New South Wales Supreme Court CITATION : Capgemini US v Case [2004] NSWSC 674 HEARING DATE(S) : 27 July 2004 JUDGMENT DATE : 27 July 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Interlocutory injunction refused CATCHWORDS : REMEDIES - interlocutory injunction - significance of delay in seeking injunction (para 40) - whether requirement for "special services" by employee before injunction granted to enforce post-employment restraint, when case not put on basis of protecting confidential information - TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - restraint of trade - employee's contractual post-employment restriction - enforceability by interlocutory injunction LEGISLATION CITED : Restraints of Trade Act 1976 Curro v Beyond Productions Pty Limited (1993) 30 NSWLR 337 Evening Standard Co Limited v Henderson (1987) ICR 588 CASES CITED : Kone Elevators Pty Limited v McNay (1997) ATPR 41-563 Kone Elevators Pty Limited v McNay (1997) ATPR 41-564 Lumley v Wagner (1852) 1 De GM & G 604; (1852) 42 ER 687 Warren v Mendy (1989) 1 WLR 853 Capgemini US LLC - Plaintiff PARTIES : Tina Louise Case - First Defendant Tiburon Consulting Pty Limited - Second Defendant FILE NUMBER(S) : SC 4021/04 COUNSEL : R G McHugh - Plaintiff R Scruby - Defendants SOLICITORS : Blake Dawson Waldron - Plaintiff Lane & Lane - Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST CAMPBELL J TUESDAY 27 JULY 2004 4021/04 CAPGEMINI US LLC v TINA LOUISE CASE & ANOR JUDGMENT – Ex Tempore 1 HIS HONOUR: This is an application for an interlocutory injunction which is brought by an American corporation against a former employee and the company for whom that former employee now works. 2 The plaintiff, who I will refer to as Capgemini America, is a company which is a subsidiary of a French professional consulting company. The plaintiff is incorporated in the State of New York. It was established in May 2000 and in commercial terms took over a consulting business which had been operated by an American limited liability partnership, Ernst and Young LLP. At the time that the plaintiff took over that business Ernst and Young LLP had on foot a professional consulting agreement, made 1 June 1999, with Hewlett-Packard Company, which is a Delaware corporation. It is identified as agreement #199-676. 3 That agreement made provision for various services to be provided by Ernst and Young LLP to Hewlett-Packard Corporation. The agreement proceeded on the basis that the work done under it would be documented by a particular type of document, called a Statement of Work. There were various requirements of the content of such a document. There was provision in clause 3.1.8 that at the request of a party, that party may have one of its "affiliates" sign a Statement of Work. The agreement said that, "An affiliate of E&Y shall mean any member firm of Ernst & Young International Limited". 4 The benefit of that agreement was assigned, in May 2000, to the plaintiff. 5 The first defendant, Ms Case, had been employed for some time by the plaintiff in the United States. Amongst the companies that she had provided services to, in the course of her employment with the plaintiff, was Hewlett-Packard Company, in the United States. 6 Hewlett-Packard Company is part of a world-wide group of companies. That group is engaged in a worldwide project where it is replacing the software which it uses to communicate with its customers and dealers with a new type of software which operates through the Internet. Ms Case had been involved in various aspects of the introduction of that new software to Hewlett-Packard in America. 7 Ms Case had originally come from Australia and in the latter part of 2003 she expressed a wish to return to Australia. Her employer, the plaintiff, was prepared to accommodate her in that wish, and from November 2003 she worked in the Sydney office of Hewlett-Packard communicating with people connected with the plaintiff by various electronic means. Her work involved, at that time, assisting Hewlett Packard Company with introduction of the new software in the United States. 8 On 31 October 2000 the plaintiff had signed a contract with the first defendant. Under it the first defendant said that she would not, for a period of eighteen months after termination of the agreement: "… directly or indirectly solicit to provide or provide any professional services such as those provided by the Company for anyone who is a client of the Company anytime during the twelve months prior to my leaving the Company and for whom I provided any service as an employee of the Company during the five years prior to my leaving. …" 9 Hewlett Packard has an Australian related company Hewlett Packard Australia Pty Limited. I will refer to it as "Hewlett Packard Australia". It was at the offices of Hewlett Packard Australia that Ms Case began to work in November 2003. The French parent of the plaintiff also has an Australian subsidiary company which I will refer to as Capgemini Australia. 10 After a while the first defendant ceased providing services to the Hewlett Packard organisation in America, through the plaintiff. Then her services came to be used for the provision by Capgemini Australia, to Hewlett Packard Australia, of services connected with the roll out of the new Hewlett Packard software in Australia. The arrangements by which she came to be doing that work are somewhat difficult to analyse from a legal point of view. The work which she did on the project was done in performance of a contract arising from a letter which was sent by Capgemini Australia to Hewlett Packard Australia. That letter specifically stated that the first defendant would be one of those who would be directing the performance of work under the contract. It also stated: "We expect HP to pay as per the terms and conditions in the CGE & Y Global Master Services Agreement. 'This engagement letter is governed under the June 1 1999 agreement between Hewlett Packard Company (HP) and Capgemini/Ernst & Young (contractor) under agreement #199-676 (the agreement) and is fully incorporated therein.'" 11 The Master Services Agreement referred to is one whose term had expired on June 30 2002. There was provision for it to be extended, but there is no evidence before me that it actually was extended, although it appears as though Capgemini America and Hewlett Packard America acted as though that agreement remained on foot. 12 Mr McHugh, for the plaintiff, submits that Hewlett Packard Australia was a client of Capgemini America, the plaintiff. 13 I would accept that there is a serious question to be tried about whether that is so, but the answer to that question is a long way from clear on the material which has been presented to me at the moment. I have mentioned it in some detail because Hewlett Packard Australia's being a client of the plaintiff is an essential element of the plaintiff's case that there has been a breach of the restraint clause contained in the first defendant's service agreement. 14 Mr McHugh puts that, in a loose and commercial sense, the two groups of Capgemini and Hewlett Packard should be regarded so that the precise legal relations within them are ignored, for the purpose of deciding who is a client of Capgemini America. 15 I would accept that that might arguably be a permissible approach to construction of the restraint, but it is not clear that it definitely is. That is part of the reason why it seems to me that there is not an answer which is clear today, to the question of whether Hewlett Packard Australia was a client of the plaintiff. As well, Mr McHugh argues that the fact that the Master Services Agreement required invoices for the work Capgemini Australia did for Hewlett Packard Australia to be sent to Hewlett Packard America, and that executives of both Hewlett Packard America and the plaintiff took steps to ensure that a standard billing procedure was followed wherever in the world part of the Capgemini group provided services to part of the Hewlett Packard group meant that a relationship of "client" existed between the plaintiff and Hewlett Packard Australia, even if there was no contract between the plaintiff and Hewlett Packard Australia. That also is arguable but far from clear. The letter from Capgemini Australia to Hewlett Packard Australia that I have earlier referred to does not look very much like the formal of a Statement of Work annexed to the Master Services Agreement. Further, it is not clear whether the definition of "affiliate" in the Master Services Agreement continues to have meaning after the plaintiff's takeover of the Ernst & Young LLP consulting business, or if it does, whether Capgemini Australia is within it. 16 If Hewlett Packard Australia was a client of the plaintiff, it is undisputed that that relationship would have existed during the twelve months prior to the first defendant leaving the plaintiff. 17 The next element which would need to be established is that the first defendant provided a service "as an employee of" the plaintiff to Hewlett Packard Australia during the twelve months prior to her leaving the plaintiff. It is undisputed that at all times she remained an employee of the plaintiff. However the precise terms of her services being lent or being made available to the Capgemini Australia company have not been elucidated with complete certainty. There is a question to be tried about whether she provided services "as" an employee of the plaintiff, within the meaning of the restraint clause, when she was being lent in the fashion she was to Capgemini Australia. The answer to that question is also far from clear. 18 The next element of the breach that is alleged is that the services which are currently being provided by the present employer of the first defendant are "professional services, such as those provided by the Company". It appears, on the evidence today, that Capgemini Australia made a tender to Hewlett Packard Australia to provide a particular type of service to Hewlett Packard Australia, to do with the transition from one system of software to another. That tender was not accepted, and Hewlett Packard awarded the contract to Ms Case's present employer, the second defendant. 19 It seems likely that, in a general sense, the services which Capgemini Australia tendered to provide to Hewlett Packard Australia, and which Ms Case is now assisting the second defendant to provide to Hewlett Packard Australia were the same type of services as those which the plaintiff provided to other people in other circumstances and indeed, to other parts of the Hewlett Packard world wide empire. 20 Mr McHugh accepts that the restraint clause, in its literal terms, is one which is probably too wide to be valid at common law. It is geographically unrestricted. As well (and more doubtfully as a source of invalidity) if the Company supplies two completely different types of service to a client, and the employee has been involved in providing only the first of those types of services to the client, the clause prevents the employee from providing the second type of service as well. However he submits that it could be read down under section 4, Restraints of Trade Act 1976. If the case which is put by the plaintiff concerning breach was made out, it seems to me likely that the reading down of the clause would succeed, given the close similarity between the work which Capgemini Australia were proposing to do for Hewlett Packard Australia and that which the first defendant's present employer is doing for it. 21 Another element of the case for an injunction is whether the services which are provided must be "special services", within the meaning of that expression in the decision in Lumley v Wagner (1852) 1 De GM & G 604; (1852) 42 ER 687. In Curro v Beyond Productions Pty Limited (1993) 30 NSWLR 337, the Court of Appeal accepted that the requirement of a contract being for "special services" continued to be part of the law so far as an injunction to prevent an employee working for others while the contract of employment remained on foot. In Kone Elevators Pty Limited v McNay (1997) ATPR par 41-563 Young J at 43,821-2 applied that requirement to a post-employment restraint. His Honour examined what the requirement for "special services" means, discussed the judgment in Curro's case and noted that the Court of Appeal in that case had referred to newspaper production managers as providing an example of "special services" on the authority of Evening Standard Co Limited v Henderson (1987) ICR 588. Young J said: "I have read the case carefully. It concerned a newspaper production manager, but there was no negative covenant in the case, and the English Court of Appeal declined to grant an injunction to the employer. I cannot see where "special services" or the case of Lumley v. Wagner were actually mentioned. 22 His Honour also referred to the decision in Warren v Mendy (1989) 1 WLR 853 at 857 where Norse LJ said that the "special services" category was one that usually arose in the entertainment or sporting worlds. 23 Though this decision of Young J was reversed on appeal (Kone Elevators Pty Ltd v McNay (1997) ATPR ¶41-564) the appeal judgment did nothing to cast doubt on the remarks of Young J which I have quoted. The appeal turned on the availability of an injunction to prevent a former employee disclosing confidential information, a factor not present in the present case. 24 The first defendant has extensive experience in the computer industry and has particular experience with the software systems in the process of being installed by Hewlett Packard. There remains, however, a question to be tried about whether the services that she has been providing count as "special services". 25 For all these reasons, while there is a serious question to be tried about whether the plaintiff will at final hearing be entitled to an injunction, it cannot be said at this stage that the case is a very strong one. That is not to say positively that it is a weak case either – merely that there are significant matters which remain to be explored. 26 So far as the balance of convenience is concerned, the first defendant left the service of the plaintiff in circumstances where she was not altogether frank about what her plans were. She was arranging a transfer of employment to the second defendant at a time when she did not let on to the plaintiff that that was her plan. She also, at one time, passed on to the second defendant some commercial information about the dissatisfaction that Hewlett Packard had with the performance of Capgemini Australia; this was on 3 May 2004. On 4 May 2004, while still employed by the plaintiff, she took some steps towards getting together a team of people to work for the second defendant. 27 The second defendant entered into a contract on 12 May 2004 to provide certain services to Hewlett Packard Australia. That contract was one which was entered for a price of the order of $135,000. It was entered into after Capgemini Australia had lodged a tender for much the same services, for a price of the order of $911,000. The evidence before me suggests that Hewlett Packard Australia was unlikely to have accepted the tender put forward by Capgemini Australia, and that the figure quoted by Capgemini Australia for that work exceeded the entire Asian/Pacific consulting budget of Hewlett Packard for the next six months. The second defendant had sought competing tenders, one of which was from the second defendant. 28 The defendants put that, in the circumstances, there would be little practical point in the grant of an injunction, because the contract in question has already been lost and, given the price differential, it does not seem very likely that Capgemini Australia would be able to win it back if the second defendant were deprived of the services of the plaintiff to perform that contract. 29 As well, the evidence suggests that while the absence of the first defendant from the work team of the second defendant would be a decided disadvantage to them, it would not make their performance of the contract impossible. This, in itself, may cast some light on how "special", or otherwise, the services which the first plaintiff can provide really are. 30 It is true that if the plaintiff was left to its remedy in damages it would have the disadvantage of proving a case for loss of a chance, and for loss of goodwill, where those matters are not readily proved. However, it is not clear on the evidence that if the plaintiff were to keep the first defendant to her word (assuming for the moment that she has broken it) that would do the plaintiff any particular good, beyond the satisfaction of keeping their former employee to her word. The second defendant's contract with Hewlett Packard Australia was entered prior to Ms Case leaving the employ of the plaintiff, and will stay on foot even if Ms Case is restrained from assisting with its performance. 31 In so far as the disadvantage which the plaintiff would suffer from an injunction not being granted, is said to include its loss of the prospect of getting the contract with Hewlett Packard Australia, which the second defendant now has, there is a difficulty arising from the fact that it would not be the plaintiff, but rather would be Capgemini Australia, which would be seeking to enter the market if the question of the Hewlett Packard Australia contract were opened up again. 32 A factor which weighs considerably with me so far as the balance of convenience goes, is delay. It was on 17 May 2004 that the plaintiff was first aware that the first defendant would, in some capacity or other, come to be providing services to Hewlett Packard. On 24 May 2004 it was aware that the plaintiff was taking up employment with the second defendant. There is a difference of evidence about the precise terms on which that information came to the plaintiff. 33 The plaintiff's case is that Mr Edwards, of the plaintiff, was informed on 24 May 2004 that the first defendant's first assignment with her new employer would be with British/American Tobacco; that Matthew Long of the second defendant was in discussions with Hewlett Packard but that she was not aware of the content of those discussions. Mr Edwards' version of the conversation is that he told her that working for Hewlett Packard on the particular project would violate her employment agreement, that he told her the substance of the restraint she was under, and that she said she was aware of that obligation. 34 The first defendant's version of that conversation is different. She says that she told Mr Edwards that she would probably be working with Hewlett Packard on another project, and that Mr Edwards put himself forward as a mentor to her, and wondered aloud whether the role she was about to undertake with Hewlett Packard would be a good move for her. According to Ms Case, Mr Edwards said: "If you really want to do this role I can organise a waiver of the covenant in your employment agreement." The first defendant denied that she said she was aware of her obligation. 35 On either version of this conversation it appears clear that the prospect of her working for Hewlett Packard was adverted to in the discussion on 24 May 2004, and the fact that there was a restrictive covenant which would bear upon her right to work there was also mentioned. 36 On 1 June 2004 the plaintiff wrote to the first defendant a letter, which has the appearance of a letter of demand, drafted by a lawyer. It reminded her explicitly of the terms of the restrictive covenant she had entered, and sought confirmation that she would not be performing any services for Hewlett Packard for at least the next 12 months. 37 On 9 June 2004 Lane & Lane, lawyers, wrote back on behalf of the first defendant, raising various problems with the claim that there had been a breach of the contract of employment. On 16 June 2004 Blake Dawson Waldron for the plaintiff, responded to the points which Lane & Lane had raised, and sought an assurance that she would desist from activities which amounted to what, on the plaintiff's construction of the covenant, would be a breach of the covenant, and sought that assurance by no later than the close of business on Friday 18 June 2004. The letter threatened that if such steps were not taken legal proceedings would be commenced without further notice. 38 The legal proceedings were not in fact commenced until 19 July 2004. 39 The second defendant is currently working on a project estimated to take ninety days, for Hewlett Packard Australia. It is now 50 days into that project. 40 If interlocutory relief is to be sought, it should always be sought promptly: Zuellig v Pulver [2000] NSWSC 7 at [36] – [37]. The court is always entitled to use, as a litmus test of the seriousness of the infringement of a plaintiff's rights which is occurring, how fast the plaintiff reacts to the infringement of its rights. It is not only as an example of the equitable doctrine of laches that delay is relevant on an application for an interlocutory injunction; it is also as an admission by conduct about how serious the infringement of the plaintiff's rights is. Thus, it is a matter which goes to the balance of convenience and not merely to the question of whether there is a serious question to be tried, which might be met by a defence of laches at the trial. 41 Mr McHugh puts that the defendants have not shown that they would be any worse off if an injunction were to be granted now, than they would have been if an injunction had been granted, or sought, very soon after the plaintiff became aware of the first defendant's plans to work for the second defendant and, in so doing, to provide services to Hewlett Packard Australia. I accept that that has not been demonstrated. However for the reasons I have given, that does not dispose of the effects, for present purposes, of the delay there has been. 42 If the injunction were to be granted now, there would be some disruption to Hewlett Packard Australia in its business operations. There would also be some disruption to the second defendant. When the second defendant has, I would infer, known of the likelihood that there was a restrictive covenant binding the first defendant from the time it first entered negotiations with her and known of the actuality of that covenant from at least 7 June 2004, I would regard any difficulties the second defendant might suffer as ones which are entirely of its own making. However the difficulties to Hewlett Packard are real ones. 43 Because of: (1) The fact that the case for final relief is not one which I am at present satisfied is strong; (2) The fact that the plaintiff will not gain a great advantage if an injunction were to be granted, by comparison with the situation if it were to be left to its remedy in damages and Hewlett Packard, an innocent third party, will be inconvenienced; and (3) The plaintiff's delay, I decline to grant the interlocutory injunction which is sought. 44 I grant leave for this matter to be placed in the expedition list on Friday 30 July 2004 and grant leave for any notice of motion seeking expedition to be returnable then. I make no direction about any affidavits which might be relied on in support of such an application for expedition but obviously if the plaintiff wishes to obtain expedition, the sooner affidavits are made available to the defendants, the better. 45 I order the plaintiff to pay the costs of the defendants' of today's notice of motion. ********** Last Modified: 08/03/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.