John Fairfax Publications Pty Limited v Birt & 6 ors

John Fairfax Publications Pty Limited v Birt & 6 ors - [2006] NSWSC 995 - NSWSC 2006 case summary — Zoe

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Adamson v West Perth Football Club (1979) 39 FLR 199 Arthur Murray Dance Studios of Cleveland Inc v Witter 105 NE (2d) 685 (Ohio, 1951) Cactus Imaging Pty Limited v Peters [2006] NSWSC 717 Commercial Plastic Limited v Vincent [1964] 3 WLR 820 Coote v Sproule (1929) 29 SR (NSW) 578 Corrs Pavey Whiting and Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (NSWSC, Young J, 14 April 1997, unreported, BC9701250) Dewes v Fitch [1920] 2 Ch 159 Geraghty v Minter (1979) 142 CLR 177 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 Hitchcock v Coker (1837) 6 Ad & El 438; [1835-42] All ER Rep 452 Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533 Kone Elevators Pty Ltd v McNay (NSWSC, Young J, 10 March 1997, unreported) Kone Elevators Pty Limited v McNay (1997) ATPR 41-564 Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 CASES CITED : Lindner v Murdock's Garage (1950) 83 CLR 628 Littlewoods Organisation Limited v Harris [1977] 1 WLR 1472 Mason v Provident Clothing & Supply Co Limited [1913] AC 724 Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535 Orton v Melman [1981] 1 NSWLR 583 Portal Software v Bodsworth [2005] NSWSC 631 (White J) Portal Software Pty Ltd v Bodsworth [2005] NSWSC 1179 Reeves v Koops Martin Financial Services Pty Limited [2006] NSWCA 221 Rosewood Advertising Pty Limited v Hannah Marketing Pty Limited [2000] NSWSC 1034 Saltman Engineering Co Limited v Campbell Engineering Co (1948) 65 RPC 203 Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659 Twenty-First Australia Inc v Shade (NSWSC, Young J, 31 July 1998, unreported), BC9803667 Vandervell Products Ltd v McLeod [1956] RPC 185 Woolworths Limited v Olson [2004] NSWCA 372 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 CJ Farwell, Covenants in Restraint of Trade as between Employer & Employee (1928) 44 LQR 66 J D Heydon, The Restraint of Trade Doctrine, 2nd Ed.

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2 In order to enforce restraints contained in Mr Birt's contract of employment, Fairfax Publications applies for interlocutory injunctions: · restraining him until 1 March 2007 from approaching any employee agent or customer of Fairfax Publications with a view to enticing them away from Fairfax Publications (claim 1); · restraining him until 1 December 2006 from carrying on or being engaged or interested in, in any capacity, including as an employee, or being otherwise associated with any business which is in competition with the Fairfax Group (which is intended to prohibit his employment in the Hannan Group during that period) (claim 2); · restraining him from using any confidential information of Fairfax Publications its products or clients for his personal gain or revealing it to others (claim 3); and · restraining the Hannan Group from inducing or requiring him to engage in any of the activities from which he is restrained (claim 4). 3 On an application such as the present for an interim injunction, the question is whether the plaintiff has established a sufficiently seriously arguable case for final relief to justify the grant of interlocutory relief, having regard to the balance of convenience. So stating the test emphasises three matters: first, that the plaintiff bears the onus of making out a case for interlocutory relief; secondly, that before one comes to the balance of convenience, there must be a serious question to be tried; and thirdly, that the strength of the serious question to be tried may be relevant to what is required to tip the balance of convenience one way or the other. 4 Much of the relief sought is limited to the period until 1 December 2006 or 1 March 2007. It is improbable in the extreme that a final hearing can take place before the later, let alone the earlier, of those dates. Accordingly, the resolution of this interlocutory application "will in a practical sense determine the substance of the matter in issue", and in those circumstances, it is appropriate to consider, in more depth than might otherwise be the case on an interlocutory application, the strength of the plaintiff's case [Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533, 536 (McLelland J); Portal Software v Bodsworth [2005] NSWSC 631, [26] (White J)]. For that reason, and because of the potential consequences for Mr Birt's employment, I permitted cross-examination, notwithstanding that this was an interlocutory application, and as is reflected in these reasons I have reached some conclusions in more categorical terms than might normally be appropriate on an application for an interlocutory injunction, although they are of course limited to the evidence presently before the court and are not intended to be final findings of fact. 5 These are claims to enforce covenants between employee and employer in restraint of trade. Whether there is a serious question to be tried for final relief depends upon whether it is seriously arguable that there is (1) a valid contractual restraint and (2) a breach or apprehended breach of it (3) in respect of which as a matter of discretion the court would grant injunctive relief.

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8 The relevant restraints are contained in a letter agreement between Fairfax Publications and Mr Birt dated 8 December 2003, by which Mr Birt was appointed, with effect from 1 October 2003, to the position of "GM Sales Development Real Estate and Motors, NSW", with responsibilities said to be outlined in an attached position description - which was not in evidence - on a remuneration package of $150,000. Clause 6 (Confidentiality) provided as follows: During the course of your employment, you will have access to many confidential matters concerning the Company, its products and clients. Such information is not to be used by you for your personal gain or revealed to others outside the Company without the Company's written approval. This obligation of confidentiality continues even after your employment with the Company comes to an end. 9 Clause 9 (Termination on Notice) provided that each of Fairfax Publications and Mr Birt might terminate his employment at any time by giving the other three months' written notice. Clause 10 (Obligations on Termination) provided that upon termination of his employment, Mr Birt must deliver to Fairfax Publications all property documents and records (including any stored electronically) in his possession or control relating in any way to any confidential information of Fairfax Publications. Clause 11 (Restraints) provided as follows:- For a period of six (6) months after the cessation of your employment with the Company, you agree not to approach any employee, agent or customer of the Company with a view to enticing them away from the Company. You must not for a period of three (3) months after the termination of employment with the Company for any reason, anywhere within Australia carry on, be engaged or interested in, in any capacity, solely or with any other person/s, directly or indirectly, (including as an employee, contractor, agent, consultant, contributor, shareholder, joint venturer, principal, director, adviser or otherwise, whether paid or unpaid) or be otherwise associated with any business which is in competition with the Fairfax Group. 10 In the agreement, "the Company" is defined as Fairfax Publications (the plaintiff). The "Fairfax Group" is not defined. 11 Claim 1 in the Summons is founded on the first limb of clause 11 of the agreement. The apprehended breach - as appears from the terms of the injunction sought - is an approach on or before 1 March 2007 to any employee agent or customer of Fairfax Publications with a view to enticing them away from Fairfax Publications. Self-evidently, such an approach would infringe the terms of the restraint properly construed, save that notice having been given on 30 May and having expired on 30 August, the restraint expires on 28 February, not 1 March 2007. 12 Claim 2 in the Summons is founded on the second limb of clause 11 of the agreement. Although it is framed in broad terms that reflect the terms of the restraint, in substance the alleged breach sought to be restrained is being "engaged … as an employee … with" the Hannan Group. The construction issue is whether the business of the Hannan Group, or part of it, is a "business which is in competition with the Fairfax Group" within the meaning of the agreement.

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14 Is the business of the Hannan Group in competition with that of the Fairfax Group? According to the evidence of Mr Hooke, the Managing Director New South Wales of Fairfax Publications, the Fairfax Group is Australasia's largest newspaper publishing group, publishing metropolitan, regional and community newspapers, financial and consumer magazines, and providing online interactive and e-commerce services, throughout Australia and New Zealand. In New South Wales, Fairfax Publications operates three types of print publishing businesses: metropolitan paid daily newspapers (the Sydney Morning Herald and the Sun-Herald), regional paid daily newspapers (the Newcastle Herald and the Illawarra Mercury), and free community/suburban newspapers which are said to be focussed, in Sydney, in the Northwest, Southwest, South and West regions of the Sydney metropolitan area, but the evidence does not descend to any further detail. Since about 2004, Fairfax Publications has also published "zoned inserts" in the SMH to service areas in which it does not operate community papers; these are the real estate inserts Domain North, Domain East, and Domain Inner West, colloquially known as the Junior Domains. They are distributed via insertion into the SMH, and they contain, almost exclusively, real estate advertising. 15 Also according to Mr Hooke, who says he knows the broad nature of the operations of the Hannan Group, it has three main arms: magazine publishing (Vogue Australia and Good Taste); heat set printing; and publication of free suburban newspapers in Sydney, Wollongong, the Sunshine Coast and the Gold Coast. It is in this third arm that Mr Birt is to be employed. Federal (which publishes City Weekly and Central) is held as to 50% by Suburban Newspapers Pty Limited, and 25% each by General Newspapers Pty Limited and Double Bay Newspapers Pty Limited. Suburban is itself held as to 50% each by General and Double Bay, each of which is a wholly owned subsidiary of F Hannan Pty Limited. Nine-to-Five Magazine (which publishes 9to5) is a wholly owned subsidiary of Nine-to-Five (Holdings) Pty Limited, which is a sibling corporation of Federal, being also held as to 50% by Suburban, and 25% each by General and Double Bay.

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17 The Hannan Group is, at least in part, a newspaper-publishing group, though not of metropolitan dailies and not of the same scale as the Fairfax Group or News Limited. The Hannan Group publications are free suburban newspaper/magazines, circulating among residents and commuters in the Sydney City area. The evidence focussed on the three with which Mr Birt would work: 9to5 is aimed at a younger female demographic and is distributed at railway stations; City Weekly is aimed at a younger mixed demographic and also distributed at railway stations; Central is a community newspaper with a broad demographic and delivered to doorsteps in the city. They circulate in at least a small part of the area in which the SMH circulates. While there is no evidence that Hannan's free Sydney City newspapers service the same area as any Fairfax community paper, the zoned inserts in SMH - the so-called Junior Domains - are distributed in large sectors of metropolitan Sydney as weekly inserts in the SMH. 18 Mr Hooke deposes that Hannan's Sydney City publications compete with Fairfax publications - in particular, the SMH and the Junior Domains - as they circulate in areas in which the SMH and one or other of the Junior Domains circulate, and seek to attract the same advertisers (not limited to real estate) that Fairfax Publications also seeks to attract. 9to5 and City Weekly each carry some real estate advertising, and Central has a substantial real estate advertising component. Hannan seeks to attract real estate advertising, from the same agents as Fairfax Publications, for real estate and property publications in Sydney. Hannan's advertising sales team targets advertisers in Fairfax publications (not limited to real estate advertisers), and vice versa, encouraging advertisers to change from one to the other. Thus there is substitution between the products and sources of supply [cf Adamson v West Perth Football Club (1979) 39 FLR 199, 224], in that, for example, a real estate agent (or other advertiser) might chose to advertise in Central rather than in the SMH, Domain East or Domain Inner West, or vice versa. It follows that the Sydney City newspaper publishing business of Hannan is in competition with the Fairfax Group. Accordingly, by being employed in the Sydney City newspaper publishing business of the Hannan Group, before 1 December 2006, Mr Birt would be engaged as an employee in a business that is in competition with the Fairfax Group, contrary to the restraint clause in the agreement.

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21 Would disclosure of that information, now particularised in claim 3 in the Amended Summons, be a breach of the obligation of confidentiality? That depends on whether the information is "confidential information", although to qualify as such, it need not have the character of a trade secret that would attract protection in equity apart from any covenant. As was explained by Kirby P in Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317, (at 333-4):- It is important that courts, with limited experience in the operation of particular businesses, should refrain from too readily substituting their views of what is confidential for that which the parties have defined and agreed to be such. Necessarily, courts get a limited perception of the operation of a business enterprise. Their view of its activities in a competitive marketplace must depend upon the evidence typically called in a trial. Merely because a person says that something is regarded as confidential or a "trade secret" does not make it so: cf Drake Personnel Ltd v Beddison [1979] VR 13 at 20. Courts should, nevertheless, exercise a modest disinclination to hold that information is not confidential when parties have taken the trouble to say that it is. I would certainly agree that none of the information which the employer here sought to protect could properly be classified as a "trade secret", accepting that expression as being at the far end of the spectrum which runs between information which is: (i) Publicly available or trivial; (ii) Common to a particular trade or calling even if not publicly known; (iii) Confidential information properly so called; (iv) Secrets that attract equitable protection whether or not there is a contractual agreement: cf Faccenda Chicken Ltd v Fowler [1987] Ch 117 at 133 (CA); [1984] ICR 589 at 598 (Ch D) and Warman International Ltd v Envirotech Australia Pty Ltd (1986) 11 FCR 478. In my view, the information which the employer sought to protect here would not, in the absence of an express covenant have attracted the protection of equity. Nevertheless, there was such a covenant. To the extent that it was too wide, the Act was available to sustain it in a modified form. Determining what is confidential involves a decision on a question of fact in each case where that quality is asserted. Considerations which courts have found to be relevant, in particular cases, in determining this question include: (a) The fact that skill and effort was expended to acquire the information: see Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 at 117; Wheatley v Bell [1982] 2 NSWLR 544 at 546; cf International Scientific Communications Inc v Pattison [1979] FSR 429 at 434; (b) The fact that the information is jealously guarded by the employer, is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others: see Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 50; E Worsley & Co Ltd v Cooper [1939] 1 All ER 290 at 307; cf Stephenson Jordan & Harrison Ld v McDonald& Evans (1952) 69 RPC 10 at 16; (c) The fact that it was plainly made known to the employee that the material was regarded by the employer as confidential: see Printers and Finishers, Ltd v Holloway (Confidential Information) [1965] RPC 239 at 256 and Faccenda (at 137); (d) The fact that the usages and practices of the industry support the assertion of confidentiality: see, eg, Thomas Marshall (Exports) v Guinle [1979] Ch 227 at 248; and (e) The fact that the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer's organisation: see Faccenda (loc cit).

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37 Whatever might be said of the restraint's purported application in respect of businesses which compete with parts of the Fairfax Group's business in which Mr Birt had no involvement, or of its purported nationwide application, here the breach in question is employment in the Sydney City newspaper publishing business of Hannan, which competes for real estate and other advertising with a part of the Fairfax group's business in which Mr Birt was engaged. Although he has proffered an undertaking not to be involved in real estate advertising, the court enforces valid restraints without embarking into "nice considerations as to the personal honour or integrity of the particular employee" [CJ Farwell, Covenants in Restraint of Trade as between Employer & Employee (1928) 44 LQR 66, 68; Heydon, p87]. Moreover, quite apart from involvement in real estate advertising, Mr Birt's knowledge of the strategy which launched the Junior Domains might well be of assistance to Hannan in gaining market share. The restraint is therefore not excessive in its application to employment in Hannan's Sydney City newspaper publishing business. Nor is three months an unreasonable period for the employer to insist on protection against the risk that Mr Birt, in the capacity of "publisher" with plenary responsibility for the three relevant Hannan publications, when advancing the interests of his new employer in increasing market penetration and share, might find it impossible, even perhaps despite his best endeavours, to put out of his mind what he knew of Fairfax Publications' strategies and vulnerabilities. 38 The first limb of clause 11 has three elements: employees, agents and customer. In respect of the solicitation of employees, it is supported by staff connection. The employer is entitled to protection for only so long as it would reasonably take to install a replacement and allow a reasonable opportunity for that replacement to prove his or her competence to and gain the confidence of the staff. However, the agreement of the parties is at least a starting point for that exercise. In my view it is at least seriously arguable that a prohibition on solicitation of employees for six months is not unreasonable; it may well take six months for Mr Birt's influence to wane. 39 As to the solicitation of agents, while I would not deny that there may be cases in which a connection with agents is protectable by restraint, there is nothing in the evidence which permits a finding that Fairfax Publications has any relevant connection with its agents - whoever they might be - which justifies protection by restraint. In this respect there is no evidence of a legitimate interest which could support the restraint and I would not find it valid. 40 As to solicitation of customers, while on its face this type of restraint protects customer connection, such a restraint can also be supported by confidential information: in particular, a prohibition on solicitation of customers protects an employer against misuse of knowledge which the employee has in the course of employment gained of the employer's terms of trade with those customers, or their particular requirements and reasons for dealing with the employer [cf Cactus Imaging v Peters, [34]]. Such a restraint affords a lesser degree of protection than an absolute prohibition on employment by a competitor, and may be justifiable for a lengthier period. However, as none of such information as I have found to be protectable as confidential relates to terms of trade with or characteristics of customers, in this case I do not consider that the restraint on solicitation can be supported by confidential information.

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47 Mr Robinson has submitted that by isolating Mr Birt from confidential information for the three-month notice period at the end of his employment, Fairfax Publications removed the need to protect its confidential information after the employment terminated. However, I do not see why the entitlement of Fairfax Publications to the benefit of the three-month non-compete period should be affected by its taking precautions to minimise Mr Birt's access to confidential information during the three-month notice period. The parties bargained for three months' notice, followed by a three-month non-compete period. Fairfax Publications was entitled to have him serve out his notice period, and then not be employed by a competitor for three months. In particular, I do not accept the submission that Mr Birt was "demoted"; it is true that he was replaced in the position of General Manager Sales Development, Real Estate New South Wales, but he was assigned to a project on which he had previously been engaged but which was incomplete. His remuneration was unchanged. 48 I am also unable to accept Mr Robinson's submission that Fairfax Publications' entitlement to insist on the restraint is affected by the circumstance that, when it first learnt of Mr Birt's intention to take up employments with the Hannon Group, there was no immediate assertion of its rights under the restraints. It is true that, for a month or two, Fairfax Publications did not positively assert that it would invoke the restraint on employment. It endeavoured to negotiate with Mr Birt to retain him at Fairfax Publications. But even if this created in Mr Birt an assumption that the restraint would not be enforced, he did not rely on any such assumption to his detriment. He had already given his three months' notice, terminating the contract. When Fairfax Publications endeavoured to negotiate his retention, he made clear that he was determined to proceed with a new career with Federal, "risky as it may be". I am unable to accept his assertion that he would not have agreed to an "end date" of 30 August had he known that the restraint would be enforced; he himself selected that end date by giving three months notice on 30 May, before any assumption about enforcement of the restraint could have been created. 49 There is no doubt that enforcing the restraints by injunction will occasion hardship to Mr Birt, and one cannot but have considerable sympathy for his predicament: he will be out of employment for three months, although it seems that upon expiration of the three month restraint, Hannan will still employ him, so that he will not lose his employment opportunity forever. This hardship is increased by the circumstance that his wife is expecting their second child in about a month; and their first child is only 16 months old. However, enforcement of such restraints frequently occasion hardship to employees who, in defiance of them, accept employment with competitors. To a significant extent, an employee who pursues such employment despite the terms of a restraint is the author of his or her own misfortune. I do not think that sympathy for the position in which Mr Birt now finds himself can justify not enforcing the contractual rights of Fairfax Publications.

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Judgment (70 paragraphs)

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Cases Cited (16)