Supreme Court New South Wales Medium Neutral Citation: Red Bull Australia Pty Ltd v Stacey [2011] NSWSC 1212 Hearing dates: 23 September 2011 Decision date: 23 September 2011 Jurisdiction: Equity Division - Duty List Before: Rein J Decision: See [37] Catchwords: RESTRAINT OF TRADE - interlocutory relief - Employer and employee - general manager and marketing director - restraint clause in employment contract - whether there is a serious question to be tried as to whether there is a breach of the restraint clause - whether the balance of convenience favours the granting of interlocutory relief Cases Cited: Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 Ecolab Pty Ltd v Garland [2011] NSWSC 1095 IceTV Pty Ltd v Ross [2009] NSWSC 980 Ross v IceTV Pty Ltd [2010] NSWCA 272 Texts Cited: J D Heydon, The Restraint of Trade Doctrine, 3rd ed (2008) Category: Interlocutory applications Parties: Red Bull Australia Pty Ltd (plaintiff) Michael Peter Stacey (first defendant) Christian Walter Graebner (second defendant) Representation: J Kirk; S Keizer (plaintiff) P M Kite SC; G Boyce (defendants) Allens Arthur Robinson (plaintiff) Moray & Agnew (defendants) File Number(s): SC 2011/302163 EX TEMPORE Judgment 1In this matter, the plaintiff, distributes, markets and promotes an energy drink called "Red Bull". 2The first defendant was the general manager of the plaintiff and the second defendant was the marketing director of the plaintiff. Mr Stacey was, on 30 November 2010, notified that his employment was to be terminated, subject to a six-month notice period which finished on 31 May 2011. Mr Graebner was, on 30 November 2010, notified that his employment was to be terminated, subject to a one-month notice period which finished on 31 December 2010. 3Both defendants had entered into contracts of employment with the plaintiff which contained a term that they would not directly or indirectly carry on or be engaged in or involved in any business in competition with or in a similar nature to the business being carried on by the plaintiff as at their termination date: "...including but not limited to any business concerned with the development, sale, supply, manufacture or research relating to alcoholic or non-alcoholic beverages either containing taurine, caffeine or guarana, or beverages which are marketed as an energy drink..." see clause 19 of Mr Stacey's employment contract and clause 13 of Mr Graebner's employment contract which are annexed to the affidavit of Mr Jason Sargent of 19 September 2011. 4There has been established in Australia a company called Calidris 28 Australia & New Zealand Pty Ltd ( "Calidris Australia" ); it is a company registered in Queensland with its principal place of business in New South Wales: see Annexure G to the affidavit of Mr Sargent of 19 September 2011. That company has as its ultimate holding company Calidris 28 Asia Pacific Pty Ltd, a company based in Singapore. That, in turn, is part of a group of companies called the Calidris 28 Group, the holding company of which is a company based in Luxembourg. 5The Calidris 28 Group manufactures drinks called 28 Black and 28 White. They are described in a brochure found on the webpage run by Calidris 28 as "a new generation of energy drinks". Their marketing material makes a number of references to those drinks as "energy drinks": see paragraph 26 of Mr Sargent's affidavit of 19 September 2011 and the annexure thereto. 28 White and 28 Black do not contain guarana or taurine, but they do contain caffeine. 6The defendants have been appointed as directors and employees of Calidris Australia. It is apparent from the material annexed to Mr Sargent's affidavit that steps are under way to bring to the market in Australia in the near future, probably in October this year, 28 White and 28 Black. 7The plaintiff's case is relatively straightforward. It says that the defendants are each in breach of the terms of an agreement, which terms were included in the relevant employment contracts and that the restraint is one for six months, in the case of Mr Stacey, and twelve months, in the case of Mr Graebner; that the period of restraint is not unreasonable in scope or duration, particularly, having regard to the senior positions which those two gentlemen held within the plaintiff company; and that they were involved in the management of the plaintiff company and its planning for the future, both in the marketing and more generally, in the case of Mr Stacey. 8The defendants assert that the restraints, even if otherwise effective, have been, effectively, ousted by a deed, which they each separately entered into with the plaintiff after notice of termination was given by the plaintiff. The Deeds of Release between the plaintiff and each of the defendants can be located at Annexures C and F to Mr Sargent's affidavit of 19 September 2011, and a letter accompanying each of the deeds can be found at Annexures B and E to Mr Sargent's affidavit. 9There is a separate Deed of Release for each of Mr Stacey and Mr Graebner, but in identical terms, and both contain a clause 13, an entire agreement clause, which is in the following terms: "This deed contains the entire agreement between the parties with respect to its subject matter. It sets out the only conduct relied on by the parties and, to the full extent permissible by law, supersedes all earlier conduct made by or existing between the parties with respect to its subject matter." 10Clause 14 of both deeds contain an acknowledgment in the following terms: "The parties acknowledge that they enter into this Deed fully and voluntarily on their own information and investigation and that it is their intention fully, finally, absolutely and forever to settle according to the provisions of this Deed any and all liabilities, claims, disputes and differences which now exist, or may exist or have ever existed between them." 11The defendants' argument is that the Deed of Release superseded any obligations that might have existed under the contracts of employment and that the only thing that that deed did was to note continuing obligations of Mr Stacey and Mr Graebner with respect to confidential information, there being no reference to any restraint from working for any competition. 12The second argument advanced by the defendants is that the plaintiff represented to each of them, by separate representations by different employees of the plaintiff, that the restraint clause contained in their employment contracts would not be acted on. 13The third argument of the defendants is that the area of competition with the plaintiff is quite minuscule because Calidris Australia is targeting a different segment of the market from that targeted by the plaintiff, that is, those who like the idea of a drink that is stimulating, but is based on natural ingredients, rather than artificial ones. 14There is also a component in the argument which they advanced that they have set up a company which will be marketing products that, on any view, do not compete with the Red Bull products and it is inconvenient for them to be restricted from operating in those alternative areas. 15The plaintiff's response to the arguments, in relation to the Deeds of Release, is that the deeds cannot have the meaning advanced by the defendants and especially taking into account the context and subject matter with which the deeds were dealing, including, I think, also, the letters by which the deeds were sent. 16In relation to the representation case, the plaintiff says, in respect of the alleged representation relied on by Mr Stacey, that that statement was not, in fact, made in the terms asserted, but rather, was in quite different terms that would not assist Mr Stacey. There is, therefore, a factual contest in relation to that. 17There is also reliance by the plaintiff on the fact that in both deeds, there is a "no representation" clause in the employment contract. In so far as an alleged representation to Mr Graebner is concerned, the plaintiff says that, even on the terms as advanced by Mr Graebner, it is vague and insufficient to make out the case that Mr Graebner seeks to make out. The plaintiff has not had an opportunity to obtain a response from the person in the company who is said to have made the alleged representation to Mr Graebner so there is a possibility that there will also be a factual contest as to what was said. 18In correspondence in response to the plaintiff's letter of 30 November 2010 to each of them which asserted that the restraints operated, neither Mr Stacey nor Mr Graebner made any assertion that the restraints had been nullified by representations made to them. Also, there was a request by the solicitors on behalf of Mr Graebner and Mr Stacey for an extension of the period within which they could respond to the letter sent by the plaintiff's solicitors before commencing these proceedings, but although there was an indication that there would be a reply forthcoming, none was sent. 19Mr J Kirk, counsel who appears with Mr S Keizer of counsel for the plaintiff, makes the point that, to obtain relief, his client needs to establish only that there is a serious issue to be tried and, secondly, must persuade the Court that the balance of convenience favours the grant of interlocutory relief. 20Mr P M Kite SC, who appears with Mr G Boyce for the defendants, accepts, I think, that there is a seriously arguable case. However, he asserts that the balance of convenience favours his clients. Both sides accept that the law in this area is conveniently and helpfully summarised by Brereton J in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9 at [10]-[14]. Mr Kite has drawn my attention to a very recent decision of Brereton J in Ecolab Pty Ltd v Garland [2011] NSWSC 1095, in which his Honour reiterates the principles in Cactus and provides some further helpful enunciation of the issues that need to be addressed in an application of this kind: see [17], [18], [23] and [24]. 21In IceTV Pty Ltd v Ross [2009] NSWSC 980 at [14]-[16], I accepted the principles identified by Brereton J in Cactus . The Court of Appeal in Ross v IceTV Pty Ltd [2010] NSWCA 272 said nothing to cast doubt on the correctness of the summary expressed by Brereton J in Cactus and applied by me in IceTV. I proceed on the basis that the enunciation of principles by Brereton J in Cactus is the appropriate law to have regard to for this application. 22I should note an important matter, which is that Mr Kite's clients have proffered a number of undertakings to the Court. In paragraph 42 of Mr Stacey's affidavit of 22 September 2011, a number of undertakings were proffered, including that he would cease to carry on, or be engaged with, or involved in the 28 Brand business of Calidris in Australia until after 30 November 2011; that he would not, until 30 November 2011, carry on, or be engaged in, or involved in any energy drink brands in competition with or of similar nature to the business of Red Bull energy drink in the Australian market; and that he would not, until after 30 November 2011, solicit or endeavour to solicit any customer, contractor or supplier in relation to the 28 Brand. 23At the hearing today, Mr Kite indicated that he had instructions on behalf of Calidris Australia, which is not a party to the proceedings, but of which the defendants are directors, that it was willing to undertake to exclude the defendants from the 28 Brand business in Australia until after 30 November 2011 and both the defendants agreed to give an undertaking in similar terms. 24I should note that the plaintiff, through counsel, has given the usual undertaking as to damages as a condition of the relief which it seeks. 25As I say, I regard the undertakings proffered by the defendants as significant, but the question is whether the fact of those undertakings ought deprive the plaintiff of the relief to which it is, on the evidence before me, prima facie entitled. 26Another question is that Calidris Australia has not yet started selling products, but is hoping, as I have said earlier, to start in October this year, probably, late in October. In my view, it is clear that Calidris Australia has been actively developing a marketing strategy for the products; the material attached to Mr Sargent's affidavit of 19 September 2011 and also material attached to his second affidavit of 22 September 2011 support that conclusion. 27Mr Kirk submits that the fact that the defendants are the only directors of Calidris Australia resident in Australia, therefore, effectively, at least, and in a practical sense, in control of the company here, with only four employees at present and with another nine to be added soon, is highly significant. Even accepting that the three overseas directors who were named in the ASIC search have a significant role to play in relation to the company's overall approach and strategy, the fact is that it is clear that the defendants have been engaged to, effectively, run the company in Australia, albeit with direction from the board of which they are members. 28As directors of Calidris Australia, the defendants owe Calidris Australia an obligation to advance its interests. This puts them in conflict with their obligations under the restraints clauses in their employment contracts with the plaintiff, assuming that those restraints are valid and enforceable. Mr Kirk submits that the plaintiff should not have to trust to the defendants to abide by their undertakings. The plaintiff, he submits, received the benefit of the contractual promise and ought to be able to enforce it. He seeks an order that the defendants resign as directors of Calidris Australia and cease working with Calidris Australia until the matter has been heard on a final basis. 29In that regard, I should indicate that Mr Kirk indicated that he would be seeking an urgent hearing of the matter. I understand that if the plaintiff is successful today, that the defendants will join in an application for expedition of this matter. 30Mr Kirk drew attention to the fact that last week, the defendants established another subsidiary company of the Calidris Group called Drinks and More Pty Ltd, which, apparently, will be marketing non-energy drinks. Mr Kirk has pointed out that the plaintiff does not seek to restrain the defendants from working for or being directors of that company. He also argues that it does not matter that Calidris Australia markets products in addition to 28 Black and 28 White that would not involve infringement of the restraint clause. 31There is some evidence that suggests that Mr Graebner has taken steps that would breach other clauses of the restraint: see paragraph 12 of Mr Sargent's affidavit of 22 September 2011. Mr Graebner has given explanations for those, but he accepts that it might appear that he has, although he denies that this is so, solicited an employee, or attempted to have Red Bull's advertising agency deal with Calidris Australia. I do not think much turns on that aspect of the matter. 32Whilst I accept that the existence of the Deeds of Release raises an issue of construction, my overall impression of the plaintiff's case is that they have a relatively strong case for breach of contract by the defendants. I think that the argument that representations were made to the defendants does not appear strong and the issue of the deeds, whilst arguable, is not particularly strong either. Further argument and evidence at the hearing might create an entirely different impression, I accept, but, at the present, that is how I see the matter. 33I think that the plaintiff's claim that Calidris Australia is a competitor of the plaintiff, even if a relatively small one, is very likely to be made out on the evidence: see, in particular, Annexure I to Mr Sargent's affidavit of 19 September 2011. An example is page 66 of that affidavit. Calidris Australia's statement that "Natural Energy Drinks 28Black & 28White" are a priority of its business indicates how important it sees this product as being. 34There is a venn diagram (at page 70 of Mr Sargent's affidavit of 19 September 2011) which does suggest that not all of the customers who will be interested in 28 Black and 28 White will necessarily be Red Bull's customers, but it is, I think, very clear that Calidris Australia has, as its business and probably its core business, the marketing of an energy drink. That the drink is one in a slightly different format from that which is marketed by the plaintiff does not prevent it from constituting a venture with which the defendants have promised the plaintiff they would not be involved. I accept Mr Kirk's submission that it is irrelevant that Calidris Australia also markets products that are not "energy drinks". 35In my view the plaintiff is entitled to reject as insufficient the defendants' undertakings to the Court since, as has been pointed out in the case, one of the points of restraint clauses is to prevent any potential conflict between the demands of the new employer or its business and the previous employer: see cases discussed at [13] of Cactus and see pages 111-112 of J D Heydon, The Restraint of Trade Doctrine, 3rd ed (2008). The cases point to the fact that the plaintiff is advantaged by a restraint clause in being able to stop somebody working for a competitor without having to prove exactly what the employee, or the former employee has done, or is doing for the competitor. 36The short period between now and the expiry of the restraint is a matter which, in a sense, cuts both ways. I am conscious of the fact that the balance of the period of the restraint, even if valid and enforceable, is not a long one and that to require the defendants to give up their position is a significant interference in their plans, but I also need to take into account that they were very senior employees of the plaintiff and were paid significant remuneration under a contract, which contained restraints as part of the bargain. The defendants have established a business which is in competition with the plaintiff. There is no evidence that they will not be re-engaged as directors or employees on the expiry of the restraint period or after a court hearing should they be successful in defending the claims against them. If they are successful in defending the claims, they would have been deprived of the income for the relevant period. If that is so, they would appear to be entitled to be compensated for that loss. If they are not successful in defending the claim they will not have suffered loss. 37As I say, I take into account the seriousness of the interference with their activities by reason of the interlocutory relief sought by the plaintiff but, having regard to the evidence and the matters which I have considered, I think it is appropriate that the relief be granted. 38I acknowledge helpful submissions of both Mr Kirk and Mr Kite in this matter, no doubt, aided by their juniors. ********** 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. Decision last updated: 13 October 2011