Supreme Court of WA|2007-05-16|Before: Ms P

NOMAD MODULAR BUILDING PTY LTD -v- SMITH [2007] WASC 117 (16 May 2007)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : NOMAD MODULAR BUILDING PTY LTD -v- SMITH [2007] WASC 117

BETWEEN : NOMAD MODULAR BUILDING PTY LTD (ACN 071 271 826)

Restraint of trade - Enforceability of clauses in employment contract preventing former employee working for a competitor - Turns on own facts

Injunction granted preventing employment with rival firm

1 MASTER SANDERSON: On 7 March 2006, the defendant commenced employment with the plaintiff. At the time of commencing his employment, he entered into a written employment agreement. That agreement contained three clauses which are central to this action. They are cl 12, cl 13 and cl 14. They are in the following terms:

"12. Confidentiality

12.1 Each of the parties acknowledges that the Confidential Information is confidential.

12.2 Subject to clause 12.5, the Employee undertakes that the Employee will not, either during or after the period of the Employment, except in the proper course of the Employee's Duties or as permitted by the Company, divulge to any person or use any trade secret or any Confidential Information.

12.3 The Employee undertakes that the Employee will during the Employment use the Employee's best endeavours to prevent the unauthorised publication, use or disclosure of any trade secret or Confidential Information referred to in subclause 12.2.

12.4 Upon being requested to do so by the Company, the Employee undertakes to enter into such confidentiality agreements with the Company or any of its Related Bodies Corporate, or any of their respective clients, as the Company may require.

12.5 The Employee may make disclosures of Confidential Information:

(1) to the Employee's professional or financial advisers as the Employee reasonably thinks necessary to give effect to this Agreement but only on a strictly confidential basis; and

(2) if required by law, after the form and terms of that disclosure have been notified to the Company and the Company has had a reasonable opportunity to comment on the form and terms of such disclosure.

13.1 Except as provided in clause 13.2, in consideration of the Salary Package, the Employee must not in the Restraint Area, during the operation of this Agreement and for the Restraint Period, without the prior written permission of the Company directly or indirectly be engaged or concerned or interested in any Competing Business.

13.2 If this Agreement and the Employment are terminated by the Company in accordance with clause 3.2(1), Error! Reference source not found. [sic] or 3.3 then, in consideration of the Salary Package, the Employee must not during the operation of this Agreement or for the period specified in Item 9 of Schedule 1 immediately following the Termination Date, without the prior written permission of the Company directly or indirectly be engaged or concerned or interested in any Competing Business.

13.3 The Agreement by the Employee in clause 13.1 and 13.2 applies to the Employee acting:

(1) either alone or in partnership or association with another person;

(2) as principal, agent, consultant, adviser, director, officer or employee in a management position.

13.4 This clause does not exclude the Employee from owning marketable securities of a corporation or trust which is listed on a recognised Stock Exchange in Australia or elsewhere provided that the Employee holds not more than 3% of the total marketable securities with a corporation or trust.

13.5 Clause 13.1 and 13.3 have affect [sic] as comprising each of the separate provisions which results from a capacity referred to in clause 13.3 and an area, a period and a category of conduct referred to in clause 13.1. Each of these separate provisions operates concurrently and independently.

13.6 Clause 13.2 and 13.3 have affect [sic] as comprising each of the separate provisions which results from a capacity referred to in clause 13.3 and an area, a period and a category of conduct referred to in clause 13.2. Each of these separate provisions operates concurrently and independently.

13.7 If any separate provision referred to in clauses 13.1, 13.2 and 13.3 is unenforceable, illegal or void, that provision is severed and the other provisions remain in force. The Employee acknowledges that each of those separate provisions is a fair and reasonable restraint of trade.

14.1 In consideration of the Salary Package, the Employee must not during the operation of this Agreement and for the Restraint Period, without the prior written permission of the Company:

(1) interfere with, or attempt to call on or solicit, or procure or solicit any other person to interfere with, disrupt or attempt to disrupt any client of a Protected Company or a Related Body Corporate who the Employee had been introduced to or had a business contact with during the Employment;

(2) otherwise interfere with, disrupt or attempt to disrupt, or procure or solicit any other person to interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between a Protected Company or a Related Body Corporate and any client of a Protected Company or a Related Body Corporate;

(3) induce, encourage or solicit any employee, contractor or agent of a Protected Company or a Related Body Corporate to leave the employment or agency of a Protected Company or a Related Body Corporate or to cease providing services to a Protected Company, or a Related Body Corporate; or

(4) procure or solicit any other person to induce, encourage or solicit any employee, contractor or agent of a Protected Company or a Related Body Corporate to leave the employment or agency of a Protected Company or a Related Body Corporate or to cease providing services to a Protected Company or a Related Body Corporate.

14.2 The Agreement by the Employee in clause 14.1 applies to the Employee acting:

(1) either alone or in partnership or association with another person;

(2) as principal, agent, consultant, adviser, director, officer or employee in a management position.

14.3 Clause 14.1 and 14.2 have effect as comprising each of the separate provisions which results from a capacity referred to in clause 14.2 and a period and a category of conduct referred to in clause 14.1. Each of these separate provisions operates concurrently and independently.

14.4 If any separate provision referred to in clauses 14.1 and 14.2 is unenforceable, illegal or void that provision is severed and the other provisions remain in force. The Employee acknowledges that each of those separate provisions is a fair and reasonable restraint of trade."

2 On 7 March 2007, the defendant gave notice to the plaintiff of his intention to resign from his employment effective from 30 March 2007. On that date, his employment ceased. He now intends to take up employment with a company known as Australian Portable Buildings Pty Ltd. By these proceedings, the plaintiff seeks relief principally in three respects. First, it seeks an injunction restraining the defendant from taking up employment with Australian Portable Buildings Pty Ltd until 30 September 2007. Second, it seeks an injunction restraining the defendant until 30 September 2007 from inducing, encouraging or soliciting any contractor or agent of the plaintiff to cease providing services to the plaintiff or a related entity; and procuring another person to induce, encourage or solicit any contractor or agent of the plaintiff to cease providing services to the plaintiff or a related entity. Thirdly, it seeks an injunction restraining the defendant from divulging or using any of the plaintiff's confidential information for other than the plaintiff's purposes.

3 It is worth making a number of points about the clauses the subject of this dispute to put the respective parties' arguments in context.

4 Starting with cl 12, the term "Confidential Information" is defined in cl 1.1(10) of the agreement in the following terms:

"Confidential Information means all:

(a) know-how, trade secrets, ideas, concepts, technical and operational information, owned or used by the Company or any of their Related Bodies Corporate;

(b) information concerning the affairs or property of the Company or any Related Bodies Corporate or any business, property or transaction in which the Company or any of their Related Bodies Corporate may be or may have been concerned or interested;

(c) details of any customers or suppliers of the Company or any of their Related Bodies Corporate;

(d) information about the terms or effect of this Agreement; and

(e) information which by its nature or by the circumstances of its disclosure, is or could reasonably be expected to be regarded as confidential to:

(i) the Company or any of their Related Bodies Corporate; or

(ii) any third party with whose consent or approval the Company or any of their Related Bodies Corporate uses that information,

which is not publicly available without breach of this Agreement."

5 Pursuant to cl 12.2 of the agreement, the defendant undertook not to disclose any confidential information for all time - the clause has no temporal limitation. But, of course, what is confidential information may change over time. For instance, "know-how" which may be of vital importance today might be of no importance at all in two years' time because techniques have changed and systems have improved. To grant an injunction, therefore, against disclosure of confidential information would require identification of the information which was said to be confidential information and some evidence which established that the defendant intended to disclose the confidential information.

6 In cl 13.1 the restraint area is defined in item 6 of sch 1 to be Queensland and Western Australia. By item 7, the restraint period is said to be six months from the termination date. The question to be determined is whether the restraint both as to area and as to period is, in all the circumstances, reasonable. It was common ground between the parties that the reasonableness of the restraint was to be determined as at the date the contract was entered into.

7 Clause 14 is unhappily worded. It might have been thought that the clause was directed to protecting the plaintiff against the defendant seeking to obtain business from present clients of the plaintiff. Rather, the plaintiff says that the clause is designed to prevent the defendant interfering with the plaintiff's contractual relations with sub-contractors or soliciting those sub-contractors away from the plaintiff. Thus, there are two aspects to this clause - the defendant interfering with the clients of the plaintiff on the one hand, and the defendant interfering with the sub-contractors of the plaintiff on the other.

8 At the commencement of the trial, counsel for the defendant submitted that the statement of claim did not raise as an issue between the parties the reasonableness or otherwise of the restraint in the non-competition provisions of cl 13. Counsel submitted that as the common law position was that such restraints were void, it was necessary to plead the validity of such a clause and support that plea by material facts. Without such a provision in the statement of claim, it was said the defendant did not know the case he had to meet.

9 Two things can be said about that submission. First, reference to any precedents of pleading establishes that it is not usual to plead that a restraint is valid. That does not mean to say that the plaintiff does not carry the onus to establish that a restraint is reasonable. At issue is a matter of public policy and a court will always scrutinise a restraint clause before giving effect to it. But a defendant who says that the restraint is unreasonable should raise the matter in the defence. That is precisely what was done in this case. In my view, there was no pleading failure on the part of the plaintiff.

10 Secondly, this matter was brought to trial on an expedited basis. As part of the orders made to facilitate the trial, the plaintiff was required to provide to the defendant their witness statements. That is what they did. To an extent, these witness statements overtook the pleadings. The defendant could have been in no doubt as to the case he had to meet. He had all the evidence on which the plaintiff sought to rely. That being so, in my view, there was no unfairness to the defendant and no warrant to limit the way in which the plaintiff could put its case.

11 At the commencement of the trial, the defendant's counsel took objections to certain parts of the witness statements of Mr Phillip Wayne Guy and Mr Ronald Edward Tait. Some of those objections were conceded. Most of the other objections related to conclusions drawn by the witnesses based upon their observation of events. Perhaps it might have been best if such conclusions were not part of the witness statements. But in each case where an objection was taken, the evidence, in my view, largely supported the conclusion drawn. In each case it was an observation made by the witness based upon certain events. In my view, the witness was perfectly entitled to draw the conclusion that he did; although the weight to be given to that conclusion was a matter to be determined after hearing the witness cross-examined. In any event, I am satisfied that the objections were of no substance and that the evidence, save for those parts conceded by the plaintiff, should stand.

12 The first question here is to determine whether the defendant has come into possession of confidential information. It was the defendant's position that the information he learned while in the plaintiff's employment was of such a general non-specific nature as to not fall within the definition. Further, and in the alternative, it was said that what information did come into the possession of the defendant was available in the public domain; for instance, by way of annual reports of the plaintiff made to the Stock Exchange or through the prospectus issued by the plaintiff prior to its listing.

13 With respect, it is clear that the defendant does possess confidential information. The definition is very wide. The defendant was the head of the manufacturing section of the plaintiff. It is inevitable that he, during his 12 months of employment, picked up concepts and technical and operational information used by the company. He also undoubtedly had an insight into the financial affairs of the plaintiff. He received management reports, albeit in somewhat limited form. These reports disclosed in some detail the financial position of the plaintiff. They showed the work which had been obtained, work which had been tendered for and tenders on which the plaintiff had been unsuccessful. All of this information was confidential.

14 It is not possible to say with any precision precisely what the defendant knows which falls within the definition of confidential information. There is no suggestion that he has removed any sensitive documents from the plaintiff or that he has in some way expropriated trade secrets or lists of clients which will assist him in his new employment. Only he knows what he knows and any attempt to define the limit of his understanding is pointless.

15 The question, then, is whether or not the plaintiff is entitled to the injunction that it seeks. Save, in one respect, there is no evidence that the defendant has or intends to disclose any confidential information either to his new employer or to anyone else. Mr Guy, the general manager of the plaintiff, during his cross-examination, accepted that it would be possible for someone to take up employment with a competitor and not disclose confidential information. He appeared to accept that the defendant might be one of those persons.

16 The disclosure of the confidential information that the defendant has made relates to the employment agreement. Pursuant to cl 1.1(10)(d), information about the terms or effect of the employment agreement formed part of the confidential information. Although the defendant appears not to have passed a copy of the agreement on to his new employers, he certainly discussed it with them and read out cl 12, cl 13 and cl 14 in a phone call. That is a clear breach of the agreement.

17 But, in my view, it is not enough to warrant the granting of an injunction. As I have indicated, there is nothing in the evidence to suggest that there will be any further breach of cl 12 by the defendant. The present breach of the clause is not such as to occasion the plaintiff any damage. To grant an injunction in a situation where the defendant may not be sure whether information he has falls within the definition of confidential information or not and where there is no real suggestion that the agreement will be breached, is inappropriate.

18 The plaintiff's claims with respect to cl 14 can be easily disposed of. There is no evidence at all that the defendant has or intends to solicit clients of the plaintiff. Nor is there any evidence that the defendant has or is likely to solicit sub-contractors of the plaintiff. There is also no evidence that the defendant would use an agent to solicit either clients or sub-contractors of the plaintiff. In those circumstances, and given that the plaintiff seeks an injunction to enforce its contractual rights, it would be inappropriate to restrain the defendant. It can be assumed that the defendant will comply with the terms of the contract.

19 However, that is not the end of the matter. The defendant, in its counterclaim, seeks to have cl 14 struck down as a restraint of trade. To determine this question, a closer analysis of the clause is required.

20 Clause 14.1 is the operative part of the clause. It is really in two sections, each of which is broken down into two component parts. Properly interpreted, the defendant agrees:

not to interfere with any client of a protected company or a related body corporate who he had been introduced to or had a business contact with during the employment;
not to attempt to call any client of a protected company or a related body corporate who he had been introduced to or had a business contact with during the employment;
not to solicit any client of a protected company or a related body corporate who he had been introduced to or had a business contact with during the employment;
not to procure or solicit any other person to interfere with any client of a protected company or a related body corporate who the employee had been introduced to or had a business contact with during the employment;
not to disrupt or attempt to disrupt any client of a protected company or a related body corporate who the employee had been introduced to or had a business contact with during the employment.

21 (There is an alternative interpretation of the clause which runs together these last two restraints. It might be said that the restraint is that the employee will not "procure or solicit any other person to interfere with, disrupt or attempt to disrupt any client of a protected company or a related body corporate who the employee had been introduced to or had a business contact with during the employment". The punctuation of the clause leads to some uncertainty. But for the purposes of this decision which of those two interpretations is correct is irrelevant.)

22 Clause 14.1(2) appears to mirror sub-cl 1 but refers to "the relationship, contractual or otherwise" as being what is not to be interfered with, disrupted or otherwise damaged. Quite what that sub-clause adds is uncertain. But again is probably not a matter which is of concern in dealing with the issue.

23 Clause 14.1(3) requires that the employee not "induce, encourage or solicit any employee, contractor or agent" of a protected company from leaving the employment or agency of the protected company or ceasing to provide services to that company.

24 Clause 14.1(4) extends the protection offered by cl 14.1(3) to ensuring that the employee does not solicit any other person to do the things which the employee himself is not permitted to do by sub-cl 3.

25 Clause 14 and cl 13 deal with two different situations. Clause 14 is, as the sub-heading suggests, directed at solicitation of clients, employees, contractors or agents of the protected company. It operates no matter in what occupation the defendant is engaged. For instance, if the defendant had taken up employment with a company that manufactured rainwater tanks and had approached a client of the plaintiff seeking to sell to that client such tanks, then cl 14.1(1) might be breached. That, in essence, is the argument put by the defendant to illustrate the point that the restraint is too wide. A similar argument is made about employees, contractors or agents of the protected company. If the defendant had gone to work for any other company, or indeed if he was self-employed and he approached a receptionist of the plaintiff, then the clause would be breached. On the defendant's case, clauses of such broad application ought be struck down.

26 These non-solicitation clauses have a long history. Kitto J explained some of that history in Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628 at 655. His Honour there approved what was said by the Full Court of Victoria in Woodmason's Melrose Dairy Pty Ltd v Kimpton [1924] VicLawRp 78; [1924] VLR 475 at 480 - 481. Essentially the question is whether or not the restraint is reasonable given the interests of the parties.

27 In my view, cl 14.1 is reasonable. Effectively what the plaintiff is seeking to do is protect its relationship with certain of its customers who were acquainted with the defendant and protect itself against the loss of employees, contractors or agents who undertake its work. The period of six months is probably the maximum which could reasonably be applied, but I do not see it as unreasonable. It is a question of the balancing of the interests of the parties. I will have more to say on this issue below in relation to the non-competition restraint found in cl 13.

28 As to the width of the clause, the only complaint which the defendant could reasonably make relates to whether or not the description "employee" is too wide. As I have said, it could conceivably relate to a receptionist. But equally, the plaintiff may be looking to ensure that employees formally under the control of the plaintiff are not lured away by the defendant. On balance, I am not satisfied that the width of the provision is such as to warrant the whole of the clause or any part of it being struck out as an unacceptable restraint of trade.

29 Before dealing with this clause, there is one matter of which I should make mention. As I said earlier in these reasons, having ceased employment with the plaintiff, the defendant intends to take up employment with Australian Portable Buildings Pty Ltd. He has entered into an employment agreement with that company. That employment agreement contains restraints which are at least equal to, and probably greater than, the restraints to be found in the agreement between the plaintiff and the defendant. That leads to this remarkable position. The defendant, when he signed his employment agreement with the plaintiff, acknowledged that the restraints contained in that agreement were fair and reasonable. In the agreement he signed with Australian Portable Buildings Pty Ltd, he acknowledged that the restraints contained in that agreement were fair and reasonable. Faced with these two documents, in cross-examination he could not bring himself to say that he thought that any of the restraints - either the restraints in his agreement with the plaintiff or the restraints in his agreement with Australian Portable Buildings Pty Ltd - were unreasonable. So he would have the Court declare that the restraints are unreasonable no matter what he or two major players in the industry think is appropriate.

30 In determining whether or not a restraint is reasonable, there are four matters to be taken into account. The restraint will be reasonable only if:

the party in whose favour the covenant is given has a genuine interest requiring protection;
the restriction is limited to the covenantee's interest;
the restriction is for a period no longer than necessary for the protection of that interest; and
the restriction relates to a geographical area no larger than necessary for the protection of that interest.

31 It is really only the first of these criteria which is in issue in this case. The other three can be dealt with quite simply. The restriction is limited to the covenantee's interest. There is no prohibition against the defendant taking up employment with a firm that does not make portable buildings. The defendant admitted as much in his witness statement. This is not a general restriction placed on a salesman who cannot sell anything in a particular area. This is a limited restraint and it is limited to the covenantee's interest. It satisfies that test.

32 It is also clear that both restrictions as to time and geographical area are reasonable. Although this point was not conceded by counsel for the defendant in her closing submissions, it was not a matter to which she directed any attention. The restriction is for six months. That relatively limited time period seems, in the circumstances, to be reasonable. It is worth noting that in his employment agreement with Australian Portable Buildings Pty Ltd, the defendant is required to give six months' notice of his intention to leave employment and then agrees to a restraint period of a further six months after the employment terminated. There was nothing in the evidence led by the defendant to suggest that the time period was inappropriate.

33 The restraint covers Western Australia and Queensland. The plaintiff's main business is in Western Australia. It is attempting to establish a business in Queensland. Much of its business is directed at the mining industry. It is not difficult to understand then why these two States are of particular interest to the plaintiff. Furthermore, the defendant was provided with details of the plaintiff's present business in Queensland and its strategy for growing the business in that State. On that basis, the geographical restraint is not unreasonable. Again, it is relevant to note that in his employment agreement with Australian Portable Buildings Pty Ltd, the geographical area covered by the restraint is the whole of Australia.

34 The real question then is whether the plaintiff has a genuine interest requiring protection. It was the defendant's position that cl 13 was simply a restraint to prevent the defendant from working for a competitor. In other words, it was said that there was no legitimate interest which the clause sought to protect. Rather, it stifled competition and was for that reason invalid.

35 In my view, the clause does act to protect a legitimate interest. In Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026, Lord Denning put the position in this way (at 1033):

"It is thus 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."

36 In my view, that is exactly this case. As I mentioned when dealing with the other restraint clauses, there is no suggestion at present that the defendant will solicit the plaintiff's customers or use information, know-how or the like gained while in the plaintiff's employ to further the interests of his new employer. But there must be risks that he will do so. That is not to doubt the integrity of the defendant. It is simply not practical to suggest that if Australian Portable Buildings Pty Ltd wants to develop its business in Queensland, the information the defendant obtained on the Queensland market while working for the plaintiff will not be put to use to favour his new employer and potentially to damage the plaintiff. The plaintiff has no way of knowing when and if that might happen. So to prevent the situation arising, a reasonable restraint clause was placed in the employment agreement. It should be allowed to operate as between the parties.

37 The plaintiff is entitled to an injunction restraining the defendant from working for Australian Portable Buildings Pty Ltd until the expiration of the restraint period. I will make orders accordingly.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : NOMAD MODULAR BUILDING PTY LTD -v- SMITH [2007] WASC 117 (S)

BETWEEN : NOMAD MODULAR BUILDING PTY LTD (ACN 071 271 826)

Costs - Application by successful plaintiff for indemnity costs - Application to have third party rendered liable for costs - Costs of application for third party discovery - Turns on own facts

Order for third party to be liable for costs of trial refused

Unsuccessful party at trial to pay costs of application for third party discovery

1 MASTER SANDERSON: The outstanding issue between the parties in relation to this matter is the question of costs. Before detailing the issues between the parties, it is necessary to provide some background.

2 The plaintiff issued its writ on 2 April 2007. It sought an injunction restraining the defendant until 1 October 2007 from being employed by, or being engaged in any business activity of, a competing business. By a chamber summons dated 2 April 2007, the plaintiff sought an interlocutory injunction against the defendant. That application was fully argued before Acting Master Chapman on 11 and 13 April 2007. The acting master held that there was a serious question to be tried and that as the balance of convenience favoured the plaintiff, it was entitled to the injunction.

3 Pursuant to orders made by the acting master, the defendant undertook to refrain from taking up employment with Australian Portable Buildings Pty Ltd (APB) until further order. The order provided for programming orders for an expedited trial to be held on 14 and 15 May 2007. The costs of the application were costs in the cause.

4 The case was duly heard on the dates proposed and I made orders granting the injunction sought by the plaintiff. Without revisiting the reasons for decision in detail, it is sufficient if I say that the plaintiff alleged against the defendant breaches of cl 12, cl 13 and cl 14 of the defendant's contract of employment with the plaintiff. A common central element to the plaintiff's allegations concerned cl 12 and cl 13 and was whether, and to what extent, the defendant had been privy to confidential information of the plaintiff during his employment. The defendant alleged, inter alia, that the clauses in question were a restraint of trade and were unenforceable. That allegation was rejected.

5 The defendant appealed the judgment and the Court of Appeal dismissed the appeal. The High Court subsequently refused special leave to appeal from that decision.

6 There appears to have been some disagreement between the parties as to whether there was one cause of action or multiple causes of action. By the time this matter came on for hearing, the defendant had determined the issue should be no longer pressed. Lest there be any doubt on the question, in my view, there was, in substance, only one cause of action - a claim for breach of contract. There is no warrant for what might be called a split costs order which acknowledges that the defendant was successful on certain issues. The fact is the plaintiff succeeded and the defendant failed.

7 On this application three issues arose. First, the plaintiff sought indemnity costs. The orders sought by the plaintiff in its minute of proposed orders dated 17 December 2007 distinguished between the period in the proceedings up to 10 April 2007 and the period thereafter. The plaintiff made its first offer to compromise on 10 April 2007. That offer involved the defendant agreeing to a three-month restraint period from the date of the undertaking. The offer was rejected. In the end, including the first offer, the plaintiff made six offers to the defendant to settle the proceedings. Furthermore, on 30 April 2007, the plaintiff made an O 24A offer. That offer provided for a restraint until 31 July 2007. All of these offers were rejected. At trial, the plaintiff did better than each of the offers made to the defendant by a considerable margin. It was the plaintiff's position that in rejecting the offers, the defendant acted unreasonably.

8 There was no dispute between the parties as to the principles to be applied when what are generally described as Calderbank type offers are made. Reference was made to Dobb v Hacket (1993) 10 WAR 532, 540 (Murray J); Globaltech Pty Ltd v Pareek [2006] WASC 30 (S) and Shepherd v Baster [2006] WASC 176 (S) [34] (Templeman J). In the last of those decisions, Templeman J said that the question for the court on an application for indemnity costs is ultimately:

[W]hether a defendant to whom a Calderbank offer has been made, thereafter acts unreasonably in the proceedings [35].

9 Apart from relying on the fact of the offers themselves, there were two further matters identified by counsel as significant. First, it was said that the length of time in which the offers made by the plaintiff were open was important because they were made in the context of an expedited trial. The fact of expedition meant that costs were incurred above and beyond what was normal. That, it was said, should have focused the mind of the defendant and his advisers and demonstrated that settlement was the only option. Second, it was said that it was significant that Acting Master Chapman had found that there was a serious question to be tried. The fact of that decision was, in counsel's submission, a pointer to the strength of the plaintiff's case and made the defendant's refusal to settle unreasonable. It was submitted, in effect, that the decision of the acting master was ignored at the defendant's peril.

10 I am not satisfied this is a case where indemnity costs should be awarded. At trial, it was not in issue between the parties that the clauses in question in the employment agreement amounted to a restraint of trade. As a matter of public policy, such restraints are said to be prima facie invalid. It must be remembered here that what the plaintiff was seeking to do was to restrain the defendant from taking up employment which provided his livelihood. Consenting to such a restraint is not a matter to be undertaken lightly. While I would accept that the decision of the acting master was some guide as to the eventual outcome of the trial, what the acting master was called upon to do was to decide whether there was a serious question to be tried. Such a decision can only in the most unusual of circumstances anticipate the final outcome of the trial. Such a decision cannot be seen as equivalent to subjecting a case to the case management technique of early neutral evaluation. The fact that the acting master found an interlocutory injunction should run is significant and it must be taken into account in determining the plaintiff's application. In my view, it is not so persuasive as to ensure that indemnity costs necessarily follow.

11 Nor do I see there being any reason why the fact of an expedited trial should in some way impact upon the basis upon which costs are awarded. The fact is that both parties had to prepare in a hurry. There is nothing to suggest that the defendant did not give the offers put to him serious consideration. In fact, he made a number of counter-offers. The fact that the parties were not able to find common ground is unfortunate. But it shows that negotiations were taking place. It also demonstrates that the defendant did not act so unreasonably as to be visited with an order for indemnity costs.

12 The second issue between the parties was whether APB should be jointly and severally liable for the plaintiff's costs of the proceedings. All parties accepted that the court could make an order for costs against a non-party: see s 37 of the Supreme Court Act 1935 (WA) and O 66 r 1(1). It was also accepted by all parties that the court's power to make an order for costs against a non-party is one which is rarely exercised: see HPM Pty Ltd v Fear [2002] WASCA 249 (S) [4].

13 During the course of cross-examination, the defendant said that he had discussed with APB the prospect of APB paying his costs. He said that although there was nothing in writing, the defendant and APB had an understanding that APB would pay his costs. He also said that he had been told by the managing director of APB, one Neville Katz, that the restraints in his contract were unenforceable.

14 During the course of his submissions, counsel for APB appeared to suggest that there was no agreement between APB and the defendant that APB would pay the defendant's costs. I reject that submission. The evidence of the defendant in cross-examination on this question was clear. Furthermore, the issue was not revisited in re-examination. Of course nothing that I say should be taken as indicating one way or another whether the agreement is enforceable. But I am satisfied that the defendant believed his costs of this action would be paid by APB.

15 It was the plaintiff's position that the fact of the agreement was a relevant consideration, particularly as the defendant sought to avoid his contractual obligations contained in the employment contract. Furthermore, APB was a direct competitor of the plaintiff. It had poached a senior staff member of the plaintiff and it had advised him that his contract with the plaintiff was unenforceable. In these circumstances, the plaintiff said there should be a costs order to render APB liable to the plaintiff.

16 I am not satisfied this is a case where such an order should be made. There is nothing in the evidence to suggest that APB had some management of the action. They may well have agreed to underwrite the defendant's costs of the action, but that is an altogether different thing from actually managing the action on behalf of the defendant. This is also not a case where APB has caused the action. It was up to the defendant whether or not he accepted employment with APB. He was free to reject their offer. He decided to take it up. That was the decision that precipitated this action. Insofar as there is any causal connection between these proceedings and the actions of APB, it is once removed as a cause of these proceedings. Furthermore, APB does not have a direct financial interest in the outcome of the proceedings. Certainly, had the defendant been successful in defending the action, it would have had earlier access to the defendant's services. But what financial benefit that may have occasioned to APB is speculative. In my view, such benefit as there would have been is too indirect to warrant APB being rendered liable for the plaintiff's costs.

17 The third issue between the parties relates to APB's costs of non-party discovery. There was no dispute that APB was entitled to its costs of giving non-party discovery; the question was whether or not the plaintiff or the defendant ought to have been liable for those costs. I can see no reason why liability for those costs should not rest with the defendant. It was reasonable for the plaintiff to make the application. True it is that the application as originally framed was not pursued in its entirety. But that was more than anything else a decision taken because of the necessity to limit discovery if the trial dates were to be maintained. In the context of the case as a whole, that was a perfectly legitimate forensic decision. Furthermore, the application for discovery was clearly necessary - the plaintiff's solicitors would have been failing in their duty to their client if it had not been made. The application was in no way frivolous and the costs of the application ought be borne by the defendant.

18 I will make orders with respect to costs consistent with these reasons.

NOMAD MODULAR BUILDING PTY LTD -v- SMITH [2007] WASC 117 (16 May 2007)

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Judgment (91 paragraphs)

NOMAD MODULAR BUILDING PTY LTD -v- SMITH [2007] WASC 117 (16 May 2007)

Legislation Cited (1)

Cases Cited (2)