DXC Connect Pty Ltd v Deibe & Ors

Supreme Court of NSW|2017-08-25|Before: Black J

Wilson Parking Australia 1992 Pty Ltd v Rush [2008] FCA 1601 - Woolworths Ltd v Olson [2004] NSWCA 372 - Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Category: Procedural and other rulings Parties: DXC Connect Pty Ltd (Plaintiff) Stephen Deibe (First Defendant) Antonino Arena (Second Defendant) Rohan Michael Busteed (Third Defendant) Jay Manaen Henry (Fourth Defendant) David Troy Hunter (Fifth Defendant) Robert McCabe (Sixth Defendant) Joseph Arcuri (Seventh Defendant) Representation: Counsel: J J Fernon SC/S B Docker (Plaintiff) R Alkadamani (Sixth Defendant)

Solicitors: Lander & Rogers Lawyers (Plaintiff) Haywards Solicitors (Sixth Defendant) File Number(s): 2017/226378

Relief against disclosure of confidential information

I will first deal with the principles applicable to the grant of injunctive relief, and will then address the principles applicable to a contractual restraint of trade on which DXC also relies, below. I have drawn upon my summary of the relevant principles in Cadgroup Australia Pty Ltd v Snowball [2016] NSWSC 22 in the summary that follows. In determining whether to grant the interlocutory relief sought by DXC, I should apply the principles set out by the High Court of Australia in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 at [65], which in turn reflected earlier authorities requiring that there be established a prima facie case or a serious question to be tried in respect of the application. In order to obtain interlocutory relief, DXC must not only demonstrate a prima facie case or serious question to be tried as to its entitlement to the relief sought at the final hearing, but also that damages would not be an adequate remedy, and that the balance of convenience favours the grant of an injunction on an interlocutory basis. The considerations of whether DXC has established a serious question to be tried and of balance of convenience are inter-related; and the stronger is DXC's case for final relief, the less that might be required to tip the balance of convenience in its favour; and a stronger case for final relief might be required to justify an injunction, if the balance of convenience is against that course.
As I noted above, DXC seeks relief in paragraph 62(a) of the Amended Summons to the effect that Mr McCabe be: "restrained from using or disclosing confidential information of [DXC] until further order". DXC seeks to establish the confidentiality of the information held by Mr McCabe on the basis that it differentiates itself from its competition by pricing of products, sourced from alliance partners with which it deals. Mr Kohler's evidence, in conclusory form but led without objection, was that pricing deals with alliance partners were confidential between DXC and those partners and that only specified persons within DXC have knowledge of that information and preferential deal pricing and rebates (Kohler 25.7.17 [26]-[27]). DXC also contends that it differentiates itself by the technical detail of solutions designed for clients which is also kept confidential and information as to which is limited to specified persons (Kohler 25.7.17 [28]-[29]). DXC also refers to its "client intimacy model" which relates to account managers' knowledge of their clients' needs and other matters. I accept that it is seriously arguable that these matters have a degree of confidentiality, although they would be known at least, in the case of alliance partner pricing, to the alliance partners and some of their employees and, in the case of client information, to the clients and some of their employees.
I have addressed the evidence as to the content of the Data3 presentation and the substantial volume of information downloaded by Mr McCabe to the USB storage devices to which I referred above. I have noted above that Mr McCabe has offered explanations of why information was copied to USB storage devices which are not implausible and may or may not be accepted at a final hearing. Mr Fernon fairly submitted, in oral submissions, that the evidence before the Court in respect of the USB storage devices demonstrated that confidential information was in the possession of Mr McCabe but did not itself demonstrate that it had been used to the detriment of DXC, other than in respect of the Data3 presentation which I have addressed above (T10). Mr Fernon also referred to the fact that Dr Chapman had led evidence of two other USBs that were connected to Mr McCabe's computer, the UDisk and Toshiba USB storage devices; that Mr McCabe's evidence was that he had no such USB storage devices; and that that issue was unresolved, but DXC (fairly) accepted that there could be innocent explanations for that matter (T10).
Mr Alkadamani responded that the instruction given by DXC to Mr McCabe on 11 July 2017 was unreasonable and also criticised the circumstances in which DXC accessed Mr McCabe's laptop following the direction given on 20 July 2017. It seems to me that nothing turns on those criticisms, for the purposes of this application and, in particular, they would not provide a reason to decline the grant of injunctive relief to which DXC would otherwise be entitled. Mr Alkadamani also submitted that DXC's failure to delete the VM drive from Mr McCabe's laptop, before it was returned to him on 24 July 2017, undermines DXC's claim for confidentiality in the information contained in the VM. I do not accept that submission. It is unnecessary to speculate whether DXC had a reasonable concern about deleting information from that laptop prior to anticipated legal proceedings or whether it did not delete that information from the laptop for some other reason. There can be no sensible suggestion that DXC would not be, or was not, concerned about the fact that Mr McCabe had copied a significant amount of confidential business information, relating to his activities as general manager of DXC over 13 years, to a USB storage device when that matter came to its attention.
Mr Alkadamani also made detailed submissions contesting the adequacy of the evidence in support of the categories of confidential information that are identified in paragraph 35 of the Amended Summons as follows: "(a) the tiers, pricing and rebates agreed to between the plaintiff and each of its Alliance Partners, which are preferred product suppliers, along with the content of and the plaintiff's strategy for negotiations for such tiers, pricing and rebates; (b) the plaintiff's business strategy across Australia, along with the plaintiff's top client account plans; (c) the plaintiff's supply chain model, pricing methodologies and service delivery framework; (d) the plaintiff's financial information, including but not limited to Alliance Partner rebates, individual salaries and costs, margin and pricing books and the financial performance of the plaintiff; (e) client information, including pricing, needs, opportunities, jobs won and lost, solutions provided, age and likely end of life of such solutions, and strategic information; (f) the skills, competence and remuneration of employees of the plaintiff." I have had regard to Mr Alkadamani's submissions in this respect, but need not address them in detail where their factual underpinning, and their ultimate relevance, was largely displaced by the evidence of the extent of DXC's business information that had been downloaded by Mr McCabe to the USB storage devices to which I referred above.
Mr Alkadamani draws attention to the observation of Hodgson JA (with whom McColl JA agreed) in Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 at [43] that: "where the confidential information is something that is ascertainable by enquiry or experiment, albeit perhaps substantial enquiry or experiment, and the know-how which the ex-employee is clearly entitled to use extends to knowledge of the question which the confidential information answers, it becomes artificial to treat the confidential information as severable and distinguishable from that know-how; and in that kind of case, courts have tended not to grant relief." While that principle is plainly well-established, and might well have provided an answer to the information contained in the Data3 presentation, the extent of the business information of DXC downloaded by Mr McCabe to the USB storage devices to which I referred above plainly travelled well beyond know-how of this character.
Mr Alkadamani also submits that the evidence led by DXC to seek to establish confidentiality did not provide information which would allow an assessment of the time for which information would remain relevant or confidential. Mr Alkadamani also submits that the evidence led by DXC does not establish, in respect of any identified category of information, that it is likely to retain sufficient currency to be confidential beyond 22 December 2017. Mr Alkadamani submits that that submission is reinforced by the fact that Mr McCabe has been on gardening leave since 25 July 2017 and will not have had access to DXC's confidential information for about five months by the expiry of his contractual restraint on 22 December 2017. It seems to me that submission also gives insufficient weight to the extent of the information of DXC copied by Mr McCabe to the USB storage devices, for whatever reason, to which I have referred above.
On the evidence as it stands, I am not persuaded that there is a seriously arguable case that the information contained in the Data3 presentation was not either publicly available information (so far as the information related to government contracts or the identity of DXC employees) or information such as sales targets that would readily have been created by persons within the relevant industry. However, I am satisfied that there is a seriously arguable case of breach of confidence against Mr McCabe in respect of the downloading of DXC's confidential information to the USB storage devices, notwithstanding Mr McCabe's explanation of why that was done. It seems to me that it is seriously arguable that, by downloading a substantial amount of information to the USB storage devices, Mr McCabe had at least placed himself in a position to use confidential information of DXC, in the future, if he chose to do so, although his evidence is that that was not his purpose of downloading that information, and there is little evidence that he had in fact used or disclosed that information other than in order to prepare his affidavits in these proceedings. DXC therefore would be entitled to injunctive relief to restrain the use or disclosure of that information pending trial, subject to the limitations noted below.

Form of injunction restraining the use of confidential information

Mr Alkadamani submits that the Court could not make an order in the form initially sought by DXC, seeking to restrain the use of "confidential information" without further identification of that information. DXC maintained its claim for relief in that form even after Mr McCabe's solicitors had pointed out the difficulty with that relief in correspondence to DXC's solicitors and Mr Alkadamani had again pointed out that difficulty in the course of his submissions. Mr Alkadamani refers to John Fairfax Publications Pty Ltd v Birt above at [19] where Brereton J observed that: "A plaintiff who seeks to restrain a former employee from using confidential information must identify with specificity, and not merely in global terms, the relevant information ... Although those cases were concerned with the circumstances in which, even in the absence of a contract, equity imposes an obligation of confidence, the requirement for specificity is no less where a contractual obligation is sought to be enforced. One reason for this is that an injunction in general terms restraining a former employee from using the employer's "confidential information", would inappropriately leave, to an application for contempt, determination of whether particular information was or was not confidential ..." [citations omitted]
I accept that proposition, and I cannot make an order restraining the use of unidentified "confidential information" in that form, which provides no clarity as to the information that Mr McCabe can or cannot use or disclose, defers any dispute as to that question until any application for contempt is brought and likely has the consequence that any injunction would be too uncertain to found an action for contempt if it was breached.
By letter dated 16 August 2017 (Ex R1), Mr McCabe offered, by his solicitors, and subject to the usual undertaking as to damages and on a without admissions basis, to agree to an order until 28 December 2017 not to use or disclose the information described in paragraphs 35(a)-35(f) of the Amended Summons, without accepting that that information was confidential. Mr Alkadamani confirmed that Mr McCabe remained willing to provide an undertaking to the Court in the terms set out in that letter, subject to a carve out in respect of information that is publicly available or provided to Mr McCabe by clients or suppliers. In the alternative to the wider order sought in paragraph 62(a) of the Amended Summons, which I cannot make for the reasons set out above, Mr Fernon alternatively sought an order in this form continuing until further order.
In summary, it seems to me that the question of a restraint against use of DXC's confidential information needs to be approached on the basis that, whatever else may be unclear in this application, it is clear that Mr McCabe has copied to the USB storage devices, and put himself in the position to use, a substantial volume of business information of DXC, including records relating to his work as general manager over a long period, and it is likely that information of that volume and character contains a substantial amount of confidential information. It seems to me that there is a seriously arguable case that the information specified in paragraphs 35(a)-(e) of the Amended Summons is confidential, even if similar information would likely be known to DXC's competitors in respect of their own arrangements, strategies and pricing; it is also seriously arguable, by the nature of that information, that its confidentiality is not limited to the period of the contractual restraint of trade; and the balance of convenience warrants interlocutory relief restraining Mr McCabe from disclosing or using that information until further order unless it is in the public domain or, after his contractual restraint of trade expires on 22 December 2017, if the information is provided to Mr McCabe by clients or suppliers. I am also satisfied that it is seriously arguable that the information specified in paragraph 35(f) of the Amended Summons is confidential, as between DXC, employees and Mr McCabe; it is also seriously arguable, again by the nature of that information, that its confidentiality is also not limited to the period of the contractual restraint of trade; and the balance of convenience warrants interlocutory relief restraining Mr McCabe from disclosure or use of that information until further order unless it is in the public domain or, after the contractual restraint expires on 22 December 2017, the information is provided to Mr McCabe by the relevant employees or they consent to its disclosure by him. I will hear the parties if they seek to make submissions as to the form of this order, beyond matters that have already been addressed in submissions.

The claim based for wider relief under the "springboard" principle

In paragraph 62(b) of the Amended Summons, DXC seeks an order that Mr McCabe be: "restrained from being employed, engaged or contracted by or working for [Data3], directly or indirectly, until further order or 21 March 2018 or such other date as the Court determines, whichever is the earliest". I will proceed on the basis that the dates in issue are 21 December 2017, the date of the contractual restraint binding upon Mr McCabe, or 21 March 2018. It is not the Court's role to develop an alternative case, which DXC has not put, and Mr McCabe had no opportunity to respond to, as to any other alternative date than those dates.
First, DXC supports the wider relief sought in this paragraph of the Amended Summons, to 21 March 2018, on the basis that the relief sought is justified as a "springboard" injunction to protect DXC against the use and disclosure by Mr McCabe of its confidential information. I have held above that the content of the Data3 presentation provides little basis for relief of that character. I have also referred above to the additional evidence led by Dr Chapman and Mr McCabe, after DXC was permitted to reopen its case, as to the copying of information by Mr McCabe to USB storage devices. As I have noted above, it seems to me that a seriously arguable case for a breach of confidentiality is established, at least so far as Mr McCabe had copied information and retained it for his personal purposes, although it is not apparent that he had misused or disclosed that information before these proceedings intervened. As I have also noted above, Mr Fernon has fairly accepted that there is no evidence of misuse of the information contained on those devices although DXC maintains its claims in respect of the Data3 presentation. It does not seem to me that the matters arising from the copying of information to the USB storage devices advance DXC's claim to relief on the basis of the "springboard" doctrine. It is not seriously arguable that Mr McCabe, or any third party, has obtained any head start or "springboard" advantage such as to warrant such relief from such information where there is no evidence that Mr McCabe has used it (other than to prepare his affidavits in the proceedings) and where he can and will be restrained from using or disclosing it on an interlocutory basis.
Alternatively, DXC supports this relief as a "springboard" injunction to protect it from an alleged breach of fiduciary duty by Mr McCabe developing a plan for a block of DXC's employees and clients to move to Data3 and encouraging Data3 and senior managers to join with that plan. DXC submits, and it is uncontroversial, that an employee and particularly a senior employee will owe a fiduciary duty to the employer, and must not put himself or herself in a position of conflict of interest or conflict of interest and duty or in breach of the no profit rule, without the employer's fully informed consent: Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 556; Digital Pulse Pty Ltd v Harris [2002] NSWSC 33; (2002) 40 ACSR 487 at 491 (reversed on appeal but not on this point); Landmark Underwriting Agency Pty Ltd v Kilborn [2006] NSWSC 1108 at [79]. DXC submitted that the proposal that Mr McCabe and other staff move to Data3 was put together by misuse of his position as a senior manager at DXC which allowed access to and influence over the relevant employees and by conducting meetings as to the matter on DXC's time. It is clear enough from the Data3 presentation that it contemplated a concerted attempt to transfer employees and clients of DXC to Data3, and that matter supports the existence of a serious question to be tried as to a breach of fiduciary duty by Mr McCabe in developing, and to the extent that it was implemented, implementing that proposal. There is, as Mr McCabe accepted, a seriously arguable case for breach of fiduciary duty against him.
I accept that an injunction in the nature of a "springboard" injunction can be granted where an employee had misused confidential information or acted in breach of duty and would potentially obtain a head start over the employer in that respect: Terrapin Ltd v Builders' Supply Co (Hayes) Ltd [1967] RPC 375 at 392; Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 at [182]-[184]; Landmark Underwriting Agency Pty Ltd v Kilborn above at [83]; Jardin v Metcash Ltd [2011] NSWCA 409; (2011) 285 ALR 677 at [116]. In Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724 at 732, Goulding J accepted that the springboard principle could apply in a case between employer and employee, although he also observed that: "the sphere in which it can be applied as between master and servant is considerably limited by the servant's freedom, after lawful termination of his employment, to compete with his former employer and to solicit the latter's customers, unless, of course, he has been restrained by express contract from doing so."
In United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 233 (reversed on appeal but not on this point), the Court of Appeal referred to the "head start approach" and observed that: "It is a principle applied in conformity with the more general principle that a person misusing confidential information must answer for his default according to his gain. A headstart may often be the gain in these cases. If it is the gain, damages will be assessed accordingly and any other relief, such as injunction, will be moulded. If it is not the gain the method of assessing damages or the appropriateness of some other remedy has to be considered in the light of what that gain is. If, as we have found to be the position in the present case, the gain was not a headstart, damages assessed on a headstart basis, or an equivalent accounting of profits, is not the appropriate form of relief."
In ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2005] FCA 130; (2005) 139 IR 293, Jacobson J referred to the authorities concerning the springboard principle, in dealing with an argument that that principle should permit the Court to mould injunctive relief to prevent the defendant employer from obtaining an unjustifiable head start by inducing breach of contract and knowing involvement in contraventions by the relevant employees of relevant provisions of the Corporations Act 2001 (Cth). His Honour took a less expansive view than several other cases and observed (at [65]) that: "…I do not consider that the authorities establish that the springboard doctrine extends beyond the field of confidential information. At least, I am not satisfied that there is a sufficiently strong arguable case to warrant this matter forming the basis for injunctive relief having regard to the principles stated by McLelland J in Kolback Securities [Ltd v Epoch Mining NL above]."
His Honour expressed the view (at [69]-[70]) that the observations of Giles JA in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd above were not authority for the application of the springboard principle outside the field of confidential information and summarised his view (at [77]) as that: "the springboard doctrine does not apply outside the field of confidential information or at least there is not a sufficiently strongly arguable case that the doctrine applies."
In Wilson Parking Australia 1992 Pty Ltd v Rush [2008] FCA 1601, where two former employees of the plaintiff had entered into competition with it and were alleged to have taken confidential information and used it in breach of an equitable obligation of confidence, ss 182 and 183 of the Corporations Act and contractual confidentiality provisions, Jessup J granted relief in the form of an injunction relying on the "springboard" principle, where he provisionally found that the defendants had taken the plaintiff's confidential information and observed that: "the practical task of demonstrating, with the rigour required in a contempt application, that [the defendants] "used" some of [the plaintiff's] information in the relevant context would be of some difficulty, to say the least."
DXC also relies on APT Technology Pty Ltd v Aladesaye [2014] FCA 966 at [81]-[85], where Foster J adopted the same approach as Jessup J in Wilson Parking Australia 1992 Pty Ltd v Rush and observed (at [85]) that: "I think that APT is entitled to the additional protection sought by it by means of proposed injunction 1(a). It has an entitlement to have its confidential information protected and not used against it by its former employee who owed contractual, equitable and statutory duties to it during the course of and, in some respects, after, the period of the defendant's employment with it. The defendant has had a significant head-start over APT in securing the business of its former and existing clients and in servicing them to the detriment of APT. He has used his position as APT's employee and the possessor of APT's confidential information to gain a significant advantage over APT in securing the future business of its existing and former clients. A restraint on the defendant's dealings with those existing and former clients pending the final hearing of this proceeding is justified upon the basis that it is appropriate relief moulded to the circumstances of the case designed to protect APT from the damage already caused to it and its business and likely to be caused to it and its business by reason of the defendant's breaches of duty. I am sensitive to the desirability of not granting a non-solicitation interlocutory injunction for an indefinite period. …"
DXC submits that: "The only way in which DXC Connect can obtain some protection from Mr McCabe's use of its confidential information and his breaches of his fiduci[a]r[y] obligations is to restrain him from working for Data3 for a period that allows DXC some time to overcome the detriment caused."
I accept that, in principle, an order of the nature sought by DXC might be made, if it was established that a breach of confidentiality or breach of fiduciary duty was such that it was necessary to do justice between the parties. DXC seeks to justify the six-month period specified in that order, beyond the date of cessation of Mr McCabe's employment on 21 September 2017, which amounts to a nine month period from the date of his resignation and more than six months from the date on which he was placed on gardening leave, on the basis that it can take up to nine months for a project to be delivered and, Mr Kohler claims, it will take at least six months to replace the 13 employees that left DXC because of Mr McCabe's plan (Kohler 18.8.17 [34]-[35]) and will take a new executive sponsor within DXC up to 12 months to generate the same level of trust with a client as Mr McCabe had (Kohler 18.8.17 [31]). DXC also relies on Mr McCabe's presentation to Data3 which referred to an expectation that business would be secured, expressly or implicitly from several of DXC's clients shifting their business to Data3, within the next 3-6 months.
In submissions and evidence, DXC also referred to the conduct of other persons, and to steps which they may have taken to access confidential information. It does not seem to me that those submissions provide any basis for relief against Mr McCabe, absent evidence that Mr McCabe was party to the conduct alleged against those other persons. The further proposition that the Data3 presentation contemplated that Data3 would obtain business from DXC's clients does not assist its claim for interlocutory relief, to the extent that that could be done, after Mr McCabe's employment terminated, without breach of fiduciary duty or the contractual restraints and without use of confidential information.
DXC also submits that the information provided by Mr McCabe to Data3 showed that it was expected that the employees that resigned from DXC would generate substantial revenue for Data3 and a significant profit in the 2018 financial year for Data3, which was expected to come from clients that were previously clients of DXC. DXC submits that: "It may be difficult to prove cause and effect if the employees are permitted to carry out their plan, especially given the large number involved. This favours granting injunctive relief."
I do not accept that submission, which seems to me to disclose a substantive difficulty with DXC's approach. As I noted above, each of the employees who have resigned from DXC has given notice in accordance with their contract; so far as the evidence goes, each of them plans to comply with their applicable restraint of trade; and it appears that employees other than Mr McCabe have reached arrangements with DXC that should protect its confidentiality. Those employees will be entitled to compete with DXC on a basis that involves no breach of duty and DXC does not explain why the loss that it fears will arise from such competition would be avoided if Mr McCabe was prevented from joining Data3 for a six-month period, rather than the three-month period contemplated by his contractual restraint of trade. Even if the grant of the interlocutory injunction sought by DXC would have that result, it is not apparent to me that such an injunction should be granted to prevent DXC suffering loss by lawful competition of Data3, undertaken by employees who have lawfully left its employment, or why Mr McCabe alone should be left unemployed for a significant period in order to bring about that protection. It seems to me that the balance of convenience favours leaving DXC to its claim for compensation in that respect.
Mr Fernon also responds to Mr McCabe's claim for hardship, if he is not permitted to work in a similar position to that which he held with DXC, on the basis that that should not be a significant factor where Mr McCabe has allegedly breached his fiduciary duties to DXC and his contract of employment by his involvement in the alleged plan for relevant employees to join Data3. I do not accept that submission. The Court's jurisdiction in respect of breach of fiduciary duty is not punitive nor is hardship to errant (or allegedly errant) fiduciaries irrelevant in determining the relief that should properly be granted. It seems to me that DXC's further submission that Mr McCabe's evidence does not go so far as to say that he cannot get a job if the restraint is granted does not address the difficulties which arise where a person having qualifications for a particular role is restrained from employment in that role over an extended period on an interlocutory basis.
Mr Fernon also referred to Mr Kohler's evidence that, if the substantial amount of revenue that Data3 hopes to gain is lost to DXC, a number of jobs at DXC would be in jeopardy (Kohler 2.8.17 [42]). As Mr Alkadamani pointed out, that submission was put on a possibly extreme assumption as to the extent of revenue that would be lost to DXC. Moreover, while I accept that the interests of DXC's employees are a relevant consideration, it seems to me that this proposition should be given lesser weight in this case, where the circumstances suggest that Data3 and others would readily employ staff from DXC if DXC does not seek to retain them.
Mr Alkadamani submits that the relief sought in paragraph 62(b) of the Amended Summons does not remediate the disclosure of confidential information but is a form of penalty. Mr Alkadamani also submits that the appropriate remedies for any breach of a duty of loyalty or breach of fiduciary duty are equitable compensation or damages for breach of contract for any duty of loyalty founded in contract, rather than a head start or springboard remedy which may be available in respect of breach of a duty of confidentiality. Mr Alkadamani also submits that an order in this form should not be granted because the scope of the injunction is broader than the contractual restraint and the balance of convenience is against the grant of such an order. So far as this claim is based on an allegation of breach of fiduciary duty, Mr Alkadamani submits that DXC had failed to identify the information or opportunities or other factor that could properly support an injunction of six months post-employment and eight months since Mr McCabe last had access to confidential information, or why any alleged breach of duty required an injunction of that period to remedy it, and submits that the proposed injunction is not supported by the evidence. Mr Alkadamani also drew attention, in written and oral submissions, to issues which Mr McCabe contends arose at DXC in 2017 which promoted the departure of employees. It does not seem to me that the existence of such dissatisfaction is of particular significance in respect of the case brought against Mr McCabe or the interlocutory relief which should be granted. On one view, if Mr McCabe took advantage of the dissatisfaction of employees in assembling a plan for a number of the employees to move to Data3, then that would exacerbate rather than justify the alleged breach of fiduciary duty in that respect.
I am not persuaded that the balance of convenience favours the extended relief sought by DXC under the springboard principle, as distinct from leaving it to its rights for compensation against Mr McCabe for the loss which it is actually shown to suffer. It seems to me that, to adopt an observation made by Jacobson J in ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd above at [82], there is no obvious reason in this case why damages or equitable compensation would not be an adequate remedy. To the extent that DXC had an established business in the relevant field, before the events of which it complains, and that business is now lost by reason of those events, there is no obvious reason why DXC should not be able to calculate the quantum of its claims in the ordinary way when the matter comes on for hearing. The "springboard" injunction sought by DXC would have effect without regard to the extent of any damage resulting from any breach of confidentiality or breach of fiduciary duty by Mr McCabe on DXC's business and it seems to me that there is a real risk that that order would impose an unduly onerous burden on Mr McCabe, on the evidence as it presently stands. In particular, that order would be disproportionate to any disadvantage which DXC would suffer if Mr McCabe and other employees each complied with their contractual restraints of trade; Mr McCabe was restrained from use of confidential information; and other employees have given undertakings to DXC which it has accepted in that respect, or are restrained from the use of such information if necessary. I should add that the form in which the interlocutory order is sought also seems to me to undermine its asserted justification, since it would restrain Mr McCabe from working only for a particular competitor of DXC, Data3, but leave him free to work for any other competitor of DXC.
For completeness, I note that I have also given consideration to whether the Court could properly make an order in the form sought by DXC where it is expressly targeted at Data3, so as to prevent Mr McCabe's employment by Data3. There is no evidence that Data3 has been given notice that that order is sought, although it has produced documents on subpoena in the proceedings, or an opportunity to be heard in respect of it. Mr Alkadamani referred to News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; 139 ALR 193 as authority for the need to give notice to persons whose interests may be affected by proposed orders, and submitted that, where a restraint is sought against a departing employee, notice should be given to the prospective employer or that prospective employer should be joined. Mr Fernon responds that Data3 has no relevant interest in this case, so as to require notice to it or joinder of it, where there is no present contract between Data3 and Mr McCabe.
In News Ltd v Australian Rugby Football League Ltd above, a unanimous Full Court of the Federal Court there referred (at 524) to the observations of Lord Diplock, in delivering the opinion of the Judicial Committee of the Privy Council in Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 at 55-56 as to the circumstances in which an additional party may be joined to an existing action, and his Lordship's identification of the test whether that person's "rights against or liabilities to any party to the action in respect of the subject matter of the action [will] be directly affected by any order which may be made in the action". In this case, it appears that existing rights or liabilities of Data3 will not be directly affected by the order sought, because it is common ground that no contract has yet been formed between Mr McCabe and Data3. The Full Court also pointed (at 527) to the difficulties which would arise where an injunction granted against a party to the proceedings would affect the position of third parties, by reference to the effect of an injunction granted against the Super League employers upon players. However, that observation was made in the context where there were existing contracts between those employers and the players and, on balance, does not seem to me to support a requirement for joinder or notice in this case, where no such contract presently exists.
In the alternative to the order sought in this paragraph of the Amended Summons, DXC sought an order that Mr McCabe be restrained until 21 December 2017 or until further order, whichever occurred earlier, from: "carrying on or being engaged, concerned or interested in, directly or indirectly, or assisting or advising in respect of: (i) the design, sale, configuration, installation, support, maintenance and repair of information, communications or technology systems; and (ii) the negotiation or making of agreements with suppliers for the purpose of the activities in (i) above."
It seems to me that an order in this form should also not be made since it extends well beyond the contractual restraint, and has no nexus with either the alleged breach of confidentiality or the alleged breach of fiduciary duty. It appears, in substance, to amount to an order restraining Mr McCabe from involvement in the area of business in which he is qualified to work. It is therefore not necessary to address Mr McCabe's further submission that, if such an order were to be made, it should continue until the determination of the proceedings, rather than until further order, apparently on the basis that Mr McCabe was concerned that a further application would be made by DXC after the determination of this application.

DXC's claim to enforce the contractual restraint of trade

I now turn to DXC's less ambitious claim to enforce the three-month restraint of trade provision in Mr McCabe's employment contract with it. DXC submits that Mr McCabe should be restrained from commencing employment with Data3 pursuant to the restraint contained in his contract until 21 December 2017 or until further order.
Turning first to the applicable legal principles, whether there is a serious question to be tried for final relief in a restraint of trade case depends on whether it is seriously arguable that there is a valid contractual restraint, a breach or apprehended breach of it, and whether, as a matter of discretion, the Court would grant injunctive relief in respect of that breach: John Fairfax Publications Pty Ltd v Birt above at [5]. I recognise that an injunction will generally be granted to enforce a negative contractual stipulation, and that damages are rarely a sufficient remedy in the context of restraints of trade, given the difficulty of quantifying such damages: John Fairfax Publications Pty Ltd v Birt above at [45]. I also recognise that there is a public interest in contractual performance, although a restraint on an employee's trade will not be enforced if it is not necessary for the reasonable protection of the employer's legitimate interests and the Court retains a discretion to withhold or limit injunctive relief if a proper basis is established at a hearing: Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386; (2011) 206 IR 450 at [4].
An employer is not entitled to be protected from competition as such, but rightly pointed out that it may have business interests capable of being protected by an appropriate restraint of trade, including its personal connection with suppliers or customers and an interest in the protection of confidential information, even if that information is not in the nature of a trade secret such as to attract equitable protection in the absence of any contractual agreement: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 326, 333-334, 341; Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9 at [12], [25]. The time for which confidential information is likely to be current and of commercial advantage is also relevant to determining whether a restraint is reasonable: Cactus Imaging Pty Ltd v Peters above at [36]. To the extent that a restraint is too wide and is against public policy, the Court may read it down under the Restraints of Trade Act 1976 (NSW) so that it is reasonable as to its area, time or extent; however, there is no apparent need for the application of the Restraints of Trade Act to read down the relatively narrow restraint in this case.
Mr Fernon in turn referred, in oral submissions, to Butt v Long [1953] HCA 76; (1953) 88 CLR 476 at 487 and McMahon v National Foods Milk Ltd [2009] VSCA 153; (2009) 25 VR 251; 259 ALR 20 as authority that a covenant in restraint of trade is to be read in accordance the natural and ordinary meaning of its words, and to be interpreted independently of the rules which apply to determine whether it is reasonable. Mr Fernon also referred to the observations as to the approach to be adopted by way of construction of a restraint of trade in Koops Martin Financial Services Pty Ltd v Dean Reeves [2006] NSWSC 449 at [18], where Brereton J observed that: "A restraint is construed for the purposes of ascertaining its real meaning independently of the rules prescribing tests of reasonableness for the purpose of ascertaining its validity …. Nonetheless, where there is ambiguity, a covenant in restraint of trade in an employment contract will be construed in favour of the employee, so that a narrower construction of the scope of a restraint will be preferred to a broader construction when both are reasonably available …, though this does not authorise a restrictive interpretation of general words simply to save a covenant from invalidity for contravention of public policy … In Australia, Butt v Long precludes the more liberal approach to construction of restraints adopted by Lord Denning MR in Littlewoods [Organisation Ltd v Harris [1977] 1 WLR 1472], by which courts construe wide words narrowly, so as to make the clause reasonable and therefore enforceable, interpreting them from the perspective that the parties' object is legality, and, if the words of the restraint are so wide that on a strict construction they cover improbable and unlikely events, declining to enforce it in respect of such events. However, Butt v Long is not inconsistent with the view that a covenant in restraint of trade should be construed, in the case of ambiguity, in favour of the employee; that is to say, in favour of giving it a narrower rather than a wider operation …" [citations omitted].
Mr Fernon also referred to Ross v IceTV Pty Ltd [2010] NSWCA 272 at [86], [88] where Sackville AJA (with whom McColl and Macfarlan JJA agreed) observed that: "The principles relating to restraints of trade under the general law are well established. A restraint of trade is contrary to public policy and void unless it can be justified by the special circumstances of the particular case. Two conditions must be satisfied if the restraint is to be held valid. The restraint must be reasonable in the interests of the contracting parties and reasonable in reference to the interests of the public … The courts generally take a stricter and less favourable view of covenants on restraint of trade entered into between employer and employee than of covenants in other commercial agreements… An employer is not entitled to protect itself against mere competition from a former employee … Nonetheless, an employer may have interests capable of protection by a restraint. Such interests include the trade secrets and other confidential information and the employer's connection with customers ... The validity of a restraint is tested at the time of entering the contract and by reference to what the restraint entitled or required the parties to do, not what they have actually done…" [citations omitted] Mr Fernon also pointed out that a restraint may properly be included in a contract to protect an employer's confidential information and customer connection: Woolworths Ltd v Olson [2004] NSWCA 372 at [38]; Cactus Imaging Pty Ltd v Peters above at [11]; Jardin v Metcash Ltd above at [91].
Mr Alkadamani submitted that a stricter and less favourable view is to be taken in the construction of restraints in employment agreements, and refers to the general principles applicable to construction of post-employment restraints at some length, including the observations of Brereton J in Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1179 at [63]-[66] as follows: "At common law, a restraint of trade is contrary to public policy and void, unless it is justified by the special circumstances of the particular case, for which purpose it is sufficient justification that the restriction is reasonable having regard to the interests of the parties concerned and in reference to the interests of the public, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public … While the cases refer to "special circumstances" justifying a restraint, that means no more than facts of a particular case from which reasonableness can be inferred … If the restraint is not reasonable in reference to the interests of the parties and the public, it is contrary to public policy and void ... This test reconciles two conflicting policies, first "that a man should be free to use his skill and experience to the best advantage and should not be put in the position of a slave", and secondly, that covenants should be observed and enforced ... While courts commence from this same general principle in all cases of restraint of trade, a more rigorous approach is applied to restraints in employment contracts than in contracts for the sale of goodwill ... A stricter and less favourable view is taken of covenants in restraint of trade between employer and employee, than in commercial agreements ... An employer is not entitled to be protected against mere competition; the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary subject matter …, including the employer's trade secrets and confidential information, and goodwill including customer connection. In order to determine whether a restraint exceeds what is necessary for the protection of the legitimate interests of the employer and therefore void, it is necessary first to construe the restraint. Absent resort to the Restraints of Trade Act, it is then necessary to consider whether, on the particular facts proved, the restraint so construed is reasonable." [citations omitted]
I do not consider it necessary to address a question of whether different principles of construction apply in respect of a restraint of trade in an employment contract, since it seems to me that the proper construction of the clause in issue in this case is clear, irrespective of whether it were approached more or less rigorously.
Mr McCabe was party to a written employment contract with DXC (McCabe 15.8.17, Annexure RM-1) which relevantly provided, in cl 26, that Mr McCabe must maintain the secrecy and confidentiality and not divulge or disclose or use in a specified way any Confidential Information (as defined) and also provided for a restraint in cl 31.1.3, relevantly, that he would not for the Restraint Period (as defined): "carry on or be engaged or interested in the Restrained Business (as defined in the Appendix) in the Restrained Area (as defined in the Appendix). The Restraint Period was a relatively short period of three months; the Restrained Area was Australia; and the Restrained Business was defined as: "Be engaged, concerned or interested, directly or indirectly, in, assist or advise in respect of or carry on any activity which on the date of termination of the employee's employment constitutes or is known by the employee to constitute, within the next 6 months, a material business activity of the Company [DXC] or UXC." Clause 31.1.1 also requires that the employee not induce, encourage or solicit any employee of DXC or a Group Company to act in breach of their contract with DXC or any Group Company. That clause does not appear to be presently applicable, since resigning employees gave notice of resignation in accordance with their contracts.
I did not understand Mr McCabe to submit that the restraint in this case was invalid, where it is for a relatively short period and the scope of activities restrained have an obvious connection with DXC's goodwill and confidential information. Mr McCabe also made clear that he accepted the application of the non-solicitation clause in the relevant facts. Mr Alkadamani also indicated, on a without admission basis, that Mr McCabe was prepared to abide by the post-employment restraints in his employment contract, although it became apparent in the course of submissions that that offer related to the narrower construction which Mr McCabe gave to cl 31.1.3 of his employment contract.
Mr Fernon submitted that the restraint in cl 31.1.3 of Mr McCabe's employment contract applied to any activity that constituted a material business activity of DXC and refers to the nature of the business conducted by the company (T78). Mr Alkadamani submits that, on its true construction, the restraint does not prevent Mr McCabe working for a competitor of DXC after the cessation of his employment. Mr Alkadamani submits that the words "activity of the Company" in the restraint are "apt to describe an engagement that is less than the full scope of [DXC's] business" and are "apt to describe a particular project or particular deal". Mr Alkadamani submitted that, to the extent there is ambiguity, the stricter and less favourable view of the clause was that it was limited to prevent activity such as trying to secure for another entity a project for which DXC was bidding. Mr Alkadamani also refers to the extending words in the restraint to an activity which "is known by the employee to constitute, within the next 6 months, a material business activity" of DXC. It seems to me that those words provide no support for the narrower construction of the clause for which Mr Alkadamani contends, since they have a straightforward operation in respect of contemplated or intended lines of activity of DXC within the next six months of the date of termination of employment.
It seems to me that, as a matter of general usage, the reference to "activity" in the definition of "Restrained Business" in Mr McCabe's employment contract should not be read in any narrower way than a line of business activity, or as referring only to particular projects. I read that clause as directed to those activities that are material, or substantial, business activities of DXC and it is plain, having regard to the purpose set out in the presentation to Data3, that Mr McCabe's proposed activities with Data3 would amount to the same activities as are conducted by DXC. I also do not consider that there is any relevant ambiguity in the clause, although there has been a dispute as to its application which the Court can resolve, and am not assisted by Mr McCabe's affidavit evidence to the effect that he, and possibly DXC's internal legal counsel, have previously applied the clause in a narrower way to other employees. I am satisfied that, as DXC submits, it has legitimate business interests that the restraint seeks to protect. An order should therefore be made in the terms of the restraint.

Order under s 68 of the Civil Procedure Act

DXC seeks an order under s 68 of the Civil Procedure Act 2005 (NSW) for the production of each of the electronic devices that Mr McCabe has used since 1 May 2017 to the Court for the purposes of inspection by DXC. That order extends to electronic devices that are Mr McCabe's personal property and are in personal use by him. I would be inclined to make an order permitting inspection of such devices by an independent expert, adopting appropriate search strategies to identify relevant material, although I recognise that DXC has already had the opportunity to image some of the relevant devices. It does not seem to me that DXC or its legal advisers should be entitled to access to those devices other than in that manner. That order should be deferred until arrangements for inspection by an independent expert and the use of appropriate search strategies to identify relevant material are agreed or determined by the Court if they cannot be agreed.
After judgment was reserved, and the parties were notified of the time at which it would be delivered, Mr Alkadamani sent further submissions as to this matter to my Associate without leave. Those submissions appear to be directed to numerous drafting issues in respect of orders relating to a regime for expert inspection of electronic devices by an independent expert, which the parties ought to be able to resolve between them in promoting the just, quick and cheap resolution of the real issues in dispute in the proceedings in accordance with s 56 of the Civil Procedure Act. I have not granted leave for those submissions and I will not address those issues until I am satisfied that they have made adequate efforts to seek to do so between themselves. If it is necessary to address any issues that the parties cannot resolve between themselves, that can be done by reference in the orders and further submissions to be submitted by the parties and their submissions in accordance with the directions made below.

Orders and costs

In the result, DXC has had some success in respect of its application. That success was founded on confidentiality and the contractual restraint of trade, not on the claim for an injunction under the "springboard" principle. Any argument as to the matters on which DXC succeeded would likely have been able to be determined within a shorter period than this hearing, although likely more than the three hours which the parties had originally estimated this application would take. It seems to me that the fact that the application ultimately took about two days, spread over a three day period, was largely referable to DXC's attempt to establish a wider injunction under the springboard principle, as to which it has been unsuccessful, and my tentative view is that that should be reflected in a reduction of any costs ordered in DXC's favour in respect of this application.
I order that the parties bring in agreed short minutes of order to give effect to this judgment, including as to costs, within 7 days or, if there is no agreement between them, their respective draft short minutes of order and short written submissions, not exceeding 10 pages in length in one-and-a-half spacing, as to the differences between them.

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: 31 August 2017

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