FEDERAL COURT OF AUSTRALIA

 

Synavant Australia Pty Ltd v Harris [2001] FCA 1517

CONTRACT – restraint of trade clauses – where applicant acquired shares in company – where 1^st, 3^rd and 5^th respondents directors of company – where 2^nd, 4^th and 6^th respondents shareholders of company – where share acquisition agreement contained restraint of trade clause and requirement that 1^st and 3^rd respondents enter into employment contracts with applicant – where employment contracts contained restraint of trade clauses – whether employment contract formed part of consideration of sale of shares – whether either or all clauses void – whether s 4 of Restraints of Trade Act 1972 applicable

TRADE PRACTICES – misleading and deceptive conduct – where applicant entered into subcontracting agreement with 7^th respondent – whether applicant entered subcontracting contract due to reliance on misleading conduct of 3^rd respondent as an agent for 7^th respondent – whether representations made by corporation – whether representations misleading

Trade Practices Act 1974 (Cth) s 52, 75B, 87

Restraints of Trade Act 1976 (NSW) s 4

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 followed

Pioneer Concrete Services Ltd v Galli [1985] VR 675 cited

Allied Dunbar (Frank Weisinger) Ltd v Weisinger [1988] IRLR 60 cited

Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574 followed

Iraf Pty Ltd & Ors v Graham [1982] 1 NSWLR 419 followed

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co. Pty Ltd (1973) 133 CLR 288 cited

Lindner v Murdock’s Garage (1950) 83 CLR 628 followed

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216 followed

SYNAVANT AUSTRALIA PTY LTD (ACN 001 004 735) v

GABRIELLE HARRIS & ORS

 

N 1280 OF 2001

 

 

 

EMMETT J

29 OCTOBER 2001

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 1280 OF 2001

 

BETWEEN:	SYNAVANT AUSTRALIA PTY LTD (ACN 001 004 735) APPLICANT
AND:	GABRIELLE HARRIS FIRST RESPONDENT G H HOLDINGS PTY LTD (ACN 079 104 902) SECOND RESPONDENT DONNA BOAS THIRD RESPONDENT DEE-M-BEE PTY LTD (ACN 079 013 979) FOURTH RESPONDENT EDDY BOAS FIFTH RESPONDENT EDDY BOAS DIRECT MARKETING CONSULTANCY PTY LTD (ACN 001 533 053) SIXTH RESPONDENT MAIL MARKETING WORKS PTY LTD (ACN 069 832 211) SEVENTH RESPONDENT TRANSCENDENT PTY LTD (ACN 088 720 665) EIGHTH RESPONDENT
JUDGE:	EMMETT J
DATE OF ORDER:	29 OCTOBER 2001
WHERE MADE:	SYDNEY

 

THE COURT:

 

PURSUANT TO THE CROSS CLAIM:

1.                  Declares that Clause 11 of the Share Acquisition Agreement dated 14 July 1997 is void, to the extent that the period of restraint provided for therein is of more than three years’ duration.

2.                  Declares that Clause 11 of the Contract of Employment with the first respondent dated 25 July 1997 is void, to the extent that:

(a)                the period of restraint provided for therein is of more than six months’ duration; and

(b)               clause 11.2(a) purports to restrain the first respondent from activities beyond the scope of Orders 4(a) and 4(b) herein.

3.                  Declares that Clause 11 of the Contract of Employment with the third respondent dated 25 July 1997 is void, at least to the extent that the period of restraint provided for therein is of more than six months’ duration.

PURSUANT TO THE APPLICATION:

4.                  Orders that the first respondent be restrained for a period of six months from 23 October 2001 from, on behalf of herself or any other party:

(a)                soliciting, canvassing or in any way whatsoever seeking directly or indirectly the custom of the clients of the applicant (listed in Schedule 1) and advertising companies acting on their behalf in relation to Direct Marketing Services,  Direct Mail Processing, or Integrated Technology and Data Marketing;

(b)               directly or indirectly acting for any client of the applicant (listed in Schedule 1) and advertising companies acting on their behalf in relation to Direct Marketing Services or Direct Mail Processing; and

(c)                approaching, directly or indirectly, any client of the applicant (listed in Schedule 1) and advertising companies acting on their behalf to influence it to cease to carry on business with the applicant or otherwise entice it away from the applicant.

5.                  Notes the undertaking to the Court by the fifth and seventh respondents that, during the period of six months from 23 October 2001:

(a)                they will take all reasonable steps to ensure that while she is employed by the seventh respondent, the first respondent is prevented from acting contrary to Orders 4 (a), (b) and (c) above; and

(b)               they will not hold out to any person that the first respondent is engaged in the supply of Direct Marketing Services or Direct Mail Processing on behalf of the seventh respondent.

6.                  Makes no order as to the costs of the proceedings in respect of both the Application and the Cross Claim.

7.                  Notes that in these Orders:

7.1       Direct Marketing Services means the provision to pharmaceutical manufacturers or advertising companies representing them of one or more of the following products and services:

(a)                database information or extracts therefrom concerning health care professionals;

(b)               advice in relation to the appropriate fields according to which such information should be extracted;

(c)                the coordination of direct marketing campaigns and the provision of quotes in relation to such campaigns, including by requesting data from data providers and liaising with the client;

(d)               the provision of advice in relation to such direct marketing campaigns including in relation to timelines, logistics and price.

7.2              Direct Mail Processing means performing printing services (including formatting and merger) and postage services, addressing mail items, folding inserts, affixing labels, inserting contents into envelopes, sealing envelopes, sorting and bagging mail items and applying for advertising postal permits in connection with direct marketing campaigns, as well as providing advice and quotations in relation to such services.

7.3              Integrated Technology and Data Marketing means the sale or supply to pharmaceutical companies or persons acting on their behalf of any of the following types of products or services:

(a)                A database or extracts thereof containing information (such as names, contact details, specialties, year of graduation and sex) about doctors and other health professionals;

(b)               A database or extracts thereof containing information about the prescribing practices of individual doctors and other health professionals;

(c)                Customer relationship management software for pharmaceutical companies and their representatives which enables the performance of one or more of the following functions: planning visits to healthcare professionals; recording information of those visits; transferring information about healthcare professionals to and from a central database; data warehousing and comparative analysis relating to the identity and location of health professionals, their prescribing practices, past visits of company representatives and the marketing of pharmaceutical products; or

A pharmaceutical sample supply service which enables doctors and other healthcare professionals to request samples of pharmaceutical products, as well as the collection and recording of such requests and arranging for the supply of the requested samples.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 1280 OF 2001

 

BETWEEN:

SYNAVANT AUSTRALIA PTY LTD (ACN 001 004 735) APPLICANT

AND:

GABRIELLE HARRIS FIRST RESPONDENT   G H HOLDINGS PTY LTD (ACN 079 104 902) SECOND RESPONDENT   DONNA BOAS THIRD RESPONDENT   DEE-M-BEE PTY LTD (ACN 079 013 979) FOURTH RESPONDENT   EDDY BOAS FIFTH RESPONDENT   EDDY BOAS DIRECT MARKETING CONSULTANCY PTY LTD (ACN 001 533 053) SIXTH RESPONDENT   MAIL MARKETING WORKS PTY LTD (ACN 069 832 211) SEVENTH RESPONDENT   TRANSCENDENT PTY LTD (ACN 088 720 665) EIGHTH RESPONDENT

 

JUDGE:	EMMETT J
DATE:	29 OCTOBER 2001
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1                     The applicant, Synavant Australia Pty Ltd (“Synavant”), seeks to restrain the respondents from engaging in conduct that would be competitive with certain aspects of the business of Synavant.  The claims are based on restraints contained in a contract entered into on 14 July 1997 (“the Share Acquisition Agreement”) when Synavant purchased the issued share capital of Pharmaceutical Marketing Solutions Pty Ltd (“PMS”) and in employment contracts entered into at completion of the Share Acquisition Agreement with the first respondent, Gabrielle Harris (“Ms Harris”), and the third respondent, Donna Boas (“Ms Boas”).  In addition, Synavant makes claims based on alleged contravention of s 52 of the Trade Practices Act 1974 in connection with the making of a contract (“the Subcontracting Agreement”) between Synavant and the seventh respondent, Mail Marketing Works Pty Ltd (“MMW”) on 1 September 2000.  The respondents deny that there has been any breach of the contractual restraints or that there is any threat of such breach.  Further, they deny any contravention of s 52 of the Trade Practices Act.  However, they also claim declarations by way of cross-claim that the contractual restraints are void as being unreasonably in restraint of trade.

BACKGROUND

2                     It is necessary to say something about the entities and individuals involved in the dispute.  Having regard to the nature of the dispute it is also necessary to describe their business activities and their relationship with each other.

SYNAVANT

3                     Mr Stephen Hawkes (“Mr Hawkes”) has been the managing director of Synavant since June 2000.  Between August 1996 and about January 1998, Mr Hawkes was the financial controller of Synavant.  From January 1998 to June 2000 he was regional finance director of the Synavant group of companies. 

4                     In July 1998, IMS Health Inc had become the ultimate holding company of Synavant.  From that time Synavant operated under the trading name “IMS Health Strategic Technologies Australia” and was commonly referred to as “ST”.  Synavant subsequently changed its name to its present name.

5                     Synavant presently carries on business providing marketing, data and software products and services to pharmaceutical manufacturers.  The services it provides include:

·        supply of databases relating to health care professionals, their prescribing practices and demographic information about their patients;

·        the supply of software applications to pharmaceutical manufacturers;

·        the distribution of pharmaceutical samples;

·        direct marketing;

·        market research.

Market research is not presently relevant.  I shall describe each of the other activities in more detail.

Supply of Databases

6                     Synavant maintains a database containing information about over 30,000 general practitioners and medical specialists.  The database contains information comprising principally names and contact details, specialities, year of graduation and sex.  The database is referred to as “Pharbase”.  The Pharbase database is integral to the operation of Synavant.  Clients are able to use Synavant’s services and purchase its products with confidence because of the integrity of Pharbase.

7                     Synavant also maintains a database for profiling and targeting doctors for pharmaceutical marketing purposes.  The database, known as “Scriptrac”, contains detailed information regarding the prescribing practices of doctors.  The information for the database is provided by doctors without charge, although participating doctors are entered into a lottery as an incentive for provision of the data.  Scriptrac directly and indirectly generates a substantial part of Synavant’s revenue stream.  It also enhances the value of other products and services supplied by Synavant.  For example, the data from Scriptrac is sometimes incorporated into electronic territory management systems and customer relationship management systems provided by Synavant to clients.  Scriptrac data also enhances the value of Synavant’s direct mailing service by enabling Synavant to offer highly targeted mailings, defined by select categories of information contained in Scriptrac.

Software Applications

8                     Synavant offers a range of software applications, which have been developed specifically for the pharmaceutical industry.  The main applications are “EPIC”, “RxPlore” and “Savana”.  EPIC is an acronym for “Electronic Paper Intercompany Communication”.  It is an electronic territory management system sometimes referred to as a customer relationship management system.  RxPlore is an integrated database designed for use by sales and marketing representatives for analysis and reports at a head office level.  EPIC, RxPlore and Savana assist pharmaceutical manufacturers in planning, recording, sharing, reporting and analysing interactions with their customers.  External data such as Scriptrac and prescription sales data can be integrated into these applications.  EPIC, RxPlore and Savana are Synavant’s largest revenue source.

Distribution of Pharmaceutical Samples

9                     Synavant offers a sample supply service to pharmaceutical manufacturers, known as “Sample Select”.  Doctors receive invitations, either in paper or electronic form, inviting them to request free samples of pharmaceutical products.  Synavant collects the responses sent in by doctors, informs the clients how many samples of their products are required and arranges for the samples to be mailed to the doctors.  The responses themselves are valuable data, which are collected by Synavant because they provide indications of doctors prescribing practices and the pharmaceutical products that are of interest to doctors.

Direct Marketing

10                  Synavant provides the following services to its clients:

·        provision of mailing lists and production services for mailing;

·        provision of advice about mailing campaigns;

·        sending and collecting “business reply cards”, data entry of information collated from the cards and reporting to clients on the data collected;

·        faxing promotional material, sample requests and requests for product information;

·        rapid response service for urgent communications to doctors and pharmacies, for example, for product recalls;

·        making arrangements with mailing houses on behalf of clients.

The services generate a very substantial part of Synavant’s revenue stream.

PMS

11                  PMS was established in early 1994 by Ms Boas, Ms Harris and Messrs Phil Hayward and Richard Benyon.  Mr Boas said it was intended that “PMS would write and supply software solutions to pharmaceutical manufacturers” that would allow them to integrate and manage the data purchased by them from other sources. The proposal was to provide software solutions that would enable clients to obtain information from several different databases and integrate that information in one database that PMS would maintain.  Such sources included Synavant (which was then known as “Walsh International (Australia) Pty Limited”).  Another possible source was Permail Pty Limited (“Permail”). Permail was a subsidiary of IMS Health Inc. 

12                  Ms Boas had previously been employed by Permail from 1975 to 1994, apart from a period of approximately three years between 1983 and 1986.  Permail offered the following services: 

·        direct mail services, which involved the direct addressing of envelopes and the processing of enclosures for delivery to Australia Post;

·        maintaining and updating a database of doctors that contained, to the extent that a doctor was willing to give the information, details of the doctor’s professional and personal situation including name, address, sex and practice address.

13                  Both Permail and Synavant declined to supply the information that was required by PMS in order to provide its proposed integrated data management services.  As a consequence, PMS developed its own database of doctors and other health professionals.  The source of the information in that database was pharmaceutical manufacturers and publicly available sources such as telephone directories.  The primary reason for developing the database was to allow it to be used in conjunction with the software products that PMS intended to develop. 

14                  In 1995, PMS began to market its database to pharmaceutical manufacturers.  PMS offered access to the database either by way of a one off rental payment or by way of annual lease payments, to enable pharmaceutical manufacturers to have direct mail campaigns conducted for them by a mailing house.  Pharmaceutical manufacturers also approached PMS for access to its database in order to supplement and monitor the operation of their territory management systems and customer relationship management systems.

15                  By July 1997 PMS had developed and was supplying EPIC, RxPlore and Sample Select services to its clients.  It was also supplying services in relation to the database referred to above and was organising direct mail campaigns for its pharmaceutical company clients.  PMS did not engage in direct mailing itself.  However, in 1994 and 1995 it did organise direct mail campaigns for pharmaceutical manufacturers, using various mailing houses.  From the end of 1995, PMS used MMW exclusively.  Ms Harris was the person responsible for the direct mailing work of PMS. 

MMW

16                  In June 1995, the fifth respondent, Mr Eddy Boas (“Mr Boas”), caused the sixth respondent, Eddy Boas Direct Marketing Consultancy Pty Ltd (“DMC”), to purchase a small direct mail business, which led to the establishment of MMW.  The business of MMW was and continues to be the provision of direct mail services to those involved in marketing, across a wide range of industries.  In 1996, a mailing agreement was entered into between MMW and PMS as a result of the direct mail business being generated by PMS.  MMW became a significant provider of direct mail services to the pharmaceutical industry.

17                  As well as to the pharmaceutical industry, MMW provides direct mail services to a wide range of other industries, including Westpac Banking Corporation, Commonwealth Bank of Australia, NRMA, American Express International and a number of Australia’s largest advertising agencies.  Direct mail services for pharmaceutical manufacturers and their agents account for approximately 14 per cent of MMW’s total direct mail business.

18                  The direct mail services provided by MMW include the provision of advice to clients on issues such as ways to save costs, and in particular postal costs, and matters such as the use of particular envelope or leaflet sizes or particular grades of paper.  MMW does not provide advice on the strategic aspects of direct mail campaigns, or design advice or advice on copyright issues.  Nor does MMW provide any advice or service in relation to the sale or license to clients of database information or software programs to be used in a direct mail campaign.  Nor does it provide any advice or service in relation to the configuration or specification of such information in accordance with a client’s requirements for a particular task.  Finally, it does not provide advice or service on the creation of appropriate database information or the software programs that manipulate such information.  Such matters are determined by MMW’s clients, who in most cases are advertising agents acting on behalf of the ultimate client.

19                  A standard part of MMW’s direct mail business involves the provision to MMW by its clients of confidential and proprietary information databases to be used in a direct mail campaign.  Those databases are typically names and addresses of customers or potential customers of the ultimate client.  The databases are manipulated and formatted in order to be used in the printed materials and to address envelopes in accordance with the instructions from the client.  The databases often contain additional information that enables different categories of subjects to be selected or manipulated and then merged into text provided by the client in accordance with the instructions of the client.  Once the database is formatted and merged with the text provided by the client, it is then converted into a form in which it can be used to control the printing, folding, collating and letter inserting machinery.  The database information represents the variable information selected by the client for individual addressees, which is then merged with the standard text that the client has provided for a particular direct mail processing.

20                  MMW utilises production and warehouse facilities and substantial heavy equipment.  The machinery used by MMW includes laser printers, addressing machines and folding, collating and envelope inserting machines.  MMW operates a large warehouse, which is used to store printed material and envelopes provided by clients who are outside suppliers.  Australia Post has an office within MMW’s premises and mailings are collected daily.  MMW employs staff such as storemen, tradespeople who maintain machinery, laser printing staff, general hands to set and operate machinery and staff engaged to fill envelopes manually.  MMW also employs clerical staff, sales employees, account managers and employees engaged to merge database information selected by the client with the text of mailings provided to MMW for direct mail processing. 

21                  The direct mail industry generally, and MMW in particular, almost invariably operate on a job by job basis.  That means that the vast majority of contracts undertaken by MMW are for a single direct mail job.  In order to obtain ongoing work, it is vital for MMW to provide the highest possible standard for service on each job that it undertakes.

TRANSCENDENT

22                  The eighth respondent, Transcendent Pty Ltd (“Transcendent”), was formed on 22 September 2000.  Its shareholders are DMC and DMB.  Its directors include Mr Boas and Ms Boas.  Mr Boas is its secretary.

23                  Transcendent does not currently trade.  If permitted, it is the intention of its directors that Transcendent would carry on business as a provider of sales and marketing support in the fields of data and software to pharmaceutical manufacturers in whatever form they require.  That would include providing the following services:

·        customer relationship management systems software;

·        the manipulation and sale of sales data;

·        e sampling.

It is common ground that the provision of customer relationship management system software and e sampling services would be in competition with the business of Synavant and the former business of PMS.  It is also common ground that the provision of those services would constitute an infringement of the restraints contained both in the Share Acquisition Agreement and the employment contracts if it occurred at a time when those restraints are operative.

ACQUISITION OF PMS BY SYNAVANT

24                  In or about March 1997, Synavant entered into negotiations with the shareholders of PMS for the purchase of their shares.  At that stage, Synavant had strengths in market research that PMS did not have.  However, Synavant did little direct marketing.  On the other hand, PMS had particular strengths in direct marketing and in software for electronic territory management systems.  Those factors made PMS attractive to Synavant for acquisition.

25                  At the time of the negotiations, the shareholders of PMS were:

·        Ms Boas;

·        Ms Harris;

·        DMC;

·        Messrs Benyon and Hayward.

Immediately prior to the culmination of the negotiations, Ms Harris transferred her shares in PMS to the second respondent, GH Holdings Pty Ltd (“GH Holdings”) and Ms Boas transferred her shares in PMS to the fourth respondent, Dee-M-Bee Pty Ltd (“DMB”).

26                  On 14 July 1997, the negotiations culminated in the Share Acquisition Agreement among the following parties:

·        GH Holdings, DMB, DMC and Messrs Benyon and Hayward as “Vendors”;

·        Ms Harris, Ms Boas, Mr Boas and Messrs Benyon and Hayward as “Vendors’ Associates”;

·        Synavant as “Purchaser”;

·        PMS as “the Company”.

27                  The Share Acquisition Agreement contained recitals that the Vendors’ Associates were directly or indirectly interested in the ownership or management of the Vendors or the Company and had requested Synavant to enter into the agreement.  It also recited the wish of the Vendors to sell their shares to Synavant and that Synavant, following the request of the Vendors’ Associates and relying on the representations, warranties and indemnities given in the Share Acquisition Agreement, wished to purchase the shares of PMS.  The Share Acquisition Agreement provided for the payment of a deposit and for an investigation of the affairs of PMS on behalf of Synavant prior to its completion (“Completion”). 

28                  Clause 4.4 of the Share Acquisition Agreement provided that each of the Vendors’ Associates, other than Mr Boas, would enter into an employment contract in the form set out in Schedule 9.  The employment contracts were to be entered into on Completion, which was to occur on a date determined in accordance with the Share Acquisition Agreement.  Clause 7.2 provided that the Vendors were to ensure that certain documents, including executed employment contracts, were delivered to Synavant on or before Completion.  Other formalities common in connection with transactions such as that contemplated by the Share Acquisition Agreement were also to take place on or before Completion. 

29                  Clause 11 of the Share Acquisition Act, entitled “NON COMPETITION”, was in the following terms:

“11.1   (Construction)  This Clause shall have effect as if it consisted of separate provisions each one being severable from the other.  Each separate provision consists, in respect of the Business, of each of the warranties and undertaking set out in Clause 11.2 combined with each separate period referred to in Clause 11.4 combined with each separate area referred to in Clause 11.5.  If any of those separate provisions shall be invalid or otherwise unenforceable for any reason such invalidity or unenforceability shall not affect the validity or enforceability of any of the other separate provisions.  The provisions of this part shall be read as being in addition to any provisions contained in the Employment Contracts.

11.2     (Undertaking Not to Complete)  The Vendors warrants and undertakes to the Purchaser that, for the protection of the Purchaser in respect of the goodwill of the Business of the Company, that they shall not, in respect of that Business whether:

(a)       on their own account; or

(b)       jointly with or on behalf of any other person or corporation as an officer, employee (except of the Company), independent contractor, partner, joint venturer or agent,

nor shall:

(c)        any agent, independent contractor or employee employed or engaged by them or by any firm or corporation in which it has a substantial interest whether such interest is legally enforceable or not; or

(d)       any firm or corporation (other than the Company) in which it may be interested as an employee, director, shareholder, beneficial owner or controller (whether that control can be legally enforced or not) of shares, lender or adviser or otherwise;

carry on or be engaged in any business competitive with that Business, within any of the periods and in any of the areas specified in Clauses 11.4 and 11.5 in respect of that Business.

………………………

11.4     (Periods)  The periods referred to in Clauses 11.1 and 11.2 are:

(a)        the period of twelve (12) months after Completion;

(b)        for a period of twelve (12) months after the first anniversary of Completion;

(c)        for a period of twelve (12) months after the second anniversary of Completion;

(d)        for a period of twelve (12) months after the third anniversary of Completion;

(e)        for a period of twelve (12) months afte4r the fourth anniversary of Completion.

11.5     (Places)  The places referred to in Clauses 11.1 and 11.2 are:

(a)        within the Sydney Metropolitan Area;

(b)        the remainder of New South Wales;

(c)        within Australia;

(d)        within Australia and New Zealand.”

In clause 1.1 of the Share Acquisition Agreement, the term “Business” was defined as meaning:

“The business of pharmaceutical company support through the provision of integrated technology, data marketing services, profiling, sampling and direct marketing.”

30                  Clause 10 of the Share Acquisition Agreement contained warranties and indemnities by the Vendors and the Vendors’ Associates, who were together referred to as “Warrantors”.  In particular, clause 10.6 relevantly provided as follows:

“The Warrantors jointly and severally indemnify the Purchaser against… any loss, cost or expense that the Purchaser or the Company may sustain or incur as a result of or in connection with any breach of any warranty or other provision of this agreement…”

That indemnity would extend to any breach of clause 11. 

31                  The employment contracts contemplated by clause 4.4 were entered into on completion of the Share Acquisition Agreement.  The contracts of Ms Boas and Ms Harris were in relevantly the same terms.  Clause 3 of each provided as follows:

“The Employment shall be deemed to have commenced on 1 July 1997 and continue for a period of two years or until terminated beforehand pursuant to the provisions of this Deed and thereafter until terminated by either party by not less than one month’s notice to the other expiring at any time (any such period and any extension thereof being hereinafter referred to as ‘the Term’).

32                  Clause 11 of each employment contract was in the following terms:

“11.1   The Employee agrees that at any time after the termination of this Deed he will not:

(a)       make public or divulge to any person, company or other legal entity any trade secret, or any information concerning the business or finances of the Company or any of its dealings, transactions or affairs.

(b)       advertise, publicise or permit the advertising of publicising of his former connection with the Company.

(c)        approach directly or indirectly any employee or Director of the Company to influence him to cease employment with or resign his directorship with the Company or otherwise entice him away from the Company.

(d)       do any act or thing whatsoever which may injure, impair or reduce or be likely to injure, impair or reduce the business, goodwill or reputation of the Company or its standing in the eyes of the public or any of its customers or clients.

11.2     The Employee agrees that for two years after the termination of this Deed he will not:

(a)       solicit, canvass or in any way whatsoever seek the custom of or act for directly or indirectly any of the customers or clients of the Company whether on behalf of himself or for any other party as an Employee or otherwise whether directly or indirectly.

(b)       approach directly or indirectly any customer or client of the Company to influence it to cease to carry on business with the Company or otherwise to entice it away from the Company.

11.3     The Employee further agrees that he will not for a period of two (2) years after the termination of this Deed within Australia or any other place where the employer is carrying on the Restrained Business at the date of such termination either solely or jointly with any other person (whether as principal, agent, employee, shareholder, partner, consultant, advisor or otherwise) directly or indirectly to carry on or be employed, engaged or interested in any business of the same type or similar of nature to the Restrained Business.”

33                  Clause 1(g) of each of the employment contracts contained a definition of “the Restrained Business” in the following terms:

“The business of a pharmaceutical company support for database, sampling, direct services and marketing services.”

34                  By the employment contract between Ms Boas and Synavant, Ms Boas was to be employed as managing director.  Her duties were specified in general terms.  However, no particular responsibilities peculiar to the position of managing director were described.  As indicated, the term of employment was to be two years and thereafter until terminated by at least one month’s notice.  Ms Boas’s remuneration was to be a base salary of $100,000 per annum together with additional benefits.

35                  By her employment contract, Ms Harris was to be employed by Synavant as direct marketing manager.  The term of her employment was also to be for two years and thereafter until terminated by at least one month’s notice.  Her remuneration was to be a base salary of $85,000 per annum together with other benefits.  Ms Harris’s employment contract also contained no statement of functions or duties specific to a direct marketing manager.

THE SUBCONTRACTING AGREEMENT

36                  On a number of occasions in the first half of 2000, Ms Boas said words to the following effect to Mr Hawkes:

“I am concerned that if IMS Health spin Synavant and Permail off together, Synavant will be forced to use Permail instead of MMW.”

37                  From around May 2000, Ms Boas had a number of conversations with Mr Hawkes in which Ms Boas said:

“I am going to leave the company.  I want to set up my own company to compete with IMS Health in the sale of prescription data.  I won’t compete with ST while you and Ron Brown are with the company.”

At that time Mr Brown was president of Synavant’s holding company.  He was located in Atlanta, USA.

38                  During June 2000 Ms Boas said words to the following effect to Mr Hawkes:

“With Permail coming in, Gay won’t stay.  We can come to some arrangement.  Gay will come with me, ST will keep their revenue and MMW will keep theirs.”

 

The reference to “Gay” is a reference to Ms Harris.

39                  Mr Hawkes understood by the above comments of Ms Boas that:

·        Ms Harris would leave Synavant and go to work for MMW;

·        Synavant would continue its direct marketing business and continue to derive revenues from that business;

·        Synavant would continue to subcontract its letter shop and production work to MMW and MMW would continue to derive revenues from that work.

40                  On 27 June 2000, Ms Boas resigned from her employment as managing director of Synavant.  She also resigned as director of Synavant.

41                  On 14 July 2000 Ms Harris left a telephone message for Mr Hawkes saying:

“I am ringing to let you know I am leaving the company and I am giving you a month’s notice.”

Later on the same day Ms Harris and Mr Hawkes had a conversation as follows:

Ms Harris:        “I am going to MMW”

Mr Hawkes:     “Please don’t tell anyone until I have had a chance to talk about it with Ron Brown.”

42                  According to Ms Harris, on 24 July 2000, in the presence of Mr Hawkes, she had a conversation with her mail processing co-ordinators at Synavant, Faye Senico and Catherine Bigg.  She said that Mr Hawkes had asked if he could be present when Ms Harris told them she was resigning.  Her version of the conversation was as follows:

Harris:              “I want to tell you that I have resigned from the company and will be going to Mail Marketing Works.  I am telling you now because I didn’t want you to hear it from someone else and I’ve worked with you for a long time.”

 

Senico:             “What will you be doing?”

 

Harris:              “I’ll be working on non-pharmaceutical mailings.”

 

Senico:             “What about pharmaceutical?”

 

Harris:              “Probably not.”

43                  Mr Hawkes gave evidence that he had had a discussion with Ms Harris on that day.  While Ms Harris accepted that Mr Hawkes had been present at the discussion she had with Ms Bigg and Ms Seneco, her recollection was that Mr Hawkes said nothing.  Mr Hawkes, on the other hand, said that on that occasion he asked Ms Harris whether she would be doing pharmaceutical marketing when she went to MMW.  He said that she replied “I’ll be doing non pharma and pharma”.  That is consistent with an email communication of 28 July 2000, to which I shall refer below.  I do not regard the conflict as significant.

44                  On 27 July 2000, Mr Hawkes handed to Ms Harris a letter from Colin Biggers & Paisley, Solicitors, who were then acting for Synavant.  The letter, dated 27 July 2000, referred to Ms Harris’s resignation as an employee of Synavant and drew attention to the terms of Clause 11 of her employment contract.  The letter went on to say:

“It follows that whilst there are no restraints upon you working for yourself or as an employee of a company that does not carry on the Restrained Business you may not work for a company which does not carry on such a business during the period of two (2) years after you cease to be an employee of our client.  To do so would put you in breach of both your employment contract and the agreement under which our client acquired the business in which you work.

Further, even if your proposed employer does not now carry on the Restrained Business if it developed such a business whilst you were employed there during the two years after you leave the employ of the company you would equally be in breach of your contractual obligations.”

45                  Later in the morning of 27 July 2000, Mr Boas telephoned Mr Hawkes and said words to the following effect:

“I am ringing about the letter you sent to Gay.  You’re making a big mistake and you will regret it.  You’re getting into a fight you can’t win.  We have much better contacts in the industry than you have.  We know everyone at Pfizer for example, and there is no way they would work with you rather than us.”

46                  On 28 July 2000 an exchange of email messages occurred between Ms Boas and Mr Hawkes.  While there is some confusion in the dating of the hardcopy of the email messages, it is common ground that they took place on that day.

47                  The first email was from Ms Boas to Mr Hawkes at 4.47 pm.  It relevantly provided as follows:

“I cannot tell you how shocked I was to hear you have given Gay a legal letter.

You are very well aware that we, Eddie, Gay and I, would like to keep the status quo, where MMW would keep their revenue and ST would keep theirs.  From my point of view we have much bigger, much more interesting and challenging avenues to pursue.  I initiated this conversation with you (re outsourcing the mailing) prior to you going to Atlanta, and how we would move forward.  If we had planned to take over the mailing ourselves, would have I done that?  I think there is confusion with what Gay’s role would be at MMW… As I suggested, your work could be outsourced to MMW, with Gay looking after it and answering the phone with ST (or whatever your new name is).  It could be seamless with a win/win for both…

I am also very sorry we have arrived at this situation.  If this continues, there will be a lot of unnecessary unrest for both parties.  The only winner will be AMPCO.

I am seriously considering calling Ron myself.  I don’t think he will be very happy with this situation.  If it eventuates Permail is not taken into ST, all this unpleasantness will have been for nothing.

Whilst I fully appreciate your position and responsibility, you have my word our preferred course is to keep the status quo.

………………………

Steve, in closing, I have always been very supportive of you, when you worked as financial controller, and in highly recommending you to Ron and Kevin for this role.  A little more trust from you wouldn’t go astray.  At least speak to me first.

It will all work out for the best.

Have a good weekend.”

The reference to “AMPCO” is a reference to a competitor of Synavant, which is an alternative provider of data that is provided by Synavant.

48                  Mr Hawkes responded to Ms Boas’s email at 6.07 pm, saying relevantly as follows:

“I really would be grateful if you did contact Ron and give him your view of the situation.  As I said, I have had no response from him.  If he is unhappy with the way I have handled the situation I honestly don’t mind.

Maybe I am confused over Gay’s role at MMW.  When I spoke with Gay on Monday, she said that she was going to MMW and that she would be doing email and a direct mail – non-pharma and pharma.  Gay has been forcing the pace; she made it clear that she was leaving regardless of what happened with Permail and she gave the impression that she was indifferent about whether or not we did a deal with you – she just made it clear that she is leaving.  She was going to ring clients to let them know she was leaving and that she was going to MMW.  Given her contacts and reputation with clients, it is obvious that clients will follow her to MMW.  I asked her… not to ring clients until we had sent a letter and we have been waiting for her to give us a list of contacts.  Gay told me this afternoon that she has told loads of clients that she is leaving and where she is going.  As I said in my last email, I have no control over who she tells or what she tells them.  All I can see is the risk of a third of our revenue and profit walking out of the door.

………………………

Donna, I do appreciate all the trust and support you have given and I hope you know that it has been returned.  However, just as you found it hard to trust my motives over my comments the other day, I guess I do find it hard to know what is really going on here – I have been basing my decisions on Gay’s actions.

I’ll speak to you next week.” (emphasis added)

49                  At 9.05 pm Ms Boas sent a further email message to Mr Hawkes saying relevantly as follows:

“As we have previously discussed, Gay is not as confident as she would have one believe, and doesn’t handle adversity or confrontation very well.

Like me, she loves what she has done there, and finds it hard to leave, and this is the only way she can handle it.

Gay also will leave regardless of Permail as she is more comfortable with me, doesn’t like the continuing uncertainty with IMS/ST, and would enjoy the new challenges ahead.

As I see it we have three options.

1.         Due to reasons out of all our control the work, with the clients consent, goes to Permail.

2.         ST can outsource their work to MMW with Lynn taking care of the clients (as you know the clients want Gay).

3.         ST can outsource the entire management of their Direct Marketing.  Using Gay to deal with the clients, answering the phone with ST and the invoices coming from ST.

Options 2 & 3 would make us very happy.  Naturally, we would be very upset if it was handed to Permail on a platter, and also do not believe the clients would like it.  I know you support 2 or 3 also.

Atlanta should be supporting you more in your new role, even with all the issues they have.  If Ron doesn’t have the time he should delegate someone else to support you.  I am not judging what you have done as wrong, I don’t think the way you have handled it the ST way, however, you have had no support, no advice, and have done what you feel to be correct in protecting the company, as I would have done.

………………………

I have to agree with Gay’s decision to inform the clients.  She has her own reputation, which has been built up over the past twenty years, to protect.  She was afraid it would take as long as my letter took.

Steve, I only wish you well, and hope I can always be there for you.  I am not your enemy.  We instantly had a very special friendship which I hope will last longer than our new company or IMS/ST.  If we can work together we will both do very well.  Our potential new products will compliment what you offer the clients, and I truly believe we could have a valuable relationship for both parties.

………………………”

50                  On 2 August 2000, there was a further exchange of email messages between Ms Boas and Mr Hawkes.  At 6.16 pm, Mr Hawks sent a message as follows:

“As I said on the phone, Ron has given me permission to explore some sort of deal with MMW to subcontract the mailing.  One proviso was that we should not be locked into anything which was long term.  His suggestion was to work on a month by month basis.  I have thought about this and I would imagine this would be too short term for you and will also create a degree of uncertainty in the whole relationship.  I would suggest that we make the arrangement a rolling 4 or 6 month contract.  Therefore, it would effectively be for an indefinite period but either party could give 6 months notice at any time if they wanted to get out of the arrangement.

In terms of how we structure the agreement, I would agree with you that Option 3 (of your email dated 28 July) would be the one most likely to maximise the revenue.  I have two concerns with this option:

(i)        we are even more reliant on Gay; and

(ii)       what will be Gay’s availability?  She is currently working more than a full work on pharma mailing.  If she continues this at MMW how will she also be able to handle the non pharma and email activities?  I am not saying we shouldn’t go with this option, I am just flagging my concerns.

I would imagine our agreement would include the following main terms:

(1)       any revenue which currently comes to ST would continue to come to ST (i.e. any mailing for pharma companies or agencies acting for pharma companies);

(2)       we refer clients to Gay’s number at Lane Cove as our direct marketing division and Gay would answer the phone as Synavant;

(3)       we would guarantee that all letter shop work would go through Mail Marketing Works;

(4)       we would agree prices so that our margins after factoring in Gay’s costs do not suffer.

………………………”

51                  Ms Boas responded at 6.49 pm saying as follows:

“All looks good to me.  (I have only just read it)

Nothing is unsurmountable, we can work through issues.  Let me know when you have some time so we can sit down and discuss.

One issue I would like to raise.  Should I contact the agencies and advise we are negotiating a deal to work together, nothing final.

One reason is an employee of one of the larger agencies called all staff together and advised Gay and I were leaving to ‘start up all over again’ and they were to us all their support.  I don’t want agencies, or clients for that matter think that is what we are doing.  As you are aware, I have some great NEW ideas.

Working together we can both be successful.

………………………”

52                  On 10 August 2000, a letter jointly signed by Ms Boas and Mr Hawkes was sent to the pharmaceutical clients of Synavant referring to the departure of Ms Boas and Ms Harris from Synavant.  The letter indicated that Ms Boas and Ms Harris were forming a company that would provide the pharmaceutical industry with “with NEW products and services that will complement those offered by ST”.  The letter went on to say:

“Steve Hawkes, managing director of ST, and I are currently negotiating a contract whereby ST will outsource their direct marketing to Mail Marketing Works (MMW), the mailing house that has been processing ST’s direct marketing for the past 5 years.  We are confident that we will arrive at an agreement offering both companies mutual benefits, but most importantly a seamless transition to you, our valued client.

Gay Harris will head up this department with MMW.  All it will mean to you is ringing a different number.  Gay will remain at the Pymble office for the next month, then re-locate to Lane Cove West. …

Steve, Gay and I are very conscious of the need to supply you with the best possible service in this area; the deal is being negotiated with the best interests of all parties in mind.  As soon as all details are finalised we will advise you.  In the meantime, business continues as normal.

………………………”

53                  After further negotiations during August 2000, the Subcontracting Agreement, between Synavant and MMW, was entered into on 1 September 2000.  The Subcontracting Agreement recited that:

·        Synavant is currently involved in selling direct marketing services to the pharmaceutical and health care related industries;

·        that selling activity is currently performed by Ms Harris;

·        MMW currently processes the direct marketing jobs on behalf of Synavant;

·        Ms Harris will cease to be employed by Synavant on 31 August 2000 and will be employed by MMW from 1 September 2000;

·        Synavant will subcontract its direct marketing selling activities to MMW;

·        the intent of the agreement was that neither party’s revenues or profits would be adversely affected as a result of entering into the agreement.

Synavant agreed that during the term of the Subcontracting Agreement, it would use no other company except MMW for the processing of mailings or any letter shop activity.  The commencement of the agreement was to be 1 September 2000.  It was to be in effect for four months and was to continue thereafter until either party gave the other not less than four months written notice of intention to terminate.

54                  The services to be provided by MMW under the Subcontracting Agreement were set out in a schedule as follows:

“                      Outline of Services/Responsibilities

1.         Gay Harris will be located at MMW’s offices, together with one of the existing client service assistants (currently Faye Senico) and the production assistant (currently Ruth Holcombe).  PMS-Walsh will inform existing Direct Marketing clients of new contact information for Gay Harris and her assistants.

2.         With effect from September 1, 2000 Gay Harris, Faye Senico and Ruth Holcombe will be employees of MMW.

3.         All sales and servicing activities performed by Gay Harris (or her assistants) will be performed in the name of IMS Health Strategic Technologies – or whatever trading name or legal entity name PMS-Walsh specifies.  This applies only to direct marketing activities performed directly or indirectly for pharmaceutical or healthcare companies.   Specifically, it does not apply to any email marketing activities or the provision of services to companies outside of the pharmaceutical and healthcare industries with the exception of agencies acting on behalf of pharmaceutical or healthcare companies.  Where agencies act for both pharmaceutical and non-pharmaceutical companies, this provision shall only apply to the extent that an agency is acting on behalf of a pharmaceutical company.

4.         One of the client service assistants (currently Catherine Bigg) will remain based at PMS-Walsh’s office.  Catherine will provide back-up for the other client service assistant and perform the same functions, either at PMS-Walsh’s office or at MMW’s office.  She will also act as the co-ordinator for data requests.  Procedures will be put in place to ensure that al relevant staff at PMS-Walsh’s office and MMW’s office are fully aware of the status of all Direct Marketing jobs – from the quotation stage to completion and invoicing.

5.         Data required for the mailing activities covered by this Agreement shall be maintained by PMS-Walsh and supplied to MMW at no cost.

6.         Both parties will agree upon templates to be used to request data required for mailing purposes.

7.         Invoicing of clients will be the responsibility of PMS-Walsh.  MMW will ensure that sufficient information is provided on all jobs performed on behalf of PMS-Walsh to enable accurate invoices to be issued in accordance with PMS-Walsh’s monthly reporting timetable.

8.         Separate phone lines will be provided at MMW’s offices to handle PMS-Walsh’s Direct Marketing activities.  If both parties consider it necessary, an ISDN line will also be installed connecting PMS-Walsh’s office and MMW’s office to facilitate the transfer of data.”

55                  On 4 October 2000, Mr Hawkes caused to be sent to Synavant’s clients in the pharmaceutical industry a letter signed by himself and Ms Boas in the following terms:

“In August we wrote to advise you that negotiations were in progress whereby IMS Health Strategic Technologies… would subcontract its direct marketing activities to Mail Marketing Works.  We are pleased to confirm that we concluded the agreement, which is effective immediately.  Gay Harris is now based at Mail Marketing Works and retains her position as Manager, Direct Marketing…

A new company has been set up by [Ms Boas] called TRANSCENDENT.  This company is currently in the process of developing new products and services for the pharmaceutical manufacturers.  These products will complement those offered by Synavant.

It is the intention of both our companies to work closely together to offer you, the client; products and knowledge based solutions, which help you achieve business success.  We will keep you informed of our plans and give details of our new products as soon as they are available.”

56                  By reason of the conversations that Mr Hawkes had with Ms Boas in the first half of 2000 and the exchange of emails on 28 July 2000, Mr Hawkes understood that Synavant’s revenues would not be affected by entering into the Subcontracting Agreement and that Ms Boas did not intend to compete with Synavant.  He believed that, on the basis of Ms Boas statements, she wished to be involved in conducting the business of collecting and selling prescription sales data, an area in which Synavant does not operate.  Mr Hawkes believed that the proposed operations of Ms Boas and Synavant would be complementary and not competitive.

57                  Mr Hawkes would not have caused Synavant to enter into the Subcontracting Agreement if he had not had those communications with Ms Boas.  Further, if he had not had those communications and the email communications on 28 July 2000, Mr Hawkes would have ensured that, following the departure of Mrs Boas and Ms Harris, Synavant:

·        took steps to prevent any of the respondents obtaining access to any of Synavant’s confidential information;

·        employed new staff to carry out its direct marketing services internally;

·        took further steps to strengthen the relationship between its own staff and the staff of its clients;

·        considered commencing legal action to prevent breaches to the restraints in the Share Acquisition Agreement and the employment contracts;

·        did not permit or assist any of the respondents to deal with Synavant’s clients.

58                  Mr Hawkes gave evidence that but for the conversations that Mr Hawkes had with Ms Boas in the first half of 2000 and the exchange of emails on 28 July and 2 August 2000, Mr Hawkes would not have signed the joint letters addressed to clients in the pharmaceutical industry.

THE PRESENT DISPUTE

59                  On 22 June 2001 MMW wrote to Synavant, referring to the Subcontracting Agreement and saying that MMW was giving notice that it intended to terminate the Subcontracting Agreement in four months from the date of that letter, namely, on 22 October 2001.  The letter went on to say:

“We have appreciated our mutually advantageous relationship and would like it to continue. 

Therefore, we would like to set up a meeting at your earliest convenience to discuss further dealing between our companies.”

60                  In response to that suggestion, Mr Hawkes and Mr Boas met on 25 June 2001 at the offices of MMW in Lane Cove.  They had a conversation to the following effect:

Mr Hawkes:  “How can we work together?”

Mr Boas:  “One area we could continue to work together is if you continue to supply us with your database.  You could also continue to operate the response management business.”

Mr Hawkes:  “Is there anything else”

Mr Boas:  “There’s nothing else.  If you want to terminate the agreement earlier, we’d agree to that.  We can always go to the AMA for the doctors database, or we can set up a database ourselves using pharmaceutical companies like Pfizer.

We have had advice that the non-compete provisions are not enforceable.”

 

Mr Hawkes’ account of this conversation was slightly different.  In my opinion, nothing turns on the discrepancies.

61                  On the following day, 26 June 2001, Ms Boas wrote to Mr Hawkes requesting him to agree to release her from the non competition provisions contained in Clause 11 of the Share Acquisition Agreement and clause 11 of her employment contract “effective immediately”.  Mr Hawkes responded by way of letter of 28 June 2001 saying that the request had been passed “on to Corporate to get their formal response”.  However, the letter went on to contain Mr Hawkes’s suggestion as follows:

“We have discussed this on a couple of occasions and you assured me that you have no intention of competing with Synavant while Ron and I are still involved.  You also indicated to me the type of products you had in mind to develop and I do not believe they would compete with ours.  We both signed a joint letter to the industry last October in which it was stated that you have formed a new company – Transcendent which is developing new products and services that would be complementary to Synavant’s.  If you feel uneasy that these products may be deemed to be competitive to Synavant’s I would be willing to consider signing a statement that Synavant does not consider these specific products as constituting a breach of the non competition provisions.

I would be happy to discuss this further if you wish.”

62                  Following Mr Hawkes’s letter of 28 June 2001, he and Ms Boas met.  In the course of the meeting a conversation as follows occurred:

Mr Hawkes:     “Why do you want a release?”

Ms Boas:         “I want to be free to compete in everything that Synavant does.”

Mr Hawkes:     “You know I can’t give you that.”

Ms Boas:         “I wouldn’t expect you to, but my solicitor recommended that I take you up on your offer to meet and discuss things.”

63                  Thereafter there was correspondence between the solicitors acting for the respective parties to this proceeding.  In the correspondence, Synavant sought undertakings from the respondents that they would not compete.  The respondents declined to give the undertakings sought.  Further, on 21 August 2001, each of Ms Harris and Ms Boas commenced proceedings in the Industrial Relations Commission of New South Wales seeking orders that certain provisions of clause 11 of the Share Acquisition Agreement and clause 11 of their employment contracts be declared void or be varied so as to limit the period of restraint.  Finally, this proceeding was commenced by application filed on 6 September 2001. 

CREDIT OF WITNESSES

64                  The evidence in chief relied on by all parties was, with minor exceptions, given by affidavit.  That course was permitted because of the urgency with which the matter was brought on for final hearing.  There was cross-examination of most of the witnesses.  I consider that each of the witnesses who gave evidence, both by affidavit and viva voce, did so honestly. 

THE ISSUES

QUIA TIMET INJUNCTIONS

65                  Synavant sought injunctions against the respondents on the basis of threatened breaches of the contractual restraints.  There was no evidence that there had been any breach of the restraints to date.  Synavant contended, however, that there is evidence of threats to do so.  Having regard to the conclusions that I have reached, it is unnecessary to determine whether a basis for quia timet injunctions had been made out.

Confidential Information

66                  Synavant also sought injunctions to restrain alleged threatened breaches of confidence.  The claims were based both on the terms of the provisions of Clause 11 of the employment contracts and on the general law. Without making any admissions, the respondents have proffered undertakings relating to confidential information that have been accepted by the Court.  Accordingly, it is unnecessary for me to determine whether a basis for quia timet injunctions in respect of threatened use of confidential information has been established.

Reasonableness of THE restraints

67                  Prima facie, any covenant in restraint of trade will be void unless the party seeking to enforce it is able to demonstrate that the restraint was no more than was reasonable in order to protect a legitimate interest of that covenantee – Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 (“Nordenfelt”).  It is common ground that the provisions of clause 11 of the Share Acquisition Agreement and clause 11 of the employment contracts constitute restraints of trade in the relevant sense.  The question, therefore, is whether I am satisfied that the restraints were reasonable to protect relevant legitimate interests of Synavant at the time when the restraints were entered into.

68                  The first question that arises for determination is of the construction of the arrangements entered into on 14 July 1997.  Synavant contends that the reasonableness of the restraints contained in the employment contracts should be assessed on the basis that they form part of the consideration for the sale of the shares in PMS.  The considerations relevant to the reasonableness of a covenant in restraint of trade will differ according to whether the covenant is given as part of the consideration for the sale of the goodwill of a business or as consideration for entering into the relationship of master and servant – see Nordenfelt. 

69                  In some circumstances, a restraint of trade imposed upon an individual who is about to commence employment may be treated as part of the consideration for the sale of goodwill, as where the individual enters into the employment of the purchaser of the goodwill of a business previously carried on by that individual.  Where the sale of a business carried on by a company is effected by means of a sale, not of the business itself, but of the issued capital of the company, it is commonplace for the parties to require that promises on the part of the shareholders be given, not only to the purchaser, but also to the company whose shares are the subject of the sale.  Similarly, where the holders of the shares are not the individuals who are responsible for the management of the company, it is commonplace for a purchaser to require that the individuals responsible for management also enter into restraints in order to afford protection to the purchaser in respect of the goodwill for which it is giving consideration – see Pioneer Concrete Services Ltd v Galli [1985] VR 675 at 692 ff and Allied Dunbar (Frank Weisinger) Ltd v Weisinger [1988] IRLR 60 at paragraph [31].

70                  However, in the present case, separate and distinct covenants have been given by the Vendors on the one hand and those Vendors’ Associates who entered into employment contracts on the other hand.  The Vendors’ Associates were not asked to give the covenants given by the Vendors.  Rather, it was a condition of completion that some of them enter into the employment contracts.  Nevertheless, they gave warranties which included the obligation to indemnify Synavant in respect of any breach of the Share Acquisition Agreement, which would include a breach of clause 11.  The Share Acquisition Agreement exhibits a considerable degree of formality and sophistication.  All parties to that agreement were represented by legal practitioners in connection with the negotiation and completion of it.  It is significant, therefore, that separate restraints were imposed on different parties in different capacities.

71                  The terms of the restraint undertaken by the Vendors on the one hand and the parties to the employment contracts on the other, recognise the different capacities in which the restraints were given.  Thus, under clause 11.2 of the Share Acquisition Agreement, the parties stated that its purpose was to protect Synavant in respect of the goodwill of the business of PMS.  That business was described in terms that are different from the description of the business to be protected by the employment contracts, which was the business of Synavant.  There would be no justification for the Vendors, or the Vendors’ Associates, entering into a restraint to protect the business of Synavant as part of the consideration for the sale of the goodwill of PMS.  In my opinion, the reasonableness of the restraints in clause 11 of the employment contracts must be assessed by reference to the considerations relevant to the relationship of master and servant rather than relationship of vendor and purchaser of the goodwill of a business.

Share Acquisition Agreement

72                  The evidence shows that as at July 1997, pharmaceutical manufacturers who sought support services in the areas of integrated technology, data marketing services, profiling, sampling and direct marketing did not base their choice on personalities.  Rather, they looked for the following qualities in a service provider:

·        reliability;

·        accuracy;

·        customer service;

·        technological innovation.

If a supplier of such services had more efficient technology and better and more innovative service, pharmaceutical manufacturers would readily change.  There was no rigid loyalty to one supplier.

73                  Mr Hawkes accepted that pharmaceutical manufacturers, or their advertising agents, come to Synavant because Synavant offered sophisticated data base information and software applications for use in marketing processes. He agreed that pharmaceutical manufacturers in the Australian market, and their advertising agencies, are primarily concerned with obtaining a higher standard of service and achieving the best outcome for the best price when seeking direct mail services.  Such manufacturers are interested in the most efficient delivery of the service that they require.  Mr Hawkes conceded that efficiency and reliability of service are more important in contracting for direct mail services than any personal relationship with the direct mail house or its personnel.

74                  As at July 1997, the technology available for managing and manipulating data base information and creating software programs for use by pharmaceutical manufacturers to assist in their sales and marketing was rapidly changing.  For example, the communication tool used in EPIC to send the daily data from sales representatives computers to the head office system (RxPlore) required separate software to communicate that data to head office computers.  More advanced technology would allow that information to be held on a seamless data base, not requiring the function of transferring data from the representative’s system to the head office system.  In addition, communications technology was advancing at that stage so that software such as “remote ware” was becoming more effective and accurate.  Internet and web based technology was being developed and becoming more commonly used at that stage as well.  There is evidence that it was commonly understood in the pharmaceutical industry that Internet technology would affect existing integrated data software solutions. 

75                  During the time that Ms Boas was managing director of Synavant, Synavant marketed proprietary software for its customer relationship management system.  By June 2000, proposals were introduced to license an entirely new software product to replace that proprietary software.  The process of change towards the new system has been continuing since Ms Boas ceased to be managing director of Synavant and the new system has been promoted by Synavant since then.  While that factor cannot be taken into account for the purposes of determining the reasonableness of the restraint, it does indicate the potential for change that existed as at the date of the Share Acquisition Agreement.

76                  As I have already indicated, the business being carried on by Synavant in July 1997 was similar to that of PMS.  Further, there were and are only limited numbers of major pharmaceutical manufacturers in Australia.  In addition, only a small number of organisations provided services that competed with Synavant as at July 1997.

77                  On 8 May 1997, a memorandum was prepared by Mr Bob Mander, in consultation with Mr Hawkes.  Mr Mander was the president of Synavant’s parent company.  The memorandum indicated that an initial business review of PMS had been carried out.  The memorandum outlined a number of risks involved in the proposed acquisition of PMS and the action that was proposed to overcome those risks.  The first risk concerned the “robustness” of EPIC and RxPlore.  The comment was made that the system was not “fully rolled out” at that stage.  The action proposed was to place a proportion of the consideration into escrow pending “client sign off” of the first system completion.  That indicates that a primary object of Synavant was to secure working EPIC and RxPlore systems.

78                  The second risk was concern about key staff retention.  The action proposed was entering into service contracts with a minimum term of two years with performance criteria inbuilt.  That suggests an expectation that, so long as key staff of PMS remained with Synavant for two years, the benefits of the business of PMS would be secured to Synavant.  After that, the loss of key staff would not be critical.

79                  A full report of the investigation of PMS was prepared on 27 May 1997.  The report referred to the “initial commercial/financial due diligence” carried out by Messrs Mander and Hawkes.  The report began as follows:

“[PMS] has a number of products, most of which compete with [Synavant] products.  Since [PMS] began, in February 1994, the bulk of the business has come from Direct Marketing activities while the technology products have been developed.”

The report contained a description of the breakdown of the revenue of PMS from its various activities.

80                  The report contained the following observation:

“Initial discussions with management suggest that there is little risk of loss of customers as a result of acquisition.  However, it is clear that the company has a better image in regard to customer service than [Synavant].  This should be one of the factors to look at when considering the name of the merged companies.  There is also some risk – not so much from the point of view of the company being acquired – but in terms of the key employees, such as Gay Harris in the Direct Marketing area.”

81                  Under the heading “HUMAN RESOURCES” the following appeared:

“Employees that are key to the Company’s success (Bob Mander’s comments).

(a)       Donna [Boas]– Managing Director – Has aspirations to be the Managing Director of the combined operation and politically, this may be a necessity.  Her management style is very relaxed.  She does not have any formal reporting relationships with her direct reports and the existing business is currently small enough to be managed in this way.  I suspect that the business currently at a threshold where it needs more structure in order to continue to develop and I am unsure if Donna could actually put this structure into place.  Donna clearly understands the business and remains close to clients and appears to be the main driving force in the customer service philosophy that exists in the business.  She comes from a direct marketing background.  Her technology knowledge is lacking and she relies heavily on her technology managers for this.  Presentation skills are weak.  She appears to be a lady of high integrity and very much wears her heart on her sleeve.

(b)       Gay Harris.  Responsible for the direct marketing revenue of the Company including projects and meetings.  Gay is a New Zealander by birth and trained as a representative for Schering AG in both New Zealand and Australia, prior to leaving to join Permail (mailing subsidiary of IMS) where she worked closely with Donna and Eddy.  Gay is in her mid forties and very well respected in the industry as a direct marketing opinion leader (in the same way that Joy Scott operates within the M.R. business in the U.S.).

 

Gay appears to be the centre of the rumour mill hub within the Australian Pharmaceutical market.  A high energy individual, although I suspect not as openly active in the industry as she was 5-10 years ago.  But nonetheless, runs a close knit department and one would have comfort in believing that she can continue to deliver the direct marketing revenue.  Gay talks a lot and often does not listen to the questions being asked.  This may have been nerves in our meeting.  She also lacks depth, is knowledgeable about direct marketing but little else, she gets lost when trying to answer questions on the technology or the strategic positioning of direct marketing products.

As with Donna, Gay is a strong advocate of customer service and clearly practices what she preaches in this area.  Of limited managerial ability beyond her current direct reports.  Gay has three staff reporting to her; two in customer service, they handle the direct contacts with the medium and high volume mailing clients, and one in production (this is essentially rep generated mailings and projects that are handled by this department).”

82                  On 12 May 1997, Mr Mander wrote to Mr Boas and Ms Boas a letter setting out a “preliminary understanding” concerning the proposed acquisition of PMS.  Under the heading “Description of Transaction” the following appeared:

“C.      Employment Agreements.  At the Closing, P.M.S. or Buyer, as the case may be, would enter into employment agreements with key employees (as determined by Buyer) of the Business that are satisfactory to Buyer and the applicable key employee.

D.        Non-Compete.  At the Closing P.M.S and/or designated employees and/or stockholders as determined by Buyer will agree not to participate in any business activity in competition with P.M.S. or Buyer, as the case may be, for a period of five years from the Closing.”

83                  It is necessary to justify all contracts in restraint of trade as reasonable in the interests of both the parties, by applying the test of reasonableness according to the situation the parties occupy, thus recognising the different considerations which affect vendor and purchaser of the goodwill of a business – Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574 at 590. 

84                  A substantial price was to be paid to the Vendors for the shares in PMS.  That price as attributable in part to the goodwill of the business at PMS.  The only legitimate interest that Synavant had in restraining the trading activities of the Vendors and the Vendors’ Associates as at 14 July 1997 was the protection of the goodwill of PMS.  That was the expressed intention of clause 11.2 of the Share Acquisition Agreement.  That business was described as “pharmaceutical company support through the provision of integrated technology, data marketing services, profiling, sampling and direct marketing”. 

85                  The most important consideration on the question of the period of the restraint that would be reasonable to protect an investment in goodwill is the time required for severing the relationship between the vendor and those clients who would patronise the business after its sale – Iraf Pty Ltd & Ors v Graham [1982] 1 NSWLR 419 at 429.  The matter involves the exercise of business judgment.  For that reason, considerable weight should attach to the period the parties themselves have selected.  Nevertheless, it is still necessary for the Court to make its own judgment.  The Court must decide whether or not it is satisfied, the onus being on the covenantee, that the restraint provides no more than adequate protection.  When free and competent parties agree, and the background provides for some commercial justification on both sides for their bargain, such an onus might easily be discharged.  Nevertheless, the Court must form its own judgment in dealing with the question of reasonableness as between the parties – Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co. Pty Ltd (1973) 133 CLR 288 at 308.

86                  There is no evidence that any particular thought or consideration was given by the parties to the selection of the maximum period of 5 years contained in clause 11.4 of the Share Acquisition Agreement.  Indeed, the structure of clause 11.4 signifies that the parties had some reservations about the enforceability of a restraint for that period.  That is the only explanation for the structure of alternative periods from as short as 12 months to the maximum of the period of 12 months after the fourth anniversary of completion.

87                  Having regard to the matters I have referred to above, I am not satisfied that any period in excess of three years from Completion would have been necessary to protect the legitimate interest of Synavant in securing the goodwill of PMS.  Two years was seen as the period of commitment necessary to be obtained from key staff.  Technological change indicated that the benefit of the software systems that were being acquired would be of limited duration.  The business in which Synavant operated was such that greater emphasis was placed on efficiency and service than on any particular personality or skill.  It follows in my opinion, that the restraint imposed by clause 11 of the Share Acquisition Agreement was unreasonable in so far as it operated after 14 July 2000.  The restraint is therefore no longer operative.

Employment Contracts

88                  The reasonableness of the restraint for each of Ms Boas and Ms Harris must be considered separately.  They performed distinct and separate functions in relation to the business of PMS.  They were also to perform distinct and separate functions in their new employment by Synavant.

89                  As I have indicated, a restraint in an employment contract serves a purpose that is different from the purpose of a restraint in a sale agreement designed to protect goodwill.  The legitimate interest of a master in restraining competition by a servant after termination of the employment contract is to protect against the connection with customers and clients that the servant might acquire by reason of the employment – Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653-4 (“Lindner”).  It is necessary to consider what it was for which, and “what it was against which, [Synavant] needed protection” in relation to the employment of Ms Boas and Ms Harris – see Lindner at 653. 

90                  Following the approach in Lindner, Synavant was entitled to protection against the possibility of its being affected by the personal knowledge of and influence over the customers that Ms Boas or Ms Harris might acquire in their employment.  When their employment comes to an end, they should not be in a position to use the intimacies and the knowledge that they had acquired in the course of their employment in order to create or assist a competing business in the same area and, by doing so, undermine the business connection of Synavant.  Synavant was entitled to protect itself against loss that may otherwise arise from the mere existence of a personal relation between its customers and Ms Boas and Ms Harris.  That relation, when resulting from the employment, is an advantage accruing to Synavant and was properly exercisable only for its benefit.

Ms Boas

91                  Ms Boas had no particular skill or expertise.  That is apparent from the report of 27 May 1997.  In cross-examination, Mr Hawkes confirmed the view that Ms Boas’ technology knowledge was lacking and that she relied heavily on her technology managers.  When Ms Boas left Synavant in June 2000, the Synavant and PMS databases had not yet been merged.  Ms Boas had no technical input nor any technical understanding of how that merger could take place.  While Ms Boas, as managing director of Synavant, encouraged the former technical staff from both Synavant and PMS to effect a merger of the Scriptrac database and doctor profiling database of PMS, she had no understanding of the structure or technical procedures required for building or maintaining such databases.

92                  Ms Boas had no technical expertise in the area of software applications.  Her only familiarity with them was at the “sales end of the market”.  The only understanding that she has of Synavant’s software applications was a commercial understanding of what they could achieve for a pharmaceutical client.  I have already referred to the nature of the businesses of PMS and Synavant, such that, in the relevant market, clients are concerned more with reliability, accuracy, customer service and technological innovation rather than with personalities.  Mr Hawkes accepted that clients are driven by service and price.

93                  Ms Boas’s duties did not require her to be concerned with details relating to pricing.  There was no set formula used by PMS for setting the prices that PMS charged pharmaceutical manufacturers for the use of its software solutions as at the time of completion. 

94                  The reasonableness of the restraint sought to be imposed on Ms Boas must be considered at the time at which it was entered into.  At that stage, the commitment of employment was for no more than two years.  The interest that Synavant had to protect was the connection with its customers and clients that would arise from the employment.  I am not satisfied that it would have been reasonable to restrain Ms Boas for more than six months after the termination of her employment by Synavant.  That period has now expired.

95                  Clause 11.3 of her employment contract restrains Ms Boas from being “employed, engaged or interested in any business of the same type of similar nature to the Restrained Business”.  However, the restraint in clause 11.2 on soliciting or seeking the custom of any of the customers or clients of Synavant is unqualified.  In so far as that would restrain the soliciting or seeking custom from customers or clients of Synavant in connection with a business unrelated to the Restrained Business, the restraint is unreasonable.  It may be that, on its proper construction, the restraint should be limited to soliciting or seeking custom of any of the customers or clients of Synavant in connection with a business of the same type or similar in nature to the Restrained Business.  If so construed, it would be a reasonable restraint, provided that it did not operate for more than six months after termination of the employment.

Ms Harris

96                  Mr Hawkes agreed that the market in Australia for direct marketing by pharmaceutical manufacturers is fairly small.  Ms Harris had worked in that industry for over twenty years.  Thus, she had a connection with most of Synavant’s clients and customers before she began to work for Synavant in 1997.

97                  Ms Harris’s role with PMS was to co-ordinate the mail processing to be done by the mailing house.  That involved:

·        sending a quote to a client who had requested a job;

·        if the quote was accepted by the client, requesting data;

·        briefing the job to a mailing house;

·        liaising with the client on delivery of material in accordance with the time lines of the mailing;

·        liaising with the client during and after the job finished to ensure the outcome was satisfactory.

98                  In her employment with Synavant, Ms Harris was to provide a “bridge” between Synavant, as data provider, and the mailing house that was to effect the processing of mail.  Her duties were to co-ordinate and facilitate the work as between the extraction of the data and the effecting of the mail processing.  She had no technical skills in relation to software development.  In the area where Ms Harris worked, she would not have any need for information about Synavant’s clients in the non-mail services area.  Mr Hawkes conceded there was no need, in doing her job, for her to know anything about Synavant’s profit margins for mailing services.  Her job was to provide a quotation for a direct mail campaign and to send the information to Synavant’s accounting staff for the issue of invoices.  She had no need, in the function she was to perform, to know how to create or maintain the database information, in terms of programming.  Her duties as co-ordinator of mail processing did not involve the creation or development of data base information or software programs.

99                  Ms Harris was responsible for providing quotes to clients and negotiating prices.  Each job was different and there was no rigid regime, with the exception of the pricing for the data itself.  The market price for direct mailing services frequently changed, especially as a result of technological developments.  Ms Harris’s role required an exercise in judgment, but I am not persuaded that she acquired that judgment through her employment at Synavant, rather, it was acquired as a result of over twenty years’ experience in direct marketing.  Ms Harris did not have any involvement in the setting of prices.  There was a standard price that Synavant charged for ad hoc mailing usage of its data base entries.  Mr Hawkes agreed that there was no rigid pricing structure that Ms Harris was required to follow.

100               Ms Harris’s role at Synavant was to co-ordinate data base management and product campaigns.  Mr Hawkes agreed that the time necessary to train a replacement for Ms Harris adequately and to equip the replacement to perform the function that she performed was no more than about six months.

101               Ms Harris said in cross-examination that there were a number of people who would fulfil the role that she performed for Synavant.  In re-examination she named at least five people who currently work in the pharmaceutical industry and who had worked there since 1997 who she said had better contacts than she had and who could easily do her role in far less than six months.  She said all of the persons she could name had the same contacts with Synavant’s clients that she had.

102               Evidence was given by Mr Barrie McDonald, who established the Tandem Group, an advertising agency that provides advertising marketing and communication services to pharmaceutical manufacturers.  Mr McDonald said that, when seeking to obtain direct mail services on behalf of a client, he looks for the following qualities:

·        professionalism and ability to respond quickly to requests for quotes or other requests for information;

·        knowledge of matters relevant to direct mail campaigns on behalf of the pharmaceutical industry;

·        access to a list of doctors and/or other health professionals as may be required; and

·        competitive price.

103               Mr McDonald has been acquainted with Ms Harris for over fifteen years from the time when she was employed by Permail.  During that time, he has used the direct mail services provided by Ms Harris and the companies with which she has been associated.  However, when seeking direct mail services on behalf of a pharmaceutical manufacturers he has always obtained more than one quote for the particular job.  Because he is primarily concerned with the best outcome for his client for the best price, he has not always used the direct mail services that have been offered by Ms Harris or the companies with which she has been associated.

104               Mr McDonald said that pharmaceutical manufacturers and their advertising agencies are primarily concerned with obtaining a higher standard of service and achieving the best outcome for the best price when seeking direct mail services.  Those factors are more important in contracting for direct mail services than any personal relationship with the direct mail house or its personnel.  Pharmaceutical manufacturers are price sensitive in relation to the fulfilment of their direct mail requirements.  As a result, Mr McDonald rarely uses a more expensive direct mail provider in circumstances where more than one quote has been obtained.

105               Price and standard of services are far more important to Mr McDonald than personal relationships in determining who he uses to obtain direct mail services.  He considers that three direct mail jobs would be sufficient for a person who took over Ms Harris’s current role of co-ordinating direct mail services on behalf of Synavant to demonstrate the required standard of service.  In normal circumstances, those three jobs would occur over a period of less than a year.  Other advertising agencies and pharmaceutical product managers use similar criteria to Mr McDonald in selecting providers of direct mail services.  Mr McDonald’s evidence was not challenged.

106               In the light of the matters that I have described above concerning Ms Harris, I am not satisfied that any restraint in excess of six months after termination would have been reasonable in order to protect the legitimate interest of Synavant in relation to the client and customer connection that would be established by reason of Ms Harris’s employment by Synavant.  That period has now expired.

107               For reasons which will become apparent, notwithstanding that any restraint contained in clause 11 of Ms Harris’s employment contract is no longer operative, it is necessary to consider the extent to which it would have been enforceable.  Under the general law, the restraint, being greater than was reasonable in order to protect the legitimate interest of Synavant, is void.  However, it is common ground that, by the operation of s 4(1) of the Restraints of Trade Act 1976 (NSW), the restraint is valid to the extent to which it was not against public policy. 

108               The observations I have made concerning clause 11.2 of Ms Boas’s employment contract apply equally to Ms Harris.  That is to say, the restraint would be unreasonable if it extended further than the job which Ms Harris was in fact engaged.  I consider that it would have been reasonable for Ms Harris to be restrained for a period of six months following termination of her employment from:

·        soliciting, canvassing or seeking the custom of the clients of Synavant in relation to direct marketing services, integrated technology and data marketing and direct mail processing;

·        acting for any client of Synavant in relation to direct marketing services and of direct mail processing;

·        approaching any client of Synavant to influence it to cease to carry on business with Synavant.

109               Direct marketing services and direct mail processing were activities in which Ms Harris was employed by Synavant.  However, as I have indicated, she was not involved in integrated technology and data marketing.  Nevertheless, to the extent that she established a connection with the clients of Synavant, Synavant had a legitimate interest in preventing her from taking advantage of that connection in order to engage in integrated technology and data marketing to the detriment of Synavant.  Accordingly, it would have been reasonable to restrain the activities that I have just described, but no more.

contravention of trade practices act

110               In the alternative, Synavant claims that certain representations were made to Synavant in breach of s52 of the Trade Practices Act 1974.

corporation in trade or commerce

111               There will be no contravention of  s 52 unless the misleading or deceptive conduct was by a corporation in trade or commerce.  Synavant alleges the following conduct:

(i)                  Ms Boas, on behalf of MMW and Transcendent, represented to Mr Hawkes that:

(a)    she wanted to establish her own company and carry on the business of selling prescription data;

(b)   MMW and Transcendent would not compete with Synavant whilst Mr Hawkes and Mr Ron Brown remained with Synavant;

(c)    MMW, Transcendent and Synavant would come to an arrangement;

(d)   Ms Harris would leave Synavant with Ms Boas;

(e)    Synavant would keep its revenue and MMW would keep theirs.

(ii)                Ms Boas, on behalf of MMW and Transcendent made representations to Mr Hawkes that:

(a)    Mr Hawkes was confused as to what Ms Harris’s role at MMW would be;

(b)   Synavant’s direct marketing work would be outsourced to MMW, with Ms Harris looking after it and answering the phone using Synavant’s name;

(c)    it could be a seamless win/win situation for Synavant and MMW;

(d)   MMW and Transcendent’s preferred course was to keep the status quo whereby MMW and Transcendent did not compete with Synavant;

(e)    Mr Hawkes should trust MMW and Transcendent;

(f)     Transcendent’s new products would complement those offered by Synavant; and

(g)    MMW and Transcendent had no intention of competing with Synavant.

(iii)               Ms Harris, Ms Boas, Mr Boas, MMW or Transcendent did not inform Synavant that they did not consider the restraint covenants contained in the employment contracts or the sale agreement binding on Ms Harris or Ms Boas.

(iv)              Ms Harris, Ms Boas, Mr Boas, MMW or Transcendent did not inform Synavant that they intended to carry on business in competition with Synavant.

(v)                Ms Boas, on behalf of MMW and Transcendent, made representations to Mr Hawkes of Synavant to the effect that:

a)      Transcendent was in the business of selling prescription sales data;

b)      MMW and Transcendent were not competing with Synavant;

c)      MMW and Transcendent were not planning on competing with Synavant.

In the context where, at the time of the representations:

·        Mr Boas and Mrs Boas were directors of MMW and Transcendent;

·        Mr Boas was secretary and Chairman of MMW;

·        DMC was the majority shareholder of MMW;

·        DMC and DMB each owned 50 per cent of the shares in Transcendent; and

·        Ms Harris had a long professional and business relationship with Ms Boas, through their work together at Permail and the establishment of PMS; and

·        Ms Harris had expressed the intention of following Ms Boas to MMW,

I am persuaded that the above representations were made on behalf of either MMW or Transcendent.  The representations were made in the context of negotiating the subcontracting agreement.  That being so, it is clear the representations were made in the course of trade or commerce.

misleading

112               The representations were misleading as it is now apparent that Ms Boas, through Transcendent, wishes “to be free to compete in everything that Synavant does”.  That is so despite Mr Hawkes’ still being with the company.  Representation (iii) was clearly misleading in view of the conclusion I have reached as to the validity of the contractual restraints.  It is not to the point that the respondents may not have known that the restraints were not binding.  The requirement of s 52 that conduct not be misleading or deceptive is an objective one – Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216 at 223.  Not only did the respondents’ conduct represent that the restraints were not binding, their conduct represented that they considered the restraints binding. 

reliance

113               Synavant’s claim under the Trade Practices Act 1974 alleges the representations outline above induced Synavant:

·        to enter into the Subcontracting Agreement;

·        to write joint letters to its customers of 10 August 2000 and 4 October 2000;

·        not to object to or endeavour to prevent MMW’s employment of Ms Harris;

·        permitted and assisted Ms Harris, Ms Boas, MMW and Transcendent to deal with Synavant’s clients after termination of the Employment Contracts;

·        not to take immediate steps to forge strong relationships between its clients and other Synavant staff;

·        to place itself in a position of vulnerability vis-a-vis the goodwill of its business and future profits.

114               In circumstances where the restraints of the Share Acquisition Agreement were no longer enforceable after 14 July 2000 and the restraints in the employment contracts did not extend more than six months after the termination of employment by Ms Boas and Ms Harris, it was misleading to say that MMW would keep their revenue and Synavant would keep theirs and that there would be a “win/win for both”.  It was misleading to say that if “we can work together we will both do very well”.  Those statements were likely to induce an expectation on the part of Mr Hawkes that the effect and consequence of the arrangement proposed under the Subcontracting Agreement would not be prejudicial to the revenues of Synavant. 

115               The net effect of those arrangements, however, was that Ms Harris’s involvement with customers and clients of Synavant continued on a “seamless” basis.  During the period when she would otherwise have been restrained from dealing with customers and clients of Synavant, Ms Harris was able to maintain a connection with those customers and clients. 

116               The Subcontracting Agreement was to continue in effect for four months from 1 September 2000, the date from which Ms Harris ceased to be an employee of Synavant and was to continue until either party gave at least four months notice thereafter.  If the restraint of Ms Harris’s employment contract were given effect according to its literal terms, it would have been possible for Synavant to have the benefit of the restraint, notwithstanding termination by MMW at the time when it actually gave notice of termination. 

117               More significantly, it would have been open to Synavant to terminate the arrangement so as to bring to an end Ms Harris’s continuing connection with its customers and clients.  To the extent that it was induced to enter into the Subcontracting Agreement by reason of conduct that was misleading, Synavant suffered detriment by that conduct, in that it lost the opportunity of ensuring that there would be a period of at least six months from the termination of Ms Harris’s employment before Ms Harris could commence dealing with customers and clients on behalf of a competitor of Synavant.

118               Ms Harris resigned from her position and undertook the performance of duties pursuant to the Subcontracting Agreement without informing Synavant that she did not consider that she was bound by the restraints in her employment contract for more than six months.  The Subcontracting Agreement provided in some detail for the functions to be performed by Ms Harris.  In the discussion in the presence of Mr Hawkes on 24 July 2000 Ms Harris made statements that indicated that when she left Synavant she would probably not be involved with pharmaceutical mailings.  That suggests that, but for the Subcontracting Agreement, she would not have been involved with pharmaceutical manufacturers.

119               Ms Harris gave evidence that she was not involved in the negotiation of the subcontracting agreement, nor was she an employee of MMW.  That was not challenged.  However, I consider that the conduct of Ms Boas and Ms Harris from June 2000 (see paragraphs [38] – [52]) evinced an intention on the part of Ms Harris to follow Ms Boas to MMW.  The subcontracting agreement itself specifically refers to Ms Harris’s services.  I infer that Ms Harris was also knowingly concerned in the contravention of s 52 by Ms Boas.  As a result, Ms Harris’s conduct contravened s 75B(1)(c) of the Trade Practices Act.

120               There was no evidence that any activities of Ms Boas during the currency of the Subcontracting Agreement was detrimental to Synavant.  That is to say, there was no maintaining of any connection between Ms Boas and clients or customers of Synavant.  The only detriment to Synavant was that Ms Harris maintained her connection with the clients of Synavant. To restrain Ms Harris from engaging, for a period of six months after the termination of the Subcontracting Agreement, in those activities that would have been prevented for the period of six months after the termination of her employment by Synavant, would overcome that detriment.  Accordingly, I propose to make such an order under s 87 of the Trade Practices Act.

CONCLUSION

121               It follows that Synavant’s claim to restrain any of the respondents on the basis of either the Share Acquisition Agreement or the employment contracts should fail.  Appropriate declarations should be made in that regard under the cross-claim.

122               However, it also follows that orders should be made restraining Ms Harris for the period of six months following the termination of the Subcontracting Agreement, to the extent that she would have been restrained upon cessation of her employment by Synavant on 31 August 2000. 

123               Synavant has been partially successful in its claim to restrain the respondents.  However, its success is clearly only partial, it having succeeded only in respect of Ms Harris.  While contravention of s 52 has been established in relation to Ms Boas, I have not been persuaded that any damage was suffered by that conduct or is likely to be suffered by that conduct.  The respondents, on the other hand, have also partially succeeded in relation to their cross-claim.  In the circumstances, I consider that it is appropriate that there be no order as to the costs of the proceeding, including the cross-claim. 

I certify that the preceding one hundred and twenty-three (123) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

 

Dated:              29 October 2001

Counsel for the Applicant:	Mr F M Douglas with Mr G K J Rich
Solicitor for the Applicant:	Baker and McKenzie
Counsel for the Respondents:	Mr M A Pembroke with Mr N Beaumont
Solicitor for the Respondents:	Allens Arthur Robinson
Date of Hearing:	15 - 19, 23 October 2001
Date of Judgment:	29 October 2001

 

 

SCHEDULE 1

 

 

3M Pharmaceuticals (Aust) Pty Ltd

Abbott Australasia (Currently in merger negotiations with Knoll – new name to be advised)

Adis International Pty Ltd

Alcon Laboratories (Aust) Pty Ltd

Allergan Pharmaceuticals Pty Ltd

Alphapharm Pty Ltd

Amfac Chemdata

AMGEN Australia

Aventis (formerly Hoechst Marion Roussel & Rhone Poulenc Rorer)

AMRAD Pharmaceuticals (now merged with Merck Sharp & Dohme)

AstraZeneca Pty Ltd

AZA Research (Division of Eli Lilly)

Bayer Australia

Baxter Healthcare

Beiersdorf (Aust) Pty Ltd

Blackmores Ltd

Boehringer Ingelheim Pty Ltd

Boots Healthcare

Bristol Myers Squibb Pharmaceuticals Pty Ltd

Commonhealth Australia

Commonwealth Serum Laboratories

CSL Limited

Dermatech

DNA Labs

Eli Lilly Australia Pty Ltd

Elite Healthcare

Faulding Pharmaceuticals

Gillette Australia

Glaxo Welcome Australia (now merged with SmithKline Beecham as GlaxoSmithKline)

GPO Accreditation Plus

Janssen-Cilag Pty Ltd

Johnson & Johnson

Knoll Australia Pty Ltd (now merging with Abbott Australasia)

Key Pharmaceuticals

Lundbeck Australia Pty Ltd

Men’s Health Clinic

Merck Sharp & Dohme

MIMS Australia (Medi Media)

Medi Media (NZ)

Novartis Pharmaceutical

Novo Nordisk

Novogen Ltd

Organon (Aust) Pty Ltd

Parke Davis Warner Lambert (now merged with Pfizer)

Pharmacia (formerly Phamacia & Upjohn – now merged with Searle Pharmaceuticals)

Pfizer Pty Ltd

Proctor & Gamble Australia Pty Ltd

Quay Pharmaceuticals Pty Ltd

Roche Products

Sanofi-Synthelabo Australia Pty Ltd (formerly Sanofi Winthrop)

Schering Pty Ltd

Schering Plough Pty Ltd

Searle Pharmaceuticals (now merged with Pharmacia)

Sigma Pharmaceuticals

SmithKline Beecham (now GlaxoSmithKline)

Sydney IVF Pty Ltd

Sydney Opthalmic Day Centre

Solvay Pharmaceuticals

Vital Medical Supplies

Western Sydney Health Services

Whitehall Laboratories Pty Ltd

Wyeth Australia Pty Ltd