Verint Systems (Australia) Pty Ltd v Sutherland

Supreme Court of NSW|2019-07-08|Before: Slattery J, McLelland CJ

erty Division Pty Ltd (ACN 089 586 872) v Jones & Ors [2018] NSWSC 438 Stacks/Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 Woolworths Limited v Mark Konrad Olson [2004] NSWCA 372 Texts Cited: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) Category: Consequential orders (other than Costs) Parties: Plaintiff: Verint Systems (Australia) Pty Ltd (ACN 092 740 577) Defendant: Levi Sutherland Representation: Counsel: Plaintiff: V. Bulut Defendant: B. Ilkovski

Solicitors: Plaintiff: Aaron Dearden, Hall & Wilcox Lawyers Defendant: Tom Howard, Tom Howard Legal File Number(s): 2019/197915 Publication restriction: No

The Employment Agreement

The only parts of the employment agreement of present relevance relate to the post-employment restraints imposed on Mr Sutherland. Clause 13 of the employment agreement provides: "It is a condition of your employment by Verint Australia that you comply with the confidentiality, non-competition, non-solicitation restraints and other provisions set out in Schedule 1".
Schedule 1, clause 1 of the employment agreement provides for restraints against the misuse of Varint's confidential information by Mr Sutherland. Confidential information is defined in clause 1.1 in broadly conventional terms. In Schedule 1, clause 1.2 Mr Sutherland acknowledges that the disclosure of Varint's confidential information could materially harm Verint (clause 1.2) and he agrees not to divulge Varint's confidential information (clause 1.3).
Schedule 1 of the employment agreement also provides for a non-competition restraint in the following terms: "2 Non-competition 2.1 Definitions For the purposes of this Schedule: "engaged or involved in" includes to participate, assist or otherwise directly or indirectly involved as a member, shareholder, director, consultant, adviser, contractor, principal, agent, manager, employee, partner, associate, trustee or financier; and (b) "Restrained Activity" means: (i) any business or activity related to the development, sale, production, manufacturing, marketing or distribution of products or services; (ii) which are the same as or similar to, and in competition with the business conducted by Verint Australia or its affiliates and/or the products or services which Verint Australia or its affiliates produces, sells, manufactures, markets, distributes or has interest in; and (iii) in which you were involved in the course of your employment during the 12 months immediately prior to termination. 2.2 Restraint After termination of your employment with Verint Australia for any reason, you must not be engaged or involved in my Restrained Activity for 12 months in Australia, the United States, Israel".
Schedule 1 of the employment agreement provides for a non-solicitation restraint during employment in clause 3.1, and for non-solicitation restraint following the termination of the employment agreement in clause 3.2, as follows: "You agree and undertake to Verint Australia that you will not for a period of 12 months (or a lesser period, if a court finds 12 months to be unreasonable) after the termination of your employment with Verint Australia for any reason whatsoever: (a) directly or indirectly (including via a corporate entity), solicit or induce (or attempt to solicit or induce) any employee of Verint Australia or another entity in the Converse Group with whom you dealt or had dealings during the 12 months immediately prior to the termination of you employment to terminate their employment with Verint Australia or the Converse Group entitle, as applicable; or (b) directly or indirectly (including via a corporate entity), solicit (or attempt to solicit) away from Verint Australia or another entity in the Converse Group, or accept, the business of any person, firm, company or organisation who is a client or customer (or was in the process of being engaged as a client or customer) of Verint Australia of the Converse Group entity, and with whom you dealt or had dealings during the 12 months immediately prior to the termination of your employment".
Mr Sutherland acknowledged in Schedule 1, clause 4.2 that the broadest scope of certain restraints are "necessary and reasonable" and a breach of them will result in "irreparable harm" to Verint and that Verint may seek to enforce its restraints by injunction. But the employment agreement is poorly drafted and it is not entirely clear to which restraints clause 4.2 refers.
Following Mr Sutherland's resignation, he quickly acknowledged he would comply with his confidentiality and non-solicitation obligations to Verint. On 23 May 2019, the Associate General Counsel of Verint wrote to Mr Sutherland in the following terms: "Verint requires that you confirm in writing, no later than 3pm on Friday 24 May 2019: (a) the date of commencement of your role at NICE; (b) that you have deleted all confidential information of Verint, including specifically, but not limited to, details of customers, commercial partners, Verint's proprietary systems and capabilities, and pricing; and (c) that you will comply with the obligations contained in clauses 1.3 and 3.2 of Schedule 1 of the Employment Contract.
The obligations being referred to in (c) of Verint's letter were the confidentiality obligation and the non-solicitation restraint in the employment agreement. Verint reserved its rights.
Mr Sutherland replied on 28 May 2019, confirming the detail of (a) and (b) as requested. In relation to (c), Mr Sutherland stated in reply: "I acknowledge the obligations contained in clauses 1.3 and 3.2 of the Schedule 1 of the Employment Contract and I shall comply with them".
In his principal affidavit in this hearing, Mr Sutherland went further. He indicated his willingness to comply with the full effect of the non-solicitation restraints in the employment agreement. He said: "I am further willing to undertake to the court, or consent to any court order, to the effect that I will comply in full with the non-solicitation obligations in my contract. Such an undertaking or order imposes no inconvenience on me in circumstances where I have no intention of undertaking any such solicitation, where my role with NICE will not require me to do so, and where in fact I would be breaching my duties to NICE to do so".
Issues about the precise form in which these restraints will be given resolved in correspondence between the parties before and during the interlocutory hearing. Various undertakings were given inter partes. By the time the Court made interlocutory orders, the Court indicated it would only do so on terms that included the confidentiality and non-solicitation undertakings that Mr Sutherland had offered that he was prepared to give in conformity with the terms of the employment agreement.
The Court recorded those undertakings in summary form when making interlocutory orders on 15 July 2019, and in full form on 18 July 2019. On that date the court received undertakings from Mr Sutherland, by his counsel as follows: "The Court notes that: 1. The Defendant, through his solicitor, undertakes to the Court that: a. he will not prior to 21 June 2020 directly or indirectly (including via a corporate entity), solicit (or attempt to solicit) away from the Plaintiff, or accept the business of any person, firm, company or organisation who was a client or customer (or was in the process of being engaged as a client or customer) of the Plaintiff as at 22 May 2019, and with whom the Defendant dealt with or had dealings with during his employment with the Plaintiff; b. to the best of his knowledge he has deleted or returned all confidential information of the Plaintiff in his possession, including specifically, but not limited to, details of customers, commercial partners, the Plaintiff's proprietary systems and capabilities and pricing; c. he has not used any of the Plaintiff's confidential information for any other reason than in the proper discharge of his duties as an employee of the Plaintiff; d. to the best of his knowledge, he no longer possesses or has access to any of the Plaintiff's confidential information in any form; and e. he will not disclose any of the Plaintiff's confidential information to anyone. 2. For the purpose of this order, "confidential information" means any trade secret or other confidential information or knowledge relating to the affairs, accounts, marketing plans, prospects, research, management, financing, products, inventions, designs, processes and any data bases, data surveys, lists of members, customers, contacts or suppliers, records, reports, software or other documents, material or other information in any form concerning the Plaintiff or its related entities to which the Defendant gained access whether before, during or after his employment with the Plaintiff, but excludes any information which is freely available to the public other than as a result of the Defendant's actions in breach of the undertakings at (1) above."
Thus, from an early stage in this interlocutory contest the only issue for determination was the length of the non-compete restraint. Facts relevant to that issue are outlined in the discussion below about. But first, it is appropriate to discuss the principles applicable to this application.

Legal Principles - Interlocutory Injunctions

In deciding whether or not to grant an interlocutory injunction, the Court must consider whether there is a serious question to be tried and then whether the balance of convenience, questions of hardship and related factors warrant the grant of an interlocutory injunction. First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed, 2014, LexisNexis Butterworths), (at [21-350]), ("Equity Doctrines and Remedies"), discussing the requirements of the Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 prima facie case test. Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; (2006) 229 ALR 457; [2006] HCA 46, (at [70] - [71]) ("O'Neill").
Then, it becomes a matter of analysing if, in all the circumstances of the case, considering the balance of convenience and issues of hardship, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies, (at [21-350]); and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; [2001] HCA 63 and Beese v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586. Other factors to which the Court will have regard include: the adequacy of damages; the possibilities of alternative remedies; whether there has been any laches or delay; the strength of the grounds of defence suggested by the defendant; and what, if any, undertakings the defendant is prepared to give. But hardship and the balance of convenience are very important: Equity Doctrines and Remedies [21 - 375]. If any infringement of a plaintiff's right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v North Sydney Municipal Council (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.
Here, given the practicalities of preparing for and holding a final hearing in this case probably in some six weeks to two months' time, the interlocutory restraint that the plaintiff seeks to have continued will, if granted, have the practical effect of giving something close to final relief against Mr Sutherland in the form of a restraint for several more months of a possible total of three months, which seems to be the maximum practical restraint for which the plaintiff now contends. At least on a without admissions basis, that is the restraint that the plaintiff says it is willing to accept at this interlocutory hearing. On the other hand, if the restraint sought is refused, that refusal will have the practical effect of giving something close to final relief in favour of Mr Sutherland. For that reason, the present decision is a most important one for the parties.
This interlocutory dilemma raises special considerations that are not uncommon in cases involving interlocutory enforcement of post-employment interlocutory restraints. I dealt with the same dilemma in SAI Global Property Division Pty Ltd (ACN 089 586 872) v Jones & Ors [2018] NSWSC 438.
How the Court should proceed in such a situation is the subject of authority. In Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, at p 535 - 536; (1987) 11 ACLR 630 ("Kolback"), McLelland J (as His Honour then was), when considering what must be established to obtain an interlocutory injunction, including when the restraint in question may have implications for the disposition of the proceedings at final hearing, said: "As I see it, the position is as follows. 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: see, eg, Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208 at 216; A v Hayden (No 1) (1984) 59 ALJR 1 at 4-5; 56 ALR 73 at 79. Where the uncertainty depends in whole or in part on a contested question of fact it is not appropriate for the Court to decide that question on the interlocutory application. Where the uncertainty depends in whole or in part on a contested question of law, it may or may not be appropriate for the Court to decide that question on the interlocutory application, depending on circumstances, eg, whether the question is novel or difficult, or is susceptible of resolution on the present state of the evidence, or whether the urgency of the matter renders it impracticable to give proper consideration to the question: see, eg, A v Hayden (No 1) (at 4; 78); Cohen v Peko-Wallsend (1986) 61 ALJR 57 at 59;68 ALR 394 at 397. If the Court does decide the question of law the uncertainty is to that extent removed. Unless the plaintiff shows that there is at least a serious question to be tried which if resolved in its favour would entitle it to final relief, then the requirements of justice as between the parties will dictate that an interlocutory injunction should be refused: Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425; 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283; 52 ALR 651; A v Hayden (No 1); Castlemaine-Tooheys Ltd v South Australia (1986) 60 ALJR 679; 67 ALR 553 and Cohen v Peko-Wallsend Ltd. Apart from this, although normally the Court "does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case" (Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622), there are some kinds of case in which for the purpose of seeing where lies the balance of convenience (or more specifically "the balance of the risk of doing an injustice" - see per May LJ in Cayne v Global Natural Resources plc [1984] 1 All ER 225 at 237, cf per Brennan J in Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288 at 292; 46 ALR 279 at 285), it is desirable for the Court to evaluate the strength of the plaintiff's case for final relief: see, eg, Brayson Motors Pty Ltd v Federal Commissioner of Taxation (at 292; 285); Castlemaine-Tooheys Ltd v South Australia at 682; 559. One class of case to which this applies is where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue: see, eg, NWL Ltd v Woods [1979] 1 WLR 1294 at 1306-1307; [1979] 3 All ER 614 at 625-626 per Lord Diplock; Cayne v Global Natural Resources plc. The present is such a case. The substantial matter in issue is whether Epoch should be permitted to proceed with the issue of non-renounceable rights in accordance with the announcement of 13 March 1987. That will be irrevocably determined in a practical sense by the grant or refusal of an interlocutory injunction."
And on the same subject in O'Neill, the High Court (per Gummow and Hayne JJ, at [71]) said that consideration of "the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory sought". In cases of the present type, the consequences flowing from the grant or refusal of the interim injunction can dispose of the action at a practical level: the employer either loses the enforceability of bargained for restraints or the employee likely loses a new employment opportunity.
These principles give guidance as to what course should be followed at this interlocutory hearing. But in order to apply these principles at this interlocutory stage, it is also necessary briefly to examine what principles will relevantly govern the Court's determination of the case between these parties at final hearing.
Once this interlocutory decision is made, it will ordinarily not be able to be varied unless circumstances change: Collier v Howard (unreported, McLelland CJ in Eq., NSWSC, 23 April 1996), at p 6: "Generally speaking, the interests of justice as between the parties, fortified by the public interest in the finality of litigation and the efficient deployment of judicial resources, require that where an application for interlocutory relief has been made, heard on the merits and refused, a further application for substantially the same relief should not be entertained, unless it is founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application".

Legal Principles - The Enforcement of Employment Agreement Restraints

The relevant law may be shortly stated. The validity of the 12-month post-employment restraints based on the employment agreement will be in issue and will be determined at any final hearing. A contractual restraint, such as that in issue here, will be operative subject to the operation of the common law and the Restraints of Trade Act 1976, s 4. In this State, general law doctrines of the avoidance of restraints of trade on grounds of public policy are modified by the Restraints of Trade Act, s 4, which relevantly provides as follows: "4 EXTENT TO WHICH RESTRAINT OF TRADE VALID (1) 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. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. (3) 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. (4) Where, under the rules of an association, a person who is a member of the association is subject to a restraint of trade, the association shall, for the purposes of subsection (3), be deemed to have created or joined in creating the restraint. (5) An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect."
I am indebted to McDougall J's useful summary of the relevant principles that arise both at general law and under the Restraints of Trade Act as set out by his Honour in Stacks/Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77, (at [44]). There his Honour stated 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 Limited (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, 2 nd 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 & Ors[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."
Similar statements, to which I have had regard, are set out in Isaac v Dargan Financial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) [2018] NSWCA 163 ("Dargan"), Gleeson JA (with whom Bathurst CJ and Beazley P agreed) concerning the general principles governing enforcement of restraint of trade provisions, especially at [59] to [68].
Paragraphs [67] and [68] of the reasons in Dargan emphasise the logic justifying the difference in the common law's approach to enforcement of non-competition covenants between employer and employee and those in commercial agreements: [67] Generally, a stricter and less favourable view is taken of covenants in restraint of trade between employer and employee than in commercial agreements. As Mason P explained in Woolworths Limited v Olson at [38]: The courts in general take a stricter and less favourable view of covenants in restraint of trade entered into between employer and employee than of similar covenants in commercial agreements (Geraghty v Minter (1979) 142 CLR 177 at 185). The reasons are explained in J D Heydon, The Restraint of Trade Doctrine (2nd ed., 1999) at pp 68-69. It is nevertheless well established that an employer may have interests capable of protection by a restraint covenant. These interests go beyond protection of goodwill and retention of customers and extend to trade secrets … [68] The same point is made by JD Heydon in the most recent edition of The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths) at 96-97, where four main reasons are given for the Court's approach in employment cases. First, the inequality of bargaining power between the parties. Second, the employee may be giving up that employee's only asset, which depends on specialised training and which may not be at all negotiable. Third, when labour is hired it remains valuable whether or not the employee later competes. Fourth, once the employee accepts the post-employment restraints, the employer's power during the contract is much increased by reason of the inhibition on the employee's ability to threaten to leave and seek work elsewhere."
In this case, there is both a non-solicitation covenant and a covenant not to compete. McDougall's J reasons in Stacks Taree v Marshall (No. 2) [2010] NSWSC 77, (at [63]-[65]), are particularly relevant when the Court faces such situations: 1. the reasonableness of the covenant not to compete must be assessed by reference to the adequacy of the protection, for the legitimate interests of the covenantee, offered by the non-solicitation covenant; 2. it will only be if the non-solicitation covenant does not provide adequate protection for the legitimate interests of the covenantee that the covenant not to compete may be upheld; 3. the assessment of the adequacy of the protection, although guided by statements of principle in decided cases and learned writings, requires close scrutiny of the particular facts of the case; 4. if it is found that the non-solicitation clause does offer sufficient protection, then it is likely that the covenant not to compete would be struck down, that would be so because it would be a covenant against "all competition per se", and, in the particular circumstances, incapable of justification by reference to the legitimate interests of the covenantee; 5. if, however, it is found that the covenant not to compete should not be struck down because the non-solicitation clause does not offer sufficient protection for the relevant interests, then the covenant not to complete is valid as between the parties.
The courts have recognised that an employer has a legitimate interest in maintaining a stable and trained workforce, but an employer has no legitimate interest in preventing a former employee from taking employment with a competitor: AT Kearney Australia Pty Ltd v Crepaldi & Ors [2006] NSWSC 23, (at [55] - [58]) and Buckley v Tutty (1971) 125 CLR 353; [1972] ALR 370; [1971] HCA 71. And a non-compete restraint would not be enforceable if it were to seek to prevent a former employee dealing with customers with whom the employee had no personal contact, on the ground that there has been no capacity for personal influence: John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995.
Maintaining the confidentiality of the employer's information is a legitimate interest of the employer that is protectable by a non-compete covenant. A restraint of trade that seeks to protect confidential information is different from a contractual or equitable obligation of confidence: Miles v Genesys Wealth Advisers Limited (2009) 201 IR 1, (at [22]-[27]); [2009] NSWCA 25 ("Miles"). That the employee also has a contractual or equitable obligation of confidence does not deprive the validity of a restraint of trade that seeks to protect confidential information: see Miles, (at [22]-[27]) citing Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472; [1978] 1 All ER 1026.
Customer connection is another legitimate interest of the employer that is protectable by a non-compete covenant. Thus, use by the employee of the customer connection which the employee has built up during the employment can be the subject of a valid restrictive covenant, especially where the employee has in effect represented the employer from the customer's perspective during the employment: Koops Martin v Reeves [2006] NSWSC 449 ("Koops"), (at [30]), per Brereton J. That is, where the employee has become the "human face" of the employer's business: Koops, (at [34]), per Brereton J. And a more robust view is taken where the employee's role includes obtaining and extending custom for the employer's business: Koops Martin, (at [44]), per Brereton J. When an employee's duty includes to build up the employer's clientele as well as to deal with existing clients, a wide restraint is more likely to be upheld, because in such circumstances the employer is entitled to protection against the employee: Koops, (at [44]), per Brereton J. In such a case, the establishment of a customer connection is not merely incidental to the employment, but its purpose, for which the employee was directly remunerated: Koops, (at [44]), per Brereton J.
Mr Sutherland submitted that the plaintiff's non-compete restraint was unreasonable and would be struck out at trial. Verint claimed that the restraint would be upheld.
These reasons deal first with whether there is a serious question to be tried and then the balance of convenience.

Consideration - Serious Question to be Tried

Verint can satisfy the requirement that there is a serious question to be tried. At trial, Verint will be in a position to advance a prima facie case that the non-compete restraint clause is valid and enforceable to protect the legitimate interests of Verint, namely Verint's interests in its confidential information and in its customer connections through Mr Sutherland.
Verint can lead evidence at trial that Mr Sutherland was aware of: 1. the details of representatives of Verint's customers, who are responsible for purchasing Verint products; 2. product maintenance renewal (annual contract) anniversary dates of some 2,000 Verint customers; 3. a "Price Book", which contains detailed information about the pricing of Verint products; 4. internal competitive product analyses which compare the specific qualities of Verint products against NSA products; and 5. internal sales campaigns and scripts used by Verint sales employees.
There is no real issue that this was Verint's confidential information. The evidence available to Verint at trial will be that, not only did Mr Sutherland have access to the above confidential information, but also that he accessed that information twice in the four-week period prior to his resignation, namely on 28 April and 13 May 2019 at a time when he was committed to commencing with NSA.
The above information is confidential to Verint. In the circumstances, Verint will be able to argue that it has a legitimate interest in the protection of such confidential information to which Mr Sutherland had recent access to support the validity of the non-compete restraint. The validity of the non-solicitation restraint is not in issue: Mr Sutherland has given an undertaking to that effect.
Verint will also be in a position to adduce evidence that Mr Sutherland built up some customer connection by reason of his employment with Verint. The available evidence tends to show that Mr Sutherland, as part of his role as channel manager, attended some meetings with clients and corresponded directly with some clients and potential clients of Verint. On occasions he was able to cut out the intermediary channel partner and secure contracts for Verint directly with some end user clients.
Verint also contends that the customer connection Mr Sutherland built up during his employment is a legitimate protectable interest, and the non-compete restraint is reasonably necessary to protect that interest.
It is not in issue that Mr Sutherland will, unless restrained, from 15 July 2019 engage in conduct which is in breach of the non-compete restraints of the employment agreement.
On the issue of whether there is a serious question to be tried, some of the more important issues that will arise at final hearing and discussed below are: 1. whether Mr Sutherland (i) was the public face of Verint in dealing with Verint's customers; and (ii) is in a position to misuse Verint's confidential information. 2. whether the non-compete restraint is enforceable, by not going any further than is necessary to protect Verint's legitimate business interests; and 3. if the non-compete restraint goes further than is necessary to protect Verint's legitimate business interests, what level of restraint is maintainable after the operation of the Restraints of Trade Act.
These issues are discussed in summary below after an additional brief survey of each party's prospective case at final hearing.
Nothing which is said here should be taken as a prediction of what will happen at final hearing. It is merely the weighing arguments at a fairly general level at an interlocutory hearing. Nothing said here is a reflection on the legal representatives of either side, who thoroughly and efficiently presented their respective cases and put their respective interlocutory cases to their best advantage. But reflecting on all the circumstances, the Court has reached the view that the existing injunction should only continue for a short further period.
Verint's Case. Apart from what is said above, Verint argues if it does not obtain interlocutory relief then it would be at real risk of losing existing and potential clients to NSA. Verint also points to a real risk that confidential information regarding Verint's pricing, discounting and comparative analyses would be disclosed consciously or subconsciously to NSA by Mr Sutherland and used by NSA.
Verint points to Mr Sutherland's existing evidence that at NSA he will deal directly with potential new clients; NSA and Verint compete for the sale of similar products and functionality to the same class of customers; and, competition between NSA and Verint tends to be over potential new clients.
Verint's evidence for final hearing is that Mr Sutherland had access on 28 April 2019 to Verint's internal competitive product analyses, comparing the qualities of Verint and NSA products, noting the relative strengths and weaknesses of Verint's products. Its evidence also is that he accessed Verint's internal sales campaign documents, including the internal confidential scripts Verint staff were to use when in contact with potential (new) customers.
Verint submits that Mr Sutherland resigned and accepted employment with a direct competitor and did not attempt to use his skills to obtain alternate employment with a non-competitor. To the extent that he has suffered or will suffer financial hardship, Verint submits he is the author of that hardship: see John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 per Brereton J (at [49]); Lyreco Pty Ltd v Schoolworks Australia Pty Ltd [2006] NSWSC 1184 per Hamilton J, ( at [28]).
It is well recognised that it can be difficult for a Court to assess the damage which might be suffered by a plaintiff whose employee deliberately breaches a non-compete restraint by taking employment with a competitor: that is a recognised disadvantage to Verint here if interlocutory relief is not granted.
Mr Sutherland's Case. Mr Sutherland contends that Verint's legitimate interests are adequately protected by the combination of the confidentiality restraint and non-solicitation restraint in the employment agreement, and because of this the non-compete restraint will not be enforced on public policy grounds.
The Court can assume that Mr Sutherland's confidentiality undertaking is solemnly given and will be honoured. And in the modern digital age there are many ways of testing whether or not confidential information has been used or misused.
But importantly, Mr Sutherland submits there is no contention that Mr Sutherland is now in physical possession of any confidential information belonging to Verint. Nor is there any evidence that he has downloaded confidential information for his own purposes. In the performance of his work for Verint, he was entitled to access this information on his work laptop. That laptop was handed back to Verint on 22 May 2019.
Mr Sutherland's case at final hearing will be that the only confidential information belonging to Verint, that he is aware that he ever possessed, was stored in the Verint laptop that he handed back to Verint on 22 May 2019, when he resigned. He says that he never used confidential information belonging to Verint, other than in the proper discharge of his duties for Verint. He says he no longer possesses any confidential information of Verint in any form: data or physical.
Verint has had Mr Sutherland's laptop since 22 May 2019. It can be expected as a matter of common experience that any unauthorised downloading or export of confidential information from that laptop could be readily detected on testing since then. No such evidence is advanced by Verint.
Mr Sutherland's case at final hearing will offer a direct challenge to the inference that, if employed by NSA, he can immediately disadvantage Verint. Mr Sutherland criticises the generality of Mr Stelzer's affidavit evidence and he submits it does not address key practical considerations relevant to the enforceability of the non-compete covenant.
Mr Sutherland's case at final hearing will be that Verint's software covers a wide range of sophisticated products used by customers to build bespoke software to meet their specific commercial needs in operating and managing a call centre. It is modular by design, so additional modules can be added on to existing Verint systems and software over time. The Verint platform enables the seamless adoption of additional modules as required.
Mr Sutherland will say at final hearing that a customer who has invested in Verint modules is unlikely to remove the Verint modules and substitute them with a new platform or offering by another supplier: the cost, business disruption and training required to change platforms and suppliers for existing modules is a substantial disincentive against movement across proprietary systems. The most common behaviour for a customer in this market place is to add compatible modules from an existing supplier rather than substitute one supplier's modules with that from another supplier.
Mr Sutherland's evidence at final hearing will be that these characteristics of Verint's products mean Verint's customers find it difficult to change suppliers so Verint has long relationships with customers, generally exceeding 10 years. This has the result that Verint's sales efforts are directed to integrating new modules onto existing Verint products, rather than Verint becoming a new supplier of different platform or modules. The reality of this type of sales diminishes, therefore, any legitimate protection sought from a non-compete covenant.
Mr Sutherland's evidence a final hearing will be that he was employed as a Channel Sales Manager, a sales role in which he was expected to sell Verint software through Channel Partners. Mr Sutherland was responsible for managing the relationship with specific Channel Partners.
Mr Sutherland will say Verint controlled its relationship with Channel Partners through a Master Reseller Agreement, which addressed pricing, standard discount models for products, support and services provided respectively by Verint and the Channel Partner. The relationship with each Channel Partner was non-exclusive. The Channel Partners in turn controlled the relationship with the end customers. Channel Partners had the role of constructing an integrated software package to suit the needs of a customer, which could include a combination of Verint and non-Verint modules. Mr Sutherland's role as a Channel Sales Manager with Verint, he says, required him to build relationships with Channel Partners and to support them on a day-to-day basis in selling and implementing Verint modules to end customers.
Mr Sutherland's evidence at final hearing will be that his role as a Channel Sales Manager involved him: dealing exclusively with a Channel Partner in selling and implementing Verint products; working collaboratively with a Channel Partner and one of the Channel Partner's clients or customers in selling and implementing Verint products; and, at a customer's request, establishing a direct contact with that customer to adopt or implement a Verint product with the assistance of a Channel Partner.
Mr Sutherland's evidence at final hearing will be that direct Verint end-customer contact with him was rare. He will say that in the last 15 months of his employment he had direct contact with only one Verint customer, Zurich, and 98 per cent of his time at Verint was either working directly or collaboratively with a Channel Partner, and only about 2 per cent of his time in direct contact with customers.
If this evidence is ultimately accepted, the case for upholding the reasonableness of a lengthy non-solicitation covenant is significantly weakened and a non-solicitation undertaking will be more likely to provide secure protection for Verint on its own.
Finally, the interlocutory contest developed more specificity on both sides on one aspect. Verint sought to argue that Mr Sutherland accessing information on 28 April and 13 May 2019 was unusual as to the volume of data he accessed, as to the timing of the access compared to prior access on other occasions, and as to it overlapping with his commitment to join NSA. But even in this area there will be an unpredictable contest at final hearing on which it cannot be said that Verint's case is necessarily even likely to succeed.
Mr Sutherland's filed evidence that explained this additional point. He gave a detailed account in evidence that would be available at final hearing about how he regularly accessed information of this volume and there was nothing unusual in his access to Price Book or other comparative information on 28 April or 13 May but that it was consistent with his prior practice. Verint questioned this saying that he was going on leave for a period and would not have needed the information. But in turn, Mr Sutherland can answer this by saying that it was his well-developed routine at Verint and there is still no evidence that the material he accessed was exported from his laptop in a way that might be able to be misused.
This lengthy final issue does not give strong confidence that Verint would be able to establish that the continuation of the non-compete covenant is a measure necessary to protect its legitimate business interests.
Returning to the main issues identified above, the following can be said in overview.
(a) The Public Face of Verint and Misuse of Confidential Information Issues. It is not in dispute that the non-compete restraint forms part of Mr Sutherland's employment agreement, and he has offered comprehensive confidentiality and non-solicitation undertakings for a period of 12 months after termination of his employment.
Mr Sutherland has an arguable case that he is not, or is only to a small degree, the public face of Verint. Mr Sutherland propounds an arguable case, supported already by detail, that the work that he would be doing with NSA will not challenge the legitimate interest that Verint is seeking to secure through the non-compete restraint: maintaining its customer connection. This is because of the nature of NSA's probable competition with Verint and because of the debatable nature of Mr Sutherland's customer connection. This will be a demanding contest at final hearing.
But concern that Mr Sutherland's prior customer contact might be used to Verint's disadvantage with a competitor is potentially substantially answered by the undertakings that have been offered. The Court can take into account the presence of a non-solicitation clause in assessing the reasonableness of a covenant not to compete. Non-solicitation obligations on Mr Sutherland are, in my view, robust and that is a relevant factor both at final hearing and in the discretion to be exercised at this interlocutory hearing.
(b) The Reasonableness Issue. Another question for final hearing will be whether at common law the non-compete restraint will ultimately be enforced against Mr Sutherland, or whether it goes beyond the protection of the plaintiff's legitimate business interests. On this issue, the plaintiff has an arguable case but one which it can be already be seen will be strongly contested. These proceedings raise considerations to which McLelland J's observations in Kolback are relevant. To use McLelland J's words in Kolback, "there is a serious to be tried, but that is as far as it goes". There are a series of considerations on the reasonableness issue that will weigh against the plaintiff's case at final hearing.
Verint's confidential information case is readily contestable. Verint argued that the non-compete restraints were designed to protect its legitimate business interests rather than being a mere restraint against competition because of Mr Sutherland's access to confidential information. But the case presented about confidential information is contestable in a number of alternative ways. Although the issue was expressly raised by the Court for consideration, there is no present suggestion Mr Sutherland has taken away from Verint any confidential information, any databases, any client lists or other electronic or paper-based information.
Mr Sutherland's capacity to use confidential information is objectively limited. On the existing evidence, no realistic case made that he has used any artificial means to enhance his memory of product maintenance renewal, the "Price Book", internal product analyses and sales campaigns. Absorbing the large numbers of customer names, details and other confidential information is objectively not easy. Verint's actual and potential customers are many, although there are fewer larger ones. Verint's case will run up against the fallibility and limits of ordinary human memory. Mr Sutherland left Verint's operations just over two months ago and its employ over one month ago. Over this time, his memory would be expected to deteriorate. In the absence of artificial memory enhancement (of which there is no evidence here), by now or within a few more weeks, much of this detail is unlikely to be recalled.
(c) The Extent the Restraint Is Enforceable. Even if the restraints go beyond the protection of Verint's legitimate business interests, Verint can still deploy an argument that the restraints can be enforced to the extent that the Restraints of Trade Act permits them to be enforced in the public interest. But for the same reasons identified in (b) the restraint may not be justifiable for very long.

Consideration - The Balance of Convenience

The balance of convenience, or as it is often better put "the balance of justice", in the circumstances favours not granting interlocutory relief for very long beyond the existing orders and undertakings offered. Mr Sutherland would suffer considerable hardship if an injunction were granted for too long.
It is quite impracticable for Mr Sutherland to take another job of uncertain duration whilst he is awaiting a final hearing. It is not clear that such jobs are readily available to him. And at his managerial level the kind of uncertainty that he would present to a future employer, already committed to NSA as he is, makes him an even less attractive prospect than he was when he applied for employment before he went to NSA. It is not realistic to consider the possibility of alternative employment for him pending final hearing.
Whilst that hardship could to a degree be alleviated by including a term requiring the plaintiff to pay the equivalent of Mr Sutherland's proposed salary with NSA during the term of the undertaking it is difficult to justify that course on the basis of the plaintiff's case, which just qualifies as arguable, and where Mr Sutherland and the family that depends upon him has a strong interest in a stable and reasonably predictable financial future.
The Court indicated to the parties that it would be open to the Court to make it a condition of the grant of interlocutory relief that Mr Sutherland's proposed salary be paid by Verint and be repaid in the event that the plaintiff were ultimately successful in the proceedings.
Verint did not offer this as a condition of a grant of relief; instead Verint offered to accelerate the commission due to Mr Sutherland so that it was paid on Friday, 12 July. The amount paid on that day was $38,913, representing the gross before tax commissions due to him three months after termination. This acceleration advantaged him by increasing his family cashflow during the period before he could commence with NSA. There is no principle that salary foregone should be paid as a condition of a grant of interlocutory relief in cases such as these. The cases depend upon their facts: see Woolworths Limited v Mark Konrad Olson [2004] NSWCA 372, Metcash Ltd v Joao Lewis Jardin (No. 3) (2010) 273 ALR 407; [2010] NSWSC 1096, and DP World Sydney Limited v Guy (2016) 262 IR 156; [2016] NSWSC 1072.
For 12 years Mr Sutherland has worked in as "a niche market environment" in "workforce optimisation, customer experience and public safety within a call-center or contact center environment". Mr Sutherland's evidence at final hearing will be that he is specialised in the "workforce optimisation space", so that any company in that market will be likely to compete with Verint. If he did not work in that area he says he would have to retrain, reducing his earning potential and opportunities for career development.
Mr Sutherland's personal circumstances are not in contest. He is married with two young children. He is the sole income earner for a family living in rented accommodation. He has no property or other investments. Family assets are cash in the sum of $10,272.30 and the chattels in their rented accommodation. The family has a 2006 model Mazda. He has debts in the sum of $48,493.00, including credit card debts of $22,593.00, a debt of $10,900.00 to a family member, and a debt of $15,000 to a family friend to fund this litigation. Their family living expenses are about $12,000.00 per month. Mr Sutherland argues if the non-compete covenant is enforced for the full 12 months, it will be ruinous for him and his family.
Mr Sutherland's role at NSA must be considered too. His evidence at final hearing will be that with NSA he would be operating in a different sales model, not dealing with Channel Partners, but directly with existing NSA clients with a view to getting them to use more software products offered through NSA modules and existing NSA software offerings. He will also deal with potential new NSA clients with a view to getting them to utilise NSA software products. His sales clients at NSA will be end-user clients and not Channel Partners, which is the opposite of his role at Verint.
And Mr Sutherland's evidence is that he anticipates receiving directions from his proposed supervisor at NSA that for at least 12 months after commencement there he should refrain from contacting any end-user client with whom he had a relationship at Verint. Given the arguably limited numbers of these end-user clients this should not be too difficult to verify.
Verint says, through Mr Stelzer, that it is already taking urgent steps to secure the custom of Channel Partners and end-user clients Mr Sutherland dealt with. Zurich, who Mr Sutherland mainly dealt with at Verint, is one of these. But there are a limited number of these and Verint has had since 22 May to do this and to replace Mr Sutherland with someone else performing his role.

In Conclusion

There are many factors covered here that tend to the conclusion that the longer any interlocutory relief is granted, the more that over time the balance of injustice will affect Mr Sutherland more harshly than Verint.
The need for the protection of the plaintiff's goodwill and customer connection that might justify a restraint against Mr Sutherland joining a competitor is an argument of ever diminishing power, subsiding as it does with Mr Sutherland's memory of the detail of the plaintiff's products, internal data and customers. Mr Sutherland has not been shown to have taken soft or hard copy of anything away from his employment with the plaintiff which would aid him in maintaining those connections.
Already, Verint has had not-insignificant reaction time since 22 May. Verint has not over that period obtained any evidence of Mr Sutherland misusing confidential information, as against the mere suspicions articulated in Court, despite having ample opportunity to do so. Mr Sutherland's memory has been fading for almost two months since he was active at Verint. He offered confidentiality and non-solicitation undertakings. A final hearing may not be until mid-September. In these circumstances, in part because of lack of confidence that the non-compete restraint will be enforced for more than about 10 weeks from 22 May at a final hearing, the Court will not extend the present injunction enforcing the non-compete restraint beyond Sunday, 4 August 2019 and will order accordingly.

Conclusion and Orders

For these reasons, Verint's claim for interlocutory relief against Mr Sutherland should only be granted upon the following terms: 1. Note the plaintiff continues its undertaking as to damages. 2. Note that the plaintiffs have paid the defendant the sum of $38,913.00 on account of bonuses due or otherwise soon to be due to him. 3. Note the defendant's undertakings that the defendant will comply with the confidentiality and non-solicitation restraints provided for in clause 13 and in schedule 1 to his contract of employment with the plaintiff dated 7 December 2010 ("the contract"). 4. Direct the parties to bring in a more concise form of confidentiality and non-solicitation undertakings by the defendant than is noted at 3 above by 4.00pm today. 5. The Court notes that 5 August 2019 is just over 10 weeks since the defendant ceased on 22 May 2019 to attend his employment with the plaintiff and the Court is not prepared in the circumstances of this case in the public interest to enforce the non-competition restraint in the contract beyond that approximate 10 week period. 6. Order that the defendant not commence or undertake employment with or provide any services to NICE Systems Australia Pty Limited or any of its associated entities until 5.00pm on Sunday, 4 August 2019 but the defendant is free to commence such employment thereafter. 7. Direct that the proceedings be listed before the Expedition List judge on Friday, 19 July 2019. 8. In light of Order 7, dispense with the requirement to file a further motion or affidavits seeking entry into the Expedition List.
Then, as indicated earlier in these reasons on 18 July 2019, Mr Sutherland gave a more detailed form of undertaking to the Court.

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: 26 July 2019

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