DXC Eclipse Pty Ltd v Wildsmith

Issues for determination

1. Mr Wildsmith has given undertakings, which will continue until April 2025 whatever the result of the proceedings, not to solicit customers or employees of Sable37 as at the date of DXC Eclipse's purchase in April 2018. This is apparently sufficient for DXC Eclipse so far as customer solicitation is concerned. Nor does DXC Eclipse contend that Mr Wildsmith retains any confidential information which would be caught by the confidentiality restraints. But DXC Eclipse does seek three restraints from Mr Wildsmith which he refuses to give.
2. First, DXC Eclipse seeks an injunction based on the competition restraint in the agreement. The injunction sought by DXC Eclipse would effectively continue the specific interlocutory injunction preventing Mr Wildsmith from being involved in the business of Will Thirty Three, at least for as long as, and to the extent that, Will Thirty Three's business involves software solutions based on BC. The restraint would also specifically prevent Mr Wildsmith's involvement with Sentient, for as long as, and to the extent that, that company's business involved the use of Power Platform to supplement the use of BC solutions.
3. Second, DXC Eclipse seeks an injunction based on the solicitation restraint to the extent that it applies to suppliers. The injunction sought by DXC Eclipse would prevent Mr Wildsmith from being involved in dealings with Microsoft as a supplier to Will Thirty Three.
4. Third, DXC Eclipse is not satisfied with the undertaking given by Mr Wildsmith under the employee solicitation restraint. That undertaking, as I have indicated, is limited to employees of Sable37 as at the date of purchase by DXC Eclipse. The injunctions sought by DXC Eclipse would extend to all current employees of Sable37, and some of its employees of its parent company and that parent's related companies.
5. These injunctions would apply until April 2025. They would apply in all of the countries where the Sable37 Group operated. Questions about the width of the restraints, as a matter of construction, arise for the competition and distributor solicitation injunctions. In each case the reasonableness of the restraint is also in issue.
6. The restraints which are sought are plainly restraints of trade which bring the doctrine of restraint of trade into play. It is common ground that the enforceability of the restraints is governed by the Restraints of Trade Act 1976 (to which I will refer as the "Act"). As a result, the restraints may be enforced (within their contractual limits) to the extent that they are reasonable; it is not necessary to consider whether, to the extent that their contractual reach may extend beyond that, severance would be contractually possible.

Witnesses

1. DXC Eclipse called evidence from four executives of the DXC Group. Mr Ralph Pickering is a former executive of the DXC Group who had immediate responsibility for the acquisition of the Sable37 business by DXC Eclipse. Mr Stuart Quane Dickinson is the General Manager of DXC Eclipse. Mr Phillip Walsh is the Chief Business Architect for DXC Eclipse. Ms Natasha Copley is also an executive of the DXC Group.
2. Mr Pickering, Mr Dickinson and Mr Walsh were all cross-examined. Ms Copley was not cross-examined and it is not necessary to say anything more about her evidence.
3. DXC Eclipse called expert evidence from Mr Wayne Alwyn Holtham, who is a technology expert, and from Mr Peter Chapman, a forensic investigator. Mr Holtham was cross-examined on the technological issues which I address below. Mr Chapman was not cross-examined and it is not necessary to say anything about his evidence.
4. DXC Eclipse also called evidence from Mr Warwick Ross Davis. Mr Davis is an economist whose report addressed questions of competition between Will Thirty Three and the business operated by DXC Eclipse which had been purchased from Sable37. I consider the admissibility and weight of Mr Davis' evidence in a separate section of the judgment below.
5. The lay witnesses who gave evidence in the defence case were Mr Wildsmith himself and Mr Paul Timmins, who is also a former employee of the DXC Group. Mr Wildsmith was cross-examined but Mr Timmins was not. It is not necessary to say anything about Mr Timmins' evidence.
6. The defendant also called evidence from Mr Matthew Paff, who is a technology expert. Mr Paff was cross-examined on his report and I refer to some of his evidence below.

Industry background

1. The market for business software may be divided into "ERP" and "CRM" software. CRM stands for Customer Relations Management. ERP stands for Enterprise Resource Planning.
2. As its name suggests, CRM software is designed to support dealings between a business and its customers. Among the functions which may be computerised are logging of complaints or queries, correspondence, and marketing.
3. ERP software computerises the business' internal accounting and financial, manufacturing and supply chain management record-keeping. Microsoft is a major supplier of ERP software. Its competitors include well-known international software companies such as Oracle and SAP. Both of the Microsoft products with which these proceedings are mainly concerned, F&O and BC, are ERP products.
4. ERP software products may be seen as larger and more sophisticated variants of accounting software packages for sole traders and small businesses, such as MYOB and Xero. Such basic packages offer a computerised system of book-keeping covering bank receipts and payments, journals, trade creditors and debtors (purchase orders and sales invoices). They may also include an inventory database integrated with purchases and sales. ERP software possesses the same basic functions but is capable of handling higher volumes of transactions.
5. ERP (and CRM) software requires adaptation to the customer's requirements before it can be operated. Some configuration features are built into the software which can be used to design aspects of the system. But some forms of customisation require supplementary programming work as well. Such supplementary computer code is known as an "add-in".
6. Typically, ERP software can be supplemented with additional modules which undertake additional functions. These may be produced by the manufacturer of the ERP software, or by third parties whose applications may be integrated with the ERP software. An example is payroll software. Such third party software is known as an "add-on".
7. Once the software has been supplemented and configured to the customer's requirements, it must be installed (which may involve migration of the customer's existing data to the new system) and training. The whole task is described as providing a "solution".
8. Most businesses do not have the capacity to set up and run their own ERP or CRM solution "out of the box". They depend on a specialist contractor to design the solution, supply the software (usually), customise it, and support its ongoing operation. Such a contractor is known in the industry as a "value-added reseller". DXC Eclipse, Sable37 and Will Thirty Three were or are all value-added resellers. Value-added reselling requires expertise in designing systems and dealing with customers, as well as the technical expertise required to undertake the necessary configuration, coding and installation tasks.

Microsoft product development up to April 2018

1. Microsoft's F&O product derives from an ERP product called Axapta which was developed by a Danish software company. BC can likewise be traced back to an ERP product called "Navision" which was developed by a different Danish software company. The two companies merged (although the products remained distinct) and the merged company was acquired by Microsoft in 2002. Axapta was renamed "Dynamics AX". Navision was renamed "Dynamics NAV".
2. At one point Microsoft began work on combining both products (which were written using different computer languages) into a single set of computer codes. Also included in this project (which was referred to as "Project Green") were two other ERP products which had been developed by third parties and purchased by Microsoft, known as "Great Plains" and "Tenerife". But the project was later abandoned. Microsoft continued to sell AX and NAV as separate products, albeit both were labelled with the name "Dynamics".
3. Microsoft also sold CRM software, including a product known as "Dynamics CRM". This product also had originally been developed outside Microsoft. It was written in yet another programming language.
4. The Dynamics products were all "on premises" products. An "on premises" software product is one where the customer is provided with a copy of the software and a licence to use it. The software is installed on the customer's own servers.
5. With the development of internet-based technology, the possibility arose for such "on premises" software to be accessed by "cloud based" systems accessible via the internet. The first version of Dynamics AX allowing internet login and operation was released in 2015.
6. This development dovetailed with another change in the way Microsoft conducted its business. Rather than licence an actual copy of the code to the customer, Microsoft was moving towards a subscription model under which the customer would pay a regular fee for use of the software rather than owning a particular version of it. This model could be developed further so that the software actually ran in the cloud. This was known as "Software as a Service" ("SAAS").
7. In July 2016, Microsoft made an announcement of a new "vision" for its Dynamics products. The products were to be made available to customers through the internet. This would be done through a user interface provided by Microsoft software known as "Azure". Microsoft referred to this offering as "Dynamics 365".
8. The "vision" was depicted by Microsoft in the following diagram:
9. The middle of the diagram depicted a layer of programs or applications which powered the "D365 solution". On the left was Microsoft's Office 365 suite of products, which included Microsoft's well-known word processing (Word) and spreadsheet (Excel) applications. The Dynamics products were represented by the third box from the left. The different products (which included AX, NAV and CRM) were not separately identified; instead, their functions were listed. Next to the right was a box depicting "third party business applications", or add-ons.
10. Following this announcement, in October 2016 Dynamics AX was rebranded as "Dynamics 365 for Operations". In July 2017 it was again rebranded as F&O (its full name being Dynamics 365 for Finance and Operations).
11. The announcement also led to Dynamics CRM being rebranded as "Dynamics 365 Sales". At some later point, but apparently before 2018, the product was again renamed as "Customer Engagement" ("CE").
12. Dynamics NAV was also rebranded as BC. Microsoft "Dynamics 365 Business Central", to give it its full title, was formally launched on 2 April 2018. This was two days before the Securities Purchase Agreement was signed. The launch had, however, been foreshadowed for several months at least beforehand.

Sable37's business up to April 2018

1. The Sable37 business was founded in 2004. Mr Wildsmith joined in 2011. By the time of the sale to DXC Eclipse in 2018, the employee head-count had grown to more than 150.
2. Mr Wildsmith was the Chief Executive of the business. His job title was "Global Managing Director". There was a dispute between the parties as to the scope of Mr Wildsmith's role. According to Mr Wildsmith, his was a management position and he did not spend any significant time dealing with customers of the business; this was handled at a lower level. DXC Eclipse did not accept this and the forensic evidence of Mr Chapman contained an analysis of Mr Wildsmith's email records which, it was contended, showed that Mr Wildsmith dealt frequently with individual customers. But no restraint on individual customers is sought and on the view I take, it is not necessary to resolve this issue.
3. Sable37's business developed as that of a value-added reseller of Microsoft Dynamics AX and Dynamics CRM. The business did not sell solutions based on Dynamics NAV (or any of the other Dynamics products).
4. Sable37 was quick to involve itself in Microsoft's plan to deliver cloud-based solutions via the internet. Indeed, it is said that Sable37 was responsible for the first live cloud version of Dynamics AX made available to a customer anywhere in the world. By April 2018, Sable37 was well advanced with offering Dynamics 365 solutions (based on F&O or F&O and CE) to existing customers by way of upgrade, and to new customers.

Securities Purchase Agreement: factual matrix

1. DXC Eclipse's purchase of Sable37 arose out of a marketing campaign for the sale of the business which was launched by its then owners, including Mr Wildsmith, in 2017. The sale was handled on the owners' behalf by the accounting firm KPMG. In August 2017 KPMG issued an information memorandum about the business under the name "Bluejay". Interested parties were provided with further information, on a confidential basis, to enable them to bid. That information included a "Financial vendor due diligence report" by KPMG dated July 2017.
2. One of the interested parties was DXC Eclipse. DXC Eclipse made a series of non-binding indicative offers to purchase Sable37 beginning in November 2017. DXC Eclipse's offer terms were acceptable to the owners and the Securities Purchase Agreement was eventually signed on 4 April 2018.
3. The information memorandum of course contained a description of the business of "Bluejay". On the very first page the purchase opportunity was described in the following way: Bluejay represents a unique opportunity to acquire an exceptional, high growth Dynamics365 cloud based reseller and software vendor as it continues to execute its growth strategy in the highly attractive and emerging cloud technology market.
4. In the section headed "Introduction to Bluejay" the following appeared: Bluejay is a premium cloud - based reseller, SaaS provider and leader of D365 enabled product solutions. Bluejay specialises in digitally transforming organisations through strategy and consulting services, and delivering business-improving software and services. Bluejay harnesses the power of ERP and CRM functionalities and cloud-based industry solutions through Microsoft's 365 [sic; Dynamics 365 or D365] platform.
5. The memorandum contained a section on Microsoft's product development strategy. The diagram which I have set out at [49] above was reproduced in that section of the memorandum. Under the heading "What is D365?" the following appeared: • D365 is a brand new cloud service that unifies and combines Microsoft's CRM, ERP and cloud solutions in a single offering that brings together people, processes and business data. … • D365 is an industry leader of ERP and CRM applications, allowing for the seamless integration across sales, customer service, field service, operations, financials, marketing and project service automation • The application aims to harness the power of business intelligence and enhanced analytics to reduce integration costs, better engage the customer, empower employees and transform business models • With Cloud-Powered Global Compliance, D365 is regulatory compliant in 36 countries and presents in over 60 languages • Unlike its competitors SAP and Salesforce, Microsoft owns its own platform, enabling Microsoft to market a more agile end-to-end solution to consumers • Continuous updates to components of the application will allow for Microsoft to stay ahead of the curve and adapt functions as the customers' needs arise
6. Elsewhere in the memorandum "Bluejay's" business continued to be described generically as being concerned with, or based on, "Dynamics 365" or "D365". The memorandum heavily emphasised the potential associated with "Bluejay's" business as an early adopter of cloud technology.
7. The information memorandum did not however contain any specific information about the particular software solutions sold by "Bluejay". This appeared in the due diligence report, which was only provided to interested parties who signed a confidentiality agreement.
8. Under the heading "Business Overview" the due diligence report stated that Sable37 provided (emphasis added): business-improving software and services, specializing in cloud-based industry solutions, powered by Microsoft Dynamics 365 ('D365', formerly ERP system Dynamics AX and CRM). The move toward cloud-based solutions, Software as a Service (SaaS), in the industry is expected to drive future growth opportunities for Sable37.
9. On the next page, under the heading "Key Products and Services", the report stated: Sable37 offers a full suite of design, implementation and support services, focusing on D365 across traditional ERP and CRM functionality. In addition to these core Microsoft solutions, the Group also offers a range of specialist industry solutions and customized software. Sable37's key specialist solutions are: - Retail+ - end-to-end solution for retail and distribution industries covering POS, merchandising, financials and demand forecasting; - HomebuilderONE (HB1) - end-to-end solution for the residential building and land development industry; - Food Process - end-to-end solution for process manufacturing quality, testing, batch control, traceability and recipe management; - Icon365 - series of D365 add-on modules developed by Sable37 and distributed through partners globally, including Retail+ and Food Process; and - Xalari - payroll solution for D365 with true global and complex payroll functionality.
10. A chronology on the same page noted that Icon365 had originally been called "IconAX". It had been rebranded as "Icon365" in 2015 (if this date is correct, it in fact predated the public announcement of Microsoft's "Dynamics 365" platform).
11. In evidence was an internal DXC Technology report on the proposed acquisition of the Sable37 business. There was some reference to this report in the course of the case, but in the end I think it has little, if any, relevance. Matters stated in the report about the nature of the Sable37 business did not necessarily form part of the factual matrix known to both parties and, to the extent that they involved assumptions or conclusions on the part of DXC Eclipse's management or advisors, may not necessarily have been correct. For similar reasons, I do not consider it necessary to refer to Mr Pickering's evidence in any detail.
12. One thing which is, however, clear is that DXC Eclipse acquired Sable37 because of its perceived value as being complementary to DXC Eclipse's existing business, which was based on Dynamics NAV. [2] DXC Eclipse management wished to acquire Sable37 so as to obtain Sable37's market position in F&O. This would give DXC Eclipse a complete coverage of Microsoft ERP products and thus, it was thought, make DXC Eclipse a more attractive business partner for Microsoft.

Market comparison between F&O and BC

1. Mr Wildsmith gave evidence in which he asserted that F&O and BC were quite different products, directed to different types of customer. He stated that the cost of implementing F&O was in general three to five times more than the cost of implementing BC and the time to implement F&O was typically six to eighteen months whereas the time to implement BC was typically less than six months.
2. No doubt value-added resellers conduct their own marketing efforts to obtain new customers. They may also receive leads from Microsoft. But there is a difference between F&O and BC in this regard. In one of his affidavits Mr Wildsmith gave the following evidence (which was not challenged in cross-examination): Microsoft employs senior sales executives to sell Dynamics 365 F&O and CRM. These sales executives do not sell Business Central. These sales executives market to large enterprise customers directly. Their sales targets are based on selling Dynamics 365 F&O and CRM. In almost all situations, Microsoft does not implement the solution. They pick partners to work with them on the sale. The partners separately propose the implementation price of the solution offered. Microsoft controls the licensing and pricing of licences. On the other hand, Business Central is generally sold by the partner directly. In my experience, I would estimate 90 percent of the time the partner identifies the prospect and sells Business Central directly to the customer. In my experience, it is rare to receive Business Central leads from Microsoft compared to the volume of sales made. If the small and mid-market Microsoft team does create a lead for Business Central, those leads are passed to the partner and the partner is left to qualify, pre-sales and propose a solution. Business Central clients do not normally license the software with Microsoft. They are too small and license instead via distributors or other approved third party organisations.
3. Evidence comparing F&O and BC was also given by Mr Dickinson and Mr Walsh for DXC Eclipse. The comparison was also the subject of expert evidence from Mr Holtham and Mr Paff.
4. Of all these witnesses, I found Mr Paff's evidence the most useful. There was a dispute about how much Mr Dickinson actually knew about the features and implementation of the two products. I do not find it necessary to resolve that dispute. The simple fact is that Mr Dickinson was not independent. Nor was Mr Walsh (or Mr Wildsmith). Mr Holtham, while independent, did not have the specialised knowledge and experience of Mr Paff. Mr Paff's evidence appeared to me to be candid and disinterested. There was no dispute about his expertise and no real challenge to the opinions which he expressed in his report and his oral evidence.
5. As already noted, F&O and BC developed as, and remain, separate products written in different computer languages. They present differently to the person customising the system. Designing and implementing solutions using one or other of the products requires specialist skills. To move from one eco-system to the other would require some retraining.
6. All the witnesses accepted that F&O has a greater capacity and range than BC does. The relationship between F&O and BC in this regard is similar to the relationship between BC at the lower end of its target market and basic accounting software such as Xero. The performance of the lower level product may be improved by bolting on additional modules or add-ons, but at some point this becomes impractical.
7. Mr Paff quoted in his report commentary dating from mid-2016, when Microsoft announced its new Dynamics 365 platform for ERP. He said it was clear at the time that Dynamics 365 would come in two "flavours". One was targeted at what was termed "Enterprise", namely organisations with 250+ employees. The other was targeted at "Business", meaning organisations with fewer than 250 employees.
8. Within the rebadged Dynamics 365 suite of products, it was AX/F&O which targeted "Enterprise" and NAV/BC which targeted "Business". As already noted, the products continued to be sold separately by Microsoft. Mr Paff characterised the labelling of the products as "Dynamics 365" as a marketing exercise more than anything else. The products were being transferred to the cloud (or at least AX and NAV were), but this did not affect their inherent characteristics.
9. As befits the more sophisticated product with greater capacity, F&O is usually more expensive both for the creation of the relevant solution and subsequent licensing or subscription. Mr Paff stated that he has never encountered an F&O solution being implemented for less than $500,000, and often such solutions are much more expensive than that. [3] BC solutions can be much cheaper, in some cases costing less than $100,000.
10. Another product which has recently appeared in the Australian market was referred to in the evidence. The product is called WIISE and was developed by KPMG. WIISE is a "white label" product of Microsoft (that is, manufactured by Microsoft but not publicly identified as such). It is essentially BC with certain modules and facilities turned off and which sells for less. It fits into the market around the lower end of BC's target market and the upper end for basic accounting systems such as Xero.
11. Mr Paff stated that F&O and CE, as supplied "out of the box", are essentially the same everywhere. Accordingly, their target markets should also be the same. He explained, however, that employee numbers of themselves are not the most reliable guide to the suitability of one product or another. The nature of the business and the complexity of its operations are significant factors. Mr Paff said that it was possible to imagine a simple retailing operation using Xero, even if it had more than 1,000 employees. On the other hand, a more complicated business or one which generated a larger number of transactions might have no choice but to use F&O.
12. In his report, Mr Paff acknowledged there was some overlap in the target customer base between F&O and BC. He stated: BC in and of itself would not have a target customer base that overlaps with F&O. However, BC does have a healthy eco-system of third-party "add-on"/"add-ins". That is, products that enhance the functionality beyond core BC. In theory, one can use third party specialist solutions aka add-ons/add-ins that expand the capabilities of BC to a level that does compete with F&O. But, this is like arguing a ute, plus a trailer competes with a B-Double truck. F&O's core benefit is the expansive and deep functionality that reduces the need for add-ons/add-ins. … … in both cases the price difference between BC + Add-ons and F&O is so great, that this is rarely a genuine head-to-head consideration. Realistically, F&O is only a consideration if a client has a budget of $500,000 or more. Further, when you have too many add ons or add ins, the BC solution become clunky, with many apps to manage and each with different support partners. F&O is a comprehensive platform generally delivered by one support partner. … … at the core of the issue, the overlap between BC and F&O is practically very small, even with third party enhancements. The average BC customer would never have considered or have had the budget for F&O. The average F&O customer is unlikely to have considered BC.
13. In response to the question whether BC and F&O could be described as rival products in the same market, Mr Paff said: Absolutely not. As has been described as far back as 2000, the products are "mutually complementary". I think commercially and logically, Microsoft have a 2-product strategy because they are differentiated. It allows them to charge a lot more for F&O and scale BC down to smaller businesses than even NAV traditionally would have targeted.
14. In cross-examination, Mr Paff was referred to the passage in his report beginning "at the core of the issue" which I have quoted above. He gave the following evidence: Q. The reasoning that supports the opinion that you express in that sentence is that what you'd call the average Business Central customer would be rationally dissuaded from choosing F&O because of price and the average F&O customer, as you describe them, is likely to be dissuaded from Business Central by functionality. Is that right? A. No, that's not really what I was trying to say. I guess what I'm trying to say is the budget is the first key decision-making point. And if - if I'm shopping, willing to spend $1 million, invariably, people don't look at the BC solution. That's just the practicalities of the market. Q. What if you're looking at a budget of $400,000? A. That's where we start to get into grey areas, and I'm quite happy to admit there are some grey areas. Q. The grey areas are they overlap that you talk about? A. The grey areas are enhancing BC with third-party add-ons and customisations versus taking the framework in F&O as the starting point. … Q. In the end, of course, when looking at the size of the overlap or the grey area, it's going to be a case-by-case analysis depending on the particular solution. A. Theoretically.
15. In re-examination, Mr Paff was referred to his last answer and gave the following evidence: Q. You responded, "Theoretically". What do you mean by that? A. Well, most people pre vet themselves straight away based on budget. If someone is unprepared to spend more than $100,000, they're not going to make an assessment on whether F&O might be able to solve for their problems. So, I keep coming back - the budget is often a key differentiation that forms part of the decision that the company makes before they even get to the solution.
16. In the course of cross-examination, I asked Mr Paff (without objection from either party) about the business pressures, and in particular the competitive pressures, which would have been faced by a value-added reseller business based on F&O as at April 2018.
17. Mr Paff emphasised that the greatest challenge, in his opinion, was attracting further business in what is a mature and relatively small market. The market has another important feature. Because of the expense and time in developing a software solution, once a customer has made a commitment to a solution based on one particular product, there are strong disincentives to switch to another one. Mr Paff referred to this as a "barrier to exit".
18. So far as competitive risks were concerned, Mr Paff mentioned a program called "NetSuite". The product had been specifically developed for cloud usage and had been acquired by Oracle. As I understood Mr Paff's evidence, products such as Microsoft's which had been developed in pre-cloud days were at a competitive disadvantage, in that they required significant time and expenditure to be converted to cloud-based conditions. Development expenditure on NetSuite, on the other hand, could be focused on achieving more functionality. Mr Paff thought that the risk for an F&O business was that NetSuite, which had originally been targeted more at the "Business" rather than the "Enterprise" market, could move up and challenge F&O. Once a customer was using a NetSuite solution, barriers to exit would make it difficult to win them over to F&O.
19. In re-examination, Mr Paff was asked further about the topic. He said: Q. … we then get to around 2018, and his Honour asked you a question along the lines of, and again, please bear with me in terms of paraphrasing what his Honour said, but as a reseller of F&O, his Honour asked you, "What would you be concerned about as far as competition was concerned?" You didn't mention Navision or Business Central, why is that? A. Because I saw them going the opposite direction. Q. What do you mean by that? A. Well, Project Madeira [a Microsoft development project], which then became BC was about going down market with what had been the NAV product, and I didn't see any effort by Microsoft to take F&O down market. If anything, I was seeing the price point and the implementation cost going up on the F&O product.

Evidence of Mr Davis

1. Mr Davis is an economist by training. He has worked for government competition regulators both in Australia and the United Kingdom. Since 2006 he has worked for an economic consultancy firm. The firm provides advice to policy makers, regulators and businesses on the application of prohibitions in Part IV of the Competition and Consumer Act 2010 (Cth) which regulate the use of market power and mergers.
2. For the purposes of his report in these proceedings, Mr Davis was asked to express opinions on whether Will Thirty Three and Sentient were "competitive with" the business of Sable Group "as a whole as at April 2018". His instructions also posed various incidental questions for him to address to the extent necessary to answer the questions he had been asked. These incidental questions concern such matters as the existence of markets for the different Microsoft products referred to in these proceedings and the degree of overlap between those markets.
3. Mr Davis answered both of the questions which were asked of him in the affirmative. His report was objected to by counsel for Mr Wildsmith and was admitted on a "subject to relevance" basis.
4. As will be seen, the wording of the questions followed the wording of the restraint which is the subject of DXC Eclipse's claims in the proceedings. In his report, he stated that the existence, and closeness, of competition between firms had "received considerable attention in competition, economics and law". When this was drawn to his attention, he gave evidence that his report was based on "competition economics" rather than law.
5. I am not sure quite what to make of that evidence. In his report Mr Davis referred specifically to provisions of Part IV of the Competition and Consumer Act and decisions of the Competition Tribunal in applying that Act. He also referred to guidelines issued by the Australian Competition and Consumer Commission which dealt with the way which the Commission exercises its functions under the Act.
6. Mr Davis also quoted relevant provisions of the Securities Purchase Agreement, including the critical definition of the "Business" of Sable37 (see clause 1.1, quoted at [112] below). He then went on to identify certain "highlights" which he drew from the definition. These included that the activities of Sable37 were "based on Microsoft Dynamics 365 Technologies" and were "expected to evolve and expand with updates to Microsoft Dynamics products, services and technologies".
7. In a sense, what Mr Davis has done is understandable. Having been asked a question about whether the businesses of Will Thirty Three and Sentient were "competitive with" those of Sable37, he naturally had to decide what the phrase "competitive with" meant. The problem is that the interpretation of the agreement, and specifically of the definition of "Business", is a contestable one. Mr Davis did not have the benefit of the argument which I received, including reference to legal principles of construction on this issue. Even if he had, his opinion would not relevantly have been a matter of expertise. Interpretation is a matter for the Court.
8. There are similar difficulties with Mr Davis' commentary on the facts. Mr Davis has no relevant technical knowledge about the operation of the products, nor any practical experience of the way in which the market operates. For this he was dependent upon evidence from Mr Walsh, which was footnoted at various places in support of propositions stated in his report. But these propositions were conclusory and in some respects contestable. Mr Davis did not have the benefit of the cross-examination of Mr Walsh, or the other witnesses, expert and lay, whose evidence I have summarised above. Again, the evaluation of that evidence and the making of findings of fact based on it is a matter for the Court.
9. I do not necessarily disagree with everything Mr Davis has said in his report. But expert opinion evidence, to be admissible, must be based on some field of knowledge with which the Court is not familiar. It is not possible to give expert evidence as to the conclusions the Court ought to draw in interpreting a contract, or in evaluating the evidence. This is not merely because the answers to such questions may involve giving evidence as to the "ultimate issue" (see s 80 of the Evidence Act 1995). It is because it is impossible for the Court to recognise somebody else as having superior knowledge on the answers to those questions.
10. In my opinion, the evidence of Mr Davis was inadmissible. If admissible, it was of little or no weight. I do not intend to say anything further about Mr Davis' report or his opinions.

DXC Eclipse's business since April 2018

1. At the time of the acquisition of Sable37, DXC Eclipse was selling solutions based not only on Dynamics NAV, but also on Great Plains and Tenerife. Those products have now reached the end of their commercial life and are no longer supported by Microsoft. DXC Eclipse continues to sell BC Solutions. The specialist team responsible is headed by Mr Carsten Pedersen. Mr Pedersen did not give evidence.
2. Sable Systems and its subsidiaries have apparently been retained as DXC Technology Group companies. The evidence does not identify whether the trust structure has been retained, or, indeed, whether the Sable Systems companies still have any continuing operations. But it is common ground that the F&O and CE business conducted by Sable37 has been continued under the ownership of DXC Eclipse. The relevant DXC Eclipse staff form a specialist team, distinct from the BC solutions team headed by Mr Pedersen.
3. For the purpose of the proceedings, DXC Eclipse was required to disclose records of solutions proposed to customers or prospective customers, both for BC and F&O. [4] The documents were tendered as part of the confidential exhibit. The BC solutions ranged in cost from $85,000 to $372,000. The F&O solutions ranged in cost from $516,000 to $3.6 million.
4. There was no evidence of any overlapping consideration of BC or F&O to do the same job for the same customer. [5] At the hearing, an email chain was tendered between a DXC Eclipse employee and a customer who was apparently seeking an ERP solution. The DXC Eclipse proposal was to be based on BC plus the Microsoft CRM product, CE. The correspondence indicates that the customer also had under consideration, for comparison purposes, a proposal involving F&O. On the face of it, this might suggest the potential for competition between the two products in the case of that customer. However, there was no affidavit evidence to explain the background, and in particular, the customer's requirements and budget. The fact that the DXC Eclipse proposal involved CE also indicates that this was not a straight comparison between BC and F&O.

Mr Wildsmith's new ventures

1. Mr Wildsmith's proposed new venture effectively involves two elements. The first is Will Thirty Three. Through OKC, Mr Wildsmith has a majority interest in Will Thirty Three. His intention is that it will sell BC solutions. Mr Wildsmith has no intention of using Will Thirty Three to sell F&O or CE. [6]
2. The second is Sentient. The evidence does not identify whether Mr Wildsmith has any ownership interest in Sentient. His involvement from the company stems from a belief that it will be able to produce add-ins and add-ons using Power Platform which can be used to supplement the BC solutions being produced by Will Thirty Three.
3. Power Platform is a suite of programming tools which can be used in conjunction with Microsoft's other software, or separately, to build applications. The name "Power Platform" was adopted after April 2018 but each of the components in the software toolbox was available as at that date.
4. There is written evidence which shows what Mr Wildsmith has in mind. In late February this year, he attended a meeting with a Microsoft executive, Ms Rachel Bondi, to discuss his new venture. In preparation for his meeting with Ms Bondi, Mr Wildsmith set out his thoughts in the following way: Why Business Central - Restraints - D365 F&O Expensive and cluttered - BC Market - Sleepy and inefficient above WISSE [sic; WIISE] - No single strong partner What is the opportunity - D365 is rising - solutions, complexity and cost - Space is developing behind D365 - Large organisation will implement BC going forward - This is where Will33 will focus This is not D365 - not Enterprise
5. Following the meeting, Mr Wildsmith emailed Ms Bondi to follow up. His email to her contained the following: Underway with Dynamics Business Central Focus is to build business in the high end of the BC opportunity underneath D365 F&O Using new tools and approaches to help scale the business and sell and implement differently eg Gyde365. Plan is to implement Power Platform solutions at higher levels with D365 BC and deeper complexity.
6. In the light of this evidence, it would be an over-simplification to say that Mr Wildsmith's experience with F&O has nothing to do with his new venture. Clearly the restraints, which Mr Wildsmith perceives as being limited to F&O, feature in his thinking. Equally clearly, Mr Wildsmith is focussing on the "high end" of BC, in an area where he thinks that the expense and complexity of F&O has created a gap in the market.
7. But what Mr Wildsmith has decided to do is to stay away from F&O and target that market using BC, together with add-ins and add-ons developed through Sentient. Thus, his venture is "not Enterprise". Because Mr Wildsmith equates F&O/Enterprise with Dynamics 365, he says his venture is "not D365" either. Whether this is correct depends upon the legal questions which arise for decision in these proceedings, to which I now turn.

Competition restraint

1. The competition restraint is set out in cl 16.1(c) of the purchase agreement which provides (emphasis added): 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. The term "Competing Business" is defined in cl 16.1(a)(b) as "any business or operation competitive with the Business".
2. The "Seller Restraint Period" is defined as a cascading series of time periods measured from the Completion Date (4 April 2018), which ranges from seven years down to one year. Similarly, the "Restraint Area" is defined as a cascading series of geographical areas ranging from the entire world down to New South Wales, Queensland, Victoria, Western Australia and South Australia.
3. The term "Business" is defined in cl 1.1 (the definitions clause for the Agreement as a whole) as meaning (emphasis added): 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).
4. Based on the competition covenant, DXC Eclipse seeks an injunction in the following terms (emphasis added): An order that, until 4 April 2025, the first and second defendants are restrained from, in Australia, New Zealand, United Arab Emirates, India, the Philippines and United States of America from doing any of the following 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: (a) directly or indirectly carrying on, being concerned with or interested in the business of [Will Thirty Three], insofar or whilesoever the business of [Will Thirty Three] includes the sale, supply, configuration, customisation, implementation or support of solutions based on any Microsoft Dynamics 365 product (or future, derivative or successor Microsoft Dynamics 365 product); and (b) directly or indirectly carrying on, being concerned with or interested in the business of [Sentient], insofar or whilesoever the business of [Sentient] includes the use of Power Platform to develop, sell or supply add-ons to any Microsoft Dynamics 365 product, or to build business processes for or integrations with any Microsoft Dynamics 365 product.
5. The form of this injunction refers generically to "any Microsoft Dynamics 365 product". But there is no suggestion that Mr Wildsmith wishes, through Will Thirty Three and Sentient, to build up a business providing software solutions based on F&O or CE. [7] Mr Wildsmith wants to go back into business to sell software solutions based on BC. The real issue between the parties is whether he can be prevented from doing this.
6. I will therefore proceed on the basis that if DXC Eclipse succeeds, the injunction to which it is entitled will specifically identify BC as a "Microsoft Dynamics 365 product". On this understanding, there are two questions which arise. The first is whether, on its true construction, the competition restraint extends to software solutions based on BC. The second is whether, if it does, a restraint against competing with DXC Eclipse's BC solutions business is reasonable.

Construction

1. It is common ground that, at the time of the Securities Purchase Agreement, Sable37 was not actually selling solutions based on NAV/BC. But on DXC Eclipse's case this was immaterial. As a matter of construction, the restraint applied to BC-based solutions. Counsel put DXC Eclipse's case on this point in two ways.
2. First, counsel submitted that BC is a "Microsoft Dynamics 365 technology" within the meaning of that expression in the Securities Purchase Agreement (a "Microsoft Dynamics 365 technology" seems to be equivalent to a "Microsoft Dynamics 365 product", which, for convenience, is the term I will use). [8] Counsel submitted that the competition restraint therefore covers the sale of solutions based on BC. The restraint applies directly to involvement in a business selling such solutions.
3. The alternative argument is that, even if a business of supplying BC solutions is not itself a business based on supplying a "Microsoft Dynamics 365 product" that business is still "competitive with" a business selling solutions based on F&O. Accordingly, the restraint applies indirectly to prevent Mr Wildsmith's involvement in a software solutions business based on BC.
4. Direct application: Counsel for DXC Eclipse characterised the essential question as being the meaning of the phrase "Microsoft Dynamics 365 product". Counsel pointed out that, as the evidence showed (see [48]-[53] above) at the time the agreement was entered into, Microsoft had already begun to describe all of its ERP and CRM software, when delivered through cloud-based computing, as "Dynamics 365". When BC was formally launched in April 2018, it was so described. The launch took place before the Agreement was signed, but even if that had not been so, BC would have been a "future, successor or derivative" Dynamics 365 product.
5. This may be accepted so far as it goes. I accept that the term "Dynamics 365" was a label placed by Microsoft, apparently for marketing purposes, on a number of different products. But this does not alter the fact that BC was so labelled.
6. But the reference to "Microsoft Dynamics 365 products" does not stand on its own. It must be interpreted in the context in which it appears. That context is the definition of the "Business" in clause 1.1 of the Agreement. The definition begins by stating that the term "Business" means "the business of Sable Systems as at the date of this agreement". These words in their natural meaning limit the reach of the definition to activities in fact carried out by Sable37 as at April 2018.
7. Although neither party referred me to the authorities on the use of the "means and includes" drafting device, I think those authorities are relevant. The device is seen in definitions used in both statutes and contracts. In BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145 at [32], the High Court stated (citations omitted): As a general proposition, the adoption of the definitional structure "means and includes" indicates an exhaustive explanation of the content of the term which is the subject of the definition, and conveys the idea both of enlargement and exclusion. In doing so, the definition also may make it plain that otherwise doubtful cases do fall within its scope.
8. In other words, a definition in the form "X means Y and includes Z" is generally taken as an exhaustive definition which covers everything in Y and also everything in Z, even if, standing on its own, Z might not be covered by Y. In the present case, the definition of "Business" might therefore cover the sale of solutions based on any "Microsoft Dynamics technology" whether or not Sable37 was selling solutions based on that technology in April 2018.
9. But, as the High Court stated, this is only a principle of construction which applies "generally". It must contend with the specific terms of the instrument in question, and other principles which affect that instrument's construction.
10. In the present case, the form of the definition is not "X means Y and includes Z" but "X means Y, including, but not limited to, Z". Arguably this formulation is less apt to signify an extension.
11. Whether that is so or not, there is still a problem with applying the general principle to achieve the result sought by DXC Eclipse. The problem is the way in which that would cut across the initial words of the definition. It is easy to read "X means Y and includes Z" where Z probably, but does not certainly, come within Y. Similarly, where Z extends beyond the ordinary meaning of Y, standing alone. But it is harder to see the point of a definition in this form if Z includes something which is plainly excluded by Y.
12. That is the present case. DXC Eclipse would have the Court read sub-paragraph (a) of the definition as including a business based on the sale of BC solutions, when no such business was being operated by Sable37 as at April 2018. It would not so much be a case of extending the chapeau as of contradicting it.
13. This leads to the question, what commercial purpose would be served by such a reading? The parties may of course, by sufficiently clear language, deem black to be white. But where the interpretation is contestable, it is relevant to ask why they would do so.
14. In Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187 at [32], a Full Court of the Federal Court observed that a definition used in a restraint covenant should be construed in a way consistent with the purpose of the restraint. That purpose was to protect the legitimate interests of the covenantee rather than to restrain, unnecessarily, the future activities of the covenantor.
15. The same reasoning can be applied here. The reasonableness of a restraint given in aid of a business must, in general, be judged according to the scope of the business as at the date the contract is entered into (see [162] below). It is reasonable to suppose that the drafter of the Agreement would, at least initially, have had this principle in mind. Indeed s 4(3) of the Act effectively penalises a party seeking to enforce a restraint who has failed to use reasonable endeavours to ensure that the wording of the restraint goes no further than is necessary to protect that party's interests.
16. I also think that it is relevant that the definition I am construing appears in the main body of the Agreement. The term "Business" does not only appear in the competition covenant. It also appears (twice) in the non-solicitation covenant (see [176] below). In the context of that covenant, the definition of that term necessarily requires reference to the business of Sable37 as it was actually conducted prior to April 2018. Reference to business activities which did not in fact happen would be nonsensical.
17. Without the parenthetical words about "future, successor or derivative" products etc, I think the interpretation would be reasonably clear. The reference to "Microsoft Dynamics 365 products" in subparagraph (a) would be read as limited to the Microsoft Dynamics 365 products actually used in Sable37's business as at April 2018, namely F&O and CE. This would be in perfect harmony with the wording of the chapeau.
18. But the parenthetical words present an obstacle to this construction. The greatest problem is the word "future". A "successor" or "derivative" product readily refers back to a product previously used. But a "future" product (especially when, in this case, the indefinite article is used) does not necessarily do so. It was not argued that the standpoint for identifying "future, successor or derivative" products was some earlier date than the Completion Date, for instance the date on which the original Dynamics 365 products were released.
19. The result is a choice. The Court can draw from the inclusion of the parenthetical words an intention to pick up all Microsoft Dynamics 365 products and ignore the grammatical and contextual difficulties and apparent lack of commercial justification for such an intention. Or the Court can conclude that something went wrong with the drafting of the definition (even though, as will be seen in a moment, it went back and forth between the parties several times). By the time the parenthetical words were added to sub-paragraph (a), the drafter had apparently forgotten about the initial words of the chapeau, and also, perhaps, forgotten that the definition applied beyond the competition covenant. That would justify reading the parenthetical words down (or even omitting them) under the principle in Fitzgerald v Masters (1956) 95 CLR 420 so as to keep the definition focussed on Sable37's actual business as at April 2018.
20. Counsel for DXC Eclipse submitted that a contrary view emerged from the negotiations between the parties about the terms of the Securities Purchase Agreement. There is a dispute about the extent to which evidence of this type is admissible. I will, however, defer dealing with the dispute until I have set out the evidence upon which counsel relied.
21. The first mention of the scope of the restraints required was found in the third non-binding indicative offer from DXC Eclipse dated 21 December 2017. This was accompanied by a term sheet which contained a table of items required in the eventual agreement. One item was headed "Covenants" and stated: Standard seller releases, confidentiality obligations and noncompetition and non-solicitation covenants covering any business with respect to Microsoft D365 (and directly associated products) or successor products for a minimum period of seven (7) years (excluding Dalia Rafael for which a shorted period of nine (9) months will apply).
22. The draft of the definition of "Business" which was eventually incorporated in clause 1.1 goes back to the first draft of the agreement which was submitted on 7 March 2018. The definition initially proposed by DXC Eclipse was: Business means the business of the Sable37 Group as a whole as at the Completion Date, including but not limited to consulting, assurance, development, software, licensing, hosting, management, support and training, based around information products and services based upon Microsoft Dynamics technologies (and future, successor or derivative Microsoft Dynamics technologies products, services and technologies), all associated third party products offered by the Sable37 Group as at the completion Date, and all third party SV products based on the Dynamics platform.
23. On 16 March, the vendors' solicitors responded with a different definition. This is shown below in mark-up: Business means the business of the Sable37 Group as a whole as at the Completion Date, including but not limited to consulting, assurance, development, software, licensing, hosting, management, support and Microsoft Dynamics 365 Customer Engagement or Finance and Operations technologies (and future, successor or derivative Microsoft Dynamics 365 Customer Engagement or Finance and Operations technologies products and, services and technologies), all associated third party products offered by the Sable37 Group as at the Completion Date, and all third party ISV independent software vendor products based on the Microsoft Dynamics 365 Customer Engagement or Finance and Operations platform.]
24. Relevantly, the reference to "Dynamics" in the original definition was replaced by "Dynamics 365". The generalised reference to Dynamics products, services and technologies was limited to F&O and CE.
25. The change from Dynamics to Dynamics 365 was accepted but the reference to individual products was rejected in DXC Eclipse's next draft, dated 23 March. That draft contained the following definition: Business means the business of the Sable37 Group as a whole as at the Completion Date, including but not limited to consulting, development, software, licensing, management, support and training, based around information products and services based upon Microsoft Dynamics 365 Customer Engagement or Finance and Operations technologies (and future, successor or derivative Microsoft Dynamics 365 Customer Engagement or Finance and Operations products and services and technologies all associated third party products offered by the Sable37 Group as at the Completion Date and all third party independent software vendor products based on the Microsoft Dynamics 365 Customer Engagement or Finance and Operations platform.
26. This change was accepted and the only other change made to the definition was the specific reference to the home builder software developed by Sable37 which is set out in sub-paragraph (b) of the definition.
27. In Codelfa Constructions Pty Ltd v State Rail Authority (1982) 149 CLR 337, Mason J, after his classic statement of the "true rule" about the admissibility of surrounding circumstances to assist in the construction of a contract, continued (at 352, emphasis added): It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
28. His Honour, however, went on to suggest a possible exception (at 352-53): There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.
29. Counsel for DXC Eclipse relied on Mason J's comment in the present case. Counsel submitted that the course of the negotiation showed that limiting the reference to "Microsoft Dynamics 365 products" to F&O and CE had been proposed, and rejected. Thus, the parties must be taken to have agreed on a wider meaning.
30. Mason J's reasoning was considered by Bathurst CJ (with whom Beazley P and Gleeson JA agreed) in Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108 at [114]-[120]. Despite the tentative language used by Mason J, his reasoning has been applied up to intermediate appellate court level in Australia. Some of the cases concern the striking out of provisions in pre-printed contracts. But applying the reasoning to bespoke contracts negotiated by the parties "is a matter of some difficulty". The circumstances must show that the change reflected a "mutual concurrence".
31. On the facts of the case, mutual concurrence was not established. One of the relevant factors was that the drafting correspondence contained no explanation for why the relevant changes were made (and there was apparently no oral evidence on the subject).
32. The same is true in the present case. [9] In my view this militates against any finding of "mutual concurrence". Even if those giving instructions on behalf of DXC Eclipse rejected the limited reference to F&O and CE because they wanted all "Microsoft Dynamics 365 products", even if not actually then being sold by Sable37, to be included, it does not follow that the vendors agreed. There may have been some other reason for accepting the rejection of the narrower language, or the vendors may have thought that they would be protected by the wording of the chapeau. They may not have appreciated the potential significance of the change for the competition covenant at all.
33. In my view the Court should be slow to apply Mason J's reasoning in a case such as this. There is an ever-present risk of being diverted into an exhaustive analysis of the parties' intentions as they developed through the drafting process, which could see the exception overthrow the parol evidence rule. In the present case, the reasoning does nothing to explain what the commercial rationale for DXC Eclipse's construction would be, or to overcome the grammatical and contextual problems with that construction. It only imposes a further layer of conjecture on a contractual provision which is already difficult enough to make sense of.
34. On balance, I conclude that the definition should be read as limited to Microsoft Dynamics 365 products sold by Sable37 as at April 2018. The competition restraint does not directly apply to the sale of BC-based solutions.
35. Indirect application: The question posed by this limb of the argument is whether either of the businesses with which Mr Wildsmith is now associated "is competitive" with "the Business" as defined. Of course, despite the reference in the definition to the Business as it existed in the hands of Sable37 in April 2018, for the purposes of the competition covenant the comparison must be with that Business as it is now carried on by DXC Eclipse. It was not suggested that the Business, so understood, could not still be identified within DXC Eclipse's operations. I will refer to it as the "Ex Sable37 Business".
36. It is convenient to deal first with Will Thirty Three's business (or proposed business) of selling BC solutions. The suggested competitiveness is limited to the F&O aspect of the Ex Sable37 Business. [10] Will Thirty Three does not propose to sell solutions which include CE.
37. My findings on the comparison between F&O and BC at [70]-[88] above. The products differ on a technical level, reflecting their separate origins. Their features and pricing differ. They are targeted at different sectors of the market. The fact that DXC Eclipse maintains separate teams for solutions based on the two products underlines the differences between them.
38. I think the point made by Mr Paff about Microsoft's strategy is significant. Since 2018, Microsoft has maintained the distinction between the products. Evidently it sees value in doing so. No doubt there will be improvements and developments in the products, but there is no reason to think that Microsoft's attitude is about to change.
39. The distinction between the target markets of course cannot be watertight. Wherever the dividing line is, there will be customers in the "grey area" whose requirements could potentially be satisfied with a solution based on either product. And it does seem that part of Will Thirty Three's focus will include the perceived gap in the market "underneath" F&O, which may be close to, or overlap with, the "grey area".
40. The onus however remains on DXC Eclipse to show that Will Thirty Three's operations will create a real competitive threat to the Ex Sable37 Business: Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37 at [48]. That threat need not extend across the whole of the Business' operations, but it must be substantial enough to create an overlapping "segment of economic activity" (Employsure Ltd v McMurchy [2021] NSWSC 1179 at [342]). Because there must be competitiveness with "the Business", the overlap must be such as to affect on the Business as a whole. [11]
41. For present purposes, four points should be borne in mind. The first is the high "barrier to exit" for existing customers who use F&O. The second is that Will Thirty Three will have no capacity to service customers who need CE. The third is that the establishment of Will Thirty Three will not affect the flow of work from F&O customers recruited by Microsoft (see [71] above). The fourth is Mr Paff's evidence that the real competitive threat to a business based on F&O does not come from cannibalisation from BC (which Microsoft has an incentive to avoid). It comes from competition from other software manufacturers' products.
42. In these circumstances, it is not enough to identify an overlap between the ranges of BC and F&O, or even an intent by Will Thirty Three to target part of that overlap. Nor is it enough to point to the existence of isolated instances where a customer of the Business might consider both products. What is needed is evidence of actual or likely future loss of custom for the Business which is or would be significant for the Business as a whole.
43. In my view, that evidence is lacking in the present case. I am not satisfied that Will Thirty Three is "competitive with" the Ex Sable37 Business. That makes it unnecessary to give any separate consideration to Mr Wildsmith's involvement with Sentient.

Reasonableness

1. On the conclusions which I have reached, the application for an injunction based on the competition restraint fails because breach of the covenant, as I have construed that covenant, has not been established. But for completeness I will consider the question of reasonableness on the assumption (contrary to my view) that the competition restraint covenant extends to the conduct of a business of supplying software solutions using BC.
2. The starting point is that reasonableness is to be judged by reference to the interest which the party seeking to enforce the restraint is entitled to protect. In the present context, that is the goodwill purchased under the Securities Purchase Agreement.
3. In an accounting sense, goodwill is the difference between the price paid to acquire a business and the tangible value of the assets of that business: Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605 at [14]. Strictly speaking, DXC Eclipse did not purchase the Ex Sable37 Business. What DXC Eclipse actually purchased were shares in Sable Systems, and units in the Sable Systems Unit Trust, rather than a business as such. But it appeared to be common ground that the purchase involved a payment for goodwill (presumably because the price of the securities purchased exceeded the tangible assets of the Business), even if the quantum of that payment is not known.
4. It is a fundamental principle that the protectable interest is limited to the goodwill of the business acquired as at the date of acquisition: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 318. This dovetails with the principle that the reasonableness of a restraint must be determined as at the date the restraint was entered into, and does not vary according to subsequent events.
5. These principles mean that a covenant against competing with the purchaser's business as it may operate from time to time after the purchase is too wide, because it has no necessary connection with the goodwill purchased. Such a covenant is only justifiable if, as a matter of expediency, the purchaser's legitimate interest in that goodwill cannot otherwise be protected. See Slattery J at [51]-[52].
6. The principles do allow for some extension of protection so as to cover post-purchase developments in the business that derives from the goodwill at the time of the purchase. See for example Sidameneo (No 456) v Alexander [2011] NSWCA 418 at [71]. But however far the exception may go, it cannot displace the fundamental principle that what the purchaser is entitled to protect is the goodwill purchased.
7. Counsel for DXC Eclipse pointed out that the parties had agreed in the contract that the restraints were reasonable so as to protect DXC Eclipse's interests as purchaser. There may be some debate about the extent to which such a clause is relevant to the Court's assessment of reasonableness. But on any view I think it can have no weight in the present case, where the construction of the clause was contestable.
8. Counsel for Mr Wildsmith referred to authorities in which it has been stated that where there are separate non-solicitation restraints, then the burden of justifying the reasonableness of a competition restraint becomes greater: Stenhouse Australia Ltd v Phillips [1974] AC 391 at 403; Stacks Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 at [62]. But in my view such reasoning must be approached with caution in the present case.
9. The authorities on which counsel relied are employment restraint cases. In such cases, it is the non-solicitation which represents the core interest of the employer. Non-competition restraints are only justified as a matter of expediency because of the practical difficulties in enforcing solicitation restraints: John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 at [46].
10. But it is different for a purchaser who obtains a restraint from a vendor. In such a case the principal interest protected is against competition with the business which is the subject of the purchase. Non-solicitation restraints only protect this interest in more particular ways. I find it difficult to see why the reasonableness of a general restraint against competition should be affected because the purchaser has gone to the trouble of obtaining separate specific covenants against solicitation.
11. In the present case, there are at least two aspects of the reasonableness enquiry. One is the scope of the restraint. The other is its duration. I will deal with scope first. The question is whether a restraint on Mr Wildsmith from being interested in a business of selling software solutions based on BC has been shown to be reasonably necessary to protect DXC Eclipse's interests.
12. Counsel for DXC Eclipse accepted that at the time of the purchase Sable37 did not sell NAV/BC. But counsel emphasised the provisions of the information memorandum which refer generically to the "Dynamics 365" technology. Counsel also referred to the provisions referring to cloud-based development. In counsel's submission, this language was wide enough to justify a restraint extending to all Microsoft ERP products (or at least, all cloud-based ERP products, of which BC is one).
13. In my view, this submission goes too far. The information memorandum was indeed framed in broad and generic terms. But at no point did it actually state that Sable37 sold, or planned to sell all of the Dynamics 365 products. In any event, the information memorandum was only the first document provided. The position was made clear in the due diligence report which identified the then business of Sable37 as consisting of Dynamics AX and Dynamics CRM. The reference to further revenue being available should clearly be understood in the same context. This was revenue that would be derived from existing customers through the upgrading of their existing systems so as to operate through the cloud. DXC Eclipse was clearly under no misconceptions about what it was buying.
14. Suppose DXC Eclipse had not been selling NAV/BC solutions, and decided to start doing so after the purchase of the Ex Sable37 Business. Could the sale of NAV/BC solutions be seen as deriving from the goodwill it had purchased? Clearly not. For reasons I have already given, it would have been a new line of business requiring new (or retrained) specialist staff.
15. I have already explained why I consider that Will Thirty Three's new business has not been shown to be competitive with the Ex Sable37 Business, insofar as it is based on F&O. But even if there were better evidence of competition in the area "underneath" F&O, that would not help DXC Eclipse. Any protectable goodwill it may have relevantly derives from Sable37's position as an existing vendor of F&O solutions. In my view that would not justify protection against competition in the space opened up by changes to, or developments of, F&O by Microsoft. In this case, the goodwill follows the product, for better or for worse.
16. In my view Mr Wildsmith's new ventures are quite different from the Ex Sable37 Business. Those ventures do, or will, directly compete with DXC Eclipse's pre-existing NAV/BC software solutions business. But that is not something against which DXC Eclipse is entitled to protection.
17. It follows that a restraint extending to the sale of solutions based on BC would be unreasonable in scope. DXC Eclipse's claim for an injunction based on the competition covenant fails for this reason also. It is not necessary to consider the duration of the restraint which DXC Eclipse seeks.

Supplier solicitation restraint

1. The solicitation restraint as it applies to suppliers is set out in clause 16.3(b)(a) and (b) of the Agreement, which provide as follows (emphasis added): 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, to cease doing business with the Relevant DXC Holdings Company (as applicable) or reduce the amount of business which the customer, client or supplier would normally do in respect of DXC Holdings or the Relevant DXC Holdings Company; (b) accept from a customer, client or supplier referred to in clause 16.3(b)(a) any business of the kind ordinarily forming part of the Business …
2. DXC Eclipse seeks an injunction based on the supplier solicitation covenant in the following terms (emphasis added): An order that, until 4 April 2025, the First Defendant is restrained from, in Australia, New Zealand, United Arab Emirates, India, the Philippines and United States of America from doing any of the following in any capacity, including on his 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: (a) directly or indirectly carrying on or being involved in the business of [Will Thirty Three] insofar or whilesoever the business of [Will Thirty Three] includes the resale or distribution of Microsoft Dynamics 365 products supplied to Optimum Consulting BC Pty Ltd by Microsoft; (b) being directly or indirectly involved in the acceptance by [Will Thirty Three] of supply by Microsoft to [Will Thirty Three] of any Microsoft Dynamics 365 products …
3. The proposed limb of the order in sub-paragraph (a) does not follow the wording of the covenant. Instead, it follows the wording of the competition covenant, in that it would restrain involvement in a business accepting supply from Microsoft. I assume that this limb of the order is put forward on the basis that, although not directly supported by the restraint, it is the only effective way in which the restraint could be made operative. As such, it gives rise to no issue of construction, but it does give rise to a question of reasonableness.
4. Limb (b) of the order is directly based on the wording of the restraint but limits the general wording of the restraint to a single supplier, Microsoft. It seems that Microsoft has recently reorganised its business model, with the result that Will Thirty Three would not deal directly with Microsoft to acquire BC product, but would instead deal with intermediaries who would in turn obtain supply from Microsoft. Given the views which I have reached, it is not necessary to explore further whether, under the new arrangements, Microsoft is properly described as a "supplier" to Will Thirty Three.
5. The evidence shows that Mr Wildsmith has a good reputation with Microsoft. When Mr Wildsmith announced his new venture he was approached by representatives of Microsoft with evident eagerness to see what he would be doing next, and to participate.
6. Nevertheless, there is no suggestion that Microsoft's dealings with Will Thirty Three would have any impact on its existing relationship with DXC Eclipse. The restraint clause contains a limb which applies to soliciting a supplier to cease supply to DXC Eclipse, but no injunction is sought in accordance with the terms of this clause. It is not suggested that dealings between Mr Wildsmith for Will Thirty Three and Microsoft would involve any appropriation of any know-how or confidential information relating to the Sable37 F&O business.
7. The injunction sought by DXC Eclipse is simply an indirect way of trying to prevent Mr Wildsmith from establishing his business based on BC by embargoing him from dealing with the supplier of the relevant product.
8. In my view, for reasons given, an injunction in this form is not reasonably necessary to protect the legitimate interests of DXC Eclipse. It has no sufficient relationship to the goodwill purchased by DXC Eclipse when it acquired the Sable37 business. Whether, if it did, the anti-competition limb of the proposed injunction would be justified as the only appropriate way of protecting such goodwill does not arise.

Employee solicitation restraint

1. The solicitation restraint as it applies to employees is set out in clause 16.3(b)(d) of the Agreement, which provides as follows (emphasis added): 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: … (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.
2. For the purposes of this covenant, the term "Relevant DXC Holdings Company" is defined as: any Related Body Corporate of DXC Holdings, including the Purchaser and any Subsidiary of the Purchaser, including the Sable37 Group Members.
3. DXC Eclipse seeks an injunction based on the supplier solicitation covenant in the following terms: An order that, until 4 April 2025, the First Defendant is restrained from, in Australia, New Zealand, United Arab Emirates, India, the Philippines and United States of America from doing any of the following in any capacity, including on his 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: … inducing or attempting to induce any person who was at 4 April 2018, or who later became: (i) an employee of Sable Systems Pty Ltd, or (ii) an employee DXC Technology Australia Holdings Pty Ltd or any of its related body corporate (including the plaintiff) whose role concerned (in whole or in part) the business of DXC Eclipse in the sale, implementation or support of solutions based on Microsoft Dynamics 365 products, to terminate his or her employment with that company.
4. DXC Eclipse's application for this injunction derives from an entry posted on his LinkedIn account following his decision to establish his new venture through Will Thirty Three. The evidence did not establish the precise nature of LinkedIn but I understand it to be an electronic platform which allows an account holder to post messages which may be read by the account holder's contacts or others who are invited or permitted to do so. The post in question read: I am pleased to advise that our new venture, Will Thirty Three is underway. … Using some of the brightest and most experienced minds in the industry, we're building a transformative approach. If you are interested in joining us and share this mind set for change please email us on [XX].
5. I think there is a real question about whether this post gives rise to a sufficient apprehension of breach of the restraint to justify an injunction. The restraint only applies to solicitation when that solicitation reaches the point of trying to persuade employees of the relevant DXC companies to leave their current employment. It does not purport to, and could not reasonably, extend to prohibition on accepting employees who leave their employment voluntarily. The post is not an offer and is barely even an invitation to treat. But in the end it is not necessary to reach a final conclusion on this.
6. The fundamental difficulty with DXC Eclipse's case is reasonableness. I can deal with that issue by focussing only on employees of Sable Systems. DXC Eclipse cannot prevent its employees being solicited by others in the IT industry. No doubt the labour market in that industry is highly competitive. I simply do not see why it is reasonably necessary, in order to protect the goodwill of a business purchased in 2018, to restrain Mr Wildsmith from soliciting employees who only joined the business after that date. The same conclusion applies a fortiori to employees of other companies in the same corporate group as DXC Eclipse.

Conclusions and orders

1. I have concluded that each of DXC Eclipse's claims for an injunction fails. The result is that DXC Eclipse's claim will be dismissed. The interlocutory orders against Mr Wildsmith (see [17]-[19]) will be discharged. If Mr Wildsmith wishes to pursue a claim based on DXC Eclipse's undertaking as to damages, he may do so. I will, however, defer making orders to give DXC Eclipse's legal representatives an opportunity to consider the judgment and decide whether they wish to seek a stay, pending appeal, of any of my orders.
2. Upon delivery of the judgment, the proceedings will stand adjourned for a short period of time to allow a minute of order to be drawn up reflecting my conclusions. That minute of order should also deal with costs, and any question of a stay, to the extent that that can be agreed. If it cannot, I will hear argument. I also invite the parties to identify any errors in the judgment, or any points I may have missed. [12]
3. The orders of the Court are: 1. Adjourn the proceedings to 9:30 am on 7 October 2022 or such other time as may be arranged with my Associate. Direct that the parties confer on the form of orders to be made to give effect to this judgment and to deal with costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.

Endnotes

1. This is an over-simplification. See [69] below, as footnoted.
2. This is an over-simplification. DXC Eclipse offered other Dynamics products, including F&O. But Sable37 was the market leader in F&O and CE and that was what DXC Eclipse wanted to acquire.
3. Mr Paff did state that, although he had not himself seen F&O implemented for less than $500,000, the "grey area" between BC and F&O (see [81] below) might begin at around $400,000.
4. The documents required were limited to proposals from 1 July 2021 onwards to new or prospective customers (that is, excluding existing customers).
5. This is an overstatement. In closing submissions, counsel for DXC Eclipse referred to five documents which were said to show the products being "compared". Only one of those is addressed in the remainder of the paragraph. I could not discern the comparison from two of the remaining references, but there is one dated 12 July 2022 which shows implementation costs for both products (the cost range for BC was $275,00 to $425,000; the cost range for F&O was $1.5 to 2 million). Counsel also referred to affidavit evidence of Mr Walsh and Mr Dickinson. Mr Walsh stated that presentations to customers of solutions based on both products for them to choose had occurred, to his knowledge, "on a number of occasions". In a later affidavit he gave a specific instance of that happening. Mr Dickinson said there were "cases" in which it happened but did not give any specifics.
6. Mr Wildsmith will, however, be free of any restraints in April 2025 and sees an "upside" in his ability to approach former employees of Sable37, or to sell F&O solutions, from that point onwards.
7. This represents Mr Wildsmith's current intention. After April 2025 he may sell F&O (or CE): see the footnote at [103] above.
8. Counsel submitted, in the alternative, that BC is a "future" or "derivative" Dynamics 365 product. There is, however, no need to consider this: see [119] below.
9. In closing submissions, counsel for DXC Eclipse referred in passing to evidence from Mr Pickering of a discussion with Mr Wildsmith at some point in which Mr Wildsmith complained about the term of the restraint and Mr Pickering advised him that the term was not negotiable and any negotiation needed to focus on the "definition of business". Counsel noted that Mr Wildsmith stated in response that he did not recall such a conversation and would have recalled it if it had happened. The submissions continued by referring only to the drafting correspondence.
10. Counsel for DXC Eclipse pointed out that, at the time of the purchase of Sable37 by DXC Eclipse, Sable37 had customers using AX who were not going to be able to upgrade to Dynamics 365 F&O. Such customers might instead have been upgraded to the cloud via BC (this in fact was one of the advantages of the purchase identified by DXC Eclipse, because DXC Eclipse's existing business could allow that upgrade via NAV/Great Plains/Tenerife). In that sense a business selling BC could have been described as having been, at the date of purchase, potentially competitive with Sable37's business to the extent that it was then still based on AX. But any such upgrades have presumably now taken place, and the point seems to me irrelevant to the Ex Sable37 Business as it is now being conducted.
11. In closing submissions, counsel for DXC Eclipse submitted, based on what Sackar J said in Employsure at [342], that competition between businesses exists if there is competition between one part of one business and part of the other. I have not overlooked that submission. The point I am making is that the overlap must be substantial enough to affect the business protected by the restraint as a whole.
12. This has now been done. Counsel for DXC Eclipse submitted a note setting out various errors and points which they contended had been missed. The errors have been corrected by revising the body of the judgment and the points missed are dealt with in footnotes.

Amendments 10 October 2022 - Revised and annotated judgment 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: 10 October 2022