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.
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:
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.
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 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.
CHA on appeal from the Victorian Supreme Court argued that:
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.
The respondent, Mr Loone contended that CHA had repudiated the contract through their conduct which included:
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.
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  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.
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.
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. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph , Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph , Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph : "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." 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.
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  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. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. 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.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.