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[2011] NSWCA 409
respondent. Leave to appeal and cross-appeal granted; appeal dismissed; cross-appeal allowed; Order 4 made by Ball J on 29 September 2010 set aside; appellants ordered to pay respondents’ costs of the appeal...
The Court of Appeal held that the separation deed fixed Mr Jardin’s employment termination date at 1 March 2011 and did not leave him free to end the employment contract earlier on three months’ notice. The employment contract’s restrictions therefore remained operative while the contract continued. The Court upheld the primary judge’s assessment that the restraints were reasonable in light of Mr Jardin’s customer relationships and access to confidential information. It rejected the use of the springboard doctrine to extend a contractual injunction beyond the term of the covenant, while explaining that springboard reasoning can matter in equitable claims involving confidential information and in assessing a restraint’s reasonableness. The Court also upheld the basis for orders against Jardim Investments, but limited that reasoning to preventing conduct that would frustrate the injunction against Mr Jardin. The appeal was dismissed, the cross-appeal allowed, and the termination-date declaration set aside.
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This appeal concerned the end of Lou Jardin’s long employment with Metcash, the interpretation of a deed governing his departure, and restraints that affected his proposed association with SPAR Australia, a competitor.
Mr Jardin had worked in the Metcash business since 1997 and became chief executive officer of IGA Distribution in 2000. Under an Employment Agreement made on 1 October 2004, he could terminate his employment by giving three months’ written notice. Metcash Trading could terminate by giving nine months’ notice, and it could summarily terminate in circumstances of serious misconduct: [42]-[45].
The Employment Agreement included restrictions on Mr Jardin’s conduct. Clause 3.2 prohibited him from acting in conflict with Metcash’s interests, accepting other employment or engagements without consent, competing with the business, and holding an interest above five per cent in another company, subject to stated exceptions: [44]. The agreement also contained confidentiality obligations that were to continue after termination: [45].
After Metcash decided to terminate Mr Jardin’s services, the parties negotiated a Deed of Release, entered on 19 February 2010. It provided for Metcash Trading to give nine months’ notice on 1 June 2010 and stated that Mr Jardin’s employment would end on the “Termination Date”, defined as 1 March 2011. The deed also required Mr Jardin to remain bound by his Employment Agreement obligations until then: [48]-[49], [63]-[64].
Mr Jardin began discussions with SPAR Australia in July 2010 about an investment and a possible role. SPAR operated in the grocery retail sector and competed with Metcash: [50]. The proposed transaction involved Jardim Investments, a company incorporated by Mr Jardin’s son and later directed by Mr Jardin. It contemplated a 51 per cent interest in SPAR Australia and an option to acquire the remainder: [51]-[53].
Metcash started proceedings and sought injunctions to enforce the restrictions. The primary judge found that Mr Jardin could terminate the Employment Agreement on three months’ notice, but also held that the restraints should operate until 30 November 2010, including 35 days beyond the period the judge considered to be the contractual restraint period. The extra time was based on the springboard or head-start doctrine: [5]-[7], [59]. The injunctions also affected Jardim Investments’ proposed investment and role.
Both sides appealed. By the time the Court of Appeal heard the matter in September 2011, the injunctions had expired. Campbell JA therefore considered whether leave was necessary, whether the proceedings had become moot, and whether any practical point justified hearing them: [1], [10]-[15]. The Court nevertheless granted leave because the substantial costs issue remained live and was bound up with the legal questions: [34]-[38].
The central contractual question was whether the Deed of Release preserved Mr Jardin’s earlier right to terminate on three months’ notice. Meagher JA concluded that it did not. The Deed’s subject matter was the agreed termination of Mr Jardin’s employment, and the parties had expressly agreed that it “will terminate” on 1 March 2011: [74]-[77].
Clause 8(c) stated that, except as otherwise provided, the Deed of Release and Deed Poll made up the entire agreement concerning their subject matter, excluding prior agreements: [69], [77]. The Court read this in context. The Deed preserved certain provisions of the earlier Employment Agreement, including Metcash’s notice right and the summary-dismissal provision. But it did not expressly preserve Mr Jardin’s separate right under cl 12.1(a) to terminate on three months’ notice: [78]-[80].
The structure of the deed reinforced that conclusion. It set out what would happen before 1 March 2011, including Mr Jardin’s duties, possible changes to his role, continuing remuneration and the timing of the Deed Poll: [79]-[81]. The express treatment of summary dismissal in cl 1(h) also mattered. The parties had addressed early termination in that circumstance, but not an early termination by Mr Jardin using the old notice right. Meagher JA considered it unlikely that, having agreed on a termination date, they intended to leave the outcome uncertain: [80]-[83]. The result was that Mr Jardin’s 26 July notice had no effect and the employment contract terminated on 1 March 2011: [83].
The Court separately considered whether the restraints continued after the employment relationship had changed or Mr Jardin had stopped performing his former duties. It agreed with the primary judge that the relevant point was the continuing contract, not whether the practical employment relationship was still active. The Employment Agreement imposed duties and prohibitions on Mr Jardin as “Employee” for the period the contract remained current. Clause 1(f) of the Deed of Release confirmed that he continued to be bound by the Employment Agreement’s obligations: [84]-[86].
On reasonableness, the Court applied the test that a restraint must not exceed what is reasonably necessary to protect the employer’s legitimate interests and must not be injurious to the public: [87]-[88]. Metcash’s asserted interests included customer connections and confidential information. The primary judge had found that Mr Jardin developed close personal relationships with important customers over roughly ten years, and could use his influence to undermine those relationships: [92], [98]. Meagher JA held that an employer need not prove that an employee could control a customer’s decision to stay or leave. The employer could protect itself against the possibility that the employee would use personal knowledge and influence to damage the business connection: [95]-[98].
The confidential-information findings were also significant. Mr Jardin had access to Metcash’s strategy documents, business plans and commercial terms with customers. The Court accepted that a competitor could use knowledge of Metcash’s perceived weaknesses, plans and customer arrangements to formulate competitive offers or respond to Metcash’s activity: [99]-[102]. It also accepted that a sufficiently large investment in a competitor could create an incentive or opportunity to use confidential information or customer influence: [103]-[104].
The 12-month period was assessed in light of Mr Jardin’s seniority, his decade as CEO, his access to information and relationships, and the fact that the restraint was agreed in a deed negotiated by represented parties while he remained employed and paid: [105]-[107]. The Court found no error in the primary judge’s conclusion that the restraints were reasonable: [107].
The Court’s analysis of springboard relief drew a firm distinction between equitable obligations and contractual covenants. The doctrine can address an unfair advantage gained through misuse of confidential information, including by restraining use while that advantage remains: [111]-[115]. But an injunction enforcing a contractual negative covenant must be directed to a covenant that is still in force. Once the period of the covenant ends, there can be no breach of that covenant to restrain: [116]-[118]. The primary judge’s additional 35 days therefore could not be justified simply by measuring a head start obtained through breach: [118].
The result on the cross-appeal nevertheless meant that the Employment Agreement continued until 1 March 2011. That resolved the termination-date issue without requiring any extension of the contractual restraint beyond its own term. As the injunctions had already expired, the Court declined to amend them retrospectively or make a declaration about their enforceability up to 1 March 2011: [128]-[130].
The judgment did not purport to establish an entirely new doctrine of springboard relief. It explained the doctrine’s operation by reference to earlier authorities and clarified the distinction between a contractual claim and an equitable claim.
Before this decision, the authorities discussed by Meagher JA recognised springboard relief in cases involving misuse of confidential information. In Saltman Engineering, confidential drawings had been used to save labour and calculation. In Terrapin, the court described the unfair competitive advantage gained through confidential use as a “springboard”: [111]-[112]. The advantage could justify restraining use for the period it was reasonably expected to continue, or support other equitable remedies: [113].
The Court stressed that the advantage must be assessed in the context of the facts, not treated as an automatic or artificial measure of relief. It referred to the Court of Appeal’s discussion in United States Surgical Corporation v Hospital Products International Pty Ltd, which said that a head start may represent the gain in a particular case, but that the remedy must reflect the actual gain: [115].
The clarification in Jardin is that this equitable reasoning does not, without more, extend a contractual restraint beyond its agreed duration. A court granting an injunction to enforce a contractual covenant must identify an operative negative obligation and a breach, actual or threatened, of that obligation: [116]-[118]. The judgment thus separates two questions. First, did misuse of confidential information create an equitable wrong capable of supporting relief? Secondly, does a contractual covenant remain in force and support an injunction? Metcash did not rely on an equitable breach as the basis for the additional 35 days: [109].
The judgment also explains that a possible head start can still be relevant in other ways within a contractual setting. It may support the reasonableness of a restraint at the time the agreement was made, or affect the construction of a contractual limit, including whether it is temporally restricted: [119]. Those propositions do not eliminate the requirement to establish the contractual basis for the injunction actually sought.
On employment restraints, the decision applied established principles concerning customer connections and confidential information. It clarified that “control” of a customer should not be treated as a requirement that the employee be able to dictate the customer’s allegiance. The protected interest is the employer’s connection and the employee’s ability to use personal knowledge and influence to undermine it: [95]-[98].
The judgment also applies the distinction between an employment relationship and the contract of employment. Although the distinction had been discussed in Visscher and Purcell, the terms of this Employment Agreement placed the obligations on Mr Jardin while the contract remained current: [86]. The decision therefore turns on the particular wording, including cl 2.2 and the Deed of Release’s cl 1(f), rather than establishing that every employment restraint necessarily continues whenever a contract remains technically on foot.
The entire-agreement clause and the agreed termination date: [77]-[80].
The Court treated the subject matter of the Deed of Release as the termination of Mr Jardin’s employment. The deed replaced the earlier arrangement on that subject, except where it expressly preserved particular rights or obligations. In practical terms, the Court considered that an agreed end date of 1 March 2011 was inconsistent with Mr Jardin retaining a separate right to bring that date forward by notice.
The meaning of customer “control”: [95]-[98].
The judgment rejected an overly strict interpretation of expressions such as “control the customer’s business”. The employer did not have to show that the employee could decide whether a customer stayed or left. The relevant concern was whether the employee had acquired personal knowledge and influence that could be used to weaken the employer’s customer connection.
The confidential-information findings: [99]-[102].
The Court accepted that business plans and commercial terms could remain competitively sensitive even where some information might be known to industry participants or become dated. A competitor could benefit from knowing what weaknesses Metcash had identified, what responses it planned, and what terms applied to particular customers.
The contractual limit on springboard relief: [116]-[119].
The Court separated equitable relief for misuse of confidential information from an injunction enforcing a contract. If the contract’s restraint has ended, the injunction cannot enforce that expired covenant. A head start may matter in assessing an equitable remedy or the reasonableness or construction of a restraint, but it does not create a new contractual restraint by itself.
The limitation on orders against Jardim Investments: [124]-[126].
The company could be restrained where it served as a channel for conduct that would frustrate the injunction against Mr Jardin. But the Court cautioned that the company’s orders could only reach conduct that would amount to contempt of the orders against him. Meagher JA expressly did not endorse the form of the orders made.
The appeal’s practical utility: [34]-[38].
Although the injunctions had expired, the Court considered the costs sufficiently substantial to make the dispute practically significant. The point was not that every appeal about costs should proceed. The decision was based on the scale of the sums and the relationship between the costs order and the legal issues on appeal.
The contractual construction reasoning is most relevant where an employment contract gives an employee a termination right, but a later separation deed specifies a termination date and says that the employee remains bound by some existing obligations. The decision shows why the deed’s subject matter, entire-agreement clause, express preservation of selected rights, and treatment of early termination may need to be read together: [72]-[83].
The restraint analysis is relevant where a senior employee has sustained personal dealings with important customers and access to current business plans, strategy or customer terms. The judgment treats both customer connections and confidential information as potentially protectable interests, while tying the analysis to the evidence about the employee’s role and the information’s utility: [91]-[104].
The decision is also relevant where a restraint prohibits not only employment with a competitor but a significant investment or other financial involvement. The Court accepted that a substantial investment could create a relevant risk of using confidential information or customer influence, while emphasising the particular five per cent threshold and the primary judge’s findings in this case: [103]-[104].
The springboard analysis is triggered where a party seeks to extend an injunction beyond a contractual restraint period because the restrained person allegedly gained an early competitive advantage. The key distinction is whether relief is sought to enforce a continuing contractual covenant or to remedy an independently established equitable breach, such as misuse of confidential information: [109], [116]-[119].
Finally, the reasoning about third-party injunctions may arise where a company or other person is said to be acting as a means of doing indirectly what an individual is restrained from doing directly. The evidence and findings must support the connection between the third party’s conduct and frustration of the court order. The judgment limits this reasoning to preventing conduct that would constitute contempt of the order against the restrained person: [121]-[126].
The supplied judgment does not contain decisions made after 22 December 2011 that show how later courts treated Jardin. It would therefore be unsupported to say, on this source alone, that later courts followed, distinguished or limited the decision.
The judgment itself explains the earlier authorities that informed its reasoning. It distinguishes Landmark Underwriting Agency Pty Ltd v Kilborn because that case involved an injunction granted within the period of the contractual covenant, rather than an extension beyond it: [118]. It also discusses United States Surgical Corporation v Hospital Products International Pty Ltd as authority for assessing a head start according to the actual gain, not by applying an arbitrary formula: [115].
For the contractual injunction principle, Meagher JA relied on authorities including Dalgety Wine Estates Pty Ltd v Rizzon, Cardile v LED Builders Pty Ltd and Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd: [116]-[117]. The judgment’s reasoning is that the injunction must support an existing legal obligation, not create a fresh period of restraint after the contractual term has ended.
The Court also cited Wright v Gasweld Pty Ltd and Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd for the proposition that a possible head start can inform whether a restraint is reasonable: [119]. That is a different use of the concept from extending an expired covenant. Any account of subsequent treatment would require later judgments or other legal sources not included in the supplied material.
The judgment’s discussion leaves the application of springboard reasoning dependent on the legal source of the obligation and the evidence of the advantage. It did not decide how relief would have been framed had Metcash pleaded and established an equitable breach of confidence: Meagher JA expressly noted that different principles would apply, but did not determine that hypothetical claim: [109].
The decision also does not provide a general formula for measuring the duration of a head start. It refers to relief lasting for the period during which the unfair advantage is reasonably expected to continue, but the appropriate period will depend on the evidence and the nature of the information or advantage: [113], [115].
The reasoning on third-party injunctions does not approve the full form of the orders made against Jardim Investments. The Court stated that orders against the company could only prevent conduct constituting contempt of the orders against Mr Jardin, and that it was unnecessary to examine the form further because no relevant appeal ground was pursued: [126]. The precise drafting and evidential basis for such orders therefore remained unexamined in this appeal.
The judgment’s assessment of the restraints was tied to the facts at the date of the Deed of Release. It does not establish that a 12-month restraint, a five per cent investment threshold, or the same restrictions on employment and competition would be reasonable in another relationship. The Court relied on Mr Jardin’s senior role, customer contact, confidential information, negotiated deed and continuing paid employment: [88]-[107].
Nor did the Court decide the appeal on the basis of whether the 2010 injunctions should practically have continued until 1 March 2011. The injunctions had expired before the hearing, and the Court found no utility in retrospectively varying them or declaring their enforceability for that expired period: [128]-[130].
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Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 Coles v Wood [1981] 1 NSWLR 723 Coshott v Shipton Lodge Cobbitty Pty Ltd [2006] NSWCA 316 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 Doherty v Allman & Dowden (1878) 3 App Cas 709 Falamaki v Wollongong City Council [2001] NSWCA 55 Gardner v Dairy Industry Authority of New South Wales (1977) 18 ALR 55 Gilford Motor Co v Horne [1933] Ch 935 Gurr v Robinson (NSW Court of Appeal, 10 February 1986, unreported) Hansen v Slattery Transport (NSW) Pty Ltd [2011] NSWCA 193 Harbrett Pty Ltd v Butler (NSW Court of Appeal, 14 December 1989, unreported) Herbert Morris Ltd v Saxelby [1916] 1 AC 688 Heron v Port Huon Fruit-Growers Co-operative Association Ltd [1922] HCA 20; (1922) 30 CLR 315 Hope Downs Management Services v Hamersley Iron Pty Ltd [1999] FCA 1652 ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 Informax International Pty Ltd v Clarius Group Ltd (2011) 192 FCR 210 JC Williamson Ltd v Lukey (1931) 45 CLR 282 Jensen v Ray [2011] NSWCA 247 Kone Elevators Pty Ltd v McNay (1997) Aust Contract R 90-080 Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 Landmark Underwriting Agency Pty Ltd v Kilborn [2006] NSWSC 1108 Lindner v Murdock's Garage (1950) 83 CLR 628 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 Long v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCAFC 438 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 Marion White Ltd v Francis [1972] 1 WLR 1423 Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 Minister for Immigration and Multicultural and Indigenous Affairs v Al Masri [2003] FCAFC 70; (2003) 126 FCR 54 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 Pawlowska v Zajglic [2011] NSWCA 118 People with Disability Australia Inc v Minister for Disability Services [2011] NSWCA 253 Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1964] 1 WLR 96 Purcell v Tullett Prebon (Aust) Pty Ltd [2010] NSWCA 150 Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 Reid v Howard (1993) 31 NSWLR 298 Rentokil Pty Ltd v Lee (1995) 66 SASR 301 RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2011] FCA 423 Roger Bullivant Ltd v Ellis [1987] FSR 172 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 455 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 Seager v Copydex Ltd [1967] 1 WLR 923 Seaward v Paterson [1897] 1 Ch 545 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 Southern Cross Exploration NL v Fire & All Risks Insurance Company Ltd (No. 2) (1990) 21 NSWLR 200 State of South Australia v Lampard-Trevorrow [2008] SASC 370 Stenhouse Australia Ltd v Phillips [1973] 2 NSWLR 691; [1974] AC 391 Tchoylak v Minister for Immigration and Multicultural Affairs [2001] FCA 872; (2001) 111 FCR 302 Terrapin Ltd v Builders' Supply Co (Hayes) Ltd [1967] RPC 375 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Twenty-First Australia Inc v Shade (unreported Supreme Court of NSW, Young J, 31 July 1998) United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 Visscher v Giudice [2009] HCA 34; (2009) 239 CLR 361 Woolworths Ltd v Olson [2004] NSWCA 372 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Zhu v Treasurer of the State of NSW [2004] HCA 56; (2004) 218 CLR 530 Texts Cited: J D Heydon, The Restraint of Trade Doctrine, 3rd ed Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed Category: Principal judgment Parties: Joao Louis Jardin (First Appellant) Jardim Investments Pty Ltd (Second Appellant) Metcash Ltd (First Respondent) Metcash Trading Ltd (Second Respondent) Representation: Counsel: I M Neil SC / R Gration (Appellants) J J Fernon SC / M S White (Respondents) Solicitors: Clamenz Corporate Lawyers (Appellants) Freehills (Respondents) File Number(s): CA 2010/242993 Decision under appeal Citation: Metcash Ltd & Anor v Joao Louis Jardim (aka Louis Jardin) & Anor (No 3) [2010] NSWSC 1096 Metcash Ltd v Jardim & Anor (No 5) [2010] NSWSC 1342 Before: Ball J File Number(s): 2010/242993
Judgment 1CAMPBELL JA : There is a preliminary question in these proceedings about whether leave to appeal was needed, and if so, whether it should be granted. For the purpose of considering those matters, I will state in summary form some of the salient facts notwithstanding that they appear more fully in the judgment of Meagher JA. 2Mr Jardin had been an employee of Metcash. After he had fallen out with Metcash, and a dispute had arisen about the basis on which he and Metcash should part company, they entered into a Termination Deed. While it remained on foot, Metcash was obliged to pay him $56,185.75 per month, and he was bound by certain restrictive covenants that had been set out in his contract of employment (" the Employment Deed "). 3Mr Jardin gave three months notice on 26 July 2010, terminating the Employment Deed. There was a dispute in the court below about whether Mr Jardin was entitled to bring the Employment Deed to an end by three months notice, or whether (save in the case where he was summarily dismissed, a possibility that did not arise) the Employment Deed would not terminate until 1 March 2011. 4Before 26 July 2010, Mr Jardin had taken some preparatory steps towards commencing an association with SPAR Australia, a competitor of Metcash. In the court below, Metcash sought injunctions to enforce the restrictive covenants. 5The primary judge held that Mr Jardin was entitled to give the three months notice of termination of the Employment Deed, and thus that the Deed had come to an end on 16 October 2010. However, he held that the restrictive covenants should be enforced not only for the period to 16 October 2010, but also for an additional period of 35 days expiring on 30 November 2010. He explained that additional period as being justified under the "springboard" or "head start" doctrine, and as arising from the fact that over a period of 35 days in July and early August 2010 Mr Jardin had been conducting discussions with SPAR Australia concerning his proposed role with that company. 6On 29 September 2010 the primary judge made orders that restrained Mr Jardin and his family company up to 30 November 2010. Thus, the effective length of the restraint was a little over two months. 7In broad terms, the injunctions prohibited Mr Jardin from either acquiring more than a 5 percent interest in SPAR Australia, or taking any position as an employee, director or officer of SPAR. The effect of the injunction against Mr Jardin acquiring an investment in SPAR, was that a transaction then on foot whereby Mr Jardin's family company would invest $2 M in SPAR could not proceed until the injunction expired. 8On 22 December 2010 Mr Jardin and his family company filed a Notice of Appeal. It sought, in the most extensive of the claims for relief it made, that all the primary judge's orders be set aside. 9On 20 January 2011 Metcash filed a Notice of Cross Appeal. It sought orders extending the injunctions up until 1 March 2011, and sought the setting aside of a declaration made by the trial judge to the effect that Mr Jardin had been entitled to terminate the Employment Deed by three months notice. 10By the time the Notice of Appeal was filed, the injunctions that it sought to set aside had in any event expired by effluxion of time. 11If the Notice of Cross Appeal could have been heard as soon as it was filed, and if it had succeeded, the extension of the injunctions up to 1 March 2011 would have provided a practical point to the cross-appeal. However, by the time the matter actually came on for hearing in September 2011, that practical point had disappeared. 12Both the Notice of Appeal, and the Notice of Cross Appeal, purported to be filed without leave. Notwithstanding the requirements of UCPR 51.22 (which applies to cross appeals pursuant to UCPR 51.3), no affidavit was filed setting out the material facts on which either the Appellant or the Cross Appellant relied to show that there was an appeal, or cross-appeal, as of right. 13The filing of such an affidavit is no mere technicality. The jurisdiction of this Court to hear appeals exists only because it is conferred by statute. There are numerous types of decisions of courts or tribunals concerning which no right of appeal exists at all, and many types of decisions concerning which a right of appeal exists only if this Court grants leave to appeal. Orderly conduct of appeals requires that whether the Court has jurisdiction to hear a particular purported appeal, and if so the basis on which it has that jurisdiction, be established, and established early. 14The Appellants, after being reminded by the court, sought to remedy their default by filing an affidavit of the Appellants' solicitor in court on the day of the hearing of the appeal. The Court had raised the matter because of a concern about whether it was appropriate for the matter to proceed at all if success on the part of either side would have no practical consequences. 15Failure to seek leave, in cases when it is required, can lead to a purported appeal being dismissed as incompetent: Coles v Wood [1981] 1 NSWLR 723 at 727; Southern Cross Exploration NL v Fire & All Risks Insurance Company Ltd (No. 2) (1990) 21 NSWLR 200 at 210 (Kirby P), 214 (Mahoney JA), 218 (Handley JA). That is the consequence of the court lacking jurisdiction to hear the appeal if leave is needed but has not been granted. However, in cases where a respondent did not object to competency, or did not object to competency until the hearing of a purported appeal, the court has on occasions been willing to treat the purported appeal as an application for leave to appeal: Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69 at 3; Falamaki v Wollongong City Council [2001] NSWCA 55 at [18]. In the present case, the court permitted the hearing to proceed as a concurrent hearing. 16The affidavit of the Appellants' solicitor propounded two bases upon which the Appellants contended that the appeal by Mr Jardin was competent, and a separate basis upon which the appeal by his family company was contended to be competent. 17All those ways of justifying the competence of the appeal depended on s 101(2)(r)(ii) Supreme Court Act 1970 . There is an appeal as of right pursuant to that subsection concerning an appeal: "(ii) that involves (directly or directly) any claim, demand or question ... respecting any ... civil right amounting to or of the value of $100,000 or more." 18The first basis on which the Appellants contended that s 101(2)(r)(ii) is satisfied is that Mr Jardin commenced employment with SPAR Australia on 1 December 2010. A corporate entity associated with him has been paid approximately $256,666 (including GST) concerning that employment for the period 1 December 2010 to 1 March 2011. I would infer that, had he not been restrained by the injunction, Mr Jardin would have taken up employment with SPAR Australia approximately two months earlier than when he actually took up that employment. Had he taken up the employment, the remuneration during those two months would have been of the order of $128,333. 19However, I do not accept that that is sufficient to attract s 101(2)(r)(ii). 20The relevant question, for s 101(2)(r)(ii) is the value of the right involved in the appeal, not the value of any right that was involved in the proceedings below. That is a significant respect in which s 101(2)(r) differs from the provisions of s 35 Judiciary Act 1903 (Cth) on which it is loosely based: Blackmore v Browne; Kara Kar Holdings Pty Ltd v Blackmore [2011] NSWCA 114 at [31]-[32]; Hansen v Slattery Transport (NSW) Pty Ltd [2011] NSWCA 193 at [2]; Jensen v Ray [2011] NSWCA 247 at [10]-[12]. 21In Pawlowska v Zajglic [2011] NSWCA 118 at [14]-[21] I set out authorities to the effect that an appeal involves a claim, demand or question concerning a civil right amounting to or of the value of $100,000 or more only if success on the appeal would confer on the Appellant a benefit worth $100,000 or more. Success on the present appeal would not result in Mr Jardin having an entitlement to be paid the $128,333 that would have been paid had he been free to take up employment with SPAR from 29 September 2010. 22Another basis that the Appellants put forward is that if Metcash had succeeded in the court below in its contention that the Deed of Release continued until 1 March 2011, Metcash would have been liable under the terms of the Deed of Release to pay to Mr Jardin, during the additional period of 27 October 2010 to 1 March 2011, an amount slightly more than $224,743. 23In my view, that fact does not show that the appeal is competent. On the appeal, the Appellants do not assert any claim that the Deed of Release did not terminate until 1 March 2011. That fact does not provide a reason why the Appellants would be better off to the extent of $100,000 by succeeding in the appeal. 24The third basis on which competency is put forward is that the proceedings below also involved a claim, demand or question in respect of the family company's civil right to make an investment in SPAR Australia. It is contended that the value of that civil right was $2 m, the amount proposed to be invested. 25If the proposed appeal in the present case were to succeed it is not as though that would enable the Appellants to make an investment in SPAR that they could not otherwise make. All the injunction did was to delay their making of that investment for approximately two months, and those two months have now passed. 26Further, (if this matters, which I suspect it does not) even though the capital amount of the investment proposed to be made was $2 m, there is no evidentiary basis before us for concluding that a two-month delay in making a capital investment of $2 m itself has a value of more than $100,000. 27The primary judge ordered Mr Jardin to pay the costs of Metcash insofar as those cost related to the claim against him, and made no order as to the costs between Metcash and the family company. The affidavit that seeks to establish competency shows that Metcash's solicitors have claimed in excess of $686,000 from Mr Jardin pursuant to the costs order. Mr Jardin's own costs in the court below exceed $300,000, while Mr Jardin's family company's costs exceeded $100,000. 28The amount of those costs is not a matter that goes to whether s 101(2)(r) has been satisfied. Costs are left out of account for the purpose of calculating whether the $100,000 threshold has been passed, as that threshold concerns the amount at stake in the subject matter of the claim: Gurr v Robinson (NSW Court of Appeal, 10 February 1986, unreported) at 2-3 per Kirby P; Harbrett Pty Ltd v Butler (NSW Court of Appeal, 14 December 1989, unreported) per Gleeson CJ, Clarke and Meagher JJA agreeing); Built Interiors Pty Ltd v Three Dinosaurs Pty Ltd [2003] NSWCA 290 at [35] (Mason P, Meagher and Ipp JJA agreeing); Coshott v Shipton Lodge Cobbitty Pty Ltd [2006] NSWCA 316 at [14] (Basten JA). 29Thus, the appeal is not one that can proceed as a matter of right. 30The court always has power to act to ensure that its processes are not abused. One aspect of this power is that it can act to halt proceedings (including an appeal) that pose a question that has become moot, ie that will produce no foreseeable consequence for the parties. White J collected authorities concerning that principle in State of South Australia v Lampard-Trevorrow [2008] SASC 370 at [20]-[24]. "Courts do not ordinarily, as a matter of principle, determine proceedings which involve issues which are not live as between the parties. The aversion of courts to determining issues which are moot, hypothetical or academic is well known: Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at 582; Bass v Permanent Trustee Co Ltd [1999] HCA 9 at [45] [49], (1999) 198 CLR 334 at 355-357; Victims Compensation Fund Corporation v District Court of New South Wales [2002] NSWCA 355 at [27]; Rapson v WorkCover Corporation [2007] SASC 172 at [10]-[16], (2007) 98 SASR 86 at 90-92. In relation to an appeal, it was said by each of Mason J and Aickin J in Gardner v The Dairy Industry Authority of New South Wales (1978) 52 ALJR 180 that the Court should not determine an appeal which would produce 'no foreseeable consequences for the parties': Ibid at 188, 189 The authorities reveal a number of circumstances in which appeals have been dismissed or stayed because they had no practical utility. In Sun Life Assurance Co of Canada v Jervis [1944] AC 111 an insurer was granted leave to appeal to the House of Lords upon its undertaking to pay the costs of the appeal as between solicitor and client in any event, and upon its further undertaking not to ask for the return of any money ordered to be paid under the order which was the subject of the appeal. The House of Lords held that it was inappropriate to hear to the appeal. Viscount Simon LC said: 'The difficulty is that the terms put on the appellants by the Court of Appeal are such as to make it a matter of complete indifference to the respondent whether the appellants win or lose. The respondent will be in exactly the same position in either case. He has nothing to fight for, because he has already got everything that he can possibly get, however the appeal turns out, and cannot be deprived of it. I do not think that it would be a proper exercise of the authority which this House possesses to hear appeals if it occupies time in this case in deciding an academic question, the answer to which cannot affect the respondent in any way. If the House undertook to do so, it would not be deciding an existing lis between the parties who are before it, but would merely be expressing its view on a legal conundrum which the appellant which the appellants hope to get decided in their favour without in any way affecting the position between the parties ... Ibid at 113.' Similarly, in Hole v Insurance Commissioner [1962] VR 394 the Full Court of the Victorian Supreme Court refused to hear an appeal on learning that the judgment debt had been paid by the defendant prior to the hearing of the appeal and that the parties had agreed that the money should not be repaid, nor a retrial sought, should the appeal succeed. I note, however, that in GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558 at 566 the New South Wales Court of Appeal did not appear to consider the agreement of the insurer not to dispute its liability to indemnify the insured in relation to certain claims to be an impediment to the hearing and determination of one of the appeals then before it. The decision in Sun Life Assurance Co was applied by Starke J in Cadbury-Fry-Pascall Pty Ltd v Federal Commissioner of Taxation (1944) 70 CLR 362 at 386 in relation to taxation which the Commissioner had undertaken not to seek to recover, and was referred to with approval by Mullighan J, at first instance, in NZI Insurance Australia Ltd v Baryzcka and Anor [2002] SASC 16 at [6], (2002) 85 SASR 482 at 485. Other examples of circumstances in which courts have refused to hear appeals, or to grant permission to appeal, when the determination of the appeal would produce no practical consequence include Harrington v Rich [2008] FCAFC 61; (2008) 166 FCR 440; Secretary to the Department of Human Services v Magistrates' Court at Melbourne [2002] VSCA 171; at [19]-[21] (2002) 6 VR 140 at 147-8; Hope Downs Management Services v Hamersley Iron Pty Ltd [1999] FCA 1652 and Beitseen v Johnson (1989) 29 IR 336 at 338." 31Even concerning an appeal that was begun without any need for leave, the court has power to stay the appeal if later events show that the questions involved in it have become moot between the parties: Hope Downs Management Services v Hamersley Iron Pty Ltd [1999] FCA 1652 at [13]; Tchoylak v Minister for Immigration and Multicultural Affairs [2001] FCA 872; (2001) 111 FCR 302; AMACSU v Ergon Energy Corporation Ltd [2005] QCA 351 at [77]. 32However, the Court also has a discretion to permit such an appeal to proceed, if a practical point would be served by doing so: Bonan v Hadgkiss [2007] FCAFC 113; (2007) 160 FCR 29 at [8]. One circumstance that has been held to provide such a reason for proceeding with the appeal is if the decision is likely to affect other cases: People with Disability Australia Inc v Minister for Disability Services [2011] NSWCA 253 at [6], [13]-[15]; Long v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCAFC 438; Minister for Immigration and Multicultural and Indigenous Affairs v Al Masri [2003] FCAFC 70; (2003) 126 FCR 54; Hope Downs Management Services v Hamersley Iron Pty Ltd ; Bonan v Hadgkiss ; Marion White Ltd v Francis [1972] 1 WLR 1423 (where the enforceability of a standard form of restrictive covenant was in question - 1428B). Another is if a live question of costs depends on the outcome of the appeal: Lampard-Trevorrow at [25]-[27]. However, it is a question for the court whether a live issue in respect of costs should result in an otherwise moot appeal proceeding to full hearing and determination: Long v Minister for Immigration and Multicultural and Indigenous Affairs . 33These principles apply equally to whether it is appropriate to grant leave to appeal concerning a matter in which the question of whether the principal relief claimed should be granted has become moot. 34Mr Neil SC, counsel for the Appellants, submits that there are three matters that justify the grant of leave to appeal. The first is that there is a question of principle involved concerning whether the judge was correct in using the springboard doctrine as a basis for granting an injunction restraining the Appellants until a date that was 35 days later than the date until which they had contracted to restrict their activities. The second is that, even if the amount claimed by Metcash's solicitors under the primary judge's costs order is reduced somewhat on assessment, the costs order is likely to involve a very large sum of money. The third is that the correctness of the costs order turns on whether the judge was correct in restraining the Appellants at all, or alternatively in restraining them for the extra 35 days beyond the end of the contractual period. There is particular significance in those extra 35 days because the Appellants had made a Calderbank offer to restrict their activities, in the same respects as the restrictive covenant required, for five days beyond the end of the contractual period. 35Even though I accept that there is an important question of principle about the availability of the springboard doctrine in crafting an injunction to enforce a contractual obligation, I will not to base my decision about the granting of leave to appeal solely on the importance of that question of principle. It could only be in rare circumstances, if ever, that a court was justified in reaching a decision on legal question that had no practical consequences for either of the parties: Gardner v Dairy Industry Authority of New South Wales [1977] 18 ALR 55 at 60, 69. However, in the present case, the judge's application of the springboard principle is one of the matters that is relevant to his decision concerning costs. For that reason it, at least in the potential way in which the matter should be considered when deciding whether to grant leave to appeal, has practical consequence for the parties. 36In my view this is a case in which it would be appropriate to grant leave to appeal, even though the only practical consequence of success for the Appellants might be modification of the costs orders made below. The sums of costs involved are alarmingly large. The Respondent's claimed costs and disbursements for preparation and the hearing itself, average more than $100,000 per hearing date. That is an amount which makes one wonder whether, if that is the cost of litigating in the Supreme Court, the court is continuing to perform its public function of providing a forum for resolution of disputes that is in practical terms available to citizens who are in dispute. Even for a successful business executive like Mr Jardin the total amount of costs at stake would be significant. Notwithstanding the usual reluctance of the court to permit appeals that in practical terms relate only to costs, in the present case the sheer size of the costs is such that justice requires that the Appellants be given the opportunity to question the legal basis on which those costs were awarded. 37The competence of the cross-appeal has not been demonstrated. However, the issues that arise on the cross-appeal are so bound up with the issues that arise on the appeal that granting leave to appeal concerning the appeal requires the grant of leave to appeal concerning the cross-appeal. 38I have read the draft reasons of Meagher JA concerning the substantive issues raised in the appeal and cross-appeal. I agree with those reasons, and with the orders his Honour proposes. 39YOUNG JA: I affirm my agreement with Campbell JA on the preliminary issue as to the need for leave to appeal and the grant of such leave. 40On the merits of the appeal and cross appeal I agree with Meagher JA. 41MEAGHER JA: This appeal from a decision of Ball J concerns the enforcement of restraints given in the context of the termination of the employment relationship between Metcash Trading Ltd ( Metcash Trading ) and Lou Jardin ( Mr Jardin ). 42Metcash Trading is a wholly owned subsidiary of Metcash Ltd ( Metcash ), the listed holding company of a group which markets and distributes food and other consumer goods to independent grocery and liquor retailers. Metcash's principal operating subsidiary is IGA Distribution Pty Limited ( IGA Distribution ) which markets and distributes those consumer goods to IGA branded and non-branded grocery stores and accounts for over 80 percent of Metcash's net earnings. 43Mr Jardin commenced employment in the Metcash business in September 1997. In May 2000 he was appointed CEO of IGA Distribution. On 1 October 2004 Mr Jardin entered into an Employment Deed with Metcash Trading (the Employment Agreement ) under which his employment continued until terminated under cl 12. Clause 12.1(a) permitted Mr Jardin to terminate by three months' written notice. Clause 12.1(b) permitted Metcash Trading to terminate by nine months' written notice. Clause 12.2 permitted Metcash Trading to terminate summarily in the event of serious misconduct. 44Clause 3 of the Employment Agreement set out Mr Jardin's duties and what he was prohibited from doing. It provided: "3.1 Duties The Employee must: (a)perform the duties as may be specified by the Company from time to time whether for the Company or any Related Body Corporate; ... 3.2 Prohibitions Without limiting the Employee's duties to the Company, the Employee must not: (a) act in conflict with the Company's best interests; (b)accept or commence any other employment or engagement without the prior written consent of the Company; (c)compete with the business of the Company or any Related Body Corporate; or (d)hold or be interested in any investments which amount to more than 5 percent of the issued investments of any class of any one company except where agreed to by the Company or to the extent that any excess over 5 percent is attributable to his position as a representative of the Company." 45Clause 10 contained covenants as to the use and disclosure of confidential information which was defined. Clause 15 dealt with what should happen after the termination of employment. Clause 15(c) provided that Mr Jardin's obligations under cl 10 continued after termination other than in respect of information that was part of his "general skill and knowledge". The Employment Agreement did not otherwise contain restraints which continued to operate after the termination of employment. 46In August 2006, Metcash agreed to pay Mr Jardin a long term cash incentive in respect of the five year period ending 30 April 2010 provided certain earnings targets were exceeded. That amount was payable only if Mr Jardin was in full-time employment as at 30 April 2010. 47Over the period to January 2010, tensions developed between Mr Jardin and Mr Andrew Reitzer, the CEO of the Metcash group. On 3 February 2010, Mr Jardin was informed that Metcash had decided to terminate his services. From 5 February 2010 he ceased to perform any of the duties of the CEO of IGA Distribution. 48On 19 February 2010, Metcash and Mr Jardin entered into a Deed of Release. Clause 8(a) provided that Metcash executed it as the agent and trustee for its Related Bodies Corporate which included Metcash Trading and IGA Distribution. That agreement was negotiated by experienced workplace and employment lawyers acting for each of the parties. There are issues as to its interpretation and as to how it affected the continued operation of the Employment Agreement. 49On 17 February 2010, Metcash appointed Mr Silvestro Morabito as CEO of IGA Distribution. On 1 June 2010, in accordance with cl 1(a) of the Deed of Release, Metcash Trading gave Mr Jardin nine months' written notice terminating his employment. 50On 1 July 2010, Mr Jardin commenced discussions with Mr Leigh Carson, the CEO of SPAR Australia Ltd ( SPAR Australia ), in relation to an investment in that business. Those negotiations continued over the period from 1 July to 4 August 2010. SPAR Australia is a franchisor in the retail grocery industry. In mid-2010 it had about 150 franchisee stores similar to the IGA Distribution stores licensed by Metcash. It was a competitor of Metcash. 51On 16 July 2010, a number of things happened. Mr Jardin gave a written notice to Metcash Trading purporting to terminate the Employment Agreement "with immediate effect". Jardim Investments Pty Ltd ( Jardim Investments ) was incorporated. Its sole shareholder and director was Mr Christopher Jardim, who is Mr Jardin's son and was at the relevant time a medical student. SPAR Australia also issued a Media Release which stated: "Former CEO of IGAD and Executive Director of Metcash Limited, Lou Jardin, has offered to take a majority shareholding in SPAR Australia Limited in a deal the company says will significantly improve the competitiveness of its retailers. According to SPAR Australia Chairman, Miles Hedge, a Heads of Agreement was signed with Lou Jardin today and the Board will recommend the offer be accepted when it is put to shareholders at an Extraordinary General Meeting to be convened." 52At the time the Media Release was issued, there was a draft Binding Heads of Agreement between Mr Jardin and SPAR Australia. Later, on 16 July 2010, Jardim Investments was substituted for Mr Jardin as a party to that agreement. At the same time Mr Jardin replaced Mr Christopher Jardim as sole director of that company. He then signed the Binding Heads of Agreement on its behalf. That agreement provided for the acquisition by Jardim Investments of a 51 percent interest in SPAR Australia together with the grant of a call option to acquire the remaining interest. Clause 4 provided: "The Parties agree to negotiate in good faith and to the exclusion of negotiations with all others to enter into a Subscription Agreement and a pro forma Call Option Agreement by Friday August 13 th 2010 or such later date agreed between the Parties." 53On 21 July 2010, Metcash commenced proceedings against Mr Jardin in the Equity Division of this Court. On that day, Mr Jardin gave certain undertakings to the Court. On 26 July 2010, Mr Jardin gave a further written notice purporting to terminate the Employment Agreement with effect from 26 October 2010. He did so relying upon cl 12.1(a). On 12 August 2010, Mr Jardin resigned as a director of Jardim Investments and was replaced by his wife. On 20 August, Mr Christopher Jardim sent a circular communication to the shareholders in SPAR Australia describing what his "family" wanted to achieve by investing in that company and stating that as a "family business we are in this for the long term" and aim "to ensure the long term sustainability of the independent supermarket industry through ensuring that your stores are profitable and price competitive". 54Metcash Trading and Jardim Investments were added as parties to the proceedings and Metcash sought injunctions against Jardim Investments restraining it from entering into any agreement for the acquisition of shares in SPAR Australia. On 31 August 2010, following a contested application, the primary judge made orders that Jardim Investments be restrained "from acquiring or otherwise becoming interested in more than 5 percent of the issued investments of any class of SPAR Australia": [2010] NSWSC 936.
Issues before the primary judge which arise on appeal and cross-appeal 55There were six issues resolved by the primary judge by his judgment delivered on 28 September 2010 ([2010] NSWSC 1096) which are the subject of this appeal. It is convenient to identify and deal with those issues in the following order. 56The first issue is whether, following the entry into the Deed of Release, Mr Jardin was entitled to terminate the Employment Agreement by giving three months' written notice as he purported to do on 26 July 2010. That issue turns upon the interpretation of the Deed of Release and the Employment Agreement. The primary judge held that Mr Jardin was entitled to give such a notice and that as a result the Employment Agreement came to an end on 26 October 2010: [32]-[37]. The primary judge's resolution of that issue is the subject of grounds 1, 2 and 3 of Metcash's amended notice of cross-appeal. If the primary judge erred in his interpretation of these provisions, a question arises as to what relief, if any, should be granted in view of the fact that the periods for which extended injunctions were sought have expired. 57The second issue is whether the restraints in cl 3.2 of the Employment Agreement applied after 5 February 2010 or alternatively after 16 July 2010. There were two steps in this argument. The first was that as a matter of interpretation of the provisions in the Employment Agreement and the Deed of Release, the covenants in cl 3.2 of the Employment Agreement ceased to apply if the employment relationship had come to an end. The second was that the employment relationship came to an end on 5 February 2010 or alternatively on 16 July 2010 by reason of Mr Jardin's written notice given on that day. The primary judge rejected the first step in the argument: [44]. It was unnecessary for him to consider the second. The primary judge's resolution of this issue is the subject of ground 1 of the notice of appeal. 58The third issue is whether any of the restraints in cl 3.2 of the Employment Agreement were unreasonable restraints of trade and to that extent unenforceable. It was common ground that this question was to be assessed at the time the Deed of Release was entered into: Woolworths Ltd v Olson [2004] NSWCA 372 at [40]. The primary judge held that the restraints in cll 3.2(a), (b) and (c) were reasonable as between the parties and not unreasonable in the public interest because each was reasonably necessary to protect interests with respect to Metcash's customer relationships and confidential information. In relation to cl 3.2(d), the primary judge held that it was reasonable to the extent that it prevented Mr Jardin from taking more than a 5 percent interest in a competitor of Metcash. The primary judge held that the duration of the restraints was reasonable even if they operated for a period of 12 months from the date of the Deed of Release: [46]-[55]. Those holdings are challenged by ground 2 of the notice of appeal. 59The fourth issue is whether the "springboard" or "head start" doctrine, which has its foundation in the judgment of Roxburgh J in Terrapin Ltd v Builders' Supply Co (Hayes) Ltd [1967] RPC 375, provided a basis for an injunction to enforce the negative covenants in cl 3.2 beyond 26 October 2010 and for a further period of 35 days. That period represented the primary judge's assessment of the "head start" which Mr Jardin obtained as a result of his breach of cl 3.2(a) of the Employment Agreement in engaging in dealings with SPAR Australia between 1 July and 4 August 2010: [59]-[62]. That holding is the subject of ground 5 of the notice of appeal. It is also the subject of Metcash's notice of contention. 60The fifth issue is whether the primary judge should, in the exercise of his discretion, have refused the injunctions sought by Metcash on the basis that at the time of the final hearing it was not appropriate to grant injunctions in the terms and for the periods sought. The primary judge held that it was appropriate to grant injunctive relief to 30 November 2010: [71]. That conclusion is the subject of ground 3 of the notice of appeal which is only pressed on the basis that by September 2010, Metcash's customer relationships and confidential information no longer required protection. 61The sixth issue is whether orders should be made against Jardim Investments restraining it from being actively involved in the affairs of SPAR Australia as an investor. The primary judge decided this issue in favour of Metcash on the basis that Jardim Investments proposed to undertake an active role in the affairs of SPAR Australia as the agent or alter ego of Mr Jardin: [68]-[69]. That conclusion is the subject of ground 4 of the notice of appeal.
Preliminary question as to whether leave to appeal is necessary 62The question whether leave to appeal was required, and if so, whether it should be granted, was raised at the commencement of the appeal. I agree for the reasons given by Campbell JA that leave to appeal was required and that the circumstances justify a grant of leave. I also agree that there should be a grant of leave to cross-appeal.
Was Mr Jardin entitled to give a notice terminating the Employment Agreement following his entry into the Deed of Release? 63It is convenient first to set out the relevant provisions of the Deed of Release. The recitals and cl 1 provided: "Background 1 The Executive has been employed by the Group since 22 September 1997 and is currently employed in the position of Chief Executive Officer IGA Distribution of the Company. 2 The Executive's employment with the Company will terminate on the Termination Date. 3 The parties have agreed to formalise their separation on the terms set out in this deed. 4 Both parties have had the opportunity of obtaining legal advice prior to entering into this deed. This deed witnesses that in consideration of, among other things, the mutual promises contained in this deed, the parties agree as set out in the Operative part of this deed. 1 Arrangement between the parties (a) The Company will on 1 June 2010 provide the Executive with 9 months' written notice of termination of his employment in accordance with clause 12.1(b) of the Employment Agreement. (b) The Executive's Employment will terminate on the Termination Date. (c) During the period of time between the date of this deed and the Termination Date, the Company may: (1) appoint an interim or new Chief Executive Officer IGA Distribution; or (2) change the position and responsibilities of the Executive; or (3) require that the Executive not attend the office, not undertake any work or undertake only limited work. (d) ... (e) If either party considers it necessary to make a public announcement regarding the termination of the Executive's employment, it will be made on the terms attached in Schedule 3 of this deed. (f) The Executive acknowledges and agrees that, prior to the Termination Date, he continues to be bound by the obligations contained in the Employment Agreement in accordance with the terms of the Employment Agreement. For the avoidance of doubt, the Executive will continue to receive the remuneration and any other benefits payable to the Executive under the Employment Agreement up to and including the Termination Date. (g) The Executive agrees to execute, and return to the Company as soon as practicable after the Termination Date, the Deed Poll. (h) In the event that the Employment is terminated before the Termination Date in circumstances justifying summary dismissal, notwithstanding any provision of this deed, the Company is not obliged to make any payment or provide any benefits to the Executive other than the Executive's remuneration and statutory entitlements accrued to the date of cessation of the Employment." 64Schedule 1 to the Deed of Release included the following definitions: "Termination all of the circumstances relating to or connected with the termination of the Employment of the Executive, including negotiations relating to the terms and conditions upon which that event would occur. Termination Date 1 March 2011." 65The Deed Poll referred to in cl 1(g) was Schedule 2 to the Deed of Release. It relevantly recited: "2. The Executive and the Company have reached agreement regarding the termination of the Executive's employment, the details of which are recited and the terms of which are described in a deed executed by the Executive and the Company dated on or about 17 February 2010 (the First Deed)." 66Clause 5(c) of the Deed of Release provided: "The Company agrees that any enquiries relating to the Executive will be directed to the Chief Executive Officer of the Group, currently, Andrew Reitzer. The Company will make reasonable efforts to ensure that the Chief Executive Officer of the Group responds to such enquiries in a manner consistent with the announcement in Schedule 3 to this deed." 67The public announcement referred to in cll 1(e) and 5(c) was Schedule 3 to the Deed of Release. It relevantly provided: "Metcash and Lou Jardin, CEO IGA Distribution, a Division of Metcash, have agreed that Mr Jardin's employment will cease effective 1 March 2011. ..." 68By cl 7, Mr Jardin warranted and acknowledged as follows: "(a) The Executive warrants that: ... (3) he has had full opportunity to consult his legal advisers concerning the nature, effect and extent of this deed; ... (b) The Executive acknowledges that: (1) clauses 10 and 11 of the Employment Agreement regarding confidentiality and intellectual property will continue to operate after the Termination in accordance with the terms of the Employment Agreement and are taken to constitute terms of this deed; and ..." 69Clause 8(c) provided - "Except as otherwise provided in this deed, this deed and the Deed Poll constitutes the entire agreement between the parties as to its subject matter to the exclusion of any prior agreement whether written or oral, express or in any way implied." 70The principles to be applied when addressing this question of construction are not in issue. The meaning of the provisions of the Deed of Release is to be determined by what a reasonable person would have understood them to mean. In circumstances such as here where the language is susceptible of more than one possible meaning, regard should be had not only to the text but also to the background knowledge which would have been available to the parties and the purpose and object of the transaction: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 at [39]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [53], [98]. 71The primary judge concluded that the Deed of Release modified the continued operation of the Employment Agreement but not with respect to the availability of cl 12.1(a) which entitled Mr Jardin to terminate his employment by three months' notice. He reasoned as follows: First, cll 1(a) and (h) assume that the termination rights in cll 12.1(b) and 12.2 of the Employment Agreement continue in effect; secondly, cl 1(f) assumes the continued operation of other provisions of the Employment Agreement relating to obligations imposed upon Mr Jardin and his entitlement to receive remuneration and other benefits; thirdly, none of the other provisions of the Deed of Release and specifically cll 1(b), 1(f) and 8(c), expressly or by necessary implication exclude the continued availability of cl 12.1(a). 72In my view, the primary judge's conclusion as to the operation of the Deed of Release does not pay sufficient attention to cl 8(c) which provides that except as otherwise provided in the Deed of Release, it and the Deed Poll constitute "the entire agreement between the parties as to its subject matter to the exclusion of any prior agreement". 73In the period after 5 February 2010, there were negotiations between the lawyers acting for Mr Jardin and Metcash as to the resolution of the issues which had arisen concerning the termination of Mr Jardin's employment. By their letter of 9 February 2010, the solicitors for Mr Jardin suggested the following course: "To commence at the earliest opportunity, there should be a rational process of discussion directly between Mr Jardin and the Company, with a view to resolving the matter amicably and allowing our client to transition away from the Company in a dignified manner; By their response dated 10 February 2010, the lawyers for Metcash said: "... After the announcement was made on Monday we again attempted to arrange to meet with your client's representative in an effort to reach an amicable resolution of the matters between our clients. ... We remain willing to meet to discuss the matter at a mutually convenient time in an effort to reach an acceptable resolution. We confirm that Metcash agrees that your client will be on paid leave until the end of this week without consequent reduction in his accrued annual leave. Your client is directed not to speak to employees, customers or suppliers of Metcash group until advised otherwise. We also ask that you remind your client of his continuing obligations to Metcash as a senior employee." 74That context is reflected in the paragraphs reciting the Background to the Deed of Release which acknowledged that Mr Jardin was currently employed, provided that his employment would terminate on 1 March 2011 and noted that the parties had agreed "to formalise their separation" on the terms of that deed. That the "subject matter" of the Deed of Release is the termination of Mr Jardin's employment with Metcash also appears from the operative provisions of the Deed of Release. 75The Deed Poll also recites by Background paragraph 2 that the parties "have reached agreement regarding the termination" of Mr Jardin's employment, the terms of which are described in the Deed of Release. 76The identification of that subject matter is significant not only because it gives content to cl 8(c). It also makes it unlikely that having addressed the termination of Mr Jardin's employment, the parties would have agreed to an outcome which remained uncertain as to the time when, and circumstances in which, that termination might take effect. 77Reading cl 8(c) as referring to that subject matter, it provides that the Deed of Release and the Deed Poll constitute the entire agreement as to the termination of Mr Jardin's employment "to the exclusion of any prior agreement". The operation of the clause is subject to the qualification "[e]xcept as otherwise provided". The provisions of cl 12 of the Employment Agreement address the manner in which Mr Jardin's employment might be terminated. It is necessary, therefore, to consider whether the Deed of Release provides otherwise in respect of the continued operation of any part of cl 12. 78There are no provisions in the Deed of Release which expressly provide for the continuation of Mr Jardin's right of termination under cl 12.1(a). In addition, his giving a notice under that clause would be inconsistent with the agreements in cll 1(a) and (b). By cl 1(a) the parties agreed that Metcash "will" give a notice under cl 12.1(b) of the Employment Agreement. That is sufficient to preserve the operation of that clause for that purpose only. By cl 1(b) they agreed that the employment "will" terminate on 1 March 2011. By these agreements the parties must be taken to have agreed, in the absence of express provision otherwise, that nothing should happen or be done by either of them which would have any different consequence: see Byrne & Frew v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 448; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607-608. The giving by Mr Jardin of a notice under cl 12.1(a) would produce a different outcome and accordingly his continued entitlement to do so is inconsistent with the agreements in cll 1(a) and (b). 79None of the other provisions of the Deed of Release is consistent with the termination of the employment at a time earlier than 1 March 2011 other than in the event of summary dismissal. Clause 1(c) addresses what Mr Jardin may be required or not required to do during the period to 1 March 2011. Clause 1(e) provides for the making of an announcement which states that there is agreement that the employment should cease effective 1 March 2011. Clause 1(f) contains an acknowledgement by Mr Jardin that prior to 1 March 2011 he continues to be bound by the "obligations" contained in the Employment Agreement in accordance with its terms. It also provides that Mr Jardin continue to receive remuneration and other benefits "up to and including the Termination Date". There is no qualification to the operation of cl 1(f) other than in the circumstances addressed by cl 1(h). Clause 1(g) provides for the execution of the Deed Poll "as soon as practicable" after 1 March 2011. 80Clause 1(h) assumes a right of termination in circumstances justifying summary dismissal. To that extent it provides for the continued operation of a right in terms of cl 12.2 of the Employment Agreement. In the event of a summary dismissal, it also provides that Metcash is not obliged to make any payment or provide any benefit to Mr Jardin, other than by way of remuneration and statutory entitlements accrued to the date of summary dismissal. If the Deed of Release was to be construed as permitting a continued right of termination under cl 12.1(a), it would have been necessary also to address the consequences of such a termination, particularly having regard to the terms of cl 1(f). The primary judge considered that cl 1(f) was consistent with the continued existence of the right under cl 12.1(a) because it provides for the continuation of other obligations and entitlements under the Employment Agreement: [34]. That is so. Those are respects, however, in which the Deed of Release otherwise provides within the introductory words to cl 8(c). 81Finally, cl 5(c) is consistent with the Employment Agreement being terminated in accordance with cll 1(a) and (b). It provides that any inquiries relating to Mr Jardin will be responded to in a manner "consistent with the announcement in Schedule 3". 82The primary judge observed that the Deed of Release was drafted in the expectation that it was "unlikely" that the other termination rights contained in the Employment Agreement would be exercised and consequently "on the assumption" that those rights would not be exercised: [36]. For the reasons I have given, I consider that expectation or assumption to be inconsistent with the express provisions of the Deed of Release. It is also extremely unlikely that the parties would have agreed to such an uncertain outcome. 83For these reasons, Mr Jardin was not entitled to give a notice terminating the Employment Agreement following his entry into the Deed of Release. It follows that the primary judge should have held that the written notice which Mr Jardin gave on 26 July 2010 was of no effect and that the Employment Agreement terminated on 1 March 2011, as a result of the notice given by Metcash Trading on 1 June 2010. This conclusion makes it unnecessary to deal with Metcash's notice of contention which seeks to uphold restraints to 30 November 2011, if the issue concerning the "springboard" doctrine is decided adversely to it.
Did the prohibitions in cl 3.2 of the Employment Agreement apply after 5 February 2010 or alternatively after 16 July 2010? 84I agree with the primary judge's conclusion that these prohibitions continued to apply after these two dates for the reasons he gave: [44]. 85By cl 1(f) of the Deed of Release, the parties agreed that in the period from 19 February 2010, Mr Jardin continued to be bound by the "obligations" in the Employment Agreement "in accordance with the terms" of that agreement. Those obligations included that he comply with the prohibitions in cl 3.2. 86Mr Jardin argued that as a matter of construction, the prohibition in cl 3.2 of the Employment Agreement only applies whilst the employment relationship subsists. That argument relies on the distinction between the termination of an employment relationship and the discharge of a contract of employment: Visscher v Giudice [2009] HCA 34; (2009) 239 CLR 361 at [53]-[55]; Purcell v Tullett Prebon (Aust) Pty Ltd [2010] NSWCA 150 at [19]-[20]. The Employment Agreement does not, however, make that distinction in imposing duties and prohibitions. It imposes those duties and obligations upon Mr Jardin as "Employee" and by cl 2.2 provides that his "employment" under the agreement should "commence" on 1 October 2004 and "continue" until terminated under cl 12. In other words, it imposes the duties and obligations during the period that the contract of employment remains current.
Were the restraints in cl 3.2 of the Employment Agreement unreasonable and to that extent unenforceable? 87Before this Court it was common ground that the restraints in cl 3.2 of the Employment Agreement by which Mr Jardin continued to be bound in accordance with cl 1(f) of the Deed of Release were subject to the Restraints of Trade Act 1976. The correct approach to the application of s 4(1) of that Act is settled: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 328, 337; Woolworths Ltd v Olson at [42]. 88There was no issue on appeal that the terms of the injunction sought against Mr Jardin described conduct which would infringe the terms of cl 3.2 properly construed. The issue between the parties was whether restraints in the terms sought were against public policy. The answer to that question depends on whether those restraints did not exceed what was reasonably necessary for the protection of the legitimate interests of Metcash and, while affording adequate protection to Metcash, were not injurious to the public: Heron v Port Huon Fruit-Growers Co-operative Association Ltd [1922] HCA 20; (1922) 30 CLR 315 at 324; Buckley v Tutty (1971) 125 CLR 353 at 376-377; Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 344. It was also accepted that this question is to be addressed at the time the Deed of Release was entered into. 89The primary judge held that restraints applying for 12 months after 5 February 2010 in terms of cll 3.2(a), (b) and (c), and in narrower terms than cl 3.2(d), were reasonable and justified by Metcash's interest in protecting its customer connections and confidential information. In relation to cl 3.2(d), the primary judge held that as drawn, it was "unreasonably broad" but that a narrower restraint against having an investment of 5 percent or more in a competing business was reasonable and justified as protecting the same legitimate interests: [52]-[55]. 90Mr Jardin argued that those conclusions were wrong for three reasons. First, the primary judge's findings were not sufficient to justify conclusions as to the existence of legitimate interests which justified the restraints. Secondly, the narrower restraint based on cl 3.2(d) was not justified by reference to the principles applied in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1479, 1485; and by this Court in Kone Elevators Pty Ltd v McNay (1997) Aust Contract R 90-080 at 90,595, 90,597; Woolworths Ltd v Olson at [67] and Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at [24], [25], [43], [64]. Finally, the 12 month period of the restraints was not reasonable. 91As to the first reason: it is well established that an employer has a legitimate interest in protecting its customer connections and confidential information. In some circumstances, a restraint may be justified as protecting more than one legitimate interest. For example, where an employee having a close relationship with and influence over particular customers also holds confidential information as to their terms of trade or as to the future plans of the business which may adversely affect the interests of those customers, a restraint on dealing with those customers could be justified as reasonably necessary to protect both interests. In relation to the confidential information, such a restraint would operate in the same way as the covenant which was upheld in Littlewoods Organisation Ltd v Harris . 92The primary judge made the following findings as to the relationship between Mr Jardin and Metcash's customers. None of those findings is challenged on appeal: "52. In my opinion, the evidence establishes that, over a period of 10 years, Mr Jardin developed close relationships with a number of important customers of Metcash. Although Mr Jardin was reluctant to concede the point, it was clearly an important part of his job to build relationships with customers. Others in the company also had responsibility for establishing and maintaining relations with customers. However, as CEO of IGA, Mr Jardin played an important role in maintaining those relationships. He was the person to whom customers could turn in the event that they could not get satisfaction elsewhere in the organisation. He travelled frequently to visit customers and entertained them often - all at Metcash's expense. On occasions, his wife joined him - again at Metcash's expense. It is clear from the evidence that he gave that he had built up a detailed knowledge of many of Metcash's customers; and it is clear from emails he sent and received following the termination of his position of CEO that he had developed strong personal relationships with a number of them. ...... However, if Mr Jardin had been free from the time he ceased to be CEO of IGA to approach customers, he would have been in a position to undermine the relationships between those customers and Metcash and, in doing so, he would have increased the likelihood that some of them would ultimately leave Metcash for a competitor. Metcash was entitled to protect itself against that happening." 93Mr Jardin submitted that these findings were not sufficient to justify the conclusion that Metcash had a legitimate customer connection interest to protect because it was necessary for Metcash to establish that Mr Jardin had acquired "an enduring influence over its customers such as to enable him to 'control' the customers' connection with Metcash as a 'personal asset'". It was suggested that this meant that Mr Jardin had to be shown to "control" that connection in the sense of being able to direct whether the customer stayed with Metcash after his employment was terminated. 94In support of this argument, Mr Jardin relied on statements which describe the necessary relationship as being one in which the employee is the "human face" of the employer or, quoting the words of Hoover J in Arthur Murray Dance Studios of Cleveland Inc v Witter (1952) 105 NE 2d 685 at 706, is in a position "to control the customer's business as a personal asset". Reference was made to J D Heydon, The Restraint of Trade Doctrine , 3 rd ed, pp 121-122 as well as to other cases relying on the same or similar expressions including Twenty-First Australia Inc v Shade (unreported Supreme Court of NSW, Young J, 31 July 1998) at p 12; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [34]; Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at [25]; Australian Regional Wholesalers v Stafford [2007] NSWSC 572; (2007) ATPR 42-168 at [58]; and Informax International Pty Ltd v Clarius Group Ltd (2011) 192 FCR 210 at [27]-[29]. 95Expressions which describe the necessary relationship as one in which the employee is the "human face" of the employer do so to emphasise that the source of the influence must be the personal relationship which is likely to develop, or has developed, between the employee and customer as a result of dealings between them on behalf of the employer and its business. In Stenhouse Australia Ltd v Phillips [1973] 2 NSWLR 691; [1974] AC 391 at 400 the Privy Council emphasised the distinction between the use of the employee's personal skill or experience, against which the employer is not entitled to be protected, and the use of some advantage or asset inherent in the business which can properly be regarded as the employer's property which might legitimately be protected from appropriation by an employee for his or her own purposes. In Miles v Genesys Wealth Advisers Ltd , this Court adopted that statement of principle and described the relationship between a senior employee and customers with whom that employee had fostered close and productive relationships as being "to a substantial extent" the property of his employer notwithstanding that the relationship had also developed and been supported at least in part by the employee's own qualities of skill and experience: at [38], [41], [54], [55]. 96The reference by Hoover J to controlling the customer's business "as a personal asset" describes the ability of the employee to use the relation of influence, which can properly be regarded as the employer's property, for the employee's purposes as distinct from those of the business. Thus, the subject of the "control" referred to is the ability to influence, which may be legitimately protected. It is not the customer's behaviour or allegiance, although each may be the subject of the ability to influence. 97These statements are not, however, to be understood as requiring that the employee be proved to be in a position to control whether the customer remain with or leave the business. The employer is entitled to protection against the use of "personal knowledge of and influence over" its customers, which the employee might acquire in the course of his or her employment, so as to undermine its customer connections: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 709; Lindner v Murdock's Garage (1950) 83 CLR 628 at 635, 636, 645, 647, 654. It is against the "possibility" of its business connection being adversely affected by the use of that "personal knowledge and influence" that the employer is entitled to be protected: Lindner v Murdock's Garage at 636, 645, 654. Latham CJ (dissenting) summarised the relevant principle as follows (at 636): "Where an employee is in a position which brings him into close and personal contact with the customers of a business in such a way that he may establish personal relations with them of such a character that if he leaves his employment he may be able to take away from his former employer some of his customers and thereby substantially affect the proprietary interest of that employer in the goodwill of his business, a covenant preventing him from accepting employment in a position in which he would be able to use to his own advantage and to the disadvantage of his former employer the knowledge of and intimacy with the customers which he obtained in the course of his employment should, in the absence of some other element which makes it invalid, be held to be valid." 98The primary judge's unchallenged findings justified his conclusion that Mr Jardin had acquired, in the ten years that he was a senior employee in the Metcash business, sufficient knowledge of and influence over Metcash's customers to justify a restraint directed to protecting its customer connections. Specifically he found, looking at the matter as at February 2010, that an important part of Mr Jardin's job had been to build relationships with customers and that he had developed such personal relationships with a number of customers and built up detailed knowledge about them. He also found that Mr Jardin was in a position to undermine the relationships between those customers and Metcash and that by doing so he could have increased the likelihood that some of them would ultimately leave Metcash for a competitor: [52]. 99The primary judge also made findings as to confidential information held by Mr Jardin: "[53] The evidence also establishes that Mr Jardin had access to confidential information. Indeed, Mr Jardin does not dispute that fact. For example, Mr Jardin emailed some of those documents to his home email address on 19 January 2010. In cross-examination, he accepted that some of those documents were confidential. He retains possession of them - so that there can be no question that he has forgotten their contents. Instead, what Mr Jardin says is that that information is now out of date. Although that may be true of some of the information, I do not think that can be said of all of it. The information includes board papers, the commercial terms on which IGA deals with its customers and Metcash's business strategies and plans. I accept the evidence given by Mr Morabito that substantial parts of those documents remain current and that they could be used to Metcash's competitive disadvantage. Mr Morabito conceded in cross-examination that it was possible that anyone well versed in the industry could come up with similar business plans. But I do not think that that demonstrates that the information is not confidential. What is important is the conclusions that Metcash reached in its business plan. Knowing that information would assist a competitor to react to those plans. In addition, knowing any of Metcash's weaknesses would assist a competitor to target those weaknesses." 100Mr Jardin does not challenge any of the findings that prior to February 2010 he had access to confidential information about Metcash's "business strategies and plans" and the "commercial terms on which IGA deals with its customers". He does, however, challenge the primary judge's finding in [53] that this information "could be used to Metcash's competitive disadvantage". Mr Jardin's submissions were directed only to that finding in so far as it related to "business strategies and plans". It was said that there was no evidence to support the conclusion that they could be used in the manner described by the primary judge and that Mr Morabito had not given evidence to that effect. It was also said that the absence of post-employment restraints on the use of confidential information by Mr Jardin was some evidence from which it might be inferred that Metcash did not regard the disclosure of such information to be detrimental. This last point may be dealt with shortly. The Employment Agreement and Deed of Release did impose obligations with respect to the disclosure of confidential information which survived the termination of the contract of employment. 101It is correct that Mr Morabito did not in terms say that the business strategies and plans could be used to Metcash's competitive disadvantage. However, he identified the strategy documents which Mr Jardin had seen which remained current. Those documents described what were perceived to be the principal threats to the Metcash business and its responses to them, as well as initiatives for growing the Metcash business. The primary judge was entitled to infer that knowledge of those analyses and initiatives could be used by a competitor in understanding the weaknesses or perceived weaknesses in the Metcash business and developing competitive actions to exploit those weaknesses or respond to proposed competitive activity of Metcash. 102Mr Jardin does not challenge the primary judge's finding that information as to the commercial terms on which IGA dealt with its customers could be used to its competitive disadvantage. The evidence indicated that the IGA business had approximately 3,000 customers. Of those customers, less than half were on arrangements by which they agreed to purchase required products from Metcash if its pricing was competitive. The arrangements between those customers and Metcash included the provision of financial and other assistance in the form of cash loans, stock loans, extended credit, rate rebates and marketing assistance. Knowledge of those terms would permit a competitor to target particular customers and to formulate favourable offers, in each case potentially to Metcash's competitive disadvantage. The primary judge was also justified in concluding that this information which could be used to Metcash's competitive disadvantage. 103As to the second reason: the primary judge held that Metcash was entitled to protect its confidential information and customer relations by procuring a restraint against Mr Jardin taking more than a 5 percent investment in a competitor of Metcash: [54]. Mr Jardin submits that he was wrong to so conclude and that cases such as Kone Elevators v McNay and Woolworths Ltd v Olson do not support that conclusion. I do not agree. Those cases recognise that an employee may validly be restrained from taking a position, whether of employment or which involves having any proprietary or pecuniary interest in a competitor, where to do so would give rise to an incentive in the employee to disclose confidential information or otherwise take advantage of the employer's customer relations. For example, in Rentokil Pty Ltd v Lee (1995) 66 SASR 301 a restraint on an employee from having any involvement as a shareholder or unitholder or financier in a competing business was held to be reasonable and valid. Doyle CJ (dissenting) formulated the relevant question in relation to covenants which restrain an employee from taking a position or being engaged in a particular activity as follows (at 305): "... an employer with a relevant protectable interest can restrain an employee from accepting a position the nature of which is such that the employee would be likely to utilise confidential information or trade connections which have been acquired in the course of the employment. ... if [however] the employer identifies positions as subject to the restraint, being positions which do not give rise to the relevant risk, then it seems to me that on its face the restraint has gone too far." 104By cl 3.2(d) of the Employment Agreement the parties recognised that an investment of more than 5 percent was a significant one likely to require some ongoing interest or attention on the part of Mr Jardin. The primary judge was justified in concluding that there was a risk that if Mr Jardin took such an investment of more than 5 percent in a competitor of Metcash, there was a risk that he would use confidential information or his influence over Metcash's customers for the benefit of that competitor. 105As to the third reason: the primary judge found that the restraints imposed by the Deed of Release for a period of one year were not unreasonable: [55]. Mr Jardin argues that because there were no restraints of that duration in his Employment Agreement or in the agreements of other employees, such as Mr Morabito, it should be concluded that restraints longer than six months in duration were not justified. 106The primary judge did not err in concluding that addressing the matter in February 2010, a restraint for a period of 12 months was not unreasonable in order to protect Metcash's interests. Mr Jardin had occupied the position of CEO for a period of 10 years, had built up personal relationships with customers and had confidential information as to Metcash's business plans and strategy as well as to its arrangements with customers. The 12 month restraint was to operate in circumstances where Mr Jardin was to continue to be employed and paid and was the outcome of negotiations in which both parties were represented: Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 at 268; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 294, 316; Woolworths Ltd v Olson at [39]. The fact that shorter restraints had been imposed on other employees could have been of some relevance. However, the evidence did not suggest that any of those employees occupied a position equivalent to that occupied by Mr Jardin. The fact that there had been no similar restraint on the expiry of Mr Jardin's Employment Agreement was consistent with Metcash not having secured by that agreement protection to which it was reasonably entitled. The more persuasive indication of reasonableness was that the restraint was freely agreed in the Deed of Release. 107For these reasons, the primary judge's conclusion as to the reasonableness of the restraints in cl 3.2 of the Employment Agreement involved no error.
Did the 'springboard' doctrine provide a basis for an injunction to enforce the negative covenants in cl 3.2 beyond 26 October 2010 for a further period of 35 days? 108Because of my views in relation to the first and second issues, it is not necessary to address this question as the prohibitions in cl 3.2 continued to apply as a matter of contract beyond the date to which the primary judge granted an injunction relying in part on the existence of the "head start" or "springboard" advantage: [61]-[62]. However, as the point was fully argued and is an important one, I propose to deal with it. 109The primary judge erred in concluding that the fact that Mr Jardin had obtained an advantage by breaching cl 3.2(a) provided a basis for granting an injunction to restrain breaches of cl 3.2 beyond the date that the primary judge had held that Mr Jardin remained bound by the employment contract and therefore by those prohibitions. Metcash did not rely on any breach of any equitable as distinct from contractual obligation as justifying the grant of that injunction. Had it done so, different principles would have applied. 110The primary judge reasoned as follows. The Deed of Release affirmed the prohibitions imposed on Mr Jardin by cl 3.2 of the Employment Agreement: [45]. Those prohibitions continued until that Deed was terminated: [44]. Mr Jardin had terminated the Employment Agreement with effect on 26 October 2010: [59]. Accordingly, Metcash was entitled to an injunction to restrain a breach of the negative covenants in cl 3.2 until 26 October 2010: [59]. Mr Jardin breached cl 3.2(a) of the Employment Agreement between 1 July and 4 August 2010: [61]. By reason of his doing so he obtained an advantage by commencing and continuing his negotiations with SPAR Australia. The measure of that advantage was a period of 35 days: [62]. In the circumstances, the injunction should be continued up to and including 30 November 2010, ie. 35 days after 26 October 2010, to take account of the advantage obtained by reason of the breach. The primary judge referred to the decision of Young CJ in Eq in Landmark Underwriting Agency Pty Ltd v Kilborn [2006] NSWSC 1108 as justifying that conclusion. However, as will appear from the analysis below, it does not do so. That was a case in which the "springboard" doctrine was relied upon to justify as reasonable the grant of an injunction to restrain soliciting of clients and involvement in a competing business during a period when the contractual restraint to that effect continued to apply. 111In Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203, Lord Greene MR held (at 215) that, even if there was no contractual obligation of confidence, there was in the circumstances of that case, a breach of an equitable obligation of confidence. That breach was in using drawings, which had been disclosed in confidence, for the manufacture of leather punches notwithstanding that the punches could be purchased in a shop and, with the assistance of an expert draughtsman, used to produce drawings for the manufacture of the same leather punches. Whilst the drawings remained confidential, by their use in breach of confidence the defendants saved themselves "a great deal of labour and calculation and careful draughtsmanship". 112In Terrapin Ltd v Builders' Supply Co (Hayes) Ltd , Roxburgh J rejected an argument that the equitable obligation to treat certain drawings as confidential had been discharged when the general features of the portable building units which were the subject of the drawings had been published in a brochure or could be ascertained by inspection of units which had been offered for sale. In doing so he described as a "springboard", the advantage which the confidant had obtained by use of the drawings: at 390-392. Referring to the decision of the Court of Appeal in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd , he said (at 392) that in such circumstances the confidant "must be placed under a special disability in the field of competition to ensure that he does not get an unfair start". 113That advantage is secured if the confidant commences to use the information before it loses its confidential character and becomes common knowledge. In that circumstance, the confidant may be restrained from using the information for the period during which the unfair advantage is reasonably expected to continue: British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR 448 at 452; United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 230; Roger Bullivant Ltd v Ellis [1987] FSR 172 at 183-184, 185-188; or may be ordered to pay compensation or required to submit to an account of profits for that period: Seager v Copydex Ltd [1967] 1 WLR 923 at 931-932; RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2011] FCA 423; (2011) 280 ALR 125 at [174]. However, if the confidant does not commence to use the confidential information until after it has ceased to be confidential there is no "springboard" advantage: Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1964] 1 WLR 96 at 104; British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd at 450-452; Aquaculture Corporation v New Zealand Green Mussel Co Ltd (1985) 5 IPR 353 at 383. 114Whether a confidant has been released from an equitable obligation of confidence by the making public of the relevant information may differ depending on the circumstances of disclosure, and particularly, the circumstance whether the publication was by the confider as distinct from a third party: Attorney-General v Observer Ltd [No. 2] [1990] 1 AC 109 at 268, 285-286; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [46]-[48]. 115In United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766, McLelland J applied the "springboard" doctrine as a measure of the liability of the defaulting distributor to account for profits made by breaches of fiduciary duty: at 815. On appeal this Court found that damages assessed on a "headstart" basis, or an "equivalent accounting of profits", was not the appropriate form of relief because the gain "was not a headstart": United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 233. In the course of dealing with this question, the Court reviewed (at 228-233) a number of the relevant authorities and concluded (at 233): "This review shows that the headstart approach to damages or other relief is not based on some artificial or arbitrary doctrine, to be applied regardless of the facts of the case. It is a principle applied in conformity with the more general principle that a person misusing confidential information must answer for his default according to his gain. A headstart may often be the gain in these cases. If it is the gain, damages will be assessed accordingly and any other relief, such as injunction, will be moulded. If it is not the gain the method of assessing damages or the appropriateness of some other remedy has to be considered in the light of what that gain is." 116These statements are made in relation to equitable remedies, including injunctions, for breaches of equitable as distinct from legal rights or obligations. Although in some cases the relationship between the parties with respect to confidential information may be equitable as well as contractual, it remains necessary to keep firmly in mind the distinction between the grant of an injunction in relation to an equitable obligation of confidence and that in aid of a legal right arising in contract: see generally Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (4 th ed.) at [21-010], [21-015], [21-025], [21-035]; Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at [28], [30]; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 at [88]-[91]. In the latter case, an injunction may be granted to restrain the breach of a duty, imposed by the contract, to refrain from doing some act "whether the duty is imposed by a term of the contract expressed in negative or affirmative language": JC Williamson Ltd v Lukey (1931) 45 CLR 282 at 299, 301 per Dixon J. 117In restraining the doing of some act which the party enjoined has contracted not to do, a court of equity gives the "sanction of the process of the Court to that which already is the contract between the parties": per Lord Cairns LC in Doherty v Allman & Dowden (1878) 3 App Cas 709 at 720. Whilst the question whether an injunction will be granted depends upon circumstances including the nature of the stipulation and contract containing it and the effect of enforcement on the parties to the contract, it remains fundamental that there be a negative covenant in a contract, the breach of which is sought to be restrained by the injunction: Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 at 560, 573-574; Cardile v LED Buildings Pty Ltd at [30]; ABC v Lenah Game Meats Pty Ltd at [90]-[91]. If the period during which the covenant operates has ended, there can be no actual or threatened breach to which such an injunction could be directed. 118In this case, the injunction granted by the primary judge, to the extent that it went beyond 26 October 2010, was not to restrain any breach of a negative covenant, which on the primary judge's analysis, applied beyond that date. For that reason, the primary judge erred in extending the operation of the injunction beyond the period of the contractual restraint. His doing so was not supported by the decision in Landmark Underwriting Agency Pty Ltd v Kilborn . There an injunction was sought to enforce against ex-employees a covenant not to solicit clients or be involved in a competing business. That covenant was expressed to operate during a series of time periods including one ending on 4 February 2007: [4], [5]. When addressing whether the covenant was reasonably necessary for the protection of the legitimate interests of the employer and the period during which any injunction should be granted, Young CJ in Eq took account of the misuse of confidential information by the defendants before their employment was terminated and the advantage which had accrued to them as a result: [82]-[97]. The injunction which Young CJ in Eq indicated he would grant was one to 4 February 2007 which was within the period that the negative covenant had contractual effect. 119The foregoing does not mean that the concept of a "headstart" advantage may not be relevant in the context of a contractual relationship governing the use of confidential information. There are at least two respects in which it may be relevant. The first is that the possibility of a "headstart" advantage could provide a legitimate ground for justifying the reasonableness of a covenant in restraint of trade: Wright v Gasweld Pty Ltd at 338; Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 at [181]-[182], [191]. The second is that the likelihood of such an advantage may be a circumstance relevant to the construction of a contractual constraint and whether it is subject to any temporal limitation: Maggbury Pty Ltd v Hafele Australia Pty Ltd at [50].
Whether the primary judge erred in granting injunctive relief to 30 November 2010 120This ground is only pressed on the basis that, addressing the matter as at September 2010, there was nothing that "could legitimately have been protected by the restraints". The primary judge rejected that argument on the basis that the restraints continued to have utility because the existing interests which he had found justified those restraints: [71]. In particular, he held that Mr Jardin possessed information which at that time was confidential and not out of date and had close personal relationships with customers and suppliers of Metcash which had developed over a number of years. In light of these findings, the primary judge did not err in concluding that there was utility in granting injunctions to 30 November 2010.
Whether restraining orders should have been made against Jardim Investments 121The primary judge made orders against Jardim Investments which restrained it from competing with the business of Metcash, including by contacting employees, customers or suppliers of Metcash, or providing services to SPAR Australia, or soliciting customers or employees of Metcash for the benefit of SPAR Australia or disclosing the contents of Metcash's documents held by Mr Jardin. Those orders were in substantially the same form as the restraining orders made against Mr Jardin. 122Jardim Investments argues that the primary judge should not have made orders against it for two reasons. First, it is said that the evidence did not support an inference that if Jardim Investments sought to supply or make available to SPAR Australia the marketing and distribution expertise of Mr Jardin, it would be doing so "to avoid the restraints imposed" on him and "as his agent". Secondly, it submitted that there was no finding and no evidence to support a finding of a threat that Jardim Investments proposed to act in this way. Jardim Investments did not contend that if the primary judge was justified in making orders against it, the orders made were too wide or not sufficiently confined to conduct on its part which would constitute a contempt of the court's orders against Mr Jardin. 123The primary judge justified the restraining orders made against Jardim Investments on the following basis. First, in connection with Jardim Investments' taking a shareholding interest in SPAR Australia, it was proposed that Mr Jardin would take an active senior management role with that company: [24], [68]. Secondly, the Jardin family, through Jardim Investments, proposed to have an active role in the affairs of SPAR Australia beyond being a passive investor with a view to ensuring the long term sustainability of SPAR Australia and its stores: [68], [69]. Thirdly, no other member of Mr Jardin's family had any real experience in the marketing and distribution of groceries and none of them, apart from Mr Jardin, had any experience which could be used to ensure that SPAR Australia's stores were "profitable and price competitive": [68], [69]. In the circumstances, he concluded that in becoming involved in the way proposed, Jardim Investments would have to call on and use the marketing and distribution experience and knowledge of Mr Jardin. The primary judge held that in so doing, Jardim Investments would be engaging in that conduct "on behalf of Mr Jardin" and "to avoid the restraints imposed" on him: [69]. 124The primary judge identified the basis upon which Jardim Investments might be restrained as being to prevent threatened conduct which would involve a contempt of the Court's orders made against Mr Jardin: [64] citing ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 655-657. It is a contempt to engage in conduct which knowingly prevents an order of the Court achieving its intended object: Seaward v Paterson [1897] 1 Ch 545 at 555; Reid v Howard (1993) 31 NSWLR 298 at 308-309; Cardile v LED Builders Pty Ltd at [30]; Zhu v Treasurer of the State of NSW [2004] HCA 56; (2004) 218 CLR 530 at [121]. The object of the orders made against Mr Jardin was to prevent his disclosing confidential information of Metcash or seeking to take advantage of its customer connections by dealing with Metcash customers for the benefit of SPAR Australia. Conduct of Jardim Investments which involved its making Mr Jardin's expertise and knowledge available to SPAR Australia or using that expertise and knowledge for its benefit would defeat the purpose of the orders made against Mr Jardin. As the primary judge observed, the only reason why Jardim Investments would do what Mr Jardim could otherwise do directly, would be "to avoid the restraints imposed" on him. To adopt the words of Lord Hanworth MR in Gilford Motor Co v Horne [1933] Ch 935 at 955, Jardim Investments would be the "channel through which" Mr Jardin was making available his expertise and knowledge to SPAR Australia. That is the sense in which company would be "acting as agent" for Mr Jardin: ICT Pty Ltd v Sea Containers Ltd at 657. 125The primary judge's finding ([29], [69]) that the other members of the Jardin family who were the directors of Jardim Investments had no real experience in the marketing and distribution of groceries is not challenged. Nor is the finding ([68], [69]) that Jardin family through Jardim Investments proposed to take an active role in the affairs of SPAR Australia beyond that of a passive investor. Those findings justified the primary judge's inference that any such involvement would necessarily include the use of Mr Jardin's knowledge and experience for the benefit of SPAR Australia and that Jardim Investments would be the means by which that knowledge and experience would be provided. 126For these reasons the primary judge did not err in concluding that Metcash was entitled to restraining orders against Jardim Investments. The foregoing discussion should not, however, be taken to endorse the form of the orders made against Jardim Investments (see [74]). Those orders could only restrain the company from doing what would constitute a contempt of the orders made against Mr Jardin. It is not necessary to address further the form of the orders because it was not a ground of appeal relied upon by Jardim Investments for setting them aside.
Proposed orders 127The primary judge made orders, other than as to costs, on 29 and 30 September 2010. The orders made on 29 September 2010 included a declaration that Mr Jardin was entitled to give three months notice of termination of the employment deed (Order 4) and orders restraining Mr Jardin and Jardim Investments up until 30 November 2010 (Orders 5 and 7). On 25 November 2010 the primary judge made orders that Mr Jardin pay Metcash's costs of the proceedings so far as they related to Metcash and Mr Jardin and that there be no order for costs as between Metcash and Jardim Investments. 128In the appeal to this Court, Mr Jardin and Jardim Investments have failed on four of the five grounds of appeal. Mr Jardin has succeeded on his argument that the "springboard" doctrine did not provide a basis for the extension of the injunctions beyond the period of the contractual restraints as held by the primary judge. However, because Metcash has succeeded on its cross-appeal, the primary judge was justified in restraining Mr Jardin, and Jardim Investments, to 30 November 2010. For that reason, the cross-appeal must be allowed and the appeal dismissed. 129Metcash, by its amended notice of cross-appeal, not only seeks an order that the declaration be set aside, but also that the restraining orders be amended so that the periods of restraint continue to 1 March 2010. Alternatively, Metcash seeks a declaration that restraints in the terms imposed were reasonable and enforceable up to 1 March 2011. 130In circumstances where the appeal was heard well after the expiry of the extended period of restraint contended for by Metcash, there is no utility in varying the restraining orders which were made or in making a declaration that such restraints would have been reasonable and enforceable up to 1 March 2011. The present case is not like Marion White Ltd v Francis [1972] 1 WLR 1423 where there was arguably utility in making a declaration as to the enforceability of a restraint, which had expired, because it was in a standard form and applied to a number of other current employees of the appellant. That is quite unlike the present case. 131There is no reason to vary the orders for costs made by the primary judge. 132Accordingly, the orders I propose are as follows: (1) Grant leave to appeal and cross-appeal. (2) Appeal be dismissed. (3) Cross-appeal be allowed. (4) Set aside Order 4 made by Ball J on 29 September 2010 (5) Order that the appellants pay the respondents' costs of the appeal and of the cross-appeal.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 December 2011
Jardin and Jardim Investments Pty Ltd
Metcash Ltd and Metcash Trading Ltd
[2005] QCA 351
[2008] SASC 370
[1999] HCA 9
[2007] SASC 172
[2002] SASC 16
[2002] VSCA 171
(1973) 133 CLR 288
(1985) 5 IPR 353
(2001) 208 CLR 199
(2007) 160 FCR 29
(1971) 125 CLR 353
(1995) 185 CLR 410
(2011) 243 CLR 253
(2006) 71 NSWLR 9
(1999) 198 CLR 380
(1982) 149 CLR 337
(1993) 30 NSWLR 337
(1979) 141 CLR 552
(1977) 18 ALR 55
(1922) 30 CLR 315
(1995) 39 NSWLR 640
(2011) 192 FCR 210
(1931) 45 CLR 282
(1950) 83 CLR 628
(2001) 210 CLR 181
(2003) 126 FCR 54
(1973) 133 CLR 260
(1993) 31 NSWLR 298
(1995) 66 SASR 301
(2002) 240 CLR 455
(1979) 144 CLR 596
(1990) 21 NSWLR 200
(2001) 111 FCR 302
(2009) 239 CLR 361
(1991) 22 NSWLR 317
(2004) 218 CLR 530
(1992) 175 CLR 564
(1999) 198 CLR 334
(2007) 98 SASR 86
(1978) 52 ALJR 180
(1996) 38 NSWLR 558
(1944) 70 CLR 362
(2002) 85 SASR 482
(2008) 166 FCR 440
(2002) 6 VR 140
(1989) 29 IR 336
(2002) 240 CLR 45
(2004) 218 CLR 451
(2004) 219 CLR 165
(2011) 280 ALR 125
[1999] HCA 18
[2001] HCA 63
[2002] HCA 5
[2004] HCA 52
[2011] HCA 26
Leave to appeal and cross-appeal granted; appeal dismissed; cross-appeal allowed; Order 4 made by Ball J on 29 September 2010 set aside; appellants ordered to pay respondents’ costs of the appeal and cross-appeal.