DXC Eclipse Pty Ltd ACN 051 758 199 v Wildsmith

Supreme Court of NSW|2022-04-13|Before: Slattery J

Judgment

In April 2018 Mr Martin Wildsmith, On Key Consulting Pty Ltd ("On Key") and other persons sold a software support business known as "Sable 37" to DXC Eclipse Pty Ltd ("DXC Eclipse") pursuant to a written securities purchase agreement ("the April 2018 agreement"). DXC now brings these proceedings as plaintiff seeking an interlocutory injunction to enforce certain restraint clauses in the April 2018 agreement. Mr Wildsmith and On Key resist the grant of an interlocutory injunction, contesting both whether there is a serious question to be tried, and the balance of convenience. The issues in the proceedings may be shortly described.
DXC is a member of a global group of companies that form the DXC Technology business. The plaintiff, DXC Eclipse conducts the segment of the DXC Technology business that sells and maintains Microsoft software as business solutions, including certain enterprise resource planning software (known in the industry as "ERP" software), Microsoft Dynamics 365. The Sable 37 business which DXC Eclipse acquired from Mr Wildsmith and On Key and the other vendors sold, implemented, and supported Microsoft Dynamics 365 applications. Mr Wildsmith was a former employee and director of Sable 37. On Key was the trustee of the Wildsmith Family Trust and a co-vendor under the April 2018 agreement.
Under the April 2018 agreement, subject to adjustments, DXC Eclipse paid Mr Wildsmith and On Key consideration of approximately $9.5 million dollars for the acquisition of their interests in Sable 37. Mr Wildsmith continued employment with another company related to DXC Eclipse. The vendors, including Mr Wildsmith and On Key, agreed to be restrained from involvement in competing businesses and soliciting clients/suppliers/employers for a period of seven years from the completion of the sale of Sable 37.

Some Relevant Legal Principles

The Court has power to grant interlocutory injunctions under Supreme Court Act 1970, s 66(4), on terms if necessary, in any case where "it appears to the Court to be just or convenient". The Court must consider whether the plaintiff's case presents a serious question to be tried and whether the balance of convenience, hardship and related factors warrant the grant of an interlocutory injunction. The applicable principles in relation to the grant of interlocutory relief are discussed in more detail later in these reasons.
This is an interlocutory hearing, not a final hearing. The Court will attempt to arrange the earliest possible final hearing for these parties by placing the proceedings in the Expedition List. In the meantime, the Court's task is not to undertake a preliminary trial and to give or withhold interlocutory relief upon some forecast as to the ultimate result of the factual dispute between the parties, although the relative strengths of the parties' cases are not irrelevant to the exercise of the Court's discretion.
The Court's task on an interlocutory hearing such as this one was well expressed by the English Court of Appeal in Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892; [1984] 2 All ER 408; (1984) 81 LSG 2225; (1984) 128 SJ 484 when Sir John Donaldson MR said (at 894H - 895A): "The defendants now appeal. It is of paramount importance that everyone should understand the exercise upon which the judge was, and we are, engaged. There is to be a speedy trial at which the rights of the parties will be determined. That has not yet happened. We are concerned, so far as we can, to preserve the rights of the parties meanwhile. It is not our function to decide questions of fact or law which will be in issue at the trial. If they are arguable, that is the time and the place when they should be argued."
Later in the same judgment his Lordship further explained the Court's duty in following terms (at 898E-898G): "What then should we do? I stress, once again, that we are not at this stage concerned to determine the final rights of the parties. Our duty is to make such orders, if any, as are appropriate pending the trial of the action. It is sometimes said that this involves a weighing of the balance of convenience. This is an unfortunate expression. Our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are usually asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing, we are seeking a balance of justice, not of convenience."
In deciding whether to grant an interlocutory injunction the Court must consider whether there is a serious question to be tried and then whether the balance of convenience and questions of hardship and related factors warrant the granting of an interlocutory injunction. First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed, 2014, LexisNexis Butterworths) at [21-350] ("Equity Doctrines and Remedies"), discussing the requirements of the Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] ALR 469; (1968) 42 ALJR 80; [1968] RPC 301 (the 'prima facie case test'). Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; (2006) 229 ALR 457; (2006) 80 ALJR 1672; [2006] HCA 46 at [70] - [71].
Then, it becomes a matter of analysing if in all the circumstances of the case and considering the balance of convenience and issues of hardship, whether the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies at [21-350]; and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; (2001) 76 ALJR 1; [2001] HCA 63 and Beese (Managers of Kimpton Church of England Primary School) v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586. Other factors to which the Court will have regard include the adequacy of damages, the possibilities of alternative remedies, whether there has been any laches or delay, the strength of the grounds of defence suggested by the defendant, what, if any, undertakings the defendant is prepared to give, but hardship and the balance of convenience are very important factors: Equity Doctrines and Remedies [21-375]. If any infringement of a plaintiff's right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v North Sydney Municipal Council (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.
A prominent feature of this case is that the restraint sought to be enforced is for a period of seven years, of which four years has now just expired. The last three years of the contracted period of restraint is the time in respect of which the reasonableness of the restraint will increasingly become contentious and potentially more difficult for DXC Eclipse to justify. A final hearing will not take place probably for a further few months, even with a degree of priority in the Expedition List . The grant or refusal of an interlocutory injunction in this case, whilst not determinative of a final hearing, may have a significant effect upon the immediate business operations of one or more of the parties both for the period of the interlocutory restraint and in the medium term thereafter. And the grant of interlocutory relief will provide an important platform for the circumstances in which a final hearing takes place.
These reasons now set out a narrative of some facts relevant to the interlocutory issues. In such a hearing, the Court's reasons cannot encompass all the relevant facts and no attempt is made to do so here. Interlocutory hearings do not attempt to engage with all the factual disputes between parties headed for final hearing. Except where the facts are uncontentious, the Court's narrative below should only be understood, and is mostly expressed, as a forecast of the kind of evidence that each party proposes to adduce at a final hearing.

DXC Eclipse and Mr Wildsmith - 2014 to 2022

DXC Eclipse specialises in providing clients with business solutions powered by Microsoft software, including Microsoft Dynamics 365 and Microsoft Power Platform ("Power Platform"). DXC Eclipse is a subsidiary of DXC United Pty Ltd, a sister company of DXC Technology Pty Ltd, both of which are subsidiaries of a multinational technology and software company, DXC Technology Company.
The services DXC Eclipse provides include licensing of software packages, implementation of the packages, providing ongoing support for the software and facilitating upgrades and continuous improvement of those packages. Such continuous improvement ordinarily includes providing customisation of the software packaging to suit the needs of the customer.
Mr Wildsmith was employed by Eclipse Australia Pty Ltd between March 2000 and October 2010 as its sales director. In January 2011 he joined Sable Systems Pty Ltd ("Sable Systems") as a director and employee and later that year purchased a one third interest in Sable Systems, a specialist ERP company based in Melbourne. Sable Systems rebranded itself to Sable 37 in about 2014, and the name Sable 37, will generally be used for that entity throughout these reasons.
Sable 37 conducted business in Sydney, Brisbane, Christchurch, Dubai Hyderabad, Gurgaon and Los Angeles, providing expertise in a product called Microsoft Dynamics AX to large corporate business clients. In 2015 Sable 37 commenced selling what are known in the industry as "CRM" products around Dynamics AX, CRM products being focused on how an organisation plans and administers its interaction with customers.
In 2017 Microsoft changed the name of its Dynamics AX product to align with its existing suite of Office 365 software products. The resulting product name became Microsoft Dynamics 365 Finance and Operations, shortened to Dynamics 365 F & O. In ordinary business interactions in this industry this product is often simply referred to as "F & O" and will be so described in these reasons. In the period 2017 to April 2018, Sable 37 sold software solutions comprising F & O together with Dynamics 365 CRM Solutions associated with F & O.
Mr Wildsmith's evidence is in that period, and until April 2018 Sable 37 did not offer other Microsoft products in the Microsoft 365 suite of business applications. With this product background the shareholders of Sable 37 took steps to market the business in late 2017. It was ultimately acquired by DXC Eclipse leading to the making of the April 2018 agreement.
Mr Wildsmith says that until April 2018, Sable 37 was not concerned with any other Microsoft products, including what was to become Power Platform and Business Central.
The April 2018 Agreement. The April 2018 agreement was for the sale and purchase of the shares in Sable Systems and the units in the Sable Systems Unit Trust, which controlled Sable 37. Several co-vendors joined with Mr Wildsmith's On-Key in selling their interests in Sable 37, but they do not need to be discussed further in these reasons. The April 2018 agreement contained the following relevant terms.
The April 2018 agreement's definition of "business" was contested in argument and a number of other definitions are relevant: "1.1 Definitions Business means the business of the Sable37 Group as a whole as at the Completion Date, including but not limited to: (a) consulting, development, software, licensing, management, support and training, based around information products and services based upon Microsoft Dynamics 365 technologies (and future, successor or derivative Microsoft Dynamics 365 products, services and technologies); and (b) consulting, development, software, licensing, management support and training, based around information products and services based upon the "Homebuilder" solution (and future, successor or derivative products, services and technologies focussed on the home building market). Company means Sable Systems Pty Limited ACN 111 664 272, particulars of which are set out in item 2 of Schedule 3. … Sale Securities means the Shares and the Units; … Shares mean the issued share capital of the Company, being 300 fully paid ordinary shares in the capital of the Company. … Trust means the Sable Systems Unit Trust, particulars of which are set out in Item 3 of Schedule 3. Units means the 1.200 fully paid ordinary units in the Trust, being all of the units of the Trust."
The vendors had obligations post-completion to assist in the transfer of the benefit of the business to the purchaser: 8.1 Transition of Business After Completion, the Sellers must use reasonable endeavours to assist in facilitating the transition of the Business to the Purchaser, including by assisting the Purchaser in gaining access to all clients of the Business, with the transfer of customer contracts from the relevant Sable37 Group Member to the Purchaser (if required), and with the integration of the Sable37 Group's management team into the Purchaser's employment structure.
Clause 16 contained the key clauses providing the vendors' undertakings against competition and for non-solicitation of customers and employees: 16.1 Undertakings as to Competition (a) ln this clause 16.1: (a) Seller Restraint Period means the period from the Completion Date up to the expiration of: (A) 7 years from the Completion Date; (B) 6 years from the Completion Date; (C) 5 years from the Completion Date; (D) 4 years from the Completion Date; (E) 3 years from the Completion Date; (F) 2 years from the Completion Date; and (G) 1 year from the Completion Date; (b) Competing Business means any business or operation competitive with the Business; and (b) In this clause 16.1, Restraint Area means: (a) anywhere in the World; and (b) Australia, New Zealand. United Arab Emirates, India, Fiji, the Philippines, and United States of America; and (c) Australia, New Zealand, Fiji and the United States of America; and (d) Australia, New Zealand and Fiji; (e) Australia or New Zealand or Fiji separately; (f) Australia; and (g) New South Wales, Queensland, Victoria, Western Australia and South Australia; (c) Each Seller undertakes to each member of the Purchaser Group that it will not, in any capacity, including on its own account or as a member, shareholder, unit holder, director, partner, joint venturer, employee, trustee, beneficiary, seller, agent, adviser, contractor. consultant, manager, associate, representative or financier or in any other way or by any other means, do any of the following during the Seller Restraint Period without first obtaining the written consent of the Purchaser; (a) directly or indirectly carry on a Competing Business in the Restraint Area; or (b) directly or indirectly be concerned with or interested in a Competing Business in the Restraint Area. 16.2 Obligation to give confirmation If, at any time during the Restraint Period, a Seller wishes to engage in any activity which it considers, acting reasonably and in good faith, is not prohibited under clause 16.1, that Seller may give a written notice to the Purchaser setting out full details of the proposed activity, and the Purchaser must respond to such notice within 90 days confirming whether, acting reasonably and in good faith, it agrees that the proposed activity is not prohibited under clause 16.1. 16.3 Undertakings as to customers, suppliers and employees … (b) Each Seller undertakes to each member of the Purchaser Group that it will not, in any capacity, including on its own account or as a member, shareholder, unit holder, director, partner, joint venturer, employee, trustee, beneficiary, seller, agent, adviser, contractor, consultant, manager, associate, representative or financier or in any other way or by any other means, do any of the following during the Seller Restraint Period without first obtaining the written consent of the Purchaser: (a) solicit, canvas, approach or persuade: (A) any person or corporation which is, or which was in the 12 month period before the Completion Date, a customer, client or supplier of the Business or a Relevant DXC Holdings Company; or (B) where any of the Sellers has had business dealings with a customer, client or supplier of the Business or a Relevant DXC Holdings Company in the course of his employment by the Sable37 Group or a Relevant DXC Holdings Company, that customer, client or supplier, … (d) induce or attempt to induce any person who is at the Completion Date or who later becomes an employee of a Relevant DXC Holdings Company to terminate his or her employment with the Relevant DXC Holdings Company. 16.4 Acknowledgments Each Seller agrees that: (a) the restrictive undertakings in clauses 16.1 and 16.2 are reasonable and necessary for the protection of the value of the Sale Securities and must be given full effect; and (b) the restrictive undertakings in clauses 16.1 and 16.2 are reasonable and afford no more than adequate protection of the Purchaser and any Relevant DXC Holdings Company interest 16.5 Nature of the undertakings If, notwithstanding the other provisions of this clause 16, any part of an undertaking in clause 16.1 or 16.2 is unenforceable it may be severed without affecting the enforceability of the balance of that undertaking or the other undertakings which remain after severance. 16.6 Legal advice Each Seller acknowledges that in relation to this Agreement and in particular this clause 16 they have received independent legal advice as to their obligations and their rights at law and have freely entered into this Agreement. … 16.8 Injunction Each Seller acknowledges that monetary damages alone may not be adequate compensation to the Purchaser or DXC Holdings for the Seller's breach of clause 16.1 or 16.2 and that the Purchaser, DXC Holdings or a Relevant DXC Holdings Company are entitled to seek an injunction from a court of competent jurisdiction if: (a) a Seller fails to comply or threatens to fail to comply with clause 16.1 or 16.2; or (b) DXC Holdings or the Purchaser has (based on reasonable grounds) reason to believe that a Seller will not comply with clause 16.1 or 16.2.
Mr Wildsmith's interests as vendors receive approximately $9.5 million under the April 2018 agreement. The balance of the contract consideration was received by other vendors.
Mr Wildsmith's Employment Agreement. As part of the April 2018 agreement Mr Wildsmith was offered and took employment with a related company to DXC Eclipse, DXC Technology. Mr Wildsmith's employment was conditional upon the signing by all parties of the April 2018 agreement. Another condition was that Mr Wildsmith be employed by Sable 37 up to the contract commencement date and that the April 2018 Agreement complete on or before 30 April 2018. All those conditions were met and Mr Wildsmith's employment commenced. During his employment he was placed on several restraints in addition to those contained in the April 2018 Agreement. These were post-employment restraints (employment agreement, clauses 29.1 and 29.2), non-solicitation provisions (clauses 29.3) and a competition agreement (clause 29.4). These are set out in more detail below.
Mr Wildsmith's employment agreement contained the following post-employment restraints and relevant provisions: 29. Restrictions after your Employment Ends 29.1 During your employment you will have access to and acquire significant information about our business and that of DXC Technology Group Members, including the names of employees, contractors, officers, agents, suppliers and customers with whom we or the relevant DXC Technology Group Member does business. You will have the opportunity to forge personal links with employees, contractors, officers, agents, suppliers and customers, and you will have the opportunity to learn, develop and acquire trade secrets, business connections, Intellectual Property and other Confidential Information about the business of DXC Technology Group Members worldwide. 29.2 The following post-employment restraints are important to us and are intended to protect us and other DXC Technology Group Members against you using those relationships or our Confidential Information (including our Intellectual Property) to our disadvantage after your employment ends, without limiting the operation of separate obligations in respect of Confidential Information and Intellectual Property contained elsewhere in this Contract. You may seek a waiver from the application of the following provisions of this clause 29. Any waiver is only effective if given in writing. Non-solicitation 29.3 You agree that you will not directly, or indirectly: (a) for a period of twelve (12) months commencing on the day after the Termination Date encourage, induce, solicit or attempt to encourage, induce or solicit any Restricted Worker with whom you have had dealings in the twelve (12) months prior to the Termination Date, to end, not renew, terminate or act in breach of their contract with us or another DXC Technology Group Member; (b) for the Restrained Period induce, attempt to induce, encourage or solicit any Restricted Contact with whom you have had dealings in the twelve (12) months prior to the Termination Date to end, not enter into, not renew, or act in breach of their contract or restrict their trade relationship with us, or any other DXC Technology Group Member; or (c) for the Restrained Period agree to perform services for (other than through employment with a DXC Technology Group Member), or become employed by any Restricted Contact to whom you have provided services through your employment with a DXC Technology Group Member in the twelve (12) months prior to the Termination Date, where, in this and the following clauses: (d) Restrained Period means: (i) a period of six (6) months commencing on the day after the Termination Date. (ii) a period of three (3) months commencing on the day after the Termination Date. (iii) a period of six (6) weeks commencing on the day after the Termination Date. (e) Restricted Contact means a person or entity who is, at the Termination Date: (i) a customer, agent or supplier of ours or any DXC Technology Group Member; or (ii) a person or entity with whom we are, or another DXC Technology Group member is in active discussions about becoming a customer, agent or supplier; (f) Restricted Worker means a person who is at the Termination Date an employee or officer of, or contractor or consultant to, us or any other DXC Technology Group Member; and (g) Termination Date means the date on which your employment with us ceases for any reason. Non-Competition 29.4 You agree that you will not for the Restrained Period become employed or engaged by or otherwise provide services to or have any other business association with a Competitive Business or Activity in the Restricted Area, where: … during the 12 months' period prior to the Termination Date. (b) Restricted Area means each of Queensland, New South Wales, Australian Capital Territory, Victoria, Tasmania, South Australia, Western Australia, Northern Territory, Brisbane, Sydney, Canberra, Melbourne, Hobart, Adelaide, Perth, Darwin, Auckland, Wellington, Christchurch, Nadi, Suva, the states or cities in which you have worked or in respect of which you have directly had customer relationships and/or supervised personnel during the twelve (12) months prior to the Termination Date. General Post-Employment 29.5 Each of the restraints contained in clauses 29.3(a), 29.3(6) and 29.3(c) and 29.4 above (resulting from any combination of the wording in the definition of Competitive Business Activity, Restrained Period, Restricted Area, Restricted Contact and Restricted Worker) constitute a separate and independent provision, severable from the other restraints. If a Court of competent jurisdiction finally decides any such restraint to be unenforceable in whole or in part, the enforceability of the remainder of that restraint and any other restraint will not be affected. 29.6 You agree that: (a) the post-employment restraints contained in the Contract (including without limitation any relevant restraints beyond this clause) are necessary to protect the goodwill and legitimate business interests of DXC Technology Group Members worldwide; (b) the Remuneration and other benefits received by you under the Contract include consideration in respect of your obligations relating to the post-employment restraints; (c) the obligations in clause 29 continue after the Termination Date; and (d) we have recommended that you obtain independent legal advice particularly about your post-employment restraints and you have had an opportunity to do so.
Events After April 2018. Mr Wildsmith led the Microsoft Dynamics sector of DXC Eclipse's business between April 2018 and July 2021. His role was as a leading public face of the company in this sector of its operations in which he was well experienced.
Although there is some dispute about the details and timing, in 2020 Mr Wildsmith indicated that he was leaving DXC Eclipse. Mr Stuart Dickinson took over as general manager of DXC Eclipse in April 2021. Mr Wildsmith left the employment of DXC Technology on 2 July 2021. By December 2021 Mr Wildsmith was involved in the incorporation of Will 33 and On Key became its shareholder.
In early February this year Mr Wildsmith published LinkedIn posts indicating Will 33 "was underway". Also in February, Sentient issued a media release welcoming Mr Wildsmith to its leadership team. In early March DXC Eclipse initiated correspondence contending by reason of the activities of Will 33 including its strategic partnership with Sentient and solicitation involved in LinkedIn posts that Mr Wildsmith was in breach of the April 2018 agreement, clause 16.1.
Mr Wildsmith acknowledges that Will 33 sells the Microsoft product known as Microsoft Dynamics 365 Business Central ("Business Central"). This is another part of the Microsoft Dynamics 365 suite of products distinct from F & O. An important question at final hearing will be whether F & O and Business Central are competitive products. The evidence in relation to this issue is discussed below.

Legal Analysis - A Serious Question to Be Tried?

The defendants put in issue whether there was a serious question to be tried both in relation to whether the negative covenant against competition in this case is a valid restraint, either as severed or read down by the operation of the Restraints of Trade Act 1976, s 4 and whether there has been a breach, or an anticipated breach, of that covenant: see HiTech Group Australia Ltd v Riachi [2021] NSWSC 1212 at [31] ('Hi Tech').
The principles relevant to establishing the validity of a common-law restraint of trade were concisely stated in Isaac v Dargan Financial Pty Ltd [2018] NSWCA 163; (2018) 98 NSWLR 343 at [59] - [68] and need not be repeated in these reasons. The onus of showing that a contract in restraint of trade is reasonable as between the parties lies upon the party alleging this: Northwestern Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 470. And the onus of showing a contract in restraint of trade is injurious to the public interest lies upon the party alleging that fact: Attorney-General (Commonwealth) v Adelaide Steamship Co [1913] AC 781 at 797.
Here the major contest was in relation to the restraint against competition in clause 16.1(c) of the April 2018 agreement. Disputes about the non-solicitation clause, clause 16.3 were less contentious and were largely met with undertakings. The nature of the remaining dispute and the relevant facts between the parties may be shortly stated.
As to the validity of the covenant against competition, the issue falls into two parts. The geographical area of the restraint should be reduced in the grant of an interlocutory injunction. There is no serious question to be tried in respect of the geographical scope of the restraint being "anywhere in the world". The evidence is that Sable 37 conducted business in all the jurisdictions mentioned in the April 2018 agreement's definition of "restraint area" in clause 16.1(b), namely the following jurisdictions - Australia, New Zealand, United Arab Emirates, India, Fiji, the Philippines, and the United States of America. The lack of supporting evidence in the plaintiff's case for Sable 37 operating more widely in April 2018 than these geographical areas limits the range of relief available to DXC Eclipse at final hearing to those jurisdictions. The Court will not grant an interlocutory restraint which is any wider than those jurisdictions.
DXC Eclipse has an arguable case that the period of the restraint is presently valid both as between the parties and in relation to the public interest. It is now four years into the seven-year term of the restraint. Validity is arguable some time into the future. Several considerations here support DXC Eclipse having an arguable case in this respect. Generally, a less strict approach is taken to covenants in restraint of trade in commercial agreements for the sale of goodwill than in an employer-employee context. Here, the competition and non-solicitation restraints were the product of arm's-length negotiations. The remuneration paid in exchange for the defendants' promise was substantial. The parties covenanted between themselves that a seven year restraint was reasonable. Mr Wildsmith, becoming an employee of an entity related to DXC Eclipse and remaining involved in the Sable 37 business that he and others were selling, points to a longer restraint being justified: IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 428 - 429. And Mr Wildsmith has now been absent from DXC Eclipse for only 9 or 10 months, giving DXC Eclipse an incomplete opportunity to consolidate the goodwill and customer connection of the Sable 37 business in his absence.
The defendants argued that the reasonableness of the restraints in question should be assessed by reference to the far shorter non-competition and non-solicitation covenants in Mr Wildsmith's employment agreement with DXC Technology. But this is a debatable issue at final hearing. DXC Eclipse's counter contention will have considerable force at final hearing. It will argue that Mr Wildsmith's employment agreement is only a subsidiary aspect of a structure that is essentially one comprising the sale of the goodwill in Sable 37.
DXC Eclipse can deploy all these general considerations in its favour at final hearing and they raise a serious question to be tried in relation to the validity of the restraint.
But the defendants also put in issue whether there is an apprehended breach of the competition restraint, either through the conduct of Will 33 or Sentient. Greater understanding of the Microsoft software marketed by the plaintiff and the defendants is required to analyse this issue.
Mr Wildsmith's case at the final hearing will be that Business Central, which is implemented and supported by Will 33 is a product only targeting the food and transport industries and is technically different to and not competitive with F & O. Mr Wildsmith's evidence supports the following elements of this contention. Business Central was never sold by Sable 37, which in April 2018 sold and implemented F & O. Whereas Business Central is derived from "Navision" ERP Technology, F & O was derived from the original Microsoft Dynamics AX technology, so that the F & O product and the Business Central product have totally different technology origins. Developers with knowledge of F & O cannot be skilled to develop Business Central, and Will 33 will not employee developers who will work with F & O products. As to Sentient, Mr Wildsmith says that the Microsoft software which Sentient is marketing and supporting, Power Platform, did not form part of the Sable 37 or DXC businesses in April 2018 and that Power Platform is also derived from different technology to F & O and Business Central.
Based on this evidence the defendants submit that when the chapeau of the definition of "business" within clause 1.1 of the April 2018 agreement - "the business of the Sable 37 Group as a whole as at the completion date" - is properly construed that the business of Will 33 and Sentient are not a "competing business" with the Sable 37 Group such as might threaten any breach of the covenant against competition in clause 16.1(c) of the April 2018 agreement. This is in part because the underlying Microsoft products sold by the business of Will 33 and Sentient were not part of Sable 37's business in April 2018.
But DXC Eclipse's answer that there is indeed a serious question to be tried on this issue is persuasive for several reasons.
DXC Eclipse accepts that Business Central and F & O have been derived from different technologies and continue to use different codes. Both are now marketed as Microsoft Dynamics 365 products and according to Mr Dickinson they can serve the same functions for a given client, depending on the considerations relevant to that client. Those considerations include the size of the business, its growth trajectory, its degree of integration of ERP functions to a single program suite, the industry in which the business operates, the complexity and geographical spread of the relevant business operations, the degree of customisation that the business seeks and the extent to which the business wants an integrated human resources option.
Mr Dickinson's evidence is that 50 to 60 percent of business customers could use and choose directly between either the Business Central or F & O products. Mr Wildsmith strongly disagrees with that statement and says that only 5 percent of customers would consider purchasing and using either product. But the issue for final hearing will be one of degree between these two positions, as to the level of present substitutability of those products for one another. At final hearing the Court will have to assess such substitutability issues to decide whether the business of selling Will 33's Business Central product is now "in competition" with the business of Sable 37 marketing F & O products sold to DXC Eclipse: Employsure Ltd v McMurchy [2021] NSWSC 1179 at [105] - [108]. This is an arguable issue for final hearing.
Mr Dickinson concedes that Power Platform did not exist at the time that Sable 37 was acquired by DXC Eclipse in April 2018. But he says the underlying processes and data structures comprising Power Platform did exist at that time and that Power Platform is now regularly used to develop solutions as part of project contracts in relation to both Business Central and F & O. And F & O was part of the Sable 37 business when it was sold in April 2018. There is a serious question to be tried that both Business Central and Power Platform were part of "the business of the Sable 37 Group as a whole as at the completion date" within the meaning of the definition of "business" in clause 1.1 of the April 2018 agreement.
But there is also a serious issue for final hearing as to whether the Business Central and Power Platform products may fit within in subparagraph (a) of the clause 1.1 definition of "business" beyond the definition's chapeau. The question is whether the Business Central and Power Platform products are "future successor or derivative Microsoft Dynamics 365 products, services and technologies" within subparagraph (a) of the definition of "business". This raises an arguable question for final hearing as to whether the scope of restraint can encompass this kind of extension of the business sold.
This is a not uncommon issue in competition restraint cases. The defendants contend that the restraints in question are now sought to be deployed to protect a new business that did not exist in April 2018 and only developed after that date. DXC Eclipse first argues that the restraints are now being asked to respond to a business that existed in April 2018. But it says that in the alternative, even if aspects of the competing business had developed later that such developments were legitimately covered by the restraints in question.
The law on such issues is clear. The business which is sold is the legitimate subject of protection. And "it is for its protection in the hands of the purchaser, and for its protection only, that the vendor's restrictive covenant can be legitimately exacted": British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563 at 574 - 5, and JD Heydon, The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths, Australia) ("Heydon") at p 219. Covenants not to enter into businesses "competing or liable to compete in any way with that at the time being carried on" by the buyer are void because they frame with reference to the buyer's future activities, not the scope of the seller's business at the time of sale: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 and Heydon at p 220. Restraints not to engage in "similar" businesses will generally be void as well as agreements not to enter a particular business, unless limited to the business formerly carried on by the covenantor: Freedom Finance Accounting Pty Ltd v Goldstein [2017] VSC 179 at [25] and Heydon at p 220. But restraints, though wider than the business sold, may be valid if the kinds of conduct in question are so intermingled the business sold with that one cannot be protected without including the other: Heydon at p 220.
It is possible to obtain some protection with respect to the future expansion of a business beyond the precise type of business that is sold: Heydon at p 220. Different circumstances can justify wider covenants. The covenant that covers more activities than the business carried on may be held to be valid because no narrower covenant which gives adequate protection can readily be devised to safeguard the goodwill being purchased: TW Cronin Shoe Pty Ltd v Cronin [1929] VLR 244 at 248 (per Irvine CJ), and Heydon at p 221. Covenants forbidding carrying on or being engaged in any business "similar to or competing with" the business of a partnership was held to cover salaried employment because work in any capacity would destroy the value of the goodwill being transferred: Ronbar Enterprises Ltd v Green [1954] 1 WLR 815 and Heydon at p 221. These principles will be another basis for DXC Eclipse to deploy subparagraph (a) of the definition of "business", to argue at final hearing that Will 33 and Sentient are competing businesses within clause 16.1(c) of the April 2018 agreement.

Legal Analysis - The Balance of Convenience

The defendants also contended that the balance of convenience weighed against the grant of an injunction. Some of these issues required close attention to aspects of the underlying facts.
The authorities earlier cited sometimes refer to the question of the balance of convenience as weighing the balance of injustice. That factor features prominently in one aspect of this case: the defendants have been commercially clear eyed in deliberately courting the precise risks they now face.
The April 2018 agreement, clause 16.1(c) provides in the words "without first obtaining the written consent of the purchaser" a simple means for the defendants to avoid the investment risk and business and personal disruption of an injunction constraining their participation in Will 33 and Sentient. If the defendants believed as firmly as they presently contend that the conduct of Will 33 and Sentient was not a breach of the restraint, they could have placed the facts in front of DXC Eclipse and sought its consent to their present course before Mr Wildsmith invested any funds in either Will 33 or Sentient. If its consent was not forthcoming, urgent declaratory relief could have been sought in the Expedition List of the Equity Division of this Court. This reduces the weight of the defendants' hardship-based arguments.
Mr Wildsmith invested and canvassed for investors in Will 33 representing that the investment upside he was offering to potential co-investors in in Will 33 came with "risks and threats" that included DXC Eclipse launching litigation exactly of this kind. In February this year Mr Wildsmith and Will 33 provided potential investors in Will 33 an 'investor briefing pack' which identified several 'risks and threats' to the Will 33's business projections stating the following in part: "Restraint of trades - DXC purchase of Sable37. - M Wildsmith - 7-year term finishing March 2025 - DXC may attempt to challenge Will33 but having obtained specialist legal advice Will33 believes that will be a manageable risk."
The defendants may be inferred to have accurately represented their state of mind to potential investors: that the threat of the current litigation was "manageable". It may be inferred this statement represents the correct position with respect to their own investment and the investments they are seeking to attract. To the extent the defendants' present submissions on the balance of convenience contradict their investment advice that the inconvenience of the grant of an injunction against Will 33 would be manageable, they can be discounted.
The financial losses that Mr Wildsmith claims he and Will 33 face from the grant of injunctive relief are unbearable, especially given the substantial financial benefits and resources he has derived from the subject transaction. He says that Will 33 is in a "critical phase" of its development and that since January 2022 the company's focus has been on building a brand and a sales pipeline. He claims to have signed up the company's first client and has a pipeline of several million dollars in services that are expected to close over the next 12 months. He complains Will 33 has invested "around $120,000 to reach this point". This includes legal setup costs, marketing costs and the investment in software. And he says Will 33 has $130,000 in cash reserves and is set to receive an additional $700,000 in additional investor funding over the next three months and that investors are signed up and "ready to invest". Will 33 risking the loss of $120,000 because of the grant of an injunction, can be measured against his recent financial resources, being the approximately $9,500,000 that his interests were paid for the acquisition of Sable 37, including the non-compete covenants in clause 16.
The matter is already listed before the expedition judge on 27 May. It should have a hearing by the end of June. Judgment could be expected in August or early September. Against the possibility that the defendants might lose at final hearing, business prudence might well counsel its owners adopting a conservative approach to husbanding Will 33's resources pending final hearing. Whether or not an injunction is granted, temporarily conserving Will 33's $130,000 in cash by reducing activity and suspending further investment until the outcome of this litigation has settled Will 33's true risk profile is a course that prudent controllers of the company might consider taking in any event.
Mr Wildsmith says that he would have to dispose of his investment interest in Will 33 if an injunction were to be granted. But that concern has been accommodated by an amendment to the orders which DXC Eclipse claims, permitting his investment interest to remain until hearing.
One prominent concern of Mr Wildsmith is that the further planned investment of $700,000 in Will 33 "would likely be withdrawn by reason of these proceedings", customers will place projects on hold "if I am removed from the business", "cash reserves will be exhausted steadily as sales slow to zero" and staff would be made redundant in May/June 2022.
These various disadvantages of granting an injunction can be mitigated or do not weigh as heavily in the balance against the grant of injunction as Mr Wildsmith contends. He himself says the withdrawal of the planned investment is "by reason of these proceedings". This is not so much by reason of the grant of an interlocutory injunction. It could well be understood that investors would be cautious about proceeding further with Will 33 until these proceedings are wholly concluded. This is not a factor which weighs against the grant of an interlocutory injunction but is a circumstance which Mr Wildsmith will have to face in any event.
It can be accepted that the customer and business operations of Will 33, will substantially reduce because of the grant of an injunction, as sales slow. But this proceeding is already in the Expedition List. The defendants have a real prospect of being able to see a clear way ahead, free of this litigation, by about August this year. By then they will know whether any slowdown will be temporary or permanent.
An injunction is unlikely to cause much hardship to employees of Will 33. Mr Wildsmith's mention of employees being made redundant by May/June 2022 is problematic. Any slowdown in sales will not necessarily lead to the redundancy of employees in May 2022. Although Mr Wildsmith says there are four employees of Will 33, in answer to a notice to produce only two contracts have been produced. One is a contractor and the other is employed by more than one company. And the relevant employment contract produced shows that both Will 33 and the employee have bargained to give each other one month's notice of termination of that employment contract in any event, hardly a long-term employment structure. Moreover the evidence on both sides suggests that the marketplace in which DXC Eclipse and Will 33 are presently operating is a buoyant one in which talented employees will not be wanting for opportunities to redeploy their skills should they be forced into the open labour market in the short term.
A restraint on Mr Wildsmith's role in Sentient would not cause great inconvenience or injustice to him or to Sentient. Sentient was an operating business undertaking before Mr Wildsmith and Will 33's involvement. All the grant of an injunction is likely to do is to inhibit their participation in Sentient's business until the resolution of these proceedings but the business itself will continue to operate.
Damages will not be an adequate remedy here if DXC Eclipse is successful at final hearing. Where a party seeks to enforce a negative covenant, such as the covenants of clause 16, damages will rarely be considered an adequate remedy: Cerilian Pty Ltd v Fraser [2008] NSWSC 1016 at [10] and HiTech at [31]. The difficulty in cases such as this is (a) establishing causation between any loss of business by the plaintiff and the actions of the defendant, and (b) calculating the quantum of any damage arising from lost business.
Such problems are particularly acute in this case, where there will be a strong contest at final hearing about whether Business Central's products are fully substitutable for those of DXC Eclipse's F & O products. For DXC Eclipse to prove causation of loss and quantum at trial when the parties are in contest about the nature of the marketplace, DXC Eclipse will probably have to attempt to examine the bespoke software requirements of a wide range of potential customers and to assess the suitability of Business Central and F & O products for those businesses, a task of eye watering length, complexity and uncertainty. And this assumes that the potentially relevant customers could be identified and will be co-operative.
Moreover, the numbers of participants in the market/s for these products make assessing causation and damages even more problematic. There are six large participants in the market's apart from DXC Eclipse, together with more than three dozen resellers. Such strong competitive markets foreseeably complicate causation issues because Will 33 or Sentient customer gains will not obviously be just at the expense of DXC Eclipse.
In relation to Sentient, Mr Wildsmith explained in evidence that at the time these proceedings were launched he had announced he would become involved with that company and was in the process of becoming one of its directors. The agreement for him to take up his directorship had not been finalised and that process is currently on hold, without any apparent significant financial consequences to either side.
Mr Mahendra submits that Will 33 is in a critical phase of its development and would effectively be shut down if an injunction were granted, which he submits is not something that can be adequately compensated for by way of an undertaking as to damages, particularly for a start-up business.
This argument is not persuasive. If the defendants were to be successful, the adverse effect of the injunction on Will 33 may not be as difficult for Will 33 to establish as Mr Mahendra submits. If Will 33 is successful in these proceedings it will have the evidentiary benefit of its growth trajectory up until the time the injunction was granted and its growth trajectory after the injunction is dissolved. Even though it is a mere start-up, from these two trajectories the Court will have a sound platform for inferring its probable growth trajectory, but for the grant of the injunction. The Court can be confident that the plaintiff's undertaking as to damages will provide adequate protection to the defendants.
Mr Wildsmith is prepared to give several undertakings, which he submits should satisfy the need for any interlocutory relief in these proceedings. These undertakings were in general terms as follows: that he would not make further posts on LinkedIn between the present time and final hearing, that he would not solicit DXC Eclipse's employees and those of related companies, that he would not solicit, canvas, or approach customers of Sable 37 and Navision and he would offer a non-solicitation clause consistent with the employment contract. He finally offered a "non-dealing" undertaking in respect of existing customers and employees of DXC Eclipse, in addition to the non-solicitation undertaking. Mr Mahendra submits that once a non-dealing undertaking is taken into account in relation to existing customers and existing employees there is no risk to DXC Eclipse's business whatsoever from it accepting the undertakings being offered.
But none of these undertakings gives the comprehensive protection against the inadequacy of damages provided by enforcement of the covenant against competition in the April 2018 agreement, clause 16.1(c). And the offering of a non-dealing undertaking involves a rewriting of the contract.
Mr Mahendra submits that DXC Eclipse has not pointed to any evidence that it has lost customers or that there is competition for a particular customer. He also submits the plaintiff has not established a likely risk of harm to its business.
But this argument is not persuasive. The plaintiff's lack of evidence is a product of the recognised difficulties in proving causation and the quantum of loss in a negative covenant enforcement case such as this. As Mr Neil SC pointed out, the plaintiff does not have to demonstrate that it has lost an actual client. The loss that it may suffer is facing competition from a party who is building relationships during a time when the April 2018 contract stipulates that the party is not entitled to do so. Even though those relationships might not bear fruit for some years in an identifiable transaction causing measurable loss, they can still cause damage to the plaintiff which is likely to be difficult to establish at trial.
Considerations of the balance of convenience supports the grant of the interlocutory injunction that DXC Eclipse seeks in these proceedings. The Court will grant the interlocutory injunction substantially in the terms requested.

Conclusions and Orders

It is appropriate to reserve costs. This is only an interlocutory hearing decided to hold the position until a final hearing. It is likely that each party's costs of this interlocutory hearing will be recovered as part of that party's costs if successful at a final hearing. For this reason, the Court does not invite any further submissions from the parties in relation to costs.
The injunction sought by the plaintiff will be granted. But the defendants will need some short reaction time to prepare themselves for the operation of the restraint. That has been provided for in the orders below. The Court is familiar with the underlying facts and regards the period of 3 days given to the defendants to adjust to the operation of the orders to be reasonable in the circumstances. If any other adjustments are required or any other consequential or additional issues are to be raised, they can be dealt with at a short further interlocutory hearing which can take place after 12 noon on 5 May 2022, when the proceedings may be listed for further mention.
The parties sought confidentiality of various parts of their mutual agreements. The Court sees no basis to suppress from publication any of the commercial information which is contained within these reasons. In the light of the these reasons, the parties should endeavour to minimise further their claim for confidentiality and provide further agreed short minutes to the Court reflecting this.
For these reasons the Court makes the following orders and directions: UPON THE PLAINTIFF GIVING THE USUAL UNDERTAKING AS TO DAMAGES, THE COURT ORDERS: 1. Until further order, the First and Second Defendants are restrained from, in Australia, New Zealand, United Arab Emirates, India, Fiji, the Philippines, and the United States of America: 1. without the written consent of the Plaintiff, carrying on (directly or indirectly) any business or operation competitive with the business of Sable 37 (excluding the business or operation of Will Thirty Three Pty Ltd but including Sentient Dynamics Pty Ltd) in any capacity, including on their own account or as a member, shareholder, unit holder, director, partner, joint venturer, employee, trustee, beneficiary, seller, agent, adviser, contractor, consultant, manager, associate, representative or financier or in any other way or by any other means; 2. without the written consent of the Plaintiff, being concerned with or interested in (directly or indirectly) any business or operation competitive with the business of Sable 37 (excluding the business or operation of Will Thirty Three Pty Ltd but including the business or operation of Sentient Dynamics Pty Ltd) in any capacity, including on their own account or as a member, shareholder, unit holder, director, partner, joint venturer, employee, trustee, beneficiary, seller, agent, adviser, contractor, consultant, manager, associate, representative or financier or in any other way or by any other means; 3. without the written consent of the Plaintiff, carrying on (directly or indirectly) the business or operation of Will Thirty Three Pty Ltd in any capacity, including on their own account or as a member, shareholder, unit holder, director, partner, joint venturer, employee, trustee, beneficiary, seller, agent, adviser, contractor, consultant, manager, associate, representative or financier or in any other way or by any other means, PROVIDED THAT the First and Second Defendants may 1. maintain and continue any investment in, loan to or financial accommodation made with or on behalf or for the benefit of Will Thirty Three Pty Ltd as it stands as at the date of these Orders, and 2. maintain any shareholding in Will Thirty Three Pty Ltd as it stands as at the date of these Orders; 1. soliciting, canvassing, approaching or persuading any person or corporation which is, or which was in the 12 month period before 4 April 2018, a customer, client, or supplier of Sable 37 or a related body corporate of DXC Technology Australia Holdings Pty Ltd (ACN 120 570 390) (DXC Holdings) (including the Plaintiff and any subsidiary of the Plaintiff), to: 1. cease doing business with DXC Holdings or a related body corporate of DXC Holdings (including, but not limited to, the Plaintiff and any subsidiary of the Plaintiff); or 2. to reduce the amount of business which the customer, client or supplier would normally do in respect of DXC Holdings or a related body corporate of DXC Holdings (including, but not limited to, the Plaintiff and any subsidiary of the Plaintiff). 1. Until further order, the First Defendant is restrained from, in Australia, New Zealand, United Arab Emirates, India, Fiji, the Philippines, and the United States of America this: 1. soliciting, canvassing, approaching or persuading any customer, client or supplier of Sable 37 or a related body corporate of DXC Holdings (including, but not limited to, the Plaintiff and any subsidiary of the Plaintiff) with whom the First Defendant had business dealings in the course of his employment by the Sable 37 Group, DXC Holdings or a related body corporate of DXC Holdings, to: 1. cease doing business with DXC Holdings or a related body corporate of DXC Holdings (including, but not limited to, the Plaintiff); or 2. to reduce the amount of business which the customer, client or supplier would normally do in respect of DXC Holdings or a related body corporate of DXC Holdings (including, but not limited to, the Plaintiff); or 1. inducing or attempting to induce any person who was at 4 April 2018, or who later became, an employee of DXC Holdings or a related body corporate of DXC Holdings (including, but not limited to, the Plaintiff and any subsidiary of the Plaintiff) to terminate his or her employment with the that company. 1. Note that the defendants are likely to require a short period of time to prepare themselves to comply with these orders in all respects and to that intent these orders are temporarily stayed until 5 p.m. on 5 May 2022; 2. Should either party require any further adjustment to these orders before the stay provided for in order (3) expires and they become operative at 5 p.m. on Thursday 5 May, if any such adjustment cannot be agreed after consultation between the parties then by contacting the chambers of Slattery J, the parties are at liberty to list these proceedings on Thursday, 5 May 2022 not before 12:00 noon for submissions of no more than one hour (noting that the Court cannot presently accommodate submissions or a listing on 3 or 4 May 2022, or on the morning of 5 May 2022; 3. Note that by reason of the nature of the contest between the parties there is a need for the final hearing of these proceedings to be expedited and the proceedings are being managed in the expedition list where they will next be listed for directions on Friday, 27 May 2022; and 4. Costs are reserved. In this order, "the business of Sable 37" means the business of the Sable 37 Group as a whole as at 4 April 2018, including but not limited to: 1. consulting, development, software, licensing, management, support and training, based around information products and services based upon Microsoft Dynamics 365 technologies (and future, successor or derivative Microsoft Dynamics 365 products, services and technologies); and 2. consulting, development, software, licensing, management, support and training, based around information products and services based upon the "Homebuilder" solution (and future, successor or derivative products, services and technologies focussed on the home building market).

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 May 2022

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Cases Cited (16)

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