Zuellig v Pulver

(a) Whether employment contracts between the plaintiff, on the one hand, and each of the defendants, on the other, remained on foot. The plaintiff's position was that the defendants' notices of termination of their employment, to which I shall refer in more detail, were invalid and constituted a repudiation by them of their contracts of employment, which repudiation the plaintiff had not accepted. It was the plaintiff's case that having regard to the senior positions held by the defendants and their length of service, the defendants should have given six months' rather than one month's notice of termination.

(b) Whether a restrictive trade covenant, which the plaintiff alleged the defendants had entered into, was enforceable.

(c) Whether there has been a breach or whether there are continuing breaches of confidentiality, and

(d) Whether the defendants have breached fiduciary duties owed to the plaintiff. 4 The matter took some little time and followed the course it did because it seemed to me that the determination of two questions, viz whether there had been an acceptance of the alleged repudiation and whether the defendants had entered into operative restrictive trade covenants, would essentially determine the result of the litigation, in the sense that if the plaintiff did not succeed on those points it would not be entitled to injunctive relief: Kolbach Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533 at p.535. In the present case the two issues to which I have referred do not depend on disputed factual issues. In so far as there was a dispute about the facts relevant to these issues I shall proceed on the version for which the plaintiff contended. 5 It is necessary, in considering the application for interlocutory injunctions, for the Court to determine whether the plaintiff has established a prima facie case; whether the balance of convenience favours the grant of an injunction; and whether damages are an adequate remedy.

The Background Facts 6 The plaintiff carries on and has carried on at all material times, the business of a specialist credit insurance broker, an insurance broker consultant and a financial risk management adviser. In doing so it provides broking and/or consultancy services in respect of domestic credit insurance, export credit insurance, political risk, securitisation, and credit risk management. 7 The defendants, who prior to November 1992 had had extensive experience in this business, commenced employment with the plaintiff in about November 1992. Mr Pulver was appointed its managing director and Mr Woodward was appointed as a director. In his affidavit of 14 January 2000 Mr Chapman said that there was no written employment contract between the defendants and the plaintiff: paragraphs 8 and 9, and the contrary was not suggested. However, on 13 May 1992 the parties entered into Heads of Agreement the purpose of which was stated to be to allow them to establish a contractual agreement to operate a joint venture operation in Credit Insurance Broking on an ongoing basis and for certain other purposes. There was no provision made for the circumstances in which the parties might terminate the agreement and, in those circumstances, it did not seem to be in issue that the defendants, or either of them, could terminate their employment on the giving of reasonable notice. There was an issue as to what, in the circumstances, constituted "reasonable" notice by the defendants having regard to the matters to which I have referred. Another matter to which it is appropriate to have regard is that for some time before December 1999 the parties were negotiating for the sale by Zuellig Insurance Brokers Limited, a member of the Zuellig Insurance Group, to the defendants of its business. This led to the submission by Mr Leopold that as at December 1999 the issue was not whether the defendants would terminate their employment, but when it would happen. 8 During 1999 the defendants discussed with Mr McAvenna joining Aon, which is a major competitor of the plaintiff. The proposal obviously entailed the defendants working for Aon in competition to the plaintiff. 9 On 13 December 1999 the defendants attended upon Mr Bermingham in his office and each handed to him a copy of a letter of resignation as an employee and director of the plaintiff, each letter stating:- "I hereby resign as a director of Zuellig Credit Insurance Brokers Ltd with immediate effect. I give one months notice in my capacity as an employee with the last working day being Friday January 7, 2000."

There was some conversation in which Mr Pulver told Mr Bermingham that certain negotiations, relating to the proposed sale to which I have referred, were not acceptable to him and Mr Woodward and that they were "quitting". 10 Shortly before tendering their resignations the defendants received an offer from Aon, which they declined to accept until they had resigned, and soon after tendering their resignations they accepted that offer. 11 Late on the afternoon of 15 December 1999 Mr Bermingham telephoned Mr Pulver and asked him whether he was still minded to resign and whether there were any grounds "on which to resolve the matter". Mr Pulver said there were not and that he and Mr Woodward were resigning. Mr Bermingham asked them to meet him on the morning of 16 December 1999. At that meeting the defendants confirmed that they had resolved "to move on", whereupon Mr Bermingham said:- "So that we can move forward, it is in the best interests of the company that you go on 'garden leave' with immediate effect. You are to go home straight away. Until further notice you are not to contact any clients of the company or any of its employees."

"Garden leave" means, I was told, that one remains an employee but is either not required to perform any services, or only required to perform restricted duties from home. 12 Mr Pulver said that he could not agree to that, that he and Mr Woodward should stay until Friday night, and that they had not told any clients that they were leaving. Mr Woodward said that there was a need to deal with some urgent issues relating to a specified client, but Mr Bermingham insisted that it was best "that this direction take effect immediately". He continued:- "While you are at home you are to prepare a report for us detailing all new business which you have both been working on and any issues that need attention. You are to keep us informed of the telephone numbers on which you may be reached so that we can discuss matters with you as and when they arise. As you will be working from home and not contacting any clients or performing any duties other than those which I have mentioned, please give me your keys to the premises, your mobile phones and credit cards. You may keep your cars until the expiry of your notice." 13 Mr Bermingham also said that he had noticed an anomaly in the notices of resignation in that it gave one month's notice, "but it is effective in only four weeks". 14 There was further conversation about certain matters and, according to Mr Bermingham, Mr Pulver asked whether he and Mr Woodward needed to clean out their desks. Mr Bermingham replied:- "That doesn't have to happen to-day. That can be done at the end of your notice period or when you come in to discuss any client issues." 15 The conversation, as deposed to by Mr Bermingham, was not essentially in issue, although Mr Woodward said that Mr Bermingham said:- "In respect of your resignations, you will cease work to-day, hand in security keys, Amex cards, mobile back at the Zuellig office in one hour. You can have the cars until 7 January 2000"

and:- "You are now under enforced gardening leave effective to-day and must leave a phone number where you both can be contacted during business hours." 16 The defendants have submitted that the notice they gave was "reasonable" in all the circumstances, but that if it was not, such as to constitute a repudiation of the employment agreement, the conduct of Mr Bermingham constituted the clearest acceptance of that repudiation by acknowledging that the employment would cease upon the expiration of the period of notice. This conclusion was underscored by the fact that when he had his conversation on 16 December, Mr Bermingham was aware, this having come to his notice on 15 December, that the defendants intended to commence employment with Aon on 14 January 2000: Tpp.8 and 9. He said nothing on 16 December to suggest that the plaintiff would take any steps to attempt to stop it, nor did he say that he regarded the defendants as obliged to give longer notice. This, it must be remembered, was in the context of his having had the resignations since 13 December and having spoken to Mr Pulver on 15 December. 17 On 16 December 1999 the defendants' solicitors wrote to the plaintiff's solicitors confirming that Mr Bermingham had advised the defendants in the terms to which I have referred and asserting that his actions constituted "a constructive dismissal" of the defendants. On 17 December 1999 the plaintiff's solicitors replied stating that the meeting with Mr Bermingham had taken place as a result of the defendants "purporting to give one month's notice of resignation". The letter asserted that that action amounted to a repudiation of the contracts of employment "given that they were obliged to provide reasonable notice of resignation". The letter said, for various reasons, that reasonable notice was twelve months. Mr Bermingham had made no such assertions to the defendants. The letter continued that the plaintiff was acting within its rights in requiring the defendants to work from home to the extent to which such request had been made, and said that there was no obligation on the plaintiff to provide any work or to require the defendants to perform any work. It continued that the plaintiff expected the defendants:- ".. to continue to honour their obligations as employees of the company including complying with its instructions and preparing the reports requested by Mr Bermingham." 18 The letter continued that the solicitors were instructed "to remind" the defendants of certain continuing obligations and that any action by them contrary to their continuing legal obligations would result in immediate legal action by the plaintiff for appropriate orders to enforce the terms of their contracts and for damages and costs. It was then suggested that a meeting be had to seek to reach an amicable conclusion. 19 This letter has to be read in the light of the requirement by Mr Bermingham on 16 December 1999 that the defendants not remain on the premises and hand over their keys, mobile telephones and credit cards. In my opinion, those requirements were totally inconsistent with much of the letter as was Mr Bermingham's statement that it was unnecessary to clean out desks as that could be done at the end of "your notice period or when you come in to discuss any client issues". 20 On 20 December 1999 Mr Chapman wrote to each of the defendants asserting that their employment had not been terminated, that they continued to be employees of the plaintiff and, as such, continued to be subject to its lawful directions with which it expected them to comply. That correspondence has to be put in context. On 17 December the defendants wrote to Mr Bermingham confirming "my effective termination yesterday". The responses from Mr Chapman denied that the employment had been terminated "as you assert". It stated, correctly, that the defendants continued to be employed and were subject to the plaintiff's lawful direction. Mr Chapman was doing nothing more, in my opinion, than stating the legal position as it existed until the notice, which the defendants had given and the plaintiff had accepted, expired. There was further correspondence on 23 and 24 December 1999. By letter dated 23 December 1999 the plaintiffs' solicitors stated, inter alia, that because they believed there was a Restrictive Covenant Deed:- "In those circumstances, our client requires an undertaking from both of your clients that they will comply with the terms of the attached deed. I am instructed to advise you that if your clients do not provide the undertakings by 5 pm to-morrow, Friday 24 December 1999, our client will make an application to the Court on Wednesday 29 December 1999 for orders against your clients to restrain them from any breach of their employment contracts and of the deeds, together with orders for damages and costs." 21 On 24 December 1999, the defendants' solicitors responded that the Deed was conditional upon the execution of a subsequent Shareholders' Agreement, which it was not in issue did not occur, and that accordingly the Deed was "of no effect". It was stated that if that was not correct the Deed was not effective for other reasons and the letter continued:- "To cover the possibility that your client has not repudiated the employment contract our client will not approach any client of ZCIB or commence employment with a new employer until the period of notice they have given expires on 13 January 2000. In the light of the undertaking referred to above your client has no basis for the application foreshadowed in your facsimile of 23 December 1999." 22 On 11 January 2000, the plaintiff's solicitors sought a further undertaking that the defendants would not commence employment with a new employer or contact any client of ZCIB until after 3 February 2000, and stated that if that was not forthcoming an application would be made to the Court. I think it is appropriate to note, at this point, that the letter from the defendants' solicitors of 24 December 1999 made it quite clear that the undertaking was limited until the expiration of the notices of termination on 13 January 2000 and that thereafter the defendants would regard themselves as free to act as they saw fit. The letter from the plaintiff's solicitors of 11 January 2000 shows that they so understood that letter. 23 In cross-examination Mr Bermingham acknowledged that he knew, as at 15 December 1999, that the defendants would be commencing employment with Aon on 13 January 2000. He said that proceedings were not commenced until 14 January 2000 because of advice that in view of the undertaking given on 24 December 1999 they could not be instituted until such employment commenced. 24 Mr Chapman, in cross-examination, said that the plaintiff did not receive advice that proceedings should not be started until the employment with Aon commenced: Tp.25. He continued that before Christmas 1999, being about 14 December 1999, he knew that the defendants were to start employment with Aon on 14 January 2000. The real reason for not commencing proceedings emerged, in my view, from a somewhat unresponsive answer, Tpp.27-28, in which Mr Chapman said that the plaintiff was not troubled to seek an injunction when the defendants were asserting that they had not signed the Restrictive Trade Covenant. It was when the plaintiff found that Mr Pulver had that serious consideration was given to an injunction. These answers corroborate the view to which I have come in relation to the termination of employment issue, viz that that only became a matter of concern well after Mr Bermingham accepted that it would take place, conformably with the notices given by the defendants. 25 The Restrictive Covenant Deed was signed by Mr Pulver on 5 October 1994. There was varying evidence as to whether Mr Woodward signed such a Deed. For present purposes I am obliged to take the view of the evidence most favourable to the plaintiff, so that I shall proceed on the basis that Mr Woodward did sign the Deed. However, Mr Moses accepted that if Mr Woodward did do so, the Deed included a handwritten notation signed by him in the same terms as that signed by Mr Pulver. The Deed signed by Mr Pulver purported to impose restraints of trade, but he wrote on its last page:- "This deed is signed on the understanding that in the next 30 days a shareholders agreement is agreed and signed by all parties in good faith."

He signed and dated that note. It was not in issue, as I have said, that no such Shareholders' Agreement was agreed or signed, and the plaintiff adduced no evidence to suggest that this failure was a result of the defendants' conduct. 26 It is now possible to turn to the resolution of the issues involved.

Reasonable Notice 27 The first issue is whether the defendants gave reasonable notice and, if they did not, whether the plaintiff accepted such notice by the terms of Mr Bermingham's conversation with the defendants on 16 December 1999. There is also raised an issue whether the plaintiff is entitled to the order sought in paragraph 1 of the Amended Notice of Motion in any event since the substance of the order is to require the defendants to render services to the plaintiff and thus to specifically perform a contract of employment. It is, of course, well established that the Court will not, generally speaking, order specific performance of a contract for personal services. The Court may, if the employee is required to give a contractually agreed period of notice, restrain the employer from acting contrary to that agreement. However, that is not this case. There was no contractually agreed period and, therefore, the period of notice is what the Court considers reasonable. 28 Whilst the positions enjoyed by the defendants and the length of their service with the plaintiff may, in certain circumstances, have demanded that they give longer notice than they did, I do not consider that the plaintiff has established a prima facie case that the notice was insufficient. Whether a notice is reasonable is to be decided at the date when it is given, not when the contract is entered into: Quinn v Jack Chia (Australia) Limited [1992] 1 VR 567. What constituites reasonable notice depends on the circumstances of each case: Thorpe v South Australian National Football League (1974) 10 SASR 36. Generally the cases are concerned with the period of notice to which an employee is entitled. 29 My reasons for so concluding are firstly, that Mr Bermingham raised no objection to the period of notice on 16 December 1999, save for the minor anomaly. He did not suggest that six or twelve months was needed. Secondly, notwithstanding the defendants' offer to continue to work at the premises, Mr Bermingham insisted they take "garden leave". If there was any force in the view that the notice was insufficient I would have expected that the plaintiff would have required the defendants to continue to operate as they had previously until such time as the period of notice had expired. By effectively putting them "on ice" he showed that the plaintiff could carry on, and was prepared to carry on, without them, save for very limited services. Thirdly, Mr Bermingham accepted that upon the expiry of the stated period of notice, subject only to a possible anomaly between one month and thirty days, (Mr Bermingham not seeking a longer period), desks could be cleared out, which would be a significant demonstration of termination of employment. However, on 16 December 1999, he required the return of keys to the premises, credit cards and mobile phones. None of these actions is consistent with the view that the period of notice was insufficient, such that they should be required to continue their employment for a number of months. Fourthly, the continuing negotiations for sale, when the defendants would have left anyhow, assist in concluding that the period of notice was not unreasonable. In all these circumstances, Mr Bermingham's conduct satisfies me that the period of notice was not unreasonable. 30 If the view be taken, however, that a longer period of notice should have been given, I am satisfied that the words and actions of Mr Bermingham on 16 December 1999 constituted as clear an acceptance of the repudiation of the contract, if there was one, as could be imagined. Mr Bermingham accepted that the defendants would be leaving on the termination of their notice, directed them accordingly, and put in place steps to facilitate the end of their employment at that time. It seems to me that it was only thereafter that the plaintiff re-thought its position and asserted that there had been a repudiation of the contract, which it did not accept. In my opinion, by that time it was too late for the plaintiff to retreat from the position Mr Bermingham had taken on 16 December 1999. 31 If the two conclusions to which I have come are wrong, I do not consider that the plaintiff has established that damages are not an adequate remedy. In my opinion the plaintiff has confused two matters in relation to damages, one being the leaving by the defendants of their employment, which will necessitate, I assume, the obtaining of other people to fill their positions, and, on the other hand, damages which may flow from their having left their positions by virtue of breaches of the alleged restrictive covenant or of confidentiality requirements. So far as the leaving of their positions is concerned it does not seem to me that the question of damages constitutes any particular difficulty. The damages will be the cost of obtaining other equivalent employees and, in so far as such employees may only be available at a higher salary than the defendants were receiving, the additional cost for the period of whatever may be determined to be an appropriate notice. The damages may also include the cost, which the plaintiff has incurred, of employing National Credit Insurance Brokers Pty Limited, an expert in the field, to assist the plaintiff in the meantime. 32 Finally, and this is a matter to which I have referred, I am not disposed to grant an injunction in which it is implicit that services be rendered to the plaintiff because that is granting specific performance of a contract for the performance of personal services. It may be that an injunction having that effect will be granted to prevent the breach of a negative covenant, but that is not this case. Mr Moses sought to submit that the effect of such an order would not be to require the defendants to perform their contracts, but would merely leave them as employees and receiving their salaries in circumstances where they were not required to work, so that no supervision was necessary. This was not the plaintiff's evidentiary case because the defendants were required to carry out certain work. However, if it was it underlines the reasonableness of the notice given as showing that the plaintiff did not require the defendants' services.

The Restrictive Covenant Deed 33 The orders sought in paragraph 2 of the Notice of Motion proceed on the assumption that there is an enforceable Restrictive Covenant Deed. In my opinion there is not. The handwritten note of Mr Pulver, bearing in mind that the document does not purport to have been executed by the plaintiff and that there is no provision for its execution by it, clearly shows that Mr Pulver was signing subject to a condition that the Deed would not become operative unless, within the next thirty days, a Shareholders' Agreement was agreed and signed by all parties. As I have said it is not in issue that that was not done. Accordingly, the basis upon which Mr Pulver signed the Deed, in circumstances in which he was prepared to make it operative, never came into being and his express reservation of rights means, in my opinion, that the condition precedent to the Deed's becoming effective was not met, or there was an unfulfilled proviso such that it did not become effective. On the concession Mr Moses made, Mr Woodward is in the same position, on the assumption that he signed a copy of the Deed. 34 Accordingly, the plaintiff has not established a prima facie case against the defendants that there was any agreement by them, which would found the orders sought in paragraph 2, and, therefore, I am not satisfied that there are any contractual restrictions arising from such Deeds and, in those circumstances, it becomes unnecessary to consider the effect of any restriction.

Confidential Information 35 The evidence does not satisfy me that either of the defendants has misused any confidential information. The evidence of Mr McAvenna does satisfy me that the defendants have not disclosed any such information to him. Nor is there any evidence of a threat that they have misused or intend to misuse any information confidential to the plaintiff. Finally, Mr Chapman agreed that there was no evidence that the defendants had not returned to the plaintiff its work files or other confidential documentation.

Delay 36 The plaintiff was aware from about 15 December 1999 that the defendants proposed to take up a position with Aon on 14 January 2000. Whilst Mr Bermingham said that he had received legal advice that proceedings could not be started, in view of the undertaking given in the letter of 24 December 1999, until such employment was undertaken, Mr Chapman said there was no such legal advice given to his knowledge. Mr Chapman was the person in charge when Mr Bermingham went on leave and, in any event, Mr Bermingham did not learn of the matter until the morning on which he gave evidence. In reviewing the correspondence, it is very difficult to understand how there could have been any misapprehension that the undertaking given on 24 December 1999 was not limited in the way to which I have referred. In these circumstances I consider that the plaintiff was obliged to commence proceedings at a far earlier time than it did. The grant of interlocutory relief is dependent upon a party seeking that relief moving with expedition. Each case must, of course, be judged according to the facts. However, in the present case there was no acceptable reason, so far as the evidence has disclosed, why the plaintiff did not move several weeks before it did. As Young J observed in Network Ten Limited v Fullwood (4 December 1995 - unreported):- "Finally, the Court expects in cases of interlocutory injunction that people will act promptly. As I sit here in this duty list, if a person has let a week go by it is only in a very strong case that I can be persuaded to grant an injunction or grant short service because if a person is to seek an injunction it should be sought promptly."

Subsequently his Honour said, after considering certain submissions in relation to this matter:- "However, there is a separate principle that on an interlocutory injunction the Court in its discretion will refuse the injunction if there has been delay which is not adequately explained. I do not consider that the delay has been adequately explained in this case. Accordingly, in my view, the defendants are ahead on this second matter." 37 Whilst I would not necessarily fix any specific period as the period within which a party must act, each case depending on its own facts, it seems to me that on the facts of this case as the plaintiff was aware no later than 15 December 1999 that the defendants would commence employment with Aon on 14 January 2000, and as the undertaking in the letter of 24 December 1999 expressly provided that this may happen, that the plaintiff was bound to move far earlier than 14 January 2000. Accordingly, if I had not come to the view that the plaintiff was not entitled to the relief it claimed for the reasons I have given, I would, in the exercise of my discretion, have refused to grant interlocutory relief in view of the delay, particularly as the defendants commenced employment with Aon on 13 January 2000. In reaching this conclusion I have taken into account the terms of the employment agreement into which the defendants entered with Aon. That is dated 13 December 1999 and cannot assist in overcoming the plaintiff's gross delay in proceeding.

Damages 38 I have already dealt with the adequacy of damages in relation to the replacement of the defendants. 39 It was also suggested that damage would be caused to the business by the misuse by the defendants of information they received. Whilst Mr Chapman gave some general evidence about this in chief, it was substantially eroded in cross-examination when he conceded that he was not able to quantify such damages at this stage, not because of difficulty in doing so, but because of lack of general information which would enable him to undertake that task. I am not satisfied that damages would not be an adequate remedy in relation to any such alleged breaches by the defendants. 40 Mr Chapman appreciated that the loss of such employees would mean that certain of their clients would follow them, as had happened when the defendants joined the plaintiff. He said he was trying to protect the plaintiff's goodwill: Tp.13, although he was somewhat vague about its extent: Tp.23. At Tp.28, he said he could not identify the amount of damage as at 18 January 2000, but needed a number of days and the ability to consider the situation to do so. In my opinion, this evidence shows that damages will be assessable when the plaintiff has had adequate time to consider the situation.

Conclusion 41 I order that the Amended Notice of Motion filed in Court on 18 January 2000 be dismissed and the plaintiff pay the defendants' costs of these proceedings to date. I order that the exhibits be returned. ******

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