JMB (NSW) Pty Limited trading as McGrath Central Coast v West

Supreme Court of NSW|2020-09-22|Before: Parker J

Judgment - EX TEMPORE Revised from transcript; issued 9 October 2020

Before the Court is an application for interlocutory injunctions in proceedings arising out of an employment dispute. A former employer seeks orders preventing its former employee from working for his new employer or limiting work he can perform at his new employment.
JMB (NSW) Pty Ltd ("JMB"), the plaintiff, is the holding company for a group of companies which conduct a real estate agency business on the New South Wales Central Coast. The business has six offices, some operated by JMB itself and some by companies in which it is a shareholder. The business currently trades under the name McGrath Central Coast.
Nicholas James West, the first defendant, was employed by JMB from October 2013 until early July 2020 apart from a break of a month or so between August and October 2015. He worked at the Terrigal office. When he left, he was working as a sales agent dealing with customers and listing properties on his own. He concentrated on properties in Terrigal and the nearby suburb of Wamberal.
Whiteman Investment Holdings Pty Ltd ("WIH"), the second defendant, has been Mr West's employer since he left JMB in July. An associated company of WIH operates another real estate agency business on the Central Coast. That business trades under the name The Agency Central Coast.
WIH has employed Mr West to work for The Agency Central Coast. His position is as a sales agent. As with his work with JMB, it appears that he will be focussing in particular on the sale of properties in Terrigal and Wamberal.

Restraint against employment with a competing business

The relevant clause in the September 2015 contract is clause 18.2(b). The numbering is different in the later contracts but the wording is the same. The clause provides that Mr West will not: carry on or be engaged, concerned, interested directly or indirectly whether as a shareholder, director, employee, partner joint venture participant, principal, agent, trustee, unitholder or otherwise, in carrying on any business for a Competitor for the Restraint Period
The contract is drafted in the style typical for employment restraints, so as to allow for the application of the "blue pencil". Definitions are set out as alternatives with descending levels of generality, and the contract provides that each alternative is to be interpreted as a separate covenant.
This style is used in defining the Restraint Period. Four different periods of time are specified. The longest is nine months after the termination of the employment in question. This gives a restraint period ending on 3 April 2021.
A similar approach is taken in the definition of "Competitor". That provides: Competitor means any business engaged in providing real estate agency services with a radius of: (1) 25 kilometres from the office of the Employer in which You were employed; (2) 15 kilometres from the office of the Employer in which You were employed; (3) 7.5 kilometres from the office of the Employer in which You were employed; (4) 3 kilometres from the office of the Employer in which You were employed.
In this application (and in the proceedings itself) JMB seeks only to enforce the definition up to a radius of 7.5 kilometres.
The relevant order sought by JMB is order 1, which seeks: An Order that until further order or 3 April 2021, the First Defendant be restrained from carrying on or being engaged, concerned or interested directly or indirectly whether as a shareholder, director, employee, partner joint venture participant, principal, agent, trustee, unitholder or otherwise, in carrying on any business for the Second Defendant or any other business (including his own), operating from a place of business within, and providing real estate agency services within, 7.5 km of Shop 1 & 2, Pine Tree Lane, Terrigal in the State of New South Wales.
There is a lack of clarity in the concept of "providing real estate agency services" within a particular area. Clause 18 does not identify whether the provision of services is constituted by: (1) having an office in the area; or (2) dealing with customers who live in the area (whether or not those customers own properties in the area); or (3) dealing with customers (wherever they live) with respect to properties in the area. Counsel for JMB proceeded on the assumption that (3) is the correct interpretation, and I have assumed that that is so for the purposes of dealing with this application.
In the course of argument it was pointed out that the effect of the definition was that Mr West could be prevented from dealing with potential customers in Sydney who own holiday houses in the relevant area. JMB's response was to insert a reference to the competitor operating from a place of business within the relevant area, although it does not appear in the clause itself. Counsel informed me that JMB only sought to enforce the restraint to that extent, both in this application and in any final proceedings.
This step narrows the theoretical reach of the restraint. But The Agency indeed has a place of business within the 7.5 kilometre radius. It deals with properties within that radius. Thus the order would prevent Mr West from being employed with The Agency, even if he worked solely on properties outside the area in question.
The arguments for the parties centred on three factors. These were: (1) the strength of JMB's prima facie case for enforcement of the restraint (and in particular the strength of its contention that the restraint was no more than reasonable); (2) the balance of convenience; and (3) delay.

Strength of prima facie case

The restraint sought directly restricts Mr West's ability to compete against JMB. This squarely brings the restraint of trade doctrine into play. But a restraint on employment may be permissible if it is necessary indirectly to protect a legitimate interest of the former employer.
According to counsel for JMB, two possible interests were in issue. The first was JMB's interest in protecting the goodwill associated with Mr West's dealings with customers. Despite what the customer may think, this goodwill is an asset of the employer, and it is not unfair for the employer to prevent the employee from trading on it, at least for a reasonable period: Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at [25].
But in the present case the interest may be protected by a non-solicitation restriction which applies not only to solicitation of, but also to acceptance of instructions from, the former employer's customers. As will be seen, Mr West is prepared to accept such a non-solicitation restriction. The restraint which JMB seeks extends well beyond Mr West's dealing with customers of JMB with whom he formerly dealt.
The effect of the restraint would be to prevent Mr West from working for The Agency at all. He would not be able to deal with customers of McGrath with whom he never dealt, or even with owners of property within the relevant area who had never dealt with McGrath. Nor, as I have pointed out, would he even be entitled to deal with customers outside the relevant area if (as would presumably be the case) colleagues at The Agency dealt or attempted to deal with owners of property within the relevant area.
An alternative basis for indirectly supporting a restraint against being employed by a competing business is to protect the confidential information of the former employer. This was explained by Lord Denning MR in The Littlewoods Organisations Ltd v Harris [1978] 1 AII ER 1026 at 1033: It is … established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period.
Clearly the application of this principle must depend upon the nature of the confidential information in question. It must also depend upon the seniority of the employee. For example, suppose a senior employee knows of the employer's future business strategy, and in particular a plan for the timing of future new product launches. If "poached" by a trade rival to occupy a similar position, such an employee is placed in a virtually impossible position. He or she would be unable to put the information out of his or her mind.
But if a junior employee who happened to be aware of the business strategy were to accept an equivalent position with a rival firm the same problem would not arise. If the employee is not employed in a decision-making position the former employer's interests may be protected by the usual constraint on disclosure of the confidential information to the new employer.
This suggests that it will be a rare case where it would be possible to restrain a junior employee from employment with a trade rival on the basis of knowledge of confidential information. I think that this is confirmed by the course of decisions in which post-employment restraints have been upheld.
I refer to two appellate decisions in particular. The first is Woolworths Ltd v Olson [2004] NSWCA 372. In that case the employer operated a chain of supermarkets. The former employee was a senior executive who had been responsible for a project for altering and upgrading the employer's computerised stock supply system. The employee accepted employment with a rival supermarket chain as a senior executive with responsibility for logistics. A restraint against accepting that employment (which required the employer to pay the former employee his usual emoluments during the period of restraint) was upheld.
A similar case was Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187. The former employer operated a recruitment business. The former employee was a senior executive whose principal function was the retention and development of the customer base. He accepted employment with a rival recruitment business in a senior executive position. Again, under the contract he was to be paid a salary for 21 of the 24 months of the restraint period. The restraint was upheld.
These cases should be contrasted with Mr West's position. He is not employed in a managerial or strategic role at The Agency, so far as the evidence goes. JMB wishes to restrain him from acting as an employee, but he is not entitled to any payment from JMB for the period of the restraint. No doubt Mr West, whilst employed by JMB, would have observed the techniques used by other agents for trying to retain customers for repeat business. But nothing suggests that these techniques would have been proprietary in nature. JMB's customer details, as reported in the listings report, were obviously valuable, but Mr West could not have carried those around in his head.
In my view, the case for enforceability of the restraint, in the terms sought by JMB, is not strong.

Balance of convenience

As I will explain below, the defendants have agreed to give undertakings which will require them not to deal with JMB's customers and to keep full records of any agency work in which Mr West is involved so that this can be verified. It is not easy to see what additional damage would be suffered by JMB merely from Mr West being permitted to work for a competing agency.
On the other hand, the order sought by JMB would directly prevent Mr West from working in his chosen profession as a real estate agent. In his affidavit Mr West said that being unable to work as an agent would impose financial hardship on him and prevent him from providing for his family. There is no reason to doubt this. In my view, the balance of convenience is against JMB.

Delay

As I have said, the evidence indicates that Mr West sought to conceal his employment with The Agency from JMB. But it is clear that nonetheless JMB was aware of the fact that Mr West was working for a competing business from 20 July onwards but it made no demand he cease doing so until its letter of 26 August. Indeed, the letter of 21 July implicitly suggested that Mr West's alleged "responsibilities" did not extend to refusing employment with The Agency. There is no explanation for JMB's delay in seeking the restraint in question.

Conclusion

Taking these factors together, it is my view that the interlocutory restraint sought by JMB should be refused. I am particularly influenced by the drastic nature of the restraint sought and the delay in seeking it. In the circumstances, I think the delay is far too long. If an employer is to restrain a former employee from working at all for a competing business then I think that the employer must be expected to make the application within days of the employer becoming aware that the employee is doing so. It was not reasonable to allow Mr West to continue to work for weeks for The Agency under the assumption that there was no contest about his employment as such.

Self-promotion on social media

Counsel for JMB accepted that if the restraint against Mr West's employment with The Agency were refused then the order sought by JMB with respect to self-promotion on social media would likewise be refused.

Restraint on solicitation

The relevant provision of the contract is clause 18.2(a) which requires Mr West not to: solicit, attempt to solicit (via Social Media or otherwise), or accept any instructions to performance real estate agent services for any Client for the Restraint Period.
For the purposes of this restraint the definition of "Client" is: any person or entity: (1) to which the Employer provided services during your employment; (2) with which the Employer had direct dealings during your employment in relation to provision (or proposed provision) services by the Employer to the person or entity; (3) which referred business to the Employer during your employment; (4) with which You had direct dealings in the course of, or in connection with, your employment with the Employer.
The order sought by JMB is: 2. An Order that until further order or 3 April 2021, the First Defendant be restrained from soliciting, attempting to solicit (via Social Media or otherwise) or accepting any instructions to provide real estate agency services from any person or entity: (a) with whom the First Defendant had direct dealings in the course of or in connection with his employment with the Plaintiff; or (b) who is listed as a buyer or a vendor in the "Confidential 22 May Client List" referred to in paragraph 79 of the affidavit of Jaimie Mark Woodcock dated 1 September 2020 in relation to a property that settled after 8 October 2013, or alternatively after 30 September 2015.
Order 2(a) is based on paragraph 4 of the definition of "client". That order is not contentious and an undertaking in those terms has been offered. It is order 2(b) which has given rise to the dispute. Again, the relevant factors are the strength of JMB's prima facie case, the balance of convenience and delay.

Strength of prima facie case

It should be noted at once that the undertaking which has been offered, and is recorded in order 2(a), includes not only non-solicitation but non-acceptance of instructions. Thus Mr West will not be able to work at The Agency for any customer with whom he had "direct dealings" when working for JMB.
According to counsel for JMB, order 2(b) is based on sub-paragraph (2) of the definition of "Client". But it does not follow the exact terms of that definition. Instead, it uses the listings report as a means of identifying the so-called clients of JMB.
One feature of the listings report is that it goes back to 2013. It thus includes transactions which predated the employment period to which the contracts which JMB seeks to enforce relate. Counsel for JMB submitted that the reference to "employment" in Mr West's contracts should be understood as going back to when he was employed by JMB in October 2013, even though his employment was in fact discontinuous.
That seems to me to be an unlikely reading. I would have thought that the natural meaning of "employment" in the context would be the period of continuous employment covered by the relevant contract. It seems to me unlikely that the parties would have contemplated that, by resuming employment with JMB in September or October 2015, Mr West's immunity from post-employment restrictions, so far as his earlier period of employment was concerned, would be lost.
It is not however necessary to go into this further for the purpose of this application. There are more fundamental issues.
First, it is clear that order 2(b) extends to vendors and buyers with whom Mr West personally never dealt.
Furthermore, order 2(b) extends to counter-parties to transactions in which JMB was involved but for whom JMB never acted. Arguably, this in itself is beyond the scope of sub-paragraph (2) of the definition of "Client".
The third issue is a practical one. Order 2(b) seeks to define Mr West's obligations in terms of persons identified in the listings report while in the very same proceedings JMB contends that the report is confidential and insists on its return.
When this point was raised by counsel for the defendants in the course of the argument, counsel for JMB responded with the idea that the list could be provided to a solicitor who could then tell Mr West whether people on the list were embargoed. The formulation of this idea went through a number of iterations and for final purposes was reflected in proposed order 2A: For the purposes of ensuring that the First Defendant complies with Order 2(b), the plaintiff's solicitor shall within 3 business days of the date of this Order provide an independent solicitor, engaged at the plaintiff's cost, with a copy of the "Confidential 22 May Client List" (including an electronic copy), and will inform the First Defendant of that independent solicitor. The First Defendant shall be able to make enquiries of the independent solicitor as to whether a particular person or entity is on that List and comes within Order 2(b), and the independent solicitor shall answer such enquiries promptly by informing the First Defendant whether a particular person or entity is on that List and comes within Order 2(b). No step taken by the First Defendant or the independent solicitor in accordance with this Order 2A shall constitute a breach of any implied undertaking or confidentiality order (including Order 4 made in these proceedings on 2 September 2020) that applies in respect of the "Confidential 22 May Client List".
But the argument which prompted order 2A was not just a clever version of tit for tat. It points up the width of the protection that JMB is seeking. Order 2(b) would prevent Mr West from dealing with people whose relationship with JMB is not even known to him. It is difficult to see what legitimate interest JMB would have to prevent that sort of competition.
Overall, I consider that JMB's prima facie case for a restraint in terms of order 2(b) is a weak one.

Balance of convenience

In assessing the balance of convenience it should be noted that the undertakings offered by the defendants include undertaking in terms of order 11: An Order that up to the final determination of these proceedings, or until further order, the First Defendant keep lists and accounts of all real estate listings and sales, and new property managements, signed to or obtained by either the First Defendant in his personal capacity or any corporate entity of which the First Defendant is a director, or to the Second Defendant or any entity trading as The Agency Central Coast, that were obtained by or with the assistance of the First Defendant.
If JMB establishes at trial that the restraint on Mr West validly extends so far as is reflected by order 2(b), then this undertaking would come into play. In such a case the assessment of damages would appear to be straightforward, subject to proof that JMB would otherwise have got the sale. The damages would be the amount of the commission on that sale. It should readily be possible to calculate the damages based on the information which is to be provided.
It seems to me that for this restraint the question of balance of convenience may not even strictly arise. Damages may well be an adequate remedy. But there is more.
The final version of order 2A removed the problems which existed with earlier versions of the order, which required Mr West to pay for the costs of the solicitor who would hold the listings report and advise Mr West whether names appeared in it. But the procedure would still impose substantial practical impediments on Mr West acting as an agent.
The effect of order 2(b), combined with order 2A, is that Mr West would have to find out whether a person is on the list before dealing with that person. Suppose Mr West decides to engage in a doorknocking campaign to try and drum up business. Will he have to stand on the doorstep of each house he visits, ask the occupants their names and addresses, and then make a call to the solicitor to make sure they are not on the list, before continuing the conversation further?
Counsel for the defendants also pointed out that the solicitor would presumably be liable for lost sales if the solicitor gave Mr West an incorrect response or failed to respond promptly as the undertaking requires. The solicitor might even be guilty of contempt. Counsel observed that there may be difficulties in obtaining a solicitor who is prepared to take the task on and noted that no such solicitor has yet been identified.
For these reasons, I consider that the balance of convenience on this restraint also favours the defendants.

Delay

It is clear from the evidence that whether or not this was his intention, the effect of Mr West's conduct was to conceal from JMB that he had the May 2020 listings report when he left JMB's employment. That was not deduced by JMB until his employment with The Agency was revealed on 20 July. But it seems that the list was offered back to JMB after that and there is no explanation for why JMB did not take up that offer until after the proceedings were begun. In any event, debate about the report is not particularly relevant for present purposes. As I have already pointed out, the terms of the relevant restraint do not depend upon its existence.
From 7 August, at the latest, Mr West made it clear that he did not consider himself bound by any of the contractual restraints on which JMB relies. Yet it was not until 26 August that undertakings along the lines of order 2(b) were sought. In my view, there has once again been delay by JMB in seeking the relevant restraint.
Taking all these factors together, I again conclude that I should refuse JMB's application for interlocutory restraint in the terms which are sought.

Access to Mr West's Electronic Devices

Mr West has already given two undertakings which have been reflected in the minute of order. One is an undertaking not to use or disclose any confidential information and specifically the listings report. The other is to provide an affidavit describing any confidential information still in Mr West's possession and provide details of that information including how and when it came into his possession and any disclosure which may have been made of it.
Against this background, JMB seeks the additional order 10: 10. The First Defendant deliver up to the Court or to an independent computer expert, by a date determined by the Court: (a) Any electronic copy his possession, custody or control, of the "Confidential 22 May Client List" referred to in paragraph 79 of the affidavit of Jaimie Mark Woodcock dated 1 September 2020, or of any list or document derived from that List. (b) Any external storage device used by the First Defendant in connection with his employment with the Plaintiff. (c) Any desktop or laptop computer to which any such external storage device has been connected since 22 May 2020. (d) Any electronic copy of any documents in his possession, custody or control which contains the Plaintiff's Confidential Information, and any computer or electronic storage device upon which or through which any such documents or Confidential Information have been accessed or stored. for the purpose of allowing the Plaintiff's independent engaged computer expert to: (a) make a copy of any such or device referred to in subparagraph (b) to (d) above; and (b) undertake non-destructive testing of any such device, for the purpose of investigating the First Defendant's use or disclosure of the Plaintiff's Confidential Information.
Subparagraph (a) is not controversial because Mr West has already said that there is no such electronic copy of the listings report. The question is whether he should, as the other orders require, submit his electronic devices to a computer expert retained by JMB to allow a search to be undertaken. Of course JMB will be entitled to discovery in these proceedings but if discovery is provided then in accordance with the usual principle, JMB will be bound by the affidavit of documents unless it can show that that affidavit is incomplete or reflects a misunderstanding of the defendants' discovery obligations.
The orders JMB now seeks in effect seek to go behind Mr West's statement in his affidavit that he has not copied the list and holds no other confidential information. As at present advised, it seems to me that the Court would only ever make such an order if there was evidence which clearly suggested that those affidavit statements were unreliable or potentially so. There is nothing in the evidence that would allow me to reach that conclusion at this stage. In my view, the additional order 10 is not justified at this point.

Conclusions and orders

For these reasons I refuse each of the orders sought by JMB which have not been agreed on behalf of the defendants. (Parties addressed on costs and the form of orders)
The orders of the Court I make, apart from the first order which was the notation of the undertakings and acceptance of the undertakings: 1. Note and accept the defendants' written undertakings dated 16 September 2020. 2. Order that the plaintiff's application for interlocutory relief be otherwise dismissed. 3. Order that the plaintiff pay the defendant's costs of the application from 17 September 2020 onwards and otherwise that the parties' costs of the application be costs in the cause.

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: 09 October 2020

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