Hotwork Australia Pty Ltd v Tomkins

Supreme Court of NSW|2020-05-04|Before: Henry J

Judgment

The plaintiff, Hotwork Australia Pty Ltd, provides refractory services to industries that use commercial furnaces with hot and molten materials. Hotwork Australia is a wholly owned subsidiary of Hotwork - USA LLC.
Since 2003, the first defendant, Jason Tomkins, had been employed as a Regional Manager in Australia and had also been a director of Hotwork Australia. On 31 December 2019, Mr Tomkins resigned as director and gave four weeks' notice in respect of his employment.
The second defendant, Heat Applications Global Pty Ltd (HAG), is a company which Mr Tomkins helped incorporate on 11 December 2019 as a new refractory services business in Australia.
Mr Tomkins signed an employment agreement with HAG, effective from 1 February 2020. He has been working for HAG and has assisted it to win the business of Hotwork Australia's major clients.
The third defendant, Heat Applications India PVT Limited (HAI), is a company incorporated in India. It also provides refractory services and materials to clients, primarily in the Asian region. HAI is the parent company of HAG.
By an amended notice of motion filed on 20 April 2020, Hotwork Australia seeks interlocutory relief to restrain Mr Tomkins, HAG and HAI from using its confidential information, an order for delivery up and an affidavit of disclosure. It also seeks an interlocutory injunction to restrain Mr Tomkins from soliciting and dealing with Hotwork Australia's clients, employees and sub-contractors.
The claims for interlocutory relief and orders relating to confidential information have been resolved between the parties. The defendants have proffered an undertaking to the Court not to use or disclose Hotwork Australia's confidential information. Mr Tomkins has also consented to delivery up and disclosure orders which I am satisfied are appropriate to make.

Issues for determination

The basis on which Hotwork Australia seeks the relief is that Mr Tomkins' solicitation of or dealings with its clients would breach restraints contained in a Trade Secrecy/Confidentiality and Non-Competition Agreement which, it asserts, Mr Tomkins signed as an employee of Hotwork Australia on 10 June 2005 (Agreement) and are valid as reasonably necessary in the protection of Hotwork Australia's customer connections.
The restraints in the Agreement, each with a duration of two years from termination of Mr Tomkins' employment, also apply during his employment. They can be summarised as being: 1. a restraint on diverting, soliciting or contacting any suppliers, sources, customers or accounts of the Employer with the object of causing them to transfer business from the Employer (non-solicitation restraint); and 2. a restraint on engaging in any business that provides services to Protectable Industries (as defined) in any country where the Employer offers Refractory Dry-Out Services and associated services (non-compete restraint).
Before identifying the issues in dispute, three observations should be made about the relief sought by Hotwork Australia and the restraints.
First, the relief seeks to restrain Mr Tomkins from, "soliciting canvassing, approaching, accepting approaches from, or attempting to entice away or provide services to any client of Hotwork Australia". As Counsel accepted at the hearing, Hotwork Australia does not seek to restrain Mr Tomkins from working for HAG as a competing business or from competing in the market for refractory services more broadly.
Second, while Counsel for Hotwork Australia referred at the hearing to seeking to enforce the non-solicitation and non-compete restraints, the relief sought arises from and reflects the content of the non-solicitation restraint (although not in precisely the same terms as the Agreement), rather than the non-compete restraint.
Third, the non-solicitation restraint contained in the Agreement extends to customers of the "Employer or its Affiliates". At the hearing, counsel for Hotwork Australia conceded that any relief should be limited to "current" clients of Hotwork Australia. By that, I understand him to mean those clients to whom Hotwork Australia was providing services at the time of Mr Tomkins' resignation.
In the light of the above, I have approached the issues for determination on this interlocutory application as relating to the validity and reasonableness of the non-solicitation restraint limited to current clients of Hotwork Australia and not whether, in addition, the non-compete restraint is valid and reasonably necessary for the protection of Hotwork Australia's interests.
Accordingly, and as a claim for interlocutory relief, the issues for determination are: 1. whether there is a serious question to be tried that there has been a breach or threatened breach of the non-solicitation restraint in the Agreement; 2. whether there is a serious question to be tried that the non-solicitation restraint in the Agreement is a valid restraint, whether for two years or a lesser period; and 3. whether the balance of convenience and other discretionary factors favour the grant of the interlocutory relief.
In support of its application, Hotwork Australia relies on an affidavit of Jason Frendo, Technical Sales Representative employed by Hotwork Australia, sworn 26 March 2020 and an affidavit of Thomas Carlisle Graham, Jnr, the Chief Executive Officer of Hotwork USA and a director of Hotwork Australia, sworn 31 March 2020.
The defendants rely on an affidavit of Mr Tomkins affirmed 22 April 2020.
As it was an interlocutory hearing, there was no cross-examination.

Factual matters

Refractory services and materials are provided to clients that use commercial furnaces in a range of industries, such as glass, steel, cement, oil refining and petro-chemicals. They are used in order to maintain temperature so as to protect the furnace from over-heating and to make them more fuel-efficient.
The refractory services that the Hotwork companies and their competitors provide include refractory dry-out, glass furnace drains, sulphate burnouts, furnace cooldowns, expansion control supervision, "hot holds" and heat up services. The refractory services market involves highly specialised work of a technical nature, particularly in the glass industry.
Hotwork USA operates in the USA and elsewhere around the world. Hotwork Australia operates in Australia.
The refractory services and materials market is relatively concentrated. There are seven main competitors to Hotwork Australia and Hotwork USA operating in the Asia Pacific region. One of those competitors is HAI.
Hotwork Australia was incorporated in 2003. Most of its revenues are from clients in the glass industry, in particular, Owens-Illinois, CSR and Viridian Glass. It also has clients in other industries including Cement Australia, One Steel Whyalla, Blue Scope Steel and Chevron.

Mr Tomkins and Hotworks

In 1993, Mr Tomkins commenced his career as a field service technician in respect of refractory material used in commercial furnaces. He has no professional qualifications other than as a chef, which he obtained prior to his career in the refractory field, and a certificate in sports coaching.
From 1997 to about 2000, Mr Tomkins worked for Hotwork USA as a contractor in Southeast Asia.
In late 2000, Mr Tomkins accepted an opportunity to relocate to Australia as Hotwork USA's representative.
An unsigned employment agreement between Mr Tomkins and Hotwork USA dated 8 June 2000 is in evidence. According to that agreement, Mr Tomkins was employed as a Regional Representative and was responsible for managing all company activities in Australia and New Zealand, including sales and marketing to refractory consuming industries in an undefined territory, and for managing the engineering and execution of projects. He received a base annual salary of approximately US$38,500 plus sales commission of 1% of net sales up to a maximum of 35% of the base salary (i.e. a maximum of US$13,475).
On 8 August 2003, Mr Tomkins was appointed a director and company secretary of Hotwork Australia. According to his evidence, Mr Tomkins did not receive additional remuneration and was told that his appointment to those positions was due to the requirement that there be an Australian resident on the board and that his role would not otherwise change.
From sometime in 2003, Mr Tomkins started to be paid in Australian dollars. He received a profitability bonus in most years between about AUS$2,000 to AUS$4,000, as well as an uplift for days spent onsite. In 2019, Mr Tomkins' last year of employment, he was paid a total of AUS$139,000 by way of salary and bonus.
On 10 June 2005, Mr Tomkins signed the Agreement. The first paragraph provides that: "This Agreement is made and entered as of this 10th day of June, 2005 by and between Hotwork-USA LLC and Hotwork Australia Pty Ltd, the other party signing this Agreement, who is an employee, consultant or agent of Employer."
Article II of the Agreement deals with the "Protection of Trade Secrets" and Article III deals with "Non-Competition". Clauses 3.01 and 3.02 of the Agreement provides as follows: "[3.01] Period of Non-Competition. Employee agrees that during the term of his employment with Employer and for a period of two (2) years from and after the termination of such employment, he will not, in any country within the Territory where Employer then engages in the business of offering or providing Refractory Dry-out Services and associated Services as defined in paragraph 1.02 or in any other country where Employee may be sent by Employer, directly or indirectly, either as principal, agent, shareholder, officer, director, employee, partner, lender, investor, consultant, advisor, agent or in any their capacity, engage in, have a financial interest in, or be in any manner connected or affiliated with any business or entity which engages in the business of providing such services to the Protected Industries. [3.02] Non-Solicitation. During the period of his employment by Employer and for a period of two (2) years from and after the termination of such employment, Employee shall not in any way, directly or indirectly, (i) divert, solicit, contact any suppliers, sources, customers or accounts of Employer or its Affiliates or any person or entity with which Employer or its Affiliates has had business dealings or relationships of any ongoing nature with the objective of causing such party to transfer its business from Employer or its Affiliates to any other person, firm, partnership, corporation or entity or (ii) induce or attempt to influence any present or future employee of Employer or its Affiliates to leave his employment."
Territory is defined in clause 1.05 to mean: "the United States and its territories, Canada, Mexico, Australia, New Zealand, Southeast Asia, (including Singapore, Indonesia, Thailand, Malaysia, Vietnam, and the Philippines), Korea, Taiwan, Japan, China, India, Central and Southern Africa, Europe, the Middle East, the states of the former Soviet Union and any other countries in which Employer or its Affiliates perform Refractory Dry-out/Furnace Heatup & Associated Services as defined herein during the term of Employee's employment."
"Employee" is defined in clause 1.06 to mean "Employee, Sub-contractor, Consultant or Sales Agent as noted in the agreement statement of this document".
The governing law of the Agreement is the country of residence of the Employee: clause 5.04.
The Agreement bears the signatures of, on the one hand, the President and Vice-President of Hotwork USA and, on the other hand, Mr Tomkins. It is also witnessed.
There are no other employment agreements in respect of Mr Tomkins in evidence.
During the period 2003 to 2009, Mr Tomkins was the most senior employee in Australia. His roles and responsibilities at Hotwork Australia included: 1. performing duties of a field service technician; 2. marketing Hotwork USA products and services in Australia and New Zealand, including through promotion, managing client relationships, identifying sales opportunities and assisting in the preparation of quotations; 3. liaising with clients in respect of their equipment requirements, quotations and proposals; 4. managing those clients that manufactured glass, such as Owens-Illinois and CSR; 5. reporting to Hotwork USA on sales activities, results and projections; 6. managing Hotwork Australia's office, sales records and staff, including training of staff. During this period Hotwork Australia employed at least 2 other full time staff, including Mr Frendo, a technical sales representative from September 2014; and 7. providing maintenance services, performing upgrades of Hotwork Australia and Hotwork USA's equipment and commissioning refractory materials that had been installed for clients.
Mr Tomkins has particular expertise in refractory services in the glass industry. Furnaces used for the production of glass require very specific and expensive types of refractory materials.

Mr Tomkins resigns from Hotwork

In around October 2019, Mr Tomkins and one of the owners of HAI discussed Mr Tomkins resigning from his role at Hotwork Australia and representing HAI in Australia. By mid-November, they had agreed the broad terms of that arrangement.
Between 5 and 31 December 2019, Mr Tomkins took a number of steps in relation to the establishment and future operation of HAG, including arranging the incorporation of HAG on 11 December 2019. There is evidence that Mr Tomkins: 1. set up a new email address for HAG; 2. sent to HAG and/or HAI and third parties information and technical drawings about equipment used by Hotwork Australia; 3. arranged for his partner, Larraine Sands, to be a director of HAG but planned to consider appointing himself "when the dust settled"; and 4. discussed with HAI opportunities for targeting work with HAI, including a quotation for work in Indonesia, although he deferred submitting a quote because it was "very sensitive while [he's] still at Hotwork".
On 31 December 2019, Mr Tomkins sent an email to the Chief Executive Officer and Vice-President of Hotwork USA attaching a letter as formal notice of his resignation as a director of Hotwork Australia, and that his last day of employment would be in four weeks, being 28 January 2020.
There is evidence that, on 30 December 2019, Mr Tomkins also discussed his resignation with the CEO of Hotworks USA, Mr Graham, in which he advised that he had another "offer", that Hotwork may consider it to be "a violation" but the "agreement is too broad and unenforceable".
On 3 January 2020, Owens-Illinois sent out an invitation to tender to Hotwork Australia for a three-year exclusive services contract. Mr Tomkins was not involved with Hotwork Australia's response, although he had attended a preliminary meeting with that client on 3 December 2019 during which the prospect of the tender process was discussed.
On 4 January 2020, Mr Tomkins sent to HAI suggested pricing for the schedule of rates that Owens-Illinois had requested in its tender.
On 6 January 2020, on behalf of HAG, Mr Tomkins sent a "Business start-up plan" to the ANZ Bank. The business plan refers to HAI expanding in Southeast Asia and establishing a local Australian entity with Mr Tomkins as the lead local source. It also refers to the strategy of first securing a services contract agreement with Owens-Illinios and noted that Mr Tomkins had been providing all of their furnace requirements for the last 20 years in Australia.
On 7 January 2020, Mr Tomkins sent to HAG a copy of a quote prepared for CSR by Hotwork Australia dated 27 March 2019. On the next day, he sent an email to Owens-Illinois attaching a presentation which outlined the credentials of HAG.
Mr Tomkins' last day in Hotwork Australia's office was 14 January 2020. He had previously been told by Mr Graham that he did not need to continue to work until 28 January 2020. When he left, he returned his work computer and work phone.
According to a document in evidence, Mr Tomkins' was paid for annual leave for the period from 14 to 28 January 2020 and long service leave accruing to 28 January 2020.

Events after Mr Tomkins' last day in the office

On the evening of 14 January 2020, Mr Tomkins caused a quote from HAG to be submitted to CSR for refractory services. Around 15 January 2020, CSR awarded the work to HAG.
On 19 February 2020, Mr Tomkins signed an employment agreement with HAG, effective from 1 February 2020.
On 24 January 2020, Mr Tomkins submitted a response to Owens-Illinois' invitation for tender on behalf of HAG and HAI. On 26 February 2020, Owens-Illinois informed HAG that it had won the tender for their three-year contract.

These proceedings

Mr Frendo's evidence is that, on 3 February 2020, he identified the HAG email account on Mr Tomkins' work computer and that emails had been sent from that address to HAI and its principals. Over the next few days, he also identified that Mr Tomkins had sent numerous documents to HAG and HAI, including technical drawings and other commercial information relating to Hotwork Australia, had also sent emails from the HAG address to Owens-lllinois and CSR, and that CSR awarded refractory services work to HAG. These matters were raised with Mr Graham.
On 6 February 2020, Hotwork Australia's lawyer sent letters of demand to Mr Tomkins, HAG and HAI. There is evidence of further correspondence between the parties and their solicitors during the period 12 February 2020 to 4 March 2020, in which Hotwork Australia sought undertakings from Mr Tomkins that he refused to provide.
These proceedings were commenced by Hotwork Australia by summons and commercial list statement filed on 2 April 2020.
In the commercial list statement, Hotwork Australia claims that, prior to leaving its employment, Mr Tomkins accessed Hotwork Australia's confidential and other business information for use by HAG and HAI in breach of the Agreement and his duties as a director under ss 182 and 183 of the Corporations Act 2001 (Cth). The summons seeks final injunctive relief in the same terms as the interlocutory relief sought, although as against each of Mr Tomkins, HAG and HAI. It also seeks damages, equitable compensation and an account of profits.

Breach of restraint

The first question is whether Hotworks Australia has established there is a serious question to be tried that Mr Tomkins has actually breached or threatens to breach the non-solicitation restraint in the Agreement.
As threshold issues, Mr Tomkins disputes that Hotwork Australia has established that Mr Tomkins was an employee of Hotwork Australia or that the Agreement was binding on Mr Tomkins personally or can be enforced against him by Hotwork Australia. They contend that Mr Tomkins was employed by Hotwork USA (not Hotwork Australia) and, assuming the Agreement is enforceable, Hotwork USA is the entity that has the benefit of the restraints.
The relevance of this is that Hotwork Australia is the only plaintiff and its claim for final interlocutory relief as currently pleaded will fail if it cannot establish it was Mr Tomkins' employer and can enforce the Agreement against him. At the hearing, Counsel for Hotwork Australia noted that Hotwork USA may need to be joined as a party or a plaintiff to the application but did not seek leave to do so.
The defendants also argue that, if Mr Tomkins was a party to the Agreement in his personal capacity, there is doubt as to whether Hotwork Australia has the benefit of the restraints. They also submit that, in circumstances where there is no evidence that Mr Tomkins received any wage or salary increase in exchange for signing the Agreement, the Court cannot be satisfied that any consideration was given at the time.
The answer to the question of whether and when Mr Tomkins was an employee of Hotwork Australia is not clear on the material before the Court. The only employment agreement in evidence is the 8 June 2000 unsigned agreement between Hotwork USA and Mr Tomkins. That uncertainty cannot be finally resolved on this interlocutory application in the absence of cross-examination and further evidence.
That said, there is evidence before the Court which, in my view, establishes that it is arguable that Mr Tomkins was an employee of Hotwork Australia at the relevant times.
First, there is the evidence from Mr Graham and Mr Frendo to that effect, although I accept that their evidence was not in proper form.
Second, there is documentary evidence which indicates that Mr Tomkins was employed by Hotwork Australia from 1 January 2004. The document recording the details of Mr Tomkins' last salary payment refers to him as an employee of Hotwork Australia Pty Limited starting on 1 January 2004. It also indicates that Mr Tomkins' entitlements were calculated on that basis.
Third, and while not determinative, there is also evidence that suggests Mr Tomkins considered himself to be an employee of Hotwork Australia. His 31 December 2019 email attaching his letter of resignation states that he is "resigning from Hotwork Australia Pty Limited". An email dated 8 October 2019, from Immigration Solutions to Mr Tomkins, refers to Mr Tomkins as the Regional Manager of Hotwork Australia Pty Limited, which was based on his instructions. It also refers to Hotwork "currently [having] only 4 employees". Mr Tomkins' affidavit evidence suggests that he was one of those employees.
As to the Agreement, the wording of the first paragraph which states "by and between Hotwork - USA LLC and Hotwork Australia Pty Limited, the other party signing this agreement, who is an employee, consultant or agent of Employer …", can be read as providing for the parties to the Agreement being Hotwork USA on the one part and Hotwork Australia on the other. As Counsel for Hotwork Australia accepted at the hearing, on his case, there appears to be a missing "and" between the words "Hotwork Australia Pty Limited" and "the other party signing this agreement".
In construing a contract, the entire text and language used must be considered, as well as the circumstances addressed and the purpose or object to be served: Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37.
In my view, when consideration is given to the language used and the purpose to be served, it is seriously arguable that the Agreement was between Hotwork USA and Hotwork Australia on the one part, and Mr Tomkins on the other as the Employee who was providing the relevant covenants and agreeing to be bound.
The Agreement is signed by Mr Tomkins in his personal capacity without any reference to signing as a director of Hotwork Australia. This is in contrast to Mr Hartley and Mr Cobane, who signed in their capacities as President and Vice-President, presumably of Hotwork USA. At the time, Mr Hartley was also a director of Hotwork Australia.
The purpose and object of the Agreement is to impose conditions on an Employee to the benefit of the Employer (in this case, arguably Hotwork Australia) and its Affiliates. As Hotwork Australia was (and remains) an Affiliate of Hotwork USA, there was seemingly no need for it, as opposed to Mr Tomkins as the Employee, to provide the covenants for the benefit of Hotwork USA. Further, clauses 3.01 and 3.02 refer to the Employee as "he" and there is a "Gender" clause, which also suggest that Mr Tomkins as an individual, rather than Hotwork Australia as a corporate entity, was intended to be the Employee.
The Agreement also expressly provides that consideration has been given by way of employment and for "other good and valuable consideration", receipt of which is acknowledged. While there may be no evidence of any financial consideration given to Mr Tomkins at the time, the reference to consideration on the face of the Agreement is, in my view, sufficient for the purposes of establishing a serious question to be tried on an interlocutory application.
The defendants also argued that Mr Tomkins' evidence raises doubt about the enforceability of the Agreement as he does not recall signing it, nor does he know the person who witnessed the signature, who he says never worked for Hotwork Australia.
I am not persuaded by that submission. Mr Tomkins' evidence is that he recalls receiving the Agreement and he does not dispute that it is his signature on it. As to the witness, they could have worked for Hotwork USA or some other company, other than Hotwork Australia. The Agreement having been signed by Mr Tomkins is a persuasive factor which supports the contention advanced by Hotwork Australia that Mr Tomkins agreed to the restraints contained within it and is bound by them.
The next question is whether there is sufficient evidence of actual or apprehended breach of the non-solicitation restraint in the Agreement.
In my view, there is a seriously arguable case that Mr Tomkins contravened the non-solicitation restraint while he was employed by Hotwork Australia based on his contacts with Owens-Illinois and CSR in January 2020. By those contacts, it is seriously arguable that Mr Tomkins was promoting HAG's business with the object of causing the clients to transfer their business away from Hotwork Australia .
There also seems to me to be little doubt that, post-employment with Hotwork Australia, the evidence establishes that Mr Tomkins is likely to have breached and continues to breach the non-solicitation restraint in the Agreement. His own evidence makes clear that he does not want the injunction to be imposed as it would prevent him from working in the area of his specialisation, being the supply of refractory services for glass manufacturing clients. Implicit in that evidence is that he intends to continue to work for HAG with Owens-Illinois and CSR and approach other clients of Hotwork Australia. I note that there was no submission to the contrary.

Validity of restraint

The principles to be applied in determining the question of validity and reasonableness were not in dispute. As a contractual restraint, it is subject to the operation of the common law and the Restraints of Trade Act 1976 (NSW), s 4. I respectfully adopt the principles set out by McDougall J in Stacks/Taree Pty Limited v Marshall (No 2) [2010] NSWSC 77 at [44]. I will not repeat them all here, other than the following principles which have particular relevance to this application.
The validity of the restraint clause should be assessed at the time of entry into the Agreement: Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [53]; Woolworths Ltd v Olson [2004] NSWCA 372 at [40].
Covenants that restrain competition are invalid unless they are reasonably necessary to protect legitimate business interests: see for example Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at [24], [25] per White J.
An employer is entitled to protection against the use by the employee of knowledge obtained by them of their employer's affairs in the ordinary course of trade: Dewes v Fitch (1920) 2 Ch 159 at 181. A restraint clause will be invalid unless it is necessary to prevent disclosure of trade secrets or use of a connexion built up by the employee with customers: JD Heydon, The Restraint of Trade Doctrine (Butterworths, 2nd ed, 1999) at 66; Aussie Home Loans v X Inc Services [2005] NSWSC 285 at [14] per White J.
The relevant knowledge must be more than simply the skill and knowledge necessary to equip the employee as a possible competitor in the trade, but the obtaining of personal knowledge of and influence over the customers of their employer, or such an acquaintance with their employer's trade secrets as would enable them to take advantage of their employer's trade connection or utilise information confidentially obtained: Dewes v Fitch (1920) 2 Ch 159 at 181.
An employer's customer connection is an interest which can support a reasonable restraint of trade, but only if the employee has become, vis-a-vis the client, the human face of the business, namely the person who represents the business to the customer: see for example Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [25] per Brereton J; Kearney v Crepaldi [2006] NSWSC 23 at [51] - [53] per McDougall J.
At the time of the Agreement, Mr Tomkins was the most senior representative of Hotwork Australia in Australia and New Zealand and a director and its company secretary. He was responsible for managing all company activities in Australia and New Zealand, including sales and marketing to refractory consuming industries. According to Mr Graham, Mr Tomkins was in charge of developing work and procuring clients.
Thus, while he had only been in Australia for a few years at the time he signed the Agreement, Mr Tomkins had been the one who had developed the goodwill and Hotwork Australia's brand with its clients up until that time and was expected to continue to do so based on his position and responsibilities. When an employee's duty includes to build up the employer's clientele as well as to deal with existing clients, a wide restraint is more likely to be upheld as the establishment of customer connection is not merely incidental to the employment, but part of its purpose and is legitimate to protect: Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [44].
I am also satisfied that through his role, Mr Tomkins acquired knowledge of the needs and requirements of Hotwork Australia's clients, particularly those in the glass industry which were managed by him, such as Owens-Illinios and CSR.
Mr Tomkins was responsible for identifying their requirements, responding to their proposals and assisting with quotations, as well as dealing with the technical issues relating to equipment and materials supplied to them. As evidenced by his attendance at the briefing meeting with Owens-Illinois in December 2019, Mr Tomkins' role meant he was involved in important, and arguably confidential, meetings with clients. He also took steps to deal personally with emergency issues that arose for clients, such as the situation at Owens-Illinois' Brisbane plant in December 2019.
For these reasons, I accept Hotwork Australia's submission that Mr Tomkins was, in effect, the "human face" of Hotwork Australia's business, particularly those that he managed, and which provided between 75-85% of Hotwork Australia's revenue.
As the defendants' submit, as an employee, Mr Tomkins was likely in a position of unequal bargaining power and may not have had an opportunity to negotiate at the time he signed the Agreement. Of course, the same could be said for many employees.
The lack of additional financial benefit flowing to Mr Tomkins when he signed the Agreement or provision for payment to Mr Tomkins during the restraint period are also relevant factors to take into account in assessing the reasonableness of the restraint. But those matters are not, of themselves or together, factors which persuade me to find that there is no serious question to be tried that, as at the date of the Agreement, Hotwork Australia had a legitimate protectable interest in its customer connection such as to warrant protection by the non-solicitation restraint.
As to duration, the relevant question to consider when it is for the protection of customer connection is: what is a reasonable time during which Hotwork Australia was entitled to protection against the solicitation of its clients with whom Mr Tomkins had contact and influence during his employment and who were not bound to Hotwork Australia by contract or by stability of association: Stenhouse Australia Ltd v Phillips [1973] 2 NSWLR 691 at 699; [1974] AC 391 at 402.
That question can be answered by considering, either, the length of time it would take a reasonably competent replacement employee to show their effectiveness and establish a rapport with clients or, how long it would take to sever the relationship built up between Mr Tomkins and those clients for which he was responsible: Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [88]; Stacks/Taree Pty Limited v Marshall (No 2) [2010] NSWSC 77 at [66]-[74] per McDougall J. Either approach may be taken: Hanna v OAMPS Insurance Brokers Ltd (ACN 005 543 920) [2010] NSWCA 267 at [41]-[45] per Allsop P (Hodgson JA and Handley AJA agreeing).
While contending that a two year period was reasonable because of Mr Tomkins' position and the nature of the industry, at the hearing, Hotwork Australia's Counsel seemed to accept that two years may be too long. He argued that a period of at least eight to 12 months was necessary and reasonable, and that relief was necessary on that basis. The defendants submitted that, if the restraint were otherwise valid, it would be limited to three months and no more than five months.
The difficulty with this aspect of Hotwork Australia's claim is that it has adduced little evidence from which to assess whether two years is the time necessary for its other employees to establish a new client connection or sever the relationship with Mr Tomkins. No estimate was proffered in its evidence as to the time likely to be required for that purpose, nor was there any evidence of efforts taken by Hotwork Australia to rebuild the customer connection lost with Mr Tomkins' departure.
As to the objective evidence, Hotwork Australia's business involves the supply of services of a technical and specialised nature, particularly to those clients in the glass industry. It is, therefore, to be expected that Hotwork Australia's replacement employee(s) would require time to build up that specialised knowledge and skills and re-establish a customer connection. The nature of the services and ongoing service requirements are also indicative of the need for time. Mr Tomkins was also the most senior person at Hotwork Australia who had built up relationships with clients over time.
There is also evidence of restraints with a duration of 12 months and longer in the industry. Mr Tomkins' employment agreement with HAG includes a non-compete and a non-solicitation restraint each with a three year duration, cascading to a minimum period of six months, for remuneration which was not dissimilar to what he was receiving from Hotwork Australia.
While not decisive, it is also relevant that Mr Tomkins accepted when he signed the Agreement that two years was appropriate: Stenhouse Australia Ltd v Phillips [1973] 2 NSWLR 691; [1974] AC 391 at 401; Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 at [131].
Based on those matters, I am satisfied that there is a serious question to be tried that a period of 12 months is necessary to allow a replacement employee to demonstrate competence or to permit Mr Tomkins' connections to dissipate and that the non-solicitation restraint in clause 3.02 of the Agreement was not unreasonable.

Balance of convenience and discretionary factors

In assessing the balance of convenience, the Court is required to balance the hardship that would be suffered by Hotwork Australia and Mr Tomkins if the injunction was, or was not, to be granted. What would be the loss to Hotwork Australia if the injunctions are not granted compared to the loss to Mr Tomkins if they are, and whether damages for that loss would be an adequate remedy: Esposito v Commonwealth [2013] FCA 546 at [43]; Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at [16].
The defendants' contend that the hardship to Mr Tomkins and HAG from imposing an injunction, Hotwork Australia's delay in seeking urgent relief and their proffered undertaking to keep separate account of any revenues and expenses relating to clients of Hotwork Australia, are factors which weigh against the grant of interlocutory relief in the terms sought.
They also submit that an evaluation of the strength of Hotwork Australia's case is relevant to the issue of balance of convenience and that its case is weak.
It has been recognised that an evaluation of the strength of a case for interlocutory relief may be desirable to determine where the balance of convenience lies, particularly in a case where the grant of interlocutory relief would have the practical effect of determining the substance of the matter: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536.
In this case, the restraint period sought to be enforced by Hotwork Australia is two years. The parties are also willing to prepare for a final hearing on an expedited basis, which could be expected to be able to be concluded within three to four months. Thus, it is not clear that the grant of interlocutory relief would effectively provide final relief.
As to hardship, the defendants submit that imposing the injunction will prevent Mr Tomkins from working in his specialist field and prevent HAG from providing services to Owens-Illinois, with the consequence that it will lose the benefit of the tender it has won and the opportunity to build a commercial relationship with that client.
The restraint will inevitably impact Mr Tomkins' ability to work in his area of speciality, being the supply of glass refractory services for clients in Australia. His evidence is that Hotwork Australia has a "monopoly" over the supply of refractory services to clients in the glass industry in Australia, such as Owens-Illinois, CSR and Viridian Glass, apart from the tender that HAG won from Owens-Illinois.
That said, the injunction sought does not restrain Mr Tomkins from working in the refractory services market entirely; it simply restrains him from soliciting and doing work for Hotwork Australia's current clients. He is not restrained from pursuing work for HAG from non-Hotwork Australia clients. Accepting that Mr Tomkins' speciality is in the glass industry, he has been working in the refractory services market for over 27 years. During that time, he has dealt with other industries.
Mr Tomkins' evidence also indicates that there is the prospect of winning business from other customers that Hotwork USA has not been successful in obtaining due to its high prices, including numerous potential clients in Southeast Asia.
I accept the submission that granting the injunction is likely to create some hardship for HAG in relation to the Owens-Illinois contract based on Mr Tomkins' lead role and experience. I accept that the grant of the injunction could have some financial impost on HAG's business, although no evidence was led as to the likely quantum. But I do not accept the defendants' submission that it would prevent any work being done by HAG for Owens-Illinois or other clients it retains during the period of the restraint, or that Owens-Illinois and other glass manufacturers would be forced to use Hotwork Australia, thereby maintaining its monopoly.
The evidence demonstrates that HAG had a "back-up" plan for Owens-Illinois in the event Mr Tomkins was prevented from starting up a business by his contract with Hotwork. That plan was detailed by Mr Tomkins to Owens-Illinois on 19 February 2020 and involved the use of three full time technicians and one contractor to assist locally in Australia. While the COVID-19 pandemic might prevent the use of technicians from India as part of that plan, based on Mr Tomkins' evidence, he was not critical to the work that needed to be done for Owens-Illinios under the HAG contract. The ANZ Business plan prepared by Mr Tomkins also refers to the option of using other technicians to assist in providing services to clients. Mr Tomkins also gives evidence that, as at 22 April 2020, no services had been performed for Owens-Illinois by HAG and he was not aware when they would commence.
Hotwork Australia relies on the principle that where a negative covenant is sought to be enforced, damages will rarely be considered a sufficient remedy and the correct approach is to grant the injunction unless there are good reasons to the contrary: Cerlian Pty Limited v Graham Fraser [2008] NSWSC 1016 at [10]; Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181; [2001] HCA 70 at [102]. While accepting that principle, some of the usual difficulties in establishing loss in cases such as these should be overcome by the undertaking proffered by the defendants as to the maintenance of relevant records.
Hotwork Australia also argues that the hardship it will suffer if an injunction were not granted is the loss of the prospect of being able to establish a relationship between a new contact person at Hotwork Australia and Owen-Illinois in the absence of Mr Tomkins. No evidence was led as to what steps, if any, Hotwork Australia was taking to secure customers that Mr Tomkins dealt with or who any new contact person was, although presumably Mr Frendo is in a position to step into that role.
As other Judges in this Court have stated, interlocutory relief should be brought promptly. The speed with which a plaintiff seeks relief has also been recognised as indicators of the seriousness of the alleged infringement of rights: see for example, Zuellig Credit Insurance Brokers v Pulver [2000] NSWSC 7 at [36] - [37]; Capgemini US v Case [2004] NSWSC 674 at [40].
While Hotwork Australia was on notice that Mr Tomkins was taking a new position and that it might raise issues under the Agreement as early as 30 December 2019, it was not until early February 2020 that it knew what steps he had taken to establish HAG and solicit business from Owens-Illinois and CSR. As soon as it became aware, it wrote a letter of demand to Mr Tomkins and the other defendants.
Part of the delay in taking action can be attributed to the multiple exchanges of correspondence between the parties up until 4 March 2020. What is significant is the time taken by Hotwork Australia to then commence action (which occurred on 2 April 2020), and the manner in which it did so, namely by way of filing proceedings on a non-urgent basis online in the usual way. As a result, the hearing took place three months after Mr Tomkins' conduct came to light.
In that context, there is considerable force to the defendants' submission that Hotwork Australia's delay in bringing these proceedings suggests there is no urgency that warrants the grant of interlocutory relief.
No explanation for the delay was included in the affidavit material before the Court. At the hearing, Hotwork Australia's Counsel's explanation was that the "horse had bolted" when the Owen-Illinois contract and CSR contracts had been awarded. He also said that, in the context of the COVID-19 pandemic, the application became the "subject of contemplation" and a conscious decision was made that it did not warrant the urgency of an application in the duty list but that the appropriate way to commence the proceedings was in the commercial list and seek to ventilate the motion at the earliest opportunity that was available.
That explanation is not, in my view, satisfactory. While accepting that COVID-19 might have raised an initial question as to the appropriate approach, as made clear by announcements on the Supreme Court's website, this Court and a duty Judge have been available to deal with urgent matters of this type throughout the recent period, albeit by video, telephone or on the papers.
While I do not consider that the delay in this case should, by itself, be fatal to the grant of interlocutory relief, it is a significant factor in the exercise of the Court's discretion.

Conclusion

Having considered all the factors, I have come to the conclusion that the balance of justice is best served by not granting the injunction. This is primarily for the following reasons.
First, the delay by Hotwork Australia in taking action from the time it was on notice that Mr Tomkins was likely in breach of the Agreement and proposed to solicit and to continue to solicit its clients and the manner in which the case was commenced conveys that Hotwork Australia did not consider the application to warrant the urgent protection of the Court.
Second, while I have found that there is a serious question to be tried in relation to breach and the reasonableness and validity of the restraint, the material before the Court indicates that there are legitimate issues to be debated at final hearing on the case as pleaded, particularly as to whether Mr Tomkins was employed by Hotwork Australia at the time he signed the Agreement, which Hotwork entity has the benefit of the restraints, whether consideration was provided to Mr Tomkins when he signed, and the duration of the restraint.
Third, there is a possibility of hardship on third parties, such as Owens-Illinois and CSR.
Fourth, while Hotwork Australia will continue to lose the benefit of the protection provided by the non-solicitation restraint in the Agreement, it might do so for a relatively short period of time as the parties are agreed that the matter should progress to an urgent final hearing. During that time, it will have the protection of the defendants' undertaking to keep separate account of any revenues and expenses relating to clients of Hotwork Australia.
As to costs, my view is that the appropriate order in this case is for the costs of the interlocutory application to be costs in the cause. I will defer entry of that order for 7 days to allow the parties' time to consider whether they wish to contend for another costs order. If they do, they are to confer and, by 4pm on 11 May 2020, notify my Associate that some other cost order is sought. If there is no agreement on the other cost order, they should also provide an agreed timetable so that the issue can be determined on the papers.
For these reasons: 1. I decline to make an order in the terms of paragraph 8(a) of the plaintiff's Amended Notice of Motion filed on 20 April 2020. 2. The proceedings have been relisted for directions in the commercial list at 9.45am on 8 May 2020. 3. I make orders by consent in accordance with the short minutes of order that the parties have agreed and sent to chambers, which I have initialled and placed with the file. I also note the undertakings given by the defendants in the terms set out in those short minutes of order.

Amendments 08 May 2020 - Typographical errors to front page and to paras 31, 47, 109 and 111 in the judgment. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 May 2020

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