Restraints of trade in employment law

 

This extract from a judgement of the Federal Court deals with the legal principles which attane d a restraint of trade case in an employment law context.

“Consideration

66    I will address whether there is a serious question to be tried by reference to the grounds on which the plaintiff seeks interlocutory injunctive relief, namely: (1) the restraint clauses; (2) the contractual obligation of confidence and the protection of confidential information afforded by equity; (3) the Corporations Act, s 183(1), albeit briefly; and (4) the tort of inducing breach of contract. I will also address the balance of convenience, which is related to the strength of the plaintiff’s claim. It will also be necessary to address whether, in the exercise of the Court’s discretion, orders in the terms sought by the plaintiff should be made.

(1)    The restraint clauses

67    Many of the principles relating to the enforceability of a post-contractual restraint upon a former employee were identified by the Victorian Court of Appeal in Just Group Limited v Peck [2016] VSCA 334; 344 ALR 162 (Just Group) at [30]-[36] (Beach and Ferguson JJA and Riordan AJA) –

30    A term in a contract, which is a restraint of trade (‘a restraint clause’), is presumed to be void as contrary to public policy.

31    The presumption may be rebutted if there are special circumstances that demonstrate the covenant to be:

(a)    reasonable as between the parties; and

(b)    not unreasonable in the public interest.

32    The test of reasonableness varies depending on ‘the situation the parties occupy and so recognising different considerations which affect employer and employee and independent traders or business men, particularly vendor and purchaser of the goodwill of a business’. A court takes a ‘stricter view’ of restraint clauses in employment contracts; and will more readily uphold a restraint clause in favour of a purchaser of the goodwill of a business than a restraint clause in favour of an employer. In particular, a purchaser of a business is entitled to protect itself from competition by the vendor; but an employer is not entitled to protect itself from competition per se by an employee.

33    A restraint clause in favour of an employer will be reasonable as between the parties, if at the date of a contract:

(a)    the restraint clause is imposed to protect a legitimate interest of the employer; and

(b)    the restraint clause does no more than is reasonably necessary to protect that legitimate interest in its:

(i)    duration; or

(ii)    extent.

34    It is well established that employers do have a legitimate interest in protecting:

(a)    confidential information and trade secrets; and

(b)    the employer’s customer connections.

35    For the legitimate purpose of protecting the employer’ confidential information, a restraint clause does not need to be limited to a covenant against disclosing confidential information. It may restrain the employee from being involved with a competitive business that could use the confidential information.

36    The onus of proving the special circumstances from which the Court may infer ‘reasonableness between the parties’ is on the person seeking to enforce the covenant. However, if an employee or other covenantor alleges that the restraint clause is against the public interest, the burden of proving that proposition is on the employee/covenantor.

(Citations omitted.)

68    To the above propositions identified in Just Group I add the following –

(1)    A reasonable restraint in the nature of a non-solicitation covenant is capable of protecting customer connections, and also the employer’s confidential information, in circumstances where equity, or a generally-framed contractual provision relating to confidential information would not do so, or would not do so effectively: see, Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; 71 NSWLR 9 at [12]-[14] (Brereton J); Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111; 205 FCR 187 (Pearson) at [52] (Keane CJ, Foster and Griffiths JJ). The protection of confidential information as a permissible purpose of a reasonable restraint was also referred to by the Court of Appeal in Just Group at [35].

(2)    A restraint clause will be construed for its real meaning in accordance with accepted rules of contractual interpretation, including having regard to the object of the agreement objectively ascertained, before the Court considers whether the clause goes further than what is reasonably necessary to protect the employer’s legitimate interests: Butt v Long [1953] HCA 76; 88 CLR 476 (Dixon CJ, Webb J and Fullagar J agreeing); Just Group at [38(a)].

(3)    The principles of contractual interpretation will include those that were referred to by the Full Court in Findex Group Limited v McKay [2020] FCAFC 182 (Findex) at [76]-[87] and by the Victorian Court of Appeal in Just Group at [38]. As with all principles of interpretation, there are often principles that pull in different directions that must be reconciled.

(4)    While the principles referred to by the Full Court in Findex were expressed by reference to commercial contracts, they may be appropriately adapted to employment contracts, as illustrated by Liberty Financial Pty Ltd v Jugovic [2021] FCA 607 at [196] (Beach J).

(5)    The principles identified in Findex include that where the drafting of a restraint is not as clear as it might have been, a narrow construction in favour of the employee that will preserve the validity of the restraint is to be preferred to one that will make it void: Pearson at [45], citing Mills v Dunham [1891] 1 Ch 576 at 589-590 (Kay LJ). However, a restrictive interpretation of general words is not to be adopted simply to save a restraint from invalidity: Butt v Long at 487.

(6)    Upon assessing the reasonableness of a restraint at the time the contract is entered into, the restraint will either be valid, or not. The Court will not re-write a restraint, or too readily find implicit limitations, so as to render it reasonable. This is for reasons including that as a matter of policy, the common law does not encourage the vice of employers terrorising former employees with extravagant restraints and the expense of litigation, calculating that the restraints might be read down. An employer should not “achieve by terror what it cannot have by law”: see, Drake Personnel Ltd v Beddison [1979] VR 13 at 24 (Anderson J). See also: Wallis Nominees (Computing) Pty Ltd v Pickett [2013] VSCA 24; 45 VR 657 (Wallis Nominees) at [110] (Redlich JA, dissenting in part); J A Mont (UK) Ltd v Mills [1993] FSR 577 at 584 (Brown LJ), citing Mason v Provident Clothing & Supply Company Ltd [1913] AC 724 at 745 (Lord Moulton).

(7)    On the other hand, a court may, and in some circumstances will, enforce part of a restraint even though taken as a whole the restraint exceeds what is reasonable. That can be done where that part which is unenforceable is clearly severable without altering the nature of the contract and without having to add to, or modify, the wording in any way other than by excision: SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; 225 CLR 516 (SST Consulting) at [46] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ); Wallis Nominees at [92]-[94] (Warren CJ and Davies AJA). This issue often turns on whether there is one covenant, or several distinct covenants: see Wallis Nominees at [94] and Just Group at [39], both citing Attwood v Lamont [1920] 3 KB 571. See also the summary of principles in Findex at [144]-[147].

69    In relation to the application for interlocutory injunctions to enforce the restraints, counsel for the defendant submitted that the plaintiff did not have a sufficiently strong prima facie case, and the balance of convenience did not favour the interlocutory enforcement of the restraints for four reasons –

(1)    the restraints were unreasonably wide in their terms;

(2)    any restraint period beyond six months was unreasonable;

(3)    the plaintiff did not come to the Court with clean hands, because it was in breach of the contract of employment and its obligations under the Fair Work Act 2009 (Cth), which disentitled it to injunctive relief; and

(4)    any order to restrain until trial, or beyond 15 September 2023 (which would be 12 months from termination) would have a crushing effect on the defendant’s ability to earn income in her chosen professional field.

The restraints – submissions for the plaintiff

70    Counsel for the plaintiff submitted that the word “client” was obviously missing from the second line of subclause 18(b)(iii) such that the clause should be construed as if the word were included, citing Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 at 426-7 (Dixon CJ and Fullagar J). The clause would then be construed as if its text were as follows –

(iii)    Canvass, solicit, approach or accept any approach from any person who was at any time an existing client or Prospective Client or Customer of Avant; or any person who refers business to Avant on a regular or ongoing basis, with a view to obtaining custom or any business introduction from that person in a competing business; or

71    On the question whether the restraints were reasonable, counsel for the plaintiff relied on an acknowledgement by the defendant in subclause 18(c)(i) of the employment agreement that the restraints were reasonable and necessary to protect the genuine business interests of the plaintiff. It is convenient to say here that a party’s acknowledgment of the reasonableness of a restraint may be a relevant factor. However, whether the plaintiff has discharged its onus of showing that the restraints are reasonable, which must take account of the public interest, is a question for the Court: see, Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; 133 CLR 288 at 308 (Walsh J); Cream v Bushcolt Pty Ltd [2004] WASCA 82; (2004) ATPR 42-004 at [27] (Malcolm, Miller and McKechnie JJ); Woolworths Limited v Olson [2004] NSWCA 372; 55 AILR 200-13 at [39] (Mason P, McColl JA and Bryson JA agreeing); McHugh v Australian Jockey Club Limited [2014] FCAFC 45; 314 ALR 20 at [4(f)] (Perram J, Griffiths J and White J agreeing).

72    Counsel for the plaintiff submitted that the restraints protected the legitimate business interests of the plaintiff, being its customer connections and contractual relations, and confidential information, and did no more than what was reasonably necessary. Counsel for the plaintiff submitted that at the time of entering into the employment agreement, the defendant had been working for the plaintiff for eight years and was responsible for managing and overseeing the EMDG scheme business for the plaintiff. It was submitted that in order to do this, the defendant needed to have a detailed understanding of the plaintiff’s processes and confidential information, being, in this context, client identities and contact details, pricing information, and grant histories. Counsel submitted that the defendant had relationships with a large proportion of the plaintiff’s clients, indeed all of its EMDG scheme clients, and had frequent (at least within the context of the operation of the EMDG scheme) and direct contact with them. It was submitted that the defendant had significant client exposure, and unfettered access to the plaintiff’s confidential information. Counsel submitted that a restraint of 18 months was reasonable when considered in the context of the cycle of the plaintiff’s EMDG business.

73    Counsel relied on the following features of the plaintiff’s business as giving rise to a legitimate interest that supported the restraints. Counsel referred to the client relationships that the plaintiff had established, which formed the foundation of its business, and that there was a significant overlap of the types of government grants amongst the plaintiff’s client base. Counsel emphasised that not all of the plaintiff’s client base would have a grant application on foot at any one time, because clients could move in and out of eligibility criteria over time. The maintenance of a client relationship over the long term was an important part of the plaintiff’s business. It was submitted that for this reason the reference in subclause 18(b)(iii) to “any person who was at any time an existing [client]” of the plaintiff was not too wide, and that what was engaged were all persons who had signed a letter of engagement, whether or not they had current grant applications on foot. Counsel submitted that the defendant had relationships with a large proportion of the plaintiff’s clients, indeed all of its EMDG scheme clients, and had frequent (at least within the context of the operation of the EMDG scheme) and direct contact with them. It was submitted that the defendant had significant client exposure, and unfettered access to the plaintiff’s confidential information.

74    Counsel for the plaintiff pointed to the fact that the evidence showed that the terms of the employment agreement had been the subject of active negotiation between the defendant and Ms Whitehead before it was executed. Counsel relied on the circumstances that existed at the time the plaintiff and the defendant entered into the employment agreement. The defendant’s position was titled “Head of Grants and Funding”. The objective was stated in schedule 1 of the agreement in the following terms –

To oversee the efficient and correct processing of client documents and data in relation to Export Market Development Grant processing services. To undertake business development activities on behalf of Avant across all divisions. This is an ‘all-rounder’ position that requires autonomy and lateral thinking.

75    Business development was also referred to in schedule 1 of the employment agreement in the following terms –

Grants Business Development Support

  1. Provision of business development support to the general grants management team – specifically for Competitive Programs and R&D programs as required

76    Counsel for the plaintiff relied on the reference to the business development role across all divisions of the plaintiff’s business as informing the legitimate business interest that the plaintiff sought to protect by the restraints. Reference was made to an email from the defendant to Ms Whitehead of 31 May 2021 in the course of negotiations where, in the context of the topic of bonus payments, the defendant referred to bringing in business across the other departments of the business. Counsel submitted that in the course of her employment the defendant had access to confidential and sensitive information about all the plaintiff’s clients together with prospective clients as that term was defined. It was submitted that prospective clients were the subject of a definition, which limited the class of persons within its coverage to entities with which the plaintiff had actually been in negotiations, and did not involve the world at large. It was submitted that in the context of a small business it was not plausible to assert that the defendant would not have had knowledge at any point in time of those with whom the plaintiff was in negotiations to do business.

77    Counsel for the plaintiff submitted that while some non-solicitation or non-interference restraints related to clients with whom a former employee had actual dealings, restraints with these types of limitations were not sufficient to protect the plaintiff’s legitimate interests given the nature of its business, and where the client base was the product of years of investment, and where the defendant had unfettered access to the plaintiff’s client database.

78    Counsel for the plaintiff submitted in the alternative that if the Court was not minded to make orders covering both existing and prospective clients, the Court should sever the reference to prospective clients or customers in subclause 18(b)(iii) of the employment agreement. Counsel submitted that covenants in relation to existing clients and prospective clients could operate independently of each other, and that any severance did not amount to “curial disentanglement”: cf, Just Group at [39(c)].

79    Counsel for the plaintiff addressed the defined term “competing business” (see [40] above), which notably includes “the business of any related body corporate of Avant”. It was accepted for the purposes of this application that this limb of the definition of “competing business” was broad and that the Court might not enforce it. I have referred at [20] above to the evidence of Ms Whitehead that there was little overlap between the plaintiff and the other corporations under the “Avant banner” in terms of clients, personnel, and operations. It was submitted that the blue pencil could be used on the definition of competing business to the extent that it included related bodies corporate.

80    In relation to arguments of the defendant in reliance on the Victorian Court of Appeal’s decision in Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSCA 181; 54 VR 517 (Crowe Horwath) to which I will refer below, counsel for the plaintiff submitted that the present case was distinguishable because participation in an incentive scheme did not form part of the contractual arrangements between the parties and because no failure to assess the defendant’s entitlement to an incentive payment could, or did, amount to repudiatory conduct on which the defendant did or could rely to justify a termination of the employment agreement at her instigation. Rather, the employment agreement was lawfully terminated at the instigation of the employer, albeit there was an honest error as to the amount paid in lieu of notice.

The restraints – submissions for the defendant

81    Counsel for the defendant submitted that the non-solicitation obligation in subclause 18(b)(iii) was a customer connection restraint. For the purposes of this application, I do not accept that its purpose is to be so confined. It is also capable of being regarded as a means of protecting the plaintiff from use of its confidential information as a springboard, which information may include the identities of clients, their grant histories, and the plaintiff’s pricing structures: see the cases cited at [68(1)] above.

82    It was submitted that there were at least two reasons why the non-solicitation covenant was too wide and therefore unreasonable. The first was that the scope of clients or potential clients within the ambit of the clause was too broad. Counsel pointed to Ms Whitehead’s affidavit evidence that the plaintiff’s business had “over 1,500 active clients, 438 of whom currently receive or have recently received EMDG Scheme grants”, as well as “a further approximately 6800 client leads”. Counsel submitted that there was no evidence that the defendant had a connection with all of them. Counsel relied on the affidavit evidence of the defendant in which she estimated that the plaintiff had approximately 500 clients on its books, that she could not identify with any precision which persons or entities were clients of the plaintiff, and that she had provided services to perhaps 200 clients in her final 12 months of employment.

83    It was submitted that the restraints relied on by the plaintiff went beyond what was reasonable to protect the plaintiff’s legitimate interests. It was submitted that the restraints in subclauses 18(b)(iii) and (iv) were not limited to the plaintiff’s clients for whom the defendant had worked, or with whom she had professional or commercial dealings in her employment, relying on the decision of Dodds-Streeton J in IF Asia Pacific Pty Ltd v Galbally [2003] VSC 192; 59 IPR 43 (Galbally). Counsel made a similar submission in relation to the defined term, “Prospective Client or Customer” (see [39] above). It was submitted that the class of persons covered by this defined term was not confined to actual clients of the plaintiff, but extended to potential clients defined only by the fact of a “negotiation” to provide services in cascading periods of up to 24 months preceding dismissal. Counsel for the defendant submitted that there was no clear evidence as to the identity of all these parties with whom any negotiation might have taken place, and that the defendant cannot know who they are. It was submitted that the vice in the defined term was that it was not confined to persons with whom the defendant herself may have been negotiating.

84    In particular, it was submitted that: (1) the definition of “competing business” was too wide because it extended to related bodies corporate of the plaintiff; (2) cl 18(b)(iii) should be characterised as a “customer connection” restraint, and that there was no evidence that the defendant had a connection with all the clients or prospective clients of the plaintiff; (3) in relation to the defined term “Prospective Client or Customer”, that it was an overreach to include possible clients, and in addition that the persons covered by this term were uncertain such that the defendant would not know whether she might be in breach of an order expressed to reflect the defined term; and (4) for similar reasons the restraint in subclause 18(b)(iv) was too wide and therefore unreasonable. In relation to severance of the restraints, counsel for the defendant submitted that the blue pencil could be used to strike out one of the restraints in subclauses 18(b)(i) to (v) in toto, but could not be used to strike out words within them. It was submitted that the Court should not engage in “curial disentanglement”, citing Just Group at [39(c)]. It was also submitted that in terms of duration, anything beyond six months was unreasonable, and in terms of area a 200 km radius was too large.

85    Counsel further submitted that the plaintiff had engaged in conduct which had the consequence that the restraints were not enforceable, or alternatively that it was disentitled to equitable relief, relying on the Victorian Court of Appeal’s decision in Crowe Horwath. It was submitted that the defendant was entitled to participate in an incentive scheme as an incident of her employment, and that the plaintiff repudiated the contract of employment by telling the defendant on 16 September 2022, which was the same day that the plaintiff purported to terminate the defendant’s employment, that she would not be paid a bonus. However, counsel accepted that this involved contested factual terrain and was a matter for trial.

86    Counsel also submitted that the plaintiff lacked clean hands in that it had not paid the defendant her entitlement of eight weeks’ pay in lieu of notice upon termination. In this regard, counsel relied on, inter alia, Geraghty v Minter (1979) 142 CLR 177 at 187 (Gibbs J) for the proposition that he who comes to equity must do equity, and that persons who seek to enforce a restraint by injunction must prove that they have performed their part of the bargain. Counsel further submitted that the underpayment of the defendant upon her termination contravened the National Employment Standards under the Fair Work Act, including the provisions relating to payments on account of accrued leave in circumstances where date of the commencement of the defendant’s term of employment was said to be a contested issue as evidenced by correspondence passing between the solicitors where the proper characterisation of the defendant’s engagement by the plaintiff in her earlier periods of work was put in issue. Counsel for the defendant also floated questions about unpaid superannuation contributions, but these issues were not developed to the point of any submission that I should address.

The restraints – consideration

87    On this application, the defendant’s arguments in reliance of Crowe Horwath are not sufficiently strong to have a material bearing on the outcome of this application. Crowe Horwath was a case involving materially different factual circumstances, where the employer was held to have repudiated the contract of employment as a result of its failure to consider the employee’s entitlement to a performance bonus, and where the employee accepted the repudiation. The employee sent a letter to the employer terminating the contract, citing the employer’s failure to fulfil its obligations to him under the employment contract. The Court of Appeal held that because the employment was brought to an end as a result of the employer’s repudiatory conduct, the employer was not entitled to rely on the contractual restraints, citing a line of authority commencing with General Billposting Co Ltd v Atkinson [1909] AC 118 that has held that the wrongful summary dismissal of an employee is a repudiatory breach of contract, the effect of which is to discharge the innocent party, who accepted the breach, from all future obligations under the contract. Here, neither the legal nor any factual basis for the defendant’s claim that she was denied an entitlement to an incentive payment was developed to a sufficient level of persuasion. The relevant terms of the employment agreement do not, on their face, appear to impose any obligation on the plaintiff to consider the defendant for a discretionary bonus. Nor, as discussed below, does the evidence support a sufficiently strong prima facie case that the defendant elected to terminate the employment agreement on the ground of the plaintiff’s breach.

88    In relation to whether the purported termination of the employment agreement on 16 September 2022 amounted to a repudiation by the plaintiff, the evidence points to the plaintiff intending to bring the contract of employment to an end in accordance with its terms by making a payment in lieu of notice. In saying this, I am referring to facts objectively ascertained, rather than the plaintiff’s subjective intention. The evidence is that on 24 April 2023 the defendant’s solicitors made a demand for payment of the outstanding five weeks’ notice of termination payment. The letter did not seek to characterise the underpayment as a repudiation of the employment agreement, or seek to accept the underpayment as a repudiation. On the same day, the plaintiff’s solicitors acknowledged that eight weeks’ notice had been payable, and advised that the deficit would be rectified. A few days later, on 28 April 2023, the plaintiff paid an additional five weeks’ pay to the defendant. The evidence of Ms Whitehead is that the miscalculation of pay in lieu was an honest mistake owing to a misunderstanding on her part that the payment should have been calculated by reference to the whole term of the defendant’s employment, rather than just employment under the employment agreement. This explanation is cogent, and was not challenged on this application. Whether the sum paid on 28 April 2023 was less than, or in excess of, the amount required to discharge the plaintiff’s indebtedness to the defendant remains in dispute.

89    There are a number of other issues that arise that could not be the subject of full argument on this application and which are questions for trial. The first is whether the plaintiff’s purported termination of the employment agreement on 16 September 2022 was ineffective to bring the contract to an end because there was an insufficient payment in lieu of notice. This issue may involve questions of construction of the employment agreement and directs attention to the decision of Besanko J in White v Norman [2012] FCA 33; 199 FCR 488 at [35]-[37] in which his Honour held that an underpayment of pay in lieu of notice might still be effective to bring about a termination of a contract of employment if there was a bona fide error and a willingness to recognise the error, citing DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423 (DTR Nominees) at 431-432 (Stephen, Mason and Jacobs JJ). If the purported termination of the contract was not effective, did the termination of the defendant’s employment amount to a repudiation by the plaintiff of the employment agreement? This issue invites attention to DTR Nominees, which was cited in White v Norman. If the underpayment amounted to a repudiation, did this have the consequence that although the employment relationship was terminated, that the employment agreement remained on foot unless there was an acceptance of the repudiation by the defendant? Did the defendant by words or conduct convey an acceptance of the repudiation? Was the employment agreement brought to an end in some other way, such as the defendant simply accepting the termination? These questions invite attention to the issues that were determined by the majority of Supreme Court of the United Kingdom in Geys v Société Générale, London Branch [2012] UKSC 63; [2013] 1 AC 523 and to Automatic Fire Sprinklers Pty Ltd v Watson [1946] HCA 25; 72 CLR 435. See also: Letizia Building Co Pty Ltd v Redglow Asset Pty Ltd [2013] WASC 171 at [173] (Beech J) and the cases cited therein; Turner v The Australian Coal and Shale Employees’ Federation [1984] FCA 301; 6 FCR 177 at 191-193 (Northrop, Keely and Gray JJ); and Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; 175 IR 414 at [24]-[30] (Brereton J).

90    For present purposes, it is sufficient to say that both parties appeared to argue this interlocutory application on the assumption that the employment agreement came to an end, by some means, in September 2022. The decision of Besanko J in White v Norman and my acceptance of the cogency of the evidence concerning the underpayment have the result that the plaintiff has a reasonable prima facie case that it did not evince an intention not to be bound by the employment agreement, but that it evinced an intention to terminate the contract lawfully by the payment of a sum in lieu of notice, and that it did so, albeit initially in an insufficient amount.

91    I now turn to the defendant’s argument that the Court should not exercise its discretion to grant an injunction because of unclean hands on the part of the plaintiff. This argument was put in addition and in the alternative to the defendant’s reliance on a claimed repudiation of the employment agreement by the plaintiff. The defendant focussed on the alleged improprieties in the manner in which the plaintiff dismissed her from her employment. As I stated at [32] and [88] above, the plaintiff initially paid the defendant three weeks’ pay in lieu of notice upon her dismissal in September 2022, rather than the eight weeks’ pay as required by clause 17 of the employment agreement, and paid the defendant an additional amount on 28 April 2023. The defendant submitted that this conduct of the plaintiff amounted to a breach of the employment agreement and potential contraventions of the Fair Work Act, including civil remedy provisions: Fair Work Act, s 44, s 117, s 323. The defendant submitted that the Court should not grant the plaintiff the equitable remedy of an injunction to enforce the restraint provisions in the employment agreement in circumstances where the plaintiff has itself not abided by the terms of the agreement. The defendant also briefly referred to her claim that she did not receive superannuation contributions from the plaintiff when she provided services to it as a contractor, prior to her engagement as an employee in 2018, but as I have said, this was undeveloped.

92    In support of the submission in relation to unclean hands, the defendant referred to the following statement of Gibbs J in Geraghty v Minter [1979] HCA 42; 142 CLR 177 at 187 –

The answer to the appellants’ arguments that the respondents may be in default under the deed and yet enforce the restraint lies in the principles of equity. He who comes to equity must do equity, and parties who seek equitable relief by injunction to enforce a covenant in restraint of trade “cannot obtain such relief unless they allege and prove that they have performed their part of the bargain hitherto and are ready and able also to perform their part in the future”,

(citations omitted)

93    The defendant also relied on the first instance decision of McDonald J in Crowe Horvath v Loone [2017] VSC 163; 266 IR 290. At [162]-[165] of that decision, McDonald J referred to his findings that the plaintiff employer had breached a provision of the employment agreement concerning the employee’s entitlement to a bonus payment. McDonald J quoted from the passage of Gibbs J in Geraghty v Minter extracted above and held that, consistently with Gibbs J’s reasoning, if the issue had arisen, his Honour would have refused to grant the employer an injunction to enforce the restraint of trade clauses in the employment agreement. McDonald J reasoned at [163] –

[the employer] failed to assess [the employee]’s bonus entitlement in accordance with the mandatory criteria prescribed by cl 7.5. The new incentive plan which was to be introduced for the 2017 financial year breached cl 7.5 insofar as it provided for the deferral of 20 per cent of [the employee]’s bonus entitlement for a period of three years. Notwithstanding its discretionary character, [the employee]’s right to have a bonus entitlement determined in accordance with the prescribed performance criteria and to have the bonus paid in full constituted an important element of the consideration which underpins the restraints of the Contract. It would be unfair if [the employer] was to receive the benefit of the restraints notwithstanding its failure to comply with significant contractual obligations.

94    In the event, it was unnecessary for McDonald J to have recourse to discretionary equitable principles to deny the employer an injunction. His Honour stated at [165] that the issue did not arise because of an earlier finding that the restraint of trade covenants did not survive the termination of the employment agreement by the employee’s acceptance of the employer’s repudiation.

95    In my view, on the evidence as it currently stands, the equitable principles relating to unclean hands are unlikely to have application to the present case in the way contended by the defendant. It is well established that the existence of some general or freestanding wrong on the part of a plaintiff is an insufficient basis for a court to refuse relief due to unclean hands. The plaintiff’s impropriety “must have an immediate and necessary relation to the equity sued for”: Meyers v Casey [1913] HCA 50; 17 CLR 90 at 123 (Isaacs J, Rich J agreeing); Karas v LK Law Pty Ltd [2023] FCAFC 15 at [96] (O’Callaghan and Colvin JJ). In this way, the unclean hands doctrine really means that a plaintiff should not be permitted to derive an advantage from its own wrong: Meyers v Casey at 124 (Isaacs J).

96    Here, the plaintiff exercised its right to terminate the employment agreement without reason, and to pay the defendant in lieu of her notice period. That right was conferred by the combined effect of subclauses 17(b) and (c) of the employment agreement. Although the plaintiff incorrectly calculated the amount owing to the defendant in lieu of her notice period, as I stated at [90] above, the plaintiff has a reasonable prima facie case that it did not thereby repudiate the employment agreement. In those circumstances, there is not a sufficient connection between the plaintiff’s conduct in underpaying the defendant and the equity sued for. This case may be distinguished from the position in Crowe Horvath, where the employer’s conduct constituted non-performance of a central obligation under the employment agreement, such that it would be unfair to allow the plaintiff to enforce the balance of the agreement. In the present case, the plaintiff’s miscalculation of the defendant’s notice period did not have the same effect.

97    Insofar as the defendant relied on the plaintiff’s alleged non-compliance with provisions in the Fair Work Act and superannuation legislation in support of its clean hands defence, those submissions can be readily disposed of. The plaintiff seeks an injunction to enforce the restraint of trade clauses in the employment agreement. Those negative contractual obligations exist independently of the plaintiff’s statutory obligations under the Fair Work Act and superannuation legislation. Therefore, even if the defendant’s allegations that the plaintiff contravened its statutory obligations were made good, those contraventions would not have the requisite nexus to the relief sought by the plaintiff to engage the clean hands doctrine.

98    This brings me to the strength of the plaintiff’s case that the restraints in subclauses 18(b)(iii) and (iv) are reasonable. I will deal with cl 18(b)(iii) first.

99    Ms Whitehead stated in her affidavit made 12 May 2023 that she negotiated the employment agreement with the defendant. Subclause 18(b)(iii) of the employment agreement rolls up a number of different concepts and obligations and its language is liable to confuse. To start with, and as I mentioned at [70] above, counsel for the plaintiff submitted that the word “client” was missing from the second line. I am prepared to accept for the purposes of this application that the word “client” should be read into the second line of subclause 18(b)(iii) as a matter of construction, so that the relevant limb refers to “…any person who was at any time an existing client…”.

100    A principal submission advanced on behalf of the defendant was that the restraint in subclause 18(b)(iii) was not confined to clients with whom the defendant had personal contact, thereby making the restraint unreasonable as protection of the plaintiff’s interest in customer connection. If that was the only purpose of the restraint, there may be some force in that argument. For instance, in Office Angels Ltd v Rainer-Thomas [1991] IRLR 214 a restraint of trade clause was premised on the basis that, “in the course of her employment by the company the employee has dealings with the clients of the company and in order to safeguard the company’s goodwill the employee agrees…”. In giving the reasons of the Court of Appeal, Sir Christopher Slade stated –

In a case where the wording of a covenant restricting competition by an employee after leaving his employer’s service does not specifically state the interest of the employer which the covenant is intended to protect, the Court is, in my judgment, entitled to look both at that wording and the surrounding circumstances for the purpose of ascertaining that interest, by reference to what would, objectively, appear to have been the intentions of the parties. However, in a second category of case where the employer, who proffers the covenant for the employee’s acceptance, chooses specifically to state the interest of the employer which the covenant is intended to protect, the employer is not, in my opinion, entitled thereafter to seek to justify the covenant by reference to some separate and additional interest which has not been specified.

101    In this application, there are no express words of the employment agreement that limit the purpose of the restraints in cl 18 to the protection of goodwill arising from actual customer connection by the defendant. Indeed, cl 18(b)(iii), although cast in terms of non-solicitation, might also be characterised as a limited form of non-competition, at least in relation to the plaintiff’s clients and potential clients (as defined). The reasonableness of the restraints must be looked at objectively from the standpoint of the parties at the time the employment agreement was entered into, which include that the parties would likely have had in contemplation that the defendant might, during the term of her employment, have access to information identifying all of the plaintiff’s clients, and would be involved in business development as the terms of the employment agreement indicate. All these activities would expose the defendant to the plaintiff’s confidential information, being the collective body of information that identified the plaintiff’s clients and their contact details, the plaintiff’s pricing structure, and its business strategies. It is arguable that these activities would also have fostered connections between the defendant and persons who referred business to the plaintiff on a regular or ongoing basis. Employers may be entitled to protection, by reasonable post-employment restraints, not only against the unfair use of customer connections, but also against the use of confidential information which it is otherwise difficult to protect: see Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1478-1480 (Lord Denning MR) and 1485 (Megaw LJ); Woolworths Ltd v Olsen at [67].

102    There is a prima facie case that the potential for cross-over of clients between the different divisions of the plaintiff’s business, and the defendant’s role in the business, including business development, support a reasonable non-solicitation clause that covers all existing clients and all potential clients (as defined) as being reasonable: see Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at [33]-[34] (Brereton J); Business Seating (Renovations) Pty Ltd v Broad [1989] ICR 729 at 733 (Millett J); Allan Janes LLP v Johal [2006] 1 ICR 742 at [62]-[64] (Bernard Livesey QC); Isaac v Dargan Financial Pty Ltd [2018] NSWCA 163; 98 NSWLR 343 at [127] (Gleeson JA, Bathurst CJ and Beazley P agreeing).

103    As to the restraint area, the relevance of geographic limitations depends upon the type of business. A geographic limitation is much more relevant to a business requiring the personal attendance by clients at the business premises. Here, there was little attention given to the reasonableness of the geographic limitations for the likely reason that business communication by internet has no borders, and the business conducted by the plaintiff involved Commonwealth benefits and would likely have a national character to it. There is nothing about the restraint area that is material to the question whether there is a prima facie case that the restraint is enforceable.

104    As to the duration of the restraint, having regard to the interests that are protected, the considerations for evaluating reasonableness will include the time it might take the plaintiff to shore up its client connections following the termination of the defendant’s employment, the currency of information that might be confidential, and the degree to which confidential information might remain in the defendant’s memory before dissipating. The picture painted by the evidence is that the clients of the plaintiff are not like customers of milkmen or travelling salesmen. They will not necessarily return to the plaintiff regularly, or even annually, because their eligibility for government grants may fluctuate. The situation is similar to that described in Allan Janes LLP v Johal at [34] in relation to the practice of a solicitor. I am satisfied that there is a serious question to be tried that a period of 18 months is reasonable, having regard to the cyclical nature of the plaintiff’s business that I described earlier in these reasons together with all the other circumstances. Weighing in the plaintiff’s favour is that, although not decisive, the defendant did agree that concurrent periods including a period of 18 months was reasonable: see, Isaac v Dargan Financial Pty Ltd at [131]. And although each case will turn on its own facts and circumstances, the Victorian Court of Appeal upheld a restraint period of three years in Birdanco Nominees Pty Ltd v Money [2012] VSCA 64; 36 VR 341.

105    Otherwise, there are two reasons, each sufficient in itself, why I am not satisfied that the plaintiff has a sufficiently strong case to justify an interlocutory injunction to enforce subclause 18(b)(iii).

106    The first reason is the combination of the prohibition on an acceptance of an approach from a person, and the reference to “any person who was at any time an existing client”. The reference to an “existing client” is liable to distract. When properly construed, an “existing client” is to be contrasted with a “Prospective Client or Customer”. The scope of “existing client” within the provision is, due to the immediately preceding words: “was at any time …”, unlimited. It would likely extend to any previous client, of any type, back to the time of the plaintiff’s incorporation in 2013. Subclause 18(b)(iii) picks up a prohibition on accepting an approach, which extends beyond solicitation, from any person who at any time was a client of the plaintiff, in any capacity. There is a serious prospect that the breadth of this combination would be viewed at trial as being much more than is reasonable, in the context of the employment of the defendant, for the protection of the plaintiff’s legitimate interests in client connections and its confidential information.

107    The second reason concerns the use of the defined term “competing business” (see [40] above). It was argued by the defendant that the inclusion in the second limb of the definition to competition with the plaintiff’s business “or the business of any related body corporate of Avant” rendered the restraint in subclause 18(b)(iii) too wide because the second limb of the definition has the result that the restraint in subclause 18(b)(iii) goes beyond what is necessary for the protection of the plaintiff’s legitimate interests. I accept that, at trial, there is a serious prospect that the inclusion of the reference to related bodies corporate broadens the scope of the restraint beyond what is reasonable.

108    As I mentioned at [79] above, counsel for the plaintiff accepted that the second limb of the definition of “competing business” was broad, but submitted that it could be severed using the blue pencil. That argument is weak. The employment agreement addressed severance in subclauses 18(d) and (e) (see [36] above). Those provisions indicate that the combinations of restraint period, restraint area, and restraint conduct set out in cl 18 are independent provisions and severable. In the face of the express provision as to severance in subclause 18(e), I am not satisfied that there is a sufficiently strong case that the definition of “competing business” in cl 2 gives rise to distinct obligations that can be severed. The position is therefore akin to that in Attwood v Lamont at 593 (Younger LJ), Galbally at [201]-[202], Just Group at [57], and Findex at [150] where it was held that the impugned obligations did not give rise to distinct covenants.

109    As to subclause 18(b)(iv), this is a non-interference restraint. Restraints on interference such as cl 18(b)(iv) are not uncommon: Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201; 66 ACSR 472; DP World Sydney Ltd v Guy [2016] NSWSC 1072; 262 IR 156; Isaac v Dargan Financial Pty Ltd [2018] NSWCA 163; 99 NSWLR 343; Your Nurse Australia Pty Ltd v Carpenter [2022] NSWSC 1788. There is a degree of overlap between the coverage of the non-solicitation obligation in subclause 18(b)(iii) (if enforceable), and the restraint on interference in subclause 18(b)(iv). However, subclause 18(b)(iv) does not suffer from some of the problems that attend subclause 18(b)(iii). While subclause 18(b)(iii) refers to “any person who was at any time an existing [client]”, subclause 18(b)(iv) refers (emphasis added) to, “the relationship between Avant and its employees, clients and customers (including prospective clients and customers…”. This suggests that subclause 18(b)(iv) is directed to an existing relationship: see, Isaac v Dargan Financial Pty Ltd at [89]. And subclause 18(b)(iv) does not incorporate the problematic defined term “competing business”.

110    The evidence of the defendant’s admitted approaches to clients is illustrative of the potential interference that the defendant might cause to an ongoing relationship between the plaintiff and a client, or a developing relationship that had been the subject of negotiations with a prospective client. Whether the defendant’s conduct to date in approaching or accepting approaches from clients or prospective clients of the plaintiff interfered with an existing relationship will, in respect of each interaction, be a question of fact for trial.

111    I referred towards the outset of these reasons to the clarity required for injunctive orders and to the consideration that the defendant is entitled to know what she is enjoined from doing. The orders sought by the plaintiff and directed to subclause 18(b)(iv) of the employment agreement were as follows –

  1. Restraint: An order restraining Ms Kiddle, until 16 March 2024, from interfering with the relationship between Avant Group and its customers (including prospective clients and customers (as defined in clause 2(l) of the Employment Agreement) in breach of clause 18(b)(iv) of the Employment Agreement by:

(a)    making, or accepting an approach from, those clients who are listed in the definition of Confidential Information in Item 3 above; and/or

(b)    providing services to those clients who are listed in the Confidential Information.

112    The definition of Confidential Information in proposed order 3 was as follows, although it contains a typographical error in referring only to orders 4-5, and not including order 7 –

  1. For the purpose of orders 4-5, the term ‘Confidential Information’ means the following specific pieces of information insofar as they relate to active clients of Avant Group as detailed in Exhibit KEW-3 to the Second Whitehead Affidavit that are contained in the Excel spreadsheet named ‘Tegan WIP-Tegan Surface’ and/or Avant Group’s Dynamics CRM database:

(a)    Client names

(b)    Client contact details

(c)    Client grant status

(d)    Client grant history

(e)    Avant Group pricing

113    The Excel spreadsheet and the plaintiff’s Dynamics CRM database were not in evidence, and the defendant denied on oath having any confidential information of the plaintiff. I would not make an order in the terms sought by the plaintiff which relies for its content on specified information in documents that the defendant says she does not have, and which the Court does not have.

114    For these reasons, I refuse the application for the interlocutory orders sought in relation the restraint provisions that were relied on by the plaintiff.

(2)    The defendant’s obligations of confidence

115    For the purposes of this application, I accept that the defendant owed equitable and contractual obligations of confidence to the plaintiff. The content of the equitable obligation of confidence following termination of the defendant’s employment is not as extensive as the obligation that existed while the agreement remained on foot. The ability to enforce a contractual obligation of confidence is also subject to limitations post-termination such that the obligation must be reasonable: Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458; 299 ALR 621 at [179(4)] (Gordon J). See also the discussion by the Victorian Full Court (Crockett, Murphy and Ormiston JJ) in Pioneer Concrete Services Ltd v Galli [1985] VR 675 at 710-712. Confidentiality obligations that are governed by the law of New South Wales that are held to be too wide may be held to be valid by the application of the Restraints of Trade Act: see Reed Business Information v Seymour [2010] NSWSC 790 at [40] (Ball J). That Act does not apply to this case.

116    By its revised draft orders, the plaintiff sought the following orders that appear to be premised on enforcement of the contractual obligation of confidence in cl 13 of the employment agreement (see [34]-[35] above) –

  1. For the purposes of order 2, the term ‘Confidential Information’ carries the same meaning as clause 2(c) of the Employment Agreement, namely: all information in whatever form be it oral in writing or electronic concerning the business of Avant or any related entity likely to damage the business of Avant or related entity if disclosed to a third party but does not include information which is in the public domain or was known to the third party.
  2. Pending further order, an order that [the defendant] must not for her own benefit or for the benefit of a third party use, make a record of or disclose to any person any Confidential Information relating to information, or trade secrets of Avant Group or Avant Group’s clients or related entities of either for any reason.

117    In addition, the plaintiff sought the following orders that appear to be premised on the plaintiff showing that it had a prima facie case that the defendant had taken, or had in her possession, confidential information stored in a tangible form, because it incorporated the definition of “Confidential Information” in proposed order 3, to which I referred at [112] above –

  1. Pending further order, an order that [the defendant] must not use any Confidential Information to gain an advantage for herself or someone else, or to cause detriment to Avant Group, in any way by:

(a)    making, or accepting an approach from, those clients who are listed in the definition of Confidential Information in Item 3 above; and/or

(b)    providing services to those clients who are listed in the Confidential Information.

  1. Pending further order, an order that Ms Kiddle must not use or disclose any Confidential Information to gain an advantage for herself or someone else, or to cause detriment to Avant Group, in any way by:

(a)    making, or accepting an approach from, those clients who are listed in the definition of Confidential Information in Item 3 above; and/or

(b)    providing services to those clients who are listed in the Confidential Information.

118    For her part, the defendant, through her solicitors, gave the following undertaking to the plaintiff by letter dated 24 April 2023. At the hearing of the application, counsel for the defendant stated that the undertaking was also offered to the Court –

(a)    Ms Kiddle will keep confidential and will not use, make a record of or disclose to any person or entity any Confidential Information without the prior consent of Avant Group or as otherwise required by law;

(b)    Ms Kiddle has not transmitted any Confidential Information to any third party other than in the proper performance of her duties whilst engaged or employed by Avant Group;

(c)    Ms Kiddle has conducted searches of her electronic devices and physical property. As far as Ms Kiddle is aware, based on those searches, Ms Kiddle does not have any Confidential Information or other property of Avant Group stored on any computer, tablet, telephone, USB, external hard drive or other electronic or storage device in the possession, power or control of Ms Kiddle; and

(d)    if Ms Kiddle does locate any Confidential Information or other property of Avant Group in future, Ms Kiddle will promptly notify Avant Group in writing so as to enable such material to be returned to Avant Group and otherwise permanently deleted (including all copies and records thereof).

For the purpose of the above undertaking:

(a)    Avant Group means Avant Group Pty Ltd;

(b)    Confidential Information means any Avant Group information that must be kept confidential by reason of Ms Kiddle’s employment with Avant Group including as a consequence of clause 13 of the Employment Agreement, s 183 of the Corporations Act 2001 (Cth), common law and/or equity; and

(c)    Employment Agreement means the written contract of employment between Ms Kiddle and Avant Group dated 1 July 2021.

119    In light of these undertakings that are to be given to the Court, I am not persuaded to make orders 1 and 2 of the revised draft orders that were sought by the plaintiff.

120    That leaves for consideration the application for orders 4 and 5, which are premised on the plaintiff having made out a prima facie case that the defendant downloaded and retained confidential information in a tangible form, such as the plaintiff’s database, and the WIP spreadsheet and any versions thereof.

121    The defendant has squarely denied that she has downloaded and retained confidential information in a tangible form, and has offered the undertakings to the Court to which I referred above that she is not aware that she is in possession of any confidential information of the plaintiff. This direct evidence and undertaking is to be balanced against the circumstantial evidence on which the plaintiff relied. In evaluating the plaintiff’s circumstantial case I have had regard to the seriousness of the allegation made against the defendant in the face of her sworn denials. I am also of the view that the Court should not make orders 4 and 5 that are sought by the plaintiff simply on the basis that there might be no prejudice to the defendant. That is because this would not be a principled basis on which to make an interlocutory order of the type sought: see, Integrated Group Ltd v Dillon [2009] VSC 361 at [56] (Hargrave J). Further, an unwarranted stigma may attach to a party against whom an interlocutory injunction is granted in these circumstances: see, Brand Developers Ltd v Ezibuy Ltd [2011] NZHC 50; 93 IPR 143 at [61] (Asher J). For these reasons, attention must be given to the strength of the plaintiff’s circumstantial case.

122    I am not persuaded that the plaintiff has made out a sufficiently strong prima facie case that the defendant downloaded and retained the confidential information in a tangible form as alleged. I have considered all of the circumstantial evidence carefully, and assessed its combined weight. It is unnecessary that I set out detailed reasons for my conclusions, because ultimately the question whether the plaintiff will establish its claims is a matter for trial, perhaps based upon more complete evidence, including the opportunity to cross-examine witnesses. For present purposes, the main reasons for not acting on the plaintiff’s claims about the confidential information in tangible form are –

(1)    The defendant’s square denials to which I have referred.

(2)    The undertakings which the defendant has offered to the Court, which address all confidential information of the plaintiff, and which I expect will necessarily pick up information in a tangible form.

(3)    The overstatement of conclusions to be derived from the documentary evidence which I have identified earlier in these reasons.

(4)    The sketchy and ultimately speculative nature of the evidence about the “DownloadBlock” entry on 25 April 2022. The entry does not indicate what, if any, file or files were downloaded. At the hearing of the interlocutory application, counsel for the plaintiff accepted that Mr Devaraj was incorrect to state that the logs showed that the download activities were processed on an unmanaged device. In fact, counsel for the plaintiff accepted that if the logs showed a userID, then the download occurred to a managed device.

(5)    The insufficient explanations of the significance of entries in the plaintiff’s data logs, such as “DownloadBlock”, “app@sharepoint”, and the other entries to which I have referred.

(6)    The reliance on unsworn statements in hearsay form that are attributed to employees or contractors of the plaintiff so as to exclude those persons from the class of persons who might have downloaded relevant documents. I do not place much weight on these unsworn statements over the sworn evidence of the defendant.

(7)    I have noted the defendant’s evidence that some of the download entries might be explicable by reason that she provided her login details to another person engaged on behalf of the plaintiff who was based offshore, Ms Debil, and that this is claimed by the plaintiff to be answered by evidence that Ms Debil did not commence work for the plaintiff until July 2022. This will be a question for trial. I observe that if the use of the defendant’s login details by Ms Debil is eliminated as an explanation for the records on the logs for April and May 2022, it does not follow from that elimination that the defendant downloaded the WIP spreadsheet on those occasions. That would be an error of the type referred to by Lord Brandon in Rhesa Shipping SA Co v Edmunds [1985] 1 WLR 948 by reference to Sherlock Holmes’ unjudicial statement to Dr Watson in The Sign of the Four –

How often I have I said to you that, when you have eliminated the impossible, whatever remains, however improbable, must be the truth?

(8)    As to the log suggesting that the defendant accessed a version of the WIP spreadsheet on 22 August 2022, some three weeks prior to the plaintiff terminating the defendant’s employment, I have already indicated at [53] above the limitations on that evidence.

(9)    The issues raised concerning how the defendant ascertained certain email addresses are contestable, and cannot be resolved on this application. The plaintiff did not tender the WIP spreadsheet into evidence. In those circumstances, the submission that the defendant should be taken to have relied on the WIP spreadsheet to obtain client email addresses cannot be evaluated by the Court. Further, the focus on email addresses does not confront the reality that business communications may occur in several different ways, of which email is only one, and where the defendant deposed that she relied on other online platforms such as Facebook and LinkedIn to approach clients.

(10)    There may be questions at trial in relation to the whether the defendant has contacted some particular clients of the plaintiff, as the plaintiff claims. There is conflicting evidence as to whether the defendant contacted the Australian Cinematographers Society and Fintech Australia Limited. That issue cannot be resolved on this application, and for present purposes does not bear much on the strength or otherwise of the plaintiff’s case that the defendant downloaded and retained possession of the plaintiff’s confidential information.

123    Further, for two reasons I would not, as a matter of discretion, make the orders sought. The first is the undertakings that the defendant offers the Court, to which I referred at [118] above. In my view, these undertakings afford the plaintiff a sufficient remedy on this interlocutory application in relation to any confidential information in a tangible form which the defendant retained or which remains in her possession. The second reason is that the terms of the orders that are sought rely for their content on documents that the defendant denies possessing and which are not before the Court: see [111]-[114] above.

(3)    The Corporations Act, s 183(1)

124    At the hearing of the interlocutory application, counsel for the plaintiff accepted that the obligation in respect of confidential information under s 183(1) of the Corporations Act aligned with the equitable obligation: see Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 2; 81 IPR 1 at [44]-[45] (Tamberlin, Finn and Sundberg JJ). In light of my earlier conclusion that the plaintiff has not made out a sufficiently strong prima face case that the defendant retained and has used confidential information of the plaintiff in a tangible form, I am not satisfied that s 183(1) would be engaged. In any event, this cause of action was not the subject of separate developed submissions by either party and the plaintiff has a sufficient remedy with the undertakings that the defendant has offered to the Court. Further, as I have concluded at [123] above, I would not, in the exercise of my discretion make the interlocutory orders in the terms sought by the plaintiff.

(4)    The tort of inducing breach of contract

125    In relation to the tort of inducing breach of contract, the plaintiff seeks the following interlocutory order –

  1. Pending further order, an order restraining Ms Kiddle from inducing those clients listed in the Confidential Information referred to at Order 3 above to breach any contract for the provision of services they have with Avant Group by terminating such contract when a submission or submissions are already being prepared by Avant and/or underway with the Government.

126    The gravamen of the tort of inducing breach of contract is intention to interfere with contractual rights: see, Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd [1995] FCA 481; 58 FCR 26 at 43 (Lindgren J). The defendant’s solicitation of the plaintiff’s clients would not, without more, amount to inducing breach of contract. That is because the breach that is relied on by the plaintiff is the breach of clause 10.4 of the terms of engagement entered into between the plaintiff and its clients (see [29] above), as the plaintiff’s proposed order recognises.

127    Counsel for the plaintiff argued the case for interlocutory relief in relation to this element of the application succinctly. Counsel for the defendant addressed no specific submissions to this cause of action. Counsel for the defendant did submit in writing that “almost no economic damage has been done” to the plaintiff’s business since September 2022. It is possible that this submission was directed to the tort, which is actionable upon proof of economic loss, but that is far from clear because the submission was made under the heading, “Balance of convenience: breach of confidence”. For the purpose of this application, I do not accept this submission. There is enough evidence to infer on a prima facie basis that substantial economic loss might be suffered by the plaintiff as a result of the defendant’s successful solicitation of some of its clients.

128    In relation to the claim in tort, for the plaintiff to establish a sufficiently strong prima facie case, the plaintiff would need to adduce evidence showing some threatened inducement of a client, by the defendant, to breach cl 10.4 of the client’s terms of engagement with the plaintiff. Picking up the language of cl 10.4, that would involve the defendant inducing a client of the plaintiff to refuse to allow the plaintiff to complete a submission or maintain the plaintiff’s commission structure, in circumstances where a submission was already being prepared by the plaintiff or underway with the government on the client’s behalf. None of the affidavits tendered by the plaintiff pointed to any such conduct on the defendant’s part. Nor did counsel develop any submissions on the point, other than by taking me to the defendant’s admission that she solicited existing clients of the plaintiff, and asserting that the defendant should, due to the nature of her role, be inferred to have knowledge of the terms of clause 10.4. For her part, the defendant deposed in her affidavit that the only work that she had completed was for clients requiring assistance with an initial grant application.

129    In the absence of some cogent evidence and submissions directed to the inducement of a breach of clause 10.4 of the terms of engagement of the plaintiff, I am not persuaded that any prima facie case based on the tort of inducing breach of contract has been demonstrated.

Conclusions

130    Upon the defendant giving the undertakings to which I have referred, the plaintiff’s interlocutory application should be dismissed.

131    I will hear the parties on the question of costs. Upon full argument, this proceeding may be held to be in relation to a matter arising under the Fair Work Act, because the defendant relies on contraventions of the Fair Work Act as being exculpatory, and has foreshadowed a cross claim alleging breaches by the plaintiff of the Fair Work Act: see generally, Tucker v McKee [2022] FCAFC 98; 292 FCR 666. As there is a real possibility that s 570 of the Fair Work Act might be engaged, my tentative view is that costs should be reserved.”

 

Avant Group Pty Ltd v Kiddle [2023] FCA 685 delivered 23 June 2023 per Wheelahan J