Equity - Equitable remedies - Injunctions - Perpetual injunctions - Injunctions quia timet - Principles governing exercise of discretion - Threat to substantially interefere with plaintiff's rights.

Solicitors for appellant: Butler McIntyre and Butler

Solicitors for respondent: Murdoch Clarke Cosgrove and Drake

GREEN CJ For the reasons published by Cox J I am of the opinion that the appeal should be dismissed.

COX J The appellant was the managing director of a company, Barlow Advertising Pty Ltd, which carried on business as an advertising agency under the name of "The Ball WCRS Partnership Hobart". The only other director was his wife. In 1989 he approached the managing director, Mr Tovey, of the respondent company which also carried on a similar business but was an accredited agency, that is one of four operating in Hobart which received commission direct from the relevant media company, whereas agencies not so accredited had to place advertising through an accredited agency which took a proportion of the commission. The appellant's approach suggested that the respondent might purchase the agency run by his company. Nothing came of the approach initially and a year or so later the appellant again contacted Mr Tovey with a similar suggestion. After a number of meetings it was agreed that the respondent would purchase the advertising agency business of Barlow Advertising Pty Ltd and the appellant would enter the employ of the respondent. The learned trial judge found that the employment of the appellant was viewed as being important, at least on the part of the respondent, as making it more likely that the clients of Barlow Advertising Pty Ltd would become and would remain the clients of the respondent.

2. Formal heads of agreement were prepared and signed on 6 July 1990. In part they recorded:

"1 Neville Jeffress Advertising Tasmania Pty Ltd is, subject

to the finalisation of formal agreements, offering to

purchase the business of the Ball Partnership and acquire

the services of that company's present manager, Patrick

Barlow.

2 The acquisition will be limited to the business of the

company, that is it is not contemplated that Neville

Jeffress Advertising Tasmania Pty Ltd acquire the legal

structure of the vendor but merely acquire the benefit of

the business to be conducted in future with a nominated list

of clients, a copy of which is appended hereto.

3 The agreement contemplates a purchase price of $100,000

with the following conditions applying:

(a) $50,000 payable on signing a final agreement.

(b) Two further payments of $25,000 at the end of two

successive twelve month periods which are to be paid to

Patrick Barlow as taxable bonuses.

(c) The two payments of $25,000 are conditional upon the

attainment of gross revenue from the nominated clients of

$280,000. If this gross revenue from the clients is not

achieved each of the bonus payments is to be reduced by 20%

of the $25,000 for each $20,000 by which the gross earnings

are under $280,000. Eventually no bonus will be payable if

gross revenue from the nominated clients falls to $180,000.

...

7 The final agreement will include a form of restraint to be

acknowledged by Patrick Barlow that he will not within a

period of say three years, in the event he leaves the

employment of Neville Jeffress Advertising Tasmania Pty Ltd,

approach or otherwise directly or indirectly conduct any

business with the clients he has introduced to the Agency.

8 The acquisition will include the continuing employment of

three Ball Partnership employees as follows:

Patrick Barlow $65,000 per annum

Greg Thompson $40,000 per annum

Secretary $20,000 per annum

No guarantees will be offered by continuing employment and

Patrick Barlow will warrant that all employee leave

entitlements have been paid by the previous employer, the

Ball Partnership."

3. After exchanges of a draft deed between the parties' solicitors, a final deed was executed on 31 July 1990 by Barlow Advertising Pty Ltd (therein called the vendor), the appellant (therein called the covenantor) and the respondent (therein called the purchaser). The deed recited that the vendor was presently carrying on the business known as "The Ball WCRS Partnership Hobart" and had agreed to sell the goodwill thereof to the purchaser and that the purchaser had requested that the services of the covenantor continue upon certain conditions therein specified. It provided for the sale of the goodwill (which was defined as "the benefit of the business to be conducted in the future with the nominated list of clients attached hereto") for $50,000. Clauses 8 and 10 provided:

"8 The Purchaser shall employ the services of the Covenantor

with the status of Client Services Director directly

responsible to the Managing Director of the Purchaser at a

salary of Sixty Five Thousand Dollars ($65,000.00) per

annum.

...

10 In addition to the annual salary to be paid by the

Purchaser to the Covenantor the Purchaser shall:

(a) pay to the Covenantor a bonus sum of Twenty Five

Thousand Dollars ($25,000.00) at the end of the first year

of his employment with the Purchaser; and

(b) pay to the Covenantor a further bonus sum of Twenty Five

Thousand Dollars ($25,000.00) at the end of the second year

of his employment with the Purchaser,

PROVIDED THAT the annual bonus payments in each year shall

be conditional upon the Purchaser attaining in each year

gross revenue from the Clients of Two Hundred and Eighty

Thousand Dollars ($280,000.00) or more and in the event that

this gross revenue is not achieved in either year then the

bonus payment for that year shall be reduced by the sum of

Five Thousand Dollars ($5,000.00) for each Twenty Thousand

Dollars ($20,000.00) by which the gross revenue is below the

sum of Two Hundred and Eighty Thousand Dollars ($280,000.00)

for that year."

"12 In consideration for the Purchaser agreeing to employ

the Covenantor upon the terms and conditions hereinbefore

appearing the Vendor and the Covenantor jointly and

severally covenant and agree that the Covenantor will not

during the term of his employment with the Purchaser or for

a period of three (3) years from the date of termination of

that employment either directly or indirectly or as

principal agent employee or otherwise conduct or be

associated with the conduct of any advertising business with

the Clients or with any other clients of the Purchaser or

with any persons or Corporations who during that period of

the Covenantor's employment with the Purchaser become

clients of the Purchaser PROVIDED THAT the provisions of

this clause shall not apply to the Covenantor when he is

conducting advertising business as an employee of and for

the benefit of the Purchaser.

13 The Vendor and the Covenantor hereby jointly and

severally covenant with the Purchaser that the Vendor will

not for a period of three(3) years from the date of

completion of this Agreement either directly or indirectly

or as principal agent employee or otherwise carry on or be

concerned or engaged in the business of an Advertising

Agency in Tasmania which area and period are acknowledged by

the Vendor to be no greater than are reasonably required to

protect the goodwill of the business hereby agreed to be

sold to the Purchaser."

5. The Client List attached to the agreement contained 24 named clients.

6. The agreement was completed and the appellant entered the employ of the respondent, but in early 1992 the level of revenue being generated from those clients of the respondent which formerly had been clients of Barlow Agencies Pty Ltd (the Clients) had so far declined that on 12 February 1992 the appellant's employment with the respondent was terminated and he was paid one month's salary in lieu of notice. Although the respondent's right to do this was challenged at first instance, the appeal does not involve a reconsideration of the learned trial judge's finding that the respondent was entitled to adopt this course. What is challenged is his finding that cl2 was void as being an unnecessary and unreasonable restraint of trade and as being contrary to public policy save and except to the extent that it concerns the 24 entities named in the existing list of clients annexed to the deed. The appellant claims that the clause is totally void.

7. The learned trial judge struck out the respondent's claim for damages against the appellant in respect of alleged past breaches of that covenant, finding that none had been proved; but he extended an interim injunction until the third anniversary of the termination of the appellant's employment with the respondent, namely 12 February 1995, restraining the appellant from, in Tasmania, either directly or indirectly or as principal, agent, employee or otherwise from conducting or being associated with the conduct of any advertising business with the 24 entities named in the deed.

8. In determining whether a covenant in restraint of trade is void or justified by the special circumstances of the case, it was held in the leading case of Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd (1894) AC 535 that:

"It is a sufficient justification, and indeed it is the only

justification, if the restriction is reasonable -

reasonable, that is, in reference to the interests of the

parties concerned and reasonable in reference to the

interests of the public, so framed and so guarded as to

afford adequate protection to the party in whose favour it

is imposed, while at the same time it is in no way injurious

to the public." (Per Lord Macnaghten at 565.)

9. Lord Reid, in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; (1968) AC 269, having cited the above passage, said at 300:

"So in every case it is necessary to consider first whether

the restraint went farther than to afford adequate

protection to the party in whose favour it was granted,

secondly whether it can be justified as being in the

interests of the party restrained, and, thirdly, whether it

must be held contrary to the public interest. I find it

difficult to agree with the way in which the court has in

some cases treated the interests of the party restrained.

Surely it can never be in the interest of a person to agree

to suffer a restraint unless he gets come compensating

advantage, direct or indirect. And Lord Macnaghten said:

'... of course the quantum of consideration may enter into

the question of the reasonableness of the contract.'"

"... whether or not a restraint is in the personal interests

of the parties, it is I think well established that the

court will not enforce a restraint which goes further than

affording adequate protection to the legitimate interests of

the party in whose favour it is granted. This must I think

be because too wide a restraint is against the public

interest. It has often been said that a person is not

entitled to be protected against mere competition. I do not

find that very helpful in a case like the present. I think

it better to ascertain what were the legitimate interests of

the appellants which they were entitled to protect and then

to see whether these restraints were more than adequate for

that purpose."

11. In this case the interests of the respondent which it was entitled to protect when taking the covenant from the appellant, were the preservation of the goodwill, that is the benefit of the business to be conducted in future with the 24 named Clients for which it had paid to the appellant's company $50,000 and had undertaken to employ the appellant for an annual salary of $65,000 plus bonus payments amounting to a further $50,000 conditional upon certain gross revenues being obtained from the Clients' business in the first two years of his employment. The learned trial judge thought that it was appropriate to treat the appellant as if he were the vendor of the goodwill because the company was in effect the alter ego of the appellant. This finding was challenged on appeal, it being submitted that the only evidence on that point was that the appellant was its managing director. However, it was the appellant who made the approaches to the respondent to purchase the business and the heads of agreement recorded agreement to purchase the business for $100,000, half of which was payable to the vendor company and the balance (subject to revenue targets) was to be paid to the appellant personally. Upon termination of his employment his solicitors wrote to the respondent's solicitors alleging that there was a collateral contract for employment for two years certain and claiming that they were:

"... instructed that as a result of these assurances, our

client agreed to enter into the Contract for Sale. On our

instructions, had this prior agreement not been reached as

to the term of employment, our client would not have

proceeded with the sale. The sale represented to our client

an opportunity to expand his career. Clearly he would not

have been prepared to sell his own business in circumstances

where there was a possibility that his employment could have

been terminated at any time."

12. In my view, the learned trial judge was fully justified insofar as the covenant related to the listed clients to categorise the hazard against which the respondent was entitled to be protected as the danger that having paid a substantial sum for the goodwill of the appellant's business which in reality amounted to the connection of the appellant with the Clients, the respondent might be confronted by the fact that the appellant might terminate his employment and immediately resume business and resume his former business relationship with the Clients making the goodwill purchased valueless.

13. In these circumstances, propositions 6 and 7 of those listed by Isaacs J in Bacchus Marsh Concentrated Milk Company Limited (in Liquidation) v Joseph Nathan and Company Limited [1919] HCA 18; (1919) 26 CLR 410 at 441 are of relevance:

"(6) When a man sells anything he may preclude himself from

lessening by competition the value of what he sells,

provided the restriction is not unreasonable, having regard

to the subject matter of the contract (Lorsont's Case LR 9

Eq, at p354, approved in Saxelby's Case (1916) 1 AC, at

p701).

(7) Therefore, when the goodwill of a business is sold, a

reasonable covenant on the part of the vendor against

competition is valid in order to protect what is bought and

sold (Saxelby's Case (supra) at 709, 713)."

14. The appellant argued that the respondent failed to prove any legitimate interest to be protected and in particular failed to prove the existence of any goodwill or recurring clients or any regular or exclusive clients. By the time of the trial, little business, if any, was being received from the listed clients. Nevertheless, the fact that substantial payments were covenanted for demonstrates that the parties regarded the goodwill as existing and having value. The reasonableness of the restrictive covenant is to be judged as at the time it is made (Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628 at 653; Bridge v Deakins (1984) 1 AC 705 at 718) and it matters not that at a later time it may arguably be of little value. It was also argued that the covenant in respect of the clients was unreasonable because it was excessive in time and in area. As to time, it was submitted that as the contract of employment was of indefinite duration, some of the listed clients might cease early in the piece to retain the respondent's services, yet if the contract were terminated some years later the appellant would still be restrained from acting for them for a further three years. As the learned trial judge pointed out, the very fact of employing the appellant would itself provide some assurance that the clients would remain with the respondent, but even if they did not, the covenant puts the respondent in a more advantageous position in the market place in regaining the business of clients who withdrew their patronage and such a more advantageous position is part of what the respondent paid for by way of purchase price for the goodwill. As to area, the learned trial judge construed the references to the entities listed as references to their Tasmanian offices. So construed, the area is not unreasonable. If such construction is too favourable to the respondent, nevertheless, the reference is to specific entities in fact engaging the services of the vendor company prior to the execution of the deed and as such was sufficiently limited as not to offend against the concept of reasonableness. In my view, although the covenant as a whole was unenforceable, insofar as it related to the listed clients it was reasonable.

15. The appellant claims, however, that the learned trial judge erred in treating the covenant in respect of listed clients as severable. The covenant itself is expressed in a series of undertakings to refrain from the prohibited conduct "during the term of his employment or for a period of three years from the date of termination of that employment" (emphasis added) with "the clients or with any other clients of the purchaser or with any persons or corporations who during the covenantor's employment with the purchaser become clients of the purchaser" (emphasis again added). In effect, the undertaking was to refrain from dealing with three classes of persons in two distinct periods of time. The undertaking to refrain from dealing within three years after the termination of his employment with listed clients was a separate and distinct undertaking to any of the other five undertakings. The covenant in question was, in my view, of the kind referred to by Sargant J in S V Nevanas and Co v Walker and Foreman (1914) 1 Ch 413 at 423 namely "cases where the two parts of the covenant are expressed in such a way as to amount to a clear severance by the parties themselves, and as to be substantially equivalent to two separate covenants." (See also Attwood v Lamont (1920) 3 KB 571 at 578).

16. Counsel for the appellant did not dispute the three tests stated in Halsbury, 4th edn, vol47, par62 referred to by the learned trial judge as being:

"(1) the severed parts are independent of one another and

are substantially equivalent to a number of separate

covenants; (2) the severance can be effected without

affecting the meaning of the part remaining; and (3) the

excess to be severed is not a part of the main purport and

substance of the agreement".

17. He submitted that in substance it was one and not six separate covenants, the original proposal relating only to Clients but being extended by the respondent to other classes; that the severance effects a major reworking of the agreement and ignores the employment component as distinct from the vendor's sale of goodwill; and that the excess severed is part of the main purport and substance of the covenant in that it was contemplated that the appellant would be conducting business with all clients of the business not just with the listed clients. Counsel for the respondent argues however that the negotiations leading to the final wording of the covenant are irrelevant to the question of severance and that it is the effect of the words used in the covenant in its final form which governs the situation. I think this is correct. The parties ultimately included promises not to conduct business with additional classes of client. It was not a case of rewording the covenants so as to restrict dealings with a whole species of persons, namely clients generally, of which listed clients were a subspecies. I agree also with his contention that the evidence shows that the main subject of the agreement in question was to procure the benefit of the patronage of the existing clients of The Ball Agency and to protect that investment. The employment of the appellant was incidental to that. To sever covenants which were designed to protect the respondent from competition from the business of clients to whom the appellant's employment with the respondent might expose him did not effect a major reworking of the agreement as claimed. The main purpose of the appellant's employment was to preserve the connection with the listed clients, an added inducement being that the return of minimum revenue for the first two years from that source would result in the bonus payments to the appellant. In my opinion the covenant can properly be severed, as it was by the learned trial judge, without infringing the tests above set forth.

18. The appellant claims that the learned trial judge erred in law in finding that the respondent would suffer immediate and substantial damage in the circumstances and that he erred in law in granting an injunction quia timet. It is clear from his reasons for judgment that the learned trial judge advanced the appropriate principles relating to the grant of an injunction in such circumstances. At 10-11 of his published reasons, A81/1993, he said:

"The plaintiff acknowledges that what it is seeking is an

injunction quia timet. The principles relating to the grant

of such an injunction are clear and well established. Such

an injunction will not be granted unless the plaintiff has

established that what the defendant proposes to do 'will

cause immediate and substantial damage' to the plaintiff's

property or business (Commonwealth v Progress Advertising

and Press Agency Co Pty Ltd [1910] HCA 28; (1910) 10 CLR 457 at 461;

Bendigo and Country Districts Trustees and Executors Co Ltd

v Sandhurst and Northern Districts Trustees, Executors and

Agency Co Ltd [1909] HCA 63; (1909) 9 CLR 474 at 478; Connorville Estates

Pty Ltd v Hydro-Electric Commission (1967) Tas SR 26 at

36-37) although it has been suggested that the principle may

not be absolute (Hooper v Rogers (1975) 1 Ch 43 at 50).

Nevertheless in the light of the authorities I propose to

apply it.

What is not entirely clear is the meaning of 'substantial

damage'. In Tillmanns Butcheries Pty Ltd v Australasian

Meat Industry Employees' Union [1979] FCA 85; (1979) 42 FLR 331 at 348

Deane J referred to the lack of precise meaning conveyed by

that expression which might mean 'considerable, solid or

big' or 'real or of substance as distinct from ephemeral or

nominal'. His Honour expressed no concluded view as to the

meaning of this expression. I need to do so because I would

come to different conclusions depending on which

interpretation I adopt. The latter is the appropriate test.

It is inappropriate to determine whether an injunction ought

to be granted by reference to the size of the detriment

which might be suffered by the plaintiff if it were not

granted. What is a small matter to one plaintiff may be a

large matter to another. Legal rights and their enforcement

ought not to be judged in this way. If there is a

sufficient degree of apprehension that unless restrained a

defendant will do something which amounts to a real

interference with the plaintiff's rights then there is a

sufficient basis upon which to grant an appropriate

injunction."

19. Counsel for the appellant did not submit that his Honour had erred in stating the relevant legal principles. His submission was that in the factual circumstances of the case no substantial damage could be suffered by the respondent, that there was no imminent danger that the appellant would do any of the prohibited acts and that there was no reasonable certainty that danger would occur unless the appellant was restrained. The evidence showed that upon the termination of his employment the appellant had said to Mr Tovey that if he thought that the respondent could just terminate his employment and keep the Clients he "had another thing coming". Thereafter on 9 February 1992 and again on 3 March 1992 his solicitors, writing to the respondent's solicitors protesting at the termination, claimed that the covenant was wholly unenforceable thereby indicating that he did not consider himself bound by it. His position in this respect did not change. He gave no evidence on the trial, proffered no undertaking to refrain from the conduct enjoined against him and argued, by his counsel, that the covenant was unenforceable. The learned trial judge took the view that it was a case where the "insistence of right to do the thing objected to is ground for an injunction", citing Meyers v Casey [1913] HCA 50; (1913) 17 CLR 90 at 123 and referring to Broadfoot v Foxwell (1896) 7 QLJ 4 at 5 and Shanahan v Fitzgerald (1982) 2 NSWLR 513 at 516. He was clearly right to do so in my opinion. The clear inference from the appellant's conduct was that unless restrained by the injunction granted at the end of the trial in October 1993 he would have sought the business of the listed clients in competition with the respondent. To do so would constitute a real and substantial interference with the respondent's rights. It would be to engage in the very conduct which, for valuable consideration paid to him and his company, he had undertaken not to do. Although by the time of the trial none of the listed clients was a current customer of the respondent, its prospects of recovering the business of each would be significantly reduced by his active competition for it. The respondent had paid to be free of such competition and would clearly suffer a detriment if he engaged in it.

20. The grant of an injunction is a discretionary equitable remedy. In Spry on Equitable Remedies, 4th edn at 369-370, the author states:

"It may properly be said that wherever a court with

equitable jurisdiction might enjoin an act if that act had

been commenced, it may, in the exercise of its discretion,

enjoin the act although it has not yet commenced, provided

that its imminence is sufficiently clearly established in

order to justify intervention in all the circumstances.

Indeed, it is unfortunate that the term, quia timet

injunction, has come into use at all, since it tends to

obscure the fact that precisely the same general equitable

principles are applied whether or not there has already been

a breach of the rights in question."

21. In my view it has not been shown that the learned trial judge in any way erred in exercising the discretion he had to grant the injunction. I would dismiss the appeal.

- the basis on which a restraint of trade provision

contained in a deed evidencing the sale of a business may be

regarded as reasonable;

- principles operating so as to permit severance of portion

of a deed containing a restraint of trade provision; and

- circumstances in which it is appropriate for the grant of

an injunction quia timet.

2. The appellant was the managing director of Barlow Advertising Pty Ltd, a company carrying on business as an advertising agency. The other director of the company was his wife. The respondent was a company likewise operating in the advertising industry. Following a number of discussions between the appellant and a Mr Tovey, it was agreed that the respondent would purchase the advertising business of Barlow Advertising Pty Ltd and that the appellant would work for the respondent company. Given the nature of the advertising industry and the relationship of agent and client which in part depended on ephemeral qualities of creativity and trust, the arrangement was to the advantage of both parties. The appellant sold a capital asset which included the property of a client list and ensured continuation of an income for the exercise of his skills, whilst the respondent gained access to a market and obtained the benefit of the experience and contacts of the respondent.

3. A deed was executed by the parties on 31 July 1990 and completed on 31 August 1990. It provided for the sale of the goodwill of the business and the terms of the contract of service entered into by the appellant. The provisions relevant for the determination of the appeal are:

"3 The purchase price for the goodwill shall be the sum of

FIFTY THOUSAND DOLLARS ($50,000.00) payable upon the signing

hereof and to be held by Messrs Page Seager, Barristers and

Solicitors of Level 8, 39 Murray Street, Hobart as

stakeholder and to be paid to the Vendor upon completion.

If for any reason other than the wilful default of the

Purchaser this Agreement is not completed in accordance with

its terms then the said sum shall be repaid to the Purchaser

which Page Seager is hereby authorised to do. The said sum

shall be placed on deposit with an institution approved of

by both parties and all interest thereon shall accrue to the

benefit of the Purchaser.

...

8 The Purchaser shall employ the services of the Covenantor

(ie the defendant) with the status of Client Services

Director directly responsible to the Managing Director of

the Purchaser at a salary of Sixty Five Thousand Dollars

($65,000.00) per annum.

...

10 In addition to the annual salary to be paid by the

Purchaser to the Covenantor the Purchaser shall:

(a) pay to the Covenantor a bonus sum of Twenty Five

Thousand Dollars ($25,000.00) at the end of the first year

of his employment with the Purchaser; and

(b) pay to the Covenantor a further bonus sum of Twenty Five

Thousand Dollars ($25,000.00) at the end of the second year

of his employment with the Purchaser,

PROVIDED THAT the annual bonus payments in each year shall

be conditional upon the Purchaser attaining in each year

gross revenue from the Clients of Two Hundred and Eighty

Thousand Dollars ($280,000.00) or more and in the event that

this gross revenue is not achieved in either year then the

bonus payment for that year shall be reduced by the sum of

Five Thousand Dollars ($5,000.00) for each Twenty Thousand

Dollars ($20,000.00) by which the gross revenue is below the

sum of Two Hundred and Eighty Thousand Dollars ($280,000.00)

for that year."

11 The bonus payments of Twenty Five Thousand Dollar

($25,000.00) hereinbefore referred to shall cease and

determine in the event that the Covenantor resigns his

employment with the Purchaser or in the event that for any

other reason whatsoever his employment with the Purchaser is

terminated it being agreed that a proportionate payment

subject to the gross revenues being obtained will be paid to

the date of cessation of the Covenantor's employment with

the Purchaser.

12 In consideration for the Purchaser agreeing to employ the

Covenantor upon the terms and conditions hereinbefore

appearing the Vendor and the Covenantor jointly and

severally covenant and agree that the Covenantor will not

during the term of his employment with the Purchaser or for

a period of three (3) years from the date of termination of

that employment either directly or indirectly or as

principal agent employee or otherwise conduct or be

associated with the conduct of any advertising business with

the Clients or with any other clients of the Purchaser or

with any persons or Corporations who during that period of

the Covenantor's employment with the Purchaser become

clients of the Purchaser PROVIDED THAT the provisions of

this clause shall not apply to the Covenantor when he is

conducting advertising business as an employee of and for

the benefit of the Purchaser.

13 The Vendor and the Covenantor hereby jointly and

severally covenant with the Purchaser that the Vendor will

not for a period of three(3) years from the date of

completion of this Agreement either directly or indirectly

or as principal agent employee or otherwise carry on or be

concerned or engaged in the business of an Advertising

Agency in Tasmania which area and period are acknowledged by

the Vendor to be no greater than are reasonably required to

protect the goodwill of the business hereby agreed to be

sold to the Purchaser."

4. The term "Clients" was defined as meaning the names of clients set out in a list annexed to the deed.

5. On 12 February 1992 the employment of the appellant was terminated due, according to the respondent, to the circumstances of the industry. Following some discussions unsatisfactory to both parties, the respondent sought an injunction restraining the appellant from being associated in any way with two named clients, any clients encompassed by the operation of cl12, or "with any other entity which was a client of the Plaintiff on 31st August, 1990 or became a client of the Plaintiff between that date and 12th February, 1992."

6. The learned trial judge granted an injunction limited to a number of named companies, statutory bodies or firms which came within the class of clients referred to in cl12. Although the only question requiring determination by the learned primary judge was whether the appellant was entitled to a permanent injunction, it was agreed by the parties that if the covenant relied on by the appellant was held to be void, the action should be disposed of by the entry of judgment for the appellant. The learned primary judge determined that:

- The covenant should be regarded as being both for the

protection of the goodwill of the business and future

protection for the respondent from advantage obtained by use

of connections made in the course of employment.

- The respondent, being the alter ego of the company, should

be regarded as the vendor.

- That portion of the covenant which protected the

respondent's interest in clients whose names were specified

in an annexure to the deed was reasonable, not contrary to

public policy and accordingly valid.

- Those portions of the covenant which referred to other

clients of the respondent existent at the date of the deed

or who became clients during the period of the appellant's

employment were void but could be severed from the deed as a

whole.

- The appellant's maintenance of the proposition that he did

not consider himself bound by the agreement afforded

sufficient basis for the grant of an injunction.

7. The appellant relied on two bases in support of the appeal. The first was to the effect that the restraint of trade provision was unreasonable and not capable of severance (grounds 3 and 4). The second was that an injunction quia timet could not be granted since there was no basis for concluding that the respondent "would suffer immediate and substantial damage ...".

8. It is not necessary to consider whether the whole of the covenant comprised in cl12 is reasonable. As the learned trial judge observed, there were six separate provisions contained therein. The covenant under consideration is one which prevented the appellant from engaging in specified conduct with those persons or corporations specified in an annexure to the deed for a period of three years after the termination of the appellant's employment (12 February 1992). The agreement provided for the sale of the goodwill of the company for a consideration of $50,000. The term "goodwill" was defined in the deed, by cl1(d), which states:

"The expression 'goodwill' shall mean and be deemed to mean

the benefit of the business to be conducted in future with

the nominated list of clients attached hereto;"

9. Given the nature of the advertising industry with its dependence on individual creativity, established clients and personal contacts, it is difficult to see how a clause preventing the immediate re-establishment of client contact by the vendor of such an asset could be regarded as unreasonable. As Gibbs J observed in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1974) 133 CLR 288 at 316:

"Nevertheless the fundamental rule remains that the

restraint must be reasonable in the interests of the

contracting parties, and it would not be in the interest of

a covenantor to subject himself to any restraint unless he

received some advantage by so doing. In my opinion it is

permissible, in asking whether a restraint is reasonable in

the interests of the parties, to consider, as part of the

circumstances of the case against which the question of

reasonableness is to be decided, the quantum of

consideration received by the covenantor and the effect of

the agreement on the position of the covenantor."

10. The validity of the restraint must be decided as at the date of the agreement imposing it. See Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628.

11. The circumstances surrounding the termination of employment play no part in such determination.

- the covenant was contrary to public interest (see

Creamoata Ltd v Rice Equalization Association Ltd (1953) 89

CLR 286);

- the degree of interference with the appellant's right to

conduct business did not exceed an accepted standard (see

Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd

[1967] UKHL 1; (1968) AC 269);

- the geographical area covered by the covenant was so wide

as to be unreasonable given that it was limited to named

persons or corporations;

- the time for the operation of the covenant was excessive;

or

- the covenant extended beyond the appellant's practice or

business of advertising (see Robin M Bridge v Deacons (a

firm) (1984) 1 AC 705 at 716).

13. In all respects the covenant was reasonable and did not run counter to the prohibition against restraint of trade.

14. Different considerations apply with respect to covenants associated with contracts of employment. See Phillip M Levy Pty Ltd v Christopoulos [1973] VicRp 66; (1973) VR 673 and Herbert Morris Limited v Saxelby (1916) AC 688.

15. The question is whether the concurrent covenants dependent upon the contract of service of the appellant were such that the relevant portion of cl12 was inextricably linked to them. The only direct link was the date of commencement of the covenant, namely the date of cessation of employment. The covenants were separate, prohibiting dealings with "the Clients", clients of the respondent existing at the date of the agreement and any person becoming a client of the respondent during the term of the appellant's employment. Two separate periods are expressed as being the relevant dates of commencement. Their existence depends on differing clauses contained in the agreement, namely those of continuing employment and the sale of goodwill. In relation to the covenant relating to "the Clients" the severance of the other provisions did not affect the main purport of the substance of the sale of goodwill. I would adopt the general test enunciated by Younger LJ in Attwood v Lamont (1920) 3 KB 571 at 593:

"The doctrine of severance has not, I think, gone further

than to make it permissible in a case where the covenant is

not really a single covenant but is in effect a combination

of several distinct covenants. In that case and where the

severance can be carried out without the addition or

alteration of a word, it is permissible ..."

although I would hesitate to limit the test to the addition or alteration of a single word. See Mason v Provident Clothing and Supply Co (1913) AC 724 and S V Nevanas and Co v Walker and Foreman (1914) 1 Ch 413.

16. In this case the more stringent test would operate to permit severance. The relevant portion of cl12 would read:

"... not within a period of three (3) years from the date of

termination of that employment either directly or indirectly

or as principal agent employee or otherwise conduct or be

associated with the conduct of any advertising business with

the Clients".

17. The learned trial judge did not err in holding that the relevant provisions in cl12 were capable of severance.

18. At the time of the commencement of the hearing of the action (22 September 1992) none of the "Clients" had remained clients of the respondent. An interim injunction had been granted to the respondent on 15 April 1992. It was contended that as at the date of the commencement of the hearing there was no evidence that actual damage would occur. It is reasonable to assume that the appellant had not acted in contempt of court and ignored the interim order. The relevant evidentiary period is therefore from the date of cessation of employment (12 February 1992) to the date of the interim order (15 April 1992). It is clear that throughout that period the appellant contended that he did not regard himself as being bound by the covenant. On 19 February 1992 Laver Pty Ltd, one of the "Clients" wrote to the respondent advising that its advertising account was terminated and requesting "Could you please have all our advertising material available for collection by Mr Patrick Barlow".

19. On 19 February 1992 the appellant's solicitors wrote to the respondent's solicitors stating "... we are of the view that this clause (cl12) represents an unreasonable restraint of trade and is consequently unenforceable." In a further letter dated 3 March 1992 the appellant's solicitors further advised that:

"Our client is currently working as a consultant to a

marketing and design company. We are of the view that he is

in no way in breach of Clause 12 of the Agreement. In any

event, we confirm our view that the restrictions in Clause

12 represent an unreasonable restraint of trade and are

unenforceable."

20. The appellant maintained this stance in his pleadings. He did not give evidence on the trial of the action. No explanation was given to the Court which could explain the fact that all the "Clients" had ceased commercial association with the respondent. It may be that the grant of injunctive relief did not operate so as to enable the respondent to re-commence commercial dealings with the Clients, but there was evidence sufficient to establish that:,

- the appellant's actions in dealing with the Clients were

imminent if not already occurring;

- continued dealings by the appellant could inhibit the

ability of the respondent to re-establish a contractual

relationship with at least some of the Clients;

- that inhibition would amount to substantial damage to the

commercial operations of the respondent. See Grasso v Love

[1980] VicRp 20; (1980) VR 163.

21. As was said by Russell LJ in Hooper v Rogers (1975) 1 Ch 43 at 50:

"... the degree of probability of future injury is not an

absolute standard: what is to be aimed at is justice

between the parties, having regard to all the relevant

circumstances."

22. Relevant circumstances in this case would include the amount of money paid for the goodwill, the maintenance by the appellant that he did not regard himself as being bound by the covenant, the request by Laver Pty Ltd that its advertising material be handed to the appellant and the loss of all of the "Clients". The contention of the appellant is weakened by the existence of the alternative remedy of a declaration. If the learned trial judge had made a declaration to the effect that the relevant covenant was valid, then the respondent would be bound to pay regard to the terms of the declaration or face proceedings for contempt. The sanction would be equivalent to that for disobedience to an injunction.

23. In this case the ability of the appellant to pursue contact with the "Clients" in a covert manner would also lead more readily to the grant of injunctive relief. See Copy Right Agency Ltd and Others v Haines and Another (1982) 61 FLR 236.

24. Further, the insistence by the appellant that he had a right to do an act, found to be prescribed by virtue of cl12, was capable of amounting to proof of an intention to do that act. See Shanahan v Fitzgerald (1982) 2 NSWLR 513.

25. I agree with the test applied by the learned trial judge (No A81/1993 at 11):

"If there is a sufficient degree of apprehension that unless

restrained a defendant will do something which amounts to a

real interference with the plaintiff's rights then there is

a sufficient basis upon which to grant an appropriate

injunction."

26. In my view there was no error in the grant of the injunction.