New South Wales Supreme Court CITATION : Sonnet Corp Pty Ltd v Wilson [2008] NSWSC 579 HEARING DATE(S) : 21, 26 & 30 May and 6 June 2008 JUDGMENT DATE : 6 June 2008 JURISDICTION : Equity JUDGMENT OF : Hamilton J DECISION : Application for injunction to restrain employment of first defendant refused. CATCHWORDS : TRADE AND COMMERCE [26] – Trade and commerce generally – Restraint of trade – Restraint by agreement – Construction of agreements in restraint of trade – Covenant not to compete – Any business competitive with the business of the plaintiff – Meaning of "competitive". CATEGORY : Procedural and other rulings Australian Regional Wholesalers v Stafford [2007] NSWSC 572 Capgemini US v Case [2004] NSWSC 674 Ecowize Holdings Pty Ltd v Langley [2006] NSWSC 1291 CASES CITED : John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Landmark Underwriting Agency Pty Ltd v Kilborn [2006] NSWSC 1108 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 Woolworths Ltd v Olson [2004] NSWCA 372 Sonnet Corporation Pty Limited (P) PARTIES : Keith Wilson (D1) Hansoni Pty Limited (D2) FILE NUMBER(S) : SC 2824/08 COUNSEL : A R Moses (P) P M Barham (Ds) SOLICITORS : Sparke Helmore (P) Somerville & Co (Ds) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J FRIDAY, 6 JUNE 2008 2824/08 SONNET CORPORATION PTY LIMITED v KEITH WILSON & ANOR JUDGMENT 1 HIS HONOUR: This is an application for restraints of two defendants by the former employer of the first defendant. The second defendant is a company associated with the first defendant. The first defendant formerly performed the duties of the Chief Operating Officer of the plaintiff. His engagement with the plaintiff was terminated on 31 January 2008. He is now working for People Telecom Limited ("PEO"), which is alleged to be a competitor of the plaintiff. 2 The plaintiff seeks that the defendants be restrained from: (a) performing services directly or indirectly or through interposed entities, in any capacity, including on their own account or in partnership or joint venture with any other person, as trustee, agent, principal, investor, shareholder, unitholder, consultant or employee, for PEO; (b) publishing, disclosing, using or reproducing any confidential information of the plaintiff within the definition of confidential information in clause 1.1 of the Consultancy Agreement dated 16 March 2007 between the plaintiff and the second defendant; (c) inducing or enticing or attempting to induce or attempting to entice any director, manager, employee of, or consultant to, the plaintiff to terminate their employment or engagement with the plaintiff; (d) inducing or enticing or attempting to induce or attempting to entice any person, firm or company who was a customer of the plaintiff in the period between 31 July 2007 and 31 January 2008 to cease doing business with the plaintiff or to reduce their custom; and (e) counselling, procuring or otherwise assisting any person to do any of the acts referred to in orders 1(c) and 1(d) above 3 As to the restraints in (b) to (e), there is no contest. The defendants are prepared to consent to orders imposing those restraints. The duration of those orders can be a matter of further discussion after I have delivered these reasons for judgment. 4 The defendants, however, oppose the making of an order in terms of (a). The restraint in terms of (a) is sought under a provision contained in the agreement between the plaintiff and the first defendant which was brought to an end on 31 January 2008. That provision was in clause 7.4(g) of the agreement in the following terms: "(g) Be employed or engaged or involved in any capacity in any business within Australia, which is competitive with the Business, provided that the Company will not unreasonably withhold its consent to such employment, engagement or involvement." 5 In determining whether a restraint in these terms should be imposed on an interlocutory basis, I shall conduct the exercise prescribed by McLelland J in the well known passage in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 - 536: "As I see it, the position is as follows. Where a plaintiff's entitlement to ultimate relief is uncertain, the Court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled: see, eg, Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208 at 216; A v Hayden (No 1) (1984) 59 ALJR 1 at 4-5; 56 ALR 73 at 79. Where the uncertainty depends in whole or in part on a contested question of fact it is not appropriate for the Court to decide that question on the interlocutory application. Where the uncertainty depends in whole or in part on a contested question of law, it may or may not be appropriate for the Court to decide that question on the interlocutory application, depending on circumstances, eg, whether the question is novel or difficult, or is susceptible of resolution on the present state of the evidence, or whether the urgency of the matter renders it impracticable to give proper consideration to the question: see, eg, A v Hayden (No 1) (at 4; 78); Cohen v Peko-Wallsend (1986) 61 ALJR 57 at 59; 68 ALR 394 at 397. If the Court does decide the question of law the uncertainty is to that extent removed. Unless the plaintiff shows that there is at least a serious question to be tried which if resolved in its favour would entitle it to final relief, then the requirements of justice as between the parties will dictate that an interlocutory injunction should be refused: Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425; 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283; 52 ALR 651; A v Hayden (No 1) ; Castlemaine-Tooheys Ltd v South Australia (1986) 60 ALJR 679; 67 ALR 553 and Cohen v Peko-Wallsend Ltd . Apart from this, although normally the Court 'does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case' ( Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622), there are some kinds of case in which for the purpose of seeing where lies the balance of convenience (or more specifically 'the balance of the risk of doing an injustice' — see per May LJ in Cayne v Global Natural Resources plc [1984] 1 All ER 225 at 237, cf per Brennan J in Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 LJR 288 at 292; 46 ALR 279 at 285), it is desirable for the Court to evaluate the strength of the plaintiff's case for final relief: see, eg, Brayson Motors Pty Ltd v Federal Commissioner of Taxation (at 292; 285); Castlemaine-Tooheys Ltd v South Australia at 682; 559. One class of case to which this applies is where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue: see, eg, NWL Ltd v Woods [1979] 1 WLR 1294 at 1306-1307; [1979] 3 All ER 614 at 625-626 per Lord Diplock; Cayne v Global Natural Resources plc ." 6 This is a case which falls within the last sentence of the passage cited above from Kolback Securities. It is a case in which the obligation sought to be imposed on the plaintiff will expire on 31 July this year, although Mr Moses, of counsel for the plaintiff, has pressed upon me that a springboard injunction in this regard should, on the facts before the Court, be granted for a slightly longer period, namely, three months from today. In either case there is not likely to be a final trial of the proceedings within the period of duration of the interlocutory injunction. 7 It is therefore relevant for me not simply to determine whether the plaintiff has raised a serious question to be tried but to make and take into account some assessment of the strength of the plaintiff's case. It must always, however, be borne in mind that in doing that the Judge determining the interlocutory application is not to be taken as making any final determination of the rights of the parties. 8 The central matter which the plaintiff must make out to succeed in its claim for the contested injunctive relief is that the businesses of the plaintiff and of PEO are in a relevant way competitive. The somewhat uncertain nature of this concept was commented on by the Chief Judge in Equity in Landmark Underwriting Agency Pty Ltd v Kilborn [2006] NSWSC 1108. His Honour said at [55]: "There is then the vagueness of the phrase 'business competitive with our business'. Whether businesses are competitive with each other is a question of fact to be resolved by considering all relevant facts; see eg Ex parte Campbells Transport Pty Ltd; Re Sneddon [1962] NSWR 371. Ordinarily one needs to look to what is the relevant market and determine whether the rivals are both competing for custom in that market. If the market in the present case is farmers or vine growers seeking insurance then the defendants' proposed business is a competitive business. I suspect that what I have just said is the market. However, I would not be comfortable in making such a finding in the absence of proper evidence from either side." 9 This is a case where that question is to be decided in a context more complicated than is usually found in cases of this sort. It is common ground that the whole of the plaintiff's business is not competitive with the whole of PEO's business. The plaintiff's case is that a certain aspect or certain aspects of the businesses are competitive and that the evidence shows that the first defendant has recently become engaged in an aspect of PEO's business, which competes with an aspect of the plaintiff's business. I am not prepared to find that the plaintiff has not raised any serious question to be tried or, in other language, failed to establish any prima facie case that the businesses are in the relevant sense competitive. However, I must say that I have found the evidence as it stands confusing and inconclusive. The plaintiff depends, at least in part, on evidence which is hearsay or evidence of rumour as to what the first defendant is doing. I find the evidence of the constitution and nature of each of the relevant businesses quite unclear. The evidence concerning the competitive nature of the respective businesses is largely given by the making of bold assertions by Mr McFadden in general terms. In seeking to establish what the first defendant is now doing the plaintiff relies on inferences drawn in oblique fashion from thin evidence. 10 A survey of all the evidence as it stands leads me to the conclusion that the case that the plaintiff seeks to raise on this issue is quite a weak case. That may, of course, change when what Young CJ in Eq has called proper evidence from either side is led on a final hearing, if one takes place. The fact that I regard the case as a weak one is one of the factors which must be weighed in the balance as I proceed to determine whether there should be interlocutory relief as sought. 11 I bear in mind that the plaintiff will have the protection of four continuing restraints upon the defendants. I am aware of the well known dictum of Lord Denning MR, about the difficulty in relying only on those particular restraints because of the difficulty in perceiving and judging whether they have been breached: Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1479. That passage has been approved and quoted in recent cases in this jurisdiction, and I do not ignore that warning: see Woolworths Ltd v Olson [2004] NSWCA 372 per Mason P at [66] – [68]; John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 per Brereton J at [36]; Ecowize Holdings Pty Ltd v Langley [2006] NSWSC 1291 per Barrett J at [34], [35]; and Australian Regional Wholesalers v Stafford [2007] NSWSC 572 per Gzell J at [40]. On the other hand, I do not take the view that those restraints and the possibility of punishment for contempt of court if they are breached, are to be regarded as being without any effect or force. The plaintiff will not be without important protections if its application for restraint from employment is refused. 12 On the balance of convenience, the plaintiff has drawn attention to the fact that the first defendant has not given evidence of any particular hardship that he will suffer if the last restraint it seeks is imposed. It draws attention to the fact that he has indicated in his evidence that he is doing work for institutions other than PEO, nor is any evidence of personal hardship led. On the other hand, he has already entered into and been for some months engaged with PEO and that relationship will be disturbed. 13 Indeed, this case is rather out of the ordinary in that regard. I have noted that the final termination of contractual relationships between the plaintiff and the first defendant was on 31 January 2008. However, the first defendant indicated a desire to depart from the plaintiff's service by about the end of November 2007 and, indeed, from that time was working only part time for the plaintiff. For some of the remainder of the time he was performing services for PEO and this was known to the plaintiff and not objected to by it. 14 This certainly seems to be an acknowledgment that the businesses of the plaintiff and PEO were not wholly competitive. Indeed, the evidence shows that other highly placed individuals went from the plaintiff to PEO at about the same time without objection from the plaintiff. The lack of objection by the plaintiff to the first defendant performing services for PEO continued through February, March and at least part of April 2008. 15 It is really only in May 2008 that objection has been raised apparently on the basis or avowedly on the basis that the first defendant was now engaged in an area of the business of PEO that was competitive with the business of the first plaintiff. I have already commented on the unclear nature of the evidence as to the degree to which the businesses of the two entities are in competition and as to what it is that the first defendant is doing in relation to the portion of PEO's business that is alleged to be competitive with the plaintiff's business. 16 The plaintiff is now pressing in its submission that the four restraints which are to be put in place are not sufficient because confidential information may be being fed by the first defendant to PEO or used by the first defendant in the conduct of business of PEO. However, in reality it seems to me that that risk was always there. 17 In relation to the delay in interlocutory relief being sought, it was said by Campbell J in Capgemini US v Case [2004] NSWSC 674 at [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." It seems to me that in the circumstances of this case that the delay in the seeking of relief is also significant in both the regards mentioned. 18 The conclusion that I have come to in the circumstances of this case is that what I have described as the last restraint sought by the plaintiff should be refused. …oOo… 19 I have now been addressed on the subject of costs. Importantly, during the course of that address, I have been informed by Mr Moses that the plaintiff will regard the orders that I propose to make as a result of the judgment that I have delivered as finally disposing of these proceedings. 20 The four restraining orders that are not opposed are to be made as permanent restraints. Three are to be made up to and including 31 July and the one restraining use of confidential information is to be made without limitation of time. The plaintiff will not thereafter seek to continue the proceedings and will ask for the proceedings to be otherwise dismissed. The defendants agree to this course. 21 The costs order that I make today will therefore be the final costs order in the proceedings. This means that both in the proceedings generally and in the interlocutory application that I have heard, the plaintiff will have succeeded in obtaining four of the five restraining orders that it sought and which it certainly would not have obtained had it not brought these proceedings. 22 The subject matter on which there has been considerable debate is the point of time at which the defendants indicated unequivocally that they were consenting to the making of the four ongoing orders beyond today. Those orders were initially proffered as a way of holding the situation when the case could not be heard immediately because of the exigencies of a busy Duty List. 23 That the only order ultimately to be contested was the order concerning employment was indicated in a letter from the defendants' solicitors to the plaintiff's solicitors of 28 May 2008 before the actual hearing before me began on 30 May 2008. They do in the last paragraph of that letter confirm that "our client will continue to oppose the order sought at para 7(a) of the notice of motion", which is the relevant order. However, up to that time, consent had only been given to the four orders which have ultimately become ongoing on the basis of short and specified times to hold the situation while the case was being brought forward. 24 I regard the defendants' solicitor's letter of 28 May 2008 as equivocal in its terms and I am not prepared to regard it as an unequivocal consent to the long term extension of the four orders which have in fact become ongoing. In my view, that only became clear in court on 30 May 2008, where at T 4 it was unequivocally stated by Mr Barham, of counsel for the defendants, that it was "only the employment" injunction which was opposed. The plaintiff was therefore justified in maintaining the proceedings up to that point of time because, until that point of time, it was not clear that they were going to obtain what I have called the four ongoing injunctions. 25 Bearing in mind the above circumstances - that is, the clear concession only on 30 May of consent to the four ongoing orders and the fact that the orders that I have made on the interlocutory application are to become the final disposal of these proceedings - I am of the view that the appropriate course is to order that the defendants pay the plaintiff's costs of the proceedings up to and including 30 May 2008 and that the plaintiff pay the defendants' costs of the proceedings from and including 31 May 2008. 26 I shall order that the proceedings be otherwise dismissed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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