Ecolab Pty Ltd v Klen International Pty Ltd
[2007] FCA 1376
•17 August 2007
FEDERAL COURT OF AUSTRALIA
Ecolab Pty Ltd v Klen International Pty Ltd [2007] FCA 1376
PRACTICE AND PROCEDURE – interim injunction – employment contract – copying of confidential information onto CD‑ROMs by employee – employee resigning to join competitor – injunction to restrain disclosure of confidential information and solicitation of former customers – whether evidence supports serious question to be tried – injunction granted
Corporations Act 2001 (Cth) s 183
Community and Public Sector Union v Commonwealth of Australia (2006) 157 IR 470
Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552
Doherty v Allman [1878] 3 App Cas 709
Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337
Australian Administration Services Pty Ltd v Korchinski [2007] FCA 12
Barrett v Ecco Personnel Pty Limited [1998] NSWSC 545ECOLAB PTY LTD (ACN 000 449 990) v KLEN INTERNATIONAL PTY LTD (ACN 009 067 556), KLEN INTERNATIONAL (74) PTY LTD (ACN 008 776 681) AND CRAIG ALLAN COLTON
WAD 130 OF 2007SIOPIS J
17 AUGUST 2007
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 130 OF 2007
BETWEEN:
ECOLAB PTY LTD (ACN 000 449 990)
ApplicantAND:
KLEN INTERNATIONAL PTY LTD (ACN 009 067 556)
First RespondentKLEN INTERNATIONAL (74) PTY LTD (ACN 008 776 681)
Second RespondentCRAIG ALLAN COLTON
Third Respondent
JUDGE:
SIOPIS J
DATE OF ORDER:
17 AUGUST 2007
WHERE MADE:
PERTH
Upon the applicant undertaking to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation thereof), and to pay the compensation referred to above to the person there referred to, THE COURT ORDERS THAT:
1The third respondent be restrained until further order from divulging or making use of any of the following items of information of the applicant acquired during the third respondent’s employment with the applicant:
(a)information in respect of the applicant’s dry lubrication technology for use in bottling and canning factories;
(b)details of the applicant’s site specific tailored management and development program known as the Q Program;
(c)the applicant’s sales budget, gross profit ratios and price lists;
(d)details in respect of the Passivation of 304 or 316 Stainless Steel Surfaces using Super Stonekleen or Citri-CIP;
(e)details of the dealings between the applicant’s employees and the applicant’s customers and prospective customers;
(f)strategy, commercial business information and tactical plans about the conduct of the applicant’s operations and future sales; and
(g)information as to the operation of Challenge Dairy Co-operative Ltd (“Challenge”) (including any defects, shortcomings or possible improvements) identified during the audit of the operations of Challenge during February 2007 and information as to the applicant’s pricing of products to Challenge (“the Confidential Information”);
unless such information is or becomes public knowledge other than by direct or indirect disclosure by the third respondent.
2The first respondent and the second respondent be restrained until further order from, whether by themselves, their servants or agents or howsoever otherwise using or divulging the information disclosed by the third respondent to Mr R McGuire regarding the potential improvements to storage and handling operations at Challenge, unless such information is or becomes public knowledge other than by direct or indirect disclosure by the third respondent.
3The third respondent be restrained until further order from soliciting or assisting in soliciting on his own account, or for any other person, including the first respondent or second respondent or any associated entity, the custom of any person within Western Australia who was a customer of the applicant, or of whom he gained any knowledge, at any time during the period of the third respondent’s employment with the applicant.
4The first respondent and the second respondent be restrained, whether by themselves, their servants or agents or howsoever otherwise until further order from:
(a)inducing the third respondent to solicit or assist in soliciting on his own account, or for any other person, including the first respondent or second respondent or any associated entity, the custom of any person within Western Australia who was a customer of the applicant, or of whom he gained any knowledge, at any time during the period of the third respondent’s employment with the applicant;
(b)inducing the third respondent to disclose or use for the benefit of any person, including the first respondent or second respondent or any associated entity, the Confidential Information.
5The costs of the application for interlocutory relief be reserved.
6There be liberty to apply on 48 hours notice.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 130 OF 2007
BETWEEN:
ECOLAB PTY LTD (ACN 000 449 990)
ApplicantAND:
KLEN INTERNATIONAL PTY LTD (ACN 009 067 556)
First RespondentKLEN INTERNATIONAL (74) PTY LTD (ACN 008 776 681)
Second RespondentCRAIG ALLAN COLTON
Third Respondent
JUDGE:
SIOPIS J
DATE:
17AUGUST 2007
PLACE:
PERTH
REASONS FOR JUDGMENT
The applicant is a manufacturer and supplier of cleaning and sanitation products and services across Australia. It has three major divisions, a food and beverage division, a water care division and an institutional division.
The first and second respondents are part of a group of companies known as the Klen Group. These companies also manufacture and supply cleaning and sanitation products. They are a competitor of the applicant. The third respondent was until April 2007 an employee of the applicant in the food and beverage division in Western Australia. In April 2007, the third respondent resigned from his employment with the applicant. In May 2007, he commenced employment with Klen Group.
On 22 June 2007, the applicant commenced a proceeding against the respondents seeking to restrain the third respondent from committing breaches of his employment contract with the applicant; and from making use of, or disclosing the confidential information of the applicant. In that proceeding, the applicant also seeks relief restraining the first and second respondents from, in general terms, inducing the third respondent to breach his employment contract with the applicant, and from using, or inducing the third respondent to disclose the applicant’s confidential information, or from benefiting from such disclosure or use of confidential information. The applicant also seeks relief for the delivery up of any confidential documents in the possession of the respondents. In addition, the applicant claims damages.
The applicant sought interlocutory injunctive relief pending trial. The applicant’s claim for interlocutory injunctive relief was first listed for hearing on 27 June 2007. At that hearing, the third respondent provided undertakings pending a contested hearing of the applicant’s application for interim injunctive relief. The contested hearing was held on 8 August 2007.
Background
On 28 February 2005, the third respondent commenced employment with the applicant as the Western Australian territory manager in the applicant’s food and beverage division. The third respondent’s contract of employment contained the following relevant provisions:
4.3Upon termination of the Employment for any reason the Employee shall:
(a)Forthwith deliver to the Company or its nominee any and all documents, manuals, memoranda, records, computer software, formulae, customer files, customer lists, letters, files, plans, designs, video tapes, audio cassettes, microfiche, artwork, transparencies, credit cards, keys, business cards and any other materials or property of the Company (and all copies of all or any part thereof) which may be in his possession or control which relate in any way to the affairs or business of the Company or its associated companies, customers or suppliers;
(b)Immediately resign from all offices, positions and authorities he holds in from or related to the Company or its associated companies;
(c)Not, without the prior written consent of the Company, except as required by law, divulge to any person the circumstances surrounding the termination of his employment with the Company including the amount of any termination payments.
5.Confidential Information
The Employee shall not either during the Employment (except in the proper course of his duties) or thereafter:
(a)Directly or indirectly disclose or communicate to any person or use for his own or another’s benefit, any of the trade secrets, technical, marketing, commercial, product, business or other confidential information of the Company (or any associated company), which the Employee acquired during his Employment with the Company, including in particular customer details, product price details, product sales to customer details, financial statement details or remuneration details.
The provisions of Clause 5.1 shall not apply to information which is or becomes public knowledge otherwise than by direct or indirect disclosure by the Employee.
6.Restraint
The Employee covenants that he will not for a period of one year following termination for any reason, in geographical area defined as Australia:
(a)Either as principal, agent, employee, consultant, associate, representative or assistant of another, solicit or assist in soliciting business from any client of the Company or its associated companies with whom he dealt or of whom he gained any knowledge at any time during the Employment;
(b)Either as principal, agent, employee, consultant, associate, representative or assistant of another, solicit or assist in soliciting any employee of the Company away from his employment; or
(c)Accept any employment or render services which would require him to reveal, base judgements upon, or otherwise use any Confidential Information.
(d)Where the period of time shall be:
(i) 12 months or if unreasonable
(ii) 6 months or if unreasonable
(iii) 3 months or if unreasonable
(iv) 1 month; and
(e)Where the geographic area shall be:
(i)the whole of Australia; or if unreasonable
(ii)the Employee’s state of residence.
The Employee shall not at any time before or after the termination of the Employment do any act or thing which may tend to harm or prejudice the reputation or good name of the Company or its associated Companies or their employees or say or do anything in relation to employees or customers of the Company or its associated companies adverse or prejudicial to or inconsistent with the policies or management of the Company.
(Original emphasis.)
In his position as the Western Australian territory manager, the third respondent had dealings with a large number of the applicant’s customers in Western Australia. The third respondent was issued with a laptop computer and the third respondent thereby had access to the applicant’s network and to a database of a large number of the applicant’s confidential documents.
In late February 2007, the third respondent participated in an audit of the Challenge Dairy site, together with Mr Antonio Orlando and Mr Wesley Savage of the applicant. The Challenge Dairy is a customer of both the applicant and the Klen Group. However, the Challenge Dairy has been a longstanding customer of the Klen Group and it has a larger share of the Challenge Dairy’s work. The object of the audit was to identify areas of the operation of the Challenge Dairy in respect of which the applicant could provide improved services, and thereby enhance the amount of work that it obtained from the Challenge Dairy. A report was prepared of the audit by the applicant, which outlined the areas the audit group identified as being areas of potential improvement at the Challenge Dairy. On 25 March 2007, a presentation was made to the Challenge Dairy by the applicant. Mr Orlando, Mr Savage and the third respondent all attended for the applicant
There is intense competition between the applicant and the Klen Group for work, including work from the Challenge Dairy. In April 2008, each of the applicant and the Klen Group will be required to tender for the Challenge Dairy work.
During the annual conference of the Dairy Industry Association of Australia held in Busselton on 23 and 24 March 2007, Mr Peter McGuire, the sole director and beneficial owner of all of the shares of the first and second respondents, met with the third respondent and Mr Savage, another employee of the applicant.
On 26 March 2007, Mr Peter McGuire telephoned the third respondent to arrange for an interview for the purposes of considering employment with the Klen Group. Between 26 March 2007 and 9 April 2007, the third respondent was interviewed by Mr Peter McGuire and later by Mr Gregory Peisley at the Klen Group’s Wangara offices.
On 9 April 2007, the third respondent commenced his annual leave from the applicant. On 10 April 2007, the third respondent accepted an offer of employment with the second respondent in a telephone conversation with Mr McGuire. Also on 10 April 2007, the third respondent copied from his laptop computer onto two CD‑ROMs, a large number of the applicant’s confidential documents along with some personal photographs and other materials.
The third respondent was due to return to work on 17 April 2007 at the conclusion of his annual leave. On the evening of 16 April 2007, the third respondent forwarded by email a resignation letter to Mr James McKew of the applicant.
On 17 April 2007, the third respondent returned to work. Mr Scott Nelson, of the applicant, performed an exit interview with the third respondent. The third respondent returned to the applicant his motor vehicle and the laptop computer which had been issued to him by the applicant. The third respondent signed a document confirming that he had returned all the applicant’s property and equipment. The third respondent was not required to work during his period of notice expiring on 3 May 2007.
On 17 April 2007, Mr James McKew, of the applicant, spoke to the first respondent by telephone and reminded him of his obligations regarding the applicant’s confidential information. On 19 April 2007, during a telephone conversation with Mr McKew, the third respondent informed Mr McKew that he would not be “out in the field” in his role with the second respondent.
On 19 April 2007, the third respondent entered into an employment contract with the second respondent. The contract provides that the third respondent is to be engaged in the position of “technical representative”. It also provides for a salary package and in addition an entitlement to earn a commission of 2.5% of gross profit on sales. The commission was estimated to account for approximately 20% of his salary package.
On 3 May 2007, the third respondent’s employment with the applicant ceased.
Between 3 May and 21 May 2007, the third respondent informed Mr Carlos Mendes of Talloman, a customer of the applicant, with whom the third respondent dealt, that he was leaving the applicant and joining the Klen Group.
On 7 May 2007, Mr Peter McGuire interviewed Mr Savage for the purpose of offering him employment with the respondents. There is a dispute in the affidavits as to what was precisely said at the meeting between Mr McGuire and Mr Savage. However, it is common cause that Mr Savage advised Mr McGuire that there were clauses in his employment contract which placed post employment restrictions on him. The ambit of the dispute between Mr McGuire and Mr Savage centres on the extent to which Mr Savage identified the content of the restrictions contained in his employment contract. On 21 May 2007, the third respondent commenced employment with the second respondent.
Between 21 May and 25 May 2007, the third respondent telephoned on behalf of the Klen Group the following customers: Mundella Foods, Gage Road Brewery and Casa Dairy. Each of these customers had been customers with whom the third respondent had dealt whilst employed by the applicant.
Between 21 May and 29 May 2007, the third respondent again spoke to Carlos Mendes of Talloman and visited the Talloman site at the invitation of Mr Mendes for a meeting.
Before 11.40 am on 29 May 2007, the third respondent visited the Challenge Dairy site with Mr Rory McGuire, of the Klen Group. Later that day Mr Scott Nelson, a district sales manager in the water care division of the applicant also attended the Challenge Dairy site as part of a “regular relationship call”. He met with Mr Michael Tiernan, Challenge Dairy’s purchasing officer for the site, who said that Mr Nelson had just missed seeing the third respondent and Mr Rory McGuire who had been at the site for a meeting 10 minutes before Mr Nelson arrived.
Also on 29 May 2007, the applicant’s solicitors wrote a letter of demand to the third respondent. The letter referred to s 183 of the Corporations Act 2001 (Cth) and to the third respondent’s obligations to keep information of the applicant confidential and not, for his benefit, or for the benefit of any other person, to make use of, or to disclose the confidential information. The letter went onto refer to the requirement to comply with cl 6 of the employment contract with the applicant. The letter also stated:
Obligation to Return Company Property
We note that you were required to return all of Ecolab’s property immediately upon the termination of your employment. During your employment you were provided with various documents including a list of the Food and Beverage Division’s customers and target customers. You were also provided with documents recording confidential pricing and marketing information. Our client is concerned that you may have retained a copies [sic] of these documents or created other documents derived from those documents and failed to return those documents to Ecolab at the conclusion of your employment. Accordingly, we are instructed to demand that you immediately return all documents in your custody or control that record confidential information disclosed to you during your employment with Ecolab, whether those documents were created during or after your employment with Ecolab.
The letter sought an undertaking that the third respondent would not directly, or indirectly disclose any of the applicant’s confidential information or use it for his own purposes, or another person’s benefit; and also would not in Western Australia for a period of six months, solicit, or assist in soliciting any business from any customer of the applicant with whom he dealt during his employment with the applicant.
On the same day, the applicant’s solicitors also sent a letter of demand addressed to Mr Peter McGuire of Klen International Pty Ltd, enclosing a copy of the letter to the third respondent. The letter asked that Mr McGuire on behalf of the first respondent, undertake not to use any confidential information of the applicant which was acquired by the third respondent during his employment; and not to induce the third respondent to solicit, or attempt to solicit business from any customer of the applicant with whom the third respondent had dealt during his employment with the applicant.
On 30 May 2007, the applicant engaged Ferrier Hodgson Forensics to examine the laptop computer which had been returned by the third respondent, and to report on their findings.
On 1 June 2007, the third respondent replied to the applicant’s solicitors’ letter. The third respondent denied that he had misused, or disclosed to any party any confidential information and he refused to give the undertakings requested. He said that he did not have a copy of his employment contract and that at no time prior to his resignation was there any mention of any form of restraint which would prevent him from pursuing his livelihood. The third respondent’s letter also stated:
On my resignation and on request from your client I returned to your client all documentation that had been acquired and in my possession during the period of my employ.
On 1 June 2007, Mr Peter McGuire also replied to the applicant’s solicitors’ letter. Mr McGuire denied having induced, assisted, or encouraged the third respondent to breach his employment contract, nor having received, requested or used any information from the third respondent that the applicant “may consider to be confidential”. He refused to give the undertakings requested. Mr McGuire concluded by saying that the third respondent was “employed to service existing customers of our group and target the food and beverage market”.
On 19 June 2007, a final report was received from Ferrier Hodgson Forensics which found that on 10 April 2007, the third respondent had copied from his laptop computer a large number of the applicant’s documents onto CD‑ROMs.
On 22 June 2007, the applicant commenced this proceeding. The application and accompanying affidavits were served on the third respondent. Among the affidavits served was an affidavit of Mr Nigel Carson of Ferrier Hodgson Forensics, which detailed the basis for its findings that the third respondent had copied a large number of the applicant’s documents onto CD‑ROMs on 10 April 2007. The application for interlocutory relief was first listed for hearing on 27 June 2007. On 27 June 2007, the third respondent filed an affidavit admitting that he had copied the applicant’s documents onto two CD‑ROMs. He went on to say that on receiving the letter of demand from the applicant’s solicitors on 29 may 2007 he had destroyed the two CD‑ROMs containing the files which he had copied.
At the hearing on 27 June 2007, the third respondent gave undertakings to the Court that he would not use or disclose the applicant’s confidential information; nor solicit or assist in soliciting business from any customers of the applicant with whom he had dealt, during the period of his employment with the applicant.
On 29 June 2007, Mr Peisley sent the following email to sales representatives and other employees of the Klen Group:
From: Greg Peisley
Sent: Friday, 29 June 2007 3:41 PM
To: Cyndi McGeachin; Fiona Hamilton, Karl Cherrie; Angus Mcguire, Frances Jones; Rory McGuire, Luke Conforti, Ian Bakker; Rod Green
Cc: Craig Colton; Peter McGuire
Subject: Ecolab AccountsHi all,
As you will probably be aware, Ecolab seem to have taken exception to Craig joining us and are currently trying to give us some grief about accounts and use of privileged information.
Until we get it sorted out please do not ask Craig for assistance where you might be chasing an Ecolab account.
This is particularly relevant if it is an account that was serviced by Craig in the past. It is very important that we do not compromise Craig in this process.
Once we get through this period things will be back to normal and we will continue to kick their arse all around the country – JUST LIKE AT TATURA!!!!!
RegardsGreg Peisley
General ManagerGeneral principles
In the case of Community and Public Sector Union v Commonwealth of Australia (2006) 157 IR 470, the Full Court observed at 473, at [15]‑[18]:
It is well established that a proper purpose of an interlocutory injunction is to maintain the status quo until the rights of the parties can be determined at final hearing (ABC v Lenah Game Meats per Gleeson CJ at [9]‑[10]).
The principles governing the grant or refusal of interlocutory injunctions have recently been confirmed in Australian Broadcasting Corporation v O’Neill (2006) 229 ALR 457 (“O’Neill”). Gleeson CJ and Crennan J at [19] observed:
“…in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff’s entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 should be followed. (footnotes omitted)”
In O’Neill Gummow and Hayne JJ at [65] stated:
“The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries, and continued:
‘The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief…The second inquiry is…whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.’ ”
By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial…With reference to the first inquiry, the court continued, in a statement of central importance for this appeal:
“How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.”
(Footnotes omitted.)
At [70] Gummow and Hayne JJ make clear that they (like Gleeson CJ and Crennan J) have no objection to the use of the phrase “serious question” if it is understood as conveying the notion that the seriousness of the question depends on the considerations emphasised in Beecham Group Limited v Bristol Laboratories Pty Ltd. At [71] their Honours emphasise that the governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.
These principles are applicable to this application.
Serious issue to be tried ‑ confidential information
The applicant says that there is a serious question to be tried that it is entitled to injunctive relief at trial restraining the third respondent from breaching his obligations under cl 5 of his contract of employment. Clause 5 is a negative stipulation which precludes the third respondent from using, or disclosing confidential information belonging to the applicant. In Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 at 573, Mason J observed that the statement of Lord Cairns LC in Doherty v Allman [1878] 3 App Cas 709 that a court of equity has no discretion to exercise when a party seeks an injunction to enforce a negative contractual stipulation, was inaccurate. Nevertheless, it is the case that, generally speaking, a court of equity will be inclined to grant an injunction to enforce negative stipulations to keep parties to their bargains (Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 348‑349).
Mr McKew has given evidence in support of the applicant’s case that the items of information identified in paras 1(b) to 1(h) of the application, comprise confidential information. There was no challenge to that evidence, nor was it an issue before me. I accordingly find, that there is a serious issue to be tried, that the items of information in respect of which the injunction is sought, comprise confidential information within the meaning of cl 5 of the employment contract.
The applicant relies upon the following facts and matters in support of its contention that there is a serious issue to be tried that it will obtain injunctive relief at trial restraining a breach of cl 5 of the employment contract.
Firstly, after the third respondent had accepted a position with the Klen Group on 10 April 2007, he acted in deliberate breach of cl 5 of his contract of employment by secretly copying the confidential information of the applicant onto two CD‑ROMs.
Secondly, when returning the laptop computer the third respondent signed a document confirming that he had returned all of the applicant’s property, but did not disclose to the applicant that he had retained two CD‑ROMs which contained copies of a substantial number of the applicant’s confidential documents.
Thirdly, the third respondent disclosed to Mr Rory McGuire, the sales representative of the Klen Group with responsibility for the Challenge Dairy, items of information regarding potential improvements for the Challenge Dairy operations, which, on the unchallenged evidence of Mr Antonio Orlando, were part and parcel of the items for improvement identified by the audit undertaken by the applicant.
Fourthly, after receiving the letter from the applicant’s solicitors on 29 May 2007, the third respondent responded falsely to the applicant’s solicitors’ letter of 29 May 2007, by saying that he returned all of the applicant’s documentation that he had acquired during the period of his employment with the applicant. Further, the third respondent refused to give undertakings not to disclose, or use the applicant’s confidential information.
Fifthly, the third respondent only admitted copying the applicant’s confidential information when the evidence that he had done so, was overwhelming. Even now, the third respondent still opposes providing an undertaking not to use, nor disclose the applicant’s confidential information.
Further, the evidence showed that the third respondent had been deployed by the first respondent, within a very short time of the commencement of his employment, in visiting the Challenge Dairy site and in assisting the salespersons assigned to servicing the Challenge Dairy.
All of these factors, said the applicant, supported the inference that, unless restrained, the third respondent would breach his employment contract by disclosing, or using the confidential information of the applicant.
The respondents submitted that the third respondent’s copying of the applicant’s information onto the CD‑ROMS had to be assessed by reference to the explanation that he gave for doing so. Further, said the respondents, in assessing whether there was a serious issue to be tried, the threat of the third respondent breaching his contract of employment, must be assessed by reference to the position as it currently prevailed. In that regard, it was said that the evidence was that the third respondent had destroyed the two CD‑ROMs and that it was not envisaged by the Klen Group, that the third respondent would participate in the activities relating to the tender in April 2008 for the Challenge Dairy work. The respondents also referred to the affidavits of each of the third respondent, Mr Peter McGuire and Mr Peisley, who each denied that the third respondent had passed any of the applicant’s confidential information to any employee of the respondents. Accordingly, said the respondents, there was no evidence on which to conclude that there was a serious question to be tried that the applicant would obtain injunctive relief to restrain a threatened breach of contract by the third respondent.
The respondents also submitted that the position of the third respondent was not dissimilar to Mr Korchinski in the case of Australian Administration Services Pty Ltd v Korchinski [2007] FCA 12 (Korchinski). In that case Mr Korchinski, an employee, and the managing director of the applicant, had copied the applicant’s confidential information onto a portable hard drive shortly before leaving the applicant’s employment. The applicant requested Mr Korchinski to return the portable hard drive to them and he failed to do so by the date specified. Eventually when Mr Korchinski did return the portable hard drive, he had deleted all information that was on the portable hard drive and reformatted the portable hard drive. The applicant sought an injunction precluding Mr Korchinski from taking up employment with a competitor on the basis that he was still in possession of confidential information that had been deleted from the portable hard drive ‑ because he had copied it onto another computer. The applicant was not able to produce any evidence to that effect.
Stone J declined to grant interlocutory relief on the basis that “in the absence of any evidence that Mr Korchinski retains some or all of the confidential information of the applicants, the applicants have not succeeded in presenting a prima face case in support of the relief they seek”.
In my view, the submissions of the respondents are not to be accepted.
Firstly, I have serious doubts as to the weight that can be placed on the third respondent’s explanation that he copied the applicant’s files to assist him in dealing with any queries relating to his work during the period of his notice. On 19 April 2007, the applicant completed a form in which he declared that he had not retained any of the applicant’s property, without making any disclosure of the fact that he had nine days earlier copied the information and that he retained the CD‑ROMs. Further, he had a telephone conversation with Mr McKew of the applicant, after he had copied the confidential information, during which Mr McKew reminded him of his confidentiality obligations; but the third respondent did not mention the copying of the two CD‑ROMs. On the face of it, the failure by the third respondent to disclose on these occasions the copying of the information, is inconsistent with an innocent copying of the confidential information. Further, the third respondent did not return the two CD‑ROMs to the applicant at the end of his notice period on 3 May 2007. It was only after he had commenced employment with the Klen Group, and after he received the letter of demand, that he destroyed the two CD‑ROMs. This was almost four weeks after the expiry of his notice period.
Secondly, this case is distinguishable from the Korchinski case. In that case, the applicants sought injunctive relief on the basis that the respondent had retained the documents, or information which he had copied on to the portable hard drive. In this case, the applicant accepted, at least for the purposes of the interlocutory hearing, that the third respondent had destroyed the two CD‑ROMs and no longer retained the information in digital or physical form. However, the applicant contended that on the basis of the matters it referred to above, the applicant, in any event, would be entitled to injunctive relief at trial.
Thirdly, in my view, the matters relied upon by the applicant do comprise evidence demonstrating a serious issue to be tried, that the third respondent threatens, unless restrained, to breach his employment contract. The evidence demonstrates a serious issue to be tried that the third respondent has breached his employment contract by copying the applicant’s confidential information, that he has made false or misleading statements in relation to that copying, and that he has disclosed confidential information regarding the audit of the Challenge Dairy operations. In addition, the third respondent refuses to continue his undertaking not to breach the provisions of his employment contract precluding him from using, or disclosing confidential information. These factors give rise to a serious question to be tried that the applicant will obtain injunctive relief at trial to restrain a threatened breach of cl 5 of his employment contract.
Serious question to be tried ‑ solicitation of customers
The next issue is whether there is a serious issue to be tried that the applicant will obtain at trial injunctive relief restraining the third respondent from breaching cl 6 of his employment contract, which precludes the third respondent from soliciting, or assisting to solicit business from customers with whom he dealt during his employment with the applicant.
The applicant submitted that evidence of the threatened breach by the third respondent of cl 6 of his employment contract was to be found in the following facts and matters.
Firstly, within the first week or so of commencing employment with the Klen Group, the third respondent had approached a number of customers with whom he had dealt whilst in the applicant’s employ. He had visited the Challenge Dairy site twice. He had attended the Talloman site and visited with Mr Carlos Mendes; and he had contacted by telephone Mundella Foods, Gage Roads Dairy and Casa Dairy.
It did not matter, said the applicant, that the third respondent attended the Talloman site at the invitation of Mr Mendes. There was authority, said the applicant, that even when a former employee visits a former customer at that customer’s request for the purpose of obtaining business, the former employee is to be regarded as having solicited that customer (Barrett v Ecco Personnel Pty Limited [1998] NSWSC 545).
Secondly, said the applicant, it is to be inferred that the reason that the third respondent contacted each of the customers referred to, was because it was the role of the third respondent to assist the Klen Group’s sales representatives to obtain business from customers who were wholly or partly the customers of the applicant. There were two bases, said the applicant, upon which that inference is founded. Firstly, it is apparent from the tenor of the email of 29 June 2007 that it was the Klen Group’s business strategy to make use of the services of the third respondent to win further business from existing customers of the applicant. Secondly, there was an incentive for the third respondent to win business for Klen Group because 20% of his salary was based upon commission.
Thirdly, said the applicant, the third respondent refused to give undertakings not to solicit or assist in soliciting customers of the applicant when requested to do so by the applicant’s solicitor’s letter of 29 May 2007; and the third respondent persisted in that refusal by opposing the application for injunctive relief.
The respondents submitted that the third respondent was employed as a technical representative and not a salesperson. The respondents also contended that the employment contract did not preclude the third respondent from “dealing with” his former customers. There was no evidence that the third respondent’s dealings with the named customers amounted to “soliciting or assisting in the soliciting of business”.
The respondents also said that the customers of the applicant, which had been approached by the third respondent, were also customers with whom the Klen Group had done business.
In my view, the matters referred to by the applicant in [52] to [56] above, comprise evidence demonstrating that there is a serious issue to be tried that the applicant is entitled to injunctive relief restraining the third respondent from breaching cl 6 of his employment agreement. It is open on the evidence to conclude that, notwithstanding that the third respondent’s title was “technical representative”, it was part of his function to assist the sales representatives to win further business for the Klen Group from the applicant’s customers and shared customers. The role that the third respondent is intended to play in the business operations of the Klen Group emerges from the email which was sent to salespersons in the Klen Group on 29 June 2007. The clear inference from the email is that one of the third respondent’s functions is to assist a sales representative in “chasing an Ecolab account” – in other words, to assist in soliciting new business. It is also significant that the third respondent declines to continue his undertaking not to breach cl 6 of the employment agreement; and opposes the grant of the interlocutory injunction.
Accordingly, in my view, there is on the evidence, a serious question to be tried that the applicant will obtain at trial an injunction restraining the third respondent from soliciting, or attempting to solicit, or assisting in soliciting business from customers of the applicant in breach of cl 6 of his employment contract.
Serious question to be tried ‑ first and second respondents
The next issue is whether there is a serious question be tried that the applicant will obtain injunctive relief at trial precluding the first and second respondents from inducing a breach of cll 5 and 6 of the employment contract; and from using or disclosing any of the applicant’s confidential information.
The respondents submitted that there was no evidence that the first and second respondents have, or ever have had in their possession any confidential information of the applicant; nor that the first and second respondents have sought to induce the third respondent to breach the terms of his employment contract; nor that there was a threat of that occurring. The respondents pointed to the evidence of Mr Peter McGuire to the effect that it was not contemplated that the third respondent would form any part of the team which would work on the 2008 Challenge Dairy tender. They also referred to the evidence denying that there had been any disclosure of confidential information to the first and second respondents by the third respondent. Further, the respondents referred to the evidence of Mr McGuire and Mr Peisley that the Klen Group had its own documents which dealt with the topics the subject of the applicant’s claim, with the consequence that the information would be of no interest to them, and they would derive no benefit from a disclosure to them of the contents of the applicant’s documents.
In my view, the respondents’ submission should not be accepted.
Firstly, there is the evidence of the third respondent that he has already disclosed to Mr Rory McGuire, a salesperson responsible for the Challenge Dairy account, information in relation to storage and handling, which on the unchallenged evidence of Mr Orlando, was part of the improvements identified in the audit of Challenge Dairy’s business conducted by the applicant.
Secondly, as previously mentioned, it is open to conclude from the tenor of Mr Peisley’s email of 29 June 2007, that it is the Klen Group’s strategy to use the third respondent to target and win business from customers of the applicant; and to increase their share of the business from joint customers. Such a conclusion is consistent with the fact that within the first week or so of his employment with them, the Klen Group chose to deploy the third respondent in making two visits to the Challenge Diary.
Thirdly, it is relevant in assessing the threat of the respondents inducing the third respondent to breach his employment agreement, that the first and second respondents have refused, and persist in their refusal, to give undertakings not to engage in that conduct.
In my view, there is sufficient evidence to support a finding that there is a serious question to be tried that the applicant would obtain an injunction at trial restraining the first and second respondents from inducing, or procuring the third respondent to breach his employment contract, and from using the applicant’s confidential information disclosed to them by the third respondent.
Balance of convenience
The balance of convenience does not loom large because of the fact that, generally speaking, although injunctive relief is always discretionary, a court will be inclined to enforce a lawful negative stipulation in a contract by injunction to keep parties to their bargains. Insofar as it is a factor, it favours the applicant.
In my view, therefore, interlocutory injunctions should issue restraining the third respondent from breaching cll 5 and 6 of his employment contract and the first and second respondents from inducing him to do so; and from using the applicant’s confidential information disclosed to them by the third respondent.
In light of these conclusions, it is unnecessary to consider the applicant’s contentions insofar as they were based on s 183 of the Corporations Act 2001 (Cth). I will hear the parties on the precise terms of the injunctions.
I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 30 August 2007
Counsel for the Applicant: Mr HJ Dixon SC and Mr DS Ellis Solicitor for the Applicant: Russell Kennedy Solicitors Counsel for the Respondent: Mr DR Williams QC and Mr M Curwood Solicitor for the Respondent: Curwood & Co Date of Hearing: 8 August 2007 Date of Judgment: 17 August 2007
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