Former Southern Cross director in legal battle over contract snag

Former Southern Cross director in legal battle over contract snag

Court ruling an attempt to enforce competition clauses of the sale agreement

Credit: Dreamstime

The former executive director of Southern Cross Computer Systems (SCCS), Chris Palmer, is facing legal action in the Supreme Court of Victoria for allegedly breaking contract terms after working with a potential competitor.

In an action taken to court by SCCS and Ingenio Group earlier this year, Palmer's former employer claimed he allegedly contravened a clause in the share sale and purchase agreement he entered into when his company, Lendossa Pty Ltd, sold its share in the IT services firm.

SCCS, which rebranded as SXIQ in June, has alleged in its legal action that Palmer has been providing services to Melbourne-based reseller, Blue Connections, with the case being heard in June and July, and a judgement on the matter being handed down on 14 August.

The Court found that Blue Connections, which is understood to count Lenovo, Microsoft and Cisco among its vendor partners, could be considered a direct competitor of SXIQ, and therefore the request by Southern Cross to restrain Palmer from having any involvement with the company until 28 June 2020 should be upheld.

"The plaintiffs are entitled to an order restraining Mr Palmer from having any involvements in Blue Connections until 28 June 2020," Victorian Supreme Court Judge, Michael McDonald, said in his ruling. "The plaintiffs also seek orders which will have the effect of restraining Mr Palmer from soliciting persons who were employed by Southern Cross as at 28 June 2016 from leaving their employment with Southern Cross.

"However...I would not be prepared to make an order restraining Mr Palmer from soliciting customers of Southern Corss without a list of the relevant customers," he said.

In July, Judge McDonald heard arguments from both parties in regards to the extension of the clause 14.1(a) of the share sale agreement. The clause reads:

During the Restraint Period, each Restricted Person must not, within the Restrained Area, directly or indirectly, either on their own account or as an employee, member, shareholder, unitholder, director, consultant, adviser, contractor, principal, agent, manager, beneficiary, partner, associate, trustee, nominee, custodian, financier, representative, salesperson or in any other capacity whatsoever for any other person, firm, association or corporation (except as is expressly permitted by this agreement):

(a) carry on, engage in or have any involvement in the Restricted Business.

The Court understands that the clause restrains Palmer from carrying on, engaging in, or having any involvement in any business which is competitive with, or likely to be competitive with the business of IT procurement and associated IT managed services carried on by Southern Cross at the relevant time during the Restraint Period.

“I consider that the four year restraint period is reasonable,” said Judge McDonald. “First, Mr Palmer had worked at Southern Cross since May 2001. He was designated in cl 1.1 of the Agreement as a ‘Key Employee’. Second, the four year restraint period is a term in an agreement which was freely entered into by Mr Palmer’s company, Lendossa Pty Ltd.

“Third, Southern Cross paid a substantial amount of consideration in return for the terms of the Agreement, including the restraints imposed upon Mr Palmer. Fourth, although the Restraint Period operates for up to four years, the Agreement provides for Mr Palmer to continue as an employee of Southern Cross.”

Palmer’s company, Lendossa Pty Ltd, owned 40 per cent of the shares in SCCS. As a result of the sale, Lendossa was paid $3.5 million.

Before the sale was completed, Palmer entered into a one-year fixed term agreement until June 2017.

“Therefore, when the parties executed the Agreement, their expectation would have been that the restraint imposed by cl 14.1(a) would not operate prior to June 2017,” the judge said.

SXIQ is also seeking to prevent Palmer from asking SXIQ employees to leave the company. The reseller is also seeking to prevent that customers are referred to Blue Connections by Palmer.

The judge won’t be ruling on the clients' matter until it is presented with a list of relevant customers. These matters are still in court.

ARN contacted SXIQ but they were unable to comment as the case has not been fully finalised.

In June 2016, a private consortium led by John Hanna and Matt McGuire acquired SCCS with both executives assuming top roles at the time.

Chris Palmer, who joined SCCS in 2000, and Mark Kalmus had acquired SCCS in 2007 from its founders Joan and Andy Hegedus.

The company rebrand to SXIQ in June 2017 with plans to provide a full service lifecycle to its customers.

Palmer could not be contacted for comment.

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