Metcash Limited & Anor v Joao Louis Jardim [2010] NSWSC 1135 | Case summary

1 In the judgment I handed down in this matter on 29 September 2010 (see Metcash Jardim (aka Louis Jardin) (No 3) [2010] NSWSC 1096), I found that the first defendant, Mr Jardin, was in breach of restraints imposed by cl 3.2 of an employment deed which he had entered into on or about 1 October 2004 with the second plaintiff, Metcash Trading, and which he had affirmed in a deed of release he had entered into with the first plaintiff, Metcash Limited, on 15 February 2010. As a consequence, I held that the plaintiffs were entitled to injunctions restraining Mr Jardin from breaching the restraints in cl 3.2 of the employment deed up to and including 30 November 2010. One of those restraints (imposed by cl 3.2(d)), insofar as I held that it was enforceable, prohibited Mr Jardin from holding or being interested in any investments which amounted to more than 5 percent of the issued investments of any class of any one company which was a competitor of Metcash Trading. Originally, Mr Jardin proposed to acquire 51 percent of the shares of SPAR Australia Pty Limited, a competitor of Metcash Trading, although it is now proposed that that investment be made by Jardim Investments Pty Limited, the second defendant and a company controlled by Mr Jardin's family. I held that Jardin Investments itself could not be restrained from making that investment. 2 One issue raised in the proceedings was whether, in seeking to enforce the restraints imposed by cl 3.2(d) of the employment deed, the plaintiffs were acting in contravention of s 45(2)(b)(ii) of the Trade Practices Act 1974 (TPA). I declined to deal with that issue in the judgment I handed down on 29 September 2010 because it raised a "special federal matter" within the meaning of s 6 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW). Section 6(3) of that Act permits this court to hear proceedings involving a special federal matter but only in circumstances where it makes an order that it should do so. It may not make an order of that type without first giving the Attorneys-General of the State and Commonwealth a reasonable opportunity to make submissions on whether or not an order under s 6(3) should be made: s 6(4). No such opportunity was given to the Attorneys-General in this case. 3 In those circumstances, at the time I gave judgment, the first defendant sought leave to discontinue his claim under the TPA and instead sought leave to file an amended cross-claim in which he sought to rely on the corresponding provisions of the New South Wales Competition Code (Competition Code). I granted that leave with result that the first defendant's claim under that code remains to be dealt with. 4 The Competition Code takes effect under the Competition Policy Reform (New South Wales) Act 1995 (Competition Act). Section 5(1) of that Act provides: "The Competition Code text, as in force for the time being, applies as a law of New South Wales." 5 By s 4 of the Competition Act, the "Competition Code text" relevantly consists of the "Schedule version of Part IV". The "Schedule version of Part IV" is defined in s 3 of the Act to mean the text set out in Part 1 of the Schedule to the TPA. Section 45 of that schedule is relevantly in the same terms as s 45 of the TPA. It provides that a person shall not give effect to a provision of a contract that has or is likely to have the effect of substantially lessening competition. Mr Jardin asserts that, the plaintiffs in seeking to give effect to cl 3.2(d) of the employment deed by preventing Mr Jardin and Jardim Investments from investing in SPAR Australia, have contravened s 45(2)(b)(ii) because the effect or likely effect of their conduct was to substantially lessen competition in what is said to be the market for the supply of packaged groceries to independent supermarket retailers in Australia. That is because, without the investment of Mr Jardin or Jardim Investments, it is said SPAR Australia would not be able to continue to compete in that market or its ability to do so will be seriously affected. 6 There is a degree of unreality in this submission because, as I have said, it is Jardim Investments, not Mr Jardin, that proposes to make the investment in SPAR Australia and I concluded that no provision of the employment deed between Mr Jardin and Metcash Trading prevented it from doing so. Undaunted, Mr Jardin seeks to answer this point by saying that, at the time the plaintiffs sought to give effect to cl 3.2(d) - which was on 19 July 2010 when they sent a letter of demand and on 21 July 2010 when they commenced these proceedings - there was a "real chance or possibility" that Jardim Investments would not be permitted to make an investment in SPAR Australia in sufficient time to save SPAR Australia from receivership and that consequently there was a "real chance or possibility" at that time that there would be a substantial lessening of competition in contravention of s 45(2)(b)(ii). 7 In my opinion, there are a number of problems with this contention. 8 First, s 51(2)(a) of the Competition Code relevantly provides that in determining whether a contravention of s 45 has been committed regard shall not be had: "to any act done in relation to, or to the making of a contract …, or any provision of a contract …, to the extent that the contract …, or the provision, relates to, the remuneration, conditions of employment, hours of work or working conditions of employees …" 9 Mr Jardin submitted that this provision does not apply because the employment relationship between Metcash Trading and Mr Jardin came to an end on 5 February or 16 July 2010 - that is, before the plaintiffs sought to give effect to cl 3.2(d) of the employment deed. As a result, the relevant conduct did not fall within the scope of s 51(2)(a). I do not accept that submission. The question is whether the giving effect to cl 3.2(d) of the employment deed is an act done in relation to a provision of a contract that relates to Mr Jardin's conditions of employment. In my opinion, cl 3.2(d) has that character. It does not cease to have that character because the employment relationship came to an end as a result of a repudiation of that relationship by one party or the other - assuming that that is what happened. In my opinion, the character of the clause cannot change simply because one party or the other wrongfully repudiates the relationship that the clause seeks to govern. In circumstances where the contract which created that relationship remains on foot, it seems to me that the provision still "relates" to the conditions of employment of the employee even if the employment relationship itself has come to an end, since it is a term of a continuing contract which governed that relationship and would continue to do so but for the wrongful repudiation. 10 Second, in my opinion, any inability of SPAR Australia to compete would not be an effect or likely effect of cl 3.2(d) of the employment deed - any more than it could be said, for example, to be the effect of a decision by a bank to exercise a contractual right not to make further advances to SPAR Australia. If SPAR Australia's ability to compete is affected by its financial position then any effect on competition arises from that financial position, not from the fact that the one potential investor is barred from investing in SPAR Australia by some agreement to which SPAR Australia is not a party. The position may be different if the financial position in which SPAR Australia finds itself is caused by the agreement which is said to substantially lessen competition. But that is not this case. 11 Third, I do not accept that, as a result of the plaintiffs' conduct on 19 and 21 July 2010, there was a real chance or likelihood that SPAR Australia would have been unable to avoid receivership. No evidence was called by Mr Jardin to support that conclusion. For example, no evidence was called from SPAR Australia's bank to say that it intended to appoint a receiver if SPAR Australia did not raise capital by a particular date, whatever else the circumstances were at that date; and I do not think that that intention can be inferred from the material that was tendered. In addition, as at 21 July 2010, Jardim Investments was not a party to the proceedings. It is difficult to see how in those circumstances it could be said that there was a real chance or possibility as at that date that Jardim Investments would be restrained from making an investment in SPAR Australia. In any event, in my opinion, the court can have regard to subsequent events in determining what was likely at the time the plaintiffs sought to give effect to the provision that is said to have the likely effect of substantially lessening competition: cf Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281. In this case, subsequent events show that funding was available to SPAR Australia from Jardim Investments before SPAR Australia went into receivership. In those circumstances, I am not prepared to draw the conclusion that it was likely (in the sense required by s 45(2)(b)(ii)) that that funding would not be available by that time. 12 Having regard to the conclusions that I have reached, it is not necessary for me to express any final view on the market relied on by Mr Jardin. I should say, however, that I am far from satisfied Mr Jardin has established the market on which he relies. His submissions simply assume that there is a market for the supply of packaged groceries to independent supermarket retailers in Australia because there are organisations that engage in that activity. Mr Jardin's submissions do not attempt to analyse whether vertically integrated firms such as Coles and Woolworths provide a close constraint on Metcash. Nor do those submissions address, for example, the question of what barriers to entry exist to the market on which Mr Jardin relies. In the absence of submissions addressing those issues, I doubt that Mr Jardin has established the market for which he contends. 13 Having regard to the conclusions I have reached, paragraphs 2 and 3 of the Amended Cross-Claim should be dismissed. 14 I will hear the parties in relation to costs.

Metcash Limited & Anor v Joao Louis Jardim

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