Supreme Court New South Wales Medium Neutral Citation: Long Jetty Realty Pty Ltd v Whiteman [2018] NSWSC 956 Hearing dates: 15 June 2018 Decision date: 15 June 2018 Jurisdiction: Equity Before: Ward CJ in Eq Decision: (1) Dismiss the Notice of Motion dated 6 June 2018. (2) Plaintiffs to pay the Second Defendant's costs of the Notice of Motion. (3) First and Fourth Defendants' costs be costs in the cause. (4) Refer matter back to Registrar's List on Thursday, 21 June 2018. Catchwords: EQUITY – Equitable remedies – Injunction to restrain defendants from performing real estate services – Damages would be an adequate remedy – Injunction refused Cases Cited: Empirnall Holdings Pty Limited v Machon Paull Partners Pty Limited (1988) 14 NSWLR 523 Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111 Category: Procedural and other rulings Parties: Long Jetty Realty Pty Ltd (First Plaintiff) Long Jetty PM Pty Ltd (Second Plaintiff) JMB (NSW) Pty Ltd (Third Plaintiff) Jaimie Mark Woodcock (Fourth Plaintiff) Brian Whiteman (First Defendant) Jennifer Whiteman (Second Defendant) Baralga Nominees Pty Ltd (Third Defendant) Whiteman Investment Holdings Pty Ltd (Fourth Defendant) Representation: Counsel: Ms LW Chan (Plaintiffs) D Mahendra with Ms Carr (Defendants) Solicitors: Watts McCray Kernans (Plaintiffs) Reid Lawyers (Defendant) File Number(s): 2018/00177019 Publication restriction: Nil Judgment 1. HER HONOUR: By notice of motion dated 6 June 2018 which I will give leave to file in court on the undertaking of the plaintiffs, through their solicitor, to pay the requisite filing fees, the plaintiffs seek to restrain the first, second and fourth defendants from performing services in the nature of real estate sales services from any location within a ten kilometre radius of an address in Long Jetty, New South Wales, and to restrain those defendants, as well as the employees of the fourth defendant, from soliciting, inducing or attempting to induce certain persons listed in an annexure to the notice of motion, who I understand to be the existing client base of the first plaintiff as at a particular point in time, to cease doing business with the second plaintiff until 22 March 2019 or further order of the Court. 2. The basis on which the plaintiffs say there is a prima facie case for the grant of final relief is in reliance upon certain clauses in a consultancy agreement which is annexed to an affidavit of Jaimie Mark Woodcock affirmed 6 June 2018. Mr Woodcock is a director and shareholder of JMB (NSW) Pty Ltd, the third plaintiff in these proceedings; a director of Long Jetty Realty Pty Limited, the first plaintiff in the proceedings which entity trades as McGrath Long Jetty; and a shareholder of Long Jetty PM Pty Limited, which is the second plaintiff in the proceedings. 3. By way of background, the evidence of Mr Woodcock is that the first plaintiff operates a business known as McGrath Long Jetty, which is a part of the McGrath Central Coast business which consists of offices at Terrigal, West Gosford, Ettalong and Toukley. The first plaintiff operates the sales aspects of the Long Jetty offices and the second plaintiff operates the rent roll conducted from the Long Jetty office and provides property management services. 4. The dispute between the parties relates to the circumstances following the setting up of the first and second plaintiffs. Mr Woodcock has given evidence that those companies were incorporated on 16 February 2015 and that they were incorporated following discussions with Mr and Mrs Whiteman, the first and second defendants. Mr Whiteman had been engaged by JMB (NSW) Pty Ltd on or about 11 November 2013 as a sales agent operating out of the Terrigal office. 5. In essence, what is contended is that there was an arrangement reached whereby Mr Whiteman and Mr Woodcock, through and/or with the assistance of their respective companies, set up the McGrath Long Jetty office. Mr Woodcock's evidence is that Mr Whiteman was very successful in his endeavours in building up the business of the Long Jetty office. 6. The dispute between the parties in essence relates to whether or not Mr Whiteman and the fourth defendant, Whiteman Investment Holdings Pty Ltd, are bound by a consultancy agreement, the terms of which are alleged to have been sent to Mr and Mrs Whiteman initially by letter dated 1 October 2015 and then amended and sent by a letter sent at some time it is said in November 2015. Mr Whiteman in his affidavit sworn 14 June 2018 denies receipt of those letters and denies having seen the consultancy agreements in question. 7. The plaintiffs accept that the consultancy agreements have not been signed but argue that they are binding on the first and fourth defendants, relying on, amongst others, the decision of Empirnall Holdings Pty Limited v Machon Paull Partners Pty Limited (1988) 14 NSWLR 523 at 535 per McHugh JA (as his Honour then was). 8. The consultancy agreement in question, which is annexure M to Mr Woodcock's affidavit, is drafted as being between the first plaintiff, Whiteman Investment Holdings Pty Ltd, and Mr Whiteman. It relevantly includes cl 16 dealing with confidential information and cl 24 which is the restraint clause. Clause 24 provides in full: 24 Restraints (a) The Consultant and Executive will not, for a period of 6 months following the expiry or termination of this Consultancy Agreement, from any location within a radius of 10 kilometres of the McGrath location from which the Consultant has been based under this Agreement, or from the suburbs that the Consultant is working in, either directly or indirectly or through interposed entities, in any capacity, including on their own account or in partnership or joint venture with any other person, or as trustee, principal, agent, investor, shareholder, unitholder, consultant or employee, perform services in the nature of real estate sales services. (b) While retained by McGrath and for a period of twelve months following the expiry or termination of the Consultancy Agreement, the Consultant and Executive undertake not to, and will use their respective best endeavours to ensure the Consultant's employees do not: (i) solicit, induce or attempt to induce any director, manager or employee of McGrath to terminate his or her employment with McGrath or any of its related bodies corporate, whether or not that person would commit a breach of that person's contract of employment; or (ii) solicit, induce or attempt to induce any corporate entity ("Contractor") who is retained by McGrath or any of its related bodies corporate to provide any services to terminate its contract with McGrath and/or the relevant body corporate or the Contractor's employees to terminate their employment with the Contractor or join the Consultant or Executive's employ, whether or not that person would commit a breach of that person's contract of employment; or (iii) solicit, induce or attempt to induce any person who is at the date of termination or expiry or who has been in the period of twelve (12) months prior to termination or expiry a Client of McGrath to cease doing business with McGrath; or (iv) counsel, procure or otherwise assist any person to do any of the acts referred to in this clause. (c) Each of the Consultant and Executive acknowledges that the restraints contained in this clause are reasonable and necessary for the protection of the business of the business of McGrath. 1. It is contended by the plaintiffs that the restraint of trade clause is valid and enforceable in circumstances where Mr Whiteman and Whiteman Investment Holdings Pty Ltd have a duty not to disclose confidential information. The first plaintiff is said to have a legitimate interest in protecting its customer connections and in preventing Mr Whiteman from using his personal influence over customers acquired while an agent of McGrath Long Jetty and in protecting the goodwill of McGrath Long Jetty, it being submitted that the actions of Mr Whiteman have destroyed the goodwill of McGrath Long Jetty. 2. Reliance is also placed in what was said in Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187 at 202; [2012] FCAFC 111, where it was said that there was a real interest by reason of the existence of a shareholding arrangement with Mr Pearson which had incentivized him energetically to pursue potential customers and where the court found that the restraint clause was aligned with that same legitimate interest. 3. It is not disputed by the defendants that the materials on which the plaintiffs rely on this application give rise to an arguable case to be tried as to the existence of a restraint as against each of the first and fourth defendants. However, it is submitted that in the case of the fourth defendant the restraint of trade case is very weak because there is no contract signed by any of the plaintiffs and the fourth defendant. 4. However, the defendants say that even if there were to be an arguable case that the first and/or fourth defendants were bound by a restraint of trade provision, there is still no serious question to be tried on the issue whether an injunction would be granted against them on the basis that damages is an adequate remedy. Reliance is placed on what was said in Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 by Campbell JA, as his Honour then was, at [5]-[7] in that regard: [5] The only justification for equity ever involving itself in providing a remedy for breach of a common law obligation is if the remedy provided by the common law is inadequate. The common law remedy most usually considered in this context is damages, but Dr Spry correctly contends that in rare cases the availability of a common law remedy other than damages might provide a reason why equity had no basis to issue an injunction in its auxiliary jurisdiction: Spry, Equitable Remedies, 8th edition, (Law Book Co 2010), page 389. The fact that inadequacy of available legal remedies must be established before the court has jurisdiction to grant an injunction in its auxiliary jurisdiction is one of the reasons why the statement of Lord Cairns in Doherty v Allman (1878) 3 App Cas 709 at 720 to the effect that an injunction will always issue to restrain a breach of a negative term in a contract, is incorrect. The incorrectness of that statement is now established: Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 at 560 (Gibbs J), 573-4 (Mason J); Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 346-7; J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 at 299-300 (Dixon J). Other discretionary reasons, not relevant in the present case, might also exist as to why an injunction to restrain a breach of a negative stipulation in a contract would not be granted (eg Cheshire and Fifoot's Law of Contract, 9th Aust ed (LexisNexis Butterworths Australia 2008) para 24.20; Spry, op cit, page 586-7). [6] It is important for the conceptual structure of the law governing the present case that inadequacy of the legal remedy is the foundation of equity's jurisdiction to grant an injunction to enforce a negative contractual provision. It is authoritatively stated that the test for whether an interlocutory injunction should be granted is whether there is a serious question to be tried, and whether the balance of convenience favours the grant of the injunction: Murphy v Lush (1986) 60 ALJR 523 at 524 per Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ; American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 407; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 24, [21] per Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ. Because an interlocutory injunction aims to preserve the situation until the court can decide whether to grant the final claimed relief, the relevant "serious question to be tried" concerns whether the court will grant the claimed final relief. When the claimed final relief is a permanent injunction to restrain a breach of a negative stipulation in a contract, any inquiry at the interlocutory stage into whether there is a serious question to be tried must include not only whether there is a serous question to be tried concerning whether there has been a breach of the negative stipulation in question, but also whether there is a serious question to be tried concerning whether the common law's remedy or remedies for the claimed breach will be inadequate (see Varley v Varley [2006] NSWSC 1025 at [19]-[25]). [7] The distinction between the jurisdictional foundation for equity granting an injunction in the auxiliary jurisdiction, and discretionary reasons why the injunction might ultimately not be granted, is of importance in considering whether an interlocutory injunction should be granted to restrain a breach of a negative stipulation in a contract. This is because an applicant for an interlocutory injunction has the onus of establishing the foundation of the court's jurisdiction, but does not have an onus of anticipating and negativing all possible discretionary defences that might be raised. (The distinction between the jurisdictional foundation, and the discretionary defences might also be important to an appellate court in deciding whether or not to apply a House v The King test for overturning some alleged error concerning the granting of an injunction in the auxiliary jurisdiction.) 1. In any event, it is said that injunctive relief ought be refused as the balance of convenience does not favour the grant of an injunction in circumstances where the injunction will operate only for three months from today and will be disruptive to the defendant's business and third party vendors seeking to sell their homes and it is said that this outweighs any prejudice to the plaintiffs; (b) the personal circumstances of the defendants which have been put in issue in Mr Whiteman's affidavit sworn 14 June 2018 weigh against injunctive relief being granted; and (c) the defendants have been running a real estate business for the last three months. It is said that no explanation has been provided as to the delay in commencing the proceedings. 2. There is, however, an explanation that has been provided by Mr Woodcock in his affidavit evidence and that relates to the compliance with the provision contained in the consulting agreement as to the regime for resolving disputes. Mr Woodcock deposes at paragraph [58] [sic] (the paragraph is misnumbered – it appears after paragraph [65]) of his affidavit that he made a management decision to attend a mediation rather than seeking the orders that he now seeks and that mediation took place on 15 May 2018 which proved unsuccessful. 3. The plaintiffs maintain that damages are not an adequate remedy for two reasons. It is said that it is impossible to quantify as damages the intangible competitive advantage that Mr Whiteman has by reason of the reputation that he developed as a McGrath Long Jetty agent. The submission is that clients retain agents based upon their sales record and that it is impossible to measure this effect. 4. It is also said that damages are an inadequate remedy because they would not provide the plaintiffs with the opportunity to rebuild the business with the new staff hired to replace "the Whiteman team" for the remaining three months of the six month period, at which time if an injunction is granted Mr Whiteman would not be competing against that business. 5. Emphasis was also placed on the evidence of Mr Woodcock to the effect that Mr Whiteman had accessed a Homepass program within the McGrath offices, which is a program that records people "who attend open homes and any McGrath listed property". It is estimated that across McGrath offices between 300 and 500 names would be added each week to that program, those being people who are inspecting the McGrath homes and are in the property market. It was estimated that as a sole agent Mr Whiteman would only "receipt" between 40 and 50 prospective purchasers. Steps have been taken to deny Mr Whiteman access to the Homepass but this has apparently only been effective from 25 May 2018. 6. It is also submitted, in answer to the evidence put on by the defendant as to the defendant's financial position, that this is an effect of his own making insofar as the company, as I understand it, is currently deadlocked and dividends are not being paid out of the company. 7. The proposed orders sought have been amended. As sought at the time of the completion of the hearing of the application they were as follows: 1. Restrain the first, second and fourth defendants from entering into further agreements to perform services in the nature of real estate sales services from any location within a 10 km radius of 485 Central Coast Highway, Long Jetty, NSW 2261 either directly or indirectly or through interposed entities, in any capacity, including on their account or in partnership or joint venture with any other person or as a trustee, principal, agent, investor, shareholder, unitholder, consultant or employee until 22 September 2018 or further order of the court. 2. Order that the commissions paid to the defendants in respect of the 19 sales listings of the first defendant be paid into a separate joint bank account to be opened in the name of first plaintiff and the fourth defendant with such monies not to be disbursed until further order of the court. 3. Restrain the first, second and fourth defendants and the employees of the fourth defendant from soliciting, inducing or attempting to induce the persons listed in Annexure A to cease doing business with the second plaintiff until 22 March 2019 or further order of the court. 1. I am not persuaded that there is any basis on which to grant any injunction to restrain the second defendant in the manner that is sought by orders 1 and 3 of the proposed orders. 2. Even on the plaintiff's case the second defendant is not a party to the consultancy agreement. It is asserted that the second defendant is an employee of Whiteman Investment Holdings Pty Ltd. That may well be so, but the basis on which the second defendant is working now with the competitive real estate agency called The Agency are not clear; and, in any event, I see no basis to restrain the second defendant from providing real estate agent services in her own right to The Agency. 3. As to the fourth defendant, that is the corporate entity, I doubt very much that it performs any services in its own right in the nature of real estate agent services, although it may be that the arrangements with The Agency are such that it is providing consultancy services to The Agency, but, in the absence of any real understanding of how those arrangements work, it is difficult to see why I should be restraining the fourth defendant from doing something that I am not necessarily satisfied the fourth defendant is doing. 4. As to the restraint sought in relation to the first defendant, I accept that there is an arguable case that the first defendant is bound by the terms of the consultancy agreement that is in evidence. That will turn on a factual finding to be based on evidence at the final hearing. I accept that if the consultancy agreement is established as being a binding contract between the first and fourth defendants, on the one hand, and the first plaintiff, then the first plaintiff has a legitimate and reasonable interest in protecting its interests in client contacts, its goodwill and the expansion of the business of the first plaintiff. 5. I am not, however, satisfied that damages would not be an adequate remedy. The statement of claim that has been filed on 6 June 2018 particularises the loss and damage suffered at paragraph [30] as being that the business of the first plaintiff is currently operating at a loss and is worth nil. It is particularised that but for the conduct of the first and fourth defendants in breach of the consultancy agreement, the business would be worth $1,447,774. There is also a claim particularised for a loss of revenue as a result of diversion of business to The Agency of approximately $560,000. Further particulars of the loss and damage suffered are to be provided. 6. Insofar as it is said that the goodwill of the business has been destroyed, that has already happened. The goodwill is presumably be able to quantified in some fashion by an appropriate expert in due course and I do not see why damages would not be an adequate remedy in that event. 7. It is submitted that there is no evidence to suggest that the first defendant would be able to meet a claim for damages in that regard and that was the basis on which it was put that the second order was sought, which was an order for commission payable to the defendant to be in effect quarantined pending determination of the final dispute in these proceedings. I am not satisfied that any basis has been shown to sustain an order of that kind. In particular, I am not satisfied that there has been anything in the evidence to establish that there would be a reasonable apprehension that the first defendant is taking steps in order to render himself or his company judgment proof in the event that he were to be unsuccessful in proceedings in the long term. 8. In the circumstances, I am not persuaded that I should grant the interlocutory relief that has been sought and I dismiss the notice of motion. 9. I will order that the plaintiffs pay the second defendant's costs of the notice of motion and that the fourth and first defendants' costs of the notice of motion be those defendants' costs in the cause. 10. I refer the matter back to the Registrar's list on Thursday 21 June 2018. ********** 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: 22 June 2018