New South Wales Supreme Court CITATION : Integration Management Pty Ltd v Soo [2004] NSWSC 908 revised - 30/11/2004 HEARING DATE(S) : 30 September 2004 JUDGMENT DATE : 30 September 2004 JURISDICTION: Equity JUDGMENT OF : Hamilton J DECISION : Interlocutory injunction granted restraining ex-employee from interfering with negotiations for contract on which he was working at time of termination of employment. CATCHWORDS : EQUITY [36] - General principles - Fiduciary obligations - Particular cases - Employees - Contribution to employer's asset - Employee using information after termination of employment - Employer's loss of profits. CASES CITED : Co-ordinated Industries Pty Limited v Elliott (1998) 43 NSWLR 282 Integration Management Pty Ltd (P) PARTIES : Brendon Soo (1D) Carondon Pty Limited (2D) INTEC Telecom Systems (Australia) Pty Limited (3D) FILE NUMBER(S) : SC 5260/04 A R Moses (P) COUNSEL : K G Bennett (1 & 2D) B D Hodgkinson SC (3D) Corrs Chambers Westgarth (P) SOLICITORS : Fisher Cartwright Berriman (1 & 2D) Clayton Utz (3D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J THURSDAY, 30 SEPTEMBER 2004 5260/04 INTEGRATION MANAGEMENT PTY LTD v BRENDON SOO & 2 ORS JUDGMENT 1 HIS HONOUR: This was a contest conducted before me between, on the one hand, a former employer, being the plaintiff, and, on the other hand, as first defendant, a former employee and, as second defendant, a company controlled by him. The business of the plaintiff is the provision of consultancy services to telecommunications operators. 2 The first defendant was employed by the plaintiff as a business development manager between 5 February 2004 and September 2004. He left its employ after a disagreement with Mr Goodwin, the managing director of the plaintiff. There were contained in his contract of employment provisions for the protection of confidentiality of information while in the plaintiff's employ, but no restraint of trade preventing him from working in the industry or for a competitor after the termination of the employment. 3 As far as the general preservation of confidentiality provisions are concerned, there was no conflict before me. The first and second defendants have properly given undertakings to the Court that there will be no breach of the contractual promises which they concede were made by the first defendant. The plaintiff, however, seeks one further matter; that is cast in the application in terms of restraint of the first and second defendants from interfering with contractual negotiations called "the Smart Contract". 4 The evidence shows that the position held by the first defendant with the plaintiff was essentially a sales position. There is no doubt on the evidence that the first defendant was playing a significant part in those negotiations up to the time of the termination of his employment. Mr Bennett, of counsel for the defendants, seeks to minimise the role the first defendant was playing. He urges that he was not the sole person negotiating and that it was the participation of Mr Goodwin in the negotiations which led to the conflict between the first defendant and Mr Goodwin. On the other hand, in my view, it is quite clear, from the first defendant's own version of a disputed conversation and from the terms of an email which he sent to Mr Goodwin complaining of Mr Goodwin's conduct, that the first defendant regarded himself as having a significant role in those negotiations. 5 In the absence of a provision in the contract imposing a restraint of trade, Mr Moses, of counsel for the plaintiff, relies upon an equity in the nature of that found to exist by Hodgson CJ in Eq (as his Honour then was) in Co-ordinated Industries Pty Limited v Elliott (1998) 43 NSWLR 282. That equity arose from Mr Elliott having played an important part in working towards the attaining of a contract by his former employer at the time of the termination of his employment. Hodgson CJ in Eq said at 288 - 289: "In my opinion the chance of obtaining that contract is fairly regarded as an asset of the plaintiff as to which Mr Elliott continued to have a fiduciary obligation after termination of his employment, because he had contributed substantially to that asset and had been paid by the plaintiff for this contribution. I do not think this consideration is defeated by Mr Elliott's legitimate interest in being free to use his knowledge and skill, because the duty I am finding relates only to the particular job, and not to the customer generally or to any other use which Mr Elliott might wish to make of his knowledge or skill." Mr Bennett has made submissions that the first defendant's role in this case was not as great as Mr Elliott's. However, it seems to me that there is an arguable case that the plaintiff has, vis a vis the first defendant, an equity arising under the principle enunciated by his Honour. 6 There is a question as to whether there is any threat of a breach of the duty arising under that equity. It seems to me that from the very fact that the first defendant is prepared to give undertakings relating to his duty of confidentiality but not to give an undertaking vis a vis dealings or potential dealings relating to the Smart Contract, that there must be regarded as being a threat to deal or interfere in some way with the Smart Contract negotiations. Mr Bennett has not been able to give me any explanation of the situation on the evidence before me that would lead me to think that threat negatived. I say that even without advertence to Mr Goodwin's version of part of the conversation said to have taken place between him and the first defendant on 23 September. 7 Mr Goodwin swears and the first defendant denies that the first defendant made quite specific threats to interfere in the negotiations for the Smart Contract to the detriment of the plaintiff. In my view, although I should come to the conclusion that there was a threat of breach without that evidence, the plaintiff's case is strengthened because, although the relevant portion of the conversation is controverted, there is an arguable case in the requisite sense that such a threat was made. 8 So far as the balance of convenience is concerned, the first defendant's position seems to me to fall within what was said by Hodgson CJ in Eq in the passage quoted above. Mr Bennett has put to me that there is great detriment to the first defendant because he is precluded from employment. I am afraid that I just cannot on the evidence see that this is so. The evidence on both sides indicates that the Smart Contract is not the only contract that is in the wind and the persons being dealt with in relation to it are not the only customers or potential customers in this industry either of the plaintiff or of the third defendant. 9 It should be added that, for the moment, the third defendant (a potential new employer) has broken off negotiations to employ the first defendant. But, in my view, there is no case on the material before me that the first defendant, who has given undertakings to preserve confidentiality, would by a restraint in respect of the Smart Contract be precluded from using his skills in this industry or as a sales person in some other capacity. 10 On the other hand, the evidence is that the Smart Contract, if consummated, would mean $2 million in revenue to the plaintiff, which would be about a quarter of its revenue in the coming year. 11 In the circumstances, the plaintiff having an arguable case, it seems to me the balance of convenience strongly favours the plaintiff in relation to the limited restraint which is sought. In these circumstances, I propose to grant injunctive relief. The proposed engagement with the third defendant was contemplated to be by way of a contract for services with the second defendant, as I understand it, rather than a contract of employment of the first defendant. In these circumstances it seems to me appropriate that the second defendant be restrained as well as the first defendant. It has also given the undertakings relating to confidentiality, which I have already mentioned. 12 I have also said the terms in which Mr Moses has asked for the restraint are of a restraint not to interfere with negotiations for the Smart Contract. Mr Bennett objects to that as an unclear and imprecise way of imposing a restraint, breach of which may be treated as contempt of Court. I am rather inclined to agree with this submission. It seems to me that there is a strong case for the injunctive relief granted being more clearly defined than in those terms. I will stand the matter down so that discussions can take place and further submissions be put to me concerning the form of the injunction. 13 I shall also say that, as things stand at the moment, I should have thought the proper costs regime is that the costs of the plaintiff of this application be the plaintiff's costs in the proceedings against the first defendant and the second defendant, but, if there is any submission to the contrary, I shall hear it when further debate occurs on the precise form of the injunction. ********** Last Modified: 12/15/2004 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.