Employment

Leave and security for costs for an incarcerated appellant – Mr D v Ms P [2020] NSWCA 174

19 August, 2020

The Victorian Court of Appeal has recently held that restraint of trade clauses in employment contracts are unenforceable against a former employee if they have been repudiated by the employer and the employee has accepted the repudiation and terminated the contract.

Background

The respondent, Mr Loone, was a senior accountant employed by the financial services provider Crowe Horwath Australia (CHA). Following a dispute over the payment of his bonuses and changes to his position within the company, Mr Loone left CHA and started his own accounting firm.

The applicant, CHA, argued that a restraint of trade clause in Mr Loone’s contract of employment precluded him from:

engaging in competition with CHA in a business situated within 5 kilometres of the location where Mr Loone had worked for CHA; and
soliciting work from CHA clients that he had dealt with directly.

The period of restraint was 12 months following the termination of employment and this was to survive the termination of the employment in all circumstances and for any reason.

Issue to be determined

The primary issue was whether CHA could enforce the restraint of trade clause in Mr Loone’s contract of employment post termination.

The respondent, Mr Loone, contended that when he accepted the applicant’s repudiation of the contract it was terminated and the restraint of trade clause ceased to apply. This will be further explained below.

Restraint of trade clauses

Restraint of trade clauses are commonly used in contracts of employment to prevent or restrict former employees from practising their trade or profession for a period of time and/or within a particular geographic area of their former employer. Their purpose is to protect employers by preventing employees from utilising confidential information and trade secrets or from poaching former clients when they resign.

Traditionally a restraint or trade clause is considered to be void at common law unless they are considered reasonable from the perspective of the public’s interest as well as between the parties to the restraint as per the Court in Nordenfelt v Maxim-Nordenfelt Guns Co Ltd (1894) AC 535.

Crowe Horwath Australia’s submissions

CHA on appeal from the Victorian Supreme Court argued that:

Justice McDonald had erred in his determination that the contract was terminated by Mr Loone’s acceptance of the repudiatory conduct by CHA; and
That even if the contract did terminate in those circumstances, the restraint of trade clause continued to operate.

CHA further argued that upon discharge by breach, not all obligations contained in a contract are divested or discharged. The intentions of both parties combined with the purpose and object of the restraint clause demonstrated that it was intended to regulate Mr Loone’s post-employment conduct. It had a manifest purpose, namely, the protection of CHA’s goodwill and customer connections.

Further, CHA submitted that because they had performed the whole of the contract they had unconditionally acquired the benefit of the restraint clause. The parties had bargained for the contract and agreed to a post-employment restraint, the nature of which would not vary with the termination of the contract. This was because, while the contract might come to an end, the employer’s need for protection of that interest remained.

Mr Loone’s submissions

The respondent, Mr Loone contended that CHA had repudiated the contract through their conduct which included:

their failure to comply with their contractual obligation to make bonus payments in full when they sought to defer 20% of the amount for three years without Mr Loone’s consent; and
the diminution of Mr Loone’s responsibilities as Managing Principal.

When Mr Loone then elected to terminate his employment because of this repudiatory conduct, CHA argued that the restraint of trade clause survived termination.

In regard to the power to repudiate, counsel referred to the High Court’s decision in Shevill v Builders Licensing Board (1982) 149 CLR 620 which found that:

“A party may repudiate a contract by renouncing its liabilities under it whether by evincing an intention no longer to be bound by it or by showing that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and not in any other way.”

Mr Loone submitted that the unilateral action taken by CHA to strip him of his management responsibilities and withhold his bonus payments would have conveyed to a reasonable person in his position the renunciation by CHA of a fundamental obligation under the employment contract.

These breaches went to the heart of the contract amounting to repudiatory conduct by CHA.

Therefore, when Mr Loone accepted this repudiation it terminated both the contract and the application of the restraint clause.

Court of Appeal’s findings

Justices Ashley, Priest and Beach dismissed the appeal and affirmed the decision of Justice McDonald in the Supreme Court.

CHA was held to have repudiated its contract of employment with Mr. Loone when they made changes that effected the payment of bonuses and Mr Loone’s employment duties. As such, Mr Loone’s acceptance of this repudiatory conduct terminated the application of the restrictive covenants in the contract.

In their decision the Court referred on a number of authorities, including the turn of the century decision by the House of Lords in General Billposting Company Ltd v Atkinson [1909] AC 118 and the High Court in Kaufman v McGillicuddy (1914) 19 CLR 1. The Court found that the authorities demonstrated a consistent trend in their juridical explanations namely that:

“The employer, having breached the contract and brought it to an end, should not be permitted to rely upon the restraint clause contained within it.”

This notation underlies subsequent authority, as no Australian or English authority was identified in which a court had made orders enforcing a restraint clause against a former employee in such circumstances. Further, no High Court Authority has overturned these judgments.

In considering whether the restraints would survive termination effected by acceptance of the repudiation, need to consider whether continued operation would be inconsistent with the ‘substantive consideration’ for the restraint clause. The Court referred to Geraghty v Minter (1979) 142 CLR 177, where Gibbs J said:

“The answer to the appellants’ arguments that the respondents may be in default under the deed and yet enforce the restraint lies in the principles of equity. He who comes to equity must do equity, and parties who seek equitable relief by injunction to enforce a covenant in restraint of trade cannot obtain such relief unless they allege and prove that they have performed their part of the bargain hitherto and are ready and able also to perform their part in the future.”

In Mr Loone’s contract, the substantive consideration for the restraint clause was the agreement to pay remuneration in accordance with his entitlement to receive his full bonus. As such, the parties intention as manifested in the contract is that the post-employment restraints would not operate where the termination arose out of Mr Loone’s acceptance of CHA repudiatory conduct where such conduct constituted a failure by CHA to comply with the prescribed criteria which underpinned the assessment and payment of Mr Loone’s bonus.

CHA did not comply with the mandatory criteria prescribed in Mr Loone’s contract of employment. The Court found that these breaches amounted to repudiation of the contract which in turn permitted Mr Loone to lawfully terminate the contract and as such the restraint of trade clause could not survive.

Implications

While each situation will turn on the precise terms of the contract, employer’s need to take care to ensure that they comply with the material terms of a contract of employment. Failure to do so, may amount to a repudiation of the contract which may permit the employee to terminate the contract in circumstances where the employer may not have the benefit of relying on restraint clauses.

If you need help reviewing your contracts of employment or advice with respect to a specific issue please get in touch.

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Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. 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In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

29 August, 2023

Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. 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The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes

18 August, 2023