Iseek Communications Pty Ltd v Jones

Supreme Court of NSW|2017-03-10

Solicitors: Thomson Geer (Plaintiff) John F Morrissey & Company Lawyers (First Defendant) Woolf Associates (Second Defendant) File Number(s): 2016/382293

Judgment

The plaintiff, Iseek Communications Pty Ltd (Iseek), seeks interlocutory orders against Mr Timothy Jones and Anticlockwise Pty Ltd (Anticlockwise). Iseek claims that Mr Jones has acted and threatens to act in breach of a contract of employment made between Mr Jones and Iseek on 31 March 2014 (the Employment Contract) and that Mr Jones and Clockwise have acted and threaten to act in breach of an agreement made on 1 November 2016 whereby Iseek consented to Mr Jones being employed by Anticlockwise (the Tri-parte Contract).

The Dispute

With effect on 30 August 2016, the services of Mr Jones under the Employment Contract were terminated by Iseek, on the ground of redundancy. Mr Jones was paid a sum in respect of his redundancy.
On 30 August 2016, after his employment was terminated, Mr Jones forwarded to himself by email a contact list that he had maintained while employed by Iseek. The contact list had been compiled entirely by Mr Jones. However, it included contact details for clients of Iseek with whom Mr Jones had had dealings in the course of his employment by Iseek. It also contained contact details for a small number of friends and relations of M Jones who had no connection whatsoever with Iseek.
Following the termination of the employment of Mr Jones by Iseek, Mr Jones was offered employment with Anticlockwise. Since employment by Anticlockwise would constitute a contravention of the Employment Contract, for reasons that will become apparent, Mr Jones approached Iseek for its consent for him to be employed by Anticlockwise from 1 November 2016. That consent was given on the terms of the Tri-parte Contract.
Following correspondence between solicitors for Iseek and solicitors for Mr Jones, in which allegations were made that Mr Jones was in breach of the Employment Contract and the Tri-parte Contract, allegations that were denied by Mr Jones, Iseek commenced proceedings in the Equity Division. The proceedings were commenced on 20 December 2016, after the commencement of the Court's vacation.
The proceedings claimed interlocutory relief as well as final relief. On 21 December 2016, certain undertakings were given on behalf of Mr Jones and Anticlockwise, without admissions as to liability. The undertakings were given up to the determination of Iseek's application for interlocutory relief or further order of the Court.
In due course, Iseek's application for interlocutory relief was listed for hearing before me on 9 March 2017. At the commencement of the hearing, Mr Jones and Anticlockwise proffered different undertakings from those that had been made on 21 December 2016. The new undertakings are set out in the schedule to these reasons.
The test for grant of an interlocutory injunction is not in dispute. The first question is whether Iseek has shown that there is a serious question to be tried. The second is whether the balance of convenience favours Iseek or Mr Jones and Anticlockwise. The two limbs are inter-related, in that the stronger the case for final relief, the less may be required to tip the balance of convenience. The greater the preponderance of the balance of convenience, the less strong the case for final relief need be.
Iseek formulated the questions raised in the proceedings as being:

the proper interpretation of the restraints in the Employment Contract and the Tri-partite Contract;
whether there is a serious case to be tried that the restraints are valid and reasonable and that Mr Jones has breached the terms of the Employment Contract and the Tri-parte Contract; and
where the balance of convenience lies. Since the question is whether Mr Jones is acting in breach of the provisions of the Employment Contract and whether he and Anticlockwise are acting in breach of the provisions of the Tri-parte Contract, it is therefore necessary to say something about both of those agreements.

The Employment Contract

Iseek relies on cll 22 and 24 of the Employment Contract, which deal respectively with "Confidential Information" and "Restraint after Employment Ceases". Iseek contends that Mr Jones has breached both of those provisions and threatens to continue to do so.
Under cl 22, Mr Jones must keep confidential, and not use or disclose to any person, any "Confidential Information" of Iseek, Iseek's related bodies corporate or Iseek's clients, except with prior authorisation or in the proper performance of Mr Jones' duties for Iseek and its related bodies corporate. "Confidential Information" is defined as including:

information which is specifically designated as confidential by Iseek, its related bodies corporate or their clients;
information that, by its nature, may be reasonably understood to be confidential;
trade secrets and intellectual property of Iseek and its related bodies corporate;
information regarding the financial or business affairs of Iseek or its related bodies corporate;
information about the identity, contact details or requirements of the clients, "Identified Prospective Clients", suppliers or prospective suppliers of Iseek or its related bodies corporate;
any agreements, arrangements or terms of trade with a client, Identified Prospective Client, supplier or prospective supplier. The term "Identified Prospective Client" is defined as including organisations, business or individuals that have been identified by Iseek or its related bodies corporate as an opportunity for obtaining future business.

Clause 24.1 of the Employment Contract relevantly provides that, after the termination of the employment of Mr Jones, he must not, without the written consent of Iseek, for the "Restraint Period" specified and in the "Restraint Areas" specified, either directly or indirectly, alone or jointly with, or on behalf of anybody else, in any capacity, carry on, operate or be engaged, interested or employed in a Competing Business. It is accepted for present purposes that the business of Anticlockwise is a "Competing Business" within the meaning of that term when used in cl 24.1.
The Restraint Period for cl 24 was nine months, six months, three months or one month, depending upon the enforceability of such restraint. Significantly, the maximum period of restraint is nine months. The restraint area is also a cascading provision consisting of the State of New South Wales, Greater Sydney Area (outside of a 30 km radius from the Sydney CBD), Inner Sydney (30 km from the Sydney CBD) and within 6 km from the Sydney CBD. Thus, so far as the Restraint Period was concerned, a maximum of seven months was involved from 1 November 2016, when Mr Jones commenced employment with Anticlockwise.
In addition, cl 24.1 also provides that, after the termination of his employment, Mr Jones must not, without the prior written consent of Iseek, for the Restraint Period, either directly or indirectly, interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between, on the one hand, Iseek or its related bodies corporate and, on the other, any of:

the clients of Iseek or any related body corporate in respect of whom Mr Jones carried out work or had a business relationship, at any time during the last 12 months of his employment; or
the Identified Prospective Clients of Iseek or its related bodies corporate with whom Mr Jones has been involved in developing a business relationship for Iseek's benefit, at any time during the last 12 months of his employment. In addition, cl 24.1 provides that Mr Jones will not procure or solicit anybody else to interfere with or disrupt the relationship, contractual or otherwise, between, on the one hand, Iseek and its related bodies corporate and, on the other, the clients or Identified Prospective Clients referred to above.

The Tri-parte Contract

The Tri-parte Contract consists of a letter dated 12 October 2016 written on behalf of Iseek to Mr Jones (the October Letter), at the foot of which there are acknowledgements by Mr Jones and Anticlockwise. The October Letter is headed "Employment Contract Restraint" and was signed on behalf of Iseek by Mr Ian Porter, its Chief Operating Officer. The October Letter relevantly said as follows: You will commence your employment with Anticlockwise as a wholesale generalist for three months, after which you will work on non-Iseek enterprise clients until 30 April 2017. During this period (1 November 2016 - 30 April 2017, inclusive), you won't be working on sales that compete with Iseek, and/or potentially involve contact with Iseek customers.
After referring to the prohibition in the Employment Contract from being employed in a "Competing Business", the October Letter then went on to say that, in reliance "on the above information provided by you", Iseek consented to Mr Jones working for Anticlockwise on the condition that Mr Jones: (a) continued to comply with his ongoing conditions under the Employment Contract; and (b) would notify Iseek immediately if the circumstances or roles during his employment with Anticlockwise change from what he advised Iseek. Iseek reserved the right to withdraw its consent if Mr Jones notified it of any changes pursuant to item (b), Mr Jones breached the Employment Contract or Mr Jones breached the conditions in the October Letter.
At the foot of the October Letter was a statement that, in consideration for Iseek's consent:

Mr Jones acknowledged and accepted the conditions stated; and
Anticlockwise acknowledged and agreed that it would not do anything, nor require Mr Jones to do anything that would cause him to breach the conditions in the October Letter or the Employment Contract. The acknowledgments at the foot of the letter were signed by Mr Jones on 17 October 2016 and by Mr Michael Lim, on behalf of Anticlockwise, on 1 November 2016.

Restraint after Employment Ceases

Iseek contends that, since Mr Jones commenced employment with Anticlockwise, he has breached the terms of the Tri-parte Contract by working in a sales role and not in a "wholesale generalist" role, that he has been working on sales that compete with Iseek or involve contact with Iseek's customers by seeking to solicit Iseek's wholesale and retail clients, and using and disclosing Iseek's confidential information from his contact list. Iseek also contends that Anticlockwise has breached the Tri-parte Contract and had knowledge and induced breach of the Employment Contract in so far as Mr Jones solicited clients and used and disclosed the confidential information contained in the contact list.
A substantial part of the dispute is concerned with the construction of the Tri-partite Contract in the context of the business relationship between Iseek and 2SG. The language in dispute is that quoted above in par [24] concerning the nature of the work that Mr Jones would be performing as an employee of Anticlockwise. Having regard to the fact that the Tri-parte Contract was intended to constitute consent for the purpose of the Employment Contract, the former must be construed in the light of the terms of the latter. That is to say, the Tri-parte Contract is to be construed in the light of the restraints that are imposed on Mr Jones by cl 24 on the basis that the activities on the part of Mr Jones that are described in the quoted sentences would not be regarded as going beyond what Iseek might reasonably expect of Mr Jones, having regard to the work that he was performing when he became redundant.
The Tri-parte Contract provided that, in working for Anticlockwise, Mr Jones' employment for the first three months was to be limited to employment as a "wholesale generalist". That is to say, he would not be engaged in the retail aspect of the business of Anticlockwise. However, after January 2017, for the three months to 30 April 2017, he would be permitted to work on "enterprise" clients so long as they were not clients of Iseek. It is common ground that the term "enterprise clients" signifies retail clients. Such a distinction between wholesale and retail aspects of the business makes sense in the context of the division of the business of Iseek into retail and wholesale, in circumstances where Iseek no longer had a wholesale business of its own.
The second sentence of the quoted sentences covered the whole of the period of six months from 1 November 2016 to 30 April 2017. On one view, the second sentence does no more than explain the first sentence, by making clear that at no time during the period of six months, would Mr Jones be working on sales that:

compete with Iseek; or
potentially involve contact with Iseek customers. The terms "customer" and "client" appear to be interchangeable.

However, Iseek contends that, having regard to the relationship between it and 2SG, sales of wholesale services by Anticlockwise in competition with 2SG compete with Iseek. The evidence as to the precise relationship between Iseek and 2SG was inconclusive. It consists of affidavit evidence by Mr Porter.
Mr Porter confirmed that, following the sale of Iseek's wholesale business, 2SG became a customer of Iseek. He also confirmed that, after the handover process to 2SG was finished, Iseek did not have a wholesale business. He asserted, however, that the two businesses remain connected in terms of the "products" that wholesale customers receive from 2SG, because part of the "products" was provided directly to the wholesale customers by Iseek. Mr Porter asserted that the Internet part of the "products" that 2SG provides to its wholesale customers is provided directly to the customers by Iseek. He asserted that 2SG essentially acts as "sales and marketing" and that, whilst Iseek does not receive payment directly from the wholesale customers of 2SG, it receives payment from 2SG for the whole of the wholesale "products" that 2SG is providing to its customers.
Mr Porter said that there is no formal contract between 2SG and Iseek but that there is "agreed pricing" on "access products" and the Internet services component provided by Iseek to 2SG's wholesale customers. Thus, the price for each individual component of an "access product" that Iseek provides is agreed with 2SG, including the Internet component. Iseek generates an invoice based on the agreed price and the data ordered by 2SG in total, which is broken down by each wholesale customer's particular internet speeds, in terms of Mbps which are multiplied by the agreed price per Mbps. If part of the service that a customer receives from 2SG is an Internet service, that customer receives an invoice that sets out the speed and the total price. There was no evidence that any part of the fees paid to Iseek by 2SG represents a fixed part of any of the remuneration paid by 2SG's customers for the provision of services by 2SG to those customers.
It was agreed between the parties that any reference in Mr Porter's affidavits to a "wholesale customer" in respect of the period after the sale by Iseek to 2SG of Iseek's wholesale business is to be understood as a reference to a corporation or person that has a contract for supply of services with 2SG and does not have a contract for the provision of services with Iseek. It was further agreed that any characterisation or description in Mr Porter's affidavits of any relationship between such a customer and Iseek or of services provided by Iseek to such a customer is to be read only as a submission.
In the light of that evidence and the concessions, I would be disposed to conclude, if I were construing the Tri-parte Contract on a final basis, that sales by Anticlockwise to wholesale clients do not compete with Iseek and would not potentially involve contact with customers of Iseek. It is clear that Iseek divested itself of the wholesale part of its business and that, since no later than the end of September 2015, 2SG has carried on a wholesale business including the wholesale business that was previously carried on by Iseek. The fact that 2SG is an intermediary in the provision of services does not mean that sales made by 2SG can be equated with those of Iseek.

Confidential Information

The incident that caused Iseek to be concerned that Mr Jones had breached cl 22 was the action of Mr Jones on 30 August 2016, after his employment was terminated, in forwarding to himself the contact list that he had compiled while employed by Iseek. As I have said, the contact list included contact details for clients of Iseek with whom Mr Jones had had contact during the course of his employment.
The definition of "Confidential Information" in the Employment Contract is a wide one. Specifically, it extends to information about the identity, contact details or requirements of Iseek's clients. The undertakings proffered by Mr Jones include an undertaking that he will permanently delete the file attached to the email that he sent to himself on 30 August 2016, provided that he is permitted first to extract from that file the contact details of his family and friends. The undertaking proffered on behalf of Mr Jones also extended to deleting permanently a file identified by Mr Porter concerning communications with a client of Iseek. The undertaking extended to making an affidavit setting out the steps taken pursuant to that undertaking.
In the light of the undertakings proffered by Mr Jones, I do not consider that there is any justification for enjoining Mr Jones further in relation to Confidential Information. Clearly enough, Mr Jones will have retained in his mind contact details concerning some clients and customers of Iseek. That material would, in the ordinary course, be publicly available. The undertaking proffered by Mr Jones contains an exception to the extent that information is available in the public domain or is obtained by Mr Jones other than in the course of or as a result of his employment with Iseek. That exception is recognised in the employment contract.
One matter of particular concern the proper identification of Confidential Information that should be the subject of any injunction. Clearly enough, an employer is not entitled to protect itself against mere competition and any employee is entitled to use skill, experience and knowledge acquired in the service of the former employer in legitimate competition. On the other hand, there is also the interest of the employer to protect trade secrets and genuinely confidential information to prevent misuse. In order to determine whether particularly information is confidential, it is necessary to have regard to the extent to which the information is known outside the employer's business, the skill and effort expended to collect the information, the extent to which the information is treated as confidential by the employer, the value of the information to competitors, the ease or difficulty with which the information can be duplicated and whether the usages and practices in a particular industry support the claim for confidentiality. The circumstances in which Mr Jones forwarded to himself his own contact list do not suggest that he was intending to engage in the misuse of information in respect of which Iseek had legitimate interest in keeping confidential. The undertaking proffered by Mr Jones is adequate to protect the interests of Iseek.

Conclusion

The factors that should be taken into account in determining where the balance of convenience lies are the prima facie strength of Iseek's case, whether the potential damage that Iseek is likely to suffer if an order is not made outweighs the potential damage that Mr Jones and Anticlockwise are likely to suffer if an order is made and whether Iseek's undertaking as to damages is adequate [1] . There is no question as to the adequacy of Iseek's undertaking as to damages.
In a case such as the present, involving post-employment restraints, the factors relevant to the assessment of the balance of convenience include the adequacy of damages, the right to a livelihood, delay, impact on third parties, whether Mr Jones was warned by Iseek about breach of the restraints and whether any hardship that would be visited on Mr Jones and Anticlockwise would come about because they are the authors of their own misfortune. The Court must also have regard to the strength of Iseek's case and the undertakings that have been given and must weigh against the risk of loss and damage to Iseek if injunctions are not granted, the hardship that may be occasioned to Mr Jones and Anticlockwise if they are.
For the reasons generally indicated above, I am not satisfied that Iseek has a strong case. It is relevant that Iseek was prepared to consent to the employment of Mr Jones by Anticlockwise on the terms of the Tri-parte Contract. Mr Jones has a young family and his wife does not presently work. Accordingly, notwithstanding Mr Jones' redundancy payment from Iseek, considerable hardship would be suffered by him if he were restrained from continuing in his employment with Anticlockwise.
As I have indicated above, Mr Jones and Anticlockwise have proffered undertakings that would overcome any prejudice to Iseek from refusal of the interlocutory relief claimed by it. Further, the period of the restraint, even if it were given its full effect, is relatively short and Anticlockwise has undertaken to maintain appropriate records such that there should be no difficulty in assessing damages if ultimately Iseek succeeds in demonstrating a breach of the Tri-parte Contract or the Employment Contract by reason of Mr Jones' employment by Anticlockwise.
The defendants first proffered the undertakings in the form that I have accepted shortly before the commencement of the hearing, although other undertakings had been proffered earlier that were rejected. However, Iseek continued to prosecute its application for interlocutory relief after the undertakings were proffered in open court. For that reason, I consider that it is appropriate to make the order for costs that I propose below.
In the circumstances, I consider that I should make the following orders:
Note the undertaking to the Court of the plaintiff, by its counsel, to submit to such order, if any, as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the following undertakings.
Note the following undertakings of the first defendant, by its counsel, to the Court without admissions as to liability: (A) Until determination of these proceedings or further order of the Court, up to and including 30 April 2017, the first defendant will not interfere with, disrupt or attempt to disrupt, or procure or solicit anyone else to do those things, the relationship (contractual or otherwise) between the plaintiff and: (a) any enterprise customer of the plaintiff in respect of whom the first defendant carried out work, had developed or was involved in developing, a business relationship with, during the period 30 August 2015 to 30 August 2016; (b) any person or corporation whom he knows is an enterprise customer of the plaintiff. For the avoidance of doubt, for the purposes of the above undertaking, a person or corporation is not a customer of the plaintiff by reason only of the fact that it is a customer of 2SG Wholesale Pty Ltd. (A) Provided that the plaintiff has first given its consent in writing, he will: (a) permanently delete: i. the files referred to in paragraph 98 of the first affidavit of Mr Ian Porter sworn 8 February 2017; ii. the file entitled "contactsjest.csv" attached to an email sent to the first defendant's personal email address on 30 August 2016, provided that he is permitted first to extract from that file only the contact details of the first defendant's family and friends; (b) make an affidavit setting out the steps taken pursuant to paragraph (a) and cause that affidavit to be served on the plaintiff by its solicitors, except to the extent that information is available in the public domain or is obtained by the first defendant other than in the course of or as a result of his employment with the plaintiff.
Note the following undertakings of the second defendant, by its counsel, to the Court, without admissions as to liability or any other admissions: (A) Until determination of these proceedings or further order of the Court, up to and including 30 April 2017, the second defendant will not aid, abet, counsel, procure, induce or otherwise be knowingly concerned in any breach of the undertaking referred to in order 2(A) above. (B) Until determination of these proceedings or further order of the Court, in respect of all contracts for the delivery or sale of IP transit by the second defendant entered into on or after 1 November 2016, the second defendant will bring into existence and keep proper accounts and business records which comply with s 286 of the Corporations Act and which identify: (a) the terms and conditions of any such contract; (b) the identity of each customer acquiring or purchasing IP transit; (c) the date upon which any such contact was entered into and the duration of any such contract; and (d) the price or other consideration paid and/or received under any such contract.
Order that the plaintiff's claim for interlocutory relief be otherwise dismissed.
Order that the plaintiff pay the costs of the first defendant and the second defendant of the application for interlocutory relief made in the Amended Summons.

Schedule Upon the undertaking of the plaintiff, by its counsel, to the Court to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking:

Without admissions as to liability or any other admissions, the first defendant, by his counsel, undertakes to the Court that, until determination of these proceedings or further order of the Court, up to and including 30 April 2017, he will not interfere with, disrupt or attempt to disrupt or procure or solicit anyone else to do those things, the relationship (contractual or otherwise) between the plaintiff and: (a) any enterprise customer of the plaintiff in respect of whom the first defendant carried out work, had developed or was involved in developing, a business relationship with during the period 30 August 2015 to 30 August 2016; (b) any person or corporation whom he knows is an enterprise customer of the plaintiff.
For the avoidance of doubt, for the purposes of the undertaking referred to in the preceding paragraph, a person or corporation is not a customer of the plaintiff by reason only of the fact that it is a customer of 2SG Wholesale Pty Limited.
Without admissions as to liability or any other admissions, the second defendant, by its counsel, undertakes to the Court that, until determination of these proceedings or further order of the Court, up to and including 30 April 2017, it will not aid, abet, counsel, procure, induce or otherwise be knowingly concerned in any breach of the undertaking referred to in paragraph 1 above.
Without admissions as to liability or any other admissions, the second defendant, by its counsel, undertakes to the Court that, until determination of these proceedings or further order of the Court, in respect of all contracts for the delivery or sale of IP transit by the second defendant entered into on or after 1 November 2016, it will bring into existence and keep proper accounts and business records which comply with s 286 of the Corporations Act and which identify: (a) the terms and conditions of any such contract; (b) the identity of each customer acquiring or purchasing IP transit; (c) the date upon which any such contact was entered into and the duration of any such contract; and (d) the price or other consideration paid and/or received under any such contract.
Without admissions as to liability or any other admissions, the first defendant, by his counsel, undertakes to the Court that, provided that the plaintiff has first given its consent in writing, he will: (a) permanently delete: i. the files referred to in paragraph 98 of the first defendant's affidavit sworn 8 February 2017; ii. the file entitled "contactsjest.csv" attached to an email sent to the first defendant's personal email address on 30 August 2016, provided that he is permitted first to extract from that file only the contact details of the first defendant's family and friends; (b) make an affidavit setting out the steps taken pursuant to paragraph (a) and cause that affidavit to be served on the plaintiff by its solicitors. (9 March 2017)

Endnote

Castlemaine Tooheys Limited v South Australia 161 CLR 148 at 155 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: 17 March 2017

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Judgment (11 paragraphs)

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