Pellet Experts Pty Ltd v Smith

Supreme Court of NSW|2023-09-22|Before: McGrath J

INTRODUCTION

The plaintiff, Pellet Experts Pty Ltd, commenced these proceedings by summons filed 15 September 2023 against the first defendant, Chloe Smith, and the second defendant, Fel Eur Eql Pty Ltd, seeking procedural orders, as well as interlocutory and final relief.
The summons came before me as Duty Judge on 15 September 2023, at which time I made orders abridging time for service of the summons and permitting it (with the supporting affidavit and exhibit) to be served by email on Ms Smith and Fel Eur. I also made an order under s 17(1)(b) of the Service and Execution of Process Act 1992 (Cth) abridging the time required or permitted for Ms Smith and Fel Eur to enter an appearance to 9.00am on 21 September 2023.
On 21 September 2023, the summons was returnable before me as Duty Judge, at which time Pellet Experts moved to obtain interlocutory relief in the following form: Non-Competition - First Defendant 11 Order restraining the First Defendant from engaging in any business that is in competition with the business of the Plaintiff, whether directly or indirectly, as employee, owner, sole proprietor, partner, director, member, consultant, agent, founder, co-venturer or otherwise, solely or jointly with others, within any geographical area in which the Plaintiff conducts its business, until further order or the determination of these proceedings. Confidential Information - First and Second Defendants 12 Order restraining the First and Second Defendants from disclosing or using the confidential information contained in Schedule "A" hereto ("the Confidential Information"), whether directly or indirectly, by themselves, their servants or agents, until further order or the determination of these proceedings.
At the hearing on 21 September 2023, Pellet Experts relied on the affidavit of Kurt Ruegg affirmed 15 September 2023 (who is a director and the company secretary of Pellet Experts) and the exhibit to that affidavit, as well as the affidavit of Armany Chaouk affirmed 19 September 2023 (which proved the service of the summons, the supporting affidavit and the exhibit).

The business of Pellet Experts

Pellet Experts manufacturers and sells wood pellets which are used for horse bedding and natural heating.
One of the business names used by Pellet Experts for marketing the wood pellets as horse stable bedding is "EquinePure Pellets" (Equine Pure).
The wood pellets sold by EquinePure are manufactured by Pellet Experts in its plant and warehouse located at Cooma, New South Wales. They consist of a pine pellet made from compressed pinewood shavings acquired from timber mills. The pellets are 100% bark and tar free. The back of each white coloured 15kg bag of EquinePure has an 'x' line cutting pattern to assist customers to break down the bag in stables and instructions on the use of the product, including how to wet the pellets to expand them. Four holes are poked in the back of each bag to stop it exploding when stacked with other bags. The design of the EquinePure pellets aims for it to expand to hold more liquid than other like products. The manufacturing process of EquinePure is used to ensure that the raw heart of pine maintains its integrity and has dust filtered out twice. EquinePure is ordinarily sold between $15 and $18.99 per bag.
Once EquinePure pellets are bagged, they are shipped from the Cooma plant to distributors and transport companies, where they are then delivered to retailers, equine businesses and clubs. The retailers sell EquinePure to the general public. The equine businesses and clubs use EquinePure in the conduct of their businesses and also sell them to their own customers, members and the general public.
Pellet Experts advertises EquinePure on its website and has approximately 113 stockists located in different parts of Australia - 71 stockists in New South Wales, 25 stockists in Queensland, 13 stockists in Victoria, 3 stockists in the Australian Capital Territory and 1 stockist in South Australia. Some of those stockists have the ability to ship internationally and across Australia.
For sales to stockists of EquinePure in New South Wales and the Australian Capital Territory, Pellet Experts uses a third-party warehouse and distributor in Sydney called Glenn O'Riley Transport. When an order is placed by a customer in New South Wales, Pellet Experts arranges transport for delivery, except for orders from stockists located further than the Hunter Valley, Wollongong and Orange. If the stockist is located further than these three regions, the customer has to arrange transport to collect the product from the third-party warehouse in Sydney.
The stockists of EquinePure are located in multiple locations across New South Wales - the furthest north being in Glen Innes, the furthest south in Bega, and the furthest west in South Hay, Parkes and Narrabri.
Each time the stock level of pellets in the Sydney warehouse falls to a few tonnes, Pellet Experts manufactures and transports 22 tonnes of bagged pellets per shipment to the warehouse. It takes one week to manufacture and deliver each of those shipments.
For stockists of EquinePure located in Victoria and South Australia, since January 2023, Pellet Experts has used a third-party warehouse and distributor called Eastern Distributors located in Victoria. Pellet Experts sends 22 tonnes of bagged pellets per shipment from its Cooma plant to the Eastern Distributors' warehouse, from which EquinePure pellets are ordered and sent to the stockists. The stockists order directly from Eastern Distributors, who then deliver and invoice customers directly. It takes one week between customer order and delivery.
Before January 2023, Pellet Experts supplied EquinePure directly to Victorian customers located in Bacchus Marsh, Bayles, Labertouche, Bunyip, Lysterfield, Drouin, Tongala, Lockington, Sunbury and Officer and to South Australian customers in Winfield and Hahndorf.
Since January 2023, Pellet Experts receives orders for its products from Eastern Distributors rather than from stockists and customers generally. Pellet Experts does not have a list of where Eastern Distributors sells Pellet Experts' products.
In the week commencing 4 September 2023, Pellet Experts sent 22 tonnes of bagged pellets to Eastern Distributors.
For stockists of EquinePure in Queensland, Pellet Experts uses a third-party warehouse to store its products and a transport business called Gav's Transport to distribute the products. The Queensland customers place orders directly with Pellet Experts, who then arrange for Gav's Transport to deliver the products. The time between an order and delivery is generally one week.
The demand for EquinePure in Queensland is less than the demand for it in the other states where it is sold. The warehouse in Queensland does not currently have any stock. Pellet Experts expects that 22 tonnes of bagged pellets will be delivered to the Queensland warehouse in the immediate future.
Pellet Experts supplies stock to Queensland customers located in Image Flat, Advancetown, Brendale, Brookfield, Chandler, Kalbar, Bracken Ridge, Kilcoy, Taroom, Roma, Tamborine, St Helens, Gympie, Woombye, Wights Mountain, Fernvale, Wilsonton, Samford, Morayfield, Slacks Creek, Rockhampton and Redland Bay.

Employment of Chloe Smith by Pellet Experts

In May 2019, at the Royal Bathurst Show, Mr Ruegg was introduced to Ms Smith by Sara Osaulenko, a horse rider sponsored by EquinePure. This led to Mr Ruegg and Ms Smith discussing the prospect of her being employed by Pellet Experts in a sales role to promote EquinePure.
On 1 July 2019, Pellet Experts agreed to employ Ms Smith in the position of "National Sales & Marketing Manager". The employment of Ms Smith in that position commenced on 5 August 2019.
Pellet Experts and Ms Smith entered into a written employment contract dated 1 July 2019 (Contract) containing the terms of Ms Smith's employment. The relevant terms of the Contract are as follows: Job Title and Description: 3. The Employer agrees to employ the Employee as 'National Sales & Marketing Manager'. The Employee will be expected to perform the following job duties: • Promote, market and sell EquinePure horse bedding. • Create a market and client base through social media and personal contact. • Visit horse and country shows and events to promote, market & sell the products • Find and negotiate opportunities to promote EquinePure horse bedding through sponsorship agreements. 4. The Employee agrees to be employed on the terms and conditions set out in this Agreement. The Employee agrees to be subject to the general supervision of and act pursuant to the orders, advice and direction of the Employer. 5. The Employee will perform any and all duties that are reasonable and that are customarily performed by a person holding a similar position in the industry or business of the Employer. 6. The Employer cannot unilaterally and significantly change the Employee's job title or duties. The Employer may make changes to the job title or duties of the Employee where the changes would be considered reasonable for a similar position in the industry or business of the Employer. The Employee's job title or duties may be changed by agreement and with the approval of both the Employee and the Employer. 7. The Employee agrees to abide by the Employer's rules, regulations and practices, including those concerning work schedules, vacation and sick leave, as they may from time to time be adopted or modified. Employee Compensation: 8. Compensation paid to the Employee for the services rendered by the Employee as required by this Agreement (the "Compensation") will be paid according to the following formula: Annual salary of $70.000.00 plus super This Compensation will be payable at the end of the month while this Agreement is in force. The Employer is entitled to deduct from the Employee's Compensation or from any other compensation in whatever form, any applicable deductions and remittances as required by law. … 11. At the commencement date a suitable vehicle, laptop and a smart phone will be made available to the Employee. The Employer is responsible for all associated costs and requires a logbook to be kept for the vehicle. The vehicle shall only be used for business travel. The vehicle, laptop and smart phone remain the property of the Employer. … Place of Work: 13. The Employee's primary place of work will be at the following location: 141 Redbank Road, North Richmond NSW 2754 14. The Employee will also be required to work at the following place or places: • Travel across NSW, ACT and VIC. 15. The Employer will inform the Employee in advance of the Employee being required to work at other locations. … Non-Competition: 25. The Employee agrees that during the Employee's term of active employment with the Employer, and for a period of one (1) year after the end of that term, the Employee will not, directly or indirectly, as employee, owner, sole proprietor, partner, director, member, consultant, agent, founder, co-venturer or otherwise, solely or jointly with others engage in any business that is in competition with the business of the Employer within any geographic area in which the Employer conducts its business, or give advice or lend credit, money or the Employee's reputation to any natural person or business entity engaged in a competing business in any geographic area in which the Employer conducts its business. … Confidential Information: 28. The Employee acknowledges that, in any position the Employee may hold, in and as a result of the Employee's employment by the Employer, the Employee will, or may, be making use of, acquiring or adding to information which is confidential to the Employer (the "Confidential Information") and the Confidential Information is the exclusive property of the Employer. 29. The Confidential Information will include all data and information relating to the business and management of the Employer, including but not limited to, proprietary and trade secret technology and accounting records to which access is obtained by the Employee, including Work Product, Computer Software, Other Proprietary Data, Business Operations, Marketing and Development Operations, and Customer Information. 30. The Confidential Information will also include any information that has been disclosed by a third party to the Employer and is governed by a non-disclosure agreement entered into between that third party and the Employer. 31. The Confidential Information will not include information that • Is generally known in the industry of the Employer; • Is now or subsequently becomes generally available to the public through no wrongful act of the Employee; • Was rightfully in the possession of the Employee prior to the disclosure to the Employee by the Employer; • Is independently created by the Employee without direct or indirect use of the Confidential Information; or • The Employee rightfully obtains from a third party who has the right to transfer or disclose it. 32. The Confidential Information will also not include anything developed or produced by the Employee during the Employee's term of employment with the Employer, including but not limited to, any intellectual property, process, design, development, creation, research, invention, know-how, trade name, trade-mark or copyright that: • Was developed without the use of equipment, supplies, facility or Confidential Information of the Employer; • Was developed entirely on the Employee's own time; • Does not result from any work performed by the Employee for the Employer; and • Does not relate to any actual or reasonably anticipated business opportunity of the Employer. Duties and Obligations Concerning Confidential Information: 33. The Employee agrees that a material term of the Employee's contract with the Employer is to keep all Confidential Information absolutely confidential and protect its release from the public. The Employee agrees not to divulge, repeat, report or use, for any purpose, any of the Confidential Information which the Employee has obtained or which was disclosed to the Employee by the Employer as a result of the Employee's employment by the Employer. The Employee agrees that if there is any question as to such disclosure then the Employee will seek out senior management of the Employer prior to making any disclosure of the Employer's information that may be covered by this Agreement. 34. The Employee agrees and acknowledges that the Confidential Information is of a proprietary and confidential nature and that any disclosure of the Confidential Information to a third party in breach of this Agreement cannot be reasonably or adequately compensated for in money damages, would cause irreparable injury to Employer, would gravely affect the effective and successful conduct of the Employer's business and goodwill, and would be a material breach of this Agreement. 35. The obligations to ensure and protect the confidentiality of the Confidential Information imposed on the Employee in this Agreement and any obligations to provide notice under this Agreement will survive the expiration or termination, as the case may be, of this Agreement and will continue for a period of two (2) years from the date of such expiration or termination. 36. The Employee may disclose any of the Confidential Information: • To a third party where Employer has consented in writing to such disclosure; and • To the extent required by law or by the request or requirement of any judicial, Legislative, administrative or other governmental body. 37. If the Employee loses or makes unauthorised disclosure of any of the Confidential Information, the Employee will immediately notify the Employer and take all reasonable steps necessary to retrieve the lost or improperly disclosed Confidential Information. Ownership and Title to Confidential Information: 38. The Employee acknowledges and agrees that all rights, title and interest in any Confidential Information will remain the exclusive property of the Employer. Accordingly, the Employee specifically agrees and acknowledges that the Employee will have no interest in the Confidential Information, including, without limitation, no interest in know-how, copyright, trade-marks or trade names, notwithstanding the fact that the Employee may have created or contributed to the creation of the Confidential Information. 39. The Employee waives any moral rights that the Employee may have with respect to the Confidential Information. 40. The Employee agrees to immediately disclose to the Employer all Confidential Information developed in whole or in part by the Employee during the Employee's term of employment with the Employer and to assign to the Employer any right title or interest the Employee may have in the Confidential Information. The Employee agrees to execute any instruments and to do all other things reasonably requested by the Employer both during and after the Employee's employment with the Employer, in order to vest more fully in the Employer all ownership rights in those items transferred by the Employee to the Employer. Return of Confidential Information: 41. The Employee agrees that, upon request of the Employer or upon termination or expiration, as the case may be, of this employment, the Employee will turn over to the Employer all Confidential Information belonging to the Employer, including but not limited to, all documents, plans, specifications, disks or other computer media, as well as any duplicates or backups made of that Confidential Information in whatever form or media, in the possession or control of the Employee that: • May contain or be derived from ideas, concepts, creations, or trade secrets and other proprietary and Confidential Information as defined in this Agreement: or • Is connected with or derived from the Employee's employment with the Employer. … Termination of Employment: 44. Where the Employee has breached any reasonable term of this Agreement or where there is just cause for termination, the Employer may terminate the Employee's employment without notice, as permitted by law. 45. The Employee and the Employer agree that reasonable and sufficient notice of termination of employment by the Employer is the greater of two (2) weeks and any minimum notice required by law. 46. If the Employee wishes to terminate this employment with the Employer, the Employee will provide the Employer with notice of two (2) weeks. Instead of providing this notice, the Employee may choose to co-operate with the training and development of a replacement and sufficient notice will have been given if it is sufficient notice to allow the Employer to find and train a replacement. … Remedies: 49. In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee agrees that the Employer is entitled to a permanent injunction, in addition to and not in limitation of any other rights and remedies available to the Employer at law or in equity, in order to prevent or restrain any such breach by the Employee or by the Employee's partners, agents, representatives, servants, employees, and/or any and all persons directly or indirectly acting for or with the Employee. … Definitions: 55. For the purpose of this Agreement the following definitions will apply: … • "Business Operations" means operational information, including but not limited to, internal personnel and financial information, vendor names and other vendor information (including vendor characteristics, services and agreements), purchasing and internal cost information, internal services and operational manuals, and the manner and methods of conducting the Employer's business. • "Marketing and Development Operations" means marketing and development information, including but not limited to, marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, quoting procedures, marketing techniques and methods of obtaining business, forecasts and forecast assumptions and volumes, and future plans and potential strategics of the Employer which have been or are being considered. • "Customer Information" means customer information, including but not limited to, names of customers and their representatives, contracts and their contents and parties, customer services, data provided by customers and the type, quantity and specifications of products and services purchased, leased, licensed or received by customers of the Employer.
During the course of her employment, Ms Smith was required to: 1. promote, market and sell EquinePure; 2. create a market and client base through social media and personal contacts; 3. visit horse and country shows to promote, market and sell Pellet Experts' products; 4. find and negotiate opportunities to promote EquinePure through sponsorship agreements; and 5. travel across New South Wales, the Australia Capital Territory and Victoria for work purposes.
As anticipated in cl 11 of the Contract, during her employment, Ms Smith was provided with a motor vehicle, a laptop and a smart phone for work purposes (although Ms Smith diverted calls to her personal mobile during 2021 and 2022).
In May 2021, Ms Smith informed Mr Ruegg that she wished to move to Queensland and remain working for Pellet Experts. Mr Ruegg said he would allow her to do so if she heavily marketed EquinePure across Queensland to bring monthly sales to 200 tonnes per month by the end of 2022.
On 19, 31 October and 27 November 2022, Pellet Experts sent written communications to Ms Smith concerning the lack of sales expansion of EquinePure in Queensland during 2022, including a statement in the letter of 27 November 2022 that if the target set for December 2022 could not be reached then Pellet Experts would have no alternative than to terminate Ms Smith's employment at the end of December 2022 with one month's notice.

Pellet Expert's OneDrive document library

For the purposes of its business, Pellet Experts maintains a SharePoint Server, which is a cloud-based service that stores, organises and allows access to information from any device. Within the SharePoint Server is a OneDrive document library where Pellet Experts stores its files and records. This provides a convenient manner by which documents can be shared with employees of Pellet Experts.
Within the OneDrive document library, there are about 1,591 documents stored within folders and sub-folders which include customer lists, sales figures, product information, price lists, delivery requests, production, delivery and stock levels. Those details are set out on excel spreadsheets in significant detail. For example, on the EquinePure customer lists for 2020, 2021 and 2022, the customer names, personnel contacts, email addresses, telephone numbers, mobile numbers and sales are listed using hyperlinked Xero profiles, covering New South Wales, Victoria, the Australian Capital Territory, South Australia and Queensland.
The only person who can login to the OneDrive document library is Mr Ruegg. Mr Ruegg has shared documents in the OneDrive library with another employee, Steve Corby, the Factory Manager of Pellet Experts who can access those documents in the OneDrive library using his own account. From time to time, Mr Ruegg provides an employee of Pellet Experts with access to a specific document within the OneDrive library by sending them a link to that document, but not the entirety of the OneDrive library, using Mozilla Thunderbird. No links to any of the documents in the OneDrive library are shared using Microsoft or Outlook.

Access by Ms Smith to the OneDrive document library

During the course of Ms Smith's employment with Pellet Experts, she had: 1. access to the excel spreadsheet of all customers of EquinePure (including their contact information and addresses); 2. access to the excel spreadsheet of all sales of EquinePure; 3. knowledge of the material used to make EquinePure; 4. knowledge of Pellet Experts' internal costs and pricing; 5. direct contact with EquinePure customers without oversight; 6. knowledge of the profits of Pellet Experts; 7. direct contact with a majority of the customers of EquinePure located in Queensland, New South Wales, Victoria, and the Australian Capital Territory; 8. knowledge of all marketing campaigns for EquinePure; and 9. responsibility for all contact with a majority of EquinePure customers, which gave her knowledge of customers' needs and opinions of EquinePure.
On 29 November 2022, Mr Ruegg noticed that on 28 November 2022, Ms Smith had sent a link to the OneDrive library to her personal email address through the "info@pelletexperts.com.au" email address. Mr Ruegg opened the email, clicked on the link, and observed that it opened up the entire OneDrive library. Mr Ruegg had never shared a link or access to the OneDrive library with Ms Smith, which would enable her to view the entirety of the OneDrive library. Mr Ruegg was further shocked to see that the email to Ms Smith stated that it had been "sent from Mail for Windows", particularly as Pellet Experts do not use Outlook or Windows email to distribute information. Mr Ruegg asked Mr Corby whether he had sent Ms Smith the email and Mr Corby said he had not done so.
Mr Ruegg has been unable to discover how Ms Smith accessed the "info@pelletexperts.com.au" email address, although he noticed that the password to that email address was the same as the password for Ms Smith's email address "chloe@equinepurepellets.com.au".
On 29 November 2022, after investigating the email to Ms Smith of the previous day, Mr Ruegg changed the password to the "info@pelletexperts.com.au" email address and changed the password and login details to the OneDrive library.
On 7 December 2022, Ms Smith provided Mr Ruegg with a medical certificate which stated that she was required to take mental health leave and would be unfit to work from 7 December 2022 to 31 December 2022 inclusive.
On 7 or 8 December 2022, Mr Ruegg changed the password to Ms Smith's email address. This led to an email on 20 December 2022 from Ms Smith to Mr Ruegg questioning her inability to access her email address. On that day by email in response, Mr Ruegg said that Ms Smith should not do any work as her medical certificate said that she was unfit for work.
On 22 December 2022, Pellet Experts sent a letter to Ms Smith terminating her employment with effect from 30 December 2022. Although the letter attached a proposed deed of release, neither Pellet Experts nor Ms Smith have executed that deed.

Establishment and activities of Fel Eur

On 11 July 2022, Ms Smith registered the business name "FEL'UR" with her as the holder of it, with a principal place of business as Tamborine, Queensland.
On 1 January 2023, Ms Smith made a post on her Facebook page stating that her job was now "Fel Eur Animal Bedding" commencing from 31 December 2022 as a director and saying "I've finally achieved my dream of bringing my creation to the people!".
On 12 February 2023, Ms Smith registered the business name "Fel Eur" with her as the holder of it, stating a principal place of business as Tamborine, Queensland.
On 6 March 2023, Fel Eur was incorporated in Queensland and Ms Smith was appointed as the director and secretary of it. The ABN for Fel Eur has been active since that date. The two shareholders of Fel Eur are Larcb Investments Pty Ltd (holder of 900 ordinary shares) and Acex Corp Pty Ltd (holder of 100 ordinary shares). The sole director, secretary and shareholder of Larcb Investments Pty Ltd is Luke Hagelburg, who Mr Ruegg believes to be in a relationship with Ms Smith. The sole director, secretary and shareholder of Acex Corp Pty Ltd is Andrew Xiberras.
Ms Smith maintains a LinkedIn account where she has described her job as "Managing Director of Fel Eur EQL PTY LTD" since March 2023 with a job description being "providing the safest, fluffiest stable bedding with medicinal properties. Shirt [sic] for cat litter, poultry, large and small animals".
Ms Smith is registered as the holder of the website "www.feleur.com.au". Fel Eur maintains three Instagram accounts (with the handles "feleurbeddingsa", "feleurbedding" and "thebetterbedding") and a TikTok account under the name "@feleurbedding" with several posts from 27 June 2023 and 28 August 2023.
Ms Smith also maintains a TikTok account under the name "@chuckswartz77", which made 17 posts between 18 April 2022 and 7 September 2023, including numerous ones promoting Fel Eur.
It appears that Fel Eur is stocked at Southern Sport Horses, KC Pet Supplies, Wyong Produce & Farm Supplies, N&W Livestock Pty Ltd, Coastal Rural Traders, Raymonds Warehouse, E K Hay Sales, Oakbank Chaff & Fodder, Kirkley Hill Equine Management, Kersbrook Hardware and Fodder. Each of those stockists either has the capacity to ship Fel Eur worldwide or across Australia via their websites and/or operates a shopfront. Those with shopfronts in New South Wales are located in Mandalong, Glenorie, Ourimbah, Raymond Terrace and East Kurrajong. Those with shopfronts in South Australia are located in Balhannah and Kersbrook.
Fel Eur is manufactured by Renewable Wood Pellets Pty Ltd, claims to be made of 100% pure pine and rice hulls, uses pine chips which have to be dried and hammer milled before being processed, has a white coloured 15kg bag with an 'x' line cutting on the back of the bag and a line of holes to stop the bags exploding when stacked. Fel Eur ordinarily sells for between $15.50 and $18.95 per 15kg bag.
On 16 April 2023, Mr Ruegg received a text message from Ms Osaulenko with a video from the Sydney Royal Easter Show which displayed Ms Smith promoting Fel Eur and indicating to the crowd that Fel Eur had 76 stockists within four months.
In April 2023, during a telephone call with Ms Osaulenko, Mr Ruegg was made aware that Ms Smith was contacting customers of EquinePure and trying to get them to buy from Fel Eur.
On 9 June 2023, an EquinePure sponsored ambassador, Mackenzie Patterson Hollibone, sent an email to Pellet Experts saying that she would no longer work with EquinePure. Mr Ruegg subsequently became aware that on 22 August 2022 Ms Hollibone posted a video of her horse in which she tagged Ms Smith and Fel Eur saying that her horse "loves her Fel Eur bedding so much", which was a time when Ms Smith was still employed by Pellet Experts and Ms Hollibone was still being sponsored by EquinePure.
On 10 July 2023, Mr Ruegg spoke to Glenn O'Reilly of Glenn O'Reilly Transport, who said that when he was dropping off EquinePure to customers they had been telling him that Ms Smith had been contacting them and trying to sell her new product to them saying that it was better than EquinePure.
By visiting customers on 11-13 July 2023, Mr Ruegg became aware that several customers of EquinePure have been approached by Ms Smith to stock Fel Eur. These are: 1. Ultimate Equestrian Supplies (which continues to stock EquinePure); 2. Sciberras Produce & Stock Feeds (which continues to stock EquinePure); 3. Lachland River Produce (which continues to stock EquinePure); 4. CRT Raymonds Warehouse (which continues to stock EquinePure); 5. Kirkwoods Produce (which continues to stock EquinePure); 6. Londonderry Produce; 7. Riverview Produce; 8. Yarramalong Farm Supplies; 9. The Oaks Farm Supplies; 10. Goldmans Farm & Pet Produce; 11. McGrath Stockfeed; 12. Coasts Pet and Produce; 13. All Pets Pantry; 14. McArthur Stockfeeds; 15. Woonona Petfood; and 16. The Ultimate Horse Shop.
Ms Osaulenko has told Mr Ruegg that the following EquinePure customers have been approached by Ms Smith promoting Fel Eur: 1. AllBreeds Stockfeeds (which continues to stock EquinePure); 2. Bernie's Produce (which continues to stock EquinePure); 3. Mullion Produce (which no longer stock EquinePure); 4. Gleam O Dawn Rural Store (which continues to stock EquinePure); and 5. Produce Direct & Pet Centre (which no longer stock EquinePure).
On 28 June 2023, Mr Ruegg became aware that AllBreeds Stockfeeds was also stocking Fel Eur.
On 11 August 2023, the solicitors for Pellet Experts sent a letter to Ms Smith and Fel Eur by express post, which was delivered to each of them on 14 August 2023. The letter alleged various breaches of contract and statutory and fiduciary duties by Ms Smith and Fel Eur, demanded the return of all confidential information of Pellet Experts, the delivery up of a full list of Fel Eur's customers, stockists, profits and sales and demanded that Ms Smith and Fel Eur undertake not to disclose, use or induce disclosure or use of the confidential information and undertake that Fel Eur cease trading forthwith. The letter also contained an express reservation of Pellet Experts' right to make an application for urgent injunctive relief against each of Ms Smith and Fel Eur.
There was no response by either Ms Smith or Fel Eur to this letter.
On 15 September 2023, Pellet Experts commenced these proceedings.
On 17 September 2023, an EquinePure sponsored rider, Gemma Salvestro, sent an email to Mr Ruegg saying that she no longer wished to be sponsored by Pellet Experts. A subsequent Instagram post by Ms Salvestro shows that she is now sponsored by Fel Eur.

Sales and revenue reduction for Pellet Experts

From January 2023 to June 2023, Pellet Experts has experienced a reduction in sales of 383 tonnes, equating to approximately $278,000 less revenue, compared to the same period in 2022.

Serious question to be tried - clause 25 of the Contract

Putting aside the validity of cl 25 of the Contract (a question dealt with in the next section below), the first question is whether Pellet Experts has established that there is a serious question to be tried that Ms Smith has actually breached or threatens to breach cl 25 of the Contract. In my view, it has done so.
From the evidence it appears to be clear that, applying the plain words of cl 25 of the Contract, in the one year since 30 December 2022, Ms Smith has directly or indirectly as either an employee, owner, director, solely or jointly with others, engaged in a business of manufacturing, marketing, selling and distributing the Fel Eur pine pellet horse bedding product that is in competition with the business of Pellet Experts which also manufactures, markets, sells and distributes the EquinePure pine pellet horse bedding product within the geographic areas in which Pellet Experts conducts its business.
Fel Eur and EquinePure are obviously competing businesses. Ms Smith is clearly a director of Fel Eur. She may well be an employee of Fel Eur as well. All of the relevant events have taken place in the one year period since 30 December 2022 when the employment of Ms Smith by Pellet Experts came to an end.
The approaches that are alleged to have been made by Ms Smith to EquinePure customers of Pellet Experts to market and sell them Fel Eur and to EquinePure horse riders sponsored by Pellet Experts to sponsor them in the name of Fel Eur all demonstrate the competition between the two businesses in the same geographic area over the one year period. So too do the Fel Eur social media postings that have taken place on Facebook, Instagram, TikTok and LinkedIn.

Validity of the restraint in clause 25 of the Contract

The principles to be applied in determining the question of validity of a provision such as cl 25 of the Contract are well settled. Such a contractual restraint is subject to the operation of the common law and s 4 of the Restraints of Trade Act 1976 (NSW) (RTA).
Section 4(1) of the RTA provides: A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.
Section 4(3) of the RTA provides: Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order.
The relevant principles on the application of the common law and s 4 of the RTA were helpfully summarised in Stacks/Taree Pty Limited v Marshall (No 2) [2010] NSWSC 77 at [44]-[46] by McDougall J. These can be relevantly summarised as follows (citations omitted): 1. 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. 2. Section 4(1) of the RTA operates so that a restraint is valid to the extent to which it is not against public policy, even if not in severable terms. 3. The onus at common law to show that a 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. 4. 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. 5. The court will give considerable weight to what the parties have negotiated and embodied in their contracts, but that is not conclusive, even where there is a contractual admission as to reasonableness. 6. The question of validity must be answered at the time of entering into the contract by reference to what the restraint required or entitled the parties to do rather than what they intend to do or have actually done. 7. The test of reasonableness is measured by reference to the interests of the parties concerned and the interests of the public. Reasonableness and the interests of the parties means that the restraint must afford no more than adequate protection on the party in whose favour it is imposed. 8. An employer is not entitled to require protection against mere competition. Covenants that restrain competition are invalid unless they are reasonably necessary to protect legitimate business interests. 9. 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. A restraint clause will be invalid unless it is necessary to prevent disclosure of trade secrets or use of a connection built up by an employee with customers. 10. 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. 11. An employer's customer connection is an interest which can support a reasonable restraint of trade, but only if the employee has become, in relation to the client, the human face of the business, namely, the person who represents the business to the customer. 12. The effect of the RTA 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. But the RTA does not allow the court to remake the contract or a covenant in the contract. The court may read down but not redraft the clause.
Applying these principles to cl 25 of the Contract, at the time of entering into the Contract, Ms Smith became the National Sales & Marketing Manager of Pellet Experts in August 2019 and to all intents and purposes, was to be the human face of Pellet Experts for EquinePure in New South Wales, Victoria and the Australian Capital Territory. During the course of her role from August 2019 to 30 December 2022, Ms Smith was the human face of Pellet Experts for EquinePure in New South Wales, Victoria and the Australian Capital Territory and she extended that position to also being so in Queensland when she moved there in May 2021 with the specific task of promoting and selling EquinePure. Accordingly, Pellet Experts had a customer connection which was in its legitimate business interests to protect through a reasonable restraint upon Ms Smith in the Contract, both for the period of the Contract and after it.
I am satisfied that at the time of entry into the Contract, Pellet Experts and Ms Smith expressly contemplated that in performing that role, Ms Smith would acquire considerable knowledge of the confidential information of Pellet Experts, particularly the details of customers such as their names, contact details, sales, orders, deliveries, needs, opinions and marketing. This is demonstrated in cl 3 of the Contract which details that Ms Smith would promote, market and sell EquinePure (including at horse and country shows) and create a market and client base through social media and personal contact. This also explains the extensive nature of the confidentiality provisions in the Contract at cll 28-41.
I consider that at the time of entry into the Contract, Pellet Experts had legitimate business interests in protecting its confidential information which would warrant a form of reasonable restraint. Pellet Experts is entitled to protection against the use by Ms Smith of knowledge that she obtained of its business in the ordinary course of trade.
I am satisfied that a restraint duration of one year was a reasonable period because it would provide Pellet Experts with the opportunity to replace Ms Smith with another person who could then build up their position as the face of EquinePure with customers and also develop knowledge of the business of Pellet Experts, while Ms Smith would be excluded from being involved in another competitive business in the same geographic area.
In my view, the restraint in cl 25 is not a restraint against mere competition because it is reasonably necessary to protect the legitimate business interests of Pellet Experts for the reasons that I have identified above.
The restraint in cl 25 is also expressed to operate "within any geographic area in which [Pellet Experts] conducts its business". While it might seem that expression is fraught with uncertainty, in practical application it is not because more precise definition can be given to it at the time at which it is sought to be enforced. As mentioned at the outset, Pellet Experts have now sought to enforce a restraint in the modified form of prayer 11 of the amended summons which has been fashioned from the words used in cl 25, read down to more specifically identified geographic locations. The proposed restraint is worded as follows: The First Defendant is restrained from engaging in any wood-based, pellet form, equine bedding business that is in competition with the business of the Plaintiff known as "EquinePure", whether directly or indirectly, as employee, owner, sole proprietor, partner, director, member, consultant, agent, founder, co-venturer or otherwise, solely or jointly with others within any of the following geographical areas: 1.1 the State of New South Wales; 1.2 the Australian Capital Territory; 1.3 Bacchus Marsh; Bayles; Bunyip; Drouin; Labertouche; Listerfield; Lockington; Officer; Sunbury; and, Tongala in the State of Victoria; 1.4 Wingfield and Hahndorf in the State of South Australia; and 1.5 Advancetown; Bracken Ridge; Brendale; Brookfield; Chandler; Fernvale; Gympie; Image Flat; Kalbar; Kilcoy; Morayfield; Redland Bay; Rockhampton; Roma; Samford; Slacks Creek; St Helens; Taroom; Wights Mountain; Wilsonton; and, Woombye in the State of Queensland. until 5.00pm on 31 December 2023 or further order, whichever is the earliest.
I consider that a restraint in that fashion is reasonable because Pellet Experts has customers located across extensive parts of New South Wales and the Australian Capital Territory (thereby justifying their full coverage in the proposed restraint) and otherwise for Victoria, South Australia and Queensland the restraint is limited to the suburbs in which its customers are located.
For these reasons I am of the view that there is a serious question to be tried that Ms Smith has breached cl 25 of the Contract and that it could be enforced by a valid restraint through order of this court.

Serious question to be tried - breach of confidentiality provisions

For the reasons set out below, I consider that it is seriously arguable that Ms Smith has acted or may act in breach of the confidentiality obligations contained in cll 33 and 34 of the Contract.
Clauses 28, 29 and 55 of the Contract define what is caught by the definition of "Confidential Information" under the Contract. It is information which is confidential to Pellet Experts (cl 28) and includes (cl 29): all data and information relating to the business and management of [Pellet Experts], including but not limited to, proprietary and trade secret technology and accounting records to which access is obtained by [Ms Smith], including Work Product, Computer Software, Other Proprietary Data, Business Operations, Marketing and Development Operations, and Customer Information.
Business Operations, Marketing and Development Operations, and Customer Information are each defined in cl 55 of the Contract as follows: • "Business Operations" means operational information, including but not limited to, internal personnel and financial information, vendor names and other vendor information (including vendor characteristics, services and agreements), purchasing and internal cost information, internal services and operational manuals, and the manner and methods of conducting the Employer's business. • "Marketing and Development Operations" means marketing and development information, including but not limited to, marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, quoting procedures, marketing techniques and methods of obtaining business, forecasts and forecast assumptions and volumes, and future plans and potential strategics of the Employer which have been or are being considered. • "Customer Information" means customer information, including but not limited to, names of customers and their representatives, contracts and their contents and parties, customer services, data provided by customers and the type, quantity and specifications of products and services purchased, leased, licensed or received by customers of the Employer.
The evidence demonstrates that during her role as National Sales & Marketing Manager, Ms Smith had access to information of Pellet Experts which falls within each of these definitions, being: 1. "Business Operations" - the excel spreadsheet of all sales of Equine Pure, the internal costs and pricing and the profits of Pellet Experts are all part of the financial information of Pellet Experts; 2. "Marketing and Development Operations" - the marketing plans for Equine Pure are part of the marketing and development plans and the internal costs and pricing are all part of the price and cost data and price and fee amounts; 3. "Customer Information" - the excel spreadsheet of all customers of EquinePure (including their contact information and addresses) would provide the names of the customers, and the contact with customers would provide data on them.
Ms Smith also obtained access to the Confidential Information of Pellet Experts as defined in the Contract by sending herself an email on 28 November 2022 with a link to the whole of the OneDrive library of Pellet Experts, which contained a myriad of information which falls within the definitions of "Business Operations", "Marketing and Development Operations" and "Customer Information" in the Contract. The sales information, the customer information, the production, delivery and stock information, the price lists and the delivery requests are clearly all within those definitions.
Due to the unauthorised manner in which this was carried out by Ms Smith and her subsequent establishment of the Fel Eur business directly competing with the EquinePure product of Pellet Experts (with similar pricing, product characteristics, 15kg bag size and features which has been marketed to the customers of Pellet Experts) there is a serious question to be tried that in breach of cl 33 of the Contract (an obligation which is operative for 2 years) Ms Smith has divulged, revealed and/or used the Confidential Information of Pellet Experts for the benefit of Fel Eur which she obtained as a result of her employment by Pellet Experts.

Balance of convenience factors - competition restraint

In assessment of the balance of convenience of ordering a restraint in terms of the modified form of prayer 11 of the amended summons, I am required to balance the hardship that would be suffered by Pellet Experts and Ms Smith if the injunction was or was not to be granted and whether damages for the loss to Pellet Experts would be an adequate remedy: see Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 155. In other words, I must assess the risks of doing injustice according to whether the injunctions are granted or refused: see Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at [16].
If I do not grant the injunction which restrains Ms Smith from being involved in Fel Eur for a period up to 31 December 2023, she will be free to use all of the knowledge that she accumulated whilst an employee of Pellet Experts and continue to entice existing customers to purchase Fel Eur and away from purchasing EquinePure and obtain new customers to purchase Fel Eur who have not yet purchased EquinePure, no matter where they are located. She will also be free to continue to sponsor riders to promote the Fel Eur product rather than EquinePure. Pellet Experts will therefore be at risk of losing further customers, not gaining new customers and miss out on the sponsorship of existing and new riders.
While it might seem that this would all be compensable in damages as an adequate remedy, to do so fully would be a very difficult exercise because it would be a complex task to work out whether a particular existing customer would have remained with Pellet Experts and whether a new customer would or would not have purchased from Pellet Experts. It would also be difficult for Pellet Experts to work out the long term profits it would have made from a particular customer that it lost because of the breaches by Ms Smith.
On the other hand, granting the injunction might have a significant impact on Ms Smith, who would not be able to be involved in the business of Fel Eur competing against Pellet Experts in the nominated geographic areas, albeit only for the period up until 31 December 2023 (which is only 3 months away). It would also be difficult for her to quantify a claim to enforce the usual undertaking as to damages given by Pellet Experts by proving that if the restraint had not been granted what profits she would have made across the 3 months.
As the restraint has been sought on an ex parte basis, I do not have any evidence before me of the hardship that may be imposed on Ms Smith if the restraint was to be enforced against her. I do not know, for example, if it would cause Ms Smith to be unable to work and continue to earn a living through the business of Fel Eur. I must exercise some caution in this regard.
Although the claim is for an interlocutory injunction, which would only operate up until 31 December 2023 (unless a further order lifts it before then), the grant or refusal of the interlocutory injunction may substantially finally resolve the relief to which Pellet Experts is entitled, which means that in assessing the balance of convenience it is relevant that I also assess the strength of Pellet Experts' case: see Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536. In my view, the case of Pellet Experts in favour of the restraint is strong for the reasons I have set out above - the breaches of the Contract by Ms Smith are clear and the restraint is reasonably necessary to protect the legitimate business interests of Pellet Experts.
One of the matters I must also assess is any delay by Pellet Experts in seeking to enforce the restraint. The speed with which a plaintiff seeks relief is recognised as an indicator of the seriousness of the alleged infringement of rights: see Zuellig Credit Insurance Brokers v Pulver [2000] NSWSC 7 at [36]-[37]; Capgemini US v Case [2004] NSWSC 674 at [40].
It appears that in April 2023, Pellet Experts first became aware that Ms Smith may have become involved in a business competing in the same geographic areas as the business of Pellet Experts when Ms Osaulenko told Mr Ruegg that Ms Smith was contacting customers of EquinePure and trying to get them to buy from Fel Eur. It was not until June and July 2023 that Mr Ruegg started to investigate the position and became aware of the full extent of the competition for customers in which Fel Eur was engaged. Pellet Experts then instructed solicitors to write to Ms Smith and Fel Eur in August 2023. These proceedings were commenced on 15 September 2023.
While it has taken from April 2023 until now for Pellet Experts to approach the court, this must be seen in the context of the secretive actions taken by Ms Smith, which have inevitably taken Pellet Experts some time to investigate to discover their full extent. In addition, the delay also means that the period of the restraint is inevitably shorter, only operating up until 31 December 2023 unless lifted by further order before then. For this reason, I consider any delay by Pellet Experts to be a neutral factor in the balance of convenience.
I must also consider the likely impact on third parties of ordering the restraint. I am concerned that the restraint might have the effect of a particular customer who has already placed an order with Fel Eur not having that order filled because they are in a geographic location covered by the restraint. There is evidence that Pellet Experts are likely to have EquinePure available in all locations to fill that order, with a likely lead time of a week between order and delivery. The restraint also only operates until 31 December 2023, so the effect on third parties is not significant in my view.
Balancing all of these factors, I consider that the strength of the claim by Pellet Experts, that damages are unlikely to be an adequate remedy for Pellet Experts and that the restraint will only be in place up until 31 December 2023 at the latest causes me to decide that the balance of convenience lies in favour of ordering the restraint.
For these reasons, I consider that on the usual undertaking as to damages by Pellet Experts, the interlocutory injunction in the terms proposed by Pellet Experts should be granted.

Balance of convenience factors - confidentiality restraint

Pellet Experts' case against Ms Smith for breach of the confidentiality provisions in the Contract is strong. The disclosure and use of the Confidential Information is also not something which is amenable to adequate compensation by way of damages to Pellet Experts.
The effect of a restraint on the use of the Confidential Information by Ms Smith and Fel Eur is not easy to state given that the hearing has occurred in their absence. But in any event, they are not entitled to use the Confidential Information of Pellet Experts in the business of Fel Eur.
While there has been delay on the part of Pellet Experts in seeking the interlocutory relief to restrain the use of the Confidential Information, I do not consider that it is of such duration that it should disentitle Pellet Experts from obtaining it.
The restraint should also operate against Fel Eur given that the use and disclosure of the Confidential Information appears to be for its benefit in its business.
For these reasons, I consider it is an appropriate case in which the court should make the interlocutory injunction in the terms of modified prayer 12 of the amended summons.

CONCLUSION

Although I propose to make orders in favour of Pellet Experts, I think that it is important for the matter to be listed before the Registrar for further directions within 14 days.
Accordingly, the orders that I propose to make are as follows: 1. On the undertaking as to damages provided by the plaintiff, via its counsel, the first defendant is restrained from engaging in any wood-based, pellet form, equine bedding business that is in competition with the business of the plaintiff known as "EquinePure", whether directly or indirectly, as employee, owner, sole proprietor, partner, director, member, consultant, agent, founder, co-venturer or otherwise, solely or jointly with others within any of the following geographical areas: 1. the State of New South Wales; 2. the Australian Capital Territory; 3. Bacchus Marsh; Bayles; Bunyip; Drouin; Labertouche; Listerfield; Lockington; Officer; Sunbury; and, Tongala in the State of Victoria; 4. Wingfield and Hahndorf in the State of South Australia; and 5. Advancetown; Bracken Ridge; Brendale; Brookfield; Chandler; Fernvale; Gympie; Image Flat; Kalbar; Kilcoy; Morayfield; Redland Bay; Rockhampton; Roma; Samford; Slacks Creek; St Helens; Taroom; Wights Mountain; Wilsonton; and, Woombye in the State of Queensland, 1. until 5.00pm on 31 December 2023 or further order, whichever is the earliest. 2. On the undertaking as to damages provided by the plaintiff, via its counsel, the first and second defendants are restrained from disclosing or using the confidential information described in Annexure A to these orders (Confidential Information), whether directly or indirectly, by themselves, their servants, or agents, until further order. 3. Costs reserved. 4. Liberty to apply on one day's notice. 5. The proceedings are listed before the Registrar for further directions at 9.30am on Thursday, 12 October 2023.

Annexure A The Confidential Information includes all data and information relating to the business and management of the plaintiff, including but not limited to, proprietary and trade secret technology and accounting records to which access was obtained by the first defendant in her employment by the plaintiff, including Work Product, Computer Software, Other Proprietary Data, Business Operations, Marketing and Development Operations and Customer Information. For the purposes of this Annexure A, the following definitions apply:

Work Product means work product information, including but not limited to work product resulting from or related to work or projects performed or to be performed by the plaintiff or for clients of the plaintiff, or any type or form in any stage of actual or anticipated research and development.
Computer Software means computer software resulting from or related to work or projects performed or to be performed for the plaintiff or for clients of the plaintiff, of any type or form in any stage of actual or anticipated research and development, including but not limited to, programs and program modules, routines and subroutines, processes, algorithms, design concepts, design specifications (design notes, annotations, documentation, flowcharts, coding sheets, and the like), source code, object code and load modules, programming, program patches and system designs
Other Proprietary Data means information relating to the plaintiff's proprietary rights prior to any public disclosure of such information, including but not limited to, the nature of the proprietary rights, production data, technical and engineering data, test data and test results, status and details of research and development of products and services, and information regarding acquiring, protecting, enforcing and licensing proprietary rights (including patents, copyrights and trade secrets).
Business Operations means operational information, including but not limited to, internal personnel and financial information, vendor names and other vendor information (including vendor characteristics, services and agreements), purchasing and internal cost information, internal services and operational manuals, and the manner and methods of conducting the plaintiff's business.
Marketing and Development Operations means marketing and development information, including but not limited to, marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, quoting procedures, marketing techniques and methods of obtaining business, forecasts and forecast assumptions and volumes, and future plans and potential strategies of the plaintiff which have been or were being considered.
Customer Information means customer information, including but not limited to, names of customers and their representatives, contracts and their contents and parties, customer services, data provided by customers and the type, quantity and specifications of products and services purchased, leased, licensed or received by customers of the plaintiff. 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: 28 September 2023

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Judgment (14 paragraphs)

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Cases Cited (6)