction in cl 18.3(c), whereby Mr McLachlin agreed that he would not, during the same period, accept instructions from, or undertake work for, any client of GDL "except QBE CTP". 10The "Restraint Period" was defined in cl 18.4 as a period of six months from the date of employment. 11That document, which Mr Stewart of counsel (who appeared for GDL), accepted was likely to be found to be the contract of employment between Mr McLachlin and GDL, differed in some respects from the offer that had been sent on 3 January. 12First, that offer did not, in the restraints in cls 18.3(b) and (c), make any exception in respect of "QBE CTP". However, cl 18.3(b) did make an exception in respect of "Alliance CTP" (clearly, a reference to the insurer generally known as Allianz). 13Secondly, cl 18.4, defining the Restraint Period, specified successively periods of 12 months, six months and three months from the date of termination of employment. 14I have gone into that detail because Mr Stewart relied on it to show that in some way Mr Renshaw had altered the draft before Mr McLachlin signed it, so as to bring about the changes to which I have referred. I should say at once that there is no direct evidence that Mr Renshaw did so act, nor could it be inferred, from such evidence as there is, that he did so act. 15The printed original of the draft of the accepted letter was tendered. The changes to cl 18.3 to which I have referred had been marked up by the use of a blue ballpoint pen. Further, changes to cl 18.4 had been marked up in pencil, so that the periods read six months, four months and three months respectively. (It will be recalled that the former changes, relating to QBE, were incorporated into the signed document, but that the latter charges, relating to the restraint period, were not; all that was specified was a period of six months.) 16However, there are other changes to the letter. First, on page 1, someone has made notes in pencil relating to the remuneration package. To my untrained eye, it could be inferred that the handwriting is similar to the pencil annotations on cl 18.4. 17Secondly, on page 4 of the terms of employment, a clause relating to payment of salary has been annotated, in what appears to be a fountain pen, with a number which could be inferred to be a nominated bank or credit union account. The writing implement used to make that change does not appear to be the same as the writing implement used to make the changes to cl 18.3. 18Finally, on various pages, someone has used a yellow highlighter. 19On the face of that material, it could be inferred that at least three people had gone to work on the draft document. But regardless of that analysis, there is no reason to think that Mr Renshaw was one of those persons (or, if there were only one, that person). 20The case against Mr Renshaw was pressed on three bases. The first was breach of fiduciary duty. The second was misuse of confidential information. The third was breach of an express term of the Partnership Deed. 21I do not think that there is any substance to the first two limbs. There is no doubt that as a partner, Mr Renshaw owed fiduciary obligations to the plaintiffs, his partners at the time. The question is not so much whether he owed fiduciary obligations, but whether there is any basis for thinking that he breached them. 22To the extent that the case on breach relates to his suggested enticement of Mr McLachlin, that is dealt with in relation to cl 12.1 of the Partnership Deed, and framing it in terms of breaching fiduciary duty goes no further. 23Likewise, to the extent that the case is based on misuse of confidential information, there has been in my view a total failure to identify, with the requisite degree of specificity, the information said to be confidential, or how it was misused. The highest that it was put was that Mr Renshaw must have known that Mr McLachlin was subject to a probationary period, and that during the probationary period he could leave on short notice. I hardly think that that information could be regarded as confidential. On the contrary, I would think, it would be understood by any self-respecting lawyer in this State. 24To the extent that the cases on breach of fiduciary duty or misuse of confidential information were in some way based on the changes to the draft employment agreement, for the reasons I have given, there is no basis in the evidence for associating those changes with Mr Renshaw. 25Accordingly, I turn to cl 12.1 of the Partnership Deed. 26By para (h) of that clause, Mr Renshaw covenanted that he would not "directly or indirectly approach, canvass, solicit, or endeavour to entice away" from the partnership, any employee of the partnership. 27The material that was said to give rise to an inference, sufficient to show a prima facie case, that Mr Renshaw had acted in breach cl 12.1 (h) may be shortly stated. 28First, Mr Gillis' affidavit shows that Mr Renshaw had had a professional connection with Mr McLachlin well before Mr Renshaw joined the firm GDL. 29Secondly, and from the same source, it was Mr Renshaw who suggested to Mr Gillis that GDL should employee Mr McLachlin, because Mr McLachlin had a connection with, and was respected by, QBE CTP. 30Thirdly, reliance was placed on the alterations to the draft contract of employment. That can be put aside. 31Fourthly, noting that Mr Renshaw's period of notice expired, and he left the partnership, on 20 March 2013, it was apparent that Mr Renshaw had taken prior steps to set up his new firm, MWL. To the extent that it is relevant, it may be noted that the firm appears to be an offshoot of a firm of lawyers in Queensland, and that the administration of the overall entity is conducted from Brisbane. Thus, it was suggested, Mr Renshaw had a practice that needed both employees and work; and Mr McLachlin could satisfy both those needs. 32The next matter on which weight was placed was a conversation that Mr Gillis said he had with Mr McLachlin on 22 March 2013 (two days after Mr Renshaw had left). In the course of that conversation, according to Mr Gillis, Mr McLachlin said "I have decided to resign from Gillis Delaney and join John's practice". Mr Gillis replied stating his disappointment and enquiring whether Mr McLachlin was "aware that John has restraints under his partnership agreement, restraining him offering you employment?" 33Mr Gillis said that Mr McLachlin replied, saying he did not know that and continuing "this is a very difficult decision for me. I enjoy working at Gillis Delaney. I enjoy the people and enjoy the work. However I feel obliged to go and work with John." 34That evidence was said to show that Mr McLachlin was leaving not because he could not abide working at GDL, but because of some connection that he had with Mr Renshaw. 35The next material is a bundle of communications relating to Mr McLachlin's employment by MWL. That commences with an email from Mr McLachlin to Mr Renshaw sent at 12.58 pm on 22 March 2013. That email gives Mr McLachlin's full name, address, remuneration package, and other details relevant to be known by a new employer. It is I think clear that this email could not have been sent out of the blue. There must have been something preceding it which would persuade Mr McLachlin that the information in question should be given to Mr Renshaw. Indeed, so much is obvious from the conversation to which I have just referred. 36Then, about 32 minutes later, Mr Renshaw asked an employee of MWL in Brisbane to "arrange a draft contract for David". There was further email correspondence between Mr Renshaw and the employees of MWL, dealing with start date, budget, and the like. 37Then, at 2.39 pm on 22 March, Mr Renshaw replied to Mr McLachlin's email of 12.58 pm (having, in the meantime, set in train arrangements for preparation of a contract of employment) and said "I will let you know if there is anything else needed...". He asked, further, for Mr McLachlin's tax file number. 38At 5:20 pm on the same day, a draft contract of employment was sent from MWL in Brisbane to Mr McLachlin. 39The last document in this collection of material is an email from Mr Renshaw to a Mr Beevors, sent on 2 April 2013. Mr Beevors is said to be an employee of QBE in its CTP division. It says, among other things, that: "We can also now confirm that David McLachlin is expected to commence with McInnes Wilson NSW on 8 April". 40That material, and such inferences as are properly available from it, needs to be assessed against the prohibition contained in cl 12.1(h) of the partnership agreement. The assessment is to consider whether a prima facie case has been made out. As Gummow and Hayne JJ observed in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65], the requirement to show a prima facie case does not mean that the applicant must show that it is more probable than not that at trial that it will succeed. What is required, their Honours said, is that the applicant "show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial". 41The assessment of the strength of the case needed to be shown depends, among other things, on the nature of the rights asserted and the practical consequences likely to flow if relief is granted on an interlocutory basis. Thus, consideration of whether or not there is a prima facie case in the requisite sense directs attention, among other things, both to the consequences of granting relief and to the consequences of withholding it. 42The first question is, obviously enough, what is meant by the words of cl 12.1(h). It seems to me that they are intended to restrain Mr Renshaw, during the period of restraint, from taking away from the partnership any of its employees. The words used are very wide indeed (see at [27] above); I will not repeat them. 43In Stacks/Taree v Marshall (No.2) (2010) NSWSC 77, I said at [122], in the context of a clause prohibiting solicitation of customers or clients, that an injunction against solicitation and likewise an undertaking not to solicit, do not prohibit only a narrow range of conduct. I referred to the judgment of Stein JA (with whom Sheller JA and Fitzgerald AJA agreed) in Barrett v Ecco Personnel Pty Ltd (1998) NSWCA 30 at [30]. Stein JA said that one does not look at solicitation "in a highly mechanical fashion". His Honour acknowledged that ordinarily solicitation means that the person prohibited from soliciting makes the first approach; but that it may extend also to cases where, the first approach having been made by the customer, the prohibited person then asks for, or seeks to undertake, the business of the customer. 44Thus, I said at [123], soliciting may occur in two situations. The first was where the "solicitor" makes the first approach to the "solicitee". The second was where, the "solicitee" having made the first approach, the "solicitor" thereafter sought the business or custom of the "solicitee". 45Making appropriate adjustments for the relationships at issue in this case, that is the approach that I propose to take. 46I do not see how a person who is prohibited from approaching, canvassing, soliciting or endeavouring to entice away an employee can be held not to act in breach of that obligation in circumstances where it is shown that the person prohibited has negotiated with the employee for the terms on which the employee will work in the future for the person restrained. That is a rather clumsy form of expression. But I do not think that cl 12(h) is directed only to "first approach". 47In this case, there is an inference available, from the relationship existing between Messrs Renshaw and McLachlin for some years before they joined GDL, from the terms of Mr McLachlin's conversation with Mr Gillis on 22 March 2013, and from the email chains or correspondence to which I have referred, that Mr Renshaw was active in arranging for Mr McLachlin to leave GDL and to join MWL. 48Whether or not that case will be made good at trial is not the point. It is sufficient to say that in my view, there is a firm basis, in the evidence, for thinking that it may be. 49Thus, returning to the question of "prima facie case", it is necessary to consider the consequences of granting and withholding relief. 50The starting point is (as I observed earlier) that Mr Stewart accepted that his client was probably "stuck with" the terms of the contract of employment that on the face of the evidence, Mr McLachlin had signed. That contract, again on its face, permits Mr McLachlin, when he leaves, to do work for QBE CTP. It also permits him to leave on short notice; and it is not suggested he has given insufficient notice. 51Although it is not strictly speaking necessary, I should say it does not strike me that the restraint's exception, to permit Mr McLachlin after ceasing employment to work for QBE CTP, is unusual. Such evidence as there is of the terms on which GDL offered employment or partnership, to prospective employees or partners, suggests that the offerees, (if I can call them that) brought with them a business or professional connection, with CTP insurers, that GDL perceived to be of value. In those two cases, that connection was apparently with Allianz. In those two cases, there was an express preservation of the right, on termination of employment, to work for Allianz (notwithstanding the otherwise general prohibitions). 52A similar inference can be drawn, although with less clarity, from the terms of the two partnership deeds that are in evidence, one for Mr Renshaw and one for another partner. 53Further, and whilst I am on this diversionary path, I should note that it appears to be clear that the draft offer given to Mr McLachlin was fashioned on an offer made to one or other employee back in June 2012, in each of which offers the exceptions for Allianz CTP occurred. Thus, one could infer that the drafter of the offer to Mr McLachlin accepted that it was appropriate that Mr McLachlin should have an exception, to the general restraints, in respect of work that he brought with him. Obviously enough, that exception would not be for Allianz work (because Mr McLachlin does not seem to have had any connection with Allianz). On the contrary, it seems to me to be consistent with what the evidence shows of GDL's practice that there would have been an exception, in Mr McLachlin's case, for QBE CTP. 54I return to the question of prima facie case. On the view that I take of the contract, it is open to Mr McLachlin to leave (as he has said he will do) on short notice. Thus, even accepting Mr Gillis' evidence that it will be difficult, and might take some time, to obtain a replacement employee, that is a risk to which GDL is exposed in any event. 55Secondly, and accepting that if Mr McLachlin does leave he will take with him the QBE CTP work that he brought, that again is something that he is permitted to do by reference to the terms of his contract of employment. 56So viewed, the consequences of withholding relief are in substance consequences that will follow if in any event Mr McLachlin leaves and goes somewhere else. 57If relief is granted, Mr McLachlin will be prevented from undertaking the employment that he has negotiated with MWL. GDL say that they are willing to have him back. However, it appears, Mr McLachlin may not be willing to return. Thus, if relief is granted, he may be out of a job. To some extent, if that happened, it will be his own problem, because there is a job open for him at GDL. Thus, the weight of this factor is not of decisive import. 58However, what seems to me to be the key question is the related one of adequacy of damages. If, on a final hearing, it should appear that GDL was entitled to the relief that it now seeks, but if that relief is withheld, then one way to measure the cost would be to look at the earnings generated by Mr McLachlin in the course of his employment by MWL. On the hypothesis on which I am now approaching the matter, GDL would be entitled to damages or, at its election, an accounts of profits against Mr Renshaw. One would expect that there would be adequate records to enable the loss, or the profits to be quantified. 59That seems to me to have at least dual significance. First, it is yet another factor to be taken into account in assessing the matrix against which the question of prima facie case is to be considered. Secondly, and in terms of a traditional basis of refusing interlocutory injunctive relief, it suggests that damages would be an adequate remedy (or, in this case, damages or something approaching them in a practical sense, although conceptually distinct, in equity: namely, account of profits). 60Weighing all those factors as best I can, and paying particular attention to what I perceive to be the disconnect between at least two aspects of the damage that Mr Gillis asserts his firm will suffer should Mr McLachlin be permitted to leave and join MWL and the contractual realities, it seems to me that this is not a case where it is appropriate to grant interlocutory relief of the injunctive nature sought. I say that because it seems to me that the preservation of the legitimate interests of GDL require no more than that MWL, or Mr Renshaw, be compelled to maintain records which will enable an assessment of the loss to be made in the event that on a final hearing, GDL is held entitled to succeed. 61Put shortly, it seems to me that when one has regard to the strength of the case and to the balancing factors that are to be taken into account, this is a case where it would be disproportionate to grant the injunctive relief sought on an interlocutory basis. In reaching that conclusion, I take into account (although it is not a matter addressed at any length in the submissions) that although no doubt the plaintiffs would be good to stand behind their undertaking as to damages, the quantification of damages (should the interlocutory relief sought be granted and later held to be unjustified) would be a matter of some complexity. 62For those reasons I do not propose to grant the relief sought. I will however grant relief directed at ensuring that the defendants keep proper records of any work brought to them by Mr McLachlin (should he take up employment with them) and of the revenues derived from that work. 63I will leave it to counsel to bring in short minutes to give effect to these reasons and to provide the directions for the future conduct of the litigation.