Supreme Court New South Wales Medium Neutral Citation: Fairfax Media Management Pty Limited v Harrison [2014] NSWSC 470 Hearing dates: 22 and 23 April 2014 Decision date: 23 April 2014 Jurisdiction: Equity Division - Duty List Before: Ball J Decision: Proceedings dismissed. Catchwords: PROCEDURE - civil - interlocutory injunction - whether to enforce restraint of trade clause in terminated employment contract Legislation Cited: Evidence Act 1995 (NSW) Cases Cited: AMOCO Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288 Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 In the matter of Courtesy Real Estate (NSW) Pty Limited [2013] NSWSC 1666 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 National Mutual Holdings Pty Ltd v Sentry Corporation (1989) 22 FCR 209 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 Rosewood Advertising Pty Ltd v Hannah Marketing Pty Ltd [2000] NSWSC 1034 Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111; (2012) 205 FCR 187 Ross v IceTV Pty Ltd [2010] NSWCA 272 Woolworths Ltd v Olson [2004] NSWCA 372 Category: Interlocutory applications Parties: Fairfax Media Management Pty Ltd (First Plaintiff) Fairfax Media Limited (Second Plaintiff) Edward John Harrison (Defendant) Representation: Counsel: SEJ Prince (Plaintiffs) Dr AS Bell SC and RM Goot AM SC with Y Shariff (Defendant) Solicitors: Seyfarth Shaw (Plaintiffs) Johnson Winter & Slattery (Defendant) File Number(s): 2014/117667 Publication restriction: None EX TEMPORE Judgment 1In these proceedings the plaintiffs, Fairfax Media Management Pty Limited and Fairfax Media Limited, seek an interlocutory injunction restraining the defendant, Mr Harrison, from working either directly or indirectly for Yahoo!7 Pty Limited (Yahoo!7) before 11 June 2014. Mr Harrison had worked as the Group Commercial Director of Australian Publishing Media (APM), a division of Fairfax, until his resignation on 10 December 2013. In this judgment, where it is not important to distinguish between companies in the Fairfax group, I will refer to them as Fairfax. 2Mr Harrison commenced employment with Fairfax on 5 January 2009 originally as Commercial Director of Fairfax Digital at Fairfax Digital Australia and New Zealand Pty Limited, a wholly owned subsidiary of Fairfax Media. 3In October 2011, Mr Harrison was promoted to the position of the Commercial Director - Metro Media and, at that time, he signed a new executive service contract with Fairfax dated 13 October 2011. 4Clause 10 of the contract deals with the post contractual restraints. It is in the following terms: 10. RESTRAINTS 10.1 The Executive shall not for a period of twelve (12) months after termination of Employment for any reason: (a) approach, either directly or indirectly, on his own account or for any other person, any employee, contributor, supplier, agent, customer or client of the Group with a view to enticing them away from the Group; nor (b) incite, encourage, counsel, assist or be in any other way involved with any other person (whether directly or indirectly, on its own account or for any other person) in approaching directly or indirectly any employee, contributor, supplier, agent, customer or client of the Group with a view to enticing them away from the Group. 10.2 The Executive must not for a period of six (6) months from the date of notification by either party of the termination of Employment, for any reason, anywhere within Australia: (a) carry on, be engaged or interested in, in any capacity, solely or with any other person/s, directly or indirectly, (including as an employee, contractor, agent, consultant, contributor, shareholder, joint venturer, principal, director, adviser or otherwise, whether paid or unpaid); or (b) be otherwise associated with, any business which is, or may be in the future, in competition with the Executive's Business Unit (except as the holder of not more than 5% of the issued capital of any company whose shares are issued on a recognised stock exchange). For the purpose of this clause 'Executive's Business Unit' means that part of the Group's business in which the Executive worked at any time in the twelve (12) months immediately prior to the termination of his Employment. 10.3 In the event a Court or Tribunal of competent jurisdiction is of the view that the restraint referred to in this clause is unenforceable but would be enforceable if a lesser time was substituted or the area of operation was limited, the parties agree that such lesser restraint shall apply to ensure as far as possible the enforceability of the restraint contained in this clause. 10.4 The Executive acknowledges that: (a) the restrictions in this clause are reasonable in all the circumstances and necessary to protect the goodwill of the Group; and (b) the remedy of damages may be inadequate to protect the interests of the Group and the Group is entitled to seek and obtain injunctive relief, or any other relief. 5Clause 8.1 of the contract required Mr Harrison to give 12 weeks' notice of his resignation. It permitted him to do so for any or no reason. It gave Fairfax a right to terminate the contract on 24 weeks' notice. 6In or about April 2013, Fairfax established the APM division and by letter dated 1 June 2013 Fairfax varied Mr Harrison's contract of employment by increasing his salary and appointing him to the position of Group Sales Director of APM. In that position, Mr Harrison was responsible for developing and implementing advertising strategies across all of APM's products and platforms, leading the group advertising solutions team and maximising sales productivity and efficiency across APM. APM was the division within Fairfax that became responsible for content generation and product management for all wholly owned digital and print mastheads in Australia including The Age, The Sydney Morning Herald, The Australian Financial Review, The Canberra Times and The Land. 7As Group Sales Director of APM, Mr Harrison had overall responsibility for managing the relationship between Fairfax and the advertisers who placed advertising in Fairfax digital and print publications. He managed a national sales team consisting at the time of approximately 350 employees who were involved in advertising sales, advertising strategy, product development, advertising operations and trade marketing. 8On 10 December 2013, Mr Harrison gave 3 months' notice of his resignation from Fairfax to take up a position with Yahoo!7. The following day, Yahoo!7 announced that Mr Harrison had been appointed as its CEO and said that Mr Harrison would take up his position in mid 2014. 9On 11 December 2013, Mr Paul Sigaloff, who had effectively worked as Mr Harrison's second in command at Fairfax, also gave notice of his intention to resign. Like Mr Harrison's contract, Mr Sigaloff's contract required him to give 12 weeks' notice. His contract also contains a post contractual restraint which is in similar terms to Mr Harrison's except that the period of restraint contained in cl 10.2 is for a period of 4 not 6 months. 10On 12 December 2013, Yahoo!7 announced that Mr Sigaloff had been appointed to the role of Commercial Director reporting to the CEO and that he would commence employment in "Q2 2014". 11Following their resignations, Mr Harrison and Mr Sigaloff were placed on garden leave. 12Fairfax Media wrote to Mr Harrison and Mr Sigaloff on 16 December 2013 reminding them of their post-employment restraints and sent copies of those letters to Yahoo!7. There was then further correspondence between Fairfax and Yahoo!7. Not all of it is in evidence. 13On 19 March 2014, Mr Jeremy Briscombe, the General Counsel of Yahoo!7, wrote a letter to Ms Gail Hambly, the Group General Counsel of Fairfax. The letter was marked "without prejudice except as to costs". It referred to an earlier letter and then set out detailed reasons why Yahoo!7 took the view that the restraints set out in Mr Harrison's employment contract were not enforceable. The letter concluded: In these circumstances we propose that Mr Harrison will commence employment with Yahoo! Seven on and from 9 April 2014. Mr Harrison has informed us that he also remains willing to agree, without admissions, to provide an undertaking to Yahoo!7 consistent with his obligations under clause 10.1 of the Agreement [Mr Harrison's employment contract with Fairfax]. 14Although the letter is marked "without prejudice except as to costs", I concluded that it was not written in connection with an attempt to negotiate a settlement of the dispute, but rather was written as an assertion of Yahoo!7's position. Consequently, I concluded that the letter was not privileged under s 131(1) of the Evidence Act 1995 (NSW) and admitted it into evidence. 15Mr Harrison commenced as CEO with Yahoo!7 on 9 April 2014. On the same day, Ms Hambly replied to Mr Briscombe's letter dated 19 March 2014. Ms Hambly denied the allegations in Mr Briscombe's letter. Her letter was also marked "without prejudice save as to costs". The letter concluded by saying the following: We are very concerned that Mr Harrison intends to breach his obligations by commencing at Yahoo this month (perhaps to coincide with Mr Paul Sigaloff's start at Yahoo). To allay these concerns, we ask that Mr Harrison sign and return the enclosed undertaking indicating that he will comply with his contractual obligations by 5.00pm on Friday 11 April 2014. If Mr Harrison commences employment, or is otherwise involved in assisting Yahoo, prior to 11 June 2014, Fairfax Media is prepared to seek urgent interlocutory relief without further notice to you. 16Again, although the letter is expressed to be without prejudice, it is a letter written and designed to assert Fairfax's rights. In my view, it is not correspondence written in an attempt to negotiate a settlement of the dispute. 17There was then further correspondence between the parties. In that correspondence, Mr Briscombe advised Ms Hambly that Mr Harrison had commenced employment with Yahoo!7 on 9 April 2014. 18Fairfax commenced these proceedings on 17 April 2014. At that time, Pembroke J gave Fairfax leave to serve on short notice and the application for an interlocutory injunction came before me on 22 April 2014. At that time, Mr Harrison offered a number of undertakings and acknowledgements without admissions. Those undertakings and acknowledgements are in the following terms: 1.1 I acknowledge and agree that I will not, without the prior written consent of Fairfax Media Management Pty Ltd (Company), communicate to any company, firm, individual or entity or any combination thereof any Confidential Information acquired by me in the course of my employment with the Company, including any Confidential Information relating to the operations, functions or activities of the Company or any member of the Fairfax Group except to the extent that such Confidential Information has become public knowledge (other than as a result of a breach) or I am required by law so to do. 1.2 For the purposes of clause 1.1 above, "Confidential Information" has the definition ascribed to it in my employment agreement with the Company dated 13 October 2011 (Employment Agreement). 1.3 In accordance with my obligations under clause 10.1 of the Employment Agreement, I will not, for 12 months after the termination of my employment with the Company, i.e. until after 5 February 2015: (a) approach, either directly or indirectly, on my own account or for any other person, any employee, contributor, supplier, agent, customer or client of the Fairfax Group with a view to enticing them away from the Fairfax Group; nor (b) incite, encourage, counsel, assist or be in any other way involved with any other person (whether directly or indirectly, on my own account or for any other person) in approaching directly or indirectly any employee, contributor, supplier, agent, customer or client of the Fairfax Group with a view to enticing them away from the Fairfax Group. 1.4 I have not performed and will not perform any services for Yahoo!7 Pty Ltd (Yahoo) in relation any advertising agencies prior to 11 June 2014 including but not limited to: (a) Aegis (comprising Mitchell Media, Carat and Vizium); (b) OMG (comprising OMD and PHD); (c) GroupM (comprising Mindshare, Maxus, Media Edge, Mediacom); (d) MediaBrands (comprising Universal McCann and Initiative); and (e) VivaKi (comprising Starcom and Zenith Optimedia). 1.5 Since 5 March 2014, I have not contacted or met and will not contact or meet with any representatives of any advertising agencies prior to 11 June 2014 for any business dealings. 1.6 I will not work from Yahoo's offices in Millers Point until 12 May 2014. 1.7 I acknowledge that I have returned all property belonging to the Fairfax Group in my possession, control or power, including all confidential information, whether it be in hard copy, electronic form or otherwise to Fairfax Media. 19Having regard to the undertakings proffered by Mr Harrison, the only order sought by Fairfax on a final basis is that Mr Harrison be restrained from working for Yahoo!7 until 11 June 2014. Consequently, it is apparent that any interlocutory relief granted by the court will in practical terms operate as final relief. In those circumstances, it is necessary for the court to consider more carefully the strength of the plaintiffs' case for final relief: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536; National Mutual Holdings Pty Ltd v Sentry Corporation (1989) 22 FCR 209 at 231; Rosewood Advertising Pty Ltd v Hannah Marketing Pty Ltd [2000] NSWSC 1034 at [6]; Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 at [72] per Gummow and Hayne JJ; In the matter of Courtesy Real Estate (NSW) Pty Limited [2013] NSWSC 1666 at [12]. 20A restraint of trade is unenforceable except to the extent that it is reasonably necessary to protect the interests of the parties and is in the public interest: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565 per Lord Macnaghten; AMOCO Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288 at 315-6 per Gibbs J; Ross v IceTV Pty Ltd [2010] NSWCA 272 at [86] per Sackville JA (with whom McColl and Macfarlan JJA agreed). It is accepted that a restraint on post-employment competition by an employee may be necessary to protect customer connections that the employee has developed while an employee of the employer: see Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [44] per Brereton J; Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111; (2012) 205 FCR 187 at [60] per Keane CJ, Foster and Griffiths JJ. A restraint on competition may also be necessary to protect confidential information of the employer: see Woolworths Ltd v Olson [2004] NSWCA 372 at [67] per Mason P (with whom McColl and Bryson JJA relevantly agreed); Pearson v HRX Holdings at [52]. 21Fairfax submits that the post-employment restraint contained in cl 10.2 of Mr Harrison's executive service contract is no more than what is reasonably necessary in the circumstances of the case. It points to Mr Harrison's seniority. It also points to the fact that Mr Harrison obtained access to confidential information concerning Fairfax's strategies to develop its business and its digital media business in particular. Fairfax also submits that Mr Harrison developed important customer connections while an employee of Fairfax, particularly with the main advertising agencies with whom Fairfax dealt. 22Mr Harrison submits that the restraint contained in cl 10 is too broad for 2 reasons. First, he submits that it is too broad because it prevents him from taking up employment with any business that is competitive with the business of APM. Secondly, he submits that a restraint of 6 months is too long, particularly having regard to the fact that the restraint imposed on Mr Sigaloff was only 4 months. 23I am satisfied that Fairfax has a strongly arguable case on these issues. Mr Harrison was a senior employee who it is to be expected would have become familiar with all aspects of APM's business including confidential information relating to the strategies that will be adopted by Fairfax to compete with its competitors including those competitors who offered digital content and earned revenue through the sale of advertising. 24It is also to be expected that Mr Harrison would play an important role in developing and maintaining connections with Fairfax's principal advertising customers and that Fairfax would be at a disadvantage if he left, at least until someone else could be employed to fill his position. 25Similarly, in my opinion, Fairfax has a strongly arguable case that a restraint for 6 months was reasonable. Having regard to Mr Harrison's seniority, it could be expected that it would take some time to replace him and his replacement would be likely to require some time to build up the connections that Mr Harrison had. 26Dr Bell, who appeared for Yahoo!7, submitted that Fairfax must have concluded in the case of Mr Sigaloff that a restraint of 4 months was all that was necessary and consequently a restraint of 6 months in the case of Mr Harrison was more than what was necessary. Although that point is certainly arguable, it needs to be borne in mind that Mr Harrison's position was more senior and it is likely that his position will be more difficult to fill. 27It is apparent that the restraint imposed on both Mr Harrison and Mr Sigaloff was tied to the period of notice that Fairfax could give to each of them. In those circumstances, it is doubtful that Mr Sigaloff's contract provides a determinative benchmark on which the reasonableness of Mr Harrison's contract is to be judged. 28A far more difficult question in this case is whether the court, in its discretion, ought to give the relief sought by Fairfax. I have concluded that it should not. I say that for 3 broad reasons. 29First, on the evidence before me, I think there is little risk that Mr Harrison would be able to make use of customer connections he has developed to the detriment of Fairfax during the restraint period. The injunction will only operate for a period of 7 weeks. Mr Harrison has given undertakings not to have dealings with any advertisers during that period, and with Fairfax's main advertising customers, in particular. The evidence is that Yahoo!7 already has strong connections with Seven's media advertising customers or at least the main ones. Mr Harrison's role of CEO will require him to perform a broad range of duties and, to the extent that he will be involved with advertisers who place business with Yahoo!7, that involvement is likely to be at a high level over a period of time and not over the next 7 weeks. No relevant contracts are up for negotiation. Moreover, the likelihood is that any face to face dealings in relation to the renewal of contracts will be conducted by Mr Sigaloff or others within Yahoo!7, not Mr Harrison. This is not a case where Fairfax is at risk of losing contracts to Yahoo!7 as a direct consequence of Mr Harrison's move. 30Second, I am not satisfied that Mr Harrison is at risk of using confidential information he has obtained from Fairfax if he is not restrained for the 7 week period. Again, he has given an undertaking. Fairfax has not led any evidence of what confidential information Mr Harrison has that is likely to be of assistance to Yahoo!7. The closest it has come to identifying that information is to point to details of Fairfax Media's rate card. However, there is no evidence that Mr Harrison knows that information. It is more than likely that Mr Sigaloff is more familiar with that information. However, he is no longer bound by a non-compete restraint. Although I accept that Fairfax and Yahoo!7 are competitors, their businesses are substantially different. Fairfax is in the business of producing content largely in the form of news which it makes available through a broad range of platforms. Yahoo!7 aggregates content which it only makes available electronically. It is not obvious in those circumstances that Mr Harrison will have any confidential information of Fairfax that would be of immediate assistance to Yahoo!7. 31Third, in my opinion, Fairfax is guilty of delay in commencing these proceedings. It is apparent from Ms Hambly's letter dated 9 April 2014 that she was on notice that there was at least a serious risk that Mr Harrison would commence employment with Yahoo!7 on 9 April 2014 as a result of what Mr Briscombe said in his letter dated 19 March 2014. Yet, Ms Hambly delayed approximately 3 weeks before replying to that letter and Fairfax delayed a further week before commencing proceedings. In my opinion, there has not been an adequate explanation for those delays. The delays are very substantial in a context where the injunction sought by Fairfax would only last for a period of 7 weeks. In the meantime, Mr Harrison commenced employment with Yahoo!7. It would be disruptive both to it and to Mr Harrison to grant an injunction now and, for the reasons I have given, that injunction would do little to protect any legitimate interest that Fairfax has. 32In those circumstances, the application for interlocutory relief should be dismissed. 33Fairfax accepts that there is no utility in the balance of the proceedings remaining on foot. In those circumstances, the proceedings themselves should be dismissed. 34I will hear the parties in relation to costs. ********** 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: 28 April 2014