Supreme Court New South Wales Medium Neutral Citation: CGI Glass Lewis Pty Ltd v Vasey [2019] NSWSC 794 Hearing dates: 24 June 2019 Date of orders: 27 June 2019 Decision date: 27 June 2019 Jurisdiction: Equity Before: Robb J Decision: See par 61 Catchwords: CIVIL PROCEDURE — Interlocutory applications — Standard of satisfaction for the continuation of an interlocutory injunction EMPLOYMENT LAW — The contract of service and rights, duties and liabilities as between employer and employee — Enforceability of post-employment restraints Legislation Cited: Restraints of Trade Act 1976 (NSW) Cases Cited: Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840 Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 Bridge Property Investments Pty Ltd v Garland Lot 3 Pty Ltd [2014] NSWCA 82 Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267; (2010) 202 IR 420 OAMPS Insurance Brokers Ltd v Hanna [2010] NSWSC 781 Quantum Service and Logistics Pty Ltd v Schenker Australia Pty Ltd [2019] NSWSC 2 Category: Procedural and other rulings Parties: CGI Glass Lewis Pty Ltd (plaintiff) Andrew Richard Vasey (first defendant) Institutional Shareholder Services (Australia) Pty Ltd (second defendant) Representation: Counsel: B Katekar/S Gaussen (plaintiff) M White SC (defendants) Solicitors: Bird & Bird (plaintiff) Minter Ellison (defendants) File Number(s): 2019/193485 Judgment 1. The issue before the Court is whether, following a brief interlocutory hearing on Monday, 24 June 2019, the Court should extend an interlocutory injunction granted ex parte on Friday, 21 June 2019, until Thursday 4 July 2019, in order to give the plaintiff an opportunity to serve evidence in reply to evidence served upon the plaintiff by the defendants on the evening before and the morning of the 24 June 2019 hearing. 2. Accordingly, these reasons only deal with a short-term extension of the interlocutory order, and do not concern whether, on a fully contested basis inter partes, the Court should make interlocutory orders restraining the defendants, on particular terms, until the final hearing of the plaintiff's claim. 3. Given the short-term nature of the orders sought by the plaintiff, the fact that the application has been made in the duty list and the need for the Court to put in place case management orders with an element of urgency, these reasons will only address the principal arguments made by the parties. 4. The plaintiff, CGI Glass Lewis Pty Ltd, and the second defendant, Institutional Shareholder Services (Australia) Pty Ltd, are apparently Australian subsidiaries of international companies who engage in the business of providing to their clients what is called a "proxy advice service". It is said that these companies are two of only three companies that provide this service in Australia. 5. Proxy advice services apparently involve conducting research for clients who have funds under management, including asset owners such as superannuation funds and asset/investment managers. 6. The plaintiff advises its clients on the stocks they hold in publicly-listed markets and as to how to vote their shares at shareholder meetings. The advice given is of a research type, and is not in the nature of financial advice. 7. The advice usually concerns the long-term strategies of both the clients and the companies in which the clients hold shares, and the governance of those companies. 8. The first defendant, Mr Andrew Richard Vasey, was apparently a senior employee of the plaintiff in Australia, until he resigned to take up a position of employment by the second defendant, which was to commence on 24 June 2019. 9. On the afternoon of Friday, 21 June 2019, I gave leave to the plaintiff to file its summons and an affidavit of its solicitor, Ms Kristy Jane Peacock-Smith. Ms Peacock-Smith gave evidence on information and belief of a senior employee of the plaintiff's parent company, who is located in San Francisco, and an officer of the plaintiff who was Mr Vasey's superior, but who was not available to swear an affidavit because he was then in transit from Ireland to Australia. 10. Relevantly, I made the following order ex parte: 4. Upon the Plaintiff by its Counsel giving the usual undertaking as to damages, on an ex parte basis and until 5pm on Monday 24 June 2019: (a) the First Defendant is restrained from commencing work for, rendering services to, being employed by or being otherwise involved with, directly or indirectly, the Second Defendant; and (b) the Second Defendant whether by itself, its servants, agents or otherwise, is restrained from engaging the First Defendant whether as an employee, contractor or otherwise. 1. The summons was listed for hearing before me as duty judge at 11am on Monday, 24 June 2019, because, as I have said, that was the day that Mr Vasey was to commence employment by the second defendant. 2. When the matter was called, counsel for the plaintiff informed the Court that the plaintiff had very recently received an affidavit by Mr Vasey, and also by Mr Jeffrey Leslie Brown, who is a senior executive of the second defendant. The latter affidavit was affirmed on the morning of the hearing and the former was affirmed the previous day. 3. Counsel for the plaintiff asked the Court to order that the plaintiff have until 28 June 2019 to serve any evidence in reply, for the parties to serve submissions by 2 July 2019, and for the proceedings to be listed for an interlocutory hearing on 4 July 2019. 4. Counsel for the plaintiff also asked the Court to continue the interlocutory order made on 21 June 2019 until the matter was finally determined. In reality, the request was that the order be continued until the completion of the interlocutory hearing on 4 July 2019. 5. Counsel for the defendants advised the Court that they did not consent to a continuation of the interlocutory order. Consequently, it was necessary for the Court to hear the parties as to whether the interlocutory order should be continued on a short-term basis. 6. Counsel for the defendants advised the Court that they took the view that it was preferable for this dispute to be determined by the Court on the basis of an early final hearing, rather than for there to be another interlocutory hearing. There may be some sense and utility in that approach, but it would require an application by the parties to the Expedition List Judge. In any event, as the defendants would not give an undertaking or submit to a short-term restraint in relation to the employment of Mr Vasey, the need for an interlocutory hearing is unavoidable. 7. I have decided that the plaintiff has established that its claim is of sufficient interlocutory strength to justify a short-term continuation of the interlocutory order, and that the immediate balance of convenience justifies the Court in taking that course: see Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [65]-[72]. 8. There are weaknesses in the plaintiff's evidence in its present state, but, on a short-term basis, the evidence establishes that the plaintiff has a reasonably arguable case that it will be a breach of Mr Vasey's employment contract for him to enter into the employment of the second defendant, and the plaintiff has reasonable prospects of defeating the defendants' claim that the term of the employment contract upon which the plaintiff relies is an unenforceable restraint of trade. 9. In relation to the balance of convenience, there is some evidence that justifies a conclusion that information confidential to the plaintiff could be disclosed if Mr Vasey takes up employment by the second defendant. A very short-term continuation of the interlocutory order will obviate that risk. 10. Furthermore, there was no evidence that Mr Vasey will suffer serious disadvantage if he is prevented from commencing his employment by the second defendant until 4 July 2019. 11. The employment agreement between the plaintiff and Mr Vasey was entered into on 17 December 2014. 12. Most relevantly, clause 15.1 provides as follows: The Employee must not, whether as a consultant, principal, agent, employee, director, shareholder, beneficiary or trustee, during the Restraint Period, without the prior written consent of the Employer, anywhere within the Restraint Area directly or indirectly carry on, advise, provide services to or be engaged by, or employed by, concerned with, associated with or interested in, a Prohibited Business. 1. "Prohibited Business" is defined in clause 20.1 in the following terms: Prohibited Business means any person, entity or undertaking providing proxy advisory services and/or proxy voting services, including without limitation Institutional Shareholder Services and Ownership Matters and any of their Associated Entities. 1. As I understand it, "Institutional Shareholder Services" is intended to be a reference to the second defendant, and "Ownership Matters" is a reference to the third competitor in providing the relevant type of services. 2. Thus, while the effect of clause 15.1 is to prevent Mr Vasey taking up employment with persons or entities providing proxy advisory services and/or proxy voting services, the clause does not prohibit Mr Vasey accepting employment by any other employer in another field who may have use for his research skills and abilities. 3. "Restraint Area" is defined widely in clause 20.1 in the following terms: Restraint Area means: (a) anywhere within the United States of America, Canada, Belgium, the United Kingdom, France, Philippines, Singapore, Japan or Australia, or any country in which a Prohibited Business has operations, but if that is not enforceable; (b) anywhere within the United States of America, Canada, the United Kingdom, Philippines, Singapore, Japan or Australia, but if that is not enforceable; (c) anywhere within Australia, but if that is not enforceable; (d) anywhere within New South Wales, but if that is not enforceable; (e) anywhere within Sydney. 1. "Restraint Period" is also defined in clause 20.1 as follows: Restraint Period means: (a) 12 months from Termination, but if that is not enforceable; (b) 9 months from Termination, but if that is not enforceable; (c) 6 months from Termination, but if that is not enforceable; (d) 3 months from Termination. 1. In clause 15.2 of the employment agreement, Mr Vasey made a number of acknowledgements designed to support the enforceability of the restraint. Those acknowledgements are not conclusive for the purposes of this application. 2. Clause 15.3 provided as follows: Notwithstanding the foregoing, in the event that any part of the restraint in clause 15.1 is found to be void, the Employee hereby agrees that such restriction will apply with such deletions as may be necessary to make it valid. 1. The defendants invited the Court to decline to extend the interlocutory order, on the basis that it was so clear that clause 15 of the employment agreement is void for uncertainty that the plaintiff's claim that it has established a prima facie case, or a serious question to be tried, is hopeless. 2. The defendants submitted that this defect in the plaintiff's case could not be cured by the application of s 4(1) of the Restraints of Trade Act 1976 (NSW) (the Act), to the effect that a restraint of trade is valid to the extent to which it is not against public policy, whether it is in separable terms or not, because the effect of s 4(2) is that the earlier sub-section does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. 3. It may be accepted that the validity of clause 15.1 will not be saved by s 4(1) of the Act if it is found to be uncertain. 4. In essence, the defendants submitted that clause 15 of the employment agreement is uncertain, when considered in conjunction with the definitions set out above, because it is a single covenant and it is impossible to determine with certainty how it applies, given the cascading nature of the restraint area and the restraint period. The defendants relied primarily on the decision of Wootten J in Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840, in which his Honour found that a similarly worded restraint was uncertain and accordingly void. 5. The dangers involved in a duty judge deciding that a plaintiff has not established a serious question to be tried based upon the proper construction of a written agreement is demonstrated by the decision of the Court of Appeal in Bridge Property Investments Pty Ltd v Garland Lot 3 Pty Ltd [2014] NSWCA 82. Where there are reasonably arguable alternative arguments concerning the proper construction and effect of a written agreement, the primary judge should be wary of rejecting the plaintiff's claim that there is a serious question to be tried based upon the proper construction of the agreement, just because that judge prefers an alternative construction. 6. The circumstances in which restraints of trade in employment contracts containing cascading restrictions may be uncertain were considered at length in OAMPS Insurance Brokers Ltd v Hanna [2010] NSWSC 781 by Hammerschlag J at [38]-[67]. See also, on appeal, Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267; (2010) 202 IR 420, particularly at [8] and [9]. 7. The discussion of the issues concerning the certainty of post-employment restraint provisions involving cascading restrictions in those decisions satisfies me that it would be unsafe and inappropriate for me, at this stage of the proceedings, to reject the plaintiff's claim for a short-term extension of the interlocutory order, on the ground that clause 15 of the employment agreement is necessarily uncertain. 8. Once that position is reached, it follows, in my view, on the facts of this case, that even though some aspects of the restraint appear to be very wide, particularly as to area, the possible application of s 4(1) of the Act has the result that there is a reasonable possibility that the Court will ultimately enforce the restraint, at least to the extent of the contravention actually threatened by Mr Vasey. 9. Further, it would not, in my view, be appropriate for the Court to accede to the submission, made on behalf of the defendants, that clause 15 of the employment agreement should be ordered to be invalid by operation of s 4(3) of the Act, on the ground that clause 15 is against public policy, by reason of a manifest failure by the plaintiff to attempt to make the restraint a reasonable restraint. That is not an appropriate issue for determination by the Court at this early interlocutory stage of the proceedings. 10. The defendants pointed to the fact that clause 15 is a restraint on employment by competitors of the plaintiff, and does not, in terms, restrain Mr Vasey from either soliciting the plaintiff's clients or trying to entice its employees away from their employment. 11. However, as I understand the plaintiff's case, it is at least in large part based upon a claim that Mr Vasey has gained knowledge of the plaintiff's confidential research and service methodologies, and its proprietary research and voting technologies, that are confidential to the plaintiff, and may be disclosed to the second defendant after the commencement of Mr Vasey's employment: see pars 36 and 37 of Ms Peacock-Smith's affidavit. I have considered the circumstances in which the Court may uphold the validity of a restraint that prevents an employee taking up employment by a competitor of the employer in Quantum Service and Logistics Pty Ltd v Schenker Australia Pty Ltd [2019] NSWSC 2, particularly at [44]-[52]. 12. In addition, the plaintiff seeks to make a case that, by reason of introductions made by the plaintiff, Mr Vasey, who has risen to the position of Manager, Australian Research for the plaintiff, has not only established a connection with the plaintiff's clients, but has also established a connection with the boards and executives of many of the large Australian companies who are the subject of the research reports prepared by the plaintiff for its clients. This may be a relatively novel basis for protecting the legitimate interests of the plaintiff. It would be wrong, in my view, for the Court, at this early interlocutory stage of the proceedings, to rule out the possibility that, where an employer is engaged in the business of providing research reports for its clients, it can impose a restraint on its employees, where the object of the restraint is to protect the relationship between the employer and the persons who represent the companies who are the subject of the reports. 13. Accordingly, I would not at this stage find, as submitted by the defendants, that the connection that Mr Vasey may have established with the members of the boards, and the executives of the subject companies, is irrelevant to the question of whether the restraint in clause 15 of the employment agreement can be enforced. 14. There is some force in the defendants' submission that the plaintiff's evidence in Ms Peacock-Smith's affidavit, concerning the establishment of a relationship between Mr Vasey and the plaintiff's clients, the establishment of relationships with the boards and executives of the companies that are the subject of the plaintiff's research reports, and the claim that the plaintiff's research and service methodologies and technology platforms are secret and confidential to the plaintiff, was no more than assertions on information and belief. Furthermore, the plaintiff has not put forward evidence concerning the actual content of its confidential information that would permit the Court to make a judgment about whether the claim is valid. 15. I acknowledge that this submission on behalf of the defendants is met to some extent by the plaintiff's response that it did not understand that the defendants contested that Mr Vasey is in possession of the plaintiff's confidential information, because in correspondence he has volunteered an undertaking that he would not disclose the plaintiff's confidential information to the second defendant. 16. While I accept that the plaintiff's prospects of obtaining an order extending the present interlocutory order at a contested interlocutory hearing may be in jeopardy if it does not substantially improve the cogency of its evidence concerning the connections that have developed between Mr Vasey and the plaintiff's clients and the representatives of the subject matter of its research reports, and also the nature and extent of the confidential information possessed by Mr Vasey as a result of his employment, I do not accept that the present evidence on those issues is insufficient to justify the Court extending the existing interlocutory order on a short-term basis. 17. The defendants also submitted that the Court should refuse the plaintiff's application for an extension of the interlocutory order because the plaintiff delayed until 21 June 2019 in making this application, when that was the date when the notice period for Mr Vasey's termination of the employment agreement expired, and it was expected that Mr Vasey would commence his employment by the second defendant on the following Monday. 18. The evidence establishes that Mr Vasey resigned from his employment on 22 May 2019, on the provision of one month's notice. He soon thereafter informed the plaintiff that he had accepted an offer of employment by the second defendant. 19. On 29 May 2019, the general manager of the plaintiff, Mr Daniel Smith, wrote a letter to Mr Vasey, in which he informed Mr Vasey that the plaintiff would take steps to enforce the restraint, and made an offer of compromise to Mr Vasey that involved a lesser period of restraint than the plaintiff could argue for, based upon the terms of the employment agreement. Mr Smith gave Mr Vasey until 21 June 2019 to respond to the offer. That was a generous period, but had the effect that the offer would lapse at the end of Mr Vasey's one month's notice. 20. On the same day, Mr Smith wrote a letter to Mr Brown of the second defendant, informing him that the plaintiff would enforce the restraint agreed to by Mr Vasey. 21. On 17 June 2019, Mr Vasey wrote a letter to Mr Smith in which he informed the plaintiff that he believed that the restraint is void, and set out his reasons for that position. 22. Mr Vasey also made an assertion that, because the plaintiff had put Mr Vasey on what is commonly called gardening leave, it had repudiated the employment agreement, and the repudiation was accepted by Mr Vasey. 23. Mr Vasey also assured the plaintiff that he would comply with his obligations in relation to the plaintiff's confidential information, and he also volunteered to agree not to solicit any of the plaintiff's clients who he dealt with for a period of six months post termination of his employment. 24. On 20 June 2019, the plaintiff's parent company's general counsel took the issue up with the general counsel for the second defendant's parent company in the United States. The letter made a proposal for compromising the claim now made by the plaintiff. 25. On 21 June 2019, the plaintiff's parent company's general counsel made a similar proposal by letter written to Mr Vasey. 26. The plaintiff's solicitors were apparently retained shortly before the proceedings were commenced, and they did not write a letter of demand to the second defendant until 21 June 2019. 27. I do not consider that this conduct on the plaintiff's part is sufficiently dilatory or delinquent to justify a refusal of a short-term continuation of the existing interlocutory order. The plaintiff appears to have made a genuine attempt to avoid litigation by offering a substantial compromise of its claim. 28. The plaintiff probably made an error of judgment in pursuing the possibility of compromise as long as it did, and it would arguably have been preferable for the plaintiff to commence these proceedings at least a week before it did. However, in the circumstances of this case, I do not accept that it would be appropriate to deprive the plaintiff of the possibility of obtaining an order continuing the interlocutory order until the determination of the proceedings, just because the plaintiff pursued the possibility of compromise for a longer period than may have been prudent. 29. As I have mentioned above, both Mr Vasey and Mr Brown have made affidavits that have been served in support of the defendants' opposition to the plaintiff's claim for interlocutory relief. Both affidavits contain cogent evidence that deals with the substance of the issues raised by the plaintiff's claim. In particular, Mr Vasey explained that he has never had a role with the plaintiff's client services team (par 27), he did not participate in meetings with clients and only occasionally responded to questions raised by them directly (pars 29 and 30), and the plaintiff's research is based upon publicly-disclosed information, as it is the plaintiff's policy not to have regard to information disclosed privately in order to avoid conflicts of interest (par 36). Mr Vasey also provided a detailed explanation of his limited involvement in the use of the plaintiff's technology platforms (pars 42 and 43). Significantly, at par 42(a) Mr Vasey specifically said that he is not aware of any secret methodology that the plaintiff uses to carry out its research, and no one had ever informed him that the research methodologies that the plaintiff uses are secret. 30. Mr Brown also gave evidence that, if employed by the second defendant, Mr Vasey would only have limited exposure to its clients (par 12). 31. This evidence provides a significant foundation for the defendants' defence of the plaintiff's interlocutory claim. That claim may well be unsuccessful if the plaintiff does not serve evidence that genuinely grapples with the facts deposed to in the defendants' affidavits. That, however, is a matter for the judge who is required to determine the plaintiff's interlocutory application once the plaintiff has had an opportunity to respond to the evidence served by the defendants. 32. Provided that the usual undertaking as to damages is offered to the Court when these reasons for judgment are published, I will make the following orders: 1. On the plaintiff by its counsel [or solicitor] giving to the Court the usual undertaking as to damages, the Court continues order 4 made on 21 June 2019 up to 5pm on Thursday 4 July 2019. 2. The plaintiff is to file and serve any evidence in reply on or before 28 June 2019. 3. The parties are to serve and deliver electronically to the associate to the duty judge their written submissions on or before 2 July 2019. 4. The proceedings are stood over for the determination of the plaintiff's claim for an extension of the interlocutory injunction to Thursday, 4 July 2019 at 10am before the duty judge. ********** 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. Decision last updated: 27 June 2019