Supreme Court New South Wales Medium Neutral Citation: Infinity Gym Sports & Health Pty Limited v Ageev [2019] NSWSC 1505 Hearing dates: 31 October 2019 Date of orders: 31 October 2019 Decision date: 31 October 2019 Jurisdiction: Equity Before: Ball J Decision: (1) An order in terms of paragraph 1(i) and (iv) of the summons: "Until further order of the Court an injunction restraining the Defendant from: (i) Engaging in any employment, business, financial relationship or activity with REC Industries Pty Ltd (ABN 93 156 071 340) trading as Icon Gymsports … (iv) Encouraging or persuading club stakeholders, including customers, suppliers, sponsors or partners to terminate their business or custom with the Plaintiff." Catchwords: COMMERCE – Restraint of Trade – Enforcement and remedies – Injunction – question as to extent to which restraint is reasonably necessary – enforcement of express negative stipulation in employment contract – likely strength of case for entitlement to final injunction – balance of convenience – delay in bringing application – damage likely to be suffered if injunction not granted – possible hardship in event injunction is granted Legislation Cited: Restraints of Trade Act 1976 (NSW) Cases Cited: Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Kearney v Crepaldi & Ors [2006] NSWSC 23 Seven Network (Operations) Limited v James Warburton (No 2) [2011] NSWSC 386 Category: Procedural and other rulings Parties: Infinity Gym Sports & Health Pty Ltd (Plaintiff) Andrey Ageev (Defendant) Representation: Counsel: KG Bennett (Plaintiff) No Appearance (Defendant) Solicitors: Bridgeford & Associates Lawyers (Plaintiff) No Appearance (Defendant) File Number(s): 2019/339297 EX TEMPORE Judgment Introduction 1. By a summons filed on 29 October 2019, the plaintiff, Infinity Gym Sports & Health Pty Limited (Infinity), seeks relevantly an interlocutory injunction restraining the defendant, Mr Andrey Ageev, from working for REC Industries Pty Ltd trading as Icon Gymsports (Icon) in breach of post-contractual restraints contained in a contract of employment between Infinity and Mr Ageev. 2. On 29 October 2019, I gave leave to Infinity to serve the summons on short notice and make it returnable at 11.00am on 31 October 2019. There was no appearance by the defendant at that time, although Ms DeLosa, a solicitor acting for Icon, did appear. She submitted that if the Court did grant an injunction ex parte it should give Mr Ageev time in which to apply to have the injunction set aside. 3. For the reasons which follow, I have concluded that I should grant an ex parte injunction, although in narrower terms than those sought by Infinity. Background 1. Since October 2017, Infinity has operated a gymnastics club in Sefton Road, Thornleigh, NSW, specialising in providing coaching in recreational gymnastics, competitive women's gymnastics, recreational and competitive cheerleading, kinder gym for children under five, recreational tumbling and trampolining, and gymnastics-based teen and adult fitness. Its director is Ms Catherine Howitt. 2. Infinity is one of approximately 15 clubs that are located in the area defined by Gymnastics New South Wales as the "Northern region of NSW". Icon also operates a gymnastics club from premises at Leighton Place, Hornsby, NSW, approximately 5.2 kilometres by road from Infinity's premises. It too is included in the "Northern region" of Gymnastics New South Wales. It is plainly a competitor of Infinity. 3. Ms Howitt says, and there is no reason to doubt, that since Infinity was established she had been looking for a "high performance coach" in women's gymnastics. At the suggestion of a colleague, Ms Howitt approached Mr Ageev, who at the time was working in Singapore. Mr Ageev and his wife, who also works as a gymnastics coach, visited Infinity's gym in February 2018. Following that visit, Infinity offered Mr Ageev a job, which he accepted. At about the same time, his wife accepted an offer with Icon. 4. Infinity assisted Mr Ageev with his visa application and move to Sydney and in doing so incurred costs of approximately $14,000. The parties signed an initial employment agreement dated 23 May 2018 and Mr Ageev commenced work at Infinity in August 2018. The initial contract ran until 27 January 2019. It was replaced by a contract dated 12 October 2018 following the granting of a longer visa to Mr Ageev. The new contract was expressed to be "for the duration of your approved visa (4 November 2020) or as otherwise approved". Both contracts are in substantially the same terms. 5. Under cl 22 of both contracts, either party was entitled to terminate the contract on 12 weeks' notice. 6. Clause 19 of both contracts relevant provides: Employees must keep confidential and not disclose to any unauthorised person any information which comes to the employee's knowledge during the course of the employee's employment, including (but not limited to) precedent documents, member lists, office documents and customers matters. … 1. Clause 21 is in the following terms: Restrictive Obligation In order to protect the legitimate business interests of the employer and its related associated employees shall not engage in the following activities, directly or indirectly, without prior written consent from [Infinity], during employment, and for a period of 12 months following cessation of employment: a. engage in any employment, business, financial relationship or activity with an organisation or person, which is the same as, or substantially similar, to the business of [Infinity] within a 30km radius of Club operations. b. encourage or persuade Club stakeholders; including customers, suppliers, sponsors or partners to terminate, divert or change, or negatively influence their trade relationship, or future trade relationship with [Infinity]. c. encourage or persuade employees or contractors to resign or stop providing services to [Infinity]. Note: If any of the specific restricted periods stated in this above are deemed invalid or unenforceable, then 6 months shall replace 12 months; and 20 km shall replace 30 km. 1. Following Mr Ageev's arrival at Infinity, Infinity promoted him as a high performance coach. According to Ms Howitt, "Infinity has seen substantial growth during the time of Mr Ageev's employment of at least 17%". The evidence is that there is a very limited number of high performance gymnastics coaches in Australia. 2. On 6 August 2019, Mr Ageev, during his annual performance review, handed Ms Howitt a letter giving notice of his resignation. The letter relevantly said: Please accept this letter as my formal notice of resignation as a Gymnastics Coach at Infinity Gym Sports and Health effective 6th August 2019. Due to family reasons I have decided to stop coaching gymnastics for a while. I have enjoyed my employment here and appreciate the opportunities I have been given. I regret any inconvenience that this will cause. … 1. Ms Howitt responded to that letter on 7 August 2019. In that response she said: As discussed yesterday and as per your letter of 6 August 2019, I understand it is your intention to resign from your position at Infinity Gym Sports & Health due to family reasons (your letter dated 6 August 2019) and your intention not to remain in a coaching role into the future. Your letter was of formal notice "effective 6th August" but your contract required you to give 12 weeks' notice of resignation and I require this. Including given the nature of your role and relationships with our clients, the efforts and significant contribution made on behalf of Infinity Gym Sports & Health to bring you as a coach of your calibre to Australia to work here, I highlight the following terms of your signed employment contract dated 12 October 2018 – Clauses 22, notice requirement is as follows for this role, 12 weeks; Clause 21, Restrictive Obligation and Clauses 15, 19 & 20 – see full signed contract attached for your reference. Please ensure you are familiar with this and understand its terms including the obligations to Infinity Gym Sports & Health that continue to apply after your employment ends with us. As discussed given the nature of your role, the efforts and the significant contribution made on behalf of Infinity Gym Sports & Health in relocating you to Australia, consistent with this would be the expectation that all clauses of your contract are honoured and complied with. Should there be a breach of clauses contained in your employment contract this matter will be referred to our lawyers whom we would seek advice from as regards protecting this business's rights. This could include commencing litigation against you which could lead to orders that you pay for damage to our business and orders including that you pay our legal costs. 1. On 14 August 2019, Ms Howitt received an email from Mr Paul Lewis of Total Legal, a solicitor retained by Icon. The letter relevantly said: We write to you out of courtesy because Icon have been approached by Mr Andrey Ageev regarding possible employment. Mr Ageev's wife already works at Icon and, given the major change in life that their recent baby has thrust upon them, it is imperative that they work at the same establishment. They have only one car between them and of course need to sync their rosters so as to care for the baby. We are in receipt of the employment contract between Mr Ageev and yourself and are of the opinion that as long as working for Icon does not damage your business then there should be no impediment to Mr Ageev taking up a role with Icon. Rosie states that she will not be using Mr Ageev's employment as a specific sales pitch to solicit from your membership. We are also aware that two previous Icon staff members have been given employment at your establishment in the past, Shayla and Geoff. Despite our opinion that Mr Ageev working at Icon will not impinge upon the employment contract we are instructed to offer a face-to-face discussion with you such that you can air any issues that you might foresee. We suggest Monday or Thursday next week at 2:00pm, either day, as suitable. This meeting, should you want it, can take place at either Infinity or a neutral convenient place of your choosing. Should you not accept this invitation for a meeting, we will assume that you have no objection to Mr Ageev taking up employment at Icon. 1. Ms Howitt replied to that email on 16 August 2019 stating that Infinity objected to Mr Ageev taking up employment at Icon and saying that it "will be further responding in relation to this matter early next week". However, nothing further happened at that time. 2. On 29 August 2019, Mr Ageev gave notice (wrongly dated 29 September) that his last day of work would be 7 September 2019. Ms Howitt responded to that letter by email dated 3 September 2019 stating that Infinity would accept Mr Ageev's resignation on that date. The email states: You are directed not to report to work or attend Infinity premises (except for return of property as below) or contact any clients of Infinity during this period, and to honour your post employment obligations as per your contract of employment … 1. On 5 September 2019, Bridgeford & Associates, solicitors engaged by Infinity, wrote to Mr Ageev stating the following: On 6 August 2019 you gave notice of termination of your employment and on 7 September 2019 you will cease employment with our client. It has come to the attention of our client that you have entered into or intend to enter into a relationship, employment or otherwise, with a competitor of our client, Icon Gymsports, which operates a business the same as or substantially similar to our client's business and is located within the zone protected by the restraint. We put you on notice that in the event that you perform work or activities for Icon you will be in breach of the restraint clause (and perhaps other clauses) of your contract of employment. Please be advised that this letter constitutes notice to you that in the event you act or purport to act in breach of your post-employment obligations under the contract, our client intends to take action to restrain you from breaching the post-employment obligations contained in the contract and seek costs against you. Such action will be taken without further notice to you. 1. Mr Lewis sent an email dated 13 September 2019 in response to that letter. The email relevantly said: We were due to reply to your previous letter in relation to this matter by this afternoon. We were well advanced in drafting this reply. However, your attached letter has warranted an amended response such that our original reply, as drafted, is now redundant and in need of re-work. We are instructed that Mr Ageev has not been working for Icon and we will strongly resist any legal action that your client might commence. 1. According to Ms Howitt, she was away from 15 September 2019 to 29 September 2019 at the Australian Classic, where she was heavily involved in judging and coaching. Ms Howitt says that, since Mr Ageev left, Infinity has been looking for another high performance coach, although so far it has been unsuccessful in locating a suitable person. 2. On or about 15 October 2019, Ms Howitt became aware that Mr Ageev had commenced coaching at Icon. 3. On 24 October 2019, Infinity's solicitors sought an undertaking from Mr Ageev, in effect, that he would cease and desist from all and any activities at [Icon] including but not limited to: * supervising; * training, programming, coaching and supervision of athletes and staff. 1. Mr Ageev did not give that undertaking. Consideration 1. Two questions arise. The first is whether Infinity has a prima facie case that it is entitled to an injunction on a final basis in the terms that it seeks. The second is whether the balance of convenience favours granting an interlocutory injunction. 2. In my opinion, Infinity has a strong prima facie case for some form of injunctive relief. 3. The Court will generally grant an injunction to give effect to a post contractual restraint on an employee, including a post-contractual restraint on employment with a competitor, if and to the extent that the restraint is reasonably necessary to prevent disclosure of confidential information obtained by the employee in the course of their former employment, or where it is reasonably necessary to prevent the exploitation of connections built up by that employee with the customers of the previous employer: Kearney v Crepaldi & Ors [2006] NSWSC 23 at [53] per McDougall J. The restraint will not normally infringe the public policy against unreasonable restraints of trade if it does no more than that. And the principle that a court will not grant specific performance of a contract for personal services is not infringed if all that is sought is an injunction to enforce an express negative stipulation in the employment contract which places specific limits on the types of activity that the former employee may undertake: Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 346-348; Seven Network (Operations) Limited v James Warburton (No 2) [2011] NSWSC 386 at [4]. 4. There may be question whether the restraint in the current case goes beyond what is reasonably necessary to achieve the permitted purposes. However, if it does, s 4 of the Restraints of Trade Act 1976 (NSW) states that the restraint is still valid to the extent that it is not against public policy. That section relevantly provides: 4 Extent to which restraint of trade valid (1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. (3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order. … 1. There appears to be a strong argument that the restraint in the present case, insofar as it prevents Mr Ageev from working for Icon for a period of time, would not be against public policy and would provide Infinity with no more than reasonable protection to prevent Mr Ageev from exploiting the connections he established at, and confidential information he obtained from, Infinity. Icon's premises are in close proximity to those of Infinity. It is clearly a competitor. The evidence is that Mr Ageev built up a following at Infinity. It is not against public policy that Infinity should have a reasonable time to convince athletes who might otherwise follow Mr Ageev that they will still be able to obtain similar services from Infinity. One factor that is relevant in considering the length of a restraint that would be reasonable is the time that it would take Infinity to find a suitable replacement for Mr Ageev. Having regard to the limited number of available alternatives, there is at least a prima facie case that a restraint for a period of 12 months is reasonable. 2. In my opinion, the balance of convenience favours granting an injunction in this case. 3. Obviously, the injunction will cause Mr Ageev considerable hardship because he will not be able to work for Icon while the injunction remains on foot. But that is a risk that Mr Ageev took when he accepted a position with Icon. 4. On the other hand, if an injunction is not granted, Infinity's business is likely to be damaged substantially because of the risk that it will lose a number of high performance gymnasts who choose to follow Mr Ageev. Damages are not an adequate remedy. It would be difficult for Infinity to prove that it lost individual athletes as a consequence of Mr Ageev's move to Icon and to quantify the loss it suffers as a consequence of the loss of those athletes. The loss of high performance athletes may damage Icon's reputation, which in turn will have additional effects on its business. 5. Mr Ageev has said in correspondence that he has no intention of poaching any gymnasts from Infinity. However, that point is no answer to Infinity's claim. It can be assumed that the gymnastics community is relatively small and that it is likely to become well-known, if it is not already, that Mr Ageev is now working for Icon. That fact alone is likely to attract at least some athletes away from Infinity. 6. There is a question whether Infinity has been guilty of delay in bringing this application. Although there has been some delay on Infinity's part, I do not accept that it is sufficiently serious to justify withholding relief. From the time that Mr Ageev handed in his resignation, Ms Howitt made it clear that Infinity would insist on its contractual rights. Originally, Mr Ageev told Ms Howitt that he intended to take a break from coaching gymnastics for a period. On 13 September 2019, Ms Howitt was told by Icon's solicitor that Mr Ageev was not working for Icon. With the benefit of hindsight, that email at best seems disingenuous. However, in the context in which it was written, Ms Howitt might reasonably have concluded that Mr Ageev and Icon had had second thoughts and decided not to pursue the original plan for Mr Ageev to start coaching at Icon shortly after his departure from Infinity. Infinity acted reasonably promptly once Ms Howitt discovered on or about 15 October 2019 that Mr Ageev had commenced coaching at Icon. 7. Also relevant to the balance of convenience is the strength of Infinity's case. On the material currently before the Court, it appears that Infinity has a strong case that it is entitled to a final injunction. That fact favours the granting of an interlocutory injunction. The interim relief sought by Infinity in its summons reflects the contractual term of the restraint. There is a question whether the Court would in any circumstances give an injunction in such broad and somewhat vague terms. In any event, in the present circumstances, in my opinion it would be sufficient to protect Infinity's position if an injunction were given in the terms sought in paragraph 1(i) and (iv) of the Summons. 8. Ms DeLosa, who, as I have said, appeared for Icon, submitted to the Court that if the Court did grant an interlocutory injunction it should give Mr Ageev an opportunity to contest the injunction and produce evidence before the Court relevant to the question of whether the injunction should continue. In making that submission, Ms DeLosa submitted that Mr Ageev was an individual who was not an Australian citizen and who was unfamiliar with legal procedure in Australia. It seems to me that the question of what should happen in the future is a matter best dealt with by transferring this matter to the expedition list and giving the parties liberty to apply, so that if Mr Ageev wishes to make an application that the injunction be dissolved, he can do so by exercising that liberty. It will, of course, be a matter for the expedition judge whether the matter remains in that list. 9. Consequently, the orders of the Court are: 1. An order in terms of paragraph 1(i) and (iv) of the summons: "Until further order of the Court an injunction restraining the Defendant from: (i) Engaging in any employment, business, financial relationship or activity with REC Industries Pty Ltd (ABN 93 156 071 340) trading as Icon Gymsports … (iv) Encouraging or persuading club stakeholders, including customers, suppliers, sponsors or partners to terminate their business or custom with the Plaintiff." 1. The matter is stood over before the Expedition Judge on 8 November 2019. 2. Direct that the plaintiff notify the defendant of that listing. 3. Reserve the question of costs. 4. Give liberty to apply on three days' notice. ********** 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: 04 November 2019