New South Wales Supreme Court CITATION : Northern Tablelands Insurance Brokers Pty Ltd v Howell [2009] NSWSC 426 HEARING DATE(S) : 18/05/09 JUDGMENT DATE : 22 May 2009 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Application for interlocutory injunction dismissed with costs. CATCHWORDS : CONTRACTS - general contractual principles - discharge and breach - employment contract - provision for termination by notice - provision restricting employee's conduct after such termination - repudiation by employer - acceptance of repudiation by employee - contract thereby discharged - no termination as provided by contract - employer not entitled to enforce restrictions - CONTRACTS - general contractual principles - construction and interpretation of contracts - restraint for "a period of 12, 24 and 36 months" after specified event - held void for uncertainty CATEGORY : Principal judgment Barrett v Ecco Personnel Pty Ltd (unreported, NSWCA, 24 November 1998) Conway-Cook v Town of Kwinana [2001] WASCA 250; (2001) 108 IR 421 Delaney v Staples [1992] 1 AC 687 CASES CITED : IceTV v Ross [2007] NSWSC 635 Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 Profiles International of Australia Pty Ltd v Scott (unreported NSWSC, Powell J, 3 April 1981) Tyser Insurance Brokers Pty Ltd v Cooper (unreported, NSWSC, Young J, 7 December 1998) PARTIES : Northern Tablelands Insurance Brokers Pty Ltd - Plaintiff Robert Thomas Howell - Defendant FILE NUMBER(S) : SC 2661/09 COUNSEL : Mr D Caspersonn - Plaintiff Mr P Braham - Defendant SOLICITORS : Lee and Lyons Lawyers - Plaintiff APJ Law Armidale - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J FRIDAY, 22 MAY 2009 2661/09 NORTHERN TABLELANDS INSURANCE BROKERS PTY LTD v ROBERT THOMAS HOWELL JUDGMENT The proceedings and the interlocutory claim 1 The defendant was formerly an employee of the plaintiff. The relationship of employer and employee came to an end on 10 February 2009. 2 The final relief sought by the plaintiff is confined to injunctive relief. By its summons, it claims three injunctions in the alternative, one restraining certain conduct of the defendant until 10 February 2012, another restraining conduct of the defendant until 10 February 2011 and a third restraining the same conduct of the defendant until 10 February 2010. 3 I am, at this point, concerned only with the plaintiff's accompanying claim for interlocutory relief by way of restraint upon the defendant pending trial or until further order, being the claim in paragraph 1 of the amended summons filed on 18 May 2009. 4 The conduct on the defendant's part that the plaintiff seeks to have enjoined by interlocutory order is "canvassing, soliciting or endeavouring to entice away from the plaintiff any client of the plaintiff identified in" a particular list of clients. The defendant's employment by the plaintiff 5 The plaintiff carries on an insurance broking business from premises in Armidale. It operates principally in the New England region and has about 4,000 clients. 6 The defendant was employed by the plaintiff as an account executive from the commencement of the plaintiff's business in 2001. He had previously been employed by or associated with predecessor businesses in Armidale over a long period. He had been active in the insurance industry before he moved to Armidale in 1980. As an account executive in the service of the plaintiff, the defendant arranged insurances for clients. 7 It is accepted that the defendant serviced a certain section of the plaintiff's clientele and had, if not sole, then at least predominant contact with those clients. The employment contract 8 A written employment contract was entered into between the plaintiff (called "Company") and the defendant (called "Employee") on 1 July 2005. There was no fixed period of employment. Clause 3.1 provided: "The employment of the Employee under the Agreement starts on the Commencement Date and will continue until the date on which this Agreement is terminated in accordance with clause 11." 9 Clause 1.1 defined "Term" as follows: "'Term' means the period referred to in clause 3.1." 10 Clause 11.1 permitted termination in certain circumstances of default and incapacity accepted as not being relevant to the present case. Clauses 11.2 and 11.3 were in these terms: " 11.2 Termination with notice Subject to clause 11.3, this Agreement may be terminated by either party at any time on the provision in writing of the following notice to the other party: Length of Service Period of Notice Less than 1 year 14 days Between 1 year and five years 21 days 5 years or more 28 days 11.3 Earlier termination at the option of the Company If notice is given by the Company under clause 11.2 then: (a) the Company may at its option at any time before the end of the notice period pay to the Employee an amount equal to the salary and superannuation contributions payable to or in respect of the Employee for the balance of the notice period; and (b) if the Company makes such a payment, the employment of the Employee terminates immediately." 11 Of particular relevance to the present case is clause 9.2: " 9.2 Non-solicit after the Term For a period of 12, 24 and 36 months after the Term, the Employee must not without the prior written consent of the Company: (a) canvas, solicit or endeavour to entice away from any Group Company any person who or which at any time during the last 12 months of his or her employment with the Company was a client or customer of or supplier to any Group Company with whom the Employee dealt; (b) solicit, interfere with or endeavour to entice away any employee of any Group Company; or (c) counsel, procure or otherwise assist any person to do any of the acts referred to in clauses 9.2(a) and 9.2(b)." 12 There is an exception in clause 9.3 permitting involvement as a shareholder or director of a company in limited circumstances. It is agreed to be irrelevant to the present case. Clause 9.4 reads: " 9.4 Remedy for breach The Employee acknowledges that any breach by the Employee of this clause 9 would cause irreparable harm and significant damage to the Company and accordingly that the Company has the right to seek and obtain immediate injunctive relief in relation to any such breach in addition to any other remedy available." 13 Clause 9.7 provided: " 9.7 Severance If any part or any provision of this clause is held to be illegal or unenforceable it will be severed from this Agreement and the remaining provisions will continue in force." The events of 10 February 2009 14 In the days leading up to 10 February 2009, there were discussions between the defendant and Ms Carlon, the managing director of the plaintiff, about the defendant's leaving the plaintiff's service. The plaintiff was, it appears, dissatisfied with the defendant's performance. The defendant was unhappy about the level of his remuneration. There was disenchantment on both sides. There were discussions about redundancy. On 6 February 2009, there was a conversation about the amount that would be payable under an industrial award in the case of redundancy. 15 On 9 February 2009, the defendant informed Ms Carlon that he was not happy with the calculated redundancy figure (apparently $32,601.48) and was expecting something around $50,000. The defendant asked whether the plaintiff would consider giving him a package of $50,000 which would enable him to exit the industry and have enough to live on. 16 Later on the same day, the defendant sent an email to Ms Carlon which began "Further to our meeting earlier today I wish to advise that the figure of $32,601-48 is unacceptable as I had envisaged a figure in the vicinity of $50,000-00 or better, due to the fact that I had decided to work for a further three years, but am prepared to sign a non competition agreement and exit my self permanently from the insurance industry on all levels should we be able to agree on a figure in this vicinity." 17 The next day, 10 February 2009, the defendant and his wife visited the plaintiff's business premises (he was on long service leave at the time). They met with Ms Carlon. Events are recorded in a note made by Ms Carlon the next day. Ms Carlon told the defendant that his email had been forwarded to all members of the plaintiff's board and the board members were not prepared to offer "a further $20,000" (clearly enough, a reference to the difference between $32,601.48 and $50,000). Ms Carlon said that the plaintiff's "offer of voluntary redundancy stands as per our meeting 06/02/09". The defendant said he was not prepared to take this. Ms Carlon's file note then records: "Advised Bob effective immediately he was made redundant." 18 After further discussion, Ms Carlon asked the defendant for his keys to the office and carpark. After more discussion, the defendant handed over the keys. Ms Carlon then asked him to sign the key register in the boardroom, which he did. The defendant later packed his personal belongings and he and his wife left the premises. 19 Ms Carlon wrote to the defendant on 10 February 2009: "Following our discussion today, we confirm that your current position with the company is being made redundant due to an internal restructure." 20 There followed a statement of "entitlements", being amounts for annual leave, annual leave loading, long service leave, "salary in lieu of notice 28 days" and "redundancy (not taxed) 8 weeks". The defendant's conduct after termination of employment 21 The plaintiff tendered evidence of a number of events that occurred with respect to its clients after the defendant ceased to be employed by the plaintiff, the allegation being that the defendant thereby acted in breach of clause 9.2 of the agreement and that it may safely be inferred that he will continue to do so unless restrained. 22 The evidence led by the plaintiff on the interlocutory hearing shows that the defendant proceeded, after 10 February 2009, to form an association (apparently as authorised representative rather than employee) with another insurance broking firm in Armidale. The evidence also shows that, in his new capacity, the defendant wrote new or renewed insurances for a number of persons with whom he had himself dealt when they were clients of the plaintiff. 23 There is evidence that a number of those persons signed documents in order to transfer their customer connection to the rival firm with which the defendant had associated himself. The defendant's response to the plaintiff's interlocutory claim 24 The defendant does not seek to challenge any of the evidence led by the plaintiff on the interlocutory application, so far as it concerns his activities in the marketplace after 10 February 2009, although he does seek to draw a distinction between approaches made by him and approaches made to him (a distinction that might ultimately fall to be considered against principles discussed in cases such as Barrett v Ecco Personnel Pty Ltd (unreported, NSWCA, 24 November 1998) and IceTV v Ross [2007] NSWSC 635). 25 Mr Braham of counsel submitted on behalf of the defendant, however, that, despite the activities just mentioned, the plaintiff has not established an entitlement to the interlocutory restraint it seeks. The principal submissions made by Mr Braham were as follows: 1. The agreement of 1 July 2005 was not on foot after 10 February 2009 so as to be an operative source of contractual rights and obligations. 2. If the agreement did continue on foot so as to be an operative source of contractual rights and obligations, clause 9.2 did not create rights or obligations because it is void for uncertainty. 3. If the agreement continued on foot and clause 9.2 is not void for uncertainty, it is void because imposing an unreasonable restraint of trade. 4. If the agreement continued on foot and clause 9.2 is not void for uncertainty or as an unreasonable restraint of trade, conduct prohibited by that clause, while engaged in in relation to 12 relevant clients of the plaintiff, was not engaged in in relation to others because those others approached the plaintiff without any form of solicitation, request or enticement by him. 5. In any event, the balance of convenience, for various reasons, favours the defendant. 6. The plaintiff has been guilty of delay such that the discretion of the court should be exercised against the grant of the interlocutory relief, assuming there is otherwise a case for granting that relief. 26 I shall deal with the first two matters in turn. Each involves essentially a question of law going directly to the issue whether the plaintiff has shown that there is a serious question to be tried as to breach (and threatened future or further breach) of clause 9.2 Does the agreement of 1 July 2005 continue on foot? 27 The first question is whether the contract of 1 July 2005 continues on foot so as to be the source of an entitlement of the plaintiff to compliance by the defendant with clause 9.2. 28 It is the contention of the defendant that the plaintiff wrongfully repudiated the employment contract of 1 July 2005 when, on 10 February 2009, it informed the defendant, through Ms Carlon, that "effective immediately he was made redundant". There can be no doubt that this was an immediately operative statement by the plaintiff to the defendant that he was no longer employed by it. This was confirmed in clear terms by Ms Carlon's demand for return of the office and carpark keys and by her letter of the same day. This letter also said that a payment was being made by way of "salary in lieu of notice". 29 There was an unambiguous statement by the plaintiff that it no longer intended to perform the agreement by employing the defendant. The defendant did not act in accordance with the agreement to terminate it. It acted despite the agreement. Action in accordance with the agreement would have entailed the giving of written notice under clause 11.2. No written notice was given. The letter written on the same day but after the event confirmed that the defendant was being made redundant. It did not refer to the employment contract and was consistent with the oral message as to redundancy. 30 Because there was no notice of termination as contemplated by the contract, the payment in lieu of notice that was actually made was not referable to or based on clause 11.3. Under that clause, the plaintiff had an option to make a payment equal to salary and superannuation for the balance of a notice period if notice was given under clause 11.2. It follows that, since notice was not given under clause 11.2, the right of the plaintiff to proceed under clause 11.3 never arose. 31 By acting outside and in disregard of the contractual provisions concerning termination and dismissing the defendant by way of unilateral declaration of "redundancy", the plaintiff brought the employment to an end, albeit in breach of contract and by way of wrongful dismissal. There was accordingly a repudiation of the contract of employment by the plaintiff, the significance of which was described by Steytler J (with whom Wallwork J and Parker J agreed) in Conway-Cook v Town of Kwinana [2001] WASCA 250; (2001) 108 IR 421 at [29]: "The distinction between termination of the employment relationship, on the one hand, and termination of the contract of employment, on the other, is important. While there is no doubt that a wrongful dismissal terminates the employment relationship, the contract of employment itself continues until such time as the employee accepts the repudiation constituted by the wrongful dismissal (and a wrongful dismissal will almost invariably amount to a repudiation: see Gunton v Richmond-upon-Thames LBC [1981] 1 Ch 448 at 468) and puts an end to the contract. (See Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 and Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 427.)" 32 The question of acceptance of the plaintiff's repudiation by the defendant therefore arises. It was submitted on the defendant's behalf that he accepted the plaintiff's repudiation very soon after it occurred. I accept that submission. The defendant's response to Ms Carlon's request that he hand over his keys to the office and carpark was met by the defendant's compliance, with the comment to his wife that she should not worry as he "would just go out on his own and take all the clients" (this is the version of the conversation recorded by Ms Carlon; the defendant denies the particular words but accepts that he said words to the effect, "just go out and do my own thing."). Ms Carlon asked the defendant to "sign the key register to [sic] which was located in the boardroom". This was no doubt to record his return of the keys. He signed as asked. The defendant then said to Ms Carlon that he needed to get his personal belongings from the office. He, his wife and Ms Carlon went to the office where the defendant proceeded to collect and pack his things, after which the defendant and his wife left the premises. 33 By departing the premises in this way, after handing in his keys and collecting his personal belongings, the defendant showed a clear and unmistakeable intention to accept the position that had been forced on him by the plaintiff's statement that he had been retrenched, coupled with the message that he was required to surrender his keys and leave the premises of employment immediately and for good. There is nothing to suggest that the defendant was not ready, willing and able to continue in the plaintiff's service; or that he would not have continued but for his exclusion by the plaintiff. 34 The payment made by the plaintiff and designated "salary in lieu of notice" in the letter of 10 February 2009 was, in these circumstances, not made under the employment contract. Rather, it was within the fourth class of payment in lieu of notice referred to by Lord Browne-Wilkinson in Delaney v Staples [1992] 1 AC 687 at 692-693: "(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment. Since the employment relationship has ended no further services are to be rendered by the employee under the contract. It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment. The nature of a payment in lieu falling within the fourth category has been analysed as a payment by the employer on account of the employee's claim for damages for breach of contract. In Gothard v Mirror Group Newspapers Ltd [1988] ICR 729 at 733 Lord Donaldson MR stated the position to be as he had stated it in Dixon v Stenor Ltd [1973] ICR 157 at 158: 'If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, i.e. wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.' In my view that statement is the only possible legal analysis of a payment in lieu of the fourth category." 35 In the light of the evidence about what was said and done on 10 February 2009 (including with respect to payment), the contention that the plaintiff, by wrongfully terminating the employment, repudiated the contract of employment and that the defendant accepted the repudiation will succeed at trial. It must follow that the defendant is assured of success in his claim that the contract thereby came to an end, with the defendant becoming entitled to sue for damages which would, in all likelihood, be the salary in lieu of notice and other items that the plaintiff in fact paid, as detailed in the letter of 10 February 2009. 36 Because the plaintiff repudiated the agreement of 1 July 2005 and the defendant accepted the repudiation, the contract was thereby discharged. The plaintiff therefore cannot establish the continuing subsistence of clause 9.2 of the employment agreement. The plaintiff accordingly has not shown that there is a serious question to be tried as to actual or threatened breach by the defendant of clause 9.2 by reason of his actions in the period after the employment ended. The construction and operation of clause 9.2 37 I turn now to the second matter to which the defendant points in submitting that the plaintiff has not shown that there is a serious question to be tried as to breach by the defendant of clause 9.2 of the agreement (assuming that, contrary to what I have just said, it is found to continue on foot). 38 The defendant submits that clause 9.2 has no apparent or ascertainable meaning and is void for uncertainty. This is because of the opening words: "For a period of 12, 24 and 36 months after the Term, the Employee must not …" 39 Any contractual prohibition expressed to operate for "a period of 12, 24 and 36 months" prompts the immediate question: for what length of time does the prohibition continue? The answer cannot be 12 months. Nor can the answer be 24 months or 36 months. The only available answer is, "a period of 12, 24 and 36 months"; and that merely restates and begs the question. 40 Certain drafting techniques are designed to ensure that several distinct prohibitions are imposed and accepted, each separate from the other, but in the context of an overarching provision that makes it clear that these are alternatives and states how the operative provision is to be identified from among those alternatives. Provided that a clear method of selection is laid down so that one provision alone can be seen to be operative, the selected provision will be enforced if enforceable according to its own terms. 41 One might surmise that, in the present case, the parties intended to provide for three alternatives, one based on 12 months, another based on 24 months and a third based on 36 months. But this would be purely speculation, because that is not what the parties have said. 42 In Profiles International of Australia Pty Ltd v Scott (unreported NSWSC, Powell J, 3 April 1981), Powell J had before him a provision as follows: "The General Manager hereby agrees with the Company that he shall not for a period of three years from the date of his termination of service with the Company (a) within a radius of 50 kilometres of the General Post Office in Sydney, or (b) within a radius of 100 kilometres of the General Post Office in Sydney, or (c) within the State of New South Wales directly or indirectly carry on or conduct any business similar to the business or to any part of the business hereby agreed to be sold except as the holder of shares in any company listed on any stock exchange." 43 It was submitted that this provision was void for uncertainty since, with the word "or" appearing after each of (a) and (b), it was "not possible to determine the ambit of the intended tie". His Honour accepted that submission: "Since, as a matter of English the word 'or' is generally used as a particle co-ordinating two or more words, phrases or clauses between which there is an alternative (Shorter Oxford English Dictionary 3 Ed. Vol. 2 pp. 1456-7) this submission, at first sight, appears to be an attractive one; and yet, upon consideration, I am satisfied that it ought not to be acceded to. On the contrary, I am of the opinion that, in its use in Clause 14, the word 'or' is intended to, and does, indicate, not a series of alternative restrictions, but, rather, a series of independent, but cumulative, restrictions. That this is so, in my view, follows from the fact that what prefaces sub-clauses (a), (b) and (c) is a negative obligation – 'he shall not' – it following, as a matter of language, that the Clause is to be construed as a promise to do 'neither (a), nor (b), nor (c)'." 44 Powell J thus proceeded on the basis that, as a matter of language, if it is said that a person must not walk or run or jump, then walking is forbidden and running is forbidden and jumping is forbidden. 45 In this case there are cumulative restrictions which amount, in terms, to a single restriction. They are time restrictions. Their cumulative nature is made plain by the word "and". The employee must not engage in the specified conduct for the specified period of 12 months; the employee must not engage in the specified conduct for the period of 24 months; and the employee must not engage in the specified conduct for the period of 36 months. It is not possible, in Powell J's words, "to determine the ambit of the intended tie" – with "ambit" here understood in the sense of duration. No means is provided of identifying which of the three prohibitions (if, indeed, there should be taken to be three) is the operative prohibition. 46 For reasons corresponding with those of Powell J, I am of the opinion that clause 9.2 is void for uncertainty – from which it follows that any attempt to apply clause 9.7 to extract a single meaning will never occur. 47 Let it be assumed, contrary to what I have just said, that clause 9.2 imposes several alternative restraints, one for 12 months, a second for 24 months and a third for 36 months. How then does one make the selection among them? 48 Clause 9.7 directs that "any part or any provision of this clause" that is "held to be illegal or unenforceable" be severed and, in effect, discarded and that "the remaining provisions" shall stand. Assume that the part or provision concerning 36 months is the only part or provision held to be illegal or unenforceable. Which of the 12 months and the 24 months provisions then stands? The answer must be that both stand, with the result that there is still no available means of determining which should be observed and enforced. 49 This difficulty stemming from clause 9.7 is of the same kind as was referred to by Young J in Tyser Insurance Brokers Pty Ltd v Cooper (unreported, NSWSC, Young J, 7 December 1998): "The restraint period should not differ depending on what a court should hold. First, it is not a reasonable way of letting an employee know what are the requirements that bind him or her; secondly, there is great difficulty if there is an appeal against the holding, both pending the appeal and, perhaps, afterwards. As Mr Robinson pointed out in his submission, what happens if within one year the period is held to be invalid? There seems to be no mechanism for substituting a fresh period." 50 This part of the case may be summed up in words used by Spender J in Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 at 520: "[A] threshold question in determining the certainty of a restraint of trade clause of the kind now before me is whether the clause contemplates a single covenant to operate from the numerous combinations of conduct, time and area which are generated. If the clause contemplates a single covenant, then the covenant must provide a means by which to choose which of the combinations is to apply; otherwise the clause is void for uncertainty." 51 In the present case, there is a meaningless cumulation of three periods. It is not stated that any one of the three may alone stand and, if so, how the operative component is to be chosen from among the three. 52 In light of the several matters I have mentioned concerning clause 9.2, I am of the opinion that, even if the agreement of 1 July 2005 continued to be operative after 10 February 2009, that clause never became the source of any valid or enforceable obligation of the defendant following termination of the employment and the employment contract on 10 February 2009. This is an additional reason for the conclusion that the plaintiff has failed to show that there is a serious question to be tried as to alleged breach of clause 9.2 by the defendant. 53 If the agreement was, as I have found, discharged by the plaintiff's repudiation and the defendant's acceptance of the repudiation, there is an added problem with clause 9.2. The words "after the Term" in clause 9.2 make it clear that the prohibition, whatever its precise meaning (if any), does not arise until the "Term" has concluded. The definition of "Term" is set out at paragraph [9] above. Having regard to that definition and the reference in it to the period referred to in clause 3.1 (see paragraph [8] above), it is clear that the Term does not end unless there is termination of the agreement "in accordance with clause 11". 54 For reasons I have given, the agreement was never terminated "in accordance with clause 11". It was terminated by the defendant's acceptance of the plaintiff's wrongful repudiation. Other matters 55 Given my conclusions on the matter of serious question to be tried, I need not deal with the other matters raised at paragraph [25] above. Disposition 56 The interlocutory claim in paragraph 1 of the amended summons filed on 18 May 2009 is dismissed with costs. 57 The interlocutory injunction ordered on 11 May 2009 and afterwards continued until delivery of judgment by me is discharged. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.