These passages from an interim decision of the Federal Court of Australia contain an excellent summary of the law applied in Australia to the issue whether interim injunctions should be granted to preserve the status quo pending trial in cases involving allegations of restraints of trade.
“This dispute can be resolved for present purposes by reference to long-standing authority, succinctly considered by Brereton J (as his Honour then was) in Portal Software v Bodsworth [2005] NSWSC 1179. His Honour observed (emphasis added):
[63] At common law, a restraint of trade is contrary to public policy and void, unless it is justified by the special circumstances of the particular case, for which purpose it is sufficient justification that the restriction is reasonable having regard to the interests of the parties concerned and in reference to the interests of the public, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public [Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535, 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 706, 707; Lindner v Murdock’s Garage (1950) 83 CLR 628, 653]. While the cases refer to “special circumstances” justifying a restraint, that means no more than facts of a particular case from which reasonableness can be inferred [J D Heydon, The Restraint of Trade Doctrine, 2nd Ed, p29]. If the restraint is not reasonable in reference to the interests of the parties and the public, it is contrary to public policy and void [Buckley v Tutty (1971) 125 CLR 353, 376]. This test reconciles two conflicting policies, first “that a man should be free to use his skill and experience to the best advantage and should not be put in the position of a slave”, and secondly, that covenants should be observed and enforced [Herbert Morris Ltd v Saxelby [1915] 2 Ch 57, 76; [1916] 1 AC 688; Attwood v Lamont [1920] 3 KB 571, 577].
[64] While courts commence from this same general principle in all cases of restraint of trade, a more rigorous approach is applied to restraints in employment contracts than in contracts for the sale of goodwill [Nordenfelt, 566; Mason v Provident Clothing & Supply Co Ltd [1913] AC 724, 731, 738; Herbert Morris Ltd v Saxelby [1915] 2 Ch [77]. A stricter and less favourable view is taken of covenants in restraint of trade between employer and employee, than in commercial agreements [Geraghty v Minter (1979) 142 CLR 177, 185; Heydon, pp68-69; Woolworths Limited v Olson [38]].
[65] An employer is not entitled to be protected against mere competition; the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary subject matter [Vandervell Products Ltd v McLeod [1957] RPC 185, 192; Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659, 664], including the employer’s trade secrets and confidential information, and goodwill including customer connection.
[66] In order to determine whether a restraint exceeds what is necessary for the protection of the legitimate interests of the employer and therefore void, it is necessary first to construe the restraint. Absent resort to the Restraints of Trade Act, it is then necessary to consider whether, on the particular facts proved, the restraint so construed is reasonable.
[67] A restraint is to be interpreted, for the purposes of ascertaining its real meaning, independently of the rules prescribing tests of reasonableness for the purpose of ascertaining its validity [Butt v Long (1952) 88 CLR 476, 487; Geraghty v Minter, 180]. Nonetheless, where there is ambiguity, a covenant in restraint of trade in an employment contract will be construed in favour of the employee, so that a narrower construction of the scope of a restraint will be preferred to a broader construction, when both are reasonably available [Mills v Dunham [1891] 1 Ch 576, 589-90; Vandervell Products Ltd v McLeod, 193; Littlewoods, 1486; Butt v Long, 487] – though this does not authorise a restrictive interpretation of general words simply to save a covenant from invalidity [Butt v Long, 487; Galbally [108]]. In Australia, Butt v Long precludes the more liberal approach to construction of restraints adopted by Lord Denning MR in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 14, 72, by which courts construe wide words narrowly so as to make the clause reasonable and therefore enforceable, interpreting them from the perspective that the parties’ object is legality, and if the words of the restraint are so wide that on a strict construction they cover improbable and unlikely events, declining to enforce it in respect of them. However, Butt v Long is not inconsistent with the view that a covenant in restraint of trade should be construed, in the case of ambiguity, in favour of the employee; that is to say, in favour of giving it a narrower rather than a wider operation [Butt v Long, 487].
[68] Construction of a restraint is informed by the factual matrix, and in particular the nature of the employer’s business, and the employee’s role in it. An agreement in restraint of trade is construed with reference to its subject matter, and descriptive words may be restricted in their operation by reference to the circumstances in which the parties contract. Thus restraints which at first sight are general in form, in prohibiting a former employee from offering to perform services for or soliciting the custom of the former employer’s clients, have often been construed as relating only to those services or products which the employer had offered, and covenants prohibiting a former employee from dealing or transacting business with customers of the former employer have been construed to mean business of the same or a similar kind to that which had been carried on by the former employer [Lindner v Murdock’s Garage, 635, 649; Mills v Dunham [1891] 1 Ch 576, 581, 586; Business Seating (Renovations) Ltd v Broad [1989] ICR 729, 735, (Millet J); G W Ploughman & Sons Ltd v Ash [1964] 1 WLR 568, 572; [1964] 2 All ER 10; McLaughlin Consultants v Boswell [1989] 30 IR 417, 419 (Bryson J); cf I F Asia-Pacific Pty Ltd v Galbally (2003) 59 IPR 43; [2003] VSC 192, [118]-[127]].
17 I would not presume to reach any concluded view as to the scope of the restraint imposed by cl 12(c) of the contract, this being only an interlocutory process, and that determination being the proper role of the trial judge determining the substantive proceeding. However, doing the best that I can in the circumstances, I am unable to see, for present purposes, how cl 12(c) can be as broad as AEI Insurance contends. That clause does not on its face seem ambiguous, but even if it were, any such ambiguity would not be resolved in AEI Insurance’s favour, following the principles summarised in Portal Software v Bodsworth above.
18 I consider it most likely that cl 12(c) would be read according to its express terms, while not excluding the possibility of a better argument convincing the trial judge that some aspect of context justifies a wider meaning than is apparent having regard to the language used by the person who drafted it. Upon that basis I conclude, for present purposes only, that, perhaps with the qualification that a customer or client of AEI Insurance did not become a customer or client of MA Brokers by reason of any direct or indirect conduct on the part of Mr Martin in breach of the express restraint in cl 12(c), he is not constrained in performing work for such a customer or client of MA Brokers after the change in broker has taken place.
19 For completeness, I should note that Wigney J appeared to approach the meaning of cl 12(c) in a similar way:
[40] It is open to infer, at least to a prima facie standard, that even where someone from MA Insurance Brokers other than Mr Martin contacted the AEI client, that was done as a result of the actions of Mr Martin and constituted, at the very least, an indirect dealing or approach by Mr Martin. It is equally open to infer that Mr Martin provided the person from MA Insurance Brokers with the client contact details. The circumstances and nature of the contact between Mr Martin and other persons from MA Insurance Brokers and the AEI’s clients also supports the inference, at least to a prima facie standard, that the contact was made with a view to MA Insurance Brokers obtaining the business of that client.
[41] In my view, the evidence adduced by AEI made out a prima facie case that, relatively soon after resigning from AEI and commencing employment with one of its competitors, Mr Martin breached clauses 12(c) and 13.2(a) and (b) of his employment contract. He did so by either directly indirectly approaching or dealing with clients of AEI with whom he had dealt while employed at AEI with a view to obtaining the business of that client for MA Insurance Brokers. He also used confidential information – client lists and contact details – which he obtained while employed at AEI to that end. While I would perhaps not characterise AEI’s case at this stage as being strong or compelling, in my view, it is nevertheless a prima facie case.
20 Once that conclusion had been reached, Wigney J had little difficulty in finding that the balance of convenience supported granting the injunction:
[43] As for the balance of convenience, as previously noted, one of the issues which ordinarily arises in the context of the balance of convenience is whether damages would be an appropriate remedy. In that regard it is well established that where what is involved is the enforcement by injunction of a contractual negative stipulation, it is a rare case in which relief will be declined on the basis that damages are a sufficient remedy: see Emeco International Pty Ltd v O’Shea [2012] WASC 282 at [20]-[22]; Liberty Financial Pty Ltd v Jugovic [2021] FCA 607 at [283]-[285]. That is largely because of the inherent “difficulty in detecting breaches” of such obligations, the “difficulty of establishing causation between any loss of business with customers and any actions of the ex-employee”, and the “difficulty of the calculation of the quantum of any damage arising from loss of business”: Emeco at [21].
[44] In my view, the balance of convenience in this case lies in AEI’s favour. That is because the evidence establishes that AEI would suffer a significant disadvantage if Mr Martin is not restrained from any further or ongoing breaches of clauses 12 and 13 of his employment contract. The evidence establishes, at least to a prima facie standard, that AEI has already lost the business of a number of clients. It may readily be inferred that the loss of clients may continue if Mr Martin is not restrained from further breaching his contractual obligations. I am also not persuaded that Mr Martin would suffer any, or any serious, prejudice if the orders sought by AEI are made. That is because they essentially just restrain Mr Martin from doing what he otherwise should not be doing given the terms of his contract with AEI.
21 In seeking the discharge of the injunctions, Mr Martin relies upon the following observation made by Jagot J in Pivotel Satellite Pty Ltd v Optus Mobile Pty Ltd [2010] FCA 121 at [26], as to whether existing interlocutory orders should be varied in light of what he contends is the true factual position established by the evidence he adduces:
[26] The question whether the interlocutory orders should now be varied in light of the true factual position has to be determined by reference to the relevant principles. Those principles were not in dispute.
- A court has jurisdiction to vary or set aside any interlocutory order but the re-litigation of issues already decided, even on an interlocutory basis, is undesirable having regard to the need for finality (Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46).
- The “overriding principle governing the approach of the court to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances of the case” (Brimaud at 46).
- The interests of justice should be assessed having regard to the nature of the interlocutory order in question. Interlocutory orders that are merely procedural or made by consent without any contest are different from substantive orders made after a contested hearing and intended to operate until the final hearing. In the latter case the general rule is that there must be a material change in circumstances or the discovery of new material which could not reasonably have been put before the court on the earlier application (Brimaud at 46).
- There is a debate in the authorities between approaches that are more and less permissive. Nevertheless the approach generally adopted at first instance accords with that of Goldberg J in P Dawson Nominees Pty Ltd v Australian Securities and Investments Commission (No 2)(2009) 255 ALR 466; [2009] FCA 413 at [49], namely, that an applicant seeking to vary a substantive interlocutory order made after a contested hearing must persuade the Court that:
…one or more of the following factors has occurred or is satisfied:
(a) there is new material or new evidence which was not available, or reasonably available, to them at the time the orders were made …;
(b) there has been a material change in the circumstances since those orders were made;
(c) there are exceptional circumstances which warrant re-consideration of the matter…; and
(d) as a matter of discretion, the justice of the matter requires that the applicants be allowed to revisit the matter …
22 I have considered P Dawson Nominees Pty Ltd v Australian Securities and Investments Commission (No 2) [2009] FCA 413; 255 ALR 466 at [36]-[50], which leads to that list of factors, and the suggested qualification that AEI Insurance relies upon at [50]. I am satisfied that it is permissible and appropriate to proceed upon the basis that Jagot J identified in Pivotel Satellite, including the factors her Honour drew from Goldberg J in P Dawson Nominees at [49]. Mr Martin relies upon those factors and asserts that:
(a) there is new material or new evidence which was not available, or reasonably available, to them at the time the orders were made;
(b) there has been a material change in the circumstances since the orders were made;
(c) there are exceptional circumstances which warrant re-consideration of the matter; or
(d) as a matter of discretion, the justice of the matter requires that the applicants be allowed to revisit the matter.
23 The new material is the affidavit evidence of Mr Martin, both as to events prior to the hearing before Wigney J which he was not in a position to adduce given the very short period within which the original application for injunctions was made by AEI Insurance, and as to events since then. The material change of circumstances are the prejudicial effect of the injunctions on Mr Martin in relation to his health, social relations and expenses incurred. Each of these are said to be exceptional and warranting the exercise of discretion to intervene and discharge the injunctions. I agree with that characterisation.
24 Mr Martin relies upon three affidavits from himself and two from his solicitor to cast doubt on the strength of the inferences drawn by Wigney J without competing evidence, to prove asserted tardiness in the conduct of the litigation by AEI Insurance, and to endeavour to demonstrate prejudice of a kind that has arisen since his Honour’s decision.
25 Mr Martin also asserts that there has been a failure on the part of AEI Insurance to prosecute this proceeding diligently and promptly as providing further supports for this discharge sought, citing Bird v McComb (No 3) [2011] FCA 697 at [29] and the authorities there referred to.
26 In opposing the discharge of the injunctions, AEI Insurance relies upon the original affidavit of Mr Donaldson that was before Wigney J, two more recent affidavits of one solicitor, and a 10 March 2023 affidavit of another solicitor, in large measure to prove steps taken in the course of the litigation to rebut the suggestion of tardiness, and to advance the case of conduct on the part of Mr Martin in breach of cl 12(c) by producing evidence of communications between him and former customers or clients of AEI Insurance.
27 Upon close examination, I am not satisfied that the communications I was taken to by senior counsel for AEI Insurance during the course of legal argument took place prior to any of the relevant customers or clients becoming those of MA Brokers, so as to be within the likely reach of the cl 12(c) restraint, and thus within the reach of the injunction in order 1 made by Wigney J, as varied. As such, that evidence not only does not assist AEI Insurance, but assists Mr Martin.
28 AEI Insurance also sought to rely upon a very recent expert report of a handwriting expert dated 27 July 2023, which was after the guillotine date for evidence to be relied upon without the leave of the Court of 4.00 pm 21 July 2023, contained in procedural orders made on 18 July 2023 to bring on the hearing of this application. AEI Insurance, against the letter and spirit of that order, did not even advise Mr Martin or my chambers of an intention to seek leave to rely upon that report. That did not take place until well into the hearing of Mr Martin’s application, and only after senior counsel had pointed out that there was no evidence to support that aspect of AEI Insurance’s written submissions. That evidence was lengthy and contentious, ultimately of doubtful weight, and it was impossible for Mr Martin to respond to it in an evidentiary way given the very late and unforeshadowed way in which it was raised, with no more than a passing reference to it in AEI Insurance’s submissions, and not being otherwise identified as evidence to be relied upon. Accordingly, I refused leave to rely upon that additional evidence.
29 The evidentiary picture as to whether or not there has been tardiness in the conduct of the litigation by AEI Insurance is conflicting. In the limited time available to consider the evidence and make a decision to discharge the injunctions, it was not possible to conclude safely that Mr Martin has made good his argument in that respect, although the process does appear to have been drawn out.
30 There is some evidence of Mr Martin’s state of health and anxiety arising from the injunctions, and his fear of being in contempt of court. That may have been affected by Mr Martin fearing that the injunctions constrained him as far as AEI Insurance contended, which I have rejected for the purposes of these reasons. However, I did not find that evidence inherently implausible, but nor was it supported by any medical or other independent evidence. I therefore take it into account, but on its own it goes no further than establishing a degree of prejudice that was not apparent to Wigney J on the information available to his Honour, which apparently did not include any evidence at all from Mr Martin, and which has become more substantial since then. However, on its own, this evidence would not have been sufficient to justify discharging the injunctions. It goes no further than adding some weight to a conclusion separately reached that such a discharge should take place.
31 The potential assessment of damages is a factor in determining the balance of convenience, as discussed by Wigney at [43] reproduced above, and contributed to the decision I have made. Mr Martin advanced in written submissions that AEI has now presented evidence which suggests that damages for loss suffered by AEI are likely to be readily quantifiable, and hence damages for the remaining period of approximately a month that the injunction would have run for business that moves from AEI to the defendant are likely to be an adequate remedy. That is likely to be correct, and I therefore consider that this weighs in favour of discharge, because I tend to think that by now damages would be a sufficient remedy for any loss occasioned between 1 August and 2 September 2023.
32 The most significant evidence in favour of the discharge of the injunctions is Mr Martin’s evidence as to his conduct. In his first affidavit sworn 14 April 2023, he deposes to his relationship with 40 former customers or clients of AEI Insurance who had appointed MA Brokers after he left the employment of AEI Insurance. Apart from establishing a long-standing personal knowledge of the principals or senior officers with many, but not all, of those companies, in many cases long preceding his employment with AEI Insurance, he deposes to not informing any of them that he was commencing or had commenced employment with MA Brokers. It does seem likely that many, if not most or even all, of AEI Insurance’s former customers or clients followed Mr Martin; but not that the inference that this was due to conduct on his part remains sound.
33 On the evidence before me, I find that it is highly likely that Mr Martin, due to these often long-established relationships, already had all the necessary contact information for at least a significant proportion of the 40, and possibly many more, former customers or clients that Mr Martin identified in his affidavit, independent of his work with, and without need to refer to any confidential information of, AEI Insurance. Much of that information is also now publicly available, having been filed in court during the course of these proceedings. Further, there is no direct or even strongly inferential evidence that Mr Martin has been using or disclosing confidential information.
34 Mr Martin deposed to daily telephone conversations with Mr Barry Mathison, a director of MA Brokers, referred to as a “check in”. For each of the 40 customers or clients he gives evidence about, he deposes to first becoming aware that they had appointed MA Brokers as their broker during such a check in. This casts considerable doubt on the inferences drawn by Wigney J at [40], reproduced above, noting that his Honour did not have any contradictory evidence as I have before me.
35 In the end, I am satisfied that Mr Martin has established by his evidence that there is a real and distinct possibility, and perhaps even a probability, that he has not in fact done anything in breach of cl 12(c), or in breach of cl 13.2(a) or (b), of his contract. That does not mean that there is no prima facie case, but it does mean that the prima facie case advanced by AEI Insurance is nowhere near as strong as it appeared to Wigney J. I hasten to add that I do not cavil with the conclusion reached by his Honour on the limited evidence available at an urgent hearing, brought on at short notice. It is now little more than a bare prima facie case, or even a prima facie case contrary to equal or stronger benign inferences, because:
(a) the inference that his Honour reached that “where someone from MA Insurance Brokers other than Mr Martin contacted the AEI client, that was done as a result of the actions of Mr Martin and constituted, at the very least, an indirect dealing or approach by Mr Martin” is now matched by an equal, if not stronger, inference that this did not take place as a result of any action on the part of Mr Martin which was in breach of cl 12(c);
(b) the inference that his Honour reached that it was “equally open to infer that Mr Martin provided the person from MA Insurance Brokers with the client contact details” is now matched by an equal, if not stronger, inference that this did not take place as a result of any action on the part of Mr Martin which was in breach of cl 13.2(a) or (b); and
(c) the inference that his Honour reached that the “circumstances and nature of the contact between Mr Martin and other persons from MA Insurance Brokers and the AEI’s clients also supports the inference, at least to a prima facie standard, that the contact was made with a view to MA Insurance Brokers obtaining the business of that client” is now matched by an equal, if not stronger, inference that no such improper contact took place.
36 As a result, I consider that the balance of convenience favours Mr Martin rather than AEI Insurance. It therefore favours discharge of the injunctions, rather than their continuation.
37 It follows that I am satisfied that the injunctions granted by Wigney J, as varied in relation to the first injunction by Thawley J, should be discharged forthwith…………………….”
AEI Insurance Group Pty Ltd v Martin [2023] FCA 914 per Bromwich J delivered 1 Aug 2023