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Papua New Guinea Law Reports |
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
MODILON AUTOMOTIVE PTY LTD TRADING AS MODILON CONSTRUCTION
V
KEVIN SOUTHCOMB;
DELTA CORPORATION PTY LTD; AND
TED KENNEDY
MOUNT HAGEN: INJIA J
23 February, 4, 8 11 March 1996
Facts
The plaintiff engaged the services of the first defendant a foreigner as a Quarry Master under a contract on 25 July 1995. The contract contained two negative covenants, which prevented the first defendant from divulging his employer’s business secrets to its competitors and not to work for another person.
Six months later the first defendant left the employ of the plaintiff and gained employment with the second and third defendants. The plaintiff sued the first defendant for damages for breach of contract. Before the hearings of the substantive issue the plaintiff by notice of motion sought to take out restraining orders against the defendants and especially the enforcement of the negative covenants in the contract.
Held
Papua New Guinea case cited
Employers Federation of PNG v PNG Waterside Workers’ Union & Others N393 (1982).
Other cases cited
Doherty v Allman [1878] 3 AC 709.
Ehrman v Bartholomew [1885] Ch 671.
Warner Brothers Pictures Inc. v Nelson [1936] 1 KB 209.
William Robinson & Co. Ltd v Hever [1898] UKLawRpCh 129; [1898] 2 Ch 451.
Counsel
J Kil, for the plaintiff/respondent.
J Steel, for the defendant/respondent.
11 March 1996
Injia J. By notice of motion, the plaintiff seeks interim injunctions in the following terms:
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 plaintiff did not pursue paragraph (3) of the motion.
The short uncontested facts are that the first defendant is a New Zealand citizen. Between 1990 and up to June 1993, he was employed by various local construction and heavy equipment companies in the Highlands region. Between June 1993 up to 25th July 1995, he was employed by the plaintiff as its Quarry Master and based at the plaintiff’s Quarry site situated at Portion 1004, Wara Komun, under an oral agreement. On 25 July 1995, the 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 contract were two important covenants. Clause 15 provided that the "employee shall not divulge to any person information concerning the business or finances of the company". Clause 16 provided that the "employee shall devote himself exclusively to the said company business at all times during the usual business hours". The contract also provided for termination of the contract by either party on 3 months notice. To coincide with the contract, the plaintiff applied for and obtained a new work permit under provisions of the Employment of Non-Citizens Act (Ch 374) commencing on 22 November 1995. Prior to this, he possessed a work 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. On 16 November 1995, (2nd November according to the first defendant), the first defendant verbally informed the plaintiff of his intention to quit employment and left the company. The first defendant says he verbally 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 the plaintiff. This is denied by Mr Koroka. When the first defendant left, 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 says they were important business documents. The plaintiff also says he also took other important business documents such as the land "lease" documents which is denied by the first defendant. He is now employed as a Crusher/Quarry Manager by the third defendant at its Quarry Site "situated on Portion 1004, Wara Komun". The first defendant says the third defendant "has now taken a lease over the entire area known as Portion 1004, Wara Komun from Michael and Paul Poiya who are the traditional land-owners of that land". There is evidence to 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 defendant has set up a new Quarry/Crusher site near the plaintiff’s site. The first defendant is employed as a Quarry Master and based there. The first defendant says the 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 the earlier work permit obtained by the plaintiff, the first 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) years from the date of commencement. However, it says that the contract as entered into was required for the purposes of my obtaining a new work permit for continued employment with the plaintiff’s company providing for commencement on 22nd November 1995, upon expiration of my previous work permit on 22 November 1995. I had hardly terminated any contractual relations with the plaintiff by mutual agreement between Mr Koroka and myself "(para. 19 of first defendant’s affidavit)".
The first defendant says the work permit obtained by the plaintiff was cancelled (para. 8 of his affidavit).
In the writ of summons, the plaintiff claimed three principal reliefs. The first and second relief are permanent injunctions in terms similar to para. 1 and 2 of the notice of motion, but the period sought to be covered is essentially for the balance of the contract term. The third relief sought is for damages for breach of contract.
An injunction is an equitable remedy and it is discretionary. Therefore, it is necessary to see how the equity Courts in England have approached the matter. I take this approach because I have not been referred to any local cases on the point nor am I aware of one.
The plaintiff has quite correctly not sought specific performance of the contract of employment for personal services. The Courts rarely enforce contracts for personal services by injunction, albeit valid and enforceable. As Lindley M.R. said in William 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 the Court never does."
The Court however may in appropriate circumstances enforce negative covenants in a contract for personal services by injunction. In Warner Brothers Pictures 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 Wagner [1852] EngR 602; 1 De. G.M. & G. 604, 619:
"Wherever this Court has no 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 exercise of this jurisdiction 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; and although the jurisdiction 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". This passage was cited as a 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 Dominion Coal Co. ([1926] AC 108, 125), and I not only approve it, 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, for valuable consideration, 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 question of 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 bargain which the parties have made, with their eyes open between themselves." (Underlining is mine).
The case of Warner Brothers Inc. v Nelson, ante, is a case on point. In that case, the defendant, a film artist, entered into a contract with the plaintiff, film producer, to render her services exclusively to the plaintiff during the period of her contract. By negative stipulation, she agreed not to render such services to any other person during the period of her contract. In breach of the agreement, she entered into another contract to perform as a film artist for another person. The plaintiff sought an injunction to restrain the defendant, within the jurisdiction of the Court, "during the currency of (her contract with the plaintiffs) from rendering without the written consent of the plaintiffs ... any 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 arriving at this decision, Bradson J said at p. 217:
"The conclusion to be drawn from the authorities is that, where a contract of personal service 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 discretionary 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:
"The case before me is, therefore, 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 indeed, force the defendant to perform her contract or remain idle, but this objection is removed by the restricted form in which the injunction is sought. It is confined to forbidding the defendant, without the consent of the plaintiffs, to render any services for or in any motion picture or stage production for any one other than the plaintiffs.
It was also urged that 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 criterion adopted in any of the decided cases. The defendant is stated to 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 plaintiffs, she will not be able to employ herself both usefully and remuneratively in other spheres of activity, though not as remuneratively as in her special line. She will not be driven, although 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:
"With regard to the question of 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 artist expressly agrees that her 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 case on point is Ehrman v Bartholomew [1885] Ch 671. In that case, the defendant entered into a contract with the plaintiff, a firm of wine merchants, to work as a salesman for a period of 10 years. In clause 3 of the contract, the defendant agreed to inter alia, "devote the whole of his time during the usual business hours ... of the business of the firm ... and not ... employ himself in any other business or transact any business with or for any other persons other than the firm (plaintiff) during the continuance of the agreement." Clause 13 of the agreement, 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. The defendant left the plaintiff during the currency of the contractual term and entered into the employ of another firm. The plaintiff sought an injunction to restrain him from engaging in any form of business or service of the type he performed with the plaintiff. The plaintiff based his application under clause 3 of the agreement. The Court refused the injunction sought. Romer J said at p. 673-674:
"In the first place, having regard to clause 13, I doubt whether clause 3 was intended to apply to the state of things now existing when the defendant is no longer acting as a servant 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 would in terms prevent the defendant, at any rate during the usual business hours, from engaging or employing himself in any business other than that of the plaintiffs, and from transacting any business with or for any person 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 clear that in this clause the word "business" cannot be held limited by the context to a wine merchant’s business or in any similar way, so that the Court, while unable to order the defendant to work for the plaintiffs, is asked indirectly to make him do so by otherwise compelling him to abstain wholly from business, at any rate during all usual business hours. In my opinion such a stipulation is unreasonable and ought not to be enforced by the Court. As the present Master of the Rolls stated in Whitwood Chemical Co. v Hardman (1), cases where negative stipulations in contracts of service are enforced by the Court ought not to be extended, and are to be regarded as anomalies which it would be very dangerous to extend. To enforce such a general negative stipulation as I find here would be in my opinion a dangerous extension, for here the stipulation extend to business of any kind, while the negative stipulation’s enforced in the prior cases, 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 satisfied that they are negative covenants. In the statement of claim and Mr Koroka’s affidavit, he claims that there were also oral covenants made by the first defendant in whom he undertook not to divulge essential business information and technology to other persons with competing business interests. In breach of these negative covenants, the plaintiff says, the first defendant engaged in activities adverse to the plaintiff whilst he was in the employ of the plaintiff. When he left the plaintiff on short notice, he took with him essential business documents. The first defendant’s admission that he took with him "blank forms used by the company, for the purpose of recording its daily activities such as employees’ time sheets, fuel purchases for vehicles, cash 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. There is the likelihood of 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 is the question surrounding his work permit. He is no doubt an experienced tradesman in the area of concern. His services are wanted in this country and have been sought for by local entrepreneurs and companies in this region. His presence in the country is regulated by the Employment of Non-Citizens Act (Ch No 374). He does not have an inherent right to employment in this country as such that citizens have. Was his work permit which was applied for and obtained by the plaintiff such that he was required to be employed by the plaintiff only for the duration of the work permit and thereby gave the plaintiff a legitimate expectation of the benefit of his services for the total contractual term or at least for the three months notice of termination period? Was strict adherence to the three months notice of termination period essential to the plaintiff’s business to ensure minimal disruption of the plaintiff’s business and to ensure that the business interests of the plaintiff were adequately safeguarded? These and other questions in my view are serious questions to be tried in this action. They are also relevant to the question of whether an injunction should be granted.
The question of damages as an adequate remedy does not arise here. Even if it were, I have doubts about the first defendant’s ability to meet an order for damages if the plaintiff were successful in this action. The amount of such damages 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 livelihood if the injunction sought was granted whereas the plaintiffs would not cease operation as a result of his client’s departure. I agree that the plaintiff’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 defendant, I can understand the consequences of an interim injunction, however, the interim injunction sought has limited territorial effect. It is intended to last until the finalization of these proceedings. Therefore, the first defendant would be free to engage in any employment within or without the employ of the third defendant in Mount Hagen outside the 3 km zone. As I said earlier, he is an experienced tradesman whose services are sought by local entrepreneurs and companies. He should have little or no difficulty in finding alternative employment in the same way he has gone about switching employment from the plaintiff to the third defendant at short notice with ease. He will not be left to starve or left idle. If that does not work out he is always free to leave this country for employment in his own country. Should any of these options not become available to him, and in the event that the plaintiff fails in this action, there is an undertaking as to damages filed by the plaintiff, which will adequately compensate him.
It 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. However, it is yet to be determined 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 then a question of the balance of convenience, or of the amount of damage or injury - it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves." (Doherty v Allman, ante, per Lord Cairns). In my view, the negative covenants contained in clauses 15 and 16 of the agreement are not unreasonable.
The principles applicable to granting of an interim injunction are succinctly summarised by Kapi, D.C.J. in Employers’ Federation of PNG v PNG Waterside Workers’ Union & 3 Others, (1982) Unreported N393 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 para. 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: Warner Shand Lawyers.
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