Patrick Barlow v Neville Jeffress Advertising Pty Ltd [1994] TASSC 181;

Patrick Barlow v Neville Jeffress Advertising Pty Ltd [1994] TASSC 181; - TASSC 1994 case summary — Zoe

[29]

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.

[33]

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.

[35]

"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."

[36]

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.

[43]

"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."

At a glance

Court

Decision date

Before

Source

Judgment (76 paragraphs)

Patrick Barlow v Neville Jeffress Advertising Pty Ltd [1994] TASSC 181; (1994) 4 Tas R 391 (21 December 1994)

Parties

Cases Cited (10)