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Modilon Automotive Pty Ltd v Southcomb [1996] PGNC 1; N1479 (11 March 1996)

Unreported National Court Decisions

N1479

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WS NO 165 OF 1996
BETWEEN
MODILON AUTOMOTIVE PTY LTD trading as MODILON CONSTRUCTION - Plaintiff
And
KEVIN SOUTHCOMB - First Defendant
And
DELTA CORPORATION PTY LTD - Second Defendant
And
TED KENNEDY - Third Defendant

Mount Hagen

Injia J
23 February 1996
4 March 1996
8 MArch 1996
11 March 1996

INJUNCTION - Interim injunction - Contract of employment between Expatriate Quarry Master and local company - Negative covenant - Covenant not to perform for others during contractual term - Breach of negative covenant by employee - Employee entered into new contract of employment to perform work similar to the type he performed for the Plaintiff.

Held:

1. ҈ B60; Because damagee wer anot an appropriate alternative remedy, an interim injunction should be granted against the First Defendant restraining him from engaging any employment and performing any work of tpe heormedthe Plae Plaintifintiff.

2. ; H60everw the interim inju injunction must be restricted to apply within three kilometres of the Plaintiff’s business premises in order to enable the First Defendant to engage himself iernatmploywith or without hout his neis new empw employer whilst he awaits the finalization of the proceedings.

Cases Cited:

Doherty v Allman [1878] 3 AC 709

Ehrman v Bartholomew [1885] Ch 671

William Robinson & Co Ltd v Hever [1898] UKLawRpCh 129; [1898] 2 Ch 451

Warner Brothers Pictures Inc v Nelson [1936] 1 KB 209

Employers Federation of PNG v PNG Waterside Workers’ Union & Others N 393 [1982]

Counsel:

J Kil for the Plaintiff/Respondent

J Steel for the Defendant/Respondent

INTERLOCUTORY RULING

11 March 1996

INJIA J: Bion on notice, the Plaintlaintiff seeks interim injunctions in the following terms:

1. &##160; &#160 Fi60 First Deftndantebe temporarily restrained, until further orders, from entering solely or j or jointly with any other person or perso compnd eng on his own behalf or on behalf of anyf any other person or persons or company oany or comr competing directly or in directly, carrying on or assisting in carrying on either as principal or as manager, agent or servant or assistant or in any other capacity whatsoever or be in anyway engaged or concerned or interested in the business of provision of Plant Hire, Equipment lease, Provision of Crushed Aggregates, Ready Mix Concrete, Concrete Blocks and General Civil Construction within Mount Hagen area and especially within 3 kilometres of the Plaintiff’s premises at Section 45 Allotment 25 Warakum, Mount Hagen and at Portion zone Section 1004, Wara Komun, Western Highlands Province.

2. The First Defendantebe tarporarily restrained from endeavouring or attempting directly or indirectly to induce any person or persons, or company who shall be kto thst Dent to beenny tiring his his emploemploymentyment unde under ther the said said agreement, a customer or customers, employee or lessor or lease of the Plaintiff company in the said business to cease from employing or dealing with the Plaintiff company in the way of their said business or so to employ or deal with any person or persons or company other than the Plaintiff.

3. ҈& T60;Sece Second annd and Third Defendants be restrained from employing the First Defendant until further order, for the pus of ing hployment or otherwise in relation to the provision of the services in c in crusherushed aggd aggregates, ready mix concrete, concrete blocks, plant hire etc. and pricing of per cubic metre of crushed aggregates, customer basis tender procedures conspired and endeavoured together with the Second and Third Defendants to supply the same goods and services by setting up a crusher on the same river basin, not more one (1) kilometre from the Plaintiff’s crusher site at Wara Komun, Mount Hagen.

At the hearing, only paragraph (1) of the motion was contested and argued. The First Defendant filed an undertaking in terms of paragraph (2) of the motion. The Plaf did not pursue paue paragraph (3) of the motion.

The short uncontested facts are the First Defendant is a New Zealand citizen. Between ween 1990 and uJuno June 1993, he was employed by various local construction and heavy equipment companies in the highlands region. Between Ju93 up to 25th Juth July 1995, he was employed by the Plaints its Quarry Master and basd based at the Plaintiff’s Quarry site situated at Portion 1004, Wara Komun, under an oral agreement0; On 25 July 1995, the Plae Plaintiff and the First Defendant formalised their arrangement by entering into a written agreement in which the First Defendant agreed to work for the Plaintiff for a period of three (3) years at a remuneration of K42,716.96 per annum. also included in the act wact were two important covenants. Clause 15 provided that #8e “employee shall not divulge to any person information concerning the business of finances of the company”. Clau provided that the &#8e &#8mployee shall devote himself exclusively to the said companompany business at all times during the usual business hours”. contrlso provided for termitermination of the contract by e by either party on 3 months notice. To cde with the contract, act, laintiff applied for and obtained a new Work permit under provisions of the Employment of N of Non-Citizens Act Ch. 374 commencing onovember 1995. Prior to this, heessed a Wd a Work Perm Permit obtained by the Plaintiff for him which was due to expire on 22 November 1995.

On 12 November 1995, the Third Defendant offered new employment to the First Defendant which he accepted. ONovember 1995, (2nd NovemNovember according to the First Defendant), the First Defendant verbally informed the Plaintiff of his tion to quit employment and left the company. The First Defendays he vere verbally noly notified the Plaintiff’s Managing Director, Mr Kagul Koroka, on 2nd November 1995 of his intention to quit the job and stayed on for another 8 days to help out taintiff. This is deni denied byorokKoroka. When the First Defe left, eft, he admits he only took with him some blank forms from the Plaintiff’s office which he says are commonly used in any business. The Plaintiff shey were imre important bus documents. The PlainPlaintiff also heys he also took other important business documents such as the land “lease” dnts which is denied by the First Defendant. He is nows now employed Cr a Crusher/Quarry Manager by the Third Defendant at its Quarry Site “situated on Portion 1004, Wara Komun”. The FDefendant says the Thhe Third Defendant “has now takeease over the entire area krea known as Portion 1004, Wara Komun from Michael and Paul Poiya who are the traditional land-owners of tand”. There is e is evideo show show that on 7th December 1995, Michael and Paul Poiya, through their lawyers Simon Norum Lawyers, by letter, terminated their “lease” arrangement with the Plaintiff over Portion 1004, Wara Komun, due to non-payment of rent. The Third Dant has set up t up a new Quarry/Crusher site near the Plaintiff’s site and the First Defendant is employed as a Quarry Master and based there. The Firstndant says the Thhe Third Defendant obtained a new Work Permit for him which entitles him to reside in Papua New Guinea and work up to 6th November 1998. Of thlier Work Permit obta obtaiy the Plaintiff, the First irst Defendant says:

“The Contract dated 21st July 1995, which was executed by the Plaintiff&;s company and myself, was to be for a term of three (3) ye3) years from the date of commencement. However, I says that the contract as entered into was required for the purposes of my obtaining a new Work Permit for continued employment with the Plaintif17;s company providing for commencement on 22nd November 1995, upon expiration of my previorevious Work Permit on 22 November 1995. I had hardly terminated any contractual relations with the Plaintiff by mutual agreement between Mr Koroka and myself.” (paragraph 19 of First Defendant’s affidavit)

The First Defendant says the Work Permit obtained by the Plaintiff was cancelled (paragraph 8 of his affidavit).

In the Writ of Summons, the Plaintiff claimed three principal relief. Thst and second relief aref are permanent injunctions in terms similar to para. 1 and 2 of the Notice of Motion but the period souo be covered is essentially for the balance of the contract term. The third relief soef sought is for damages for breach of contract.

An injunction is an equitable remedy and it s discretionary. Therefore, it is necy to s to see how the equitrts in England have approached the matter. I take thie this approachubecause I have not been referred to any local cases on thet nor am I aware of one.

The Plaintiff’s has qhas quite correctly not sought specific performance of the contract of empnt for personal services.&#es. ourts rarely enforce contrcontracts for personal services by injunction, albert valid and enforceable. As Lindley MR said in Wi Riam Robinson & Co Ltd v Hever [1898] UKLawRpCh 129; [1898] 2 Ch 451 at p. 452:

“The real difficulty which has always to be borne in mind when you talk about specific performance of or injunctions to enforce agreements involving personal service is this - that this Court never will enforce an agreement by which one person undertakes to be the servant of another; and if this agreement were enforced in its terms, it would compel this gentleman personally to serve the plaintiffs for the period of ten years. That ourt never does.̶”

However, the Court may in appropriate circumstances enforce negative covenants in a contract for personal services by injunction. In Warner Brothers Picturcs Incorporated v Nelson [1936] 1 KB 209 at p. 215 Branson J cited with approval the following general statement of principle by Lord St Leonards in Lumlet v Wa1 De. GM & G 604, 619:

“Wherever this Cour Court has not proper jurisdiction to enforce specific performance, it operates to bind men’s consciences, as far as they can be bound, to a true and literal performance of their agreement; and it will not suffer them to depart from their contracts at their pleasure, leaving the party with whom they have contracted to the mere chance of any damages which a jury may give. The exerof this jurisdictidiction has, I believe, had a wholesome tendency towards the maintenance of that good faith which exists in this country to a much greater degree perhaps than in any other; athough the jurisdiction is n is not to be extended, yet a Judge would desert his duty who did not act up to what his predecessors have handed down as the rule of his guidance in the administration of such an equity”. passage was cited as a cora correct statement of the law in the opinion of a strong board of the Privy Council in the case of Lord Strathcona Steamship Co v Dom Coal Co [1926] AC 108, 125), and I not only approve it, ift, if I may respectfully say so, but am bound by it.”

And in the House of Lords decision in Doherty v Allman [1878] 3 AC 709, Lord Cairms at p. 719 said:

“My Lords, if there had been a negative covenant, I apprehend, according to the well-settled practice, a Court of Equity would have had no discretion to exercise. If parties, fluable considonsideration, with their eyes open, contract that a particular thing shall not be done, all that Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a questi thof the balance of convenience or inconvenience, or of the amount of damage or of injury - it is the specific performance, by the Court, of that negative barghich the parties have made, with their eyes open between then themselves.” (underlining ie).

T

The case of Warner Brothers Inc v Nelson, ante, is a case point. In that case, efendant, a t, a film artist, entered into a contract with laintiff, film producer, to render her services exclusivelyively to the Plaintiff during the period of her contract. By negativpulatshe agreed reed not toot to render such services to any other person during the period of her contract. In breach of the aent, nte entered into another contract to perform as a film artist for another person.&#160 The Plai sought an injunctjunction strain the Defendant, within the jurisdiction of the Court, “during the currency of ( of (her contract with the Plaintiffs) frodering without the written consent of the Plaintiff...any sany service for or in any motion picture or stage production or production of any film or corporate other than for the Plaintiffs.” The Court after examining the relevant authorities, granted the injunction sought. In arr at this decision Bron Bradson J said p. 217:

“The conclusion to be drawn fromauthorities is that, where a contract of personal service cice contains negative covenants the enforcement of which will not amount either to a decree of specific performance of the positive covenants of the contract or to the giving of a decree under which the defendant must either remain idle or perform those positive covenants, the Court will enforce those negative covenants, but this is subject to a further consideration. An injunction is a disonarionary remedy, and the Court in granting it may limit it to what the Court considers reasonable in all the circumstances of the case.”

At p. 219, His Honour said:

&#822 case before me is, therefoerefore, one in which it would be proper to grant an injunction unless to do so would in the circumstances be tantamount to ordering the defendant to perform her contract or remain idle or unless damages would be the more appropriate remedy.

With regard to the first of these consideration, it would of course, be impossible to grant an injunction covering all the negative covenants in the contract. That would i, force the dehe defendant to perform her contract or remain idle, but this objection is removed by the restricted form in which the injunction is sought. It ifined to forbidding thng thendant, without the consentnsent of the plaintiffs, to render any services for or in any motion picture or stage production for any oher than the plaintiffs.

It was also urged that the the difference between what the defendant can earn as a film artist and what she might expect to earn by any other form of activity is so great that she will in effect be driven to perform her contract. That is not the criterioptadopted in any of the decided cases. The defendant is stated a be a person of intelligence, capacity and means, and no evidence was adduced to show that, if enjoined from doing the specified acts otherwise than for the piffs, she will not be able to employ herself both usefully ully and remuneratively in other spheres of activity, though not as remuneratively as in her special line. She will not be driven, agthough she may be tempted, to perform the contract, and the fact that she may be so tempted is no objection to the grant of an injunction.”

At p. 220, His Honour said:

&#8ith regard to the question tion whether damages is not the more appropriate remedy, I have the uncontradicted evidence of the plaintiffs as to the difficulty of estimating the damages which they may suffer from the breach by the defendant of her contract. I think it is not inappropriate to refer to the fact that, in the contract between the parties, in clause 22, there is a formal admission by the defendant that her services, being “of a special, unique, extra-ordinary and intellectual character” gives them a particular value the loss of which cannot be reasonably or adequately compensated in damages” and that a breach may “cost the producer great and irreparable injury and damage”, and the artiste expressly agrees that he producer shall be entitled to the remedy of the injunction.”

There is however, authority in support of the contention that where the negative stipulation in a contract of employment is unreasonable, it ought not to be enforced by injunction. A ca point is Ehrman v Barv Bartholomew [1885] Ch 671. In that case defendant entt entered into a contract with the plaintiff,rm of wine merchants, to work as a salesman for a period of 10 years. In clause 3 of 3 of the contract, the defendant agreed tor alia, “devote the wthe whole of his time during the usual business hours...of the business of the firm...and not...employ himin any other business or transact any business with or for for any other persons other then the firm (plaintiff) during the continuance of the agreement.” The agreement, clause 13 also provided that after the termination of the employment by any means, the defendant should not, directly or indirectly, enter into any business of the type he performed with the plaintiff.&#160 defendant left the plaintiaintiff during the currency of the contractual term and entered into the employ of another firm. Thentiff sought an injunctjunction to restrain her from engaging in any form of business or service of the type he performed with taintiff. The plaintiff based hilicaplication under clause 3 of the agreement. T60; The Court rd the inju injunction sought. RJ said at pp. 673-674:

“In the first place, having regard to clause 13, I doubt whether clause 3 was inteto apo the state of things now existing when the defendefendant is no longer acting as a servantrvant of the plaintiffs, and cannot be compelled so to act, though his refusal to do so is in breach of his contract to act for the ten years mentioned in the agreement. but if I assume that clause 3 was intended to apply to the existing circumstances, then the serious question arises whether the Court ought to enforce such a negative stipulation as is there contained. That clause wou terms prev prevent the defendant, at any rate during the usual business hours, from engaging or employing himself in any business other than that of the plaint and from transacting any business with or for any person oson or person other than the plaintiffs; and this for a period of ten years from August 30, 1987, or for so much of that period as the plaintiffs choose. And it is that in this clis clause the word “business” cannot be held limited by the context to a wine merchant’s business or in any similar way. hat turt, while unable to o to order the defendant to work work for the plaintiffs, is asked indirectly to make him do so by otherwispelling him to abstain wholly from business, at any rate during all usual business hours.&#rs. opinion such a stipulatiolation is unreasonable and ought not to be enforced by the Court. As resent Master of the Rohe Rolls stated in Whitwood Chemical Hardman (1), cases where negative stipulation’s in c in contracts of service are enforced by the Court ought not to be extended are to be regarded as anos anomalies which it would be very dangerous to extend. To enforce s general negatnegative stipulation as I find here would be in my opinion a dangerous extension, for here the stipulation extend to business of any kind, while tgative stipulation’s enforced in the prior cases, suc, such as Lumley v Wagner (2), were confined to special services.”

I intend to apply these principles in this case.

Upon a close examination of clause 15 and especially clause 16 of the contract of employment, I am prima facie satisfied that they are negative covenants. I statement of claim and Mand Mr Koroka’s affidavit, he claims that there were also oral covenants made by the First Defendant in which he undertook not tolge essential business information and technology to other ther persons with competing business interests. In breach of these nve cove covenants, the Plaintiff says, the First Defendant engaged in activities adverse to the Plaintiff whilst he was in the e of the Plaintiff and when he left the Plaintiff on short notice, he took with his essentiaential business documents with him. irst Defendant’s adms admission that he took with him “blank forms used by the company, for the purpose of recordingdaily activities such as employees’ time sheets, fuel purchases for vehicles, cash resh receipts to bank, wage calculations, cheque requisition forms...(which) forms would be in common use for record purposes in any business” to some extend lend support to the Plaintiff’s assertions in that regard. Tis the likelihood of the the First Defendant using such information to set up the Third Defendant’s new business which may compete with the Plaintiff’s company.

Then there e question surrounding his his Work Permit. He is no doubt an ienced tced tradesman in the area of concern and his services are wanted in this country and have been sought for by local entrepreneurs and companies in this region. His presence in thetry iulregulated by legislagislation, by the Employment of Non-Citizens Act Ch No 374. He does not hn inherent rint right to ement in this country as such that citizens have. Was his Work Permit was awas appliedplied for and obtained by the Plaintiff suat he was required to be employed by the Plaintiff only fory for the duration of the Work Permit and thereby gave the Plaintiff a legte expectation of the benefbenefit of his services for the total contractual term or at least for the three months notice of termination period? Was strict adhe to the thre three months notice of termination period essential to the Plaintiff’s business to ensure minimal disruption o the Plaintiff’s business and to ensure that the business interests of the Plaintiff were adequately safeguarded? Theseother questions in myin my view are serious questions o be tried in this action. They are also ant to the qthe question of whether an injunction should be granted.

The question of damages as an adequate remedy does nise here. Even if it were, I haubts ubts about the First Defendant’s ability toty to meet an order for damages if the Plaintiff were successful in this action. The amount of such damagul could be substantial.

Mr Steel for the First Defendant submits that his client stands to suffer far more serious consequences than the Plaintiff in that he will be deprived of his liood if the injunction soughsought was granted whereas the Plaintiffs would not cease operation as a result of his client’s departure. I agree that the Plff̵’s loss is incapable of precise calculation at this stage but that does not mean to say that the Plaintiff will not or has not suffered loss at all. There is a likelihood that the Plaintiff’s business will suffer as a result of competition by the Third Defendant who is the First Defendant’s employer. As for the First Dant, unan understand the consequences of an interim injuncnjunction, however the interim injunction sought has limited territorial e and is intended to last until the finalization of these proceedings. Therefore, the the FirstnDefendant would be free to engage in any employment within or ut the employ of the ThirdThird Defendant in Mount Hagen outside the 3km zone. As I sarlier, hen experienerienced tradesman whose services are sare sought by local entrepreneurs and companies and he should have little or noiculty in finding alternative employment in the same way he has gone about switching employmployment from the Plaintiff to the Third Defendant at short notice with ease. He will not be left trve orve or left idle. If that not work out he ishe is always free to leave this country for employment in his own country. Shany of these options nots not become available to him,in thnt that the PlainPlaintiff fails in this action, there is a is an undertaking as to damages filed by the Plaintiff which will adequatompensate him.

It isIt is argued by Mr Steel that the First Defendant having effectively terminated his contract as at 16 February 1996, in the event that the Court finds the First Defendant guilty of breach of contract, the Plaintiff will be adequately compensated by damages. Ho, it is yet to be determetermined by this Court whether the contract was effectively terminated. In my view, there is a serious question to be tried on that point. The interim injunction sought will do “nothing more than give the sanction of the process of this Court to that which already is the contract between the parties. It is not t quesof the bale balance of convenience, or of the amount ount of damage or injury - it is the specific performance, by the Court, of negative bargain which the parties have made, with their eyes open, between themselvesRs”. (Doherty v Allman, ante, per Lord Cairns). In my view, thative covenaovenants contained in clauses 15 and 16 of the agreement are not unreasonable.

The principles applicable to granting of an interim injunction are succinctly summarised ised by Kapi DCJ in Employers’ Federation of PNG v PNG Waterside Workers’ Union & 3 Others, N393 [1982] which I have borne in mind and applied them to this case as well.

For these reasons, I grant the interim injunction sought by the Plaintiff in terms of paragraph 1 of the Notice of Motion.

Costs of this motion is reserved.

Lawyer for the Plaintiff: John Kilburn Kil Lawyers

Lawyer for the First Defendant: Arner Shand Lawyers