a Was Mr Jardin entitled to give 3 months' notice of termination of the employment deed?
b Are any of the provisions of the employment deed or deed of release unreasonable restraints of trade and therefore to that extent unenforceable?
c Will giving effect to the deed of release have the effect or likely effect of substantially lessening competition in a market in breach of s 45 of the Trade Practices Act 1974 (Cth) ( TPA )?
d Did Mr Jardin breach any (enforceable) provisions of the employment deed or deed of release?
e Can any remedy be granted against Jardim Investments?
f What remedies, if any, should be granted?
Was Mr Jardin entitled to terminate the employment deed on 3 months' notice?
32 The plaintiffs say that Mr Jardin was not entitled to give 3 months' notice terminating the employment deed because he agreed by cl 1(b) of the deed of release that the employment deed would terminate on 1 March 2011 and he agreed by cl 8(c) of the deed of release that, except as otherwise provided in the deed of release, that deed (and the deed poll attached to it) constituted the entire agreement between the parties as to its subject matter to the exclusion of any prior agreement - including cl 12.1(a) of the employment deed.
33 I do not accept that submission. In interpreting the deed of release, it is important to bear in mind the context in which it was agreed. The employment deed required Metcash Trading to give 9 months' notice of termination of Mr Jardin's employment except for cause. It contained no post contractual or post employment restraints, other than, relevantly, a restraint in relation to the use of confidential information. On or about 5 February 2010, Metcash purported to terminate Mr Jardin's employment immediately. Mr Jardin took issue with its right to do so. Ultimately, the parties agreed (in cl 1(a) of the deed of the release) that Metcash would be entitled to give 9 months' notice terminating Mr Jardin's employment on 1 June 2010, with the result that his employment would terminate on 1 March 2011. At the same time, Mr Jardin agreed to a variation of the terms of his employment that permitted Metcash to vary his role - and, in particular, permitted it to direct him not to undertake any work. Mr Jardin obtained an additional period of notice (about 3 months) in exchange for giving up his position immediately. The deed of release assumes that the employment deed will remain on foot and seeks to modify it in various ways. In particular, cl 1(a) assumes that the termination right contained in cl 12.1(b) remained on foot and simply sets out when Metcash would exercise that right. Similarly, cl 1(h) of the deed of release assumes that the right of summary dismissal provided for in cl 12.2 of the employment deed continues and it sets out the consequences in the event that it is exercised. Clause 1(h) is not itself the source of Metcash Trading's right to terminate without notice for cause. The words "[i]n the event that the Employment is terminated before the Termination Date …" do not create a right of summary dismissal. They simply identify the event (that is, summary dismissal) which gives rise to the consequences stated in the clause. The right of summary dismissal itself must be found elsewhere - and the only place it can be found is in the employment deed. If the deed of release assumes that the rights of termination in cls 12.1(b) and 12.2 remain on foot, why is the same not true of the right in 12.1(a)?
34 The conclusion that the deed of release preserves the termination rights set out in the employment deed is consistent with cl 1(f) of the deed of release. That clause contains an acknowledgement by Mr Jardin that he continues to be bound by his obligations under the employment deed. It then goes on to say that "[f]or the avoidance of doubt" he will continue to receive his remuneration payable under that deed. Again, this clause assumes that the employment deed continues and then sets out consequences of that fact. The words "for the avoidance of doubt" assume that the relevant obligation is to be found elsewhere - and, again, the only place it can be found is in the employment deed.
35 In my opinion, cl 1(b) of the deed of release does not alter the position. It is clearly not intended to operate to the exclusion of the right of summary dismissal. It follows cl 1(a). In my opinion, it was intended to set out the consequence of the notice given under the earlier clause. The interpretation of cl 1(b) contended for by the plaintiffs makes the procedure contemplated by cl 1(a) (that is, the giving of the notice) pointless. In addition, the plaintiffs' interpretation alters the rights and obligations of the parties in a way that does not appear to be directed to the dispute that the deed of release was intended to resolve. The deed of release was directed at resolving a dispute about whether Metcash Trading was entitled to terminate the employment deed in circumstances where, on termination, Mr Jardin was not bound by any post contractual restraints (other than those relating to confidentiality). The interpretation of cl 1(b) contended for by the plaintiffs has the effect of requiring Mr Jardin to work for Metcash - or at least to be bound by restrictions in its favour - until 1 March 2011, when he was not bound in that way before the release was signed and when the dispute that gave rise to the deed of release was not concerned with that issue. Of course, it is possible that Mr Jardin might have agreed to those additional restrictions as part of an overall settlement of the dispute. But it seems to me that, if that is what the parties had intended, they would not have preserved the rights of termination in the employment deed in the way that they did.
36 It is true that other provisions of the deed of release assume that a number of the rights and obligations to which it refers will continue until the "Termination Date" - that is, until 1 March 2011. So, for example, Mr Jardin "acknowledges and agrees" in cl 1(f) of the deed of release that, prior to the Termination Date, he continues to be bound by the obligations in the employment deed. But the assumption that the parties' rights and obligations would continue until the Termination Date was correct unless and until Mr Jardin or Metcash exercised a right to terminate the deed by earlier notice. The deed of release was drafted in the expectation that it was unlikely that the other termination rights contained in the employment deed would be exercised; and consequently it sets out what would happen on the assumption that those rights would not be exercised. But I do not think that it follows from that that the parties agreed that those rights could not be exercised.
37 Nor do I think cl 8(c) - the entire agreement clause - assists the plaintiffs. That clause applies "[e]xcept as otherwise provided in this deed". As I have said, in my opinion, the deed assumes the continued operation of the employment deed except to the extent that it modifies the latter deed.
Does the employment deed or deed of release impose unreasonable restraints of trade on Mr Jardin?
38 The relevant restrictions are those contained in cl 3.2 of the employment deed - restrictions that Mr Jardin acknowledged and agreed to in cl 1(f) of the deed of release. The parties accept that the reasonableness of these restraints (to the extent that the question of reasonableness arises) should be assessed at the time the relevant agreement was entered into: see Woolworths v Olson [2004] NSWCA 372. They also accept that the relevant agreement was the deed of release. It was by that deed that the parties at least restated the obligations contained in cl 3.2 and the reasonableness of those obligations should be assessed against the background in which the parties recommitted themselves to those obligations rather than the circumstances in which the obligations were originally agreed.
39 The parties, however, say that quite different consequences followed from their agreed starting point. The plaintiffs' primary position was that the restraint of trade doctrine does not apply at all where the relevant restraints are contained in a deed of release which seeks to resolve a dispute concerning the terms on which Mr Jardin was employed. In support of that proposition, they rely on comments made by Parker J in Panayiotou v Sony Music Entertainment (UK) Ltd [1994] Trading Law Reports 532 (referred to by the High Court in Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at 136 [19]). Alternatively, they say that the restraints were reasonable, particularly having regard to the relationships established by Mr Jardin over the previous 10 years and the confidential information that he had obtained during that time.
40 On the other hand, Mr Jardin's primary position is that, on its correct construction, cl 3.2 of the employment deed only operated while the employment relationship continued. That relationship came to an end either when Mr Jardin was required to take "gardening leave" on or about 5 February 2010 or when Mr Jardin purported to give immediate notice terminating the contract on 16 July 2010. In the alternative, Mr Jardin says that, even if the restraints contained in cl 3.2 were reasonable in the context of an employment relationship, they were not reasonable once that relationship ended. Mr Jardin sought to make two other points. First, he maintained that, on a proper construction of cl 3.2, he had not committed a breach of it. Second, he maintained that, even if the restraints were reasonable, the court should not in its discretion grant an injunction to give effect to them. I return to these two points below.
41 This part of the case, then, raises three issues. The first is whether the restraint of trade doctrine applies at all. The second is whether cl 3.2 of the employment deed continues to apply. The third is whether and to what extent the restraints imposed by cl 3.2 of the employment deed (and restated by cl 1(f) of the deed of release), assuming they apply, are enforceable.
Does the restraint of trade doctrine apply?
42 As to the first question, I do not accept the plaintiffs' submission. In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at 136 [19], the High Court, referring to Panayiotou v Sony Music Entertainment (UK) Ltd [1994] Trading Law Reports 532, left open the question whether a restraint of trade which was the result of a "genuine and proper" resolution of a dispute concerning a restraint of trade clause could itself be made the subject of the restraint of trade doctrine. Here, however, the dispute did not concern the enforceability of a restraint of trade clause that was compromised by agreement to an alternative restraint. The dispute concerned termination of the contract. It was resolved by an agreement that that contract continue for a period of time. There was no compromise reached in relation to the restraint. There is no reason why the restraint of trade doctrine should not apply in those circumstances.
Does cl 3.2 of the employment deed continue to apply?
43 Before seeking to deal with Mr Jardin's submissions that depend on his claim that the employment relationship had come to an end, I should say something about the relevant legal principles. The law draws a distinction between termination of an employment relationship and termination of the employment contract. The employment relationship normally comes to an end when the employee is no longer willing to perform the services for which the employee is paid a wage or when the employer is no longer willing to permit the employee to perform those services. When that happens, the employee is no longer entitled to receive remuneration for the work that the employee was engaged to do. Instead, where it is the employer who terminates the relationship, the employee is left to a claim for damages. Termination of the employment relationship, however, does not itself terminate the contract of employment. The contract will only terminate in accordance with normal contractual principles: that is, where the party not in breach accepts the repudiation of the party in breach and exercises a right of termination: Purcell v Tullett Prebon (Aust) Pty Ltd [2010] NSWCA 150 at [19]f. As the majority of the High Court (Heydon, Crennan, Kiefel and Bell JJ) pointed out in Visscher v Giudice (2009) 239 CLR 361; [2009] HCA 34 at [53]-[55], there generally will be no point in one party or the other refusing to accept the repudiation of the other. The contract cannot be specifically enforced. The employee is not normally entitled to be paid remuneration for work that the employee does not do. Affirmation of the contract, therefore, normally achieves nothing; and, as a result, the relationship and the contract normally come to an end more or less at the same time. However, that is not always so. One case where it may not be so is where the contract imposes no obligation on the employer to provide the employee with work but imposes restraints on the employee which come to an end on termination of the contract but which do not come to an end on termination of the employment relationship. In cases of that type, it may be in the interests of the employer to affirm the contract in order to continue to obtain the benefit of the restraints - which are capable of being enforced by a negative injunction. A typical case of that type is where the contract provides a period of notice and, during the period of notice, permits the employer to place the employee on "gardening leave". In cases of that type, an employee may repudiate the contract by purporting to terminate it without giving the requisite notice. That repudiation will bring the employment relationship to an end. However, in response, the employer may affirm the contract, exercise its rights to place the employee on gardening leave, continue to pay the employee and seek to enforce the restraints imposed by the contract. The question, then, is how does the restraint of trade doctrine operate in those circumstances? It is now accepted that the doctrine applies during the existence of a contract: Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126. However, what a reasonable restraint is during the existence of a contract is very different from what is reasonable following the contract's termination. For example, it will be very rare for an obligation not to engage in other employment to be regarded as unreasonable during the term of the employment relationship. The same cannot be said following termination of the contract: Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269. Generally, courts have taken the view that restraints that operate during a period of gardening leave are analogous to restraints that operate after the contract has terminated. As a result, they are more difficult to justify: Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; William Hill Organisation Ltd v Tucker [1998] EWCA Civ 615; [1999] ICR 291 at [25]; Bearingport Australia Pty Ltd v Hillard [2008] VSC 115.
44 In my opinion, it is unnecessary to determine whether the employment relationship continued in this case. Although the conduct of Metcash on or about 5 Feburary 2010 may have amounted to a repudiation by it of the employment deed and although, in the normal course of events, that may have amounted to a constructive dismissal bringing to an end the employment relationship, the parties reached an agreement on 19 February 2010 to continue the contract for a period of time subject to a number of modifications. The parties specifically agreed at that time that Mr Jardin would continue to be bound by the obligations imposed on him by the employment deed Those obligations included the obligations imposed by cl 3.2. There is no reason to interpret those obligations as only applying while the employment relationship continues. On their face, they continue while the employment deed remains on foot.
45 Similarly, even assuming that Mr Jardin's notice on 16 July 2010 brought an end to the employment relationship at that time, it did not bring an end to the deed of release. Metcash elected to affirm that deed. For the reasons I have given, that deed re-affirmed the obligations imposed by cl 3.2 of the employment deed.
Are the restraints imposed by cl 3.2 enforceable?
46 Clause 3.2 is enforceable to the extent that it is not against public policy: Restraints of Trade Act 1976 (NSW), s 4(1). A restraint of trade is not contrary to public policy if it is reasonable between the parties, and not unreasonable in the public interest: Tullett [2008] NSWSC 852 at [45].
47 Two points need to be borne in mind in considering the question of reasonableness. First, on the interpretation I have adopted of the deed of release, it was always open to Mr Jardin to terminate the employment deed on 3 months' notice; and, indeed, that is what Mr Jardin did on 26 July 2010. That fact is relevant to the reasonableness of the restraints contained in cl 3.2.
48 Secondly, in considering the reasonableness of the restraints the court should consider what is necessary to protect the legitimate interests of the person asserting the restraint in the circumstances of the case: Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337. Part of the circumstances of this case include the fact that the parties agreed to terminate the employment deed in accordance with the deed of release; and, in that context, the parties agreed that Mr Jardin would not be entitled to continue to work in his previous position. In my opinion, it is an over simplification to say in this case that Mr Jardin was put on "gardening leave" and that consequently the reasonableness of the restraints should be assessed as if they were post contractual restraints. The fact that Metcash was not obliged to provide work to Mr Jardin is one matter that needs to be taken into account. But it is also relevant that Mr Jardin continues to be paid during the period that he is bound by the restraint: Woolworths Limited v Olson [2004] NSWCA 372 at [61], [68]. In addition, it is relevant that the parties agreed to a continuation of the restraints as part of a negotiated settlement of a dispute in which the parties were each legally represented.
49 The plaintiffs sought to justify the restraints on two principal bases. First, they maintained that the restraints were a means of protecting their customer connections. Second, they maintained that the restraints were a means of protecting their confidential information.
50 There can be no doubt that restrictions on working for a competitor or operating a competing business for a period is a legitimate means by which an employer can protect its customer connections and its confidential information: Koops Martin Financial Services Pty Limited v Reeves [2006] NSWSC 449 at [44] (Brereton J); Stacks Taree v Marshall (No 2) [2010] NSWSC 77 at [41] per McDougall J; Portal Software v Bodsworth [2005] NSWSC 1179 at [83] per Brereton J; Woolworths Ltd v Olson [2004] NSWCA 372 at [67] per Mason J. However, Mr Jardin says that the plaintiffs have failed to establish that the restraints are reasonable for three reasons. First, he says that the plaintiffs have failed to establish that Mr Jardin had connections with customers that were sufficiently close to justify any of the restraints on that ground. Second, he says that the information no longer possesses the requisite degree of confidentiality, having regard to the passage of time. Third, he says that the restraint on investment contained in cl 3.2(d) of the employment deed is wider than is necessary to achieve any legitimate protection to which Metcash is entitled.
51 I do not accept Mr Jardin's first two submissions.
52 In my opinion, the evidence establishes that, over a period of 10 years, Mr Jardin developed close relationships with a large 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. Mr Jardin's connections with independent retailers was one of the matters that made his offer to acquire 51 percent of the shares in SPAR Australia attractive to that company. In my opinion, Metcash was entitled to protect those connections by a restraint that prevented Mr Jardin from taking unfair advantage of them. Mr Neil, who appeared for Mr Jardin, submitted that it would be difficult for Mr Jardin to attract customers away from Metcash because many of them were bound by agreements with Metcash and, in fact, Metcash had invested in 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.
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 that can be said of all if it. The information included 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 plans. 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.
54 In my opinion, the restraint in cl 3.2(d) (concerning investments of more than 5 percent in a company) is unreasonably broad. The restraint may have been justified when Mr Jardin occupied the position of CEO of IGA on the basis that he was required to devote his full attention to the business of IGA and that there was a risk that he would not do so if he had a substantial investment in another company. However, it is difficult to understand why it was reasonable of Metcash to seek, in effect, to reimpose that restraint in the deed of release in circumstances where the expectation at the time that deed was executed must have been that Mr Jardin would be put on gardening leave. It is difficult to see what legitimate interest Metcash had in preventing Mr Jardin from investing in another company at that time. The fact that the clause permitted Metcash Trading to give its consent to a particular investment does not alter the position. On the other hand, I think that Metcash continued to have a legitimate interest in preventing Mr Jardin from investing in a competitor at that time. For the reasons I have given, Metcash had a legitimate interest in preventing Mr Jardin from using confidential information and customer connections. In Woolworths Ltd v Olson [2004] NSWCA 372 at [67] Mason P said:
"A recognised method of such protection [ie, protection against misuse of confidential information] is the procurement of a restraint upon the employee given access to such information taking up employment with a competitor whom he might be willing to provide with such information. A reasonable employment restraint is easier to enforce than a breach of confidence or breach of copyright claim; it removes the temptation for the former employee to offer and for the new employer to solicit confidential information; and it provides certainty of definition as regards the area of confidential information to be protected."