Great Southern E-vents Pty Ltd v Peskops [2007] NSWSC 382

Reported Decision : (2007) ATPR 42-152

New South Wales Supreme Court

CITATION : Great Southern E-vents Pty Ltd v Peskops [2007] NSWSC 382

HEARING DATE(S) : 12 & 13 April 2007

JUDGMENT DATE : 13 April 2007

JURISDICTION : Equity

JUDGMENT OF : Hamilton J

DECISION : Interlocutory injunction forbidding contact by former employee with four clients of former employer.

CATCHWORDS : TRADE AND COMMERCE [28] - Trade and commerce generally - Restraint of trade - Restraint by agreement - Enforcement of agreement - Remedies for breach of agreement - Right to injunction - Interlocutory injunction - Whether injunction may be granted to restrain contact with clients of former employer based solely upon contractual restraint of use of confidential information.

Cactus Imaging Pty Ltd v Glenn Peters [2006] NSWSC 717 CASES CITED : Digital Pulse Pty Ltd v Harris [2007] NSWSC 33 Kolback Securities Ltd v Epoch Mining NL (1988) NSWLR 533 Lo Presti v Karabalios [2000] NSWSC 395

PARTIES : Great Southern E-vents Pty Limited (P) Francesca Peskops (D)

FILE NUMBER(S) : SC 2204/07

COUNSEL : P R Garling SC (P) D P O'Dowd (D)

SOLICITORS : Henry Davis York (P) Truman Hoyle Lawyers (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

HAMILTON J

FRIDAY, 13 APRIL 2007

2204/07 GREAT SOUTHERN E-VENTS PTY LIMITED v FRANCESCA PESKOPS JUDGMENT 1 HIS HONOUR: This is an application for interlocutory injunctive relief arising out of the departure from her employment with the plaintiff of the defendant. The plaintiff is an events management company. The defendant was until recently employed by the defendant as sales and marketing manager. The plaintiff is a comparatively small company. Jeremy Kim Garling is the managing director of that company and there was a permanent staff of three in addition to Mr Garling and some contractors. The defendant occupied an important place in the company. She was, as I have said, sales and marketing manager and was second in the hierarchy to Mr Garling himself. 2 The defendant's written contract of employment contained a clause restraining the use of confidential information obtained in the course of or in connection with her employment. "Confidential information" was defined in the agreement by categories. The contract specifically provided that the defendant's obligations under the confidential information clause should continue after termination of the agreement, except in respect of information that was part of her general skill and knowledge. There was no further restraint of trade clause in the contract restraining her from engaging in competition or soliciting clients of the plaintiff and the evidence shows that this was not some accidental omission but was as a result of negotiations between the parties at the time the employment agreement was entered into. 3 There was originally no contest that there should be an appropriate restraint of the use of confidential information. There has already been in force an interlocutory restraint of the use of the plaintiff's confidential information and compelling its return to the plaintiff. The defendant now says that any confidential information has been returned and there is no need for any further restraint in this regard, although she acknowledges that she has been and continues to be bound by the clause in the agreement forbidding the use of confidential information. 4 However, the real controversy that has been agitated before me is whether there can be, bearing in mind the absence of any restraint clause beyond the prohibition on the use of confidential information, an injunction restraining the defendant from making contact with five named entities for any purpose relating to the supply by the defendant or any company to which she is related of services of the kind provided by the plaintiff. 5 The injunction is sought on the ground that any dealing with those entities in the circumstances which have been established would inevitably involve the use by the defendant in the dealing of confidential information. Apart from the fact that it is hoped that a final hearing will take place before that time, relief is not sought extending beyond 31 December 2007, on the basis that the confidential information concerned will have become stale by that time. 6 The evidence shows that the defendant was for some time before her dismissal by the plaintiff on 14 March 2007 planning with a proposed partner to enter into a business in the events management field competitive with the plaintiff's business. She has proceeded to set up that business with her proposed partner. It is to the defendant's credit that, although the subject matter was discussed with her proposed partner, there is no suggestion in the evidence at present available that she was contacting existing clients of the plaintiff during her employment in relation to her proposed future business. There is evidence by her as to whether or not there has been contact since she has left the plaintiff's employ between her and the five named clients and what the content of that communication has been, where it has occurred. 7 In relation to the first of those clients, the Australian Chamber Orchestra, there is the suggestion of some substantial dealing between her new business and that entity, but on the basis of the provision in effect of gratuitous services to that client during the 2007 year. There is nothing in the evidence to suggest that there are any advanced negotiations with any of the other four clients toward the provision of services to them this year. I should say that the plaintiff has conceded, for the purposes of this application, that I should treat as factual this portion of the defendant's evidence. 8 There is some novelty, as I understand it in the short time that has been available to me, in the proposition that there should be restraint of client contact in a situation where the sole restraint clause involved is a restraint of the use of confidential information. 9 In Cactus Imaging Pty Ltd v Glenn Peters [2006] NSWSC 717, Brereton J granted an injunction restraining the canvassing of clients. His Honour held that, in the circumstances of that case, the prohibition on the use of confidential information rendered reasonable the granting of such a restraint, but in circumstances where there was in fact a non-solicitation clause, in other words, the restraint on the use of confidential information rendered the restraint imposed on soliciting reasonable and justified the injunction under that clause. That, of course, is different from this case, where there is no non-solicitation clause. Mr Garling, of Senior Counsel for the plaintiff, has not been able to refer me to any case where an injunction against poaching of clients has been founded solely upon a clause forbidding the use of confidential information. 10 I have already set out the evidence concerning the importance of the defendant's position in the plaintiff's organisation. There is no doubt that she was the person principally dealing with the five clients in respect of whom the restraint is sought. What is more, there is evidence of particular information, which, certainly, has been in her possession concerning dealings with those clients on behalf of the plaintiff. She it was who dealt with them last year and she was obviously aware of the financial terms on which the plaintiff dealt with them at that time, including the "budget" for their events, the expenses in relation to those events and the profit and profit margin to the plaintiff in respect of those dealings. Furthermore, she had in her possession a budgeting document (page 6 of Confidential Exhibit A2) in respect of the 2007 year, which dealt under the heading of "real prospects" with those organisations, with the year 2007 divided into quarters and events budgets and anticipated earned profits in respect of those entities specified. She does swear that she did not memorise any documents and it is submitted on the defendant's behalf that there is no evidence that she at present has any of this information. I, of course, do not make any finding as to this matter or other factual matters on an application such as this. 11 The plaintiff's arguable case, as it is put by Mr Garling, is that it is virtually impossible that, assuming the defendant's honesty - which, for present purposes, I do, there is an arguable case that it is impossible that these few but central facts as to the plaintiff's dealings with those five entities are not carried in and present to the defendant's mind and that, if that be so, still assuming her honesty, it is virtually impossible that that small but central body of information, which is undoubtedly within the definition of confidential information in the employment contract, would not be used by her in dealings with those five clients concerning this year's events. It is part of the plaintiff's case that, although there is no non-solicitation clause under which relief may be sought, the confidential information which is entitled to protection can be protected in these circumstances only by forbidding dealing with that small number of clients during the finite period of 2007. 12 This involves determinations of fact which I do not propose to make and it may well involve legal decisions as to the proper ambit of the protection of confidential information and the form of injunctive relief that is appropriate to protect it. Again, whilst there has been some debate over the years as to the degree to which questions of law should be determined on interlocutory injunction applications, may I make it quite plain that I think it inappropriate that those questions of law be determined upon an uncertain factual basis and I do not intend to make any determinations on this application of those legal questions. 13 I have received assistance in coming to my conclusion on the question of whether the plaintiff has raised a serious question to be tried with some particular citations from judgments which the defendant has given to me. The portions that I have emphasised below are different from those emphasised by the defendant. The first of those is from the judgment of Palmer J in Digital Pulse Pty Ltd v Harris [2007] NSWSC 33. What his Honour said in this regard is not affected by the successful appeal on a totally different aspect of his Honour's judgment. His Honour said at [23]: "When the employment ceases, the employee is free to compete with the employer, unless subject to a valid contractual restraint on competition. The employee may take away and utilise the benefit of personal relationships built up with particular customers of the former employer and may solicit any customer who the employee can recall without the aid of a list taken from the former employer and without deliberate memorisation of a customer list. The employee may not, however, use for his or her own commercial benefit confidential information of the former employer, whether to solicit business from the former employer's customers or to carry out work for such customers even if solicited ."

In other words, his Honour emphasised the principle of the freedom of competition in a situation where the only restraint is on the use of confidential information, but also emphasised that that does not affect the prohibition on confidential information being used in dealings with former clients. 14 Similarly, in Lo Presti v Karabalios [2000] NSWSC 395, Austin J said at [9]: "One of the implied terms of a contract of employment is that the employee will act faithfully to the employer. It is a breach of that duty for an employee, whilst still employed, to canvass customers of the employee when the employee leaves and commences a competing business. In his Honour's view, the former employee is entitled to approach those customers after leaving the employment. The former employee may use information as to customers or methods of work ( with the exception of trade secrets ) which has been acquired in the course of his or her employment and has been remembered by the employee. But it is a breach of the terms of employment for the employee to take confidential lists of customers or other confidential written material of the employer for the purpose of using that information in furtherance of the employee's own business."

Again, the significant matter in that passage from his Honour's judgment is the exception of trade secrets as being among the information which may be used by a former employee. 15 As I have said, the proposition - and there is some novelty in this part of the argument - is that where, if it be established, as it is said that arguably it can be established in this case the dealing with the former customer cannot realistically take place without the use of the confidential information, then injunctive relief may extend to forbid dealing with specified customers. 16 I propose to proceed on the application by carrying out the exercise so usefully set out by McClelland J in Kolback Securities Ltd v Epoch Mining NL (1988) NSWLR 533 at 535 – 536: "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 to be entitled: see, eg, Appleton Papers Inc v Tomasetti Paper Pty Ltd [1981] 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, 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 533 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 ." 17 Despite the spirited submissions to the contrary of Mr O'Dowd, of counsel for the defendant, I find, bearing in mind the formulation put forward by Mr Garling, there is a serious question to be tried as to the availability of injunctive relief on final hearing of the type now sought on an interlocutory basis. 18 Upon this application, far from it being my duty to resolve that question, it is not my duty further to evaluate or estimate the strength of the plaintiff's case upon this serious question. It was put to me by Mr O'Dowd that this is one of the cases where interlocutory relief will in effect be final relief as a practical matter. I do not accept that submission. Whilst the subject matter will have become stale by the end of 2007, there is an Expedition List in this Division which provides an avenue for the urgent trial of matters which are truly urgent, as this one is. It is not my function to bind the Expedition Judge as to his decision as to urgency, but it certainly seems to me a matter that is likely to be given an early hearing. Both parties will be expected to bend all sinews to ensure that an early hearing takes place. 19 It is put to me by Mr O'Dowd that damages are an adequate remedy because, if the defendant (which is far from certain) obtained work from any of the five clients, an account of profits would be able to be taken so that monetary relief would be easily available to the plaintiff if the defendant failed. However, this leaves out of account that the plaintiff, to obtain monetary relief, would have to prove not only that the defendant obtained the work and made the profits, but that the profits were obtained by the use of confidential information. That would be a proposition in my view difficult to impossible to prove. 20 I acknowledge, as has been put by Mr O'Dowd, that it may be difficult for the defendant to obtain monetary relief through the medium of the usual undertaking as to damages, but all that that means is that, in considering the balance of convenience, there would be difficulties both ways in obtaining monetary relief. 21 At the moment, certainly for the year 2006, the five clients have been clients of the plaintiff's business and, although they are far from being the only clients of that business, that business would be damaged by the loss of those clients. In these circumstances it seems to me that the balance of convenience favours the grant of relief. 22 In this regard, I should say that this is not a case where the defendant will be forbidden by these injunctions from earning a living or plying her trade. It would seem to me on the evidence that there are still wide fields within the events business in which she can operate and, in any event, even if she were temporarily excluded from that business, which is not the case, there is no suggestion that the injunction, if granted, would otherwise prevent her from earning a living. 23 There is an exception in relation to one of the five clients. On the evidence the defendant is already dealing with the Australian Chamber Orchestra, but on the basis that her services would be provided to that entity for 2007 on a gratuitous basis. If the negotiations between them are proceeding on that basis, it does not seem to me to be possible to say in any realistic way that the relevant confidential information would be used by the defendant in obtaining the work. I do not propose to grant relief in relation to that client. 24 It is in these circumstances that I have come to the view that, in addition to any general restraint on the use of confidential information, there should be a restraint along the lines sought from dealing with the four clients until the determination of the proceedings or 31 December 2007, whichever is the earlier. 25 So far as the general restraint on the use of confidential information is concerned, Mr O'Dowd has urged that the time of its utility has ended and that no general restraint on the use of confidential information should be continued at this time. I do not agree with that. If the defendant has no confidential information which she might want to use, then she cannot be harmed by the continuation of the relief. To any extent that she either has any or, if pieces of information should come to her possession, as by the finding of documents that have not been given up by her, not in any improper fashion, but because overlooked at an earlier time, I think that an appropriate general restraint in relation to that matter should continue. …oOo… 26 I delivered reasons for judgment in this matter in relation to the application for interlocutory injunctive relief this morning. Competing versions of short minutes have been brought in before me this afternoon. At least in relation to order 1, the order will be made substantially in terms of the version propounded on behalf of the plaintiff. 27 I have been asked by Mr O'Dowd on behalf of the defendant to substitute for the words in order 1(a) "making or having contact with, or otherwise dealing with" the words "soliciting, canvassing or approaching." The relevant prayer in the summons was simply in the terms "making contact with." When Mr Garling's argument was put before me during the course of the hearing and I considered my decision in relation to it, I construed the argument as put on the basis of having any contact with rather than as referring simply to contact initiated by approach by the plaintiff. It is on this basis that I gave the reasons I gave this morning for determining the matter. 28 I readily understand Mr O'Dowd's drawing to my attention this afternoon that the expression "making contact with" is ambiguous and that it may be interpreted as referring only to contact initiated by the plaintiff. However, the considerations that I have dealt with in my reasons for judgment, by reference to which I have found that, in dealings with the four specified entities, it is reasonably arguable that the use of the particular confidential information referred to would, in effect, be inevitable, are as applicable in relation to dealings initiated by the entities as they are in dealings initiated by the defendant. For these reasons, I propose to make the orders in the terms now put forward by Mr Garling for the plaintiff. 29 In relation to order 1(a), Mr O'Dowd, for the defendant, equally asked for a proviso that the restraint should not apply where the entity requests the defendant to supply the services and the services provided are in respect of events not referred to on page 6 of Confidential Exhibit A2, which was the document I have referred to earlier. Whilst the events contemplated in this proviso are ex hypothesi not events mentioned in that document, nonetheless it seems to me that the confidential information possessed by the defendant, arising from her dealings of last year with these entities and her knowledge of the anticipated dealings referred to on page 6, would still inevitably be material to a negotiation of the sort that Mr O'Dowd seeks to have excepted by the proviso. I do not propose to incorporate the proviso in the order that I make. 30 I have heard submissions from both sides on costs. The usual order in favour of a successful applicant for relief by way of interlocutory injunction on a contested application is that the costs of the application be the plaintiff's costs in the proceedings. Mr Garling asked for an order for costs simpliciter, but I decline to accede to that request. Mr O'Dowd asked for a reservation of costs, so that the matter could be considered at a later stage, but I decline to accede to that request. The order for costs that I shall make is the usual order, that the costs of the application be the plaintiff's costs in the proceedings. 31 Mr O'Dowd has asked for a stay of the injunctive orders for seven days to permit the defendant to approach the Court of Appeal. Upon my indicating that I proposed to decline that stay, he asked that I state reasons for so doing. Based upon the view that I have formed, that the plaintiff is entitled to protection by way of injunction for the reasons that I have given, there is absolutely no reason, so far as I am concerned, that, because the defendant contemplates an approach to the Court of Appeal, the plaintiff should be left entirely unprotected, while the defendant goes away and considers its position and, what is more, is free to take whatever action it chooses vis-a-vis an unprotected plaintiff. It may well be that the defendant may be able to persuade the Court of Appeal that a different interlocutory regime should prevail or that no interlocutory regime should prevail. However, that is no reason why the interlocutory regime which this Court in a Division has decided is appropriate should not prevail until any appeal or application for leave be resolved.

**********

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.