INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - Claim of UNLAWFUL TERMINATION - Claim of misleading conduct in connection with sale of business by applicant to respondent - Application for interim injunction restraining enforcement of restraint of trade clause in sale agreement - Whether the claim is within the associated jurisdiction of the Court - Merits of that claim - Reasonableness of restraint of trade clause - Court's power to grant an injunction - Serious question - Balance of convenience - Costs. Industrial Relations Act 1988, ss.170EA, 347, 419, 430 and 431. DALLAS REGINALD HANRAHAN v WESTFARMERS DALGETY LTD No. NI 95/3657 CORAM: WILCOX CJ PLACE: SYDNEY DATE: 3 NOVEMBER 1995 IN THE INDUSTRIAL RELATIONS COURT) OF AUSTRALIA ) No. NI 95/3657 NEW SOUTH WALES DISTRICT REGISTRY) BETWEEN: DALLAS REGINALD HANRAHAN Applicant AND: WESTFARMERS DALGETY LTD Respondent CORAM: WILCOX CJ PLACE: SYDNEY DATE: 3 NOVEMBER 1995 MINUTES OF ORDER THE COURT ORDERS THAT: 1. The application for an interim injunction be refused. 2. The hearing of the claim made in the associated jurisdiction of the Court be deferred until after determination of the claim for unlawful termination and that claim be dealt with by a Judicial Registrar in the ordinary way. 3. The applicant pay the respondent's costs of the application for injunctive relief. Note: Settlement and entry of orders is dealt with in Order 36 of the Industrial Relations Court Rules. IN THE INDUSTRIAL RELATIONS COURT) OF AUSTRALIA ) No. NI 95/3657 NEW SOUTH WALES DISTRICT REGISTRY) BETWEEN: DALLAS REGINALD HANRAHAN Applicant AND: WESTFARMERS DALGETY LTD Respondent CORAM: WILCOX CJ PLACE: SYDNEY DATE: 3 NOVEMBER 1995 EXTEMPORE REASONS FOR JUDGMENT WILCOX CJ: The matter before the Court is a somewhat unusual one. The Statement of Claim, properly analysed, seems to rely upon two causes of action. The first cause of action arises out of the circumstance, that at an earlier point of time, the first applicant, Dallas Reginald Hanrahan, and the second applicant, Moreauvia Pty Limited, a company controlled by Mr Hanrahan, were in a partnership relationship with Dalgety Limited in connection with a stock and station agency at Yass. A Mr McLean was also involved, he apparently having the same interest in the partnership as Mr Hanrahan and Moreauvia. It appears that, in about mid-1993, there was an agreement made in general terms whereby Dalgety Limited would buy out the interests of Mr Hanrahan and Mr McLean and their companies and Mr Hanrahan and Mr McLean would then be employed by Dalgety Limited, as the new sole proprietor, for a period of three years. Some documents were prepared on this basis. However, before the documents could be signed, and indeed before final terms were negotiated, Dalgety Limited was taken over by another company, Westfarmers Limited. As a consequence, the present respondent, Westfarmers Dalgety Limited, came into existence. The ultimate agreements were made between Mr Hanrahan, and his company, and Mr McLean, and his company, and Westfarmers Dalgety Limited. They did not include any provision for the employment of Mr Hanrahan or Mr McLean for any particular period after completion. There is a dispute as to the reason why this occurred. Mr Hanrahan's evidence is that he was given a revised draft of the sale agreement after Westfarmers' takeover. His attention was drawn to two particular paragraphs in the new agreement, which had nothing to do with his employment. He read those paragraphs only and did not realise that the terms relating to employment had been dropped out of the revised draft. He apparently also did not appreciate that there was no longer a separate employment agreement providing for a three year fixed term. The evidence given on behalf of the respondent is that the reason there was no employment agreement was that Westfarmers was opposed to fixed term employment agreements and, in particular, fixed term employment for as long as three years. After it took over Dalgety Limited, Westfarmers agreed to proceed with the negotiated purchase but made it plain that it would not be a party to a fixed term agreement for employment for three years. According to the affidavit evidence, which has not been tested by cross-examination, this was conveyed to Mr Hanrahan by Mr Adrian Johnson, the Westfarmers Dalgety Regional Manager. Mr Johnson says that Mr Hanrahan accepted this position and indicated that, nonetheless, the proposed sale should proceed. There is also evidence, again on affidavit and not yet tested, by two solicitors who attended a meeting at Goulburn at which Mr Hanrahan and Mr McLean were present and which was convened in order to settle the final form of the agreement. According to that evidence, the nature of the documentation was explained at that meeting and reference was made to the fact that there was no fixed term employment agreement. There was a document executed at about the time of this meeting dealing with employment. It is an annexure to Mr Hanrahan's affidavit. It is headed "Terms and Conditions of Employment". It apparently emanated from Westfarmers Dalgety. I say this because it commences: "We formally confirm our offer of employment subject to the following." There is then detail of the employer company - which I note was shown as Dalgety Farmers Limited, but probably nothing turns on that - the nature of the position, the branch, the commencing salary and commencement date, 1 April 1994. The document goes on: "The above position of senior livestock sales person is offered for an initial probationary period of 3 months after which, given satisfactory work performance, your future employment will be confirmed." On the final page there is a section headed "Notice of Termination". This contains a provision for one month's notice of termination on either side, with a reservation by the employer of the right to dismiss without notice, or payment in lieu, for misconduct. The signature of Mr Hanrahan, and the date 31 March 1994, appears immediately under this section of the agreement. Mr Hanrahan's evidence is that he did not read this document with sufficient care to appreciate the presence of either of the provisions to which I have referred. I find this startling. Mr Hanrahan has been involved in running a stock and station agency since 1972, when he became manager of the Yass branch of Dalgety Limited. He must have been involved in countless commercial activities over the last 23 years. I would have thought he had the experience and skill to cope with a document such as the employment agreement. Mr Hanrahan also says - and this is perhaps easier to believe - that he did not go with care through the documents connected with the sale of the business. These are bulky and one can, perhaps, understand him not reading them in full; although this was an imprudent course, especially as he obtained no legal advice in connection with the transaction. Mr Hanrahan was employed by the respondent after the sale of the business. He continued to be employed until he was terminated on 5 September 1995. He was told that the reason for the termination was redundancy. Mr Hanrahan filed an application under Part VIA of the Industrial Relations Act 1988 seeking compensation for unlawful termination. His case is that he was terminated without any valid reason: see s. 170DE of the Act. He also brings a claim in respect of the contract. This is said to be within the associated jurisdiction of this Court: see s.430 of the Act. In connection with that claim, Mr Hanrahan's case is that he was misled by the respondent as to the content of the agreement and signed the agreement for sale under the belief, induced by the respondent, that it contained provision for him to be guaranteed employment for three years following completion. He seeks damages in respect of that matter. Mr Hanrahan also complains, ancillary to this, of a restraint of trade clause contained in the sale agreement. I need not set out its terms. It restrains activity in competition with the purchaser for a period of three years, the relevant geographical area being territory within 40 kilometres of a particular address in Yass. No doubt, this is the address of the business. The list of actions in respect of which the restraint applies is fairly wide. There may be scope for feeling that, in some respects, they are too widely stated. However, it is difficult to accept, at least on a prima facie basis, that a restraint on actively competing in the town of Yass within a period of three years offends the principles that apply in determining whether a restraint of trade clause is unreasonable and therefore invalid. It is a feature of rural life that there is a degree of loyalty, perhaps particularly amongst the farming community, to people who have provided good service over many years. I have no doubt that, if Mr Hanrahan has given good service over the last 23 years, and there is no reason to doubt that he has, he retains considerable goodwill that would attract business to him if he actively competed against the purchaser within the town of Yass. I mention the restraint of trade clause because the application presently before the Court is for an interlocutory injunction. It arises out of the restraint of trade clause. No notice of motion was filed, as it should have been. Nonetheless I have dealt with the matter on the basis of a draft order that has been filed and which sets out the relief sought. Two substantive orders are sought today: "1. the respondent be restrained from enforcing clause 14 as read together with schedule five of the contract dated 1 April 1994 against the first and second applicants until the final hearing. 2. the first and second applicants be permitted to engage in trade, business or employment until the final hearing." There is evidence from Mr Hanrahan that, in November every year, there is a special sale in Yass entitled "Yass Fine Wool and Medium Wool Merino Sale". Mr Hanrahan says that he commenced this sale in 1990. He did so as a partner of the business. No doubt he worked in connection with the 1994 sale in his capacity as an employee of the respondent. He says he would like to be involved in the sale this year on his own behalf; no doubt through the second applicant. He seeks orders that will, in effect, enable him to participate in the sale notwithstanding the restraint of trade clause. He says that participation is important to him, not only for the purpose of earning income, but in maintaining continuity of goodwill with the local farming community. Mr Goot, on behalf of the respondent, says that, apart from any other matter, the Court has no jurisdiction to grant an injunction. He points to s.431 of the Act which says: "The Court may grant an injunction requiring a person not to contravene or to cease contravening this Act." He rightly says that this does not apply to the present case; and, more controversially, argues that this is an exhaustive statement of the Court's injunction power. Mr Goot compares the situation to that considered by the High Court of Australia in Thompson Australian Holdings Pty Limited v Trade Practices Commission (1981) 148 CLR 150. I do not think the cases are analogous. In Thompson the Federal Court was being asked to exercise jurisdiction under s.23 of the Federal Court of Australia Act 1976 in relation to the granting of an injunction to compel observance of the Trade Practices Act 1974. The point made by the High Court was that s.80 of the Trade Practices Act sets out an exhaustive statement as to the power of the court - that is, any court exercising jurisdiction under the Trade Practices Act - to grant an injunction under the Trade Practices Act. Section 431 of the Industrial Relations Act deals with a particular type of injunction: an injunction requiring a person not to contravene or to cease contravening the Act. Often, the appropriate injunction will be something different from that. Section 431 does not confer any power in relation to those cases; but neither does it take it away. Section 419 of the Industrial Relations Act is identical to s.23 of the Federal Court of Australia Act. Power has often been exercised under that section in the Federal Court in order to grant injunctive and declaratory relief in the associated jurisdiction. It seems to me that, if a particular claim properly comes within the jurisdiction of the Court pursuant to s.430, the powers of the Court, conferred in wide terms by s.419, are available in respect of the associated claim, subject only to any specific statutory restriction. There is no restriction in this case. Consequently, I am satisfied that there is power to grant the relief sought today. It is another question whether the relief should be granted. Mr Hanrahan tenders an undertaking as to damages, so there is no problem about that aspect of the matter. But in determining whether I should grant an interlocutory injunction in accordance with accepted principles, I have to consider whether there is a serious question to be tried in favour of the cause of action in relation to which the injunction is sought; then I have to consider the balance of convenience. As to the prospects of success in the matter, there is in my view a doubt as to whether the claim concerning the contract, and which is argued to be within the jurisdiction of the Court pursuant to the associated jurisdiction, is truly within jurisdiction. Another way of putting the point is to say that there is doubt as to whether it arises out of the same substratum of facts. As at present advised, I do not think it does. The unlawful termination claim involves the propositions that the first applicant was an employee of the respondent immediately prior to his termination on 5 September 1995, that he was terminated on that date and that there was no valid reason for the termination. There seems to be no dispute that he was an employee before 5 September 1995 and was terminated on that date. If the unlawful termination claim goes to trial, I imagine the case will revolve around the question whether or not there was truly a redundancy, as claimed by the employer. If there was, then it seems likely that the employer will establish a valid reason. If there was not, I assume the employer will fail and the unlawful termination claim will succeed. That claim can be decided without reference to the earlier history, and in particular the fact that Mr Hanrahan was formerly a partner in the business. Similarly, the question whether or not Mr Hanrahan was misled as to the content of the agreement for sale can be determined without reference to the circumstances surrounding his termination of employment. Indeed, his claim would be much the same if he had never become an employee of the respondent, that is if he had been told immediately after the sale of the business that there was no job available for him. I do not express a final conclusion about this matter. I simply say that I have a considerable doubt about the invocation of the associated jurisdiction in this case. The second question that I have to consider, assuming that the associated jurisdiction is validly invoked, is whether the Court would be justified in interfering with the restraint of trade clause. It seems to me there are two bases upon which the Court might be persuaded, at the final hearing, to do so. One is that the terms of the restraint of trade clause are invalid because unreasonable. It may be that such an argument can be put on the basis of the trade practices claim, but I note also that there is an application for exercise of power under the Contracts Review Act 1980 (NSW). It is not, therefore, necessary to consider whether this can be done under the Trade Practices Act. As I have said, I do not think it is inherently unreasonable to impose a three year, 40 kilometre limit. It may be, as Mr Kostopoulos has said, that some of the actions proscribed by the clause are too wide. For example, they seem to include accepting business from people who live a long way from Yass. But that has got nothing to do with the immediate problem. As I understand the position, Mr Hanrahan wants to actively participate in a sale in Yass. I do not think any court would be likely to consider a proscription of this activity, during a period only 18 months after the sale of a business for a substantial sum, an unreasonable restraint of trade. The second basis upon which the Court might be persuaded ultimately to interfere with the restraint of trade clause would be as a result of finding that there was misleading conduct and exercising power, perhaps under s.87 of the Trade Practices Act, to vary the terms of the contract by rewriting or omitting the restraint of trade clause. If I felt that there was a strong case in favour of the proposition that Mr Hanrahan was misled into signing this agreement, and signed an agreement that he would not have signed if he had known that he was not guaranteed employment for three years, I would be prepared to make an interlocutory order, subject to considering the question of the balance of convenience. But I do not think the case is strong. It includes allegations that will require a deal of explanation from Mr Hanrahan when he goes into the witness box. It conflicts with the evidence of the three witnesses who say there was discussion in which it was made clear that there would not be a three year employment contract. Once again, I do not express a concluded view. None of the witnesses has been cross-examined. It may turn out, at a final hearing, that Mr Hanrahan is believed. All I can say is that, at the present time, the prospects of success are not so great as to induce me to make what would be a unusual order interfering with a restraint of trade clause. The other matter that must be taken into account is the balance of convenience. As Mr Goot says, a damages remedy would be adequate. The respondent is a substantial company. There is no reason for concern about its ability to pay a damages award. Mr Hanrahan would be aware of the volume of trade at previous fine wool and medium wool Merino sales. Although a degree of estimation would be involved, I think it would be possible for him to demonstrate what income he could have earned, had he been allowed to trade at the forthcoming sale. The other submission made by Mr Goot is that this application should have been made earlier. I think that is correct. The termination occurred on 5 September. The Application was filed on 14 September; that is almost two months ago. This application for interim relief is now made only shortly before the sale. An injunction would have ramifications for the respondent, and perhaps other people. There are apparently now franchisees of the business. These ramifications might have been mitigated if the application had been brought earlier. I do not put this last consideration in the forefront of my reasons. Fundamentally, I think I ought to refuse the application because of my doubts about whether the misleading conduct claim comes within the associated jurisdiction and my scepticism about its prospects of success. I refuse the claim for an interim injunction. I direct that the hearing of the claim made in the associated jurisdiction be deferred until after determination of the claim for unlawful termination and that that application be dealt with by a Judicial Registrar in the ordinary way. [Counsel addressed.] Mr Goot seeks an order for costs of the application for injunctive relief. The matter has been before the Court during part of three days. Apparently, the injunction application was raised before a Judicial Registrar on Monday. The Judicial Registrar transferred the matter to Madgwick J. His Honour stood it over until Tuesday but, unfortunately, the evidence was still incomplete. He was thus unable to deal with the matter and adjourned it until today. As his Honour was unavailable today I was asked to deal with it. This history is unfortunate; it must have increased the costs. Had the application been made to the Court in the proper way, with a notice of motion and supporting evidence, these multitudinous appearances would have been unnecessary. It is difficult to see why this was not done. The applicant has known since about 22 September that the respondent proposed to insist on observance of the restraint of trade clause. Be that as it may, the question I have to determine, given the fact that the Court does have a general power as to costs, is whether the situation is affected by s.347 of the Industrial Relations Act. Section 347(1) says that: "A party to a proceeding in a matter arising under this Act shall not be ordered to pay costs incurred by any other party to the proceeding unless the firstmentioned party instituted the proceeding vexatiously or without reasonable cause." The relevant proceeding is the application for interlocutory relief. So the question is whether that application was instituted vexatiously or without reasonable cause. In determining that question, I am not concerned with the wider question as to whether the claim in the principal proceeding, the unlawful termination proceeding with an invocation of the associated jurisdiction, was instituted vexatiously or without reasonable cause. I am not prepared to say that the application for interlocutory relief was instituted vexatiously. The word "vexatiously" has a connotation of action taken to harass or annoy another party, an element of malice being involved. However, I think the proceeding was instituted without reasonable cause. Any proper consideration of the situation should have indicated to the applicants and their advisers that there was no substantial chance that they would succeed in obtaining the relief that has been sought before me today. Accordingly, s.347(1) does not apply, with the result that I am free to exercise a discretion to order costs. I see no reason to refuse to exercise that discretion. The respondent has been put to expense in resisting an application which in my opinion should never have been made. Accordingly, I order that the applicants pay the respondent's costs of the application for injunctive relief. I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment of the Honourable Chief Justice Wilcox. Associate: Dated: 3 November 1995 APPEARANCES Counsel for the Applicant: A W Kostopolous Solicitors for the Applicant: Davis Faulkner & Co Counsel for the Respondent: R M Goot & S Woodbury Solicitors for the Respondent: Blake Dawson & Waldron Date of hearing: 3 November 1995 IN THE INDUSTRIAL RELATIONS COURT) OF AUSTRALIA ) No. NI. 95/3657 NEW SOUTH WALES DISTRICT REGISTRY) BETWEEN: DALLAS REGINALD HANRAHAN Applicant AND: WESFARMERS DALGETY LTD Respondent CORAM: WILCOX CJ PLACE: SYDNEY DATE: 3 NOVEMBER 1995 CORRIGENDUM In the above judgment which was handed down by his Honour, Chief Justice Wilcox in Sydney on 3 November 1995, please note that the respondent's name should read "Wesfarmers Dalgety Ltd" and not "Westfarmers Dalgety Ltd" as previously stated. Associate: Dated: 8 February 1996