Network Ten Pty Limited v Seven Network

Judgment- EX TEMPORE 1HIS HONOUR: By summons filed by leave of Darke J as duty judge, on 14 March 2014, the plaintiff Network Ten Pty Limited seeks an order restraining the second defendant John Stephens from soliciting, encouraging or accepting offers of employment or offers to provide services to any person or entity other than Network Ten in respect of the period 9 June 2014 to 8 June 2016 without Network Ten's consent, and an order restraining the second defendant Seven Network Operations Limited from assisting, inducing or otherwise procuring Mr Stephens to not perform his obligations to Network Ten, as provided for in an employment agreement between Mr Stephens and Network Ten, dated 6 March 2014. Other relief is sought, and other defendants are joined, but for present purposes what is before the Court is an application for an interlocutory injunction to the general effect I have just stated, it having been indicated that the other issues raised on an interlocutory basis will be able to be disposed of consensually. On 14 March, Darke J granted an ex parte injunction up to and including today. 2As is well known Network Ten, and Seven Network operate commercial television networks of free to air television channels in metropolitan television licence areas in Australia, and are competitors in that market. Mr Stephens is a highly regarded programming executive, who has been employed by Seven since about 2003 in that capacity, and prior to that was employed as director of programming for the Nine Network, the other commercial competitor of Ten and Seven. 3During the period 25 February 2014 to 6 March 2014 Ten negotiated with Mr Stephens to secure his employment as Ten's director of scheduling and acquisitions. On 6 March 2014, Mr Stephens signed an employment agreement with Ten, which provided that his employment under the agreement commence on 9 June 2014, and continued, subject to certain provisions in respect of termination, for a maximum term of two years. While the agreement gave Ten certain rights of termination for cause or on notice, it does not appear to have made any provision for Mr Stephens to give notice of termination, and accordingly it would seem that, subject to the right of Ten to terminate for cause or without cause, it was a fixed term agreement for two years from 9 June 2014. 4The evidence indicates that although dated 8 March 2014, the contract was signed by Mr Stephens on 6 March 2014. On 7 March 2014, Ten issued a news release announcing Mr Stephens' appointment as director of scheduling and acquisitions, which thereafter gained substantial media interest on 7, 8, and 9 March. 5However, by late on 6 March 2014, it would seem that Mr Stephens was entertaining some second thoughts. In an email sent to a Ten executive at 4.02pm that day, he indicated that the chief executive officer of Seven had attempted to contact him. On 7 March Seven's CEO sent Mr Stephens an email, which acknowledged that he wanted the weekend to think, "but here is something you can sign", enclosing a proposed letter of agreement in respect of his "continuing employment with Seven". On 10 March, Mr Stephens signed that letter agreement. By late on 9 March he had drafted an email to a Ten executive which raised a number of questions about the circumstances in which he had signed the contract with Ten and announced that he was not going to take up the contract with Ten. 6While the evidence goes further in respect of subsequent communications between the various parties, what I have stated sufficiently describes the factual basis for the issues that arise. 7On an application for an interlocutory injunction of the present kind the approach of the court is to ask, first, whether there is a serious question to be tried for a final injunction and, secondly, whether the balance of convenience favours the granting over the withholding of injunctive relief. The two questions are interrelated, in the sense that the stronger the case for a final injunction the less may be required to tilt the balance of convenience in favour of relief, whereas the stronger the balance of convenience in favour of relief the less might be required in terms of establishing an arguable case. 8It is not seriously capable of dispute that it is at least seriously arguable that Mr Stephens proposes or threatens not to perform his contractual obligations to Ten, and that Seven has engaged in conduct which amounts to interference with the contractual relations between Mr Stephens and Ten. Ultimately, it may be that Seven will be able to show it did not have sufficient notice of the terms of the contract between Ten and Mr Stephens to have committed the tort in question. But the courts have generally taken a fairly liberal approach to what is required as to notice of the existence of a relevant contract, and for the purposes of interlocutory relief I do not think it can seriously be suggested that it is not seriously arguable that there was an interference with contractual relations. 9Mr Stephens' employment with Ten does not commence until 9 June 2014, and in any event it would seem that he will continue to work out his notice with Seven in the meantime. It can, I think, be inferred that there is at least a serious risk that during that period Seven will not hesitate to make life as an employee as satisfactory as it can, for the purposes of securing Mr Stephens' ongoing loyalty at a time when it is under challenge from Ten. 10However, the question that is posed on an application such as the present, is not whether there is a seriously arguable case of breach of contract or of interference with contractual relations, but whether there is a seriously arguable case for a final injunction to restrain such breaches. Thus, in cases where there is a seriously arguable case for final relief of some kind, but damages would be a sufficient remedy, the court will decline to grant an interlocutory injunction. Likewise, whether injunctive relief would be declined on other discretionary grounds at a final hearing, the court will not grant interlocutory relief. It is in that territory that the real issue on the present application arises. 11It is well established that while equity readily grants injunctions to enforce negative stipulations, express or implied, in contracts there is an exception to that approach where the contract concerned is one of personal service. Generally speaking, equity will not enforce indirectly by injunction a contract of personal service which it would not enforce directly by a decree of specific performance. In Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, the Court of Appeal summarised the position as follows (at [346]): Whilst it would be impossible in the time available to make a detailed analysis of all the relevant cases, or even to discuss adequately those which were referred to, we shall endeavour to state in a concise form what we understand to be the law on this topic. Until recently, it could be summarised as reflecting three principles: first, that under the doctrine enunciated by Lord Cairns LC in Doherty v Allman (1878) 3 App Cas 709 at 720, a court of equity would always grant an injunction to enforce a negative contractual promise made for consideration; secondly, that, by way of exception a negative promise would not be enforced by injunction if that would have the practical effect of compelling specific performance of a contract of personal service or if it would force the defendant either to perform that contract or remain idle (with overtones of destitution); and thirdly, by way of exception to the exception, in the case of special services a promise not to take employment with a competitor, would, under the doctrine of Lumley v Wagner, be restrained. 12The court then observed that it was no longer possible to state the law with such precision. As to the second of those rules, namely that by way of exception a negative promise would not be enforced by injunction if that would have the practical effect of compelling specific performance for contract of personal service or would force the defendant either to perform that contract or remain idle with overtones of destitution, the court noted that the rule had been departed from in England in Hill v C A Parsons & Company Limited [1972] Ch 305 which has been followed in a number of Australian cases. 13However, Hill v C A Parsons was a case in which an employee obtained an injunction restraining an employer from terminating the contract of employment. The case was roundly criticised by the authors of Meagher, Gummow and Lehane, 4th ed (at [21-220]). For present purposes, it is sufficient to say that it is distinguishable on the basis that the injunction was granted at the behest of an employee to restrain a threatened wrongful dismissal. As Meagher, Gummow and Lehane point out, that is rather different from compelling an employee to remain in distasteful servitude if the employer sought to restrain him from abandoning his job in breach of contract. As the industrial law remedy of reinstatement reflects, the compulsory reinstatement of an employee is more willingly embraced than compulsory servitude. 14As to the third rule - which descends from Lumley v Wagner (1852) 64 ER 1209 - the Court of Appeal in Curro pointed out that Lumley v Wagner had been followed with varying degrees of enthusiasm by Australian courts, and the argument that it should not now be followed could not be accepted. As their Honours pointed out, Lumley v Wagner gave rise to a doctrine said to apply to contracts of "special services". In Curro, the court indicated (at 347D) that this had been held to include contracts by opera singers, movie stars, actresses, rock singers, football players and newspaper production managers. However, in Atlas Steels (Australia) Pty Ltd v Atlas Steels Limited (1948) 49 SR (NSW) 157, Sugerman J, as the later president of the Court of Appeal then was, explained (at 166) that the reference to "special services", which described the scope of the principle in Lumley v Wagner, was a reference "to other employments or businesses of the same kind as those in which the restrained employee was bound to engage under the employment contract". The effect of this approach is that a restraint on working in other employments of the same kind as those contracted for might be enforced (as distinct from a more general restraint in other employments generally, or of a different kind). 15In its description of the second principle, the Court of Appeal in Curro referred not only to the practical effect of compelling specific performance for the contract of personal service, but also to forcing the defendant either to perform that contract or remaining idle "with overtones of destitution". Nonetheless, this branch of the law has always been informed by the principle that it is contrary to the public interest that a person be prevented from working, and I do not think that actual threatened destitution as a consequence is necessary to its application. 16Whether one approaches the concept of special services on the basis of the categories described in Curro, or on the basis described by Sugerman J (with which I respectfully agree), it seems to me that the instant contract between Ten and Mr Stephens satisfies neither. That is because, by clause 5 of the contract, Mr Stephens is bound, except with the written consent of Ten's CEO: Not to undertake any other trade, business or profession or become an employee agent or contractor of any other person and to devote the whole of his time, attention and ability during work hours and at others times as reasonably necessary to the faithful and diligent performance of the duties and responsibilities assigned to him by Ten. 17In Lumley v Wagner, it was essential to the decision that the injunction granted would not preclude Ms Wagner from seeking some other form of employment in some other field than that in which she was contracted to perform, or return to employment in Germany. In Curro v Beyond Productions Pty Ltd, the Court of Appeal emphasised (at 348E), that "she would not be forced to choose between service with Beyond or idleness. Other employments would be open to her". While, in Seven Network (Operations) Ltd v Brown [2013] NSWSC 372, specific reference was not made to the point, the facts indicate that the defendant in that case was not located primarily in Australia and the injunction restraining her from working for anyone other than Channel Seven in Australia would not preclude her working elsewhere in the world. 18Many cases in this field emphasise one must take a practical approach to the effect of the contract and the injunction sought. In this case, it would seem that Mr Stephens is approaching the end of his career. He is located in Australia. The idea that he would work anywhere else in the world seems remote, and the prospect that Ten would consent to him undertaking some other trade, business or profession seems equally remote. In those circumstances, granting an injunction to enforce the contractual restraint on undertaking any trade, business or profession or becoming an employee, agent or contractor of another person would effectively sterilise Mr Stephens and reduce him to the alternative of working for Ten or being idle, a result that equity will not countenance. 19Turning to the case against Seven, at first sight it stands independently of the claim for injunction against Mr Stephens. So it must have seemed to Macfarlan J in Astor Electronics Pty Ltd v Japan Electron Optis Laboratory Co Ltd [1966] 2 NSWR 419, in which his Honour refused to continue an interlocutory injunction as against the first defendant because the relationship between the plaintiff exclusive distributor and the first defendant was too personal in its nature to be enforced by injunction, notwithstanding that it was not strictly a contract of personal service, but, as the plaintiff proved a prima facie case against the second defendant that it was procuring breaches by the first defendant of the agreement between it and the plaintiff, granted an injunction against the second defendant. However, his Honour does not appear to have addressed the argument that this amounted to enforcing indirectly what equity would not countenance doing directly. Reference was not made in the judgment on that part of the case to the cases to which I am about to refer, (although Rely-A-Bell Burglar and Fire Alarm Co Limited v Eisler & Ors [1926] Ch 609 was referred to at an earlier part of the judgment). 20In Rely-A-Bell, Russell J upheld the validity of a provision of an employment contract providing that during the term of employment the employee should not enter into any other employment nor be interested in the business of any other company, firm or individual installing or dealing with burglar or fire alarms. During the currency of the term, the employee entered into the employment of a competing company. The court granted an injunction restraining him during the currency of the term from being interested in the business of that company, or any business installing or dealing with burglar or fire alarms, but would not grant an injunction restraining him from continuing in the employment of the competing company, nor an injunction restraining the competing company from continuing to employ him. His Lordship said: Then it was said, and for this purpose the argument was founded upon certain remarks by Crompton J. in the case of Lumley v. Gye (3), that even although I could not restrain the defendant Eisler from continuing in the employment of the defendant company I could restrain the company from continuing to harbour him and keep him in their employment. The remarks of Crompton J. which are relied upon are dicta for this purpose, and it appears to me that I ought not to restrain the defendant company if I am unable to grant an injunction against the defendant Eisler, for the ultimate result of a series of injunctions granted against each successive new employer would be the same as if I had granted an injunction against the servant, and the plaintiffs would in effect be decreed specific performance of the contract of personal service. In my opinion, the only remedy of the plaintiffs in respect of the breach of the first branch of the clause is a remedy in damages. 21In Page One Records Limited v Britton [1967] 3 All ER 822, an injunction was sought against the members of a musical group called "The Trogs", and also against a company which had become their manager, contrary to their contractual arrangements with the plaintiffs by which the musicians had undertaken not to engage any other person to act as manager or agent for them. Stamp J held that to grant the injunction sought against the musicians would be enforcing a contract for personal services in which personal services were to be performed by the first plaintiff. Without further discussion, the injunction against the manager was also refused. 22In Warren v Mendy [1989] 3 All ER 103, the Court of Appeal refused to enforce by injunction the performance of negative obligations where enforcement would have had the practical effect of compelling the contractor to perform his positive obligations under the contract. It was considered that the grant of the injunction sought would have had the practical effect of compelling a boxer to perform his positive obligations, if he was to maintain his skill or talent. 23In Davis v Nyland (1975) 10 SASR 76, Wells J said (at 95): The form of injunction granted in cases such as this has to be worked out carefully and obviously a court would not act contrary to the centuries old rule of the Court of Chancery that specific performance of services or an order having that effect would not be granted. 24In my opinion, the ratio of these cases (in respect of declining injunctions against the party said to be proving an interference) is, as stated in Rely-A-Bell v Eisler, that the practical effect of granting an injunction against any alternative employer is to compel the employee to perform his contract of service, or be idle. [In this case, to grant an injunction against Seven - and presumably thereafter against Nine, the ABC and any other alternative employer with whom Mr Stephens might seek to take up employment, during the term of the contract - would be the same as granting an injunction against him directly, and thus effectively specifically enforce the contract of personal service, the only alternative open to him being idleness. 25The cases allow a sufficient difference of opinion and sufficient variation depending on their particular facts that it cannot be said that it is impossible that the plaintiff would secure final injunctive relief. However, in the light of the authorities to which I have referred, it seems to me a weak case for such relief. 26It is in that context that one then approaches the balance of convenience. 27Both parties agree that the matter should be expedited. There is no reason to think the court will not be able to hear the matter on a final basis long enough before 9 June 2014 that the outcome will be known before Mr Stephens' employment with Ten is to commence. 28In those circumstances, and bearing in mind that Mr Stephens has already entered into a new contract with Seven, realistically the only prejudice from not granting injunctive relief is that Seven might take steps to "shore up" its position and the loyalty of Mr Stephens in some way during that period. But as they already have a new contract with him, there is, realistically, not a great deal more that they can achieve on that front. On the other side of the coin, there also does not seem to be great prejudice in the grant of an injunction as, so it would seem, the damage such as it is has already been done, the new contract having been entered into with Seven. As it seems to me, this is not a case in which either side will suffer a great deal of prejudice whether an injunction is wrongly granted or wrongly refused. 29In those circumstances, the fate of the application largely hinges on the strength of the case for final relief, bearing in mind that the plaintiff's ability to mount that case at final hearing before 9 June 2014 will not be adversely affected by the absence of an interlocutory injunction. Accordingly, I should decline to grant interlocutory relief. 30The application for interlocutory relief is dismissed with costs. I will make directions for the referral of the matter to the Expedition List Judge on 21 March 2014 and the filing of a motion for expedition.