Robert Anthony Hession v William John Rowson [1995] VSC 199; [1995] VICSC 199 (21 September 1995)

SUPREME COURT OF VICTORIA

ROBERT ANTHONY HESSION AND ANOTHER v. WILLIAM JOHN ROWSON
No. 7357 of 1995
Number of pages - 4

COURT

IN THE SUPREME COURT OF VICTORIA
PRACTICE COURT
BATT J

HEARING

MELBOURNE, 21 September 1995
21:9:1995

Counsel for the Plaintiffs: Dr C. Pannam QC

Counsel for the Defendant: Mr A.K. Panna

ORDER

Orders made.

DECISION

BATT J This is an application by the plaintiffs to restrain the defendant, their former partner, from soliciting clients of the firm of which they were all members and which was dissolved as at 30th June 1995, and from acting as solicitor for any clients so solicited.

2. I have heard necessarily abbreviated but helpful argument on both sides. In the press of business of this Court it is not possible to state fully my reasons, but I think that the losing party should have the benefit of an indication of my views and it is for that reason that I am having them transcribed. I do not propose to state the facts. I assume in these reasons that the affidavits and exhibits are available to those interested in the reasons.

3. The principle on which the plaintiffs rely, as found in Trego v. Hunt (1896) AC 7, is not in dispute. That is that, where a person has sold the goodwill of a business, whilst the person may be free to deal with former customers of that business if they approach him or her, he or she may not solicit them. Equity will intervene to restrain that. (Dr Pannam, QC, for the plaintiffs, twice said that contract was irrelevant, or words to that effect, but he did concede that the principles of equity upon which he relied depended for their application upon what had been agreed in the contract. In my view, the interpretation of the contract between the parties is central.)

4. What is in dispute is whether there was, on the dissolution, a sale of the goodwill of the business "Hardys" by the three solicitors to the two of them who are the plaintiffs. I disregard what the rival solicitor deponents have said about what they understood the heads of agreement were dealing with, or what they would have said if a question had been asked of them about the agreement made, or the agreement that was about to be made. It is true that the heads of agreement do not speak of goodwill in so many words, and it is true that they do not contain an express restraint upon the defendant from soliciting former clients of the old firm other than the clients whose files it was agreed he should retain, but in my view there is at the least a serious question to be tried whether the heads of agreement (which, as signed, were, as I understand it, the third version, the original and second versions of which were put forward by the defendant) do in fact by their terms show as a matter of construction of express terms - or, it may be, even by implication - that the three dissolving partners sold to the two plaintiffs the goodwill, the plaintiffs at the time being, in the contemplation of the heads of agreement, themselves about to constitute a firm of two partners.

5. The affidavit evidence justifies for present purposes a conclusion that the parties in their former partnership attributed a value to goodwill. In my view the terms of clause 6 and clause 10 of the heads of agreement make it, at the very least, seriously arguable that the three were transferring to the two the goodwill theretofore existing in the business "Hardys", or that the defendant was ceding to the plaintiffs his share in that goodwill. In my view it is seriously arguable that, by the plaintiffs becoming contractually entitled to the name "Hardys", they became contractually entitled to the goodwill inhering in that name and that there was in fact goodwill inhering in that name. In my view it is seriously arguable that the contractual arrangement, so far as presently relevant, encompassed in the heads of agreement was not simply that the defendant should be entitled to the work in progress (that is, the fees earned) in the files that he was by clause 6 entitled to take and the plaintiffs should be entitled to all other work in progress. In my view it is seriously arguable that the entitlement by contract of the defendant to take certain files was an exception cut out of the goodwill which was otherwise to pass to the plaintiffs by the contract.

6. Dr Pannam more than once drew attention to the benefits that the defendant got from the agreement by way of a release of the mortgage over his home, a release of his and his wife's personal guarantees of the partnership debts and an indemnity for the plaintiff, for what that might be worth, in respect of all partnership debts incurred prior to 30th June 1995 and not otherwise dealt with. I will not go into that in detail, but it seems to me that there is a serious argument that the consideration for those benefits was the retention by or transfer to the plaintiffs of the goodwill subject to the exception cut out from the goodwill that I have mentioned.

7. In my view, despite the arguments of Mr Panna for the defendant, there is a serious question to be tried whether the five cumulative criteria stated in the majority opinion in B.P. Refinery (Westernport) Pty Ltd v. Shire of Hastings (1977) 180 CLR 266 are satisfied. Those criteria have been adopted by the High Court in, amongst other cases, Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at p 347; see also the judgment of Ormiston, J. in Vroon B.V. v. Fosters Brewing Group Ltd [1994] VicRp 53; (1994) 2 VR 32 at 68 - 71.

8. It seems to me that the plaintiff's construction is strongly supported by the passage in the affidavit of the firstnamed plaintiff sworn 13th September 1995, to the effect that the defendant sought a further eighteen conveyancing files and that Mr Hession agreed he could have them subject to his paying the costs as noted on the list next to each file as a condition of his taking the files. The figures shown opposite each file are the costs earned to the relevant date, and there would be no point in the defendant's paying the amount of the work in progress on each file in order simply to be entitled to charge the relevant client that amount of work in progress. The conduct is, I consider, an acknowledgment that the defendant was not otherwise entitled to solicit the clients whose matters were dealt with in the eighteen conveyancing files. on the whole I think that I am entitled to use that strong evidence, notwithstanding that subsequent actings cannot be used in the interpretation of contracts and that there are limits, as discussed in FAI Traders Insurance Co Ltd v. Savoy Plaza Pty Ltd [1993] VicRp 76; (1993) 2 VR 343, about using admissions on a question of construction.

9. In my view, then, it is seriously arguable that the heads of agreement, on the proper construction of their express terms, involve a sale to the plaintiffs of the goodwill, or, alternatively, an implication that the goodwill was sold and transferred to them.

10. What has troubled me more in this case is the balance of convenience, in two respects. First, the defendant contended that he could not be adequately compensated in damages by the plaintiffs in the event that an interlocutory injunction were granted, because it would be almost impossible to say whether, but for the injunction, clients to whom he had written or might hereafter write would have engaged him for remunerative legal work; and it was put, by reference to Snell's Equity 29th Ed. p 661 and Garden Cottage Foods Ltd v. Milk Marketing Board (1984) AC 130, that the governing principle was that, if the plaintiff would be adequately compensated by an award of damages if he succeeded at trial and the defendant would be able to pay, no injunction should be granted, however strong the plaintiff's case. That is stated as a governing principle, but I do not think it is meant to be a statement of inflexible application. The grant or withholding of interlocutory injunction is a discretionary matter by virtue of s.37(1) of the Supreme Court Act 1986, as well as by virtue of the history of equity, and whilst guidelines may be laid down, they do not require adhesion in every case, as the Full Court has said, even taking into account Norbis v. Norbis [1986] HCA 17; (1986) 161 CLR 513: see, e.g., Leighton Contractors Pty Ltd v. Kilpatrick Green Pty Ltd [1992] VicRp 83; (1992) 2 VR 505.

11. In any event, I am not satisfied that damages would be an adequate remedy because, whilst one can ascertain the costs on a particular transaction for a particular solicited client, the relationship thereby commenced may run into the future and a client, once solicited, may be lost forever to the plaintiffs with further work being done long after trial. I do accept that it would be difficult for the defendant to quantify with precision the amount of damages suffered if at the trial the plaintiffs fail, but the defendant will no doubt be able to rely upon certain presumptions in that quantification.

12. The other matter that has caused me concern is the question of the strength or reliability of the plaintiffs' undertaking as to damages. Whilst I do not wish to embarrass the trial judge, I have to consider for this purpose the strength of the plaintiffs' case on the merits, and I must say that I consider it a strong case; and, although the undertaking may be frail, I do not think, having regard to the view that I take as to the strength of the plaintiffs' claim, I should in my discretion withhold an injunction on the ground of the frankly conceded frailty of the undertaking.

13. Particularly do I say that because I propose, with the concurrence - or, at any rate, without the opposition - of the parties, to fix a trial for the first week of October.

14. For the reasons that I have given, the interlocutory injunction will go. I will hear counsel as to the form of order.

15. It will be noted that the plaintiffs gave by their counsel the usual undertaking as to damages.

16. There will be orders that -
1. The defendant be restrained until the trial of this proceeding or further order from -
(a) taking any steps to solicit directly the plaintiffs' clients with a view to acting for them as solicitor;
(b) acting as solicitor for any person who was a client of the firm of solicitors "Hardys" as at 30th June 1995 (other than the persons whose files are identified in the schedule to the heads of agreement dated 26th June 1995, being exhibit RH2 to the affidavit of Robert Anthony Brendon Hession sworn 13th September 1995 or listed in the exhibit being RH3 to that affidavit) and who became or becomes a client of the defendant as the result of direct solicitation by the defendant.
2. This proceeding be fixed for trial in the Causes List on 3rd October 1995 on an estimate of two days.
3. The costs of this application be reserved.
4. Any party be at liberty to apply.