BETWEEN : INDEPENDENT CORPORATE SERVICES LTD (ACN 008 077 325)

Employment - Business in competition with former employer - Fiduciary duty - Fidelity - Acts preparatory to establishing business - Whether breaches of duty to employer - Whether knowledge of customer lists, billing cycle and fees confidential information - Canvassing of customers of former employer - Whether breach of duty

Interlocutory injunction - Contract of employment - Implied terms of fidelity and confidentiality - Whether use of confidential information to canvass customers of former employer - Evidence - Whether serious question to be tried

ABC v Lenah Game Meats Pty Ltd [2001] HCA 63

Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371

CE Elley Ltd v Wairoa­Harrison [1987] NZHC 6; (1987) 1 NZELC 95,620

Everiday Brushes, Amber v Lamont [1989] NZHC 40; (1989) 4 NZCLC 64,936

Fejo v Northern Territory [1998] HCA 58; (1998) 195 CLR 96

Graham Sargant v Lowndes Lambert Australia Pty Ltd [2000] WAIRC 263

Green v Bestobell Industries Pty Ltd [1982] WAR 1

Hartleys Ltd v Yukich & Ors [2002] WASC 184

Hospital Products v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

Maryland Metals Inc v Metzner (1978) 302 A (2d) 564

Morris & Anor v A1 Pools Pty Ltd & Ors [2000] WASCA 335

Patrick Stevedores Operations No2 Pty Ltd v MUA [1998] HCA 30; (1998) 195 CLR 1

Peninsular Real Estate Ltd v Harris (1992) 2 NZLR 216

Stenhouse Australia Ltd v Phillips [1973] UKPC 1; [1974] AC 391

Target Recruitment Services Ltd v Lewin [1987] NZHC 288; (1988) 2 NZELC 95,704

Weldon v Harbison [2000] NSWSC 272

Westminster Chemical NZ Ltd v McKinley [1973] 1 NZLR 659

1 ROBERTS-SMITH J: This is an application for an interlocutory injunction to stop the defendant soliciting clients of the plaintiff and enjoining the defendant to provide certain details of established and potential clients of the plaintiff whom he has contacted directly or indirectly since the defendant ceased his employment with the plaintiff.

2 The substantive proceedings were commenced by writ of summons filed on 31 October 2002. By the statement of claim annexed to the writ, it is pleaded that the plaintiff is an incorporated company which conducts business including, inter alia, the incorporation of shelf companies, the establishment and administration of superannuation funds, company and credit searches and the provision of corporate registry services. It is further pleaded that the defendant was employed by the plaintiff between 3 August 1992 and 26 September 2002 as the Manager of the plaintiff's Corporate Registry Division. It is common ground that the defendant resigned from the plaintiff's employment on 25 September 2002, giving two week's notice, but by agreement left the plaintiff's employ at his own request on 26 September 2002.

3 It is pleaded that by virtue of his senior position, the defendant was in a position of trust, with a significant degree of power, control and responsibility which afforded him access to confidential information, including to the plaintiff's client base, information relating to the business, revenue and income of the plaintiff and contractual arrangements between the plaintiff and its clients. This was said to include a copy of the plaintiff's client database and the records of companies serviced by the plaintiff stored on the hard disk of the defendant's home computer. It is pleaded that data was deleted by a representative of the plaintiff one Anita Duncan on 26 September 2002.

4 The plaintiff's claim is that by reason of those circumstances, the defendant was under express and implied obligations of confidentiality and fidelity which expressly extended beyond the termination of his employment with the plaintiff, and that further he was in a position of trust and confidence with respect to the plaintiff, which imposed a fiduciary duty upon him.

5 The plaintiff further pleads the defendant directly approached at least two clients of the plaintiff whilst still in the plaintiff's employ, indicating that he was intending to leave that employ and establish a corporate registry business on his own account and that he was soliciting the clients regarding the provision of corporate registry services by him following his leaving the plaintiff's employ.

6 By par 10 of the statement of claim it is said that it is also the plaintiff's belief that the defendant is engaged in a concerted plan to materially damage the commercial interests of the plaintiff in an effort to entice clients to his new business.

7 Paragraph 11 of the statement of claim states that in pursuit of the plan referred to, the plaintiff purchased or acquired a second mobile telephone prior to 29 September 2002, which he used to solicit existing clients of the plaintiff. By par 12 it is pleaded that after he left the plaintiff's employ, certain clients have transferred their business to the defendant. The balance of the pleadings relate to claims of pecuniary loss and damage. Ultimately the plaintiff seeks a range of injunctive relief directed to restraining the defendant from soliciting employees or clients of the plaintiff and providing to the plaintiff, details of specified client information, together with a claim for equitable compensation by reason of the alleged breaches of fiduciary duty and confidence.

8 The notice of motion for interlocutory injunction was filed on 31 October 2002.

9 The applicant (plaintiff) has filed the usual undertaking as to damages.

10 The application for interlocutory injunction was supported by an affidavit of Graeme Kenneth Matcham sworn and filed on 31 October 2002, a supplementary affidavit of Matcham sworn 4 November 2002, an affidavit of Brett Michael Bowker, sworn 5 November and a further affidavit of Matcham, sworn 18 November 2002.

11 The respondent (defendant) opposes the application. He relies on his own affidavit sworn 4 November 2002 and a further affidavit sworn by him on 15 November 2002.

12 On 5 November 2002 the application came before Scott J, who adjourned it for hearing on a special appointment and in the meantime ordered that the defendant be enjoined to provide an undertaking not to disclose or in any way dispose of any confidential information which was acquired by him or to which he had access during the course of his employment with the plaintiff, concerning the plaintiff, or its financial or business affairs.

13 At the hearing before me on 19 November, Mr Coad for the defendant, informed me from the bar table that he had not appreciated the order made by Scott J required the giving and filing of an undertaking by the defendant, however he had impressed upon the defendant the importance of complying with the order not to disclose, nor dispose of any confidential information of the kind described and the defendant had complied with that.

14 Matcham is the Managing Director of the plaintiff, which he founded in 1982 and which principally traded until recently in Western Australia as Select Shelf Companies ("Select"). He says the company has grown to become one of the largest providers of this type of corporate services in the country and operates in all States and Territories of Australia as well as New Zealand, servicing over 7,000 companies.

15 Matcham deposes that he became acquainted with the defendant about 1982 at which time the latter was employed by the Corporate Affairs Commission in the area of company registration. About 1989 the defendant left the employ of the Commission and established a small practice on his own account dealing with corporate registry services, largely involving ad hoc changes to companies. About mid-1992, Matcham approached the defendant and offered him a position as Manager of Select's corporate registry services. That afforded him total access to Select's client base and information technology support. The defendant commenced employment with the plaintiff about 3 August 1992. The defendant's existing clients were simply merged into the Select client base and there was no allowance for goodwill because (according to Matcham), the goodwill was assessed by both the plaintiff and the defendant to be nominal at best.

16 In August 2002 the defendant was sent on a trip for 21 days to New South Wales, Victoria and South Australia in order to undertake marketing of the plaintiff's business. The trip was paid for entirely by the plaintiff.

17 According to Matcham's first affidavit, the defendant continued in the plaintiff's employ until 24 September 2002 when he tendered his resignation, giving two week's notice. Matcham deposes that the defendant intimated to him that he wished to embark upon a new career in real estate. He says that Bowker, the plaintiff's National Operations Manager, was present at that meeting. Matcham further deposes that during the course of that meeting, a mobile telephone which was in the defendant's pocket began to ring. The defendant took it from his pocket, took the call and immediately switched the telephone off. Matcham noted that this telephone was not the one provided by the plaintiff to the defendant. He deposes that when Bowker asked the defendant why he now had two mobile telephones "the defendant became defensive and evasive in his responses". He states the defendant then cleared his personal effects from his offices and left the premises.

18 According to Matcham, the defendant approached him in his office again on 26 September in tears. Matcham says he told him that his heart was no longer in his work and requested to be released from his obligation to serve out his notice. Matcham then deposed to the following.

19 In late September 2002 after the departure of the defendant from the firm, Matcham was informed by Bowker that he had had a telephone call with one Lyndon Crudelli, a Geraldton accountant, whose practice was a client of the plaintiff.

20 In par 14 of his first affidavit Matcham states:

"By virtue of the tenor of that conversation as related by Bowker, I formed the view that Crudelli had prior knowledge of the Defendant's impending departure from the Plaintiff's employ and had indeed been solicited by the Defendant with a view to ending the practice's commercial relationship with the Plaintiff."

21 At par 15 of the same affidavit, Matcham deposes that he had a conversation with another account, one Rory Mitchell of Boffey Mitchell, another of the plaintiff's clients. There he stated that:

"Mitchell advised that at some point in the previous few months at a time when he was still in the Plaintiff's employ, the Defendant had attended upon their offices unannounced and had a conversation with he (sic) and his partner, David Boffey which was extremely elliptical and vague wherein the defendant dropped a number of hints as to his future intentions to set up a corporate registry business on his own account."

22 Matcham then deposes at par 16 that it then became "very apparent" to him that the defendant had been actively soliciting existing clients of the plaintiff, whilst still in the plaintiff's employ, with a view of enticing them to end their commercial association with the plaintiff.

23 Accordingly, on 1 October 2002, he instructed the plaintiff's solicitors, Messrs Godfrey Virtue & Co, to send a letter of demand to the defendant, outlining the plaintiff's concerns with respect to the defendant's conduct. That was done by letter dated 1 October 2002.

24 The defendant's solicitor, Mr Geoffrey Coad replied by letter dated 3 October. Issue was taken about the circumstances in which the defendant had left the plaintiff's employ. Mr Coad wrote that on 26 September when the defendant decided to leave, there was information on his home computer which had been sent to him by Matcham in March when the defendant was at home recovering from a broken arm. The information had been provided so he could do work from home. Accordingly, when the defendant said on 26 September that he was leaving, Matcham and another employee, Anita Duncan, escorted the defendant home in a motor vehicle for the express purpose of deleting this information from the defendant's computer with the defendant's consent. Mr Coad referred to various other items of documentation which the defendant had given to him.

25 By further letter dated 7 October 2002 the plaintiff's solicitors wrote that at the time the resignation was presented, the defendant indicated that he "needed a change and might be going into real estate". They said that was a clear misrepresentation as the defendant had every intention of continuing to work in the same area as he had been engaged in by the plaintiff. Allegations of brow-beating and the like were denied. Indeed, the solicitors said the plaintiff admitted that both Matcham and Bowker attempted, without success, to have the defendant change his mind and continue in the plaintiff's employ. They then wrote that any information that the defendant had on his computer at home that was the property of the plaintiff should have been returned without having to be asked for, especially in circumstances where the defendant was in control of the timing of his own resignation. As to that specifically, they wrote that:

"On the morning of 26 September 2002 in the office your client approached Mr Matcham in tears and said that his heart was no longer in it and he requested if he could leave immediately. On being confronted with that information it was decided by our client and agreed by your client that it would be appropriate for information on your client's computer to be removed and the appropriate person to undertake that work was Anita Duncan. Your client was also asked before leaving the office if he had any other documents or information in his possession that belonged to the company. He replied 'No'."

26 The solicitors then wrote that it had become known to the plaintiff in the last few days that while the defendant was still employed by it, he approached a number of clients with the intent that he would secure their work when he left the plaintiff's employ. That evidence, they said, was now being gathered. Demand was made for a detailed report on the defendant's trip to the Eastern States.

27 There was then further correspondence between the solicitors in which essentially the parties maintained the positions they had already articulated.

28 I should, however, mention the claim at [21] of Matcham's first affidavit that, after a letter from the plaintiff's solicitors dated 7 October 2002:

"... in the meantime it had become apparent that the Defendant had been 'cold calling' existing clients of the Plaintiff soliciting their business."

29 This was reflected in a letter from the plaintiff's solicitors dated 16 October 2002 in which they wrote:

"We are also instructed that since resigning his employment, your client has been 'cold' calling the clients of ICS, advising that he is no longer employed by ICS but can provide the same services. Clearly this is a serious breach of your client's obligations ..."

30 There was no specific response to that assertion in the next letter from the defendant's solicitor dated 17 October 2002, but it is apparent there had been telephone discussions between the solicitors and the plaintiff's earlier claims of wrongful soliciting or breach of duty had been denied.

31 Matcham also annexes copies of correspondence relating to payment by the plaintiff of a claim by the defendant for outstanding entitlements. That does not bear on this application.

32 The concluding paragraphs of Matcham's first affidavit are:

"25. As indicated by the foregoing, it is (sic) become apparent that the Defendant has continued to cold call clients of the Plaintiff, utilising confidential information gained during the course of this employment in order to solicit those client's custom for his new business venture.

26. At present, the Defendant has 'poached' the clientele of 8 clients; viz:

(a) Creek Russell Crudelli - 186 companies;

(b) G F O Hearne - 44 companies;

(c) Barrie Bickford - 47 companies;

(d) Hanlon Davies - 102 companies;

(e) Rockingham Business and Tax Services - 93 companies;

(f) PRP Accounting - 30 companies;

(g) Peter W Martin - 40 companies;

(h) Anita Cusmano - 63 companies.

27. The Plaintiff is therefore no longer providing registry services for 605 companies which have been poached by the Defendant in breach of his duties. Corporate Registry Services provided by the Plaintiff are undertaken for a flat rate of $55.00 per annum. The Plaintiff therefore presently stands to lose the sum of $33,275.00 in revenue for this financial year by virtue of the Defendant's misfeasance.

28. In the premises herein described, I verily believe that the Defendant has engaged in a concerted and dishonest plan to materially damage the commercial interest of the Plaintiff and the interest of justice with (sic) militates towards the granting of the injunction sought."

33 Much of the defendant's affidavit of 4 November 2002 was argumentative and other parts were in response to assertions made by Matcham which have little bearing on the substance of this application.

34 As to the events of 24 September, he deposes that sometime during the afternoon of that day, he handed a written resignation to Bowker. Later on that afternoon, Matcham called him into Matcham's office. In Bowker's presence, Matcham asked the defendant what he was going to do and if he was going to do a similar business. The sequence of events is not particularly clear, but the evidence of the defendant is to the effect that he said he did not know but that at some point said he thought he might go into real estate. He deposes that Matcham said he did not believe him because people who resign go out on their own and that is what he believed the defendant was going to do. He states that Bowker then started to threaten him, telling him they were going to make an example of him and they would take him through all of the courts and that he might win, but would be out in the street and in the long run would lose. He says this "haranguing" lasted for about half an hour before he got up and walked out to go home. At par 9 of his first affidavit, the defendant gives as his reason for saying he might go into real estate:

"Quite frankly, at that time, I did not think what I was going to do was any of his business and relationships between us were far from cordial. They had been strained for some time because of his attitude, demeanour and manner and I was in no mood to talk to him about my future prospects or anything else."

35 The defendant deposes to a further discussion between the three of them on 25 September in which complaints were made about the financial performance of his section. He too deposes that they were trying to dissuade him from leaving. The reason for that, he says, was because there was a takeover bid afoot, whereby Matcham was trying to sell the plaintiff to some other company and he did not want the defendant to leave until that had been achieved. The defendant says he was told that if he decided to stay, he would have to sign a contract for 12 months.

36 The following day he told Matcham that he had had enough and wanted to leave. He adds:

"I admit that I was a little emotional because after all I had been there for ten (10) years. Graeme then said to me 'You have stuff on your computer at home and we're going to escort you out there to get it'."

37 The defendant deposes that he agreed to that and they drove him to his house. Matcham remained in the car while the other staff member came into his house and showed him how to delete the client base and all company records from his computer.

38 As to the report following his visit to the Eastern States, the defendant deposes that he had made trips in the past and had never been asked for a report and on this occasion was asked for one only after he tendered his resignation.

39 So far as the second mobile telephone is concerned, he deposes that as he had decided to resign, he knew that he would need a telephone and so he organised one. He says that when he was asked why he had two mobile telephones, he told Matcham that he had bought his own telephone for his own personal use as he intended to leave. He adds that Matcham's response was that he did not think that was so; somebody bought it for him. The defendant denies that he was defensive or evasive in his responses. He denies that he cleared his personal effects from his office as he left the premises on 24 September - that was done on 26 September before he was driven home.

40 According to the defendant, he telephoned Lyndon Crudelli after he left the plaintiff's employ, and told him that he was no longer working for the plaintiff. Crudelli asked him what he was doing. He told Crudelli he was going out on his own. Crudelli intimated that he wished the defendant to do his work. Crudelli had in fact been a client of his before the defendant joined the plaintiff.

41 As to the conversation with David Boffey, the defendant says it was on one of his "down days":

"I had been unhappy in the plaintiff's employ for quite some time and I forget who mentioned it. Possibly in my depressed mood I was a little transparent and it may have even been David Boffey that [sic] asked me what was wrong. In any event I expressed, in a passing sort of way, dissatisfaction with my employment. I may have said that I would like to go out on my own but there was no intention to do so at that time. I did not form that intention until Graeme Matcham gave me a contract of service to sign just before I went across to Melbourne ..."

42 The defendant denies that he solicited the plaintiff's clients with a view to enticing them to end their commercial association whilst he was in the plaintiff's employ and he denies that he had been "cold calling" existing clients of the plaintiff, soliciting their business.

43 Bowker's affidavit of 4 November 2002 is quite brief. The substance of it is contained in par 3:

"3. I have read the affidavit of Graeme Kenneth Matcham ('Matcham') sworn on 31 October 2002 and confirm the following:

(i) On 24 September 2002 I was present at the meeting between the Defendant and Matcham wherein the Defendant tendered his resignation giving 2 weeks notice until 8 October 2002. The Defendant intimated at that meeting that he did not have any idea what he was going to do and may even embark upon a new career in Real Estate;

(ii) During the course of this meeting, a mobile telephone which was in the defendant's pocket began to ring. The Defendant took the telephone from his pocket took the call and immediately switched it off. I noticed that the mobile telephone was not the same telephone provided by the Plaintiff to the Defendant as part of his salary package.

(iii) When I asked the Defendant about why he now had two mobile telephones the Defendant became defensive and evasive in his responses.

(iv) In late September 2002 after the Defendant's departure from the Plaintiff's employ, I had a telephone conversation with one Lyndon Crudelli, an accountant based in Geraldton. Crudelli's practice, Creek Russell Crudelli, was a client of the Plaintiff's. As a result of that conversation, I formed the view that Crudelli had prior knowledge of the Defendants (sic) impending departure from the Plaintiff's employ and had indeed been solicited by the Defendant with a view to ending his practice's commercial relationship with the Plaintiff;

(v) I further confirm that I related that conversation to Matcham."

44 Matcham's supplementary affidavit sworn 4 November 2002 (his "second affidavit") is also quite brief. In it he states that the information "such as" the plaintiff's client base and pricing policy with respect to corporate registry services "utilised by the Defendant in pursuit of his conduct of 'poaching' clients from the Plaintiff" was confidential in nature. He deposes that the defendant knew it was confidential by virtue of the nature of his employment and his position as a senior member of the plaintiff's management team. He says he had stressed to the plaintiff (sic: defendant) and all other employees with access to it that the information was confidential and should not be disclosed to third parties or utilised for the employee's own use.

45 Matcham's affidavit of 18 November (his "third affidavit") was responsive to the defendant's affidavit of 5 November 2002. In it, Matcham agrees the defendant was given access to the plaintiff's client list on his home computer so he could work from home after he broke his arm. Many of the other responses go to peripheral matters, or are argumentative or speculative.

46 Concerning the Eastern States trip, Matcham deposes that the defendant organised most of his intrastate business trips himself after discussions with Bowker. Those intrastate trips typically involved the defendant travelling in his own motor vehicle. All his trips involving interstate airline flights were to be approved by Bowker or Matcham prior to the booking of flights. The defendant booked the 17-day trip for August 2002 in Matcham's absence and without consulting Bowker. Upon Matcham's return from holidays some days prior to the defendant's departure, he ratified the trip, but in circumstances in which it was presented as a fait accompli. The cost of the trip was nevertheless paid for by the plaintiff. Matcham states this conduct on the defendant's part was unprecedented in the 10 years in which he was employed by the plaintiff. He says he emphasised to the defendant both the necessity that in the future he obtain approval for a trip of such duration and expense, and also that on this occasion he provide a detailed report of the trip. The defendant returned from this trip on 22 August 2002 but had not provided a report by the time of his resignation on 24 September 2002. He eventually provided "a hopelessly inadequate" report on 26 September 2002.

47 In his third affidavit Matcham also states that the confidential information in the possession of the defendant constitutes an intimate knowledge of the plaintiff's client base of approximately 180 accounting firms together with knowledge of the lodging and billing cycle for each client accumulated over a 10 year relationship with those clients. He further asserts that:

"I verily believe that the Defendant has abused the trust the Plaintiff placed in him to maintain a personal relationship with the clients on behalf of his employer while the Plaintiff provided the 'back office' support. I verily believe that the Defendant had in many instances been acting to develop relationships to the exclusion of the Plaintiff whilst still in the Plaintiff's employ."

48 No facts are advanced in support of the beliefs so expressed.

49 It is in his third affidavit that Matcham gives more detail of the plaintiff's business operation.

50 The plaintiff's corporate registry service is provided for a fixed fee of $55 per year inclusive of GST. In exchange for the fixed fee, the plaintiff's clients are provided with an annual registry maintenance service which enables the client company to comply with the requirements of the Australian Securities and Investments Commission ("ASIC") for all their corporate secretarial work, such as changes to office holders or transfers of shares. The plaintiff prepares the necessary documentation for delivery to its clients, the clients return the executed documents to the plaintiff and the plaintiff lodges these documents with ASIC. A key part of this annual service is the lodgement of each company's annual return. The annual returns can be lodged at any time of year, however, it is customary to lodge in the period between September and February of each year. The plaintiff uses the preparation and lodgement of annual returns as the trigger in its billing cycle. That is, once the annual return is lodged with ASIC, the plaintiff issues an invoice requesting payment from the client for the annual maintenance service performed. The client is liable to pay a proportion of the annual fee if the service is cancelled prior to the lodgement of an annual return.

51 The nature of the Corporate Registry division of the plaintiff's business is such that approximately 90 per cent of the plaintiff's clients are accounting firms who contract with the plaintiff to have it maintain the corporate registries for the companies operated by their own clients (in this sense, the sub-clients of the plaintiff) for the fixed annual fee already mentioned. The annual fee is charged to the accountant, who may pass this fee on to the sub-client whose company generally has its registered office at the accountant's offices.

52 Matcham deposes that the defendant has intimate knowledge of the plaintiff's billing and lodging cycle. He asserts a belief that the opportunity to prepare and lodge the annual returns for the companies associated with the accounting firms and bill for the provision of that service constitutes a maturing business opportunity.

53 He says further that the defendant's refusal to account for his movements during his trip to the Eastern States "in anything other than a wholly inadequate form" means that the plaintiff has been deprived of further maturing business opportunities because the plaintiff has little or no idea of the potential clients to whom the defendant made approaches with respect to the provision of corporate registry services on the plaintiff's behalf. In the absence of that information the plaintiff has no idea of whether the potential clients canvassed by the defendant have subsequently become clients of his new business.

54 Matcham then refers to an e-mail he received from Bowker on 13 November 2002, a copy of which was annexed to his affidavit (as "GKM.3"). I set it out in full:

"Graeme

As you know Hannelie had a conversation with a Louise from Porters today enquiring if she was ready for their Annual Returns. She was informed that Geoff Stevens had already been in and completed them on their behalf. I subsequently rang to speak to David Porter to discuss these events & was told he was on holidays (getting married on the weekend) & would be unavailable until next Wednesday.

I asked Louise did she realize that we normally would prepare the returns as part of the service that Porters would be billed for, so why would she have Geoff do them & presumably pay a fee to him as well? She had no idea this was the case & said she would need to get David Porter to ring & discuss next week.

No less than 10 minutes later David rang concerned about my comment to Louise that he may be liable for two fees. I explained that our fee is an annual fee & not just for doing Annual Returns & as it was now November 13 obviously the great bulk of the fee is applicable & that preparation of the Returns would have been included. David expressed great surprise at this & stated he had always assumed Geoff operated separately from Select Shelf & so when Geoff said he was going alone it was of no consequence to him because he did not realize Geoff was employed by our organisation anyway. He said he only really ever saw Geoff & though he knew there was a relationship he did not understand the extent.

I explained in detail how we have been operating for the past ten years & the fact the reason he only saw Geoff was because Geoffs (sic) job was to visit clients, promote our business and ensure clients were receiving the service required. I mentioned that the fact he was unaware of Geoffs (sic) real employment situation highlighted his inability to inform clients of relevant issues or indeed his reluctance to do so.

I also pointed out as Geoff had now approached him & again not explained the real situation AND not informed him that he was likely to be billed twice further highlighted his lack of consideration for clients.

I reiterated our desire to retain his business & he suggested he would need some time to consider his position. I left it with him."

55 This e-mail is apparently the factual basis for the following assertion by Matcham (third affidavit, [23]):

"... I verily believe the Defendant is using his knowledge of the Plaintiff's billing cycle and client base to approach the Plaintiff's clients prior to lodging their annual returns. It is my belief that the Defendant is approaching clients of the Plaintiff and not explaining to them his departure from the Plaintiff nor the nature of their continuing liability to the Plaintiff or their annual corporate registry maintenance fee."

56 Finally, Matcham annexes company and business names searches which show the defendant and his wife are the directors of Celtic Holdings Pty Ltd which on 26 September 2002, the day after the defendant left the plaintiff's employ, registered the business name "Company Compliance & Advisory Services Australia".

57 In his affidavit sworn 18 November 2002 ("the defendant's second affidavit") the defendant responds to the affidavits of Matcham and Bowker sworn 4 November. The defendant states the plaintiff's pricing structure is common knowledge because it is contained in brochures which detail the plaintiff's services and charges and which have been sent to potential clients. The same information is also on the plaintiff's website.

58 He deposes that he did not deliberately memorise the plaintiff's client list before he left the plaintiff's employ, he denies the confidentiality of the information to which he had access, and he denies using in his business, any of the plaintiff's forms. He deposes that he took none of the plaintiff's information with him in electronic or any other form and says that although he had telephoned clients of the plaintiff that was done from knowledge he had in his head but which he had not deliberately memorised.

59 The balance of the defendant's second affidavit sets out his reasons for being unhappy in the plaintiff's employ and for his eventual decision to leave.

60 The principles on an application such as this are well established. They were explained by Owen J in Mott v Mount Edon Gold Mines (1994) 12 ACLC 319 at 321:

1. The applicant must satisfy the court there is a serious question to be tried;

2. If there is a serious question to be tried, an injunction will not be granted if common law damages would be an adequate remedy;

3. If there is a serious question to be tried and damages would not be an adequate remedy, the court must then consider whether the balance of convenience lies in favour of granting or refusing the relief sought;

4. When considering the balance of convenience, the relative strength and weaknesses of the applicant's case may be taken into account, and

5. The court should not attempt to decide factual conflicts arising from the affidavit material and nor should it determine difficult questions of law which require detailed argument.

61 The essential principles were articulated by Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 at 407, and are now well entrenched (see also Castlemaine Tooheys Ltd v State of South Australia [1986] HCA 58; (1986) 161 CLR 148).

62 Before turning to the application of the fundamental principles, it is necessary to say something about the nature of the submissions advanced on behalf of the plaintiff on this application.

63 It is fair to say, I think, that there was no dispute about the propositions of law which bear on this application or the substantive action. The defendant accepts the plaintiff's submission that it is an implied term of a contract of employment that during the currency of that contract, the employee would act in the employer's best interests and not in furtherance of his own interests (Wessex Dairies Ltd v Smith [1935] 2 KB 80; Faccenda Chicken Ltd v Fowler & Ors [1986] 1 All ER 617 and N P Generations Pty Ltd v Feneley [2000] SASC 240). So too, during the currency of the contract of employment, an employee must not solicit customers for a future time when the employment has ceased and the employee has established his own business. This is a consequence of the employee's duty of good faith and fidelity.

64 In Faccenda the English Court of Appeal extracted the following principles of law from a consideration of the authorities (at 625):

"(1) Where the parties are, or have been, linked by a contract of employment, the obligations of the employee are to be determined by the contract between him and his employer: cf Vokes Ltd v Heather (1945) 62 RPC 135 at 141.

(2) In the absence of any express term, the obligations of the employee in respect of the use and disclosure of information are the subject of implied terms.

(3) While the employee remains in the employment of the employer the obligations are included in the implied term which imposes a duty of good faith or fidelity on the employee. For the purpose of the present appeal it is not necessary to consider the precise limits of this implied term, but it may be noted: (a) that the extent of the duty of good faith will vary according to the nature of the contract (see Vokes Ltd v Heather); (b) that the duty of good faith will be broken if an employee makes or copies a list of the customers of the employer for use after his employment ends or deliberately memorises such a list, even though, except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer (see Robb v Green [1895] 2 QB 315, [1895-9), All ER Rep 1053 and Wessex Dairies Ltd v Smith [1935] 2 KB 80, [1935] All ER Rep 75).

(4) The implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae (see Amber Size and Chemical Co Ltd v Menzel [1913] 2 Ch 239), or designs or special methods of construction (see Reid Sigrist Ltd v Moss Mechanism Ltd (1932) 49 RPC 461), and other information which is of a sufficient high degree of confidentiality as to amount to a trade secret.

The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only 'confidential' in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith.

This distinction is clearly set out in the judgment of Cross J in Printers and Finishers Ltd v Holloway [1964] 3 ALL ER 731, [1965] 1 WLR 1, where he had to consider whether an ex-employee should be restrained by injunction from making use of his recollection of the contents of certain written printing instructions which had been made available to him when he was working in his former employers' flock printing factory. In his judgment, delivered on 29 April 1964 (not reported on this point in the Weekly Law Reports), Cross J said ([1964] 3 All ER 731 at 738n):

'In this connexion one must bear in mind that not all information which is given to a servant in confidence and which it would be a breach of his duty for him to disclose to another person during his employment is a trade secret which he can be prevented from using for his own advantage after the employment is over, even though he has entered into no express covenant with regard to the matter in hand. For example, the printing instructions were handed to [the first defendant] to be used by him during his employment exclusively for the plaintiffs' benefit. It would have been a breach of duty on his part to divulge any of the contents to a stranger while he was employed, but many of these instructions are not really 'trade secrets' at all. [The first defendant] was not, indeed, entitled to take a copy of the instructions away with him; but insofar as the instructions cannot be called 'trade secrets' and he carried them in his head, he is entitled to use them for his own benefit or the benefit of any future employer.'

The same distinction is to be found in E Worsley & Co Ltd v Cooper [1939] 1 All ER 290, where it was held that the defendant was entitled, after he had ceased to be employed, to make use of his knowledge of the source of the paper supplied to his previous employer. In our view it is quite plain that his knowledge was nevertheless 'confidential' in the sense that it would have been a breach of the duty of good faith for the employee, while the employment subsisted, to have used it for his own purposes or to have disclosed it to a competitor of his employer.

(5) In order to determine whether any particular item of information falls within the implied term so as to prevent its use or disclosure by an employee after his employment has ceased, it is necessary to consider all the circumstances of the case. We are satisfied that the following matters are among those to which attention must be paid. (a) The nature of the employment. Thus employment in a capacity where 'confidential' material is habitually handled may impose a high obligation of confidentiality because the employee can be expected to realise its sensitive nature to a greater extent than if he were employed in a capacity where such material reaches him only occasionally or incidentally. (b) The nature of the information itself. In our judgment the information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret ..." (Emphasis added).

65 In Wessex Dairies v Smith, Maugham LJ said (at 89):

"First, after the employment terminates, the servant may, in the absence of special stipulation, canvass the customers of the late employer, and further he may send a circular to every customer. On the other hand, it has been held that while the servant is in the employment of the master he is not justified in making a list of the master's customers, and he can be restrained, as he was in Robb v Green [1895] 2 QB 1, from making such a list, or if he has made one, he will be ordered to give it up. But it is to be noted that in Robb v Green the defendant was not restrained from sending out circulars to customers whose names he could remember. Another thing to be borne in mind is that although the servant is not entitled to make use of information which he has obtained in confidence in his master's service he is entitled to make use of the knowledge and skill which he acquired while in that service, including knowledge and skill directly obtained from the master in teaching him his business. It follows, in my opinion, that the servant may, while in the employment of the master, be as agreeable, attentive and skilful as it is in his power to be to others with the ultimate view of obtaining the benefit of the customers' friendly feelings when he calls upon them and when he sets up business for himself. That is, of course, where there is no valid restrictive clause preventing him doing so."

66 There is no suggestion there is any such express contractual restriction in the present case.

Whether there is a serious question to be tried

67 In Cayne & Anor v Global Resources PLC [1984] 1 All ER 225 the English Court of Appeal held that for the purposes of an application for an interlocutory injunction, there will be a triable issue between the parties if there is a serious question to be tried (ie one for which there is supporting material) of which the outcome is uncertain. Accordingly, where the plaintiff's case relies solely on inference and the defendant has sworn a positive affidavit which, if true and accepted, destroys that inference, the court should not necessarily conclude that the plaintiff has failed to establish a triable issue, because on such an application it is not necessary for the parties to establish firmly the outcome of the case, and the mere fact that a party's case is deposed to does not make it incontrovertible.

68 In that case, the inferences sought to be relied upon by the plaintiff were plainly raised on the evidence. The position was as expressed by Eveleigh LJ at 230:

"The plaintiff's evidence ... clearly pointed to the inference which they asked the court to draw. Global's evidence, if true and accepted, of course clearly destroyed that inference. But the great question that has to be determined is whether the defendant's case is accepted or not. The mere fact it is deposed to does not make it incontrovertible. Therefore, when the evidence is not accepted by the plaintiffs, I am left in doubt as to the outcome of the trial on that issue. If I am in doubt and the issue seems to be one that is not frivolous, in other words is one for which there is supporting material, then I would conclude that there is a triable issue."

69 The essential substance of the plaintiff's claim here is said, briefly, to be that there is sufficient evidence which, if accepted at trial, would result in a court finding or inferring the following facts:

"(a) The defendant was a senior officer employed by the plaintiff.

(b) The defendant lied and mislead (sic) the plaintiff regarding his intention to remain employed by the plaintiff, his reasons for leaving and what he intended to do following his departure.

(c) The defendant took copies of the plaintiff's lists of existing clients (plaintiff's clients) and only upon demand returned them.

(d) The defendant undertook work for the plaintiff in the Eastern States to canvass new clients ('potential clients') when all the while he knew he would leave the plaintiff's employ to complete the with (sic) plaintiff.

(e) The defendant has retained all details of potential clients canvassed by him in the Eastern States for the plaintiff notwithstanding that it was a term of his employment that he provide these details with a high degree of specificity to the plaintiff.

(f) The defendant proposed to compete with the plaintiff for a considerable period prior to his departure.

(g) The defendant has targeted a large volume of the plaintiff's clients and largely no other client so as to compete with the plaintiff.

(h) The defendant's conduct was planned to damage the plaintiff's goodwill asset."

70 The evidence is capable of supporting the conclusion that the defendant was a senior officer employed by the plaintiff.

71 Whether or not the defendant's intimation that he may get into the real estate business could properly be characterised as a "lie" is moot. The question is whether, either alone or in conjunction with other facts, it could give rise to the sinister inference contended for by the plaintiff. By itself it could not.

72 To say that the defendant took copies of the plaintiff's lists of existing clients and only returned them upon demand, whilst technically true, is itself misleading. There is no dispute, even on the plaintiff's own evidence, that the plaintiff made the client lists available in electronic form to the defendant some time prior to the relevant events so that he could undertake work for the plaintiff from home. Neither that circumstance, nor the circumstances in which the material was deleted from the defendant's computer, is capable of giving rise to any inference that the defendant deliberately obtained the client lists for his own purposes adverse to those of his employer.

73 As to the alleged failure of the defendant to provide a full report and account of his activities during his trip to the Eastern States in about August 2002, there is a dispute about whether such reports had been required in the past and whether in fact a report had been provided by the defendant to the plaintiff. It is not for me to resolve that dispute. The evidence on both sides is that a one page report was left by the defendant with the plaintiff. The nature of it is such that it could certainly be reasonably argued by the plaintiff as entirely inadequate. By itself, however, the point says nothing about whether, at that time, the defendant was conducting himself in a way which was in conflict with his duty of fidelity and confidentiality to his employer. It may be that in conjunction with other evidence, such an inference might arise, but that is not apparent on the evidence before me.

74 It is apparent from the authorities that even if it be accepted that the defendant proposed to compete with the plaintiff "for a considerable period" prior to his departure, that of itself would not be in conflict with his duty of fidelity and nor would it suggest a breach of duty of confidentiality.

75 The same observation may be made in relation to the submission that the evidence shows the defendant has targeted a large volume of the plaintiff's clients. That may be so, but in the absence of any express provision restraining him, the defendant is entitled to do so. The evidence says nothing about whether or not the defendant has other clients or has been targeting clients other than those of the plaintiff and having regard to the nature of the affidavit material he was seeking to meet by the responses in his own affidavits, one would not necessarily expect there to be.

76 There is no evidence in the material which is capable of supporting a conclusion that the defendant's conduct was planned to damage the plaintiff's goodwill asset.

77 In the plaintiff's supplementary outline of submissions, it is put that ([18]) the defendant deliberately memorised the plaintiff's list of existing clients. There is simply no evidence whatsoever giving rise to that inference.

78 The plaintiff relies upon the fact that at the meeting on 24 September 2002 the defendant was seen to have a mobile telephone other than the one issued to him by the plaintiff. All that is then said about that is that when he was asked why he had two mobile telephones, he "became defensive and evasive in his responses". That description is of course, one of subjective impression or opinion. What his actual responses were is not disclosed. According to him, the defendant's explanation was simply that he told Matcham he had bought his own telephone for his own personal use as he intended to leave the plaintiff's employ. In the circumstances, the evidentiary material relied upon here by the plaintiff is entirely speculative opinion and in my view is wholly incapable of tending to prove anything which would support the plaintiff's claim and specifically could not possibly go any distance to establish par 11 of the statement of claim.

79 The next evidentiary matter to which I come is the telephone conversation between Bowker and Crudelli. That occurred in late September 2002, after the defendant's departure from the plaintiff's employ. Neither Matcham nor Bowker stated what the terms of that telephone conversation were. Each simply recites that by virtue of the tenor of it, they formed the view that Crudelli had prior knowledge of the defendant's impending departure from the plaintiff's employ and had indeed been solicited by him with a view to ending the practice's commercial relationship with the plaintiff. Neither of them states why the content of the conversation gave rise to such a belief. That evidence of Matcham and Bowker is simply incapable of establishing what it purports to assert and their expression of belief is no evidence of the fact.

80 There is a similar problem with what Matcham deposes to about his conversation with Rory Mitchell. To say the defendant had spoken to Mitchell and David Boffey in "an extremely elliptical and vague" way, is meaningless, as is the reference to "hints" by the defendant. Even if the defendant had mentioned to clients of the plaintiff whilst employed by it, that he was soon leaving and intended to set up a corporate registry business on his own account, that, without more, would not constitute a breach of his duty to the plaintiff. Neither of these matters could establish that the defendant was soliciting those clients as pleaded at par 9 of the statement of claim.

81 These particular matters are what are then apparently relied upon by Matcham for his conclusion at par 16 of his first affidavit, that:

"It then became very apparent to me that the defendant had been actively soliciting existing clients of the plaintiff, whilst still in the plaintiff's employ with a view to enticing them to end their commercial association with the plaintiff."

82 Once again, Matcham's assertion that it was "apparent" to him, is not evidence of the fact.

83 In similar vein, referring to the correspondence between the parties' solicitors, Matcham's assertion (at par 21 of his first affidavit) that the defendant had been "cold calling" existing clients of the plaintiff seeking their business even whilst he was in the plaintiff's employ, is not evidence that such was so. There is no evidence in the material to support that assertion. The allegation in later correspondence became that the defendant had been doing so since leaving the plaintiff's employ and that was "a serious breach" of his obligations. However, the fact that certain of the plaintiff's clients have transferred their business to the defendant as pleaded at par 12 of the statement of claim, and in the absence of any express term of his employment (which I note is not pleaded), is again not of itself a breach of his duty to the plaintiff in the circumstances presently shown. As was pointed out by Neill LJ in Faccenda at 625, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer.

84 There is, furthermore, no evidence capable of showing the defendant used secret or confidential information of the plaintiff following his departure from its employ. It is not enough for Matcham to simply assert that he did.

85 I come to the e-mail of 13 November 2002 (annexure "GKM.3"). Once again, whatever belief Matcham may have about the defendant's conduct is not itself evidence of the fact. What Matcham says about any conversations between Bowker and the plaintiff's employee Hannelie or Mr David Porter is hearsay. It would not be admissible at trial in that form, although of course hearsay evidence is admissible on an interlocutory application such as the present under O 37 R 6(2)(a) and (2a) of the Rules of the Supreme Court. Be that as it may, even if the evidence had come from Bowker, it would have been hearsay. The primary evidence must be that of Porter. Ordinarily, where direct primary evidence is readily available to a party, it, rather than a statement as to information and belief by another, should be put before the court (Birch Investments Pty Ltd v Lim, unreported; SCt of WA; Library No 7396; 12 July 1988). In this case the e-mail itself suggests a reason why Porter would not have been available before Wednesday 20 November. Even so, the evidence as to information and belief does not even come from Bowker, but from Matcham. The material relied upon by Matcham would not itself be admissible according to the ordinary rules of evidence and cannot be relied upon here (Savings & Investment Bank Ltd v Gasco Investments (Netherlands) BV [1984] 1 WLR 271, 282; Commissioner of Taxation v Ahern (1986) 87 FLR 112, 117 and 122; Re Juson Pty Ltd (1992) 8 WAR 13, 14). However, no objection was made to this material and I will deal with it accordingly.

86 Much of what is in Bowker's e-mail consists of speculation, opinion or argument by him. What he states he told Porter is neither relevant nor admissible as evidence of the facts thereby asserted.

87 Although by itself the tenor of what Porter is said by Bowker to have told him may be capable of tending to prove an inference that the defendant's performance of his duties as an employee of the plaintiff fell short of what was required, it goes no way to showing the defendant did anything wrongfully during his employment in the course of preparing to compete with the plaintiff (Blyth Chemicals Ltd v Bushnell [1933] HCA 8; (1933) 49 CLR 66, 82), nor as part of a deliberate strategy to emasculate the plaintiff's goodwill (McCorkhill Holdings Pty Ltd (Receiver and Manager Appointed) v Fraser, unreported; SCt of WA (Rowland J); Library No 920621; 26 November 1992) nor by the subsequent use of the sort of confidential information the law protects (Faccenda, supra).

88 Even accepting the test whether there is a serious question to be tried sets a low threshold, I am of the view that the plaintiff's case as put before me, does not get across it. This is not a situation in which the plaintiff's case is capable of giving rise to inferences which, if accepted in the face of the defendant's positive denials, could sustain its claim. It is not the kind of situation referred to in that way in Cayne. The evidence put before me is not capable of giving rise to the necessary inferences. I find there is no serious question to be tried.

89 If there was a serious question to be tried in respect of the plaintiff's claim that the defendant had breached his duty of fidelity by actively soliciting clients of the plaintiff whilst still in the plaintiff's employ, and/or since then have used or was using confidential information of the plaintiff to commercially damage the plaintiff's business, I would have considered damages not to be an adequate remedy to the plaintiff.

90 I accept the plaintiff's submission this question is better expressed as the balance of risk of doing an injustice, that is, what can the Court do in its best endeavour to avoid injustice? (Cayne, supra, 232 and 237).

91 It is necessary to weigh the damage the defendant will suffer if the injunction is granted against that which the plaintiff may suffer if it is refused. This involves some consideration of the strengths and weaknesses of the plaintiff's case and that assessment is to be made having regard to the totality of the evidence, not just that of the plaintiff (Hubbard v Vosper [1972] 2 QB 84, 86).

92 So far as the first aspect is concerned, and again on the assumption, (contrary to my earlier finding) that there is a serious question to be tried, I would have accepted the damage the plaintiff would suffer if the injunction were refused would be appreciably greater than that which the defendant would suffer if it were granted. So too, in those circumstances, the risk of the greater injustice would fall on the plaintiff, were the injunction not granted, were one to consider only the practical consequences of the making or refusal of the interlocutory injunction. But when that is placed in the overall context of the long-term consequences to be realised at the conclusion of the substantive trial, the serious weakness of the plaintiff's case militates ineluctably to the refusal of the application. I would refuse it also on this ground.

93 For the reasons given, the application for the interim injunction must be refused.