DXC Eclipse Pty Ltd v Wildsmith

Background

1. DXC Eclipse is a Microsoft business software solutions company. It is part of a multi-national group of companies (DXC Group) and is an indirectly wholly owned subsidiary of DXC Technologies Australia Holdings Pty Ltd. Prior to its acquisition of Sable37, DXC Eclipse specialised in the supply of a product known as "NAV", or "Dynamics NAV".
2. Sable37 was a Microsoft software solutions business. It was owned by Sable Systems, as trustee for the Sable Systems Unit Trust (Sable Systems Trust). OKC held one third of the units in the Sable Systems Trust.
3. Sable37 originally specialised in the supply of a Microsoft product, which was more advanced than NAV, called "AX" or "Dynamics AX", alongside software called "CRM" or "Dynamics Customer Relations Management".
4. As noted above, prior to its acquisition by DXC Eclipse, Mr Wildsmith was the "Global Managing Director" of Sable37 and was well-known for his expertise in the field and for his relationship with Microsoft.
5. The NAV and AX software which were supplied by DXC Eclipse and Sable37 respectively are "Enterprise Resource Planning" (ERP) products, as opposed to "Customer Relations Management" (CRM) products. Put most simply, ERP software is used to deal with internal accounting, manufacturing and record-keeping, while CRM software is used to support business' dealings with their customers.
6. Before installation, both ERP and CRM software can be customised to suit business' needs by incorporating "add-ins" and "add-ons". An "add-in" refers to a process by which software is customised through supplementary computer code. An "add-on" refers to the supplementation of software with additional modules that perform additional functions.
7. The process of customising software with add-ins and add-ons and then installing it for customers is referred to as the supply of a "software solution". Software solutions are supplied by businesses, such as DXC Eclipse, Sable37 and Will Thirty Three, who are referred to as "value added resellers".
8. Both AX and NAV were originally "on premises" ERP software. This meant that customers were provided with a licence and the software was installed on the customers' own servers. However, in July 2016, Microsoft announced its cloud-first, internet-based strategy for its business applications by announcing "Dynamics 365" or "D365".
9. In October 2016, AX (the Sable37 product) was rebranded as "Dynamics 365 for Operations" and again in July 2017, as "Dynamics Finance and Operations" (F&O). Similarly, Dynamics CRM was relaunched as "Dynamics 365 Customer Engagement" (CE).
10. Prior to its acquisition by DXC Eclipse, Sable37 specialised in the supply of solutions based on F&O and CE, alongside its AX offering.
11. The purchase of Sable37 by DXC Eclipse followed a marketing campaign launched in 2017. The sale and negotiations were handled by KPMG. In the Information Memorandum prepared by KPMG in relation to the sale of Sable37 (which is referred to as "Bluejay" throughout), its business was described generically in the following terms: "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 D365 platform … ● 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"
12. Bluejay (Sable37) was also described as "leading the industry transition and embracement of cloud" and as an "early adopter of the D365 platform and Microsoft's strategic cloud-based vision." The Information Memorandum also recorded that: "Microsoft has awarded Bluejay 2017 Global ERP Partner of the Year - Runner Up (Worldwide Award) and Inner Circle Partner (placing Bluejay in the top 1% of Dynamics Partners in the world). Bluejay is the only Australian business to be included in Microsoft's list of Top 20 Global Partners. Microsoft provides Bluejay with sales incentives, promotions and special offers to drive revenues, as well as customisable marketing materials to promote their solutions, one-on-one advisory sessions, and assistance with transitioning Bluejay and its customers into the cloud. … Bluejay is the fastest growing D365 partner in the Asia Pacific region and consistently recognised in top 1% of Microsoft partners globally … Cloud is an exciting and highly profitable strategy. Bluejay has worked closely with its customers considering this transition. … ● Bluejay currently has a pool in excess of 161 customers globally ● Given the announcement by Microsoft was made in July 2016, Bluejay has made significant progress in educating its client base on the benefits of cloud and is leading the industry in transitioning clients ● This positions Bluejay well for future cloud based projects, given it has accumulated experience, and can leverage its existing knowledge of its clients business and systems"
13. The primary judge noted that the Information Memorandum was "framed in broad and generic terms". His Honour went on to observe, however, that "at no point did it actually state that Sable37 sold or planned to sell all of the Dynamics 365 products": PJ [171]. Rather, the primary judge indicated that the position was made clear in a Due Diligence Report, also prepared by KPMG but provided only to prospective purchasers, in which Sable37's "Key products and services" were described more specifically as: "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 … 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"
14. Non-binding offers to purchase Sable37 were first made by DXC Eclipse in November 2017. DXC Eclipse then entered negotiations concerning the terms of the SPA. Several draft agreements were exchanged between the parties between November 2017 and April 2018.
15. On 2 April 2018, Microsoft launched "Microsoft Dynamics 365 Business Central" (BC), a cloud-based version of NAV. It was common ground between the parties that, when the SPA was entered into on 4 April 2018, Sable37 did not offer BC based software solutions.
16. After the SPA was signed, DXC Eclipse merged its business with that of Sable37, supplying solutions based on AX, F&O and CE which previously lay within Sable37's area of speciality. The supply of these products was seen as complementing, rather than competing with, DXC Eclipse's supply of solutions based on NAV. The merged business never offered solutions based on BC.
17. In an Affidavit of 15 May 2022, Mr Stuart Dickinson (General Manager of DXC Eclipse) deposed to the fact that after BC was rebranded, Microsoft Dynamics 365 comprised a "suite of business applications", namely: "(a) Dynamics 365 Sales; (b) Dynamics 365 Customer Service; (c) Dynamics 365 Field Service; (d) Dynamics 365 Remote Assist; (e) Dynamics 365 Marketing (f) Dynamics 365 Customer Insights; (g) Dynamics 365 Commerce; (h) Dynamics 365 Fraud Protection; (i) Dynamics 365 Connected Spaces; (j) Dynamics 365 Finance; (k) Dynamics 365 Business Central (Business Central); (l) Dynamics 365 Project Operations; (m) Dynamics 365 Supply Chain Management; (n) Dynamics 365 Intelligent Order Management; (o) Dynamics 365 Guides; (p) Dynamics 365 Customer Voice; and (q) Dynamics 365 Human Resources."
18. Mr Dickinson also deposed to the fact that while F&O comprised several core modules or programs from the Dynamics 365 suite, principally Dynamics 365 Finance, Dynamics 365 Project Operations, Dynamics 365 Supply Chain Manager and Dynamics 365 Intelligent Order Management, BC was a "standalone all-in-one ERP solution". The primary judge held at PJ [74]-[75]: "…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. 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."
19. When cross-examined at first instance, Mr Phillip Walsh (Chief Business Architect for DXC Eclipse) described the supply of BC, F&O and CRM as each requiring different certifications and training. The significance of this matter was highlighted in the course of arguments by Dr Higgins SC who appeared for Mr Wildsmith, as will be seen further below.
20. Following execution of the SPA in early April 2018, Mr Wildsmith managed DXC Eclipse's merged business in his capacity as "ANZ Director - Microsoft" until his resignation in July 2021. The terms of his employment were governed by an Employment Contract dated 27 March 2018, which also included separate non-solicitation and non-competition restraints. Mr Wildsmith was subject to a one year minimum term of employment alongside a six month non-compete period by cl 29.4 of his Employment Contract.
21. On 21 December 2021, following his resignation from DXC Eclipse, Mr Wildsmith incorporated Will Thirty Three, a business focused on the supply of software solutions based on BC. In February 2022, he was appointed to the board of Sentient Dynamics Pty Ltd (Sentient), a business specialising in the supply of add-ins and add-ons using Power Platform, a suite of programming tools that could be used either alone or in conjunction with Microsoft's other software such as BC. When Mr Wildsmith announced the establishment of Will Thirty Three, he was approached by representatives of Microsoft and met with them in February 2022 to discuss his new venture. In email correspondence with those Microsoft representatives, Mr Wildsmith described the business of Will Thirty Three as exploiting a gap in the market "in the high end of the BC opportunity underneath D365 F&O".
22. The primary judge explained that Mr Wildsmith's new venture effectively involved two elements: first, that Will Thirty Three would sell BC solutions (and that it had no intention to sell F&O or CE); secondly, that Will Thirty Three would be able to team with Sentient which could produce add-ins and add-ons to supplement the BC solutions being produced by Will Thirty Three: PJ [103]-[105].
23. When launching Will Thirty Three on LinkedIn, Mr Wildsmith also made a post which included the following: "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]."

The SPA and restraints

1. Before the primary judge, DXC Eclipse alleged that the Respondents' new venture was in breach of both non-competition and non-solicitation covenants in the SPA. As such, it sought injunctive relief to restrain Mr Wildsmith and OKC from pursuing those ventures.

The Non-Competition Covenant

1. Clause 16.1(c) of the SPA provides: "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." (emphasis added)
2. "Competing Business" is defined in cl 16(1)(a)(b) as "any business or operation competitive with the Business".
3. "Business" is defined in cl 1.1 as meaning: "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)." (emphasis added)
4. The "Seller Restraint Period" refers to a cascading series of time periods which commenced from 4 April 2018 (the Completion Date) and which range from seven years to one year. At the time that Will Thirty Three was incorporated (21 December 2021), three and a half years had passed since the Completion Date and more than four and a half years had passed by the time the primary judgment was delivered.
5. The "Restraint Area" is a cascading series of geographical areas from the entire world down to a more confined area including New South Wales, Queensland, Victoria, Western Australia and South Australia.
6. Clause 16.4 of the SPA, headed "Acknowledgements", provides: "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 purchase and any Relevant DXC Holdings Company Interest."
7. It was argued before the primary judge that Will Thirty Three was a "Competing Business" either: 1. directly because it was a business based on the supply of BC, a "Microsoft Dynamics product" or a "future, successor, or derivative product" within the meaning of the SPA; or 2. indirectly because, even if it was not a business based on the supply of a "Microsoft Dynamics 365 product" within the meaning of the SPA, it was a business based on the supply of BC which was competitive with a business based on the supply of F&O which plainly was a "Microsoft Dynamics Product" which Sable37 supplied as at the Completion Date.
8. Consequently, DXC Eclipse sought an injunction in the following terms: "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."
9. It may be observed that the injunctive relief sought was effectively for the maximum temporal restraint period (seven years from the Completion Date). The restraint area sought in the injunctive relief was the second broadest area nominated in cl 16.1(b)(b) of the SPA, namely Australia, New Zealand, United Arab Emirates, India, Fiji, the Philippines and the United States.
10. Given that the business of Will Thirty Three is premised on the supply of BC, the primary judge proceeded on the basis that BC would be specifically identified as a "Microsoft Dynamics 365" product in the terms of the injunctive relief sought: PJ [114]-[115].

The Non-Solicitation Covenants

1. Sub-subclauses (a), (b) and (d) of subclause 16.3(b) of the SPA provide that: "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 … (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." (emphasis added)
2. DXC Eclipse contended before the primary judge that, by meeting with Microsoft in relation to Will Thirty Three and making the LinkedIn post set out at [38] above, there had been a breach of the non-solicitation covenant sufficient to warrant the grant of injunctive relief, 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: (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 …" Again, the relief was sought for the maximum restraint period and the second broadest restraint area set out in the non-solicitation covenant.
3. A further injunction was also sought in relation to the employee non-solicitation covenant: "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."

Sellers' Warranties

1. Before leaving the terms of the SPA, cl 4.4 of Schedule 1 to the SPA should be noted. It draws on the definition of Business in a way that the Respondents contend can only be consistent with the construction of that term favoured by the primary judge and which focuses upon the specific Microsoft products used by Sable37 as at the Completion Date. Clause 4.4 provides: "4.4 No activities other than Business The Sable37 Group has not at any time conducted any commercial activities or business other than the Business."

Restraints of Trade Act 1976 (NSW) (the Act)

1. It was common ground between the parties that the non-competition and non-solicitation covenants are restraints of trade, the enforceability of which is governed by the Act.
2. Section 4 of the Act, headed "Extent to which restraint of trade valid", provides that: "(1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. (3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order. (4) Where, under the rules of an association, a person who is a member of the association is subject to a restraint of trade, the association shall, for the purposes of subsection (3), be deemed to have created or joined in creating the restraint. (5) An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect."
3. In Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 (Isaac), Gleeson JA provided the following summary relating to the correct approach to the application of s 4(1) of the Act: "[61] The correct approach to the application of s 4(1) of the Restraints of Trade Act is well settled. In Orton v Melman [1981] 1 NSWLR 583 at 587 McLelland J (as his Honour then was) explained that first, the Court determines whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed. Next, the Court determines whether the restraint, so far as it applies to that breach, is contrary to public policy. If it is not, the restraint is valid, subject to any order which may be made under s 4(3). These principles have been approved in later cases including in this Court: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 328; Woolworths Limited v Olson [2004] NSWCA 372 at [42]-[44]; Jardin and Jardin Investments Pty Ltd v Metcash Ltd and Metcash Trading Ltd [2011] NSWCA 409 at [87]. [62] The effect of s 4(1) of the Restraints of Trade Act is to require, for the purpose of determining the validity of a restraint, that attention be focussed on the actual or apprehended breach, rather than on imaginary or potential breaches: Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [10] (Brereton J). [63] The validity of a covenant in restraint of trade is to be judged at the date of its creation: Lindner v Murdock's Garage at 653 (Kitto J); Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40 at 318 (Gibbs J); Geraghty v Minter (1979) 142 CLR 177; [1979] HCA 42 at 181 (Barwick CJ). Nonetheless, the Court may take into account future events that could have been foreseen: Lindner v Murdock's Garage at 653. Hence, when exercising its discretion whether or not to grant relief, the Court considers matters as at the date of the hearing: Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [70] (Young JA, Beazley and Basten JJA agreeing); Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 at [88]; (2008) 175 IR 414 at 440 (Brereton J). [64] The nature of the interest meriting protection under a covenant in restraint of trade will differ according to the type of restraint under consideration. In Tullett Prebon (Australia) Pty Ltd v Purcell, a case involving restraints in an employment case, Brereton J said at [47]: Whether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest. A covenantee is not entitled to be protected against mere competition; the legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter [Vandervell Products Ltd v McLeod [1957] RPC 185; Tank Lining Corporation v Dunlop Industries Ltd (1982) 40 OR (2d) 219; 140 DLR (3d) 659 at 664], including trade secrets and confidential information, and goodwill including customer connection. [65] However as Young JA explained in Sidameneo (No 456) Pty Ltd v Alexander at [31]-[32], the word "proprietary" is used in a special sense and will include legitimate commercial interests. In this regard, his Honour referred to the view he had expressed in Twenty-First Australia Inc v Shade (Supreme Court (NSW), Young J, 31 July 1998, unrep) and Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 at 612-613. [66] "Goodwill" has been described as a rather elusive concept: Sidameneo (No 456) Pty Ltd v Alexander at [54]. Goodwill has been referred to as the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to it: Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; [1998] HCA 42 at [24]. It has been said that it is more accurate to refer to goodwill as having sources than being composed of elements, given that goodwill is to be seen as adding value to a business "by reason of" situation, name and reputation, and other matters, not because goodwill is composed of such elements: Federal Commissioner of Taxation v Murry at [24], citing Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217 at 235 (Lord Lindley). It has also been recognised that many of the sources of goodwill are not themselves property, nor assets for accounting purposes: Federal Commissioner of Taxation v Murry at [25]."
4. In Belflora Pty Ltd v Vinflora Pty Ltd (2021) 106 NSWLR 67; [2021] NSWCA 178 (Belflora) at [46], Brereton JA observed that: "The identification of a legitimate protectable interest is fundamental; without one, no restraint is reasonable; and where one is established, it informs the extent of what is reasonable to protect it. The legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter, including trade secrets and confidential information, and goodwill including customer connection. It extends to information as to the identity of reliable suppliers, even though not such as to amount to a "trade secret" which would attract equitable protection in the absence of express agreement; and to connection with staff, so that "anti-poaching" covenants prohibiting a former employee from soliciting the employer's staff have been upheld. However, it is well-established that a covenantee is not entitled to protection against mere competition." (footnotes omitted)
5. On the question of onus of proof, Gleeson JA in Isaac made the following observations: "[75] One further matter should be mentioned. A question arises as to whether s 4(1) of the Restraints of Trade Act changes the onus of proof of unreasonableness at common law. The parties did not refer to s 4(1) before the primary judge, nor in their written submissions on appeal. Mr Isaac provided supplementary submissions, by leave, after the conclusion of the hearing on this issue. Mr Isaac submitted that s 4(1) of the Restraints of Trade Act 1976 (NSW) did not alter the position at common law. Dargan did not advance any submissions to the contrary. [76] In Idameneo (No 123) Pty Ltd v Angel-Honnibal [2002] NSWSC 1214 Palmer J expressed the view that s 4(1) did not alter the common law position. His Honour remarked at [45]-[48]: 45 In Herbert Morris Ltd v Saxelby [1916] 1 AC 688, it was held by Lord Atkinson (at 700) and by Lord Parker (at 707-8) that the onus of establishing that the restraint is reasonable as between the parties lies on the person seeking to enforce the restraint, while the onus of establishing that the restraint is contrary to the public interest lies on the person seeking to invalidate the restraint. That proposition has been widely accepted although it has been observed that the reason for apportioning onus in this way is somewhat obscure: see per Lord Hodson in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269, at 319E. The proposition seems to have been accepted without the necessity for comment by the High Court in Buckley v Tutty at 337. 46 These cases, however, were concerned with common law principles, unaffected by statute. In New South Wales, whether or not a restraint of trade is valid in any particular case is now determined by reference to the common law principles as modified by the operation of s.4(1) of the Restraints of Trade Act, 1976 (NSW). That subsection is in the following terms: … 48 Other than to enable the Court to "read down" the restraint of trade covenant to the particular breach alleged, s.4(1) adds nothing to the common law rules as to the validity of a restraint of trade clause. In particular, the section says nothing about who is to bear the onus of establishing reasonableness as between the parties and as to whether the restraint is in the public interest. I can see no reason why the apportionment of the onus of proof on these two issues, as laid down in Herbert Morris Ltd v Saxelby, should be regarded as altered in any way by the Restraints of Trade Act. This seems to have been accepted by the majority of the Full Court in Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157, at 181, where the majority acted on a concession from Counsel to this effect; it seems also to have been accepted by the Court of Appeal in Curro and Anor v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, at 344C. The remarks by Palmer J were referred to by Young JA with apparent approval in Sidameneo (No 456) Pty Ltd v Alexander at [82]. [77] A similar view has been taken in other first instance authorities that under the Restraints of Trade Act the person seeking to enforce the restraint has the onus to prove the circumstances from which reasonableness can, as a matter of law, be inferred: OAMPS Insurance Brokers Ltd v Hanna [2010] NSWSC 781 at [69]-[70] (Hammerschlag J); Veda Advantage (Australia) Pty Ltd v De Beer [2016] NSWSC 37 at [48] (Black J). [78] The reasoning of Palmer J has much attraction, however, as will appear, it is not necessary to determine this question for the disposition of the present appeal."
6. At first instance in the present case, the Appellant, as the party seeking to enforce the restraint, accepted that it bore the onus as to reasonableness. The Respondents did not introduce any evidence at first instance as to the unreasonableness of the restraints, either inter partes or in the public interest.
7. An issue arose in the course of the hearing of the appeal as to the correctness of the decision of Palmer J in Idameneo (No 123) Pty Ltd v Angel-Honnibal [2002] NSWSC 1214; [2003] ATPR 41-918 (Idameneo (No 123)) at [44] on the question of onus, it being posited that insofar as s 4(1) of the Act modified the traditional common law position, it was in fact the party seeking to assert the invalidity of a restraint on public policy grounds who bore the onus of establishing that the restraint was unreasonable.
8. Idameneo (No 123) and, more pertinently, the decision of the Court of Appeal in Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [82], had not been formally challenged in the proceedings at first instance. Dr Higgins opposed any challenge being raised for the first time on appeal on the basis that her clients may have led evidence challenging the reasonableness of the Restraint Period had it been signalled at first instance that the Appellant did not accept that it bore the onus on the question of reasonableness.
9. There was force to this submission in my view (see Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12) and this appeal should be determined on the basis that it was fought at first instance, namely that DXC Eclipse bears the onus of establishing the reasonableness of the restraints which it seeks to enforce.

Primary judgment

1. The primary judge considered the non-competition, supplier solicitation and employee solicitation restraints in turn.
2. At PJ [115], his Honour identified the two questions which he saw as arising in relation to the non-competition restraint as: first, whether on its true construction, the non-competition restraint extended to software solutions based on BC; second, whether, if it did, the restraint was reasonable.

Construction of the definition of "Business"

1. The primary judge first contemplated whether Will Thirty Three, a business based on the supply of BC, was a "Competing Business" such that the Respondents could be considered to have breached the non-competition covenant in cl 16.1 of the SPA. This question turned predominantly on the meaning of "Business" in cl 1.1 of the SPA and, in particular, whether BC was a product "based on Microsoft Dynamics 365 technologies" or a "future, successor, or derivative" product.
2. The primary judge noted the argument that "Microsoft Dynamics 365 technologies" as referred to in the definition of "Business" should be read as not including BC, given that no such business based on the sale of BC solutions was being operated by Sable37 as at the Completion Date (April 2018). While it was accepted that "Dynamics 365" is a label placed on a bundle of products released by Microsoft which includes BC, his Honour found that the term must be understood in its contractual context. Importantly, the primary judge noted that the definition of "Business" in cl 1.1 begins by referring to the "business of the Sable37 Group as at the Completion Date [4 April 2018]": PJ [120]-[121]. His Honour said that, "These words in their natural meaning limit the reach of the definition to activities in fact carried out by Sable37 as at April 2018": PJ [121].
3. It was common ground between the parties that, when the SPA was signed, Sable37 was not supplying solutions based on BC. As such, the primary judge held at PJ [132] that: "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."
4. The difficulty with the "parenthetical words" in the definition of "Business" was identified as lying with the word "future". His Honour noted that a "successor" or "derivative" product readily related back to a product previously used, but that the same could not necessarily be said for the word "future": PJ [133]. This opened up the possibility that, although BC was not sold or incorporated in solutions sold by Sable37, nevertheless BC was a "future product" and thus part of Sable37's business. This possibility was described by the primary judge at PJ [134] as presenting 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."
5. The reference by the primary judge to "the initial words of the chapeau" were to the words "as at the Completion Date", which his Honour characterised as being in apparent tension with the notion of "future" products. The reference to the drafter having "perhaps, forgotten that the definition applied beyond the competition covenant" was to the fact that "Business" appears elsewhere in the SPA and the broad interpretation of "Business" urged by DXC Eclipse did not sit comfortably with its use in other parts of the SPA. His Honour at PJ [131] pointed especially to the double use of the term "Business" in the non-solicitation clause (see [50] above) as necessarily requiring reference to the business of Sable37 as it was actually conducted prior to April 2018.
6. The primary judge rejected DXC Eclipse's attempt to refer to evidence of the contractual negotiations between the parties which it submitted supported an interpretation of cl 1.1 of the SPA that did not limit the reference to Sable37's business to the particular Microsoft products with which Sable37 was dealing on 4 April 2018: PJ [144].
7. At PJ [142]-[143], his Honour referred to the well-known statement of Mason J in Codelfa Constructions Pty Ltd v State Rail Authority (1982) 149 CLR 337 at 352-353; [1982] HCA 24 (Codelfa) in relation to prior negotiations: "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. … 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." (emphasis added)
8. Although the primary judge held that the exception propounded by Mason J has been accepted at the intermediate appellate level, his Honour did not consider that the exception was engaged. This was primarily because, as in Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108; [2017] NSWCA 27 (Walker) at [114]-[120], the correspondence between the parties in relation to drafting changes did not establish why the changes were made or the vendor's actual agreement with them: PJ [145]-[149].
9. At PJ [148]-[149], the primary judge concluded as follows: "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. 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."
10. The Appellant submitted that it was implicit in these observations that his Honour effectively invoked Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 (Fitzgerald) to omit the words in the parenthesis in sub-para (a) of the definition of "Business", rather than reading them down.

Competition between F&O and BC

1. The primary judge also considered but rejected DXC Eclipse's alternative argument that, if BC was not a "Microsoft Dynamics 365 product" within the meaning of the definition of "Business" in cl 1.1, Will Thirty Three was still a "Competing Business" (and thus the non-competition covenant was engaged) because it is a business based on the supply of BC, a product which is competitive with F&O which formed part of the Sable37 business: PJ [150].
2. The primary judge heard competing expert evidence, although not all of the experts were independent. His Honour found the evidence of the Respondents' witness, Mr Paff, the most useful. At PJ [81], he quoted the following important extract from Mr Paff's Report: "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."
3. The primary judge ultimately found that BC and F&O products were different on a "technical level", had "separate origins", possessed different "features and pricing" and were "targeted at different sectors of the market": PJ [152]. Earlier in his judgment at PJ [78], the primary judge held that: "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. BC solutions can be much cheaper, in some cases costing less than $100,000."
4. His Honour accepted Mr Paff's evidence, however, that there was a "grey area" where customer needs could potentially be satisfied by either F&O or BC and that this area might be a target for Will Thirty Three: PJ [154]. His Honour nevertheless held at PJ [155] that, in order for the businesses to be competitive, the following threshold must be met: "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 (Veda) 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 (Employsure) at [342]). Because there must be competitiveness with "the Business", the overlap must be such as to affect … the Business as a whole."
5. In assessing whether the threshold had been satisfied, the primary judge made the following observations at PJ [156]-[157]: "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. 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."
6. His Honour concluded that the "evidence is lacking in the present case" and expressed himself as "not satisfied that Will Thirty Three is "competitive with" the Ex-Sable37 Business": PJ [158].

Reasonableness of the competition restraints

1. Although the primary judge found that there was no direct or indirect breach of the non-competition restraint, his Honour nonetheless went on to consider whether the restraint was reasonable in scope, on the assumption that it did extend to a business supplying software solutions based on BC: PJ [159].
2. His Honour held that reasonableness must be determined by reference to what was reasonably necessary to protect DXC Eclipse's legitimate interest in the goodwill purchased when it acquired Sable37: PJ [160]. His Honour at PJ [162] emphasised 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; [1973] HCA 40. Further, the threshold for the reasonableness of the non-competition restraint to be made out was held not to be higher because of the fact that the SPA also contains non-solicitation restraints: PJ [166]-[168].
3. The primary judge held that a restraint preventing Will Thirty Three from selling solutions based on BC could not derive from the goodwill purchased under the SPA. None of the information about the Sable37 business provided to DXC Eclipse suggested that Sable37 intended to, or did, supply solutions based on BC. Furthermore, Will Thirty Three was held not to be competitive with a business based on F&O and, even if it was, that "that would not justify protection against competition in the space opened up by changes to, or developments of, F&O by Microsoft": PJ [173].
4. Consequently, his Honour held that the scope of the non-competition restraint was unreasonable and, therefore, that it was unnecessary to consider the reasonableness of its duration: PJ [175]. As shall be seen below, the Respondents contended by Notice of Contention that the non-competition restraint was unreasonable as to duration, at least to the extent that it exceeded four years.

The non-solicitation restraints

1. With respect to the supplier solicitation restraint which was sought, and which is set out at [50] above, the primary judge held that there was no issue of construction, only reasonableness: PJ [178].
2. His Honour found that Microsoft's dealings with Will Thirty Three did not affect DXC Eclipse. Mr Wildsmith had not attempted to solicit Microsoft to cease dealing with DXC Eclipse nor did his dealings with Microsoft involve the appropriation of any confidential information: PJ [181].
3. Accordingly, it was held that an injunction in the form sought was not reasonably necessary to protect the interests of DXC Eclipse in that it had no relationship to the goodwill purchased. Rather, his Honour noted at PJ [182] that: "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."
4. In relation to the employee solicitation restraint, the primary judge noted that there was a real question as to whether the LinkedIn post made by Mr Wildsmith (see [38] above) reached the point of "trying to persuade employees of the relevant DXC companies to leave their current employment" such that there was a breach of the restraint in cl 16.3(b)(d) of the SPA: PJ [188].
5. His Honour held, however, that it was not necessary to resolve this as "the fundamental difficulty with DXC Eclipse's case is reasonableness": PJ [189]. The primary judge went on to hold that it was not reasonably necessary to protect the goodwill of the Sable37 business purchased in 2018 to restrain the Respondents from soliciting employees of a larger group of companies who only joined the business after the date of the SPA: PJ [189]. Although ground 7 of the draft Notice of Appeal originally challenged this conclusion, this ground of appeal was abandoned.

Grounds of appeal

1. There were seven grounds of appeal pressed by the Appellant. They can be summarised as follows: 1. that the primary judge erred in construing the non-competition restraint such that the Respondents' conduct was not in breach of the SPA either: 1. directly, because a business based on BC is a "Business" for the purposes of cl 1.1 of the SPA; or 2. indirectly, because a business based on BC is competitive with a business based on F&O; 1. that the primary judge erred in holding that the non-competition and non-solicitation covenants (insofar as it restrained the Respondents conduct in relation to Microsoft's supply to Will Thirty Three) were not reasonable; and 2. as a consequence of the other grounds of appeal, that the primary judge erred by not granting the injunctive relief sought.
2. The Respondents also filed a Notice of Contention in which they contend that the primary judge's decision could also be supported on the basis that the duration of the restraints, not just their scope, was unreasonable, especially because the restraints ran from the Completion Date (as opposed to Mr Wildsmith's departure from DXC Eclipse). Thus, DXC Eclipse had had the benefit of some four and a half years of absence of any competitive conduct by Mr Wildsmith and OKC, it being accepted that Mr Wildsmith was not in breach of any post-employment restraint under his Employment Contract with DXC Eclipse.

The Direct Application Argument - the parties' contentions

1. The Appellant submitted that the reference to the "business of [Sable37] as a whole as at the Completion Date" in cl 1.1 should not be construed as referring only to the Microsoft "products of Sable37" at that particular point in time. Instead, with reference to the way in which it was described in the KPMG Information Memorandum (various passages of which have been set out at [26]-[27] above), the Appellant proposed that the business of Sable37 extended beyond the supply of specific Microsoft products (namely, F&O, AX and CRM) and was concerned more broadly with the supply of Microsoft software solutions in an inherently dynamic and rapidly evolving software industry. It was put that the list of products provided by Sable37 detailed in the Due Diligence Report (see [328] above) should not be understood as a statement of Sable37's whole business but, rather, as a factual statement about the products which Sable37 was selling or developing solutions with on 4 April 2018.
2. If the business of Sable37 were construed in this broad fashion, the Appellant argued that the tension in the chapeau identified by the primary judge between, on the one hand, the reference to "as at the Completion Date" and, on the other hand, the reference to and isolation of "future" products in the parenthesis in sub-para (a) of the definition of "Business", would fall away. No ambiguity or inconsistency of the kind discussed in Fitzgerald could emerge by including "future, successor or derivative products", such as BC, within the meaning of cl 1.1 on their preferred construction.
3. In this context, the Appellant submitted that the decision of the Full Court of the Federal Court in Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111 at [32], which was relied upon by the primary judge, was invoked prematurely and should not have been used to override ordinary rules of construction. It was there said, in the context of a non-competition restraint, that: "The evident purpose of cl 14 is to protect HRX's legitimate interests rather than unnecessarily to restrain the future activities of Mr Pearson after the termination of his employment. Construed in this way, the definition means a business which might pose a real commercial threat to HRX if it had the benefit of Mr Pearson's intimate knowledge."
4. Given that there was a construction of cl 1.1 available which did not give rise to ambiguity, it was submitted that it was unnecessary for the primary judge to have read down or ignored the words in the parentheses of the definition of "Business" on the basis that they gave rise to a result which was not "consistent with the purpose of the restraint": PJ [129].
5. Furthermore, the Appellant submitted that, even if there was ambiguity, the factual premise upon which Pearson was invoked was incorrect. If the business of Sable37 had been understood more broadly as concerning the supply of software solutions, not merely the particular products with which it was dealing on 4 April 2018, then there was a commercial purpose in protecting that wider business against competition which was not limited to protection against competition associated with a list of products frozen in the past.
6. In response, the Respondents submitted that the business of Sable37 could never have encompassed the supply of solutions based on BC. This is because BC and F&O, more than being different Microsoft products, rely on different computer languages, certification, licencing and training such that Sable37's business, even on the broad construction contended for by the Appellant, could never be taken to have involved competence in selling solutions based on BC. Relying on the Due Diligence report, the Respondents submitted that there was no evidence that the business of Sable37 was wider than the particular products with which it was dealing on 4 April 2018.
7. Furthermore, the Respondents submitted that, if the Appellant's preferred construction of the business of Sable37 were adopted, this would generate ambiguity elsewhere in the SPA where the term "Business" is used, including in the non-solicitation restraints. They pointed especially to the warranty in Schedule 1, cl 4.4 of the SPA that: "The Sable37 Group has not at any time conducted any commercial activities or business other than the Business" submitting that "Business" as there used must be a reference to Sable37's existing business necessarily confined to the actual Microsoft Dynamics technologies with which it dealt as at, and before, the Completion Date. As such, the Respondents argued that the primary judge was correct to find that ambiguity arose with respect to the use of the word "future" in the parentheses in the definition of "Business" in cl 1.1, thereby warranting the reading down of the word "future".
8. It was also submitted by the Respondents that the primary judge was correct to read down the words in the parentheses such that, in accordance with Pearson, the non-competition restraint was construed in a manner consistent with its commercial purpose.
9. Although it was not entirely clear as to the precise manner in which the primary judge had either read down or omitted the words in the parentheses in the definition of "Business", it was submitted that the primary judge had read the term "future" in a manner anchored only to the future manifestations of those products with which Sable37 was dealing at the time the SPA was executed. In this sense, the reference to "future" products aligned with "successor" or "derivative" products, the other words used in the parenthesis in sub-para (a) of the definition of "Business". If the words were not read in this manner, the Respondents contended with some force that the restraint would attach to the universe of consulting and development activities associated with the entirety of the list of Microsoft 365 technologies referred to at [32] and all "future" manifestations of those products. On their submission, such a construction lacks any meaningful connection to the business of Sable37, given the limited range of products with which it was actually dealing and thus, could not be adopted.
10. The Appellant also submitted that if the ambiguity pointed to by the primary judge still arose on the Court's construction of cl 1.1, then it ought to have been resolved with reference to evidence of the SPA negotiations. It was submitted that the primary judge erred in finding that those negotiations did not support the existence of "mutual concurrence" between the parties such that they were admissible pursuant to an exception to the parol evidence rule set out in Codelfa.
11. It was the Appellant's argument that the contractual negotiations, when read alongside the oral evidence of Mr Wildsmith, have the character of an explicit agreement between the parties that the definition of "Business" should not be harnessed to the particular point in time products with which Sable37 was dealing. It was thus put that the negotiations were not merely indicative of the ebb and flow of, or evolving character of, a commercial and highly complex agreement and, in this sense, were distinguishable from those in Walker.
12. In response, the Respondents submitted that the primary judge correctly found that the emails to which the contractual drafts were attached, even when read alongside the evidence of Mr Wildsmith and other witnesses, disclosed no reason for the changes that were being made to the SPA and left open the possibility that the parties had very different understandings of the definition of "business" in cl 1.1 such that mutual concurrence in the Codelfa sense was not made out.
13. It was the Respondents' submission that, if every draft version of an agreement exchanged which differed from its predecessor were admitted as evidence of mutual concurrence, what has always been regarded as an extremely narrow exception to the parol evidence rule would be drastically expanded.

The Direct Application Argument - consideration

1. Both parties' submissions before the primary judge as to the proper construction of the definition of "Business" in cl 1.1 of the SPA were at either end of a spectrum: the Respondents, insofar as they sought to confine the definition only to the Dynamics 365 products with which Sable37 was dealing at the time the SPA was entered into; the Appellant insofar as it contended that the Sable37 business, as defined, extended to all Microsoft Dynamics products and all future such products. That last contention was, on any view, too broad.
2. Insofar as the primary judge said at PJ [134] that "the result is a choice", I do not consider that it was a binary one and as between the two extreme positions presented at first instance. The definition is concerned with the actual "business of the Sable37 Group as a whole as at the Completion Date." It may readily be concluded that the business went beyond the sole use of two Microsoft Dynamics 365 technologies actually dealt with by Sable37 and extended to consulting, developing, supporting, and training in respect of information products and services that were themselves based upon Microsoft Dynamics 365 technologies: see sub-para (a) of the definition of "Business". This recognises that Sable37's business was as a "value added reseller".
3. The focus of sub-para (a) of the definition is on various types of work "based around information, products and services based upon Microsoft Dynamics 365 technologies". These "products" and "services" must have been identifiable and capable of identification, not least because the warranty clause in cl 4.4 of Schedule 1 required them to be in order for it to be commercially effective, as did the non-solicitation restraints. Accepting this, the key issue of construction relates to the words, "(and future, successor or derivative Microsoft Dynamics 365 products, services and technologies)" in sub-para (a) of the definition of "Business".
4. A "successor" or "derivative" Microsoft Dynamics 365 product is one which succeeds (in the sense of being the next iteration of "an existing product") or derives from an existing Microsoft Dynamics 365 product. The definition thus captures successor and derived products which have some connection with products used by Sable37 as at the Completion Date. By way of contrast to the words "successor" and "derivative", the element of some connection with a currently used product is not inherent in the word "future". However, its construction is informed by the context in which it appears, alongside "successor" and "derivative". The use of the word "future" in parentheses in sub-para (a) of the definition of "Business" may, thus, reasonably be construed as referring to successor or derivative products which emerge in the future, that is to say, subsequent to the Completion Date, but which still bear the requisite connection with those Microsoft Dynamics 365 products or services in actual use by Sable37 as at the Completion Date.
5. While this construction may, on one view, have a degree of redundancy to it, it gives meaning to the words in parentheses in sub-para (a), recognises that a business may include an element of potentiality (just as the concept of goodwill may involve an element of prospectivity), does not require a Fitzgerald reading out of the word "future" in the definition of "Business" in the SPA, and gives effect to the commercial need to be able to identify what comprised the Business as at the Completion Date.
6. To the extent that the Appellant sought to repeat its attempt to introduce evidence of the parties' commercial negotiations, pursuant to the Codelfa exception to the parol evidence rule, and criticized the primary judge for not admitting the material, the primary judge was, in my opinion, correct to reject that material for the reasons he gave.
7. It follows that, albeit for slightly different reasons, I agree with the primary judge's conclusion that BC was not a "future, successor or derivative" of the Microsoft Dynamics 365 products used in the business of Sable37 within the meaning of "Business" in the SPA, and that it did not form part of "the business of the Sable37 Group as a whole as at the Completion Date".

The Indirect Application Argument - the parties' contentions

1. With respect to the Indirect Application Argument, the Appellant submitted that even if a business based on BC did not fall within the definition of "Business" in cl 1.1 of the SPA, the primary judge erred in not finding that the conduct of the Respondents was nonetheless in breach of cl 16.1, particularly cl 16.1(c)(b), in that the business of Will Thirty Three (being a business based on the supply of BC solutions), in partnership with Sentient, was competitive with Sable37's F&O business, and thus a "Competing Business".
2. It was accepted that the real issue was not whether there was any competition, but whether the level of competition was sufficient to meet the tests articulated in Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37 (Veda) and Employsure Ltd v McMurchy [2021] NSWSC 1179 (Employsure). Mr Neil SC, who appeared for the Appellant, submitted orally that "the existence of that acknowledged grey area of overlap satisfied that test of competition for the purpose of this contract."
3. In Veda at [28], Black J, citing Sea Containers Ltd v ICT Pty Ltd (Supreme Court (NSW), O'Keefe J, 27 October 1994, unrep), accepted that: "a competitor, in ordinary usage, may include an entity that sells similar products to a second entity so as to compete with it seriously (JD Heydon, The Restraint of Trade Doctrine, 3rd ed 2008, LexisNexis Butterworths at 305) or which is operating or about to operate a business in competition with a second entity (ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 661) or which might pose a real commercial threat to the first entity (Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111; (2012) 205 FCR 187 at [32], [44]) or where there is 'substitution between the products and sources of supply' of the two entities (John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 at [18])."
4. In Employsure at [343], Sackar J indicated that he had found Black J's discussion in Veda of value and also referred with approval to McDougall J's observation in News Life Media v Janeke [2016] NSWSC 1835 at [39] that "in assessing the question of competition, it is necessary to look at the extent to which there is competition in some particular market."
5. First, the Appellant submitted that the primary judge had misstated and misapplied the test for competition with the result that the threshold was overstated and ought to have been satisfied by the existence of a "grey area" where a customer's needs could be met by either BC or F&O. In particular, it was put that the primary judge had failed to emphasise that the real test was, with respect to Veda, whether Will Thirty Three "might [as opposed to will] create a real competitive threat" and, with respect to Employsure, whether there was "some" overlapping segment of economic activity.
6. The Respondents' contention was that the primary judge's omission of the qualifying words when stating the tests for competition in Veda and Employsure was a semantic point. It was their submission that the substance of the primary judge's reasoning suggests that the test was not overstated. In support of that submission, the Respondents emphasised the primary judge's findings in PJ [74]-[75], set out at [33] above. In oral argument, Dr Higgins also highlighted the following paragraph of Mr Wildsmith's affidavit evidence: "A developer who knows how to develop and use AX.APT A/Microsoft Dynamics 365 F&O will not be skilled to develop and use Business Central, and vice versa. The underlying technology of the products is fundamentally different. Microsoft Dynamics 365 F&O is developed in X++ code. This is a code and coding method that was unique to AX.APT A. Business Central is developed with Al coding. That development language is specific to Navision. The core cods/development languages are entirely different between the products."
7. Second, the Appellant submitted that, in assessing whether the threshold was met, the primary judge erred by understating the extent of the overlap between solutions based on BC and those based on F&O. It was submitted that this arose because the primary judge had assessed the substitutability between "extremes"; namely, "out of the box" BC versus F&O, instead of BC with Sentient supplied add-ons versus F&O. While the Appellant accepted that the cheaper BC and more costly F&O were directed towards distinct customer bases and had different functionality levels, their submission was that once add-ons were accounted for, the price and functionality differential was less clear-cut. Although disputed by the Respondents, the Appellant also rejected that there was a point at which the use of those add-ons became impractical such that BC with add-ons and F&O could never be truly competitive.
8. The Respondents' response was that, in making this argument, the Appellant had accepted that there was no real direct competition, only competition between augmented BC and F&O. Dr Higgins submitted that the evidence, taken at its highest, only supported the existence of direct competition between BC and F&O to the extent that one customer received a statement of work from the Appellant indicating they could possibly have upgraded from AX to either BC or F&O. She then pointed the Court to evidence which showed that even substantially augmented BC solutions were much less costly than F&O solutions such that they must be targeted at a different customer-base with limited competition between them.
9. Third, the Appellant submitted that the primary judge, in error, preferred the evidence of Mr Paff and disregarded the evidence of other experts, namely Mr Walsh, Mr Dickinson and Mr Hotham. If given appropriate weight, it was argued that this evidence would have supported the Appellant's argument as to the existence of substantial competition between BC and F&O. For instance, the Appellant emphasised the evidence of Mr Dickinson suggesting that either BC or F&O might be suitable for around 50-60% of customers.
10. The Respondents pointed to the fact that the primary judge considered the evidence of all experts and accurately found Mr Paff to be most reliable based on his independence and unique experience in modifying solutions based on BC using add-ons. It was their submission that the primary judge's findings of fact which were premised on his Honour's assessment of the credibility of a witness must be upheld, unless shown that the primary judge failed to use or misused his advantage, or that he acted on evidence which was inconsistent with the facts incontrovertibly established by the evidence or which was glaringly improbable. In oral argument, Dr Higgins relied upon the following part of Mr Paff's evidence in relation to the "grey area": "So, what I meant by grey area, there - that exists, but the number of companies that have that, in my experience, is very low. My experience is I have far more customers where F&O is just not an option. They're basically - the primary market that I see is someone who's outgrowing Xero, MYOB AccountRight, which are the two small business products that dominate the Australian market, and those customers very rarely would ever look at F&O, but they would look at BC."
11. Next, the Appellant submitted that the primary judge failed appropriately to consider contemporaneous documentary evidence which suggested that Will Thirty Three's stated purpose was to compete with F&O by supplying BC solutions at the higher end of the market and using Power Platform add-ons to achieve higher complexity and functionality.
12. The Respondents disputed that the evidence supported that this is Will Thirty Three's business model. Rather it was submitted that the contemporaneous documents which had been summarised by the primary judge at PJ [106]-[107], alongside Mr Wildsmith's evidence, support the view that Will Thirty Three sought to create a product that would not be attractive to customers who might choose F&O.
13. Finally, the Appellant argued that the primary judge had erred by failing to consider the existence of competition between AX and BC. It was its submission that Sable37 had small and medium customers who could, and did, switch from AX to BC and that, on this basis, BC was competitive with the business of Sable37, insofar as it involved the supply of solutions based on AX. However, the Respondent argued that, although there was evidence of one customer who had taken this course of action, no further evidence was presented by the Appellant to demonstrate the existence of such competition.
14. Before turning to consider these arguments, I will also note the competing contentions of the parties in relation to the question of reasonableness.

Reasonableness of the competition restraints - the parties' contentions

1. The Appellant submitted that the primary judge erred in his contingent finding that the non-competition covenant was not reasonable in scope.
2. In relation to the reasonableness of the scope of the restraints, it was accepted by the Appellant that the primary judge correctly found that a restraint will be reasonable if it relates to the legitimate interest that a purchaser has in protecting the goodwill of the business it has purchased. In this vein, the Respondents submitted that: "the [A]ppellant has four interests or 'sources' of goodwill capable of protection by way of a reasonable restraint of trade: (a) the customers of Sable37 sold as part of the transaction; (b) the employees of Sable37 that remained employed as at the Completion Date; (c) supplier relationships that generated business for Sable37 (i.e., referrals); and (d) any confidential information belonging to Sable37."
3. However, the Appellant submitted that the primary judge erred in concluding that its legitimate interest in the protection of the goodwill purchased did not extend to protection against competition in the space opened up by changes to F&O by Microsoft, or that goodwill only "follows the product". Rather, the Appellant conceived of goodwill as attached to the "business" which, on its wider construction of the business of Sable37, would extend beyond goodwill associated with the particular products with which Sable37 was dealing on 4 April 2018 and encompass wider developments in an inherently dynamic software industry.
4. In oral argument, Mr Neil accepted that evidence of competition between F&O and BC alone would have been insufficient to support a determination that the non-competition restraint was reasonable. Rather he accepted that, the extent of the competition was relevant. Nonetheless, it was submitted that if the non-competition restraint was engaged by competition within the meaning of the SPA, then protection against that kind of competition was obviously reasonable.
5. The Appellants also submitted that in assessing the reasonableness of the restraint, the primary judge failed to account for several factors.
6. It was first put that the significant consideration paid for the business ought to have been a relevant, although not determinative, factor in his Honour's reasoning. As to this, the Respondents pointed to the observations in JD Heydon, The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths) at 230 to the effect that, whilst a low consideration may point against the reasonableness of a restraint, reliance upon the fact that significant consideration was paid for the acquisition of a business is apt to distract the court from analysing the interest being protected and the question of what was reasonably necessary to protect that interest.
7. The Appellant also submitted that the primary judge had failed to make findings as to the importance of Mr Wildsmith's relationships with Microsoft in establishing Sable37 as a reputable Dynamics 365 solutions provider and thus, to the goodwill purchased by the Appellant. It was put that Mr Wildsmith had leveraged his relationship with Microsoft to establish the new Will Thirty Three business and bolster its ability to compete with Sable37. Accordingly, the Appellant argued that the non-competition covenant was reasonably necessary to protect the interests of the Appellant in the business it had purchased by restraining Mr Wildsmith as a vendor of Sable37.
8. The Respondents' submission was that, to the extent that the relationship between Sable37 and Microsoft formed part of the goodwill purchased by the Appellant, it was irrelevant in that Mr Wildsmith's relationship with Microsoft through his new venture had no capacity to derogate from that goodwill by damaging the relationship between the Appellant and Microsoft or by taking away custom. Rather, the relationship between Microsoft and Sable37 was limited to leads concerning the work that could be performed by Sable37, namely the provision of solutions based on AX, F&O or CRM (and future, successor or derivative products limited to those products used and promoted by Sable37 as at the Completion Date). Thus, the relationship between Microsoft and Sable37 could not justify a blanket non-competition restraint in respect of all Microsoft products for all future times.
9. The Appellant also submitted that when assessing the reasonableness of the scope of the non-competition restraint, the primary judge erred by finding that the parties' acceptance of the restraint as being reasonable in cl 16.4 of the SPA could have no weight. Whilst it was accepted by Mr Neil in oral submissions that the clause could not add much to the Court's assessment of the restraint's reasonableness, he argued that it demonstrates that the parties turned their minds to the question of reasonableness, which was said to be particularly significant given that both parties are commercially sophisticated and were legally represented.
10. On this point, the Respondents submitted that it is unclear from this clause what exactly was being acknowledged as reasonable by the parties. They further added that the clause suggests that, more than turning their minds to reasonableness, the parties were aware that the restraints could be struck down by the Court as unreasonable if found to be excessively broad, and therefore that the contractual acknowledgement should not be given significant weight.

The Indirect Application Argument and reasonableness - consideration

1. It is convenient to consider the Indirect Application Argument and the reasonableness of the non-competition covenant together for the reason that, if the level of competition in question between a vendor and a purchaser of a business is slight, the greater the nature or extent of the restraint, the less likely it is to be reasonable.
2. As has been seen, the primary judge did not consider that such evidence as there was of competition met the threshold so as to warrant a finding that the Respondents were directly in breach of the non-competition restraint. His Honour held that Will Thirty Three was only in slight competition with that element of DXC Eclipse's business which offers solutions based on F&O, and then only in what was described by Mr Paff as a "grey area": see [78] above. Mr Paff's evidence set out at [121] above is also relevant, as is his Honour's unchallenged finding at PJ [101] that: "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. 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." (footnote omitted)
3. His Honour reached his conclusion as to competition given the benefit he had had over the course of a five day trial of receiving the evidence and assessing the witnesses who addressed the topic of competition. The primary judge focused his evidentiary findings, and ultimately his conclusions in relation to the question of competition, on the evidence of Mr Paff. His Honour observed at PJ [73] that: "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." The primary judge's assessment was sound.
4. In oral argument, Mr Neil accepted that, even if some competition could be pointed to, if the level of competition was de minimis, it could be discounted. In my view, not only would protection against de minimis competition be unreasonable, but also the legitimate protection of the purchase of the goodwill of a business does not require protection against the slight area of competition in what was referred to as the "grey area". Such a limited field of competition did not reasonably require protection to the extent set out in the non-competition restraint, still less more than 4 years after the goodwill was acquired: see [151] ff below.
5. The Respondents were not selling or threatening to sell similar products to DXC Eclipse "so as to compete with it seriously" or which might "pose a real commercial threat" to DXC Eclipse, to borrow language endorsed by Black J in Veda: see [114] above. Nor, on the evidence, were solutions based upon BC substitutable for those which were the subject of Sable37's business in 2018 when it, and the goodwill in it, were acquired by the Appellant. As the Respondents put it in their written submissions, "[t]he proper analysis is concerned with the core and not the penumbra of a business' commercial activities."
6. An additional point to be made in consideration of whether there was in fact any, or a sufficient level of, competition between BC as used by Will Thirty Three and F&O as used by DXC Eclipse is that it was common ground that those products were not direct competitors but that, to the extent they competed at all, it was only when BC was the subject of add-ons supplied by Sentient using Power Platform.
7. Black J's useful description and collection of authorities in Veda referred to at [114] emphasises that slight or insubstantial competition will generally not be enough to establish a breach of a non-competition covenant, accepting of course that every case will turn upon the language of the restraint in question and the reasonableness of the restraint in the circumstances of the particular case.
8. The primary judge was also correct to find at PJ [151] that this threshold was not met by the existence of competition between AX and BC on the basis that the Appellant could not point to evidence that the business of Will Thirty Three was operating to "seriously" compete with DXC Eclipse in respect of customers who might transition from AX to BC.
9. Accepting that the primary judge, no doubt inadvertently, used the word "will" rather than "might" in quoting Veda (see at [116] above), his Honour was correct not to be satisfied on the evidence that Will Thirty Three "might pose a real commercial threat" to, or would compete with, DXC Eclipse "seriously".

Reasonableness of the non-solicitation restraints

1. Ground 6 of the Notice of Appeal was that: "The primary judge erred in finding that the covenant against solicitation in the Securities Purchase Agreement (Non-Solicitation Covenant), insofar as it restrained the respondents' conduct in relation to Microsoft's supply to Will Thirty Three, was unreasonable (Reasons, [183]). The primary judge should have found that the Non-Solicitation Covenant was breached by that conduct, and that it was reasonable in its application to that breach."
2. The primary judge's findings in relation to the non-solicitation restraint and the injunctive relief sought on the basis of it have been set out at [85]-[87] above.
3. The Appellant submitted that the primary judge erred in finding that the non-solicitation restraint was unreasonable in that it had an insufficient relationship with the goodwill purchased by DXC Eclipse. Rather, the Appellant contended that a source of the goodwill of Sable37 was its relationship with Microsoft and that a restraint directed to preserving or maintaining a personal or corporate connection with a supplier may be reasonable: Belflora at [29].
4. So much may be accepted as a matter of principle but, as the Respondents pointed out, the reasonableness of the restraint needs to be analysed in a more focussed way. They submitted, and I accept, that the primary judge correctly stated that there was no suggestion that Microsoft's dealings with Will Thirty Three would have any effect on Microsoft's existing relationship with the Appellant, and that the form of injunction in fact sought by the Appellant based upon the non-solicitation clause was "not reasonably necessary to protect the legitimate business interests of the Appellant": PJ [183]. The Appellant said little by way of reply to this submission, and its submission that "[i]n building [Will Thirty Three], Mr Wildsmith sought to leverage his existing key strategic relationship with Microsoft", does not explain how DXC Eclipse's acquisition of the goodwill of Sable37 was in fact eroded by that conduct, especially in circumstances where it had had Mr Wildsmith's services for more than three years longer that it had contracted for.
5. The Respondents also pointed to the following unchallenged affidavit evidence of Mr Wildsmith which reinforces the primary judge's finding on this aspect of the case: "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, 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."
6. I would reject appeal ground 6 but, in any event, for the reasons given in the following section of these reasons, a restraint in excess of four years was not shown to be reasonable and I would not have been inclined, in the exercise of my discretion on a rehearing, to grant the injunction based on the non-solicitation clause in the terms sought by the Appellant.

Notice of Contention - reasonableness of the Seller Restraint Period

1. By their Notice of Contention, the Respondents contended that, although the primary judge found it unnecessary to consider, his Honour ought to have found that the non-competition restraint was unreasonable in that the Seller Restraint Period was longer than was reasonably necessary to protect any legitimate interest of the Appellant in the goodwill it acquired in Sable37.
2. In written submissions this contention was refined in light of the period that has elapsed since the Completion Date from which the Seller Restraint Period had started to run. It was submitted that: "the correct conclusion is that the non-competition restraint was unreasonable insofar as it is extended beyond 4 years … particularly … when the [A]ppellant did not adduce any compelling evidence as to why a period beyond 4 years after the Completion Date - being the time that had elapsed since the SPA was entered into and the date of the hearing - was necessary for the non-competition covenant."
3. The Appellant submitted in response that the Respondents had, in agreeing to the SPA, accepted that the seven year restraint period was reasonable.
4. It is correct that, at least in the area of vendor/purchaser contracts for the acquisition of a business, there are statements in the authorities that recognise the importance of holding parties to their bargains: see, eg, Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 at 268; [1973] HCA 24, North Western Salt Co Ltd v Electrolytic Co Ltd (1914) AC 461 at 471 and Belflora at [54]. On the other hand, even in that context, such a consideration will not be determinative nor is it capable of providing a finding of reasonableness. As Sackar J observed in Employsure at [95], citing Woolworths v Olson [2004] NSWCA 372; (2004) 55 AILR 200-133 at [39]: "While the Court gives considerable weight to what parties have negotiated and embodied in their contracts, a contractual consensus cannot be regarded as conclusive, even where there is a contractual admission as to reasonableness."
5. It should also be noted that the Acknowledgement as to reasonableness contained in cl 16.4 of the SPA (see [45] above) is in terms confined to the non-competition restraint and does not extend to the customer, supplier and employee restraints imposed by cl 16.3 of the SPA.
6. A further aspect of Dr Higgins' response to the Acknowledgement in cl 16.4 was the contention that, given the cascading series of restraint periods identified in cl 16.1 of the SPA, the clarity, and therefore the force, of the Acknowledgement is diminished, especially in view of cl 16.5's recognition that aspects of the restraint (including the restraint period) may be struck down. That clause provides: "If, notwithstanding the other provisions of this clause 16, any part of an undertaking in clause 16.1 and 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." There was considerable force in this argument.
7. The Appellant also placed reliance upon Mr Pickering's evidence that it would take the Appellant at least seven years from 4 April 2018 to recover its full investment following the purchase of Sable37. Consideration as to how long it may take to recover the full investment based on the agreed purchase price is not to the point. The key question is, as Brereton JA observed in the course of oral argument, how long does it take to protect the goodwill from being subtracted from by the vendor or former employee. This accords with the observations of Le Miere J in Sear v Invocare Australia Pty Ltd [2007] WASC 30 at [93]; [2007] ATPR 42-129.
8. The Appellant also contended that, when Mr Wildsmith left Sable37 on 2 July 2021, this left it with less than four years to consolidate the goodwill of Sable37. It should be noted however that, given that he served out his post-termination employment restraint, at the time of the commencement of proceedings, DXC Eclipse had had four years without competition from Mr Wildsmith or any company associated with him. This period had grown to four and a half years by the time of judgment.
9. There was some debate in the course of oral argument as to whether an assessment of the reasonableness of the duration of the non-competition restraint could be affected by the far shorter post-employment restraint period in Mr Wildsmith's Employment Contract.
10. The Appellant resisted the submission that the lesser post-employment restraint period in Mr Wildsmith's Employment Contract should inform the Court's assessment of the reasonableness of the longer period provided for in the SPA. It was submitted that this was because the restraint in the Employment Contract and that in the SPA protected different interests, with the former protecting DXC Eclipse in relation to any confidential information and customer connection Mr Wildsmith acquired whilst in its employ and the latter protecting its acquisition in the goodwill of the Sable37 business.
11. Whilst this distinction was validly made, I do not think that the disconformity between the restraint in Mr Wildsmith's Employment Contract and the maximum seven year restraint period in the SPA is wholly irrelevant.
12. Although the reasonableness of any restraint is to be assessed as at the time at which the relevant contract has been entered into, the discretion whether to enforce any restraint may be informed by considerations at the time enforcement is sought: see, eg, Veda at [48], Isaac at [63] and Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414 at [88].
13. In the present case, at the time of the application for injunctive relief, more than four years had passed since the inception of the non-competition restraint. No evidence was led, nor explanation given to as to how or why the Appellant would be deprived of the benefit of the goodwill it had acquired so long ago. This is especially notable in circumstances where the Appellant's ability to realise the benefit of the goodwill was greatly enhanced by the fact that Mr Wildsmith had remained with DXC Eclipse for more than three times as long as he was contractually required to remain under the terms of his Employment Contract. The fact that Mr Wildsmith was only contractually required to remain with DXC Eclipse for 12 months provides some pointer as to how long the Appellant considered it would be necessary to realise the goodwill it had acquired. In fact, it enjoyed his skill and expertise for much longer than that.
14. Even if I had reached the view that the primary judge erred in his findings as to breach and contingent findings as to reasonableness, I would not, in the exercise of the discretion the Court has on a rehearing pursuant to s 75A of the Supreme Court Act 1970 (NSW), have exercised that discretion favourably to the Appellant so as to grant the injunctive relief sought.

Conclusion

1. For the above reasons, notwithstanding the skilful arguments adduced by Mr Neil, the appeal should be dismissed with costs.
2. BRERETON JA: I have had the benefit of reading in draft the judgment to be delivered by the Chief Justice. I agree with the orders proposed by his Honour, for the reasons his Honour gives.
3. SIMPSON AJA: I agree with the Chief Justice.

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: 16 May 2023