Interlocutory injunction - Contracts of employment - Implied terms for reasonable notice - Fidelity - Serious question to be tried - Whether defendants using breaches of employment contract to springboard into competition with employer

American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396

Blyth Chemicals Ltd v Bushnell [1933] HCA 8; (1933) 49 CLR 66

Rankin v Marine Power International Pty Ltd [2001] VSC 150

Rocket Records Pty Ltd v While [2001] VSC 368

1 This matter came on for urgent hearing of an application by the plaintiff for injunctive relief against the four defendants. I heard the matter on Friday evening 12 July 2002 from 4.30 pm to about 9.30 pm, following which I dismissed the application as against the fourth defendant and ordered that the plaintiff pay his costs in any event.

2 Although there is some evidence that the fourth defendant accessed confidential information, there is no sufficient evidence that he intends to use that information or be involved with the other defendants. It would appear that action for injunctive relief was contemplated some days before, but Mr Durston was not served until lunchtime Friday 12 July 2002.

3 In the circumstances, I do not consider that the plaintiff made out a case for an injunction against him at this stage and that is why I dismissed the application as against him.

4 I indicated to the parties that I would take time to consider the submissions and affidavits and deliver a decision this morning Monday 15 July 2002 at 9.30 am. In the event, because of an advertisement which appeared in "The West Australian" on Saturday 13 July 2002, I have received further affidavits and heard further submissions which I have also taken into account.

5 However, the parties will appreciate that because of the urgency of these proceedings, especially as the defendants intend to commence trading today, these reasons are somewhat more abbreviated than might have been the case otherwise.

6 The parties filed a number of affidavits with exhibits. The defendants' affidavits consist in part of denials. Their counsel Mr J Gilmour QC advised that because of the shortness of time not every matter had been traversed and I should treat contentious matters as if denied.

7 In addition to the affidavits, I also took sworn evidence on one point from the first defendant Mr Yukich. It is of course not my function at this stage to resolve disputed issues of fact. However, it is necessary to make an assessment of possible inferences which may be drawn in favour of the plaintiff in order to determine whether the plaintiff has at least established a serious question to be tried.

8 The plaintiff, Hartleys Ltd, carries on business as a stockbroker and provides financial and advisory services. Mr Yukich has been employed by the plaintiff for 11 years and as a senior investment adviser. In April this year he formed a company, Fastbreak Holdings Pty Ltd, which has changed its name to Entrust Private Wealth Management Pty Ltd, the second defendant.

9 Mr Yukich was employed by Hartleys entirely on commission. He had a group of employees answerable to and working for him. This group seems to have been known as the "Yukich Team". They are Ms Baker-Argyle, the third defendant, Ms Emma Joel, Ms Sarah Vadala, Mr Leon Cheah and Ms Amanda Meyn. Mr Jeremy Durston, the fourth defendant, had been a member of the Yukich Team until 4 June 2002 when he resigned from Hartleys.

10 On 1 July 2002 Mr Moore, who is the CEO of Hartleys, met with Mr Yukich at the Hyatt Hotel to discuss information he had received that Mr Yukich was planning to start his own business as a financial and investment adviser. Mr Yukich says that at the meeting he "in no way confirmed during the course of 1 July that I was in fact setting up a business". This displays, at the least, a lack of candour by an employee to an employer because Mr Yukich has deposed that by about 12 June 2002 he decided to start his own business and on that day he executed an agreement to lease premises. Ms Baker-Argyle attended the meeting at some point.

11 I am mindful of the haste with which this matter has been prepared and Mr Gilmour's submission about the traversing of matters. However, I note that Mr Yukich and Ms Baker-Argyle do not directly deny the substance of Mr Moore's account of the conversation and, in particular, par 18 of his affidavit, which reads:

"I then asked Yukich whether he was going to take all the Yukich Team with him. Yukich said that he was not comfortable discussing that issue. I then said that if he dealt with Hartleys' staff or clients when he continued to have obligations to Hartleys then Hartleys would be very concerned. Yukich responded by saying that the only member of Hartleys' staff that knew of his decision to leave was Baker-Argyle. He said Baker-Argyle was going to join him. He said he had taken legal advice and was aware that he would be breaking employment contracts if he discussed with the members of the Yukich Team the prospect of them leaving Hartleys and joining him and Baker-Argyle. He said he understood that him reaching an arrangement with Baker-Argyle would have the same consequences but it would be impossible for him to coordinate such a move without her full assistance."

12 Mr Yukich does confirm that he had discussions with Ms Baker-Argyle in relation to a potential or actual departure from Hartleys. On 1 July 2002, Mr Yukich's mobile phone, supplied by Hartleys, was disconnected. On 2 July 2002 Mr Moore sent letters to each Mr Yukich and Ms Baker-Argyle seeking answers to specific questions. Instead of providing answers to these questions, on 3 July 2002 each tendered their resignations effective immediately.

13 On 3 July 2002, the solicitors for Mr Yukich and Ms Baker-Argyle wrote to Hartleys' solicitors on behalf of Ms Joel, Ms Meyn, Mr Cheah and Ms Vadala indicating that they acted for each and that each had resigned with effect from 12 July 2002. Each had supplied a medical certificate for absence between 2 to 5 July 2002. On 4 July 2002, Hartleys' solicitors wrote to Mr Yukich's solicitors indicating their view that the notices of termination were invalid due to the lack of reasonable notice. Hartleys did not elect to treat the employment contracts as at an end but required their attendance at work. Neither Mr Yukich nor Ms Baker-Argyle has attended since. By separate letter of 4 July 2002 Hartleys sought the return of a laptop computer which was kept by Ms Baker-Argyle in a cupboard behind Mr Yukich's desk. The letter sought the laptop's return and also said:

"... We also remind your clients that any information on the hard drive of the laptop computer (including any disks), belong to our client and therefore, may not be edited, deleted, copied or used in any other manner inconsistent with your clients' employment obligations to our client."

14 On 5 July 2002 the defendants' solicitors acknowledged that "... our client is currently in possession of the laptop computer and ... they (sic) will arrange for it to be delivered ... as soon as possible." On or about 9 July 2002 Ms Baker-Argyle returned the computer. There is evidence, at present uncontradicted, that the hard disk has been wiped clean in a manner consistent with deliberate sabotage.

15 The plaintiff has issued an endorsed writ seeking damages for breach of the employment contracts and for injunctive relief. I leave aside a claim for equitable compensation for breach of fiduciary duty against Mr Yukich. Little or no argument was addressed on this point. The first question is whether the plaintiffs have established a serious issue to be tried. To the facts outlined above can be added further facts.

16 Ms Baker-Argyle denies influencing any of the Yukich team to terminate their employment, as does Mr Yukich. Yet on a disk in her desk at Hartleys was found a copy of an email seeking business cards as follows. It is dated 20 June 2002.

"Hi Cathrina

Here are the details as requested. Graeme would like to use titles on the cards

Address:- Level 8, 30 The Esplanade

Perth, Western Australia

Graeme Yukich

Managing Director ... " -

"Cheryl Baker-Argyle

General Manager ..."

"* 1 possibly 2 Associate Advisors yet to be appointed

Leon Cheah

Paraplanner ..."

"Emma Joel / Diana De Luca * if Emma leaves, we will ask diana if she wants the position*

Administration Manager ..."

"Sarah Vadala

Administration Assistant

...

Amanda Meyn

Administration Assistant

..."

17 This telling document has so far received no explanation.

18 As I have mentioned, I reserved judgment over the weekend for me to consider the submissions and the evidence in more detail. On Sunday 14 July 2002 my Associate was phoned by the plaintiff's solicitor who had in turn been contacted by Mr Paganin on behalf of the defendants, drawing his attention to an advertisement which had appeared at p 59 of Saturday's edition of "The West Australian". The details of the contact have been more completely set out in Mr Paganin's affidavit sworn 15 July 2002. I pause to note that in drawing attention to the matter, Mr Paganin was properly complying with his duties as an officer of this Court.

19 The advertisement is at odds with both the thrust of the defendants' case and with the affidavits of Mr Yukich, and in particular Ms Baker-Argyle (sworn 12 July 2002), who deposes at par 25, "I have not, at any time, been offered employment by Graeme Yukich.":

20 The thrust of the defendants' case as at Friday night was in this respect perhaps illustrated by the rhetorical question posed by Mr Gilmour towards the close of argument, suggesting that the omission by the plaintiffs to have an affidavit sworn by Ms Joel would enable perhaps an adverse inference to be drawn. Yet this submission was made against a background that to the client's knowledge the team had been assembled. Of course Mr Gilmour was unaware of the advertisement when he made the submission. The advertisement also gives significance now to a lack of response by way of affidavit to the allegation concerning the business cards to which I have just referred. I refer to the advertisement which reads in part:

"'IT'S BUSINESS

AS USUAL'

____

Same team.

Same people.

Same leader.

Same high levels of service.

Same confidential and trusted advice.

Entrust Private

Wealth Management

It's a new name for the team you know."

21 The only inference I can draw from that is the advertisement it is aimed directly at the persons who were clients of both Mr Yukich and Hartleys. That seems to be abundantly clear.

22 I have read this morning and taken account of the affidavits of the Yukich Team to the effect that they did not know about Yukich and Baker-Argyle's resignation beforehand.

23 I note that they decided to take a leap of faith together and resign from Hartleys. They have not been offered any employment by Mr Yukich. Each however attended the photo shoot last Tuesday 9 July 2002 when arrangements were made for the advertisement. Each was to attend a dinner at a restaurant on Friday night 12 July when the expectation of all concerned was that they would be offered and would accept a job. In the event, these injunctive proceedings intervened.

24 There is an air of unreality in the explanations advanced through the affidavits. It seems clear to me that at the very least there was an understanding for employment and it was not necessary for Mr Yukich to say so expressly. I do not need to finally resolve these issues. It is sufficient for present purposes to say I consider that Hartleys has established a serious question to be tried. Mr Yukich and Ms Baker-Argyle were involved in poaching the Yukich Team while all were still employed at Hartleys. Additionally, Mr Yukich arranged for Ms Baker-Argyle's defection from Hartleys to his proposed company while he was employed as a senior investment adviser.

25 Mr Yukich was employed, without a written contract, on commission. A term of reasonable notice would be implied into his employment contract as a matter of law. Having regard to his position within Hartleys, I consider his resignation, without notice, raises a serious issue whether his purported resignation is effective. Reasonable notice does not generally equate with no notice.

26 Ms Baker-Argyle was employed on a written contract which requires 4 weeks' notice. It was submitted that the scope of her employment had altered in some way so that the work she was doing at the time of her resignation was different. At this preliminary stage I am unable to see how that would affect the written contract terms as to notice.

27 It is contended by each Mr Yukich and Ms Baker-Argyle that there is a custom in the industry that no notice is given. Mr Moore in his affidavit suggests to the contrary. I have noted this argument by the defendants but nevertheless conclude there is a serious question to be tried. If successful at trial a consequence would be that Mr Yukich is not presently free to offer employment to other former Hartleys staff.

28 The circumstances surrounding the laptop computer by themselves give rise to an inference that one or other of the defendants have had access to confidential information from Hartleys and have obscured this fact by having the computer hard disk wiped clean.

29 The evidence at this early stage strongly suggests that Mr Yukich planned the move to his own business for some time; incorporating a company, arranging telephone listings and seeking accommodation. The advertisement of 13 July 2002 is the latest manifestation. I am conscious that any injunction which may be granted might in effect be equivalent to final relief and have approached this and other issues with that prospect in mind and the special need therefore for a high degree of satisfaction.

30 I am satisfied that the plaintiff has established a serious case to be tried relating to breach of an employee's duty of fidelity and breach of the contract by failing to give reasonable notice.

31 There is an issue whether the repudiation of the contract has been accepted by the plaintiff. On the one hand, the plaintiff's solicitors promptly rejected the resignations as invalid and insisted on the performance of the contracts of employment. That position does not appear to have altered with respect to Ms Baker-Argyle.

32 However, Mr Moore's comments to the media raise real questions whether the plaintiff has in fact now elected to treat the contract with Mr Yukich as at an end. The reported comments are at variance with the plaintiff's stance in these proceedings. However, I do not consider this is fatal to Hartleys' application. Hartleys has satisfied me that here is a real risk of irremediable harm. If the defendants are not restrained in some way damages are unlikely to be fully measurable.

33 For the purposes only of considering an injunction, on the present evidence I am satisfied that there is a serious question that the defendants breached their contracts of employment by failing to act in good faith to their employer both in enticing staff away and obtaining confidential information for later use. I consider the balance of convenience would lie in the granting of some form of relief.

34 An injunction requiring the defendants to return to work should not be granted for a number of reasons, not least because any atmosphere of mutual confidence has obviously been destroyed completely.

35 I find the case of Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch 227 generally though not precisely analogous, the comments of Megarry VC at 243 generally persuasive:

"Above all, I think the courts must be astute to prevent a wrongdoer from profiting too greatly from his wrong. If without just cause a servant who has contracted to serve for a term of years refuses to do so, it is easy to see that the court is powerless to make him do what he has contracted to do: neither by decreeing specific performance nor by granting an injunction can the court make the servant perform loyally what he is refusing to do, however wrongfully. If such an order were to be made, the ultimate sanction for disobedience is committal to prison; and this, far from forcing the servant to work for his master, would effectively stop him from doing this. But why should the court's inability to make a servant work for his employer mean that as soon as the servant refuses to do so the court is forthwith disabled from restraining him from committing any breach, however flagrant, of his other obligations during the period of his contract? I would wholly reject the doctrine of automatic determination, whether in its wide form or in its narrowed version."

36 I would extend the principle Megarry VC lays down to cases where a breach has occurred during the term of employment though the benefits of the breach are not fully realisable until the employment contract has finished. It would not be just to let an employee use his or her breaches to allow him or her to springboard directly into competition with the former employer by using the employer's business as the springboard.

37 An injunction should not be wider than necessary for the interests of justice. This is particularly so in respect of an interlocutory injunction, especially one that has several indicia of final relief. Because I would not order the defendants to return to work, I do not think it fair to prevent them from making a living. I would not make an order proposed by par 1(a) of the minute of proposed orders.

38 Furthermore, I would not be prepared to grant injunctive relief for a period longer than necessary, by which I mean sufficient time for the plaintiff to make efforts to redress the damage. Another way of estimating the time is that the injunction extend for sufficient period to negate any advantage which may flow to the defendants if a trial should establish that they have breached their contracts of employment. In the exercise of discretion and the determination where lies the balance of convenience, I have noted that the defendants are protected to some degree by an undertaking as to damages. I do not have any evidence before me at this time to estimate the length of time during which the defendants should be restrained. There will be liberty to apply to vary or cancel the injunction.

39 I turn to the question of the employees. I have found that there is a serious question to be tried concerning the defendants' breach of employment contracts regarding enticing employees. However, I would not issue an injunction in discretion. Although there is a serious question to be tried, the employees have filed affidavits denying that they were enticed. They have made their own decision. Furthermore, I think they are the meat in somebody else's sandwich. An injunction notionally binding the defendants may drastically affect each of the employees. However, Ms Vadala, Ms Joel and Mr Cheah all have contracts providing for 4 weeks' notice. Each gave notice on 3 July 2002. The situation perhaps is unclear as to the plaintiff's final position. I was handed a note which, certainly by the first paragraph, indicates that the plaintiff is continuing to treat the contracts as binding. Mindful that the parties can apply on 24 hours' notice to vary the injunction, although I would not make a binding injunction quite in the terms of the minute, I will grant an injunction preventing employment of Ms Vadala, Ms Joel and Mr Cheah by the defendants until 1 August 2002.

40 I will otherwise make orders restraining the defendants from approaching or dealing with the plaintiff's clients until further order, restraining them from using confidential information and requiring them to make discovery on affidavit as to confidential information which is or has been in their possession.