EMECO INTERNATIONAL PTY LTD -v- O'SHEA [No 2] [2012] WASC 348 | Case summary

Supreme Court of WA|2012-10-17|Before: Edelman J

2 A mantra of the will theorists in 19th century classical period of English contract law was pacta sunt servanda (promises must be kept). The enforcement of contracts preserved the liberty of individuals to structure their affairs.[1] But, the liberty to contract has numerous limits. Centuries before the rise of freedom of contract one limit developed when judges treated as void some clauses in bonds or agreements which were in restraint of trade. This doctrine persisted through the 19th century and remains today as a requirement to balance the liberty to contract with the liberty to trade.

3 The foundation of the restraint of trade doctrine was probably a sketchy report of a case in 1414 suggesting that restraints upon trade can be void. Hull J considered the enforcement of a sixmonth restraint upon the defendant practising trade of dyer in a town. He said that the defendant might have demurred, exclaiming that 'By God, if the plaintiff were here he should go to prison until he paid a fine to the King'.[2] The doctrine later flourished following a powerful and learned opinion of the highly respected Parker CJ (a decade before his fall from grace when Lord Chancellor)[3] set against a background of conflict arising from the influence of the guilds and royal monopolies in Tudor and Stuart England.

4 After a 'Homeric battle',[5] at base concerned with the conflict between freedom of contract and freedom of trade, the modern law in relation to restraints of trade began with the speech of Lord Macnaghten in Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd.[6] Although doubts have been expressed about the place of the doctrine in modern law,[7] it is established that a contracting party can generally only restrain another's liberty to trade if the restraint protects legitimate interests of the covenantee, and the clause is not wider than is reasonably necessary to protect those interests.[8]

5 The balancing exercise involved in restraint of trade cases is one of evaluative judgment having regard to the terms of the covenant and the facts of the case.[9] Although detailed evidence was led in this case, and substantial submissions were made about numerous propositions of law which I consider below, this trial ultimately involved the exercise of this evaluative judgment.

6 Mr O'Shea was one of a small number of business development managers at Emeco International Pty Ltd (Emeco) who were described as the 'face of the company' to Emeco's customers and potential customers. He was one of the senior employees of Emeco and was remunerated as such. He built up close relationships with important clients of Emeco in the highly competitive dry hire industry. And he was trusted with confidential information which could be damaging to Emeco in the hands of a competitor.

7 After about one year and nine months working for Emeco, Mr O'Shea resigned from Emeco and sought immediately to start work for one of Emeco's major competitors, National Plant and Equipment (NPE). Emeco sought an injunction to enforce restraints in Mr O'Shea's contract of employment. The injunction was to prevent Mr O'Shea from various activities, including preventing Mr O'Shea from starting employment with NPE for six months.

8 On 8 August 2012, I granted an interlocutory injunction restraining Mr O'Shea from accepting employment with NPE. My decision in the interlocutory matter was given soon after the hearing and trial dates were expedited so that the matter could be heard within 3 to 4 weeks. A reason for the need for an urgent trial was statements in Mr O'Shea's sworn affidavit evidence concerning his severe financial hardship arising from unemployment. As I explain below, those statements (or, more accurately, intentional omissions from those statements) were an example of aspects of Mr O'Shea's sworn evidence which can, at best, be described as misleading.

9 The trial involved detailed evidence and cross-examination and a searching analysis of the restraint provisions in Mr O'Shea's employment contract with Emeco. There was significant dispute about a number of facts as well as some central propositions of law. One legal issue raised at the hearing, which appears to be novel in Australia, concerns the effect of a provision for a release from the restraint clause with the consent of the employer which consent, by implication, must not be unreasonably withheld. It appears from the cases that these clauses are now reasonably common. But the research of counsel for the defendant and my research suggests that their effect has not been considered judicially in Australia, although there are conflicting English decisions.

10 Ultimately, Emeco did not make any submissions concerning this consent provision. Although there are reasonable arguments that it might provide limited support for the enforceability of the restraints relied upon by Emeco, in this case the clause does not affect the conclusions I would otherwise reach, so it is not necessary to express a concluded view on the issue.

11 My conclusion is that the restraint which I have described in these reasons as the Competition Restraint, preventing Mr O'Shea from performing work for NPE, is enforceable. Other restraints upon which Emeco relied are not enforceable. I consider that it is appropriate that an injunction be granted.

12 After discussion of the facts and background in the sections below, the consideration of the main issues is structured as follows:

The restraint of trade clause [65]
Legal principles concerning restraint of trade clauses generally [66] [70]
Construction of a 'without prior consent' qualification [71] [83]
The interests which can support a competitor restraint [84] [95]
Whether precise identification of confidential information is necessary [95] [108]
Emeco's expected confidential information [109] [154]
The extent of Emeco's expected customer connection [155] [161]
Whether the Competitor Restraint was reasonable in light of Emeco's interests [162] [182]
The enforceability of the Non-Solicitation and Client Restraints [183] [213]
Whether parts of the Non-Solicitation and Client Restraints can be severed [214] [220]
Whether discretion should be exercised to grant an injunction [221] [255]

13 The trial proceeded in part by a document in which the parties set out those facts which were agreed and those facts and issues which were in dispute. The plaintiff, Emeco International Pty Ltd (Emeco), read three affidavits from Mr Stubbs (state manager of Emeco in Western Australia and South Australia),[10] two affidavits from Mr Milne (national marketing manager of Emeco),[11] and two affidavits of Mr Halls (general manager of Australian Rental at Emeco).[12] Mr O'Shea read one affidavit which he swore for trial.[13]

14 Emeco is a company that carries on the business of dry hiring mobile mining equipment in Australia and internationally. The business of dry hire involves hiring only the equipment, not the operators. Within the dry hire industry approximately 40% of Emeco's revenue comes from customers of Emeco have contracts for their equipment to be maintained. For those customers Emeco sends employees or contractors to the sites of its clients mainly to maintain equipment. The other 60% comes from non-maintained dry hire rental contracts.[14] Emeco typically removes the equipment from the client's site at the end of the hire period.

15 The dry hire market in Western Australia and South Australia focuses upon a small number of companies in which mining is concentrated. Mr Stubbs described 13 of these companies as follows:[15]

(a) Iron ore: BHP Billiton Iron Ore Pty Ltd; Rio Tinto Limited; Fortescue Metals Group Ltd.

(b) Gold: Newcrest Mining Limited; Alacer Gold Corp; Saracen Mineral Holdings Limited; Newmont Mining Corporation; Navigator Resources Limited.

16 Mr O'Shea was employed by Emeco for 21 months, between 21 October 2010 and 3 August 2012. He was employed by Emeco under two consecutive contracts of employment. The first was dated 21 October 2010. The second was dated 3 October 2011. Both contracts contained the same restraint of trade clauses. The relevant clauses are those contained in the second employment contract.

17 On 15 July 2012, Mr O'Shea entered into a contract of employment with NPE. Mr O'Shea then gave notice of his resignation from Emeco on 16 July 2012.

18 Mr O'Shea alleged that at the time of his resignation he was told by Mr Stubbs not to worry about restrictive clauses because Emeco could not stop him from working for anyone else. Mr O'Shea also said that he was told that as long as he protected Emeco's intellectual property, confidential information and clients there should be no problem.[16] This was denied by Mr Stubbs.[17] For reasons explained below, in relation to Mr O'Shea's credit generally, I prefer the evidence of Mr Stubbs.

19 NPE and Emeco compete for contracts for the dry hire of heavy earthmoving equipment in Western Australia. NPE has, on occasions in the past, been the successful tenderer ahead of Emeco for contracts for the dry hire of heavy earthmoving equipment. Although Mr O'Shea attempted to minimise the extent to which NPE and Emeco were in competition, for the reasons I explain below I do not consider that his evidence was reliable.

20 Mr Stubbs explained,[18] and I accept, that the following comparisons can be made between Emeco and NPE: the size of their equipment in their fleets is similar, the quantity of their equipment is similar, and the locations in which they offer services and the services they offer are similar. A presentation which Mr Stubbs made to the Executive Leadership Team at Emeco described NPE as one of Emeco's top four competitors.[19]

Mr O'Shea's position and his responsibility at Emeco

21 Mr O'Shea was employed by Emeco in the position of business development manager. He was responsible for Western Australia and South Australia.[20] He reported to Mr Stubbs, the state manager for Western Australia and South Australia.[21] His employment contract provided that his primary place of work was in Western Australia but that[22]

Emeco operates in many different locations within Australia. Accordingly, you may be required to travel to and work at different locations to meet business needs from time to time, which may include travel overseas or interstate for temporary periods. You agree to work at such different locations if you are asked to do so.

22 Across Australia, Emeco has a workforce of around 410 people.[23] A core part of Emeco's business is in Western Australia.[24] Emeco has around 100 employees in Western Australia and a further 50 contractors.[25] More than a third of Emeco's equipment is based in Western Australia.[26]

23 The major competitors of Emeco dry hire their equipment to customers in Western Australia and South Australia. This creates extremely strong competition in a market where there is a relatively large number of dry hirers for a relatively small number of customers.[27]

24 Of the 410 members of Emeco's Australian workforce, only 21 employees occupy senior positions in which their employment contracts contain restraint clauses. Those people are the general manager, state manager, equipment salesmen, business development managers, and state maintenance managers.[28] The business development managers are the 'face of the company to [Emeco's] customers' and to its 'potential customers'.[29]

25 Mr O'Shea's employment contract provided for a substantial salary (well in excess of $100,000), a lump sum bonus upon commencement of employment, and performance shares bonus as part of a Long Term Incentive program.[30]

26 As a business development manager at Emeco, Mr O'Shea also had an expense account. He hosted functions for Emeco's clients such as a cricket day in February 2012 at which 10 senior representatives of Emeco's customers were present.[31]

27 It was an agreed fact that during his employment with Emeco, Mr O'Shea was, amongst other things, the principal point of contact for the dry hire by Emeco of heavy earthmoving equipment for the following five customers of Emeco:[32]

Alacer Gold South Kalgoorlie Operations;
Saracen Gold Carosue Dam Operations;
Navigator Resources Bronzewing Operations;
Newcrest Telfer Operations; and
Barrick Gold MoonBeam Operations.

28 As a business development manager, Mr O'Shea was also given full access to all of Emeco's information concerning Emeco's existing contracts and information about Emeco's potential new business.[33] He was aware of upcoming opportunities, and the status of those opportunities, which were matters discussed at the meetings of the business development managers.[34]

29 The business development managers met on a weekly basis.[35] They also had daily discussions about clients, contracts or movements in the market.[36] Clients were allocated a particular business development manager who maintained regular contact with the client and ensured that the client's needs were met.[37] There was an expectation that a high degree of trust would develop between the business development manager and a client and that this trust would be used to develop longlasting relationships which are important to retain current clients and obtaining new rental contracts.[38]

30 Mr Milne also explained that one of the two main roles of a business development manager is to retain and maintain current client contacts and interact with those clients on a regular basis regarding their current rental contracts and future equipment needs.[39] The other main role is that a business development manager is required to identify new business opportunities by:[40]

researching and identifying business opportunities with new, or existing, clients;
identifying the correct person within that client with whom to make contact;

arranging and attending meetings with that client contact;

identifying the client's immediate and long term equipment needs; and
building an ongoing relationship with that client.

31 There were never more than four business development managers in Western Australia. When Mr O'Shea commenced employment with Emeco on 21 December 2010 there were three other business development managers: Messrs Milne, Aslander and Bishop.[41] Mr O'Shea and the other business development managers worked as a team.[42] Mr Bishop and Mr Aslander finished as business development managers two months later and a further four months later respectively.[43]

32 After Mr Aslander left in March 2011, Mr O'Shea worked closely with the only other business development manager, Mr Milne, and also with Mr Matijevic who was appointed soon afterwards. When Mr O'Shea worked with Mr Milne duties were not allocated to them separately; they both worked with all of Emeco's customers and they both worked on all the opportunities being pursued by Emeco.[44]

33 From May 2012 until his resignation, Mr O'Shea was the sole business development manager for Western Australia at Emeco. He had the sole responsibility for all of Emeco's clients other than Alacer Gold South Kalgoorlie Operations.[45] Emeco has around 20 corporate clients.[46]

34 Mr O'Shea also worked with the state manager of Emeco in Western Australia. Although the task of conducting discussions with potential clients was the role of a business development manager, Mr Stubbs would occasionally join those discussions.[47] Mr Stubbs also explained that he spoke with Mr O'Shea on a daily basis on the telephone and in person.[48] Mr O'Shea's office was on the same floor as Mr Stubbs. And Mr Stubbs travelled to Kalgoorlie with Mr O'Shea on a number of occasions. Mr Stubbs said, and I accept, that about 40% of Mr O'Shea's time was spent on business development opportunities.[49]

35 In the course of his employment with Emeco as a business development manager, Mr O'Shea had access to, and utilised, Emeco's information, including the following:[50] the termination provisions in Emeco's contracts with customers; the date on which those contracts end; the pricing terms and conditions around pricing in those contracts; Emeco's fleet configuration; Emeco's performance around a particular site or contract; the identity of the decision makers in Emeco's clients and their drivers for decision making. Mr O'Shea also had access to information about Emeco's upcoming opportunities and the status of those opportunities.[51]

36 Measures were taken by Emeco to prevent access to much of the information above to general employees. These restrictive measures did not apply to the 21 employees who had signed contracts with restraint of trade clauses.[52]

37 This trial was expedited. I explained to the parties at a directions hearing prior to the trial that two days had been allocated for hearing all the evidence and submissions and that the trial should not be adjourned part heard. The short period of time for hearing was divided between the parties. Prior to trial the parties produced a document which summarised and narrowed the facts and issues which were in contention.

38 Although I have already set out many of my findings of fact, it is necessary to recite the facts and issues which it was agreed before trial were in contention. The reason for this is that counsel for Mr O'Shea, in detailed written submissions,[53] placed reliance in numerous respects upon matters which were described as Mr O'Shea's uncontested affidavit evidence.[54]

39 As I explain below, I am not prepared to accept Mr O'Shea's evidence on any contested matter. I do not consider that it is necessary for many of these matters to have been specifically put to Mr O'Shea in crossexamination in the circumstances of this case.[55] The circumstances are that: (i) facts and issues had been agreed by the parties prior to the trial to be in contest; (ii) affidavits had been filed contradicting Mr O'Shea's accounts of various facts; (iii) Mr O'Shea's credibility was clearly in issue as was apparent from both the crossexamination of Mr O'Shea, and the emphasis in the statement of facts in issue on matters such as Mr O'Shea's indemnity in his NPE employment contract; and (iv) a short period had been allocated for an expedited trial, and the parties had limited time for cross-examination.

40 To summarise from the agreed document filed before trial, the matters in contest included:

(a) the extent of confidential information to which Mr O'Shea was exposed and his ability to recall that confidential information.

(b) Whether Mr O'Shea had access to information about Emeco's entire customer list and was accountable for all those customers as part of the business development manager team.

(d) The period for which Emeco's confidential information remains confidential.

(e) The public availability of Emeco's confidential information such as Earnings Before Income Tax (EBIT) or Return on Funds Employed (ROFE).

(a) Whether Mr O'Shea has been in a position to form relationships with customers other than his five principal customers.

(b) Whether Mr O'Shea's role is as a business development manager or whether, in reality, it is more accurately described as an 'account management' role.

(c) The relevance of the relationship between a business development manager and a client. In particular, whether that relationship is a relevant factor or whether the factors are confined to the availability of equipment and price.

(d) Whether the relationships between Emeco and its clients are long term relationships which are not fragile, and the strength of the relationships developed between Mr O'Shea and any person within a client company.

(e) Whether Mr O'Shea was one of a team of two to four business development managers who worked together as a team.

(f) Whether Mr O'Shea had any established customer connections with Emeco's clients prior to commencing employment with Emeco and whether Mr O'Shea developed customer connections with any customers other than the five for whom he was principally responsible at Emeco.

(g) Whether 95% of Mr O'Shea's entertainment expenses were on entertainment concerning three of the customers for whom he was principally responsible: Alacer, Saracen and Navigator.

41 The evidence of Mr O'Shea, for reasons I explain below, was not reliable. In contrast, I have no hesitation in accepting the evidence of each of the witnesses for Emeco. Their evidence was fairly and honestly given and each of them gave frank answers to questions, even when the answer did not assist Emeco's case.

42 Emeco called three witnesses. One witness was Mr Stubbs, the state manager of Emeco in Western Australia and South Australia, to whom Mr O'Shea reported. Another was Mr Halls, who is the general manager for the whole rental division for Emeco in Australia. The third was Mr Milne who, as I have explained, was a business development manager and is now Emeco's national marketing manager.

43 Mr O'Shea was the only witness to give evidence in support of his defence. Mr O'Shea's employment with Emeco ended on Friday 3 August 2012. He has had no income since. At the interlocutory hearing he gave affidavit evidence of his debts and need to provide for his family. He was understandably extremely motivated to commence employment with NPE.

44 However, Mr O'Shea's understandable enthusiasm and devotion to work for his new employer manifested itself in evidence which I find to be unreliable. His answers were often evasive and I formed the impression in his evidence that he would tailor his answers to assist his case.

45 On a number of occasions Mr O'Shea's evidence was, at best, misleading. Mr Neil, senior counsel for Mr O'Shea, properly did not attempt to condone or justify Mr O'Shea's conduct which misled the court, including affidavit evidence from Mr O'Shea at the interlocutory injunction hearing. There is nothing to suggest that any responsibility for intentional omissions should be borne by the solicitors or by senior counsel who represented Mr O'Shea at the interlocutory injunction hearing (different counsel represented Mr O'Shea at the trial). Mr O'Shea's evidence, again and again, was that he did not reveal the information to the court because he did not consider it to be relevant.

46 Five examples can be given supporting why I do not accept Mr O'Shea's evidence on any contentious matter. Other examples will be given elsewhere in these reasons.

47 First, prior to the hearing for an interlocutory injunction in this matter, Mr O'Shea swore an affidavit saying that he had not commenced work for NPE and had not signed a 'letter of appointment'.[56] Mr O'Shea had signed a contract of employment with NPE. But he did not mention this. Although he thought that it was relevant to tell the court in his affidavit that he had not started work for NPE and that he had not signed a letter of appointment, he said that 'it wasn't relevant' for the court to know that he had signed a contract of employment.[57] I do not accept this explanation. Mr O'Shea must have been aware that the court would be misled by his affidavit evidence.

48 Secondly, also in his affidavit provided for the hearing of the interlocutory injunction, Mr O'Shea said that without any employment he had no source of income and that he and his family would be placed under significant financial hardship. He did not mention that the contract that he had signed with NPE contained an indemnity. The indemnity provided:[58]

The Company will indemnify the Employee against any action (and any subsequent costs) by the Employee's immediate previous employer as a direct result of an alleged breach of the Employee's restraint period agreement with that employer. In the event the Employee is legally restrained from actively fulfilling the duties of the role with the Company, the Company, at its absolute discretion, will either find suitable alternative duties or pay the Employee all remuneration due under the agreement up to a maximum of six months and direct the Employee not to actively participate in the operations of the Company.

49 Mr O'Shea knew that the purpose of the indemnity was to protect him from financial hardship if he were restrained by injunction from working for NPE.[59] He had requested the indemnity from NPE.[60] He was aware that financial hardship is one of the factors this court takes into consideration in deciding whether or not to grant an interlocutory injunction.[61] He had read his lawyers' submissions which referred to the severe financial hardship he would suffer if he were unable to commence employment with NPE.[62] But he said that he did not believe that it was relevant to disclose the indemnity to the court because the hearing was interlocutory.[63] I do not accept this explanation.

50 Thirdly, Mr O'Shea's evidence concerning his role at Emeco was constantly shifting. He swore in his affidavit that because of the nature of his role in relation to five clients for whom he was the primary point of contact, he considered that his role was primarily account management rather than business development.[64] When it was put to Mr O'Shea in crossexamination that this was inconsistent with his job description, Mr O'Shea insisted that he was told at his employment interview with Emeco that his role would be mainly ('a majority of') account management. Mr O'Shea had not included in his affidavit this matter about which he had allegedly been told at his employment interview. This was another matter that Mr O'Shea said that he did not think to be 'relevant' to include in his affidavit.[65]

51 Mr O'Shea was taken to a job description of his role at Emeco which contradicted his assertion that he was involved in account management rather than business development. That description is set out below at [146] and [158] but it suffices to say that he is expressly described as a business development manager.[66]

52 Mr O'Shea's first response to this in crossexamination was to say that the job description was from June 2011 and that he could not recall whether this was the same description given to him at the time he first commenced with Emeco.[67] When he was confronted by his own sworn evidence that this was a copy of his first employment contract then he eventually accepted his own evidence.[68]

53 Mr O'Shea's second response was to suggest that '[b]usiness development - relationship management is also account management'.[69] As I have explained, only minutes earlier he had reiterated his sworn evidence that his role was primarily account management rather than business development.

54 I consider that the most accurate statement of Mr O'Shea's job description is the June 2011 description, which he conceded matched the description at the start of his employment. The description is consistent with the evidence of Mr Milne who could recall telling Mr O'Shea in late 2010 that 'this is one part of your role, which is account management of these projects and clients, alongside ... the other duties of a business development manager.'[70]

55 Fourthly, there were matters in Mr O'Shea's curriculum vitae which he accepted were accurate, but which contradicted his evidence. The curriculum vitae had been prepared by Mr O'Shea a year ago. But he sent it to NPE in July 2012.[71]

56 One contradiction related (again) to Mr O'Shea's evidence that his role was an 'account manager' rather than a business development manager. However, in his curriculum vitae, Mr O'Shea described his role as 'winning new business for Emeco and maintaining existing business and relationships'.[72] Another example was that he said in his curriculum vitae that he was 'personally responsible for the commercial project management of maintain[ed] sites throughout the Goldfields and Pilbara regions in Western Australia'.[73] But, until confronted with this, in his evidence he had said that his five clients were all in the goldfields and had given the impression that he did not have any involvement with clients in the Pilbara.[74]

57 Another contradiction was that Mr O'Shea described in his curriculum vitae a 'client base in iron ore, gold and coal, mining houses tier 1 contractors currently reporting to the executive general manager of Australia'. In his evidence Mr O'Shea suggested that this reference to 'client base' was to Emeco's client base and that he had not meant to suggest that his own client base went beyond gold companies.[75] I do not accept that this was what he meant to suggest.

58 Fifthly, in the course of crossexamination by Mr O'Shea's counsel, it was put to Mr Stubbs that the reason why Mr O'Shea signed a contract between Emeco and Abigroup Contractors Pty Limited was because Mr Matijevic was away in the Pilbara on a site visit and Mr Matijevic had asked Mr O'Shea to sign the contract for him.[76] Mr Stubbs accepted that Mr O'Shea had said this in his affidavit, but Mr Stubbs could not recall if that had happened or not.[77] A clean copy of the signature page was produced. This was the page about which it was asserted that Mr O'Shea signed only because Mr Matijevic was away in the Pilbara. After seeing the clean copy of the signature page counsel properly accepted that the allegedly absent Mr Matijevic had signed as a witness present to Mr O'Shea's signature.[78]

59 Due to the view I formed of Mr O'Shea's evidence based on these reasons and upon his demeanour, I am not prepared to accept his evidence on any contentious matter.

60 In contrast, I found the evidence of each of the witnesses for Emeco to be honest and reliable. Each of Mr Stubbs, Mr Halls and Mr Milne gave the clear impression of a desire to answer questions as accurately as possible, whether or not the answer assisted Emeco's case. In some instances their answers did not assist Emeco's case, but they were honestly and reliably given.

The injunction sought and the approach to be taken

61 Emeco seeks a permanent injunction against Mr O'Shea, restraining him until close of business on 3 February 2013, from (either directly or indirectly):

accepting employment with or providing or taking part in the provision of consultancy services or otherwise performing work for or providing any products of services to NPE or any dry hire company which competes with the business of the plaintiff;
canvassing, soliciting or enticing away (or attempting to canvass, solicit or entice away) the business of any of the plaintiff's existing clients;

performing work for, or providing products or services to , any of the plaintiff's existing clients (except for where the dealings do not, or work does not involve or relate to the products or services provided by the plaintiff).

62 Emeco's indorsement of claim also seeks damages resulting from Mr O'Shea's actual and/or threatened employment with NPE and disclosure of confidential information to NPE in breach of the express and implied terms of his contract of employment.[79] No submissions were made in relation to this issue. There was no evidence of any loss suffered by Emeco as a result of Mr O'Shea's employment contract with NPE. Nor was there any evidence that he had disclosed any confidential information.

63 At the commencement of oral submissions, counsel accepted that the issues in this case should be structured in the following way:

(1) Are any or all of the restraint clauses enforceable? This issue is to be assessed, and decided, at the date of contract.

(2) If any or all of the restraint clauses are enforceable, would they be infringed if Mr O'Shea were employed with NPE on the terms of his employment contract with NPE?

(3) Should discretion be exercised to refuse an injunction to restrain any potential infringement? This requires relevant circumstances to be assessed at the date of trial.

64 Mr Neil, senior counsel for Mr O'Shea, properly conceded that Mr O'Shea's conduct in entering into a contract of employment with NPE fell within the scope of each of the three restraints in this case.[80] The only issues between the parties were (1) and (3).

65 Mr O'Shea's October 2011 employment contract[81] contains the following restraint provisions. Adopting the language used by the parties in submissions, I have added a description in bold of each of the four relevant restraints.

Confidential Information

In this clause regarding confidential information the following terms have the following meanings.

...

Termination Date" means the date of termination of your employment with Emeco for any reason. You acknowledge and agree to respect the confidentiality of information and documents to which you have access in the course of or arising from your employment.

...

Restraints

You understand and acknowledge that:

you occupy a responsible position with Emeco;
Emeco's relationship with its Clients are critical to the business;

it is in Emeco's legitimate business interests to promote the preservation of its relationship with its Clients;

it is in Emeco's legitimate business interests to protect the use by you or other of Confidential Information to its detriment;
the restraints in this clause are reasonable and necessary to protect the legitimate business interests of Emeco in the preservation of its client relations the good will of its business and its Confidential Information.

You agree not to engage (either directly or indirectly) in each or any of the activities specified in sub-clause (a)(1) - (4), within the areas and for the periods after the Termination Date as specified in sub-clause (b)(1) , without the prior written consent of Emeco:

a) 1. provide or take part in the provision of consultancy services or otherwise perform work for or provide products or services to a business competitive with the business of Emeco [the Competitor Restraint];

canvass, solicit or entice away or attempt to canvass, solicit or entice away the business of any Client [the Non-Solicitation Restraint];
perform work for or provide products or services to any Client, except for where the dealings do not, or work does not, involve or relate to the products or services provided by Emeco [the Client Restraint];
induce or attempt to induce any Client or any Person who is at the Termination Date an employee, agent, director, officer, partner, consultant, contractor or adviser of Emeco, to terminate or to not renew any contract of any sort which they may have with Emeco or to disclose any information in relation to the business or affairs of Emeco which has been obtained by them through their dealings with Emeco [the Inducement Restraint].

b) 1. In Western Australia for a period of 6 months, unless that period is held invalid for any reason by a court of competent jurisdiction, in which case, 3 months.

Legal principles concerning restraint of trade Principles generally concerning restraint of trade clauses

66 The leading statement in this jurisdiction of the principles applicable to the reasonableness of restraint of trade clauses is the decision of the Court of Appeal in Smith v Nomad Modular Building Pty Ltd.[82] In that case, McLure JA (with whom Buss JA agreed) quoted from Lord Macnaghten in Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [83] that for a restraint of trade to be justified:

[I]t is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.

67 McLure JA explained[84] that a restraint is reasonable in relation to the restraining party if it is necessary for the adequate protection of that party and reasonable in relation to the party restrained if it preserves the fullest liberty of action consistent with that protection.[85]

68 McLure JA also explained that although the question of reasonableness is determined at the date of the contract, subsequent developments can be considered to determine whether the agreement was reasonable to make at the date of contract, having in mind the best estimate that the parties could make for the future.[86]

69 It is well established, and it was common ground, that the interests which Emeco needed to establish as the justification for the restraints were its customer connections and its confidential information.[87]

70 It is also established that a restraint may be justified as protecting more than one legitimate interest. As Meagher JA (Campbell & Young JJA agreeing) explained in Jardin and Jardim Investments Pty Ltd v Metcash Ltd[88] of a restraint in dealing with customers with whom an employee has a close relationship and in circumstances in which the employee has confidential information: 'a restraint on dealing with those customers could be justified as reasonably necessary to protect both interests'.

The 'without prior written consent' qualification to the restraints

71 During the trial I raised with the parties the question of the effect upon the enforceability of the restraint clauses of the opening words 'You agree not to engage ... without the prior written consent of Emeco' (emphasis added).

72 It was common ground that these words included an implication that prior written consent would not be unreasonably withheld. The consent condition upon the restraint clause 'must be construed in the light of the circumstances surrounding the contract, and the purpose the condition was intended to serve'.[89] In written submissions, counsel for Mr O'Shea said, and I accept, that in deciding whether to grant consent Emeco must act reasonably, having regard to its legitimate interests and conformably with the purposes of the contract.[90]

73 On one view, the effect of these words in a restraint clause might mean that very few restraint clauses would be invalid. If consent to be released from the restraint cannot be unreasonably withheld, and if 'unreasonable' bears the same meaning as it does in construction of the restraint, then the legal effect of the words is that an employer could only withhold consent in circumstances in which the restraint was necessary to protect the legitimate interests of the employer taking into account the need to preserve the fullest liberty of action of the employee.

74 In other words, on this approach, in circumstances in which the restraint would otherwise be unenforceable the employer could not withhold consent to the activity.

75 Although there are Australian cases involving restraint of trade clauses with similar provision for release from restraint with the prior consent of the employer, both my research and that of counsel could find no Australian case in which this issue was considered. However, there is a line of English cases which considers the point.

76 In J W Chafer Ltd v Lilley,[91] Roxburgh J held that a requirement that consent of the employer be given reasonably could not make enforceable a clause which was otherwise unenforceable. His Lordship considered that it would be reasonable for an employer to withhold consent purely on the grounds that a rival firm was in competition with the employer because 'by the terms of the [employer consent] clause itself the test of reasonableness has to be applied, not to a lawful subject matter, that is to say, protection against misuse of knowledge of customers, but to an unlawful subject matter, namely, direct competition'.[92] This is not a legitimate interest for the purposes of the enforceability of the restraint of trade clause.

77 On the other hand, a different approach was taken in Kerchiss v Colora Printing Inks Ltd,[93] by Danckwerts J. The requirement that the employer not withhold consent unreasonably was one reason in that case why the clause was found to be enforceable. His Lordship rejected the submission that the clause involved merely the subjective consideration of the employer since 'there is always the sanction hanging over [the employer] that the matter can be taken further and the decision of an independent person obtained'.[94]

78 These conflicting cases are discussed extrajudicially by Heydon J in The Restraint of Trade Doctrine.[95] His Honour preferred the approach of Roxburgh J for two reasons. First, the contrary approach would mean that the expedient of employer consent would validate potentially very wide restraint clauses which could be exacted against employees who could not afford the terror and expense of litigation. Secondly, it is for the parties to make the agreement not the court, as instanced by the unenforceability for reasons of uncertainty of a clause which prohibits an employee from engaging in competition 'so far as the law allows'.[96]

79 The arguments made by Heydon J are powerful reasons why an employer consent clause could not operate to make enforceable a wide restraint clause which otherwise extends considerably further than the protection of the employer's legitimate interests.

80 Further, in the absence of submissions to the contrary, I proceed on the basis that, as Mr Neil suggested, the 'reasonableness' qualification upon the employer's consent is not coextensive with reasonableness required in assessing the enforceability of the restraint. In other words, consistently with the decision of Roxburgh J it might be reasonable for an employer to withhold consent purely on the grounds that a rival firm was in competition with the employer. This assumption seems to have been made by Danckwerts J in a decision six years earlier than Kerchiss.[97] This means that since the withholding of consent based on the mere existence of competition might be reasonable in some cases, the consent provision cannot be sufficient to justify the enforceability of the restraint.

81 Nevertheless, it may still be that the employee consent clause could affect the scope of the restraint. For this reason it is strongly arguable that it should be considered as part of that assessment. The requirement that Emeco must have regard to its legitimate interests in light of the purposes of the contract before refusing consent to Mr O'Shea may be a real limitation upon the scope of the restraint.

82 If this limitation is taken into account, its effect upon the Competitor Restraint may be different from its effect on the NonSolicitation or Client Restraints. It is one matter to require an employee to seek employer consent before going to work for a rival in circumstances where the employee has been privy to confidential information and has built up customer connections. It is another matter, and a greater infringement upon liberty, to require the employee, in a new occupation, to seek employer consent every time contact occurs which might infringe a wide solicitation restraint or client restraint.

83 Ultimately, however, it is not necessary to decide the extent to which this employer consent clause should weigh in favour of the enforceability of the restraints. No significant reliance was placed on the clause by Emeco and I have reached the conclusion below that the Competitor Restraint is, in any event, enforceable and the Non-Solicitation and Client Restraints are, in any event, unenforceable.

The enforceability of the Competitor Restraint The interests which can support a competitor restraint

84 Mr Neil submitted that a competitor restraint could only be supported by the employer's interest in protecting confidential information. He said that it was a matter of logic that an employer's interest in customer connection could not justify a competitor restraint because new employment with a competitor says nothing about dealing with customers. The interest that an employer has in relation to the employee's customer connection is an interest which could support only a nonsolicitation restraint or a client restraint.

85 It may be that, even as a matter of pure logic, there are some industries where the nature of the business is such that personal customer connection is the foundation of the business and that this interest alone could easily suffice to justify a competitor restraint. More generally, it is difficult to see why customer connection cannot support a competitor restraint in circumstances in which, as often occurs, the customer connection interest and the confidential information interest are closely related. As Professor Blake observed in his seminal article:[98]

to a considerable extent, the protection extended to customer relationships is an offshoot of the protection of confidential information... The line is so difficult to draw that employers' petitions for injunctive relief to protect customer relationships seldom fail to try to persuade the court that the employee has had access to confidential information regarding the customers or other facts of the business as well.

86 Hence, the assumption upon which many cases have proceeded is that there is there is no reason of principle why an employer's interest in customer connection is not sufficient, at least together with its interest in confidential information, to justify a competitor restraint even in circumstances in which neither interest alone might have been sufficient.

87 In the leading text on restraint of trade, Justice Heydon considers the scenario (which is not the case here) of a covenant in which the prohibited area for an employee to work is defined by reference to all the employer's places of operation rather than the employee's. He explains that such covenants are difficult to sustain, but that such a covenant is 'likeliest to be upheld' based upon customer connection 'where a nonsolicitation covenant is likely to be ineffective because the customers will come to the ex-employee whether they are solicited or not.'[99]

88 A number of authorities also support competitor restraints on the basis of both of these interests. For instance, in a commonly quoted passage in Herbert Morris, Limited v Saxelby[100] Lord Parker explained that covenants against competition by a servant 'have been upheld ... on the ground that [the servant] might obtain such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer's trade secrets as would enable him, if competition were allowed, to take advantage of his employer's trade connection or utilize information confidentially obtained.'

89 In the High Court, Latham CJ, in dissent but not on this statement of principle, described customer connection as a matter which could support a competitor restraint:[101]

Where an employee is in a position which brings him into close and personal contact with the customers of a business in such a way that he may establish personal relations with them of such a character that if he leaves his employment he may be able to take away from his former employer some of his customers and thereby substantially affect the proprietary interest of that employer in the goodwill of his business, a covenant preventing him from accepting employment in a position in which he would be able to use to his own advantage and to the disadvantage of his former employer the knowledge of and intimacy with the customers which he obtained in the course of his employment should, in the absence of some other element which makes it invalid, be held to be valid.

90 This passage was approved by Doyle CJ in the leading decision in the Full Court of the Supreme Court of South Australia in N E Perry Pty Ltd v Judge.[102]

91 More recently, in AGA Assistance Australia Pty Ltd v Tokody,[103] McMurdo J referred to both customer connections and information about the employer's dealings with clients, as advantages which the employee could bring to a new employer. His Honour concluded that the protection of these interests of the plaintiff warranted a restraint which prevented the defendant from working in a competing business in Australia for a limited time.[104]

92 Finally, some of the reasons why the customer connection interest can support a competitor restraint, and not merely a nonsolicitation restraint were explained by the Full Federal Court in Pearson v HRX Holdings Pty Ltd[105] to which reference was made by Mr de Kerloy. They include the risk that the nonsolicitation clause might not provide practical protection to an employer because the employer might not become aware of a breach.

93 In Pearson v HRX Holdings Pty Ltd, the Full Federal Court upheld a competitor restraint which restrained Mr Pearson for two years from directly or indirectly carrying on a Restrained Business, alone or in partnership or joint venture with anyone else. Mr Pearson was also restrained from being directly or indirectly 'concerned with or interested' in a Restrained Business, including as an employee. Restrained Business was defined as

a business or operation similar to or competitive with the business of a Group Company, including without limitation a business involved in the outsourcing of recruitment services (often referred to as Onsite or Recruitment Process Outsourcing) or any other HR Outsourcing areas that HRX is operating in at the time of leaving the company.

94 Mr Pearson was an employee of a company, HRX, which offered recruitment process outsourcing and consulting services, human resources outsourcing and recruitment technology to government and private enterprise. HRX developed techniques, technological systems, facilities and strategies for its clients. At the time of Mr Pearson's resignation, HRX operated in Australia and New Zealand, although its policy was to follow clients into business opportunities outside Australia and New Zealand.[106] Like the role of business development manager in this case, Mr Pearson was HRX's primary presenter to prospective clients in its endeavour to secure business.[107]

95 Mr Pearson knew confidential information of HRX which was described as the 'techniques and facilities used by HRX to sell its services and its client retention strategies'.[108] But the enforceability of the particular competitor restraint in that case (cl 14.4) was not supported by the Full Federal Court on the basis of confidential information. It was supported on the basis of 'HRX's interests, both in protecting its customer connections and in ensuring the diligent and faithful pursuit by Mr Pearson of business opportunities for HRX'.[109]

Did Emeco have an interest in protecting confidential information?

96 Mr Neil said that there was no confidential information which could support the Competitor Restraint. If, at the time of Mr O'Shea's employment contract on 3 October 2011, there was no reasonable possibility of Mr O'Shea obtaining confidential information, then it may be that the Competitor Restraint could not have been justified solely by reference to Emeco's interest in protecting against Mr O'Shea exploiting his customer connections. But I do not accept that this is the case.

97 As I explain below, Emeco's interest in protecting its confidential information is sufficient to justify the Competitor Restraint. This is particularly so when it is combined with Emeco's interest in protecting exploitation of Mr O'Shea's customer connection, which interest, like Pearson, might even have been sufficient on its own.

Precise identification of the confidential information is not necessary

98 I accept that the starting point in relation to a competitor restraint is that these restraints are often justified on the basis of an interest of the employer in confidential information. However, it is not necessary to identify precisely the confidential information about which, at the date of contract, Emeco could reasonably have expected Mr O'Shea would be exposed.

99 There is sometimes a difficulty in drawing a precise line between confidential and nonconfidential information. In Miles v Genesys Wealth Advisers Limited,[110] in a passage contained in part of the judgment of Hodgson JA with which the other judges agreed, his Honour explained that the case fell into the category where 'there is a restraint on engaging in certain conduct, by reference to the potentiality for confidential information to be used to the promisee's detriment'. His Honour explained that different considerations apply in such cases from an equitable or contractual obligation of confidentiality or the existence of a trade secret. In the latter cases 'it is plainly necessary to identify with some precision the confidential information'. But this is not so in relation to the interest concerned with the potentiality for confidential information to be used to the promisee's detriment.

100 Hodgson JA quoted Lord Denning MR's statement in Littlewoods Organisation Ltd v Harris:[111]

It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not: and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period. (emphasis added)

101 In other words, the court must be satisfied of the anticipated existence of confidential information at the time of contract, and of potential prejudice to the employer's interests from that information. But it is not necessary for an employer to identify that confidential information with precision. If the confidential information and the nonconfidential information cannot be separated it will be impossible to identify confidential information with precision at the date of contract.

102 An example of a case involving imprecise evidence about confidential information is one of the leading decisions in this jurisdiction: Smith v Nomad Modular Building Pty Ltd.[112] In that case the defendant had been employed by the plaintiff in the business of design, manufacture, installation and hire of transportable buildings. The defendant ceased employment with the plaintiff and entered a new contract of employment with Australian Portable Buildings Pty Ltd. His employment contract with the plaintiff contained a competitor restraint preventing him from being engaged or concerned, directly or indirectly, with any competing business in Queensland or Western Australia for six months. There was also a nonsolicitation clause.

103 The plaintiff in Smith sought to enforce those clauses, and a confidential information clause, by an injunction. The defendant argued that the information he learned during his employment with the plaintiff 'was of such a general nonspecific nature as to not fall within the definition' and that the information he did have was not confidential.[113] It was therefore submitted that there was no legitimate interest which the competitor restraint sought to protect.

104 The competitor restraint was held to be reasonable and an injunction was granted. At first instance, Master Sanderson said that the employee inevitably picked up concepts and technical and operational information used by the company. The employee also had an insight into the financial affairs of the plaintiff including confidential information concerning work which had been obtained, work which had been tendered for and tenders on which the plaintiff had been unsuccessful.

It is not possible to say with any precision precisely what the defendant knows which falls within the definition of confidential information. There is no suggestion that he has removed any sensitive documents from the plaintiff or that he has in some way expropriated trade secrets or lists of clients which will assist him in his new employment. Only he knows what he knows and any attempt to define the limit of his understanding is pointless.

106 The Court of Appeal affirmed the master's decision. McLure JA held that the finding in relation to confidential information was a sufficient interest to justify the competitor restraint.[115] Pullin JA observed the broad terms in which the confidential information was expressed in the evidence, and said this of the monthly management reports received by the appellant:[116]

the respondent charged many of its customers, was aware of work the respondent was seeking to obtain in the course of his employment, was aware of major tenders lost by the respondent and he gained information about the respondent's profits and margins of revenue over costs.

107 To the submission that this information was not sufficiently confidential, his Honour said that:[117]

The appellant was a top level employee and his salary package reflected this. As the general manager of manufacturing he was privy to much strategic and operational information which a competitor would be interested to know and which the respondent was entitled to keep confidential by contractual means.

108 Although every case depends on its own facts, it is noteworthy that the information in this case which Emeco claimed to be confidential went considerably further than the evidence in Smith concerning work which had been obtained, work which had been tendered for, profit margins and tenders on which the plaintiff had been unsuccessful.

109 In tightly reasoned submissions Mr Neil submitted that no competitor restraint could ever be justified in the dry hire industry because (i) the information referred to by Emeco is not confidential, and (ii) the information is not in a form which can be carried away in a useful way, and it cannot be used, and (iii) there is no risk of detriment.[118]

110 There are five reasons why this submission should not be accepted.

111 First, there is the existence of confidential information clauses in both Mr O'Shea's employment contract with Emeco and Mr O'Shea's employment contract with NPE.[119] The existence of these provisions in both contracts militates against acceptance of the proposition that this was not an industry with any confidential information, which could be used to the detriment of a business.

112 In Mr O'Shea's NPE contract, confidential information was defined to include 'financial information concerning the Group (including, but not limited to, trade practices, pricing policies and customer lists)'. The presence of this cause suggests that NPE considers that there is confidential information in this industry which can be used potentially to its detriment. And, as explained above, one reason for the need for a competitor restraint is because it is difficult to draw the line between information which is confidential and information which is not.

113 Secondly, a reason why it could be expected that Mr O'Shea would retain confidential information which could be used to the detriment of Emeco is recital (d) to the restraint provision in Mr O'Shea's employment contract. In that recital he acknowledged that 'it is in Emeco's legitimate business interests to protect the use by you or other of Confidential Information to its detriment'.

114 Although a contract cannot merely by reciting background, or expanding the definition of confidential information, convert the unreasonable into the reasonable, '[t]he assessment of the contractual parties on that subject is not determinative but neither is it irrelevant, particularly where, as here, competent parties contract at arms length by reference to their commercial assessments and interests'.[120]

115 Thirdly, a further reason why it is reasonable to expect that Mr O'Shea would retain confidential information which could be used to the detriment of Emeco is the words of the definition of confidential information in Mr O'Shea's contract of employment with Emeco. It was not suggested that this clause was unenforceable. Indeed, Mr O'Shea's undertaking to the court replicated the confidential information clause.

116 In the confidential information clause in Mr O'Shea's employment contract the parties agreed that:[121]

'Confidential Information' includes (but is not limited to) the following:

(1) trade secrets of Emeco;

(2) information about the business and affairs of Emeco or the Corporate Group including information about products, services, financial accounts, reports of Emeco and clients of Emeco, marketing and/or strategy plans, commercial and business plans, client proposals, sales plans, client prospects, information about professional fees, pricing information, supplier lists, research, financing, inventions, designs, precedents, procedures or processes, sales and training materials, and operational information and methods of Emeco;

(3) information about Clients of Emeco, such as their specific requirements, arrangements and past dealings with Emeco;

(4) names and addresses of Clients of Emeco or the Corporate Group, Client lists, business cards and diaries, calendars or schedulers;

(5) computer data bases and computer software; and

(6) all other information obtained from Emeco or the Corporate Group or obtained in the course of your employment with Emeco, that is by its nature confidential.

117 Although a contractual term is not conclusive of the confidentiality of information, it is permissible to have regard to a clause which specifies the information which is considered to be confidential for the purposes of identifying the information which is properly regarded as confidential.[122]

118 As I have explained above at [28] and [35], much of this confidential information (as defined) concerned matters to which a business development manager was exposed regularly.

119 Fourthly, as I have explained, at the core of the role of a business development manager was to obtain the trust of a client including knowledge of confidential issues particular to an individual client.

120 In McPherson v Moiler,[123] a local manager of a stock and station agency in a local town was restrained from competing in that town because of the knowledge as a manager which he could use in the employment of a competitor to the detriment of his employer: 'particular matters, specific matters, specific individuals, specific dealings, which would be very material, and of the greatest possible assistance to another competitor'.

121 Again, in Cash Orders (Amalgamated) Ltd v Haynes,[124] Long Innes CJ in Eq spoke of the importance of the defendant's knowledge of customers: 'financial ability and stability, and the gullibility, proneness to extravagance and susceptibility to persuasion'.

122 Fifthly, another reason why it could reasonably be expected that there was confidential information of Emeco's to which Mr O'Shea would have access and which could be used to Emeco's detriment by a competitor, is the evidence of what actually occurred.

123 As I have explained above at [68], it is permissible to consider evidence of events subsequent to the contract in order to assess what the parties might reasonably have expected about the extent and nature of confidential information, and the manner in which it could affect Emeco. Some of the evidence also concerned the period from 21 October 2010 until Mr O'Shea's second employment contract (3 October 2011) which is the subject of this litigation.

124 For the reasons which follow, the evidence shows that it could reasonably have been expected that Mr O'Shea would obtain confidential information which could be used by a competitor, to the detriment of Emeco.

125 The key determinants of whether Emeco would succeed in a tender were availability of equipment, capability of Emeco to fulfil the contract, and price.[125] In relation to ongoing contracts, and whether those contracts would be terminated early, or renewed, another key determinant would be the relationship that the business development manager had with the customer. As I have explained, this maintenance of long term relationships and trust was a key function of the role of business development manager.

126 I accept Mr Neil's submission that some of the information which witnesses called by Emeco described as confidential was not in fact confidential. For instance, the price offered to a particular customer, or the machine hired to a particular customer, was a matter known to the customer. And there was nothing to prevent the customer from revealing that information to others.

127 In oral submissions Mr de Kerloy conceded that knowledge of price was not the confidential information which was the relevant interest of Emeco; but one relevant interest upon which he relied in oral submissions was not price but pricing strategies.[126]

128 Emeco did not establish that Mr O'Shea's knowledge of pricing strategies could be used by a competitor to Emeco's detriment for the following reasons.

129 Evidence was given for Emeco concerning a number of items which were not public knowledge and which were part of Emeco's pricing strategies. One of those was Emeco's target internal rate of return. The internal rate of return was not publicly available. Mr O'Shea was aware of the range which was Emeco's required internal rate of return.

130 The difficulty with the submissions that an internal rate of return is confidential information which could be used to the detriment of Emeco as knowledge of pricing strategy is that the knowledge of this internal rate of return cannot meaningfully be translated into an estimated price. If a competitor were aware of the internal rate of return, the competitor would also need to be aware of the pricing model (the LCC) used by Emeco to generate the price required by that internal rate of return. Assuming that the competitor knew all the formulas in the excel pricing model, the competitor would still need to enter the many factors which would be particular to an individual contract including hours, maintenance responsibilities, labour rate, utilisation before the model would reveal a potential price.[127]

131 Finally, even once a price was revealed by the pricing model, Emeco's pricing approach involved the price being adjusted by the general manager taking into account discretionary factors such as the price Emeco expects that it can achieve in the market, the length of contract, the ability of the client to pay, the desire of Emeco to obtain the contract, and so on.[128]

132 There are simply too many intermediate steps between the internal rate of return and a final price which is offered to a potential customer to permit the conclusion that a competitor could meaningfully use the internal rate of return as part of its knowledge of pricing strategy to Emeco's detriment.

133 In contrast with pricing strategy, there were other areas in which evidence was given of actual confidential information accessed by business development managers which could be used to Emeco's detriment.

134 I have referred above at [28] and [35] to the information accessed by the business development managers. Some of this information is not strictly confidential. For instance, there is no reason to prevent a competitor approaching each mining company operating in Western Australia, asking whether that company has a contract with Emeco and asking to see the pricing terms and conditions and termination provisions. If consent were forthcoming, then the competitor might be able to undercut Emeco.

135 However, a compilation or collation of that information can provide valuable confidential information to a competitor even if the individual items in the compilation do not.[129] Various collations of Emeco's information include particular matters which are specific to each of the limited number of dry hire mining customers in Western Australia; it included the dates when their contracts come to an end; it included the availability of Emeco's equipment; and the client's decision makers.

136 The collations, and subsets of them, are confidential information which is a legitimate interest capable of protection. They involve information which, together with the regular discussions of business development managers, could reveal the extent of Emeco's spare capacity; the clients of Emeco, including their weaknesses and strengths, and which are most vulnerable to approach by a competitor; the best time to approach such a client; and the best people to approach working for that potential client.

137 Mr Milne referred to three such examples of collated information which were not publicly accessible. These were exhibits.[130] I consider that each of these compilations was confidential information and that some could be used by a competitor to the detriment of Emeco.

138 The first was an 'Overview' table identifying project specific details, client details, equipment on hire and its value, the responsible business development manager, the start date and tenure of the contract, and comments in relation to the client including the tender status and fleet information.

139 Mr O'Shea said, but I do not accept, that he could not recall any information from this document.[131] In any event, it could reasonably have been expected by Emeco at the date of contract that Mr O'Shea would remember substantial parts of this Overview, which was readily accessible by all business development managers and which was not a document which needed to be updated on a regular basis.[132] I concluded from Mr Halls' evidence in crossexamination that Mr Halls remembered a substantial amount of this information.

140 Another example was a table entitled 'Current Equipment Hire Table'. This was a summary of each of Emeco's clients; the identification, status and location of equipment on hire; the dates on which contracts would come to an end; and comments specific to particular clients.[133]

141 Mr O'Shea said, but I do not accept, that he was not aware of this table and had no knowledge of ever seeing it.[134] The table was saved onto Emeco's computer system and was readily accessible by all business development managers. Although most information in it was static, it was updated by the business development managers (of which, as I have explained, there were between two and four) and information from it was shared in business development manager meetings.[135] Again, it could reasonably have been expected at the date of contract that Mr O'Shea would recall information from a table of this nature.

142 A third example was an excel spreadsheet listing Emeco's entire plant and equipment fleet as well as the location and future movements of that plant and equipment.[136] However, this summary of equipment was updated on a weekly basis.[137] Recollection of this information would be of limited value after a month or so following termination of employment.

143 Mr O'Shea could not have been expected to remember all the information in the various collations. For instance, Mr Halls' evidence was that Emeco had 170 units of its fleet in Western Australia.[138] However, it is reasonable to expect that he could have remembered a substantial amount of it. This was information which he would consider on many days of his employment.

144 The third area in which Mr O'Shea was privy to confidential information of Emeco was in relation to its strategic plans for development and its potential future customers.

145 Mr Stubbs estimated that Mr O'Shea spent about 40% of his time working on business development opportunities.[139] Mr O'Shea said that he spent 90% of his time managing the accounts of the five companies for whom he was the primary contact.[140] I do not consider Mr O'Shea's evidence to be reliable, and I accept that Mr Stubbs was in a position to make a reasonable estimation of the time which Mr O'Shea spent on business development opportunities. I accept the evidence of Mr Stubbs.

146 In a June 2011 'position description', prior to Mr O'Shea's entry into his 3 October 2011 employment contract,[141] two of the 'core responsibilities' of Mr O'Shea were described as follows:

(2) Work closely with the Rental State Manager to gain a complete understanding of the State P&L, forecasting and budgeting requirements

(3) Contribute to strategic plans, budgets and reports to the Rental State Manager. (emphasis added).

147 The fourth area in which Emeco had confidential information of importance is the collation of the names and addresses of clients of Emeco, their business cards and diaries, calendars and schedules together with information about the client, such as their specific requirements, arrangements and past dealings with Emeco.

148 These collations were referred to as matters specifically requiring protection in the confidential information clause quoted above. As I have mentioned, there was no suggestion that this confidential information clause was unenforceable. The undertaking offered by Mr O'Shea borrowed from this clause.

149 A mere customer list is capable of being confidential information depending on the facts of the case[142] and where the customer list is accompanied by specific information about each customer, the need for confidentiality is heightened.

150 In SBJ Stephenson Ltd v Keith Anthony Mandy,[143] Bell J held that a confidentiality clause was enforceable, and was infringed, by an employee's use of a collation of similar information after termination. The clause in that case prohibited disclosure of 'any information in relation to the affairs of the Company'.

151 The collation of information involved in SBJ Stephenson Ltd concerned the names of the clients, details of renewal dates, cover provided and claims made, fee rates or rates or brokerage earned, construction of insurance programmes, markets used and the manner in which policies were arranged or formulated.[144] The former employee's submission that the information was not confidential if part of it was retained in his head was rejected. Bell J held that it was 'unreal' to suggest that the employee could have used his knowledge merely of the identity of clients to approach them on behalf of a competitor without using some, at least, of the protectable information.

EMECO INTERNATIONAL PTY LTD -v- O'SHEA [No 2] [2012] WASC 348 (20 September 2012)

At a glance

Court

Decision date

Before

Source

Judgment (580 paragraphs)

Precise identification of the confidential information is not necessary

Cases Cited (16)