Australia: Court of Appeal upholds 12 month restraint clause in employment contract
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Ross & Anor v IceTV [2010] NSWCA 272

Damages awarded against previous executive employees for breach of non-solicitation clause

Mr Ross and Mr Vogel were, respectively, the Chief Executive Officer ("CEO") and Chief Technical Officer ("CTO") of IceTV from February 2005. They left their employment on 4 October 2006, having served out a period of three months notice. Their contracts of employment included: non-competition clause; non-solicitation clause and confidentiality obligations.

IceTV distributed an electronic program guide for television known as the Ice Guide. The Ice Guide could be downloaded onto personal video recorders, set-top boxes and similar equipment.

A public float of IceTV was set in train in April 2006 with the objective of raising $3 million in capital. However, before the float could make substantial progress, Nine Network Australia Pty Limited commenced proceedings against IceTV claiming that IceTV had infringed its intellectual property. Although IceTV ultimately succeeded in the High Court (IceTV Pty Limited v Nine Network Australia Pty Limited [2009] HCA 14, 239 CLR 458), the institution of the legal proceedings brought about the demise of the float and left IceTV in a parlous financial position in mid-2006.

On 4 July 2006, Mr Ross and Mr Vogel were each given three months notice by IceTV terminating their contracts of employment. However, they were asked to continue working until the last day of the notice period and they did so.

IceTV claimed that after their employment was terminated, Mr Ross and Mr Vogel, through a corporate entity, Vogel Ross Pty Limited ("Vogel Ross"), breached their contracts of employment including by undertaking consulting work on behalf of Mobilesoft Pty Limited ("Mobilesoft"), a software engineering company which was a customer or potential customer of IceTV.

IceTV also alleged that Vogel Ross had intentionally induced and procured the breaches.

At first instance, Rein J found that the defendants had breached their contracts, and awarded damages in the sum of $43,488.19. The self-represented defendants appealed to the NSW Court of Appeal.

The first issue was as to whether leave was required to appeal, in the context that the award at first instance was less than $100,000. The defendants alleged leave was not required as their cross-claim was in excess of that amount. The cross-claim related to damages arising from an injunction IceTV obtained, preventing them from completing certain work until the matter was heard. The Court of Appeal agreed that given there was a prospect of an award exceeding $100,000 if the appeal and the cross-claim were successful, leave to appeal was not required.

The primary judge found that the defendants were not reliable witnesses. On appeal, the defendants made submissions attacking the findings adverse to their credit. The Court of Appeal did not see reason to review those findings, as a decision could be made in the absence of that issue. However, it was noted that there was a strong argument that the primary Judge's credit-based findings were flawed, at least insofar as they involved findings that the defendants set out to betray IceTV's interests.

In deciding the case, it was noted by the Court of Appeal that a restraint of trade is contrary to public policy and void unless it can be justified by the special circumstances of the particular case. Two conditions must be satisfied if the restraint is to be held valid. The restraint must be reasonable in the interests of the contracting parties and reasonable in reference to the interests of the public.

The interests protected by the nonsolicitation clause in issue were IceTV's goodwill and confidential information.

The restraint was imposed on each of the defendants for a period of 12 months. They were prevented from:

• Being competitive with the business of IceTV
• Canvassing or soliciting the custom of any person who has entered into discussions or negotiations with IceTV during the twelve months prior to termination of their employment.

The restraint and its period of 12 months were considered reasonable, in the context that the defendants were high level executives in a relatively small operation with involvement in negotiations and access to all confidential information. The restraint was not too broad to be valid, being confined to involvement by the defendants in a business competitive with that of IceTV.

The defendants had submitted that the primary Judge erred in awarding damages for breach of the non-solicitation clause because IceTV had not shown that it would have been engaged to perform the work. This proposition was rejected. The Court of Appeal stated that this finding was consistent with the evidence, and the award was appropriate.

The appeal was dismissed with costs.

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