DJRA Pty Ltd as Trustee for DJRA Unit Trust v Griffin [2020] QDC 178

DISTRICT COURT OF QUEENSLAND CITATION: DJRA Pty Ltd as Trustee for DJRA Unit Trust v Griffin [2020] QDC 178 PARTIES: DJRA PROPRIETORY LIMITED (ACN 152353556) AS TRUSTEE FOR DJRA UNIT TRUST (ABN 83566030239) (applicant/plaintiff) v COURTNEY JOHN GRIFFIN (defendant/respondent) FILE NO/S: 1919/2020 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: Brisbane District Court DELIVERED ON: 31 July 2020 DELIVERED AT: Brisbane HEARING DATE: 10 July 2020 JUDGE: Richards DCJ ORDER: The Application is dismissed. CATCHWORDS: EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – where the defendant resigned as an employee of the plaintiff – where the defendant is bound by an employee contract – where the contract imposes a duty of confidentiality and preserves intellectual property of the plaintiff – where the defendant started operating his own business which is a competitor of the plaintiff – where the defendant has been contacting active referrers that the plaintiff uses to source clients – where the defendants sole source of income are the profits from the subsequent business – where the relief sought by the plaintiff will effectively amount to final relief - where any damage suffered by the plaintiff can be addressed by a monetary award Cases AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176 Artcraft Pty Ltd v Chandler [2003] QSC 102 -- 1 of 10 -- 2 Office Angels Ltd v Rainer-Thomas and O’Connor [1991] IRLR 214 (CA) Scorer v Seymour-Johns (1966) 1 WLR 1419 COUNSEL: J P Morris for the applicant/plaintiff Mr S Reidy for the defendant/respondent SOLICITORS: JHK Legal for the applicant/plaintiff NB Lawyers for the defendant/respondent [1] The plaintiff DJRA works in the area of pre-insolvency advice and services to businesses and individuals in financial distress. The company maintained offices in Brisbane, Sydney and the Gold Coast in 2016 and had an associated entity that had an office in Melbourne. They provided services throughout South East Queensland, Sydney, Melbourne and surrounding areas. In 2016 it also provided services for other parts of Queensland and supplied staff to those areas as required, particularly in Mackay, Rockhampton, Townsville and Cairns. [2] By 2016 the workload in those areas was such that it was decided to set up a permanent office in Mackay to service clients from Gladstone to Townsville. The company began looking for someone to fill that role. The defendant was interviewed in mid-2016 and employed by a written contract from 4 July 2016. The defendant underwent training for six months in Brisbane and then the Mackay office opened on 1 February 2017. The defendant remained in that office until 27 February 2020 when he resigned. [3] The application before the court brought by the plaintiff seeks an interim injunction to stop the defendant from contacting the active referrers that the plaintiff uses to source clients. [4] The business was profitable taking in $200,000 in the first financial year to June 2017, $298,000 in sales in June 2018, $469,000 in June 2019 and $331,000 in June 20201. [5] The contract of employment2 provided a position description in Schedule 1 namely: “The role includes overseeing a soon to be established North Queensland Regional Office, building referral relationships, meeting 1 HPD-5 to the affidavit of Henry Peter DeJonge filed on 2 July 2020. 2 HPD-4 to the affidavit of Henry Peter DeJonge filed on 2 July 2020. -- 2 of 10 -- 2 with prospective clients, formulating and documenting strategies to assist clients with the smooth and controlled management of their financial situation. The role includes intensive client liaisons, negotiations with financiers, working closely with insolvency practitioners and referring stakeholders. This role also requires continual communication with our back office implementation team who will be managing the implementation of your strategy. This position reports directly to the company’s Executive Directors.” [6] The contract has a duty of confidentiality3 and preserves any intellectual property established during employment.4 [7] Additionally there was a non-competition clause5 which states at 13.1: “Acknowledgments Employee acknowledges that: (a) He/she is aware that DJRA and/or DJRA Group has relationships with clients, employees and persons in the habit of dealing with DJRA and/or DJRA group members, and that these relationships form part of the goodwill of DJRA and/or DJRA Group and are of great value to them; and (b) The covenants in respect of restraint of trade contained in this clause are fair and reasonable having regard to: (i) the relationships which DJRA and/or DJRA group member has developed with clients, employees and other persons in the habit of dealing with DJRA Group and the ability employee has, or will have, to influence their business decisions after the employment; (ii) the confidential information disclosed to, or accessed by, employee during the course of her employment, and employees involvement in the reviewing and developing the confidential information; (iii) the legitimate business needs of DJRA Group to protect the confidential information from use or disclosure other than allowed by this agreement, in order to successfully undertake its business; and (iv) the irreparable damage that would be done to the businesses of DJRA Group. (c) DJRA is relying upon these acknowledges in entering into this agreement.” 3 Clause 11. 4 Clause 12. 5 Clause 13. -- 3 of 10 -- 3 [8] Clause 13.2 mandated that during the employment the employee would not take any appointment, position or work that hinders his performance of his duty or results in competition with the group. [9] Clauses 13.3 to 13.6 are the relevant clauses for the application for entering the injunction. [10] Clause 13.3 provides: “Prohibited activity As separate obligations under this agreement, employee represents and warrants that for each of the periods set out in clause 13.4 in combination within each of the areas set out in clause 13.5, employee will not, without first obtaining the consent of DJRA in writing; (a) Solicit or compete for the custom of any client, who at any time during the 12 months preceding the termination of the employment, was a client of DJRA Group; (b) Solicit or endeavour to obtain services of any person who was an employee, director or consultant or contractor to DJRA Group at the time the employment is terminated or at any time within six months before the employment is terminated; (c) Directly or indirectly engage in or be involved in or be associated with a business or part of a business which is in competition with the business carried on by DJRA Group.” [11] The periods of restraint referred to in clause 13.4 vary from one month to 1 year. The geographic area of restraint ranges from all of Australia to New South Wales, Victoria and Queensland to simply Queensland. [12] At the time that the defendant resigned he advised that he intended to take a position in a smoke detector business owned by a friend. That was not his intention. He in fact intended to activate a business, Griffin Insolvency Solutions, that he had started but then abandoned specialising in pre-insolvency work. That business is currently his sole source of income. -- 4 of 10 -- 4 [13] The plaintiff found out through contact with others that the defendant had started operating Griffin Insolvency Solutions as a competitor in Mackay and it is submitted that since he was privy to highly confidential information he should be restrained from using that information and restrained from approaching the active referrers of DJRA. [14] The business model of the plaintiff is to either obtain clients by direct approaches, either by word of mouth, advertising, Google or LinkedIn, or by way of direct referral from one of their referrers. Mr Dejonge, in his affidavit, states that referrals are the overwhelming source of clients for the plaintiff, representing 80 per cent of all clients and the business model is dependent upon its referrer network. Referrers are usually people such as lawyers, accountants, finance brokers and insolvency practitioners who, in the course of their business, deal with financially distressed clients. The plaintiff therefore spends time establishing and maintaining its referrer network by promoting events such as breakfast seminars, inviting potential referrers that have been identified and targeted, using telemarketers to cold-call people, going to network events and functions to promote the business and actively extending hospitality to its current active referrers. He gives by example in paragraph 16 of his affidavit: “In my 16 years’ experience of operating the Dejonge Read business I have identified that once a relationship with the referrer has been established it quite often results in repeat business over a number of years. The plaintiff still benefits from referrers that were established as early as 2004, an example from many long-term referrers includes SV Partners who have provided referrals since 2004 and Bowden Liberatore Accountants, Robins Accounts, Moore Stephens Accounts, as well as Kennas Chartered Accountants have each provided repeat referrals for over 10 years.” [15] Further, Mr Dejonge maintained in his affidavit that the details of the referrer network were maintained on a computer system in a program known as a client relationship management system. [16] By the end of 2019 Mr DeJonge affirmed that the plaintiff had 66 active referrer companies. These are referrers who in the previous two years have referred clients to the plaintiff. It is these active referrers, it is claimed, who are the most valuable assets of the plaintiff’s business and the CRM is of significant value and commercial- -- 5 of 10 -- 5 in-confidence.6 [It was conceded in the course of the application and certainly in the statement of claim that there were not 66 active referring companies but 30 Level A referrers. These thirty referrers are the subject of the application for an interim injunction]. [17] The referrers identified in the statement of claim fall into different categories. The A level referrers have referred more than 2 clients to the plaintiff. The B level referrers are developing referrers who have referred one client to the plaintiff. The C level are potential referrers who have been contacted by the plaintiff but not made any referrals. There are also D and E referrers but it is not known how they are categorised. [18] As a result of the resignation of the defendant, the plaintiff indicated in an email to its staff on 26 February 2020 that they would close down the Mackay office and manage the operation from Brisbane. The email stated: “We are committed to not only retain but aim to grow our presence in North Queensland. As I mentioned above our North Queensland operation is spread across four main sites. To service three of the key sites from Mackay similar travel times apply as from Brisbane at a higher cost.”7 [19] In terms of a loss of business, Mr Dejonge in his affidavit8 states: “Between 1 March and 31 May 2020 the plaintiff’s business has sustained a loss of revenue. Across all states, income for the period declined by 34.7 per cent compared to the previous year. This was not unexpected given the COVID-19 impact and the measures introduced in response including; rent deferrals and reductions; mortgage deferrals; business boosts and JobKeeper program. The plaintiff and I expect that the ‘insolvency and pre-insolvency’, impacts of the COVID-19 pandemic will be felt when the above measure ceases in late 2020 at which point ‘insolvency and pre-solvency’; work will increase significantly. The plaintiff’s loss of revenue from North Queensland for the period March to 31 May has reduced disproportionately to the rest of the business with a 76.5 per cent reduction from the previous year. The reason for the discrepancy was not readily apparent.” [20] I note from the income previously noted that the revenue for Mackay has reduced overall in the preceding financial year by 30 per cent. Given that there was likely to 6 See [51] of the affidavit of Dejonge and Exhibit HPD6. 7 See affidavit of Daniel Peter Dash dated 10 July 2020, Exhibits page 10. 8 At [71]. -- 6 of 10 -- 6 be disruption in any case by the resignation of Mr Griffin, it’s unknown what the actual loss as a result of his business activities is when compared to the decision to shut the physical office in Mackay. [21] At the time of leaving the employment the defendant handed in his phone and his computer. He wiped his phone and his computer and it is alleged that he may have downloaded the list of active referrers onto his personal phone before he left. He denies doing this. He agrees he was generally aware of the active referrers being sources of client referrals but says that they make up part of a generic list of professional advisers such as lawyers, accountants, finance brokers, bankers and financial advisers. He was unaware that the list was confidential and he had been developing referral sources since 2010 when he was working at Aggs Robson and then later Hall Chadwick. [22] It is alleged that the defendant is now working in Mackay in the pre-insolvency area and the defendant admits as much. He specifically denies deleting contacts from his phone but suggests that perhaps when his CRM profile was removed the contact list on the devices were also removed. In any event there is no conclusive material one way or the other on that particular subject. He does admit connecting his personal Samsung phone to the Surface Pro computer but he says that was to charge his phone. [23] The difficulty with the application to grant interim injunctive relief is the difficulty in categorising the referrers as confidential. The plaintiff himself has conceded that it would not be appropriate to make restraining order against all 66 referrers some of which have not sent any business to the plaintiff and some of which have only referred one client. There is no evidence that the 30 remaining referrers were intending to continue to refer clients to the plaintiff. There is contractual obligation to do so. [24] There is no regularity to the referral of clients to the plaintiff. It is an ad hoc arrangement and although some referrers have been with the business for some time it is not known how often those referrals take place or how long it has been since a referral has taken place such that it is difficult to assess the reasonableness of the restraint asked. [25] I accept the plaintiff’s submissions that the defendant, being the sole employee of the company in Mackay, was the face in the Mackay Office and established and fostered -- 7 of 10 -- 7 relationships with referrers in North Queensland. He has disposed to having personal relationships with a number of the referrers. I also accept the principles stated in AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176 at [35]: “Where an employee is in a position which brings him into close and personal contact with the customers of a business in such a way that he may establish personal relations with them of such a character that if he leaves his employment he may be able to take away from his former employer some of his customers and thereby substantially affect the proprietary interest of that employer in the goodwill of his business, a covenant preventing him from accepting employment in a former employer the knowledge of and intimacy with the customers which he obtained in the course of his employment should, in the absence of some other element which makes it invalid, be held to be valid.” [26] Further I accept that since his resignation he has started to approach former DJRA referrers particularly has approached and invited to lunch one of DJRA’s active referrer partners, has left business cards in the office of a DJRA referrer and has approached at least two other active referrers of DJRA. [27] The defendant however submits that the clause in the contract seeking to restrain the defendant from engaging in competition is not applicable to referrers and that the clause is too wide in any event. I accept the defendant’s arguments that the plaintiff must be able to show a likelihood of success to justify the interim injunction and also there must be a consideration of practical consequences likely to flow from the orders sought.9 [28] The terms of clause 13.1 of the contract are namely seeking to restrain trade in relation to clients, employees and other persons in the habit of dealing with DJRA Group may be interpreted to include the act of referring clients although whether they would fall within the qualification of being “in the habit of dealing with” would in my view require more evidence than is currently before the court. Further, I accept that the geographic area of a restraint being Australia, New South Wales, Victoria or Queensland covers an area much wider than the area in which the defendant worked. The defendant’s work has only ever been in North Queensland. The plaintiff says he did work for six months in Brisbane however it is clear that was training and he did not engage in any independent work in that area himself. There is no suggestion that 9 See ABC v O’Neill (2006) 227 CLR 57 at [65]. -- 8 of 10 -- 8 he had any relationship with any of the referrers in Brisbane. It does appear that this restraint is wider than is necessary. [29] In Artcraft Pty Ltd v Chandler [2003] QSC 102 Muir J considered the geographic restraint clause at [46]: “It is otherwise where the restriction is sought to be upheld in reliance on the employee’s customer connection. The justification for such a restraint is the potential for the employee’s relationship with the covenantee’s customers to cause a transfer of those customers’ allegiance. Accordingly, a restraint on that basis cannot be justified if it extends to an area in which the employee had no contact with customers.”10 He went on to note that: “Where what is sought to be protected by the covenant relates only to customer connection, if the customers are readily identifiable there may be difficulty in justifying a restraint based on area rather than a non-solicitation of customers.” [30] Relying on the case of Office Angels Ltd v Rainer-Thomas and O’Connor [1991] IRLR 214 (CA) he noted that: “The court is entitled to consider whether or not a covenant of a narrower nature would have sufficed for the covenantee’s protection.” [31] In fact what the plaintiff is seeking is not a restraint according to the nature of the contract but a restraint against 30 of the active referrers which is different to the terms of the restraint in the contract. [32] I accept that the relief sought would destroy the business of the applicant and take away the livelihood of the defendant. It is correct to submit as the plaintiff does, that the defendant is a qualified professional who can work in other areas. However, he is resident is a small country town and given the current economic downturn alternative employment may not be readily available. Moreover, the plaintiff had already closed the Mackay Office before they realised that the defendant was operating independently of them and speaking to some of their referrers. [33] The longest period of restraint in this case expires on 26 February 2021. The plaintiff seeks restraint until the determination of this case or until 26 February 2021. There 10 See Scorer v Seymour-Johns (1966) 1 WLR 1419 -- 9 of 10 -- 9 has been no discovery at this stage and the matter is not ready to be listed for trial. It is unlikely that the matter will be able to be heard before the end of the year. The relief sought by the plaintiff will effectively amount to final relief. [34] In my view, if it can be established that damage has been suffered by the plaintiff, that damage can be addressed by a monetary award. The balance of convenience weighs in favour of the defendant. The application is dismissed. -- 10 of 10 --