Harlow Property Consultants P/L v Byford [2005] NSWSC 658 | Case summary

" Confidentiality: You will not, during your employment or thereafter without the Company's prior written consent or as otherwise required by law, disclose directly or indirectly to any person for any reason other than the conduct of the Company's business any trade secrets or confidential information of the Company that may come to your notice during the course of your employment, nor will you during your employment of (sic) thereafter without the Company's prior written consent or as otherwise required by law use any part of the Company's trade secrets or confidential information other than is required in the performance of your duties. Such secrets or information shall include but not be limited to all systems, techniques, names, and particulars of clients, prospects and contracts, sales database, listings and records which become known to you during the course of the your (sic) employment with the Company. For the purposes of this Clause but without limiting the same, it is acknowledged that the names of all landlords, bodies corporate and vendors on whose behalf the company manages and acts on the sale or lease of properties, and the addresses of these properties shall be confidential information and you shall not during the course of the your (sic) employment and thereafter disclose such information directly or indirectly for any reason other than the conduct of the company's business and shall not after completion of employment with the company endeavour to communicate in any way with such landlords, bodies corporate and vendors for the employee or on behalf of an employer. For the purposes of this clause but without limiting the same the employee agrees that he/she will not directly or indirectly, for a period of six months from the employee's termination of employment: (i) canvass, solicit or endeavour to entice away from the Company any of the clients or prospects of the Company introduced to the employer during the employee's employment by the Company, and (ii) disclose any information which may become known to the employee during the course of the employee's employment by the Company concerning properties for sale or lease, listed with or managed by the Company at the date of termination of employment. Such listings shall include properties known or suspected to be offered for sale or lease. (iii) act or work in any way that competes with the interests of Harlow Property Consultants. Such would include employment in any Industrial/Commercial Agency active on Sydney's North Shore. " 10 On 23 May 2005, the defendant gave two weeks' notice of resignation of his employment. However, he ceased work on that date. Subsequently, he took up employment with the North Sydney office of Jones Lang LaSalle. It is a competitor of the plaintiff and has a real estate agency which deals with industrial and commercial properties on Sydney's North Shore. There is no issue that the taking up of that employment contravenes the last paragraph of the restraint clause which I have quoted. The defendant says, however, that the clause is not a valid restraint. He denies that he has misused any confidential information, solicited any of the plaintiff's clients, or that he threatens to do so. 11 The plaintiff says that during the course of his employment the defendant acquired detailed knowledge of: " * The plaintiff's past and current customers; * Potential future customers of the plaintiff, otherwise known as 'prospects'; * The properties which the plaintiff has, or has had, 'on its books' for rent or sale; * Properties which the plaintiff was considering as possible future business opportunities (whether rental or sale), not currently 'on the books' of the plaintiff; * The way the plaintiff operates its business generally. " 12 It was the plaintiff's practice to circulate amongst its sales employees a marketing summary setting out the details of the properties being offered for sale or lease. It also circulated amongst its sales employees a list of potential properties for sale or lease and details of persons actively seeking properties. The defendant was privy to this information. 13 In short, the defendant had dealings with clients of the plaintiff. He sought out new customers for the plaintiff. He knew what properties the plaintiff was marketing. He may have known of other properties of existing clients which might later become available for sale or lease and where the client would require the services of a real estate agent. During his employment, he is likely to have made enquiries about leases which were likely to come to an end so as to identify a property for which the owner might be seeking a new lessee. He may have identified tenants who would be looking for new places to rent. He would have been informed of the marketing efforts made by others in the plaintiff's office. 14 The plaintiff characterised all of this knowledge and information as confidential information which it was entitled to protect, as well as constituting its customer connection which it was also entitled to protect, including by a covenant against the defendant being employed by a competitor. 15 Although the claim is for an interlocutory injunction, as the period of restraint which is sought is only for six months, the grant or refusal of an interlocutory injunction may substantially resolve finally the relief to which the plaintiff is entitled. Whilst the usual principles for the grant of an interlocutory injunction apply, in seeing where the balance of convenience lies, it is relevant to assess the strength of the plaintiff's case. (Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536). 16 I will deal first with the balance of convenience, or, to put it another way, the risks of doing injustice according to whether the injunctions are granted or refused. 17 The plaintiff says that in his new employment, the defendant could use his knowledge about the plaintiff's actual and prospective clients, and use his knowledge which he derived during his employment about opportunities for new sales and lettings, to the plaintiff's commercial detriment. 18 The defendant counters that if the covenant against employment is enforced, he will lose his job. I accept that that is likely. Jones Lang LaSalle has no place for him, except in its North Sydney office. As a relatively young man who has not earned substantial wages or commission, (and some of the commission derived during his employment with the plaintiff is yet to be paid to him), I accept that that would be a real hardship. 19 If the interlocutory injunction is refused, but it is held at a final hearing that the plaintiff is entitled to the final relief which it seeks, its damages would be difficult, if not impossible, to quantify. In any event, there may be no point in the plaintiff pursuing the defendant for damages. Damages would not be an adequate remedy. 20 On the other hand, if the injunction were granted, but the defendant succeeded at a final hearing, he could have difficulty in fully quantifying a claim to enforce the plaintiff's undertaking as to damages. His arrangements with his present employer include a component for commission. It would be impossible for him to say what sales he would have made for Jones Lang LaSalle, and hence impossible for him to quantify what commission he may have lost due to the grant of the injunction. 21 On the balance of convenience, the scales are weighted in favour of the defendant, although not heavily so. 22 I turn then to the strength of the plaintiff's case. 23 The law regards all covenants in restraint of trade as prima facie void. They are valid only to the extent that they go no further than reasonably necessary to protect the interests of the covenantee, and they must be reasonable in the interests of the public. No separate public interest is involved here. 24 In deciding what may be reasonably necessary to protect the interests of the covenantee, different approaches are taken depending on the relationship of the parties. A restraint imposed by an employer on his employee is examined more strictly than a restraint between parties to other relationships, such as vendor and purchaser of a business, or partners. 25 Covenants that restrain an ex-employee from competing with his or her employer are invalid unless they are reasonably necessary to prevent disclosure of trade secrets or confidential information, or the use of a connection built up by the employee with the employer's customers. (Heydon, The Restraint of Trade Doctrine, 2 ed, p 66; Herbert Morris Ltd v Saxelby [1916] 1 AC 688; Lindner v Murdock's Garage (1950) 83 CLR 628.) In the latter case, Latham CJ said (at 633-634): " Where an employee has access to trade secrets or other confidential information he may be restrained by agreement from communicating those secrets or such information to other persons, and particularly to competitors in trade with his employer. Again, an employee who is brought into personal contact with his customers of his employer may by agreement effectively bind himself to abstain after his term of service has been completed from soliciting the customers of his former employer. In these cases the covenant in restraint of trade is not a covenant against mere competition but is a covenant directed to securing a reasonable protection of the business interests of the employer, and in the circumstances is not unjust to the employee. The interest which can validly be protected is the trade connection, the goodwill of the business of the employer." 26 Fullagar J said (at 650): " There may, of course, be cases in which the employer has no interest which can legitimately be protected by any covenant in restraint of an employee's trade. But, generally speaking, if there is an interest which may legitimately be protected - whether because the employee will learn trade secrets or because he will come into close relations with other customers or for any other reason - that interest may be protected not merely by a covenant against the unfair use and advantage as such but, within limits which will be jealously scanned to see that the restraint goes no further than is reasonably necessary, by a covenant restricting the actual carrying on of a trade or occupation." 27 I will deal first with the injunction sought in paragraph 2 of the summons. It covers the soliciting of both clients and "prospects" whose names or other contact details became known to the defendant during his employment. 28 There is authority for the proposition that the names of customers are an employer's property, which an employee can be restrained from disclosing. (Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 714). On the other hand, as the passage I have quoted from the judgment of Latham CJ in Lindner v Murdock's Garage makes plain, where a restraint is to be justified on the ground of protecting the employer's customer connection, it must apply to those customers with whom the employee has been brought into personal contact. If the employee has not had personal dealings with a customer, a restraint against future dealings after termination of the employment is, at least prima facie, a restraint on mere competition. I leave aside a case where a covenant against soliciting any customer of the employer might be justified on the ground of the employee's knowledge of his employer's trade secrets. 29 In Heydon, The Restraint of Trade Doctrine, 2 ed, the learned author says (at pp 91-92): " Without a covenant, employees can be stopped from competing during employment or making preparations to compete later, though they can canvass customers after the employment has ceased. But a covenant can prevent an employee from having any dealings with customers provided it is no more than is reasonably necessary to protect the employer's customer connection and prevent the employee using personal influence over the customers acquired while in that employment. This ' customer contact ' doctrine depends on the notion that ' the employee, by contact with the customer, gets the customer so strongly attached to him that when the employee quits and joins a rival he automatically carries the customer with him in his pocket '. … It is not enough for the employee simply to have contact with the customers, or to have had access to lists of customers. There must be some element in the employee-customer relationship which causes customers to rely on the employee and to regard the employee as the business to the exclusion of the employer. " (Citations Omitted). 30 It is apparent from Heydon J's discussions of the authorities at pages 125-126 in the Restraint of Trade Doctrine, 2 ed, that covenants against the soliciting by an employee of any customers of the employer, regardless of whether they were customers with whom the employee dealt, have, from time to time, been upheld. But in principle, a covenant against soliciting an employer's customers in general, and not only those with whom the employee has dealt, are wider than is reasonably necessary to protect the employer's customer connection and will be invalid, unless they can be upheld on the ground that they are reasonably necessary to protect the employer's trade secrets or confidential information. Otherwise the employer is not endeavouring to protect what he has, but to gain a special advantage which he could not otherwise secure by protecting himself from competition from his former employee. 31 This objection cannot be bypassed by the employer describing the identity of his customers as confidential information. 32 I consider that the order sought in paragraph 2 of the summons is too wide in its application to the soliciting of customers. Nonetheless I consider that an interim injunction against the defendant's soliciting of customers with whom he dealt during the course of his employment would not be too wide. There is some evidence of the defendant attempting to solicit such a customer, albeit that the evidence is hearsay and is denied by the defendant. The defendant's affidavit also discloses that there is a threat by him to canvass clients of the plaintiff with whom he had previously dealt and with whom the plaintiff did not have exclusive listing arrangements. Although the covenant against soliciting of clients is in my view too wide and would be invalid at common law, such apprehended breaches would nonetheless be liable to be restrained by virtue of subsection 4(1) of the Restraints of Trade Act 1976 (NSW). 33 Paragraph 2 of the summons also deals with the soliciting of prospective clients of the plaintiff whose names or contact details became known to the defendant. Except insofar as the defendant had dealings with such persons, the relief sought faces the same objection as the restraint in relation to existing clients. There may be a qualification to this. If the defendant knew of details of a particular proposed transaction, as distinct from the identification of a possible new client, he would be privy to confidential information which he would not be entitled to use in his new employment. That would be so whether or not he had had any personal involvement in the proposed transaction. However, no particular proposal of such a kind was referred to in the plaintiff's evidence. Nor did the plaintiff seek an injunction in those terms. 34 I consider that the plaintiff is entitled to an injunction until further order, or 22 November 2005, whichever occurs earlier, restraining the defendant, by himself, his servants or agents, from directly or indirectly canvassing, soliciting, or endeavouring to entice away from the plaintiff any clients or prospective clients of the plaintiff with whom the defendant dealt during his employment with the plaintiff. I decline the wider relief sought in paragraph 2. I also consider that there should be excluded from the scope of that order, any persons who are existing clients of Jones Lang LaSalle. 35 I turn then to the wider order sought in paragraph 1 of the summons which seeks to restrain the defendant's employment with the North Sydney office of Jones Lang LaSalle. 36 In support of that order, counsel for the plaintiff referred to paragraph 67 of the judgment of the Court of Appeal in Woolworths Ltd v Olson [2004] NSWCA 372. There, Mason P, with whom McColl and Bryson JJA agreed, said at [66] and [67]: "…The particular information is merely an exemplar of the type of valuable trade secret that Woolworths would have had a legitimate interest to protect, to the knowledge of the respondent, at the inception of the Service Agreement. 67 A recognised method of such protection is the procurement of a restraint upon the employee given access to such information taking up employment with a competitor whom he might be willing to provide with such information. A reasonable employment restraint is easier to enforce than a breach of confidence or breach of copyright claim; it removes the temptation for the former employee to offer and for the new employer to solicit confidential information; and it provides certainty of definition as regards the area of confidential information to be protected. These interests have been judicially recognised." 37 His Honour then referred to Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026, Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 333, and Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 at 43-834. 38 The Court of Appeal was there speaking of a clause restraining an employee from taking up employment with a competitor which was justifiable on the ground that it was reasonably necessary to protect the employer's trade secrets. In the course of his careful submissions, Mr J Clarke of counsel, who appeared for the defendant, submitted that the only proper justification of a covenant against employment with a competitor is where such a term is necessary to protect the employer from disclosure of trade secrets. He submitted that the principal justification for such a term is where an employee has knowledge of secrets, such as secret manufacturing processes or pricing policies, and where it may be impossible for him not to use the knowledge which he has in his new employment. He submitted that where there is a covenant against non-soliciting or against disclosure of confidential information, which can be enforced by injunction, a court would rarely be justified in upholding a restraint against employment by a competitor on the ground that the employer fears that the injunction against soliciting or disclosure would be broken, and the breach go undetected. Courts do not assume that their orders will be breached. In this case, counsel said, the plaintiff's only real justification for a restraint was to protect its customer connection. The defendant knew no trade secrets, and it should not be assumed that the defendant would not obey an order against solicitation. Hence, the restraint against employment by a competitor was unjustified. 39 I think there is considerable force in these submissions. The rationale for a restraint against employment was explained by Lord Denning MR in The Littlewoods Organisation v Harris [1978] 1 All ER 1026 at 1033 as follows: " It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period. " 40 I doubt that a covenant against employment with a competitor can never be upheld as reasonably necessary to protect an employer's close relations with customers. That would be inconsistent with what Fullagar J said in Lindner v Murdock's Garage at 650 which I have quoted in paragraph 26 above. But, as his Honour said, any such covenant will be jealously scanned. 41 In his affidavits, Mr Harlow contended that the defendant had had access to the plaintiffs business methods. But there was no evidence that there was anything secret about the way the plaintiff conducted its business. (See Drake Personnel Ltd v Beddison [1979] VR 13 at 20). The defendant was in a junior position with the plaintiff and apparently now holds a junior position with his new employer. There is nothing to indicate that he had access to anything which could properly be regarded as a trade secret of which his new employer could take advantage. The covenant against employment with the competitor cannot be sustained on that ground. 42 It was also said that it was only through the defendant's employment with the plaintiff that the defendant developed experience in the letting and selling of industrial or commercial property on the North Shore. But the plaintiff is not entitled to be protected against the defendant's using his skills and experience in that area in competition with the plaintiff, except insofar as the plaintiff is entitled to be protected from his canvassing its customers or using confidential information. 43 I do not assume that the defendant will breach the order which I will make against solicitation. Nor do I assume that if he did so, that the breach would go undetected. 44 Taking into account the junior position of the defendant with the plaintiff, his modest remuneration, and the protection which the plaintiff enjoys from the covenant against soliciting customers to the extent to which it can have valid application under s 4(1) of the Restraints of Trade Act, I do not think that the plaintiff has a strong case for upholding the validity of the restraint against employment. I am not satisfied that the plaintiff has shown more than an arguable case to displace the presumption that the covenant is valid. The balance of convenience favours the defendant. For these reasons I refuse the interlocutory relief sought in paragraph 1 of the summons. 45 Upon the plaintiff, by its counsel giving the usual undertaking as to damages, I order that pending the determination of these proceedings or until further order, or until 22 November 2005, if that date occurs first, the defendant by himself, his servants or agents be restrained from canvassing, soliciting or endeavouring to entice away from the plaintiff any clients or prospective clients of the plaintiff with whom the defendant dealt during his employment with the plaintiff, except persons or companies who are existing clients of Jones Lang LaSalle. 46 The undertakings which have been given will expire by their own force today. 47 Having regard to the undertaking which the defendant proffered, the appropriate order is that the costs of the application for interlocutory relief be the defendant's costs in the proceedings. 48 I stand over the proceedings to the expedition list on 1 July 2005. The plaintiff's notice of motion in support of its application for expedition and affidavit in support of that application should be filed and served by 5.00 pm on 28 June 2005.

Harlow Property Consultants P/L v Byford

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