Janala Pty Ltd v Hardaker

Background

1. The plaintiff conducts a business under the trading name "COPE Sensitive Freight" providing a range of "end-to-end" logistics services in relation to sensitive freight throughout Australia in a number of markets including healthcare, information technology, printing and commercial copiers, electronic gaming machines, power generators and telecommunications hardware. The expression "end-to-end" means that the sensitive freight is moved from one site to another, which can include warehousing the freight. Given the nature of the freight being transported (usually large equipment, such as MRI machines), additional services provided by the plaintiff compared to the transport of ordinary freight include the provision of extra manpower, specialised lifting equipment (such as cranes, forklifts and skates), specialised purpose-built vehicles, safe work documentation and obtaining clearance certificates from engineers and traffic control.
2. The plaintiff has only a small number of direct competitors, one of which is PFM Corp.
3. As noted above one of the target markets of the plaintiff is the healthcare industry, and the defendant was principally involved in this aspect of the plaintiff's business. The defendant also worked in the printing side of the business in the 12-month period before he resigned, supervising the transport of large printers to certain customers.
4. Mr Hardaker's role throughout his employment with the plaintiff principally comprised overseeing the execution of projects for the delivery of sensitive freight on a national scale, assisting and supervising state managers and site project managers where projects were particularly complex and/or required additional resources, developing and maintaining client connections nationally for the plaintiff, and being a main point of contact for customers, on an operational level, with whom he dealt.
5. Mr Hardaker's day-to-day activities included taking direct enquiries from a number of the plaintiff's customers in the healthcare industry in relation to upcoming work requiring site inspections, preparing indicative quotations for particular jobs based on the site inspection and the plaintiff's pricing schedule, resolving enquiries from the plaintiff's internal account management team for various customers, conducting and/or assisting with site inspections, engaging third-party sub-contractors needed to facilitate a project, and managing and overseeing the project to completion. He was on site for high-profile or large jobs when a particularly significant item of equipment was being delivered to a customer.
6. As part of his role, Mr Hardaker supervised the plaintiff's Site Project Manager for New South Wales and each other Australian state and territory (around 10 in total), and reported to the plaintiff's National Site Services Manager, Mr Duke.
7. During the course of his employment, the plaintiff contends that Mr Hardaker had access and was exposed to confidential information belonging to the plaintiff which it described as comprising its customer lists (with names and contact details), its supplier lists (with names and contact details), sales and marketing information, financial information relating to the sensitive freight services provided by the plaintiff, the terms of agreements between the plaintiff and its customers including pricing information for work that was contracted out to sub-contractors, and employee information (including contact details and remuneration).
8. In addition, Mr Hardaker had regular contact with customers on a national level which gave him access to information regarding their need for the plaintiff's products and services, their pricing and cost constraints and anticipated products, specialist equipment and services required.
9. Mr Hardaker's employment contract included a clause restricting disclosure of the plaintiff's confidential information during and post employment, and a post‑employment restraint on competition in the following form: Non-competition You will not, without the prior written consent of the Company, during your employment, either directly or indirectly in any capacity (including without limitation as principal, agent, trustee, beneficiary, executive, consultant or adviser) carry on, advise, provide services to or be engaged, concerned or interested in or associated with any business or activity which is competitive with any business carried on by the Company. You will not, without the written consent of the Company, for a period of six (6) months after termination of your employment, however that termination occurs, directly or indirectly whether on your own account or for any person: • be employed by or engaged by or interested in or connected with any business or activity which is competitive with any business carried on by the Company, or • canvass, solicit, endeavour to entice away from the Company, or accept any approach from, any person or company which, either at the date of termination of your employment or at any time during the 12 months prior to such termination, was a customer or client of the Company; or • solicit or endeavour to solicit any employee of the Company with the purpose of enticing that person away from the Company or procuring the employment or engagement of any such person by another business; or • counseI, procure or otherwise assist any other person to do any of the acts referred to above. To avoid doubt: • each of the above restraints must be read and construed and will have effect as a separate severable and independent prohibition or restriction and will be enforceable accordingly, and • you agree that if any of the above restraints or any part of them is held to be invalid or unenforceable for any reason, that restraint or part will be severed so that the remainder will remain valid and effective. Nothing in this contract is to be taken as prohibiting you (whether directly or indirectly) from holding or acquiring shares in any publicly listed company.

Termination of the defendant's employment with the plaintiff

1. The termination of the defendant's employment came about in the following circumstances. In late December 2021, the plaintiff received a tax invoice addressed to "COPE Transport" in the amount of $4,510 in respect of "Propping Works Completed at 139 Macquarie Street As Per Engineer Drawings 18/12/2021" (Propping Invoice). The expression "propping works" refers to work for a customer where the plaintiff needs to arrange the stabilising of an area to be used during freight transport. The plaintiff would usually contract out propping work where it required engineer certification.
2. In early January 2022, the plaintiff's finance manager, Ms Monier, investigated the ABN disclosed on the Propping Invoice and found that it was registered in the name of a partnership called "L R Hardaker and L Whitehurst" which had registered the business name "Freight Solution Services". On further investigation it became apparent that "L R Hardaker" was the defendant and "L Whitehurst" was another employee of the plaintiff, and that the address of the business name "Freight Solution Services" (FSS) was the defendant's home address. Later it was discovered that a company called Freight Solution Services Pty Ltd (FSS Pty Ltd) had been registered on 17 January 2022 with Mr Hardaker as the sole director and secretary.
3. Ms Monier identified from the Propping Invoice that it related to a particular "purchase order". When the plaintiff is engaged by a customer to complete a job, it may need to engage one or more third parties to provide additional services to enable the job to be performed. The plaintiff's finance team issues a "purchase order" whenever a third-party supplier is engaged in this way, so that the supplier's invoice when ultimately received can be matched to the original request for the services to be provided. The purchase order for the Propping Invoice had been requested by the defendant.
4. Ms Monier formed the view that there was a problem with the Propping Invoice because it suggested that the two employees of the plaintiff, being the defendant and Mr Whitehurst, had been responsible for engaging a third party in which they had an interest, FSS, to supply services to the plaintiff, without the prior consent of the plaintiff. A further investigation by Ms Monier revealed that other invoices had been issued by the plaintiff to FSS totalling $8,431.50 which also appeared to result from transactions arranged by the defendant.
5. Although at this time (January 2022) the plaintiff was not able to explain these payments, it is now alleged in these proceedings that the defendant had interposed FSS between the plaintiff and the plaintiff's customer so that the plaintiff would invoice FSS for a particular service and FSS would then invoice the plaintiff's customer for the same service at a higher amount. That allegation is not the subject of this interlocutory application, but the transactions which gave rise to it are relied on by the plaintiff in relation to which form of relief should be granted, having regard to the balance of convenience.
6. On 17 January 2022, following the defendant's return from annual leave, there was a meeting between the defendant and two senior employees of the plaintiff, Mr Drewes and Ms Hart, at which the defendant acknowledged his involvement with FSS and stated that he was preparing for life after COPE in about three to five years when he planned to move to the north coast of New South Wales and undertake some sensitive freight brokering work. Mr Drewes gave evidence that while he did not raise the Propping Invoice with the defendant at this meeting he did put to the defendant that there would be a potential conflict of interest on his part if FSS was trading and said that he would send a letter to the defendant for him to sign "to ensure that all parties are protected".
7. On 19 January 2022, Mr Drewes sent a letter to the defendant stating that the plaintiff had become aware of conduct engaged in by him and Mr Whitehurst which, on the basis of the information currently available, was a breach of his contractual, statutory and common law obligations to the plaintiff which had caused it damage. The conduct was described in the letter as essentially the operation of FSS in competition with the plaintiff without the plaintiff's consent, including that the defendant had provided services to a customer which approached the plaintiff to provide transport services, performed services on behalf of FSS when he was required to work full time for the plaintiff, and arranged for the plaintiff to invoice FSS via the cash sale account and then FSS had invoiced COPE's customer presumably with a margin added.
8. The letter set out the various provisions of the defendant's employment contract which were said to have been breached as well as details of his statutory and common law obligations which the plaintiff said had been breached. The letter required the defendant to provide to the plaintiff copies of quotes issued and invoices rendered by FSS during the period since October 2021 and attached an undertaking which he was required to sign (Undertaking) which provided relevantly as follows: 1. I will cease, for the period of my employment with COPE and 12 months thereafter (Undertaking Period), operating (in any capacity) the business trading under the business name Freight Solution Services … (FSS), or any business or undertaking which provides the same or similar services as, or is competitive with, COPE and its related entities, unless express written consent is provided by COPE; 2. I will not, during the Undertaking Period, solicit, canvas, approach, deal with or accept any approach from, any person or organisation who is a current or prospective customer of COPE, with a view to performing services that are the same as or similar to the services provided by COPE, unless it is on behalf of COPE and for the purpose of performing your employment duties for COPE, unless express written consent is provided by COPE; 3. I will not, during the Undertaking Period, compete with COPE or its relates [sic] entities, or be involved with or interested in any capacity in a business competing with COPE other than by holding shares in companies listed on any recognised stock exchange, or with COPE's express written consent; · 4. I will immediately cease and forever refrain from using or disclosing COPE's confidential information, other than as permitted by my contract of employment with COPE dated 11 July 2014, executed by me on 7 October 2014 (Employment Contract), or with COPE's express written consent; 5. I will fully and completely comply with each of my obligations pursuant my Employment Contract; and 6. I have provided COPE with all quotes issued and invoices rendered (or similar documents evidencing the nature of the services provided) by FSS which evidence services proposed to be or performed by FSS between October 2021 and present, the person or entity those services were provided to, and the fee quoted or invoiced by FSS for those services.
9. It may be noted that the Undertaking extended the period of the post-employment restraints in his contract of employment by six months. The evidence before the Court suggests that this extension of the restraints was not a matter drawn to the attention of the defendant in his discussions with Mr Drewes and Ms Hart or otherwise discussed with him.
10. The letter of 19 January 2022 required that the information sought together with a signed copy of the Undertaking should be provided by 4pm on 21 January 2022. Following the request by the defendant for an extension, Ms Hart emailed the defendant on 24 January 2022 stating that the plaintiff would allow an extension to 4pm on 28 January 2022 "to allow you to seek proper legal advice".
11. No response having been provided by 28 January 2022, the plaintiff issued a "show cause" letter to the defendant on 31 January 2022, stating that it had formed the view for the reasons stated in the letter that the defendant's conduct constituted serious and gross misconduct entitling it to terminate his employment immediately and without notice. The letter also suspended the defendant until a further meeting to be held on 2 February 2022 at which he was required to "show cause (state your case) as to why COPE should not terminate your employment for a serious and gross misconduct".
12. On 2 February 2022, the defendant met with Mr Drewes and Ms Hart at the plaintiff's premises and at that meeting the defendant signed the Undertaking. During the meeting Ms Hart told the defendant that the plaintiff would send him a "first and final warning" for the conduct described in the letters of 19 and 31 January 2022 which would be given to him when he returned to work. This occurred on 7 February 2022 when the plaintiff delivered to him a letter which stated that he had breached his employment contract and that the plaintiff required his strict compliance with all of his employment obligations and his commitments in the Undertaking.
13. On 25 March 2022, the defendant tendered his resignation from employment with the plaintiff with his last day to be 22 April 2022. He continued to work for the plaintiff until 14 April 2022 when he was placed on gardening leave for the remainder of the period to 22 April 2022.
14. On 2 May 2022, the defendant commenced employment with PFM Corp in the role of National Medical, Production Print and IT Manager. The role requires "management as well as work on the tools … recruiting staff for Medical, IT and Production Print site to site". The plaintiff contends that this is in breach of the defendant's employment contract and the Undertaking because he is working in a business activity which is competitive with the plaintiff's business.
15. Since 9 May 2022 the defendant has ceased working in the role of National Medical, Production Print and IT Manager at PFM Corp and instead works at PFM Corp's Sydney warehouse as a warehouseman. This warehouse is used to store sensitive freight entrusted to PFM Corp. The evidence of both the defendant and Mr Stewart, the Chief Executive Officer of PFM Corp, is to the effect that this role does not involve any interface with current or potential customers and that this will continue so long as necessary to comply with the orders of the court. There is evidence from Mr Stewart as to the steps which will be taken to ensure that the defendant does not have any dealings with current or potential customers of PFM Corp in the period to the final hearing. Neither the defendant nor Mr Stewart were cross-examined.

Relevant principles

1. As this is an interlocutory hearing and not a final hearing it is not the function of the court to undertake a preliminary trial and to give or withhold relief upon some forecast as to the ultimate result of the factual disputes between the parties: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 (Beecham) at 622; [1968] HCA 1.
2. The questions which arise, on which the plaintiff bears the onus are: (a) first, whether there is a serious question to be tried that the post-employment restraints contained in the defendant's contract and the Undertaking are valid (i.e. a prima facie case in the sense referred to in Beecham at 622); (b) second, whether the plaintiff is likely to suffer injury for which damages are an inadequate remedy; (c) third, whether the balance of convenience favours the granting of the injunction and (d) fourth, whether there are any discretionary factors which tend against the granting of relief: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at 68 [19]; HiTech Group Australia Ltd v Riachi [2021] NSWSC 1212 (HiTech) at [31]; JD Heydon, The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths) at 337.
3. The parties were in agreement that only the first and third questions are at issue in this interlocutory application.
4. The period of the post-employment restraints under the defendant's employment contract is six months expiring on 22 October 2022 and, if the Undertaking is enforceable, this will be extended by a further six months. It is not suggested that the grant of interlocutory relief will in a practical sense determine the dispute between the parties. Consequently, it is not necessary for the Court to evaluate the strength of the plaintiff's case for final relief: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 (Kolback) at 536. However, an assessment of the strength of the plaintiff's case will be relevant to the balance of convenience albeit on a preliminary basis reflecting that the arguments are to be weighed at a relatively high level at an interlocutory hearing: HiTech at [36]; SAI Global Property Division Pty Ltd v Jones [2018] NSWSC 438 (SAI Global) at [103] and [115].
5. The principles under the common law and the Restraints of Trade Act 1976 (NSW) relevant to the enforceability of post-employment restraints of the kind at issue here are well settled. They were summarised in Stacks Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 (Stacks) at [44] as follows. "(a) At common law, a restraint of trade is contrary to public policy and void, unless it can be shown that the restraint is, in the circumstances of the particular case, reasonable: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] 1 AC 535 at 565; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315. (b) In New South Wales, it is not strictly correct that a restraint is prima facie void; a restraint is valid to the extent to which it is not against public policy, even if not in severable terms: Restraints of Trade Act (NSW), section 4(1): see Koops Martin v Reeves [2006] NSWSC 449 at [27] per Brereton J. (c) The onus at common law of showing that the restraint goes no further than is reasonably necessary to protect the interests of the person in whose favour the restraint operates, lies on the party seeking to support the restraint as reasonable: Adamson v New South Wales Rugby League Ltd (1981) 27 FCR 535 at 554 per Hill J and North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 470 per Viscount Haldane LC. (d) The onus of establishing that a contract in restraint of trade is injurious to the public interest lies on the party alleging that this is so: see for example Attorney General of Australia v Adelaide Steamship Co Ltd [1913] AC 781 at 797. (e) The Court gives considerable weight to what parties have negotiated and embodied in their contracts, but a contractual consensus cannot be regarded as conclusive, even where there is a contractual admission as to reasonableness: see Woolworths Ltd v Olson [2004] NSWCA 372 at [39]. (f) The validity of the restraint is to be tested at the time of entering into the contract and by reference to what the restraint entitled or required the parties to do rather than what they intend to do or have actually done: see Woolworths Ltd v Olson [2004] NSWCA 372 at [40]. (g) The test of reasonableness is measured by reference to the interests of the parties concerned and the interests of the public: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535. The requirement that the restraint be reasonable in the interests of the parties means that the restraint must afford no more than adequate protection to the party in whose favour it is imposed: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707; Buckley v Tutty (1971) 125 CLR 353 at 376; Linwar Securities Pty Ltd v Christopher Savage [2006] NSWSC 786 at [25] and [26] per Nicholas J; and Koops v Martin v Reeves [2006] NSWSC 449 at [28] per Brereton J. (h) An employer is not entitled to require protection against mere competition: Dewes v Fitch (1920) 2 Ch 159 at 181; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329 per Gleeson CJ. 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] and [25] per White J. (i) An employer is entitled to protection against the use by the employee of knowledge obtained by him of his 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 edition, 1999) at 66; Aussie Home Loans v X Inc Services [2005] NSWSC 285 at [14] per White J. (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 his employer, or such an acquaintance with his employer's trade secrets as would enable him to take advantage of his employer's trade connection or utilise information confidentially obtained: Dewes v Fitch (1920) 2 Ch 159 at 181. (k) 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 at [25] per Brereton J; and Kearney v Crepaldi [2006] NSWSC 23 at [51] to [53] per McDougall J. (l) The effect of the Restraints of Trade Act 1976 (NSW) is to allow the restraint to be read down so as to be valid to the extent necessary only to capture the conduct of the defendant, if that extent would have been valid. However, the Act does not allow the Court to remake the contract or a covenant in the contract: Orton v Melman (1981) 1 NSWLR 583; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329; Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 (NSW Court of Appeal) at 43,833. Whilst the Court is permitted to read down the clause if the clause is so capable, it cannot be re-drafted: Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 (NSW Court of Appeal) at 43,833; Woolworths v Olson [2004] NSWCA 372."
6. This summary has been adopted in subsequent cases: e.g. SAI Global at [109]; Dundoen Pty Ltd v Richard Wills (Real Estate) Pty Ltd [2020] NSWSC 1534 (Dundoen) at [73]; HiTech at [42].
7. In relation to the principle stated in Stacks at sub-paragraph (l) extracted above, the correct approach to the application of s 4(1) of the Restraints of Trade Act is for the court to determine first, whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed and, second, whether the restraint so far as it applies to that breach, is contrary to public policy. That involves a consideration of whether the restraint is reasonably necessary to protect the employer's legitimate business interests and is not injurious to the public. If the restraint is not contrary to public policy, it is valid subject to any other order which may be made under s 4(3). Each of these questions is determined at the date of creation of the restraint, although the court can take into account future events that could have been foreseen at the date of its creation: Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 (Isaac) at 356 [61]-[63]; Dundoen at [74].
8. The legitimate business interests which are capable of protection by a restraint include the employer's goodwill (including customer connection) and confidential information, and the maintenance of a stable and trained workforce: SAI Global at [111]. However, an employer has no legitimate interest in merely preventing a former employee from taking employment with a competitor: Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; 175 IR 414 (Tullett Prebon) at [47].
9. Where the employment contract contains both a covenant against soliciting customers of the employer and a covenant against competition, the reasonableness of the latter must be assessed by reference to the adequacy of the protection for the legitimate interests of the employer offered by the former: Stacks at [63]-[65]; Verint Systems (Australia) Pty Ltd v Sutherland [2019] NSWSC 882 at [41]. Whether the non-solicitation covenant does provide adequate protection will depend on the particular facts of the case.
10. The same analysis applies where the employment contract contains a covenant against the use of confidential information and a non-compete covenant, and it has been recognised that despite the presence of the former a non-compete covenant may be justified as a further protection for the confidential information of the employer given the potential difficulties in proving a breach of the former: see Woolworths Ltd v Olson [2004] NSWCA 372; 55 AILR 200-133 at [38] and [67] (Woolworths). In that case, Mason P (with whom McColl and Bryson JJA agreed) said: "[67] A recognised method of such protection is the procurement of a restraint upon the employee given access to such information taking up employment with a competitor whom he might be willing to provide with such information. A reasonable employment restraint is easier to enforce than a breach of confidence or breach of copyright claim; it removes the temptation for the former employee to offer and for the new employer to solicit confidential information; and it provides certainty of definition as regards the area of confidential information to be protected. These interests have been judicially recognised (see Littlewoods Organisation Ltd v Harris [1977] 1 All ER 1472 at 1479, 1485, Wright at 333, Kone Elevators at p43,834)."
11. In this case, there are particular restraints protecting the employer against the solicitation of its customers, the divulging of its confidential information and the solicitation of its workforce. Whether these provisions provide adequate protection for the legitimate interests of the employer so that the non-compete restraint will be struck down as a mere covenant against competition (as the defendant contends), will require close scrutiny of the particular facts established by the evidence at final hearing.

Serious question to be tried

1. At the final hearing, the plaintiff will seek injunctive relief and damages. For present purposes, what is relevant is that the final injunctive relief will seek to enforce: 1. The restraint in the employment contract on using, disclosing or communicating confidential information of the plaintiff. 2. The restraint in the employment contract and the Undertaking against competing with the plaintiff, canvassing customers of the plaintiff and/or soliciting employees of the plaintiff.
2. In relation to category (a), the interlocutory relief which the defendant offers under the warehouse proposal will provide the same protection as the final injunctive relief claimed by the plaintiff until 22 October 2022. It is likely that the final hearing will occur by that date and hence the warehouse proposal preserves the status quo in relation to that matter.
3. In relation to category (b), the interlocutory relief claimed by the plaintiff seeks to enforce the post-employment restraints found in the contract and the Undertaking which are set out at [13] and [21] above. They fall into three categories: 1. Not to be employed by or engaged by or interested in a business competitive with the plaintiff. 2. Not to canvass or solicit customers of the plaintiff. 3. Not to solicit employees of the plaintiff.
4. In relation to categories (ii) and (iii) there is no dispute for the purpose of the interlocutory application that there is a serious question to be tried. This is reflected in the terms of the warehouse proposal which provides an undertaking not to canvass or solicit the customers of the plaintiff (see [16(f)] of the warehouse proposal extracted at [3] of this judgment) and not to solicit or endeavour to solicit employees of the plaintiff (see warehouse proposal at [16(g)(iii)]) in the same terms as the plaintiff's proposed form of interlocutory injunctive relief (reflecting the final injunctive relief claimed).
5. In relation to category (i), the plaintiff seeks an interlocutory injunction to restrain the defendant from working for PFM Corp. It is not in dispute that in working for PFM Corp the defendant is in breach of the non-compete clause in the employment contract, if it is valid.
6. Some of the issues which might be expected to arise at the final hearing in relation to the enforceability of the non-compete clause in the employment contract are: 1. whether the defendant is the "human face" of the plaintiff's business; 2. whether the restraint goes further than is reasonably necessary to protect the plaintiff's legitimate business interests; and 3. if the answer to (b) is yes, whether some form of restraint will be maintainable after the operation of the Restraints of Trade Act.
7. These questions will be tested at the date the employment contract was entered into. There will be a contest at final hearing as to whether the defendant is the human face of the plaintiff's business in the relevant sense, being that the defendant has a personal relationship with the customers of the plaintiff which he can use to influence their future custom: Jardin v Metcash Ltd [2011] NSWCA 409; 285 ALR 677 at [95]-[98]. Of significance will be the fact that his contract of employment includes extensive restraints to protect the plaintiff's legitimate interests in its goodwill, confidential information and a stable workforce (being the clause referred to at [13] above): see [39] above.
8. In relation to the non-compete clause in the Undertaking, which purported to extend the period of the restraint by a further six months, an issue at the final hearing is whether it is enforceable against the defendant given that the Undertaking is not a deed and is not expressed to be given for any consideration provided by the plaintiff. There will be a question whether the plaintiff provided consideration in the form of the benefit to the defendant of avoiding dismissal from his employment which is likely to turn on what was said to the defendant at the meeting on 2 February 2022: cf Electroboard Administration v O'Brien [1999] NSWCA 452 at [10]. Other issues which the defendant contends will arise at the final hearing include whether the Undertaking was procured by unconscionable conduct on the plaintiff's part and should be set aside, and whether, in any event, the period of the restraint contained in the Undertaking (12 months from termination of the employment) is unreasonable.
9. While the plaintiff's case on the non-compete clauses in the employment contract and the Undertaking will be contested by the defendant, I accept that the plaintiff has established that it has a serious question to be tried that the non-compete covenant is valid at least until 22 October 2022.

Balance of convenience

1. This is a case where the plaintiff's entitlement to ultimate relief is uncertain and the task of the court is to determine what course is best calculated to achieve justice between the parties in the circumstances of the particular case pending the resolution of the uncertainty. The relevant test was stated by McLelland J, as his Honour then was, in Kolback at 535: "Where a plaintiff's entitlement to ultimate relief is uncertain, the Court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled …".
2. This involves analysing all the circumstances of the case to see whether, considering the balance of convenience and hardship, the court should exercise its discretion by declining to issue an interlocutory injunction: SAI Global at [103]. In HiTech at [49], Ward CJ in Eq (as her Honour then was) summarised the matters to be taken into account as follows: "[49] As to the balance of convenience, one must balance the hardship that would be suffered by the respective parties if the injunction were, or were not, to be granted … Some of the factors relevant to the assessment of the balance of convenience are: inadequacy of damages; the right to a livelihood; delay; impact on third parties; whether the employee was warned and went into the position with "eyes wide open"; whether any hardship that would be visited on the defendant has come about because he or she is the author of his or her own misfortune; the strength of the case; and any undertakings that have been given."
3. I will consider each of the matters referred to by her Honour in turn.
4. In relation to the inadequacy of damages, it is rarely that damages will be considered to be an adequate remedy where, as here, a negative covenant is sought to be enforced: HiTech at [50] and [111]. However, any potential risk that damages will be an inadequate remedy will not be determinative and, as illustrated by HiTech itself, at the interlocutory stage it is simply one of the matters to be considered to determine the course best calculated to achieve justice between the parties up to the determination of the plaintiff's claim for final relief.
5. The right to a livelihood and hardship to the defendant can be dealt with together. The defendant's uncontested evidence about his personal circumstances can be summarised as follows. He is 49 years old and has no formal qualifications. He is currently employed by PFM Corp on a salary of $173,092 per annum plus superannuation. He has significant financial commitments which were detailed in his evidence (amounting to approximately $7,800 per month for his living expenses including monthly payments of $3,589.35 to the ANZ Bank under the mortgage of his home). He has worked in the transport and logistics industry for 26 years and his only skillset is sensitive freight logistics which is not readily transferrable to another industry, so that his only other source of work, if he ceased to work for PFM Corp, would be an unskilled job.
6. If the wider form of injunctive relief sought by the plaintiff is granted, the defendant would be required to resign from PFM Corp and consequently he would need to find unskilled work until the final hearing concluded. The plaintiff suggested that the types of unskilled work which would be open to the defendant if he did not work for PFM Corp would be driving "medium rigid" trucks, project management in the construction industry, acting as a rigger or dogman in the construction industry, acting as a driver and host in the travel industry or acting as a supervisor in a warehouse outside the sensitive freight industry. The defendant's evidence was that none of those jobs is a realistic option for him due to his lack of relevant experience and that while he might be able to obtain work as a truck driver or warehouse assistant, each would involve a very significant drop in his income which, on his uncontested evidence, would not support his current relatively modest lifestyle.
7. I consider there is significant doubt whether such jobs would be available to him, particularly given that the issue here is temporary employment in the period up to a final hearing at a salary sufficient to meet his significant financial commitments.
8. In relation to delay, the defendant took on a new position with PFM Corp commencing on 2 May 2022 and the plaintiff commenced these proceedings on 13 May 2022. That in my view is not a material delay.
9. In relation to impact on third parties, it is relevant but not in my view particularly significant that PFM Corp will be required to immediately terminate the defendant's employment if the wider form of injunctive relief is granted despite taking steps to restrict him to a non client-facing role.
10. As to whether the defendant was warned, it is clear from the plaintiff's letter dated 19 January 2022 to the defendant, the "show cause" letter dated 31 January 2022 and the Undertaking that he signed on 2 February 2022, that the plaintiff had warned the defendant that it regarded his conduct with FSS as a breach of his employment contract and would seek to restrain him from working for a competitor if he ceased to be employed by the plaintiff. It can be said that when he took the new position with PFM Corp he did so with his eyes open. However, for the reasons given below I do not regard this as significant in the present case.
11. Next, it is necessary to consider the strength of the plaintiff's case and any undertakings proffered by the defendant which are related matters. In relation to the strength of the plaintiff's case, this has two aspects. First, there is a question as to the enforceability of the non-compete restraint in the contract and the Undertaking. In my view there will be a serious contest at the final hearing as to whether the non-compete restraint goes further than is reasonably necessary to protect the plaintiff's legitimate business interests in respect of its confidential information, customer connection and a stable workforce.
12. In relation to confidential information, the evidence reveals very little about the nature of the alleged confidential information, beyond the general proposition that it comprised customer lists (names and contacts), supplier lists (names and contacts), sales and marketing information, financial information relating to the sensitive freight services provided by the plaintiff, the terms of the plaintiff's agreements with its customers and sub-contractors and employee information (including contact details and remuneration). There was no suggestion that the defendant had taken away any client lists or other records of the plaintiff which recorded confidential information and his capacity to use any confidential information which he had become aware of is therefore limited. Nor was there any suggestion that he had knowledge of highly sensitive confidential information about particular future projects or plans of the plaintiff of a kind which was held to justify injunctive relief to enforce a non-compete restraint in each of Woolworths (confidential information about a new software system designed to transform Woolworths' product supply procedures) and Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 (confidential information about three new products which Kone was about to launch onto the market). The warehouse proposal contains an undertaking which will preclude the defendant from divulging the plaintiff's confidential information to PFM Corp or any other person.
13. In relation to customer connection, there is evidence that the defendant had a client-facing role but it was limited in at least two ways. First, Mr Drewes said in cross-examination that the defendant did not have a role in negotiating contracts with clients. The plaintiff's ongoing contractual arrangements with clients was a matter for other, more senior, executives of the plaintiff. Second, it was not suggested that the defendant was the sole employee of the plaintiff who maintained relationships with customers with whom he worked and I infer from the fact that there were around 10 site project managers across Australia who reported to him that he was not. There is one email from a customer of the plaintiff indicating that the defendant provided his contact details at PFM Corp to that customer on 6 May 2022, but this is equivocal as the email states that the customer had requested those contact details. The defendant was not cross-examined about this email. The warehouse proposal contains an undertaking which will preclude the defendant from making any approaches to the plaintiff's customers.
14. In relation to the plaintiff's workforce, the plaintiff's case rests on certain text messages and an email evidencing communications by the defendant with four of the plaintiff's drivers (out of a total workforce of at least 150 drivers). The plaintiff said that these documents established that the defendant had sought to solicit four drivers employed by the plaintiff (three ultimately joined PFM Corp and one declined). The defendant denies that he solicited any of these drivers to work for PFM Corp (on which he was not cross-examined) and the text messages and email in evidence are to some extent equivocal and, on a fair reading, the defendant may have been responding to enquiries made to him by those employees. Nevertheless, I accept that these documents are prima facie evidence of a breach of the restraint on soliciting the plaintiff's employees, but note three points. First, Mr Drewes said in cross-examination that he became aware that the defendant was approaching a number of the plaintiff's drivers in early April 2022 (while the defendant was still the plaintiff's employee) but did not tell him to stop doing so and instead simply put him on gardening leave to see out the remainder of his notice period. This suggests that at the time it was not seen as a particularly serious matter. Second, there is no evidence that the defendant (or PFM Corp) has made a raid on the plaintiff's staff. Third, the warehouse proposal contains an undertaking which will preclude the defendant from making any approaches to the plaintiff's employees.
15. The effect of the undertakings provided by the defendant which are now offered to the Court in the form of interlocutory relief, will be that the plaintiff will be effectively protected from everything covered by the contractual restraints except the mere fact of the defendant's employment with PFM Corp, a competitor. When these undertakings are coupled with the fact that the defendant does not appear to have taken away any documents recording the plaintiff's confidential information and the steps which have been taken by PFM Corp to ensure that the defendant does not have a client-facing role as noted at [28] above, there is a real concern that the wider form of injunctive relief sought by the plaintiff "serves only to sterilise the employee … and prevent competition": see HiTech at [115] and [117], referring to Tullett Prebon at [70]. In HiTech an interlocutory injunction to enforce a post-employment restraint was refused in circumstances where similar extensive undertakings were given by the defendant.
16. The strength of the plaintiff's case is also potentially relevant in a second way. The plaintiff submitted that it had a strong case that the recent conduct of the defendant in relation to two matters showed that the warehouse proposal would not provide to the plaintiff sufficient protection. The first is the evidence dealing with the use by the defendant of FSS which I accept establishes a prima facie case of a breach of his obligation not to compete with the plaintiff while still its employee (referred to [14]-[18] above). The second is the evidence referred to at [62] above of texts and an email which the plaintiff submitted indicated that the defendant was in breach of his obligation not to solicit the plaintiff's employees. Both matters were put forward as supporting the plaintiff's concern that the warehouse proposal would not protect its legitimate business interests in respect of its confidential information, customer connection and a stable workforce. In other words, the prior history of the defendant on these two matters cast significant doubt on whether the undertakings that he would give under the warehouse proposal not to use confidential information, solicit the plaintiff's customers or its employees would be complied with.
17. While these matters do not bear directly on the enforceability of the non-compete restraint, I accept that in exercising the discretion to grant interlocutory relief the Court has regard to the circumstances at the date of the hearing and hence these matters are relevant to the exercise of the discretion regarding the form of the interlocutory injunction to be granted: Isaac at [63].
18. However, on the evidence before me, I am satisfied that the undertakings will provide the plaintiff with sufficient protection. First, the defendant has given evidence that (a) he understands the limited scope of his role with PFM Corp under the warehouse proposal and (b) he is not permitted to use the plaintiff's confidential information, or solicit its customers or employees, and that he has had his legal obligations in this regard explained to him by his lawyers. I infer from this that it has been explained to him what the consequences of breach of a court order will be. Second, the warehouse proposal will involve the defendant in a role which will not involve any contact with the plaintiff's customers and employees nor involve the use of any of the plaintiff's confidential information. Mr Stewart (CEO of PFM Corp) gave evidence that this would be the case and he was not cross-examined. Third, there is no evidence that the defendant has in his possession any documents recording confidential information of the plaintiff. Fourth, in so far as the texts and email regarding the plaintiff's four drivers are concerned, I refer to what I have said at [62] above.
19. Taking into account the above considerations, I have concluded that the prejudice which the plaintiff will suffer if it is subsequently found that an interlocutory injunction should have been granted to restrain the defendant from working for PFM Corp in any capacity is outweighed by the prejudice which the defendant will suffer if it is subsequently found that an injunction in that form had wrongly been granted at this stage. In particular, I consider that the wider form of interlocutory relief sought by the plaintiff goes further than is necessary to protect the plaintiff's legitimate business interests in respect of its confidential information, client connection and employees.

Costs

1. The usual approach in interlocutory proceedings for an injunction where the plaintiff is successful, is that the costs be costs in the cause, although it is a matter in the discretion of the Court to make a different order. The rationale for making such an order is that, at the stage of granting an interlocutory injunction, the court is not in a position to adjudicate on the ultimate outcome of the proceedings: Petar v Macedonian Orthodox Community Church St Petka Incorporated [2007] NSWCA 142 at [21].
2. The defendant submitted that if the court were to grant an interlocutory injunction in terms of the warehouse proposal, he ought to receive his costs of the hearing (two days). This was on the basis that he had, by a letter dated 31 May 2022, made an offer to consent to orders of the court in the same form as the warehouse proposal, to which no response had been provided by the plaintiff prior to the hearing. Had that offer been accepted, the entire two days of the hearing would have been avoided.
3. While the court has a discretion, in the circumstances of the case, to make an order other than "costs in the cause", I consider that the appropriate order is that costs of the interlocutory application should be in the cause for the following reasons.
4. First, the determination of the interlocutory application does not involve a determination of substantive rights and obligations but only a preliminary assessment as to, relevantly, whether there is a prima facie case for the relief sought and where the balance of convenience lies. Where the plaintiff establishes a prima facie case but fails to obtain interlocutory relief on the grounds of balance of convenience or other discretionary grounds, it is accepted that it is often appropriate to order that costs be in the cause: Westpoint Finance Pty Ltd v Chocolate Factory Apartments Ltd [2002] NSWCA 287; 12 BPR 22,969 at [65]-[68]; Durie Design Pty Ltd [2020] NSWSC 949 at [115]-[116]; Brusa v Brusa [2020] WASC 362 at [20]-[25]. Here the plaintiff's case for the wider form of interlocutory relief it sought was arguable and it failed only because the balance of convenience was not in its favour.
5. Second, the interlocutory application was not brought in a manner which unreasonably inflated costs. While the hearing took two days rather than one, this was largely due to the time taken by the defendant to cross-examine two of the plaintiff's witnesses.
6. Third, while the defendant made an offer on 31 May 2022 in the terms of the warehouse proposal, that was only a couple of days before the hearing commenced. In my view, the plaintiff did not act unreasonably in continuing to seek the wider relief.

Conclusion and orders

1. For these reasons the Court will order as follows. 1. An order that within 7 days the Defendant serve on the Plaintiff an affidavit sworn or affirmed by the Defendant identifying: 1. any use by the Defendant of the Confidential Information other than for the Plaintiff; 2. any disclosure by the Defendant of the Confidential Information to any person other than to the Plaintiff; 3. the date of any use or disclosure; 4. the purpose of any such use or disclosure; 5. the identity of any person to whom a disclosure was made; 6. a description of any such use; in the period 1 December 2021 to the date of this order. 1. An order that within 7 days of making these orders, the Defendant deliver up on oath or affirmation all copies, transmissions, extracts and notes of or recording of (and all materials produced from or containing) Confidential Information of the Plaintiff in his possession, custody or power and verify on oath or affirmation that he has no further Confidential Information in his possession, custody or power. 2. Upon the Plaintiff giving the usual undertaking as to damages, an order that, until 22 October 2022, or the conclusion of the final hearing or a further order of the Court, whichever occurs first, the Defendant be restrained from: 1. using the Confidential Information; 2. disclosing or communicating to any person the Confidential Information; 3. within Australia, operating in any capacity any business or undertaking, including under the business name "Freight Solution Services", FSS, or FSS Pty Ltd which provides the same or similar services as, or is competitive with, the Plaintiff; 4. within Australia, competing with the Plaintiff, or being involved with or interested in any capacity in any business competing with the Plaintiff in the provision of sensitive freight services, including in the business of "Freight Solutions Services", FSS, FSS Pty Ltd, or PFM Corp, other than by holding shares in companies listed on any recognised stock exchange or by working for PFM Corp solely in the capacity of warehouseman; 5. within Australia, carrying on, advising, providing services to, or being engaged, concerned, or interested in, or associated with, any business or activity which is competitive with the business carried on by the Plaintiff in the provision of sensitive freight services, including in any capacity in the business or activity of "Freight Solution Services", FSS, FSS Pty Ltd, or PFM Corp, other than by working for PFM Corp solely in the capacity of warehouseman; 6. soliciting, canvassing, approaching, dealing with or accepting any approach from any person or organisation who is a customer of the Plaintiff, with a view to performing services that are the same as or similar to the services provided by the Plaintiff; 7. directly or indirectly, whether on the Defendant's own account or for any other person: 1. within Australia, being employed or engaged by or interested in or connected with any business or activity which is competitive with any business carried on by the Plaintiff in the provision of sensitive freight services, including in the business or activity of "Freight Solution Services", FSS, FSS Pty Ltd, or PFM Corp, other than by working for PFM Corp solely in the capacity of warehouseman; 2. canvassing, soliciting, endeavouring to entice away from the Plaintiff or accepting any approach from, any person or company which, was a customer or client of the Plaintiff in the 12 months prior to 22 April 2022; and 3. soliciting or endeavouring to solicit any employee of the Plaintiff with the purpose of enticing that person away from the Plaintiff or procuring the employment or engagement of any such person by another business, including the business of "Freight Solution Services", FSS, FSS Pty Ltd, or PFM Corp; and 1. counselling, procuring or otherwise assisting any other person to do any of the acts referred to in e, and g.i, g.ii, and g.iii above. For the purposes of Orders 1, 2 and 3, Confidential Information means: 1. information of the Plaintiff including: 1. supplier lists including names and contact details; 2. customer lists including names and contact details; 3. sales and marketing information; 4. work performed by or offered to the Plaintiff; 5. financial information including monies paid by customers of the Plaintiff; or 6. information of persons employed by the Plaintiff including remuneration, and performance; or 1. information relating to: 1. work offered by or performed for customers of the Plaintiff; or 2. monies paid by customers of the Plaintiff. 1. Order that the costs of the plaintiff's application for interlocutory relief be costs in the cause. 2. Refer the matter to the Expedition List for directions on 24 June 2022. 3. Grant liberty to apply.

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: 22 June 2022