MAK INDUSTRIAL WATER SOLUTIONS PTY LTD -v- DOHERTY [2023] WASC 146 (10 May 2023)

Supreme Court of WA|2023-05-10

By chamber summons dated 16 December 2022 and amended chamber summons dated 6 April 2023, the plaintiff sought interlocutory injunctions and orders for delivery up of documents and devices against the first, third and fourth defendants. The application was supported by two affidavits of Andy Peter Byk, the first sworn 9 December 2022 and the second sworn 10 February 2023. Each of the first, third and fourth defendants swore an affidavit on 2 February 2023 and each of the defendants relied upon those affidavits. The defendants also relied on an affidavit of Murray Brown sworn 14 February 2023.
The relevant background facts can be succinctly summarised. Each of the first, third and fourth defendants were experienced senior managers who provided services to the plaintiff's business during their period of employment. The first defendant ceased his employment with the plaintiff on 6 May 2022. Before that date, the first defendant incorporated the second defendant. On 26 September 2022, both the third and fourth defendants ceased employment with the plaintiff. On 5 October 2022, the third and fourth defendants joined the first defendant as directors of the second defendant. The plaintiff alleges the second defendant directly competes with the plaintiff's business. Each of the defendants denies the second defendant is in fact in direct competition with the plaintiff. For the purposes of this application, that question is not relevant. What is relevant is restraints the plaintiff says are placed on the first, third and fourth defendants with respect to certain confidential information of the plaintiff and what might be called a non-solicitation clause. By this application, the plaintiff sought interlocutory injunctions which effectively enforced both of these restraints until trial.
At the commencement of the hearing and after extensive negotiations between counsel, certain orders in relation to the application were agreed. Consequent upon this agreement, I made the following orders:

(a) The third defendant deliver to KPMG at 235 St Georges Terrace, Perth WA 6000 (KPMG) the third defendant's USB device referred to in paragraph 108(c) of Mr Byk's affidavit dated 12 December 2022 (Mr Byk's affidavit); and
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> (b) The fourth defendant deliver to KPMG at 235 St Georges Terrace, Perth WA 6000 (KPMG) the fourth defendant's two USB device referred to in paragraph 108(a) of Mr Byk's affidavit.

KPMG is to copy the data stored on each of the USB devices and ascertain and report to the plaintiff on the following matters respecting each of the USB devices:

(a) Whether the USB device includes any of the folders or documents referred to in paragraph 108 of Mr Byk's affidavit, or any records of accessing any of the documents or things referred to in that paragraph; and
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> (b) Details of any metadata or other records showing the deletion of any folders or documents from the USB device.

KPMG can make and must preserve copies of any of the data stored on each of the USB devices and documents and data referred to in order 1 above.
KPMG is not to make copies of any documents and data on the USB devices other than as referred to in order 2 above and must not divulge any of the contents of any such additional documents and data to the plaintiff or the plaintiff's solicitors or any other party.
The USB devices and a copy of the data stored on each of the USB devices and are to be returned and given to the third defendant and fourth defendant within 7 days of receipt by KPMG in the same form as they were in when provided without any deletions, copying or modifications save as specified in these orders.
KPMG is to provide to the plaintiff's solicitor a written report setting out the steps taken by KPMG in relation to the examination of the USB devices, the results of its examinations including full details of all of the matters referred to in orders 2 and 3 above and as to its compliance with the matters set out in orders 3, 4 and 5 above.
The plaintiff must provide the defendants' solicitors with an unredacted copy of KPMG's report within 1 business day of the plaintiff's receipt of the report.
Within 1 business day of these orders, the plaintiff must deliver a copy of these orders to KMPG.
Any copies of the data stored on each of the USB devices retained by KPMG must be returned by KPMG, and by the Plaintiff's solicitors, to the Third Defendant and Fourth Defendants after trial or sooner determination of these proceedings.
The parties' costs of these interlocutory proceedings be costs in the cause.
The parties remained in dispute as to whether or not certain further injunctions ought be granted and whether or not the plaintiff should have access to certain devices of the first, third and fourth defendant, upon which the plaintiff suspected was stored its confidential information. The orders sought by the plaintiff were quite extensive. The minute that they proposed was in the following terms:
1. The First Defendant until 6 May 2023 be restrained from canvassing or soliciting, or assisting another person to canvass or solicit any client of the Plaintiff with a view to providing services of the same general nature as those provided by the Plaintiff for which the Plaintiff has performed work in the 18 months preceding termination of the First Defendant's employment.
2. The Third Defendant until 26 September 2023 be restrained from:

(a) canvassing or soliciting, or assisting another person to canvass or solicit any client of the Plaintiff with a view to providing services of the same general nature as those provided by the Plaintiff for which the Plaintiff has performed work in the 18 months preceding termination of the Third Defendant's employment; and
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> (b) inducing or assisting in the inducement of any employee of the Plaintiff as at 26 September 2022, with whom the Third Defendant directly worked and/or managed, to leave the Plaintiff's employment.

The Fourth Defendant until 23 September 2023 be restrained from:

(a) canvassing or soliciting, or assisting another person to canvass or solicit any client of the Plaintiff with a view to providing services of the same general nature as those provided by the Plaintiff for which the Plaintiff has performed work in the 18 months preceding termination of the Fourth Defendant's employment; and
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> (b) inducing or assisting in the inducement of any employee of the Plaintiff as at 26 September 2022, with whom the First Defendant directly worked and/or managed, to leave the Plaintiff's employment.

(a) KPMG, at 235 St Georges Terrace, Perth (KPMG) within 1 Business Day from the date of this Order all computer hard drives, tablet devices, computer disks, USB disks, servers and electronic information storage devices storing the Confidential Information as defined in the Plaintiff's Chamber Summons filed on 16 December 2022 (Confidential Information); and
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> (b) the Plaintiff by its lawyers within 1 Business Days from the date of this Order any paper copy or other form of the Confidential Information,

(a) KPMG within 1 Business Day from the date of this Order all computer hard drives, tablet devices, computer disks, USB disks, servers and electronic information storage devices storing the Confidential Information; and
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> (b) the Plaintiff by its lawyers within 1 Business Days from the date of this Order: any paper copy or other form of the Confidential Information,

(a) KPMG within 1 Business Days from the date of this Order all computer hard drives, tablet devices, computer disks and electronic information storage devices storing the Confidential Information; and
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> (b) the Plaintiff by its lawyers within 1 Business Days from the date of this Order any paper copy or other form of the Confidential Information,

(a) KPMG within 1 Business Day from the date of this Order all computer hard drives, tablet devices, computer disks and electronic information storage devices storing the Confidential Information; and
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> (b) the Plaintiff by its lawyers within 1 Business Day from the date of this Order any paper copy or other form of the Confidential Information,

KPMG is to copy the data stored on each of those things referred to in above paragraph 4(a), 5(a), 6(a) and 7(a) (Other Devices), to ascertain and report to the Plaintiff on the following matters respect each of the Other Devices:

(a) whether the Other Devices include any of the Confidential Information; and
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> (b) details of any metadata or other records showing the deletion of any folders or documents from Other Devices of the Confidential Information.

KPMG can make and must preserve copies of the data stored on each of the Other Devices and any of the documents and data referred to in above paragraph 8.
KPMG is not to make copies of any document and data on the Other Devices other than as referred to in above paragraphs 8 and 9 and must not divulge any of the contents of any such additional documents and data to the Plaintiffs or the Plaintiff's solicitors or any other party.
The Other Devices and a copy of the data stored on each of the Other Devices are to be returned and given to the First Defendant, Second Defendant, Third Defendant and Fourth Defendant, as appropriate, within 7 days of receipt by KPMG in the same form as they were in when provided without any deletions, copying or modifications save as specified in these Orders.
KPMG is to provide to the Plaintiff's Solicitors a written report setting out the steps taken by KPMG in relation to the examination of the Other Devices, the results of its examinations including full details of all of the matters referred to in above paragraphs 8 and 9 and its compliance with the matters set out in Orders 9, 10 and 11.
The Plaintiff must provide to the Defendants' Solicitors an unredacted copy of KPMG's report within 1 business day of the Plaintiff's receipt of the KPMG report.
Within 1 business day of these Orders, the Plaintiff must deliver a copy of these Orders to KPMG.

There be liberty to apply to the court on 72 hours' notice.
The proceedings be listed for a Directions Hearing on the Court's first available date.
The costs of and incidental to the Application be reserved until the trial of these proceedings.
While I was satisfied the defendants should deliver up the USB drives which they conceded should be examined by the independent accountants, I was not satisfied the more extensive orders ought be made. These reasons deal with why I declined to make those additional orders.
There was no dispute between the parties as to the general principles relating to interlocutory injunctions. The position was summarised by counsel for the defendants in his written submissions in the following terms:

The relevant considerations for the grant of an interlocutory injunction are:

4.1. Whether there is a serious question to be tried or prima facie case;

4.2. Whether damages are an adequate remedy for the plaintiff; and

4.3. Whether the balance of convenience favours the grant of the interlocutory injunction.

The second and third questions are not independent of each other. Rather, the adequacy of damages is treated as a matter relating to the balance of convenience.
Beech J in Twinside had this to say on the requirement that there is a serious question to be tried:

The apparent statement by Lord Diplock in American Cyanamide Co v Ethicon Ltd [1975] AC 306, 407 that, providing the court is satisfied that the plaintiff's claim is not frivolous or vexatious, there will be a serious question to be tried, is not to be followed. The governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought. These principles make it clear that the various considerations identified by Mason ACJ in Castlemaine Tooheys are to be considered together.

The first question was whether there was a triable issue as to whether or not the defendants were in possession of the plaintiff's confidential information. To an extent at least, this question was answered by the defendants conceding they should deliver up the USB devices. The issue then was whether further orders ought be made in relation to this issue. In Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458 at [179], Gordon J summarised the relevant principles to be applied in determining the validity of a provision which sought to restrain misuse of confidential information. Summarised, her Honour's conclusions were as follows:
1. an obligation can be imposed by contract to keep information confidential and that obligation can extend to cover subject matter which is not protected by an equitable duty of confidence;
2. employers are entitled to protect by contractual covenant the use of information that is the result of work, experimentation and expense;
3. the know-how, or knowledge of how to solve particular problems or the knowledge of methods not necessarily shared by others, acquired by an employee during his or her employment, while ordinarily not protected by equity, is capable of being protected by a contractual covenant;
4. a contractual restraint upon the use of confidential information or know-how may be enforceable provided it is reasonable, in the sense of being necessary for the adequate protection of the interests of a party;
5. whether a restraint is reasonable is a question of law and not of fact;
6. in determining whether a restraint is reasonable, the court should consider what is necessary to protect the legitimate interests of the person asserting the restraint in the circumstances of the case, assessed from the date of making the contract and making the best possible estimate of probabilities and contingencies then foreseeable;
7. where the restraint concerns confidential information, the circumstances to be considered by the court include:

7.1 the extent to which the information is known outside the business;

7.2 the skill and effort expired to collect the information;

7.3 the extent to which the information is treated as confidential by the employer;

7.4 the value of the information to competitors;

7.5 the ease or difficulty with which the information can be duplicated by others;

7.7 whether it was made known to the employee that the information was confidential; and

7.7 whether the usages and practices in the industry support the claim of confidentiality.

Leaving to one side the information, confidential or otherwise, which may be on the various USB devices, it is difficult to see just what confidential information the plaintiff alleges is in the possession of the defendants. The defendants say the plaintiff has not sought to elucidate why various types of documents and information are confidential. There is some force in that submission. Each of the defendants denies that they are in possession of any confidential information. A number of times during his submissions, counsel for the plaintiff suggested that if the defendants were not in possession of confidential information and if they had nothing to hide, there was no reason why they should not provide access to the various nominated devices. Counsel for the defendants, in his submissions, maintained this was the wrong test. He likened the orders sought to an Anton Piller order. In other words, the plaintiff was really seeking a search warrant. In my view, there was merit in that submission. Mere speculation on the part of the plaintiff is not enough. While I accept it is difficult for a party in the position of the plaintiff to specify precisely what confidential information is in the possession of the defendants, something more than was available in this case would be necessary to justify the orders sought by the plaintiff.
There was a dispute between the plaintiff and the defendants as to whether or not each of the defendants had entered into a confidentiality agreement. In relation to the first defendant, it is I think arguable that were was such an agreement. With respect to the third and fourth defendants - and in particular the fourth defendant - the position is more problematic. For the purposes of these reasons - and without making any findings of fact - I will proceed on the basis that the defendants are bound by a confidentiality agreement. Each of the first, third and fourth defendants denies that they have used any confidential information. The plaintiff, although no doubt harbouring deep suspicions, is unable to point to any evidence which indicates the use of such information. That being so, no injunction is warranted.
Enforcement of any restraint of trade provision is problematic. The courts have consistently adopted a position that restraints of trade in relation to former employees are void as contrary to public policy unless it is established the restraint is reasonable. In this case, the restraint is in a cascading form - that is to say, in interpreting the restraint provision, the court is asked to start with the widest possible restraint and then impose a restraint which, although perhaps somewhat reduced from the maximum scope, is reasonable in the circumstances. If such a clause is to be applied, evidence needs to be lead by the employer which establishes the scope of a reasonable restraint. On an interlocutory application, it is very difficult in the absence of such evidence to craft a restraint which is reasonable. It is appropriate to err on the side of caution and only impose a restraint that protects an employer in the short term.
The contractual provision the plaintiff is attempting to enforce in this case is in fact a non-solicitation provision. There is nothing in the clause which prevents the defendants from competing with the plaintiff. What they are restrained from doing is soliciting the plaintiff's clients.
Each of the defendants denies that the restraint clause applies to them and each of the defendants denies that even if it does, they have breached its terms. Assuming without deciding the defendants are bound by the restraint terms, there is simply no evidence provided by the plaintiff to establish the defendants have breached its terms. That being the case, there was no warrant for the imposition of the injunction in the wide terms proposed by the plaintiff.
Even assuming there is a triable issue on one or more of these questions, the balance of convenience clearly favours the defendants. The plaintiff cannot show a triable issue that is stronger than merely arguable. The orders proposed were in very wide terms and in my view, would not justify the delivery up of the devices referred to in the minute of proposed orders. If it were to be the case that the defendants had breached one or more of the restraints, damages would be an adequate remedy and would not be difficult to assess. While I am not satisfied the prejudice referred to by the defendants in their affidavits would materially affect their ability to earn a livelihood, it is nonetheless the case the balance of convenience favours the defendants and is against the grant of any injunction.
For these reasons, I refuse the additional orders sought by the plaintiff.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

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Judgment (24 paragraphs)