IF Asia Pacific Pty Ltd v Galbally

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 4349 of 2002

I.F. ASIA PACIFIC PTY LTD (ACN 005 542 512)	Plaintiff
v
SIMON GALBALLY and ORS	Defendants

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JUDGE:	DODDS-STREETON J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	23, 24, 25, 27 September; 7, 10, 28 October 2002 and 20 December 2002.
DATE OF JUDGMENT:	10 June 2003
CASE MAY BE CITED AS:	I.F. Asia Pacific Pty Ltd v Galbally
MEDIUM NEUTRAL CITATION:	[2003] VSC 192

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CONTRACTS – Construction – Term as to confidential information – Contractual restraint upon using confidential information, trade secrets or documents without express authorisation – Covenants restraining former employees from employment by or solicitation of, employers’ clients – Whether restraint of trade covenants uncertain or too wide – Non‑solicitation clause extends to employer’s former clients, clients with whom first defendant had no contact and clients of employer’s related companies – Severance unjustified – Covenant cannot be “read down” and limited to a business “same as or similar to” that of employer – Business of fourth defendant not “same as or similar to” that of employer – Non‑Solicitation clause void as an unreasonable restraint of trade.

INTELLECTUAL PROPERTY – Confidential information – Whether employer’s data bases constituted confidential information – Client lists – Duty of confidence – Whether breached by former employee – Information obtained during course of employment – Whether part of employee’s own skill and knowledge – Whether former employee appropriate employer’s floppy discs containing client information and used them to approach clients – No breach of covenants prohibiting unauthorised use of plaintiff’s trade secrets and confidential information – Information regarding client contact details was part of former employee’s general knowledge, skill and experience – Failure to establish that floppy discs containing client information removed from employment premises.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr H.C. Berkeley Q.C. with Mr C.E. Shaw	Frederick Owen & Associates
For the Defendants	Mr A.T. Schlicht	Strongman & Crouch

TABLE OF CONTENTS

THE PROCEEDING.......................................................................................................................... 2

SUMMARY OF FACTS AND ISSUES.......................................................................................... 2

MR GALBALLY'S ROLE IN THE PLAINTIFF'S BUSINESS................................................... 5

THE WITNESSES.............................................................................................................................. 7

THE PLEADINGS............................................................................................................................ 11

Further Amended Statement of Claim......................................................................................... 11

Amended Defence............................................................................................................................ 14

Counterclaim..................................................................................................................................... 15

THE LETTERS OF ENGAGEMENT............................................................................................ 15

THE PLAINTIFF'S STANDING – WAS IT PARTY TO THE CONTRACTS?.................... 18

CLAUSE 1.......................................................................................................................................... 20

CLAUSE 4.......................................................................................................................................... 21

CLAUSE 2.......................................................................................................................................... 22

THE PARTIES’ BUSINESSES....................................................................................................... 33

Nature and Scope of the Plaintiff’s Business.............................................................................. 33

The Defendants’ Business.............................................................................................................. 43

CLIENTS OF RELATED COMPANIES – SEVERANCE......................................................... 48

THE PLAINTIFF’S CONFIDENTIAL INFORMATION.......................................................... 56

Tracker Data Base, Knowledge Bank, Business Manuals and Methodologies................... 56

Relevant Legal Principles and Case Law..................................................................................... 58

Did Mr Galbally Remove Data?.................................................................................................... 62

Did the defendants otherwise use confidential information................................................... 72

The ACT database............................................................................................................................ 74

CONCLUSION................................................................................................................................. 76

HER HONOUR:

THE PROCEEDING

In this proceeding the plaintiff, I.F. Asia Pacific Pty Ltd, seeks relief including injunctions, delivery up and damages, from the defendants. The defendants are the plaintiff’s former employees, Simon Galbally (and his family company, Braydale Pty Ltd), David Stafford and Scott Chapman, and their current employer, Galbally Carroll Pty Ltd. The claim to relief is based on alleged breaches of covenants in the employees’ employment contracts which protect the plaintiff’s trade secrets and confidential information and restrain solicitation of, or employment by, the plaintiff’s clients.

SUMMARY OF FACTS AND ISSUES

The plaintiff, I.F. Asia Pacific Pty Ltd (“IFAP”), was incorporated in 1969 by its director and principal controller, Mr Howard Bellin. It is one of a group of companies known as the “I.F. Group”. It originally carried on business as a business consultant specialising in advising clients on franchising, including the essential franchising documents and the procedure to be followed.

The individual defendants, Messrs Galbally, Chapman and Stafford, were all previously employed (whether directly or indirectly through a corporate entity) by the plaintiff. The first defendant, Mr Galbally, was employed by the plaintiff as a business developer from 1993 to 1997. Following an interval of a year, during which he worked for Zeal Consulting Pty Ltd, Mr Galbally returned to work for the plaintiff in 1998 as an independent contractor, through his family company, the second defendant, Braydale Pty Ltd (“Braydale”). He then worked for the plaintiff from 1998 until he left on 10 September 2001.

The fifth defendant, Mr Chapman, was employed by the plaintiff as a consultant from 1997 until 28 August 2001. The third defendant, Mr Stafford, was employed by the plaintiff as a consultant from 1997 until 13 August 2001. Another long‑term employee of the plaintiff, Ms Carroll (who is not a party to this proceeding) was employed as its financial officer from 1982 until 6 July 2001.

The fourth defendant, Galbally Carroll Consulting Pty Ltd, (“Galbally Carroll”) was incorporated on 16 August 2001. Ms Carroll is currently the sole director and shareholder, but Mr Galbally has an entitlement to an equity or interest in the company and its business pursuant to an informal arrangement. Mr Galbally, Mr Chapman and Mr Stafford all commenced employment with Galbally Carroll soon after ceasing to work for the plaintiff.

The plaintiff contends that the individual defendants resigned pursuant to a concerted plan to establish a rival business to that of the plaintiff. It alleges that Mr Galbally, immediately prior to his departure, downloaded the plaintiff’s confidential data onto floppy discs, removed the discs from the plaintiff’s premises and used the information (in particular the plaintiff's Tracker IFAP data base containing customer contact details) in Galbally Carroll’s new rival business.

The plaintiff alleges that shortly after leaving the plaintiff’s employ, Mr Galbally, representing Galbally Carroll, approached and solicited business from: (a) Boral Limited, (b) ICI Paints (Asia Pacific) Pte Ltd and, (c) ICI Paints (Malaysia) Sdn. Bhd.

It is not disputed that all of the above were clients of the plaintiff during the currency of the individual defendants’ employment. The defendants admit that Galbally Carroll approached Boral Limited and completed work for ICI Paints (Asia Pacific) Pte Ltd and ICI Paints (Malaysia) Sdn. Bhd.

The plaintiff alleges that by the relevant conduct, the individual defendants breached certain confidentiality and restraint of trade covenants in their contracts with the plaintiff, and that Galbally Carroll wrongfully induced those breaches of contract.

The defendants, in contrast, contend that although all the individual defendants resigned within a short space of time, and were promptly recruited to Galbally Carroll, there was no concerted scheme.

Mr Galbally does not deny downloading certain of the plaintiff’s Tracker data and saving it to floppy or compact discs. However, his evidence is that he did so in order to “clean” the laptop computer issued to him by the plaintiff for use during his period of employment, to prepare it for the next user. He denies removing the discs from the plaintiff’s premises.

The defendants also deny using the plaintiff’s data. They claim that Mr Galbally constructed Galbally Carroll’s client contact data base [the “ACT” data base] “from scratch”, using publicly available information, his own investigations and in some cases, diary entries and memory, rather than using the plaintiff’s client contact data base as a springboard.

The defendants do not deny that Galbally Carroll has performed work for companies which were clients of the plaintiff during the course of their employment, but say that they did not solicit custom. Further, they say that such conduct does not constitute a breach of any valid restraint clause as, although both businesses are business consultancies, they are substantially different in method, focus and scope, advising on essentially different issues save for a small degree of overlap.

More fundamentally, the defendants contend that the restraint of trade covenants on which the plaintiff relies are unenforceable on the basis of uncertainty and excessive width, going beyond what is necessary for adequate protection of the plaintiff’s legitimate interests. They contend that the applicable canons of construction do not permit a ‘reading down’ of the literal terms of the covenants, which could preserve their validity. The defendants further submitted at a late state of the trial that the plaintiff lacks standing to enforce the covenant protecting trade secrets and intellectual property, as all such property vests in a related company of the plaintiff.

In summary, the defendants contend that either the relevant restraint of trade covenants in their respective contracts are void, or if construed so narrowly as to maintain validity, have not been breached by the defendants’ activities. The defendants deny that the plaintiff has standing to enforce the covenants protecting trade secrets and confidential information but say that in any event, the plaintiff’s data did not constitute trade secrets or confidential information, and has not been used by the defendants. The defendants do not dispute the validity of a covenant prohibiting the removal of the plaintiff’s documents, but say that no such documents, or copies thereof, were removed.

MR GALBALLY'S ROLE IN THE PLAINTIFF'S BUSINESS

The plaintiff’s first association with Mr Galbally was in 1993. Through his incorporated consultancy business, specialising in business development business planning, financial analysis and distribution marketing, Mr Galbally, by an agreement dated 31 August 1993, provided advice (consultancy services) to I.F. Consulting Group Limited (the plaintiff's previous name) on business development, client management, and developing its consulting services offer. That contract ended on approximately 10 October 1997.

Mr Galbally’s evidence was that at that time, the business of the plaintiff was in serious decline with forward billings of only $80,000, a very high staff turnover and non‑existent opportunities. He stated that clients were dissatisfied with the plaintiff's work. It was focussed on franchising. It had many competitors and its expertise was founded on a single text.

Mr Bellin was resistant in cross‑examination to the suggestion that business was poor at the outset of the relevant period and that Mr Galbally attracted business and greatly increased the annual billings. On many occasions, he stated that he was unable to recall relevant matters. I found his testimony on those matters evasive and inconsistent. I accept that upon Mr Galbally’s first contact with the I.F. Group, the business of the plaintiff was in decline, with few forward billings and poor staff relations. I am satisfied that Mr Galbally’s efforts substantially increased the plaintiff’s annual billings, developed its business and decreased staff turnover. In July 1997, Mr Galbally terminated the contract.

Mr Bellin conceded that he invited Mr Galbally to resume his work for IFAP in 1998. I am satisfied that the reason for the proposal was that the plaintiff’s business was in a poor state at the time, with a decreased turnover. Further, I consider that Mr Bellin was aware that Mr Galbally had performed well previously, had produced good results and had established good rapport with clients. I am satisfied that he informed Mr Galbally that the plaintiff had few forward billings and invited Mr Galbally to work as a business developer.

Upon resuming his employment with the plaintiff, Mr Galbally was the person who initially brought work in. Apart from some work in New Zealand and some rollover work, he was responsible for all work brought into the plaintiff. He oversaw all the projects save for the New Zealand works.

Mr Galbally’s job was to make approaches to customers or clients to secure a project and then generally to oversee its execution, by attendance at “milestone” meetings. During the period of his engagement, he was “the face of [the] business”.

The method of contact employed by the plaintiff was first to research the prospective client, ascertain the identity of the Chief Executive Officer and follow up with contact.

The work of the plaintiff is obtained on a project by project basis. Once a project is finished, the plaintiff’s role is generally limited to follow-up responses to queries or rectifying any inadequacies.

I am satisfied that in the role of business developer, Mr Galbally would have had contact with clients, and the opportunity to get to know particular customers. He may also have acquired knowledge of other people, and the positions they occupied, within those clients' organisations. He would also have become familiar with, at least, those aspects of the clients’ business operations relevant to the particular project.

Further, I am satisfied that having worked with the plaintiff’s clients and maintained regular contact with them throughout the relevant projects, Mr Galbally would, generally speaking, have absorbed the knowledge of the identity of the clients and their relevant officers. He would not need to memorise that information or to research or look it up.

THE WITNESSES

In the present case, few witnesses of substance gave evidence. Mr Bellin gave evidence on behalf of the plaintiff. He testified that his role is detached from the “hands on” performance of the plaintiff’s projects.

Mr Bellin gave no detailed evidence on the nature of any businesses conducted by the related companies in what he termed the I.F. group. Mr Bellin stated that he was a non‑executive, detached from day to day administration of the plaintiff. He was unable to give any direct evidence on the alleged taking of the plaintiff’s confidential information by Mr Galbally. The plaintiff, in that context, relied solely on the evidence of Mr Wilkins, a forensic computer expert, to reconstruct the activity on Mr Galbally’s laptop computer prior to his departure from the plaintiff. Mr Rich, (Mr Bellin's secretary and the plaintiff’s computer administration officer), gave evidence on the arrangements made with Mr Galbally for “cleaning” his laptop computer immediately prior to the termination of his employment.

Mr Bellin was unable to give first hand evidence on the nature and scope of Galbally Carroll’s business. The plaintiff did not call any consultants, business developers or other employees to describe either its own business or that of Galbally Carroll in detail. It did not call any customers, clients, or persons otherwise familiar with each business, to give evidence, permitting a comparison between the businesses of the plaintiff and Galbally Carroll.

The plaintiff bears the onus of establishing the circumstances which render a restraint reasonable to protect its legitimate interests (as distinct from protecting it from competition per se). It also bears the onus of establishing the confidential quality of information and the breach of an obligation of confidence. Lacunae and uncertainty in relation to such circumstances necessarily aggravate the difficulty of discharging that onus. The difficulty was compounded in the present case by the demeanour of Mr Bellin in giving evidence. Mr Bellin appeared defensive, inconsistent and unresponsive in cross‑examination.

He disclaimed all knowledge of some significant matters, whilst displaying a detailed grasp of other matters. His professed total ignorance of some matters seemed at odds with his evidently dominant position and controlling status within the plaintiff and its related entities. He was unable to recall certain matters at all. He was unable to recall whether the plaintiff had few forward billings in August 1998 prior to re-employing Mr Galbally, although he received all financial records. He initially stated that he could not recall when discussions with Mr Galbally concerning his proposed re-employment took place, although ultimately he agreed that it was in July or August 1998. However, he displayed a full grasp of detail in other contexts. He was evidently extremely reluctant to answer certain questions fully and meaningfully. He demanded definitions of commonly understood words, including but not limited to “suffering”, “desperate”, “frequent”, “badly”, “large”, “vast majority”, “in conjunction with” and “easy”. He stated that he did not know what was meant by “pitching for work” and appeared to seize upon technicalities of expression to frustrate his cross-examiner.

I am unable to consider Mr Bellin a forthcoming and impressive witness. I cannot be confident that his account of events and issues is complete and substantially accurate; Mr Bellin appeared to be actuated, and his evidence influenced by, a considerable hostility to Mr Galbally, whose defection from the plaintiff he clearly much resented. Although he had no direct knowledge of Mr Galbally’s alleged unauthorised removal of the plaintiff's data, he stated that he believed that it had occurred, based on his opinion of Mr Galbally's character.

Mr Wilkins, the plaintiff’s computer expert, was a direct and competent witness. Mr Rich, Mr Bellin's secretary, was unable to recall much detail of significant events.

The plaintiff submitted that I should conclude that Mr Galbally was not a credible witness. It contended that Mr Galbally's job application to the plaintiff in 1995 attached a curriculum vitae which indicates that between 1982 and 1993 he had a variety of paid employment with different employers, whereas his witness statement gives the misleading impression that he was an independent consultant. The plaintiff also relied, in this context, on alleged inconsistencies in Mr Galbally’s witness statement and on the improbability that the resignations and the incorporation of Galbally Carrol were unco‑ordinated events, as Mr Galbally asserted.

Mr Galbally, in contrast to Mr Bellin, generally attempted to answer questions fully and conscientiously. He was generally frank and appeared direct. Having observed his demeanour and considered his responses, in my opinion, despite some inconsistencies and matters which he could not explain, Mr Galbally was essentially a conscientious and honest witness, whose evidence should generally be accepted.

Mr Berkeley QC also submitted that I should draw adverse inferences against the defendants due to their failure to call as witnesses Mr Chapman, Mr Stafford and Ms Carroll, although witness statements for those persons had been filed and served. Mr Berkeley QC contended that I should infer pursuant to Jones v Dunkel,[1] that those persons could have given no evidence to assist the defendants’ case, and that I should "be bold to draw inferences in favour of the plaintiff".
[1](1958-1959) 101 CLR 298.

In Jones v Dunkel facts were proved from which an inference could be drawn but the defendant called no evidence at all. The High Court majority accepted that “until facts were proved from which an inference … could be drawn, the defendant was not called upon to say anything.”[2]
[2]Ibid at 319.

Menzies J stated, in this context –

“(i)that the absence of the defendant … as a witness cannot be used to make up any deficiency in the evidence
(ii)that evidence which might have been contradicted by the defendant can be accepted the more readily if the defendant fails to give evidence
(iii)that where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.”[3]

[3]Ibid, at 312.

Mr Schlict, for the defendants, submitted that Jones v Dunkel does not relieve the plaintiff of proving the facts essential to its cause of action from which inferences can be drawn. In Windeyer J's terms, "no inference can be drawn from the defendant's silence until facts be proved requiring an answer".[4] In the present case, the plaintiff bears the onus of establishing the validity and breach of the restraint of trade clauses and the clauses relating to trade secrets and confidential information.
[4]Ibid, at 322.

This is not a case in which the defendants called no evidence. Mr Galbally, the principal object of the plaintiff’s allegations, gave evidence. Further, while Messrs Chapman and Stafford, and Ms Carroll, were not called, there was no evidence that those persons themselves copied the plaintiff’s data or misused its confidential information. Mr Berkeley QC asserted that there was evidence that Messrs Chapman and Stafford had solicited custom, pointing to an admission in Mr Galbally's witness statement of Mr Stafford’s presence at a meeting and to contact reports discovered during the course of the trial indicating contacts with the plaintiff's clients by “DJS” and “FSC”. It is not disputed that the defendants contacted or undertook work for certain of the plaintiff’s clients within the restraint period. What is disputed is that the non‑solicitation clause is valid or that such admitted contacts and work would, in any event, constitute a breach. I am not persuaded that Messrs Chapman and Stafford could give evidence relevant to the determination of those issues, which principally involve questions of law.

It is for the plaintiff to make out its case on the basis of relevant evidence. It called only one substantial non‑expert witness, whose direct knowledge of many matters central to its case was professedly limited. Although it may be unusual not to call a number of witnesses for whom witness statements have been filed, the defendants were entitled to adopt that course, with the concomitant risks it entailed. If the plaintiff was taken by surprise, it could have been addressed by an application at trial, but that course was not adopted.

THE PLEADINGS
Further Amended Statement of Claim

By further amended statement of claim dated 9 October 2002, (amended pursuant to my order made 7 October 2002, in consequence of the matters set out in my ruling of the same date) the plaintiff claims that, on or about 31 July 1998, it entered into a written agreement with the second defendant, Braydale, and the first defendant, Mr Galbally, pursuant to which Braydale would, in return for remuneration, provide the services of Mr Galbally to the plaintiff as “Principal (Business Development)” (“the Braydale Agreement”). It is pleaded that the position of “Principal (Business Development)” is a senior position of high responsibility, Mr Galbally being responsible for selling the plaintiff’s services, initiating assignments, liasing with clients and generally promoting the plaintiff.

The plaintiff pleads that there were terms of the Braydale Agreement to the effect that:

a)Mr Galbally and Braydale would well and faithfully perform the work of “Principal (BD)” during the term of the agreement;
b)Mr Galbally and Braydale would not disclose or misuse confidential information the property of the plaintiff obtained by them pursuant to the agreement or in the course of work performed by Mr Galbally during the term, and after termination, of the agreement;
c)any trade secrets or information acquired by Mr Galbally, Braydale, or Braydale’s servants and agents about the plaintiff, its services and its clients would be held confidential and may not be used or divulged to any third party without express authorisation;
d)Mr Galbally, Braydale, and Braydale’s servants and agents would not, for a period of one year from the termination of the agreement, offer to perform services for or otherwise solicit the custom of any person or corporation which at any time of the agreement was a client of the plaintiff or its related companies;
e)upon termination of the agreement, Mr Galbally, Braydale, and Braydale’s servants and agents shall not take with them any documents or copies of any documents which have come into their possession or control during the course of the agreement, or in any way use such documents;
f)upon termination of the agreement, Mr Galbally, Braydale, and Braydale’s servants and agents shall not, for a period of one year after that termination, be employed, either directly or indirectly, by any person or firm or corporation which was, at the date of termination, a client of the plaintiff.

It is pleaded that terms (a) and (b) are implied and terms (c) to (f) are express written terms contained in the engagement letter dated 31 July 1998 and annexed special provisions.

The plaintiff pleads that on or about 31 October 1997 it entered into an employment agreement with Mr Stafford, who was employed as a consultant in the plaintiff’s Melbourne office (“the Stafford Agreement”). The Stafford Agreement allegedly contained substantially similar terms to the Braydale Agreement and differed in that Mr Stafford was employed directly by the plaintiff and not through a company, such as Braydale.

The plaintiff pleads that on or about 18 October 1996 it entered into an employment agreement with Scott Chapman (“the Chapman Agreement”). The terms of the Chapman Agreement are allegedly identical to those of the Stafford Agreement.

The plaintiff alleges that on or about 7 August 2001, Braydale gave notice of termination of the Braydale Agreement, to take effect on 10 September 2001. Mr Stafford gave notice of termination of his employment on or about 13 August 2001 and last worked with the plaintiff on or about 31 August 2001. Mr Chapman gave notice of termination of his employment on or about 28 August 2001 and last worked with the plaintiff on or about 14 September 2001.

The plaintiff alleges that in the course of its business it has created and maintained electronic databases containing information confidential to the plaintiff, including names and details of clients and other contacts, details of the plaintiff’s past, current and future work with those clients and contacts, and industry background information relevant to the plaintiff’s business (“the Client Databases”). The Client Databases have been compiled over the years by the plaintiff and its employees using two database programs known as “Tracker”, a relational database program, and “I.F. Knowledge Bank.” The Client Databases are allegedly confidential and are disclosed to the plaintiff’s employees and staff only on the basis that they be kept confidential.

The plaintiff alleges that, subsequent to the incorporation of Galbally Carroll on or about 16 August 2001, Galbally Carroll has carried on a business substantially the same as, or similar to, that carried on by the plaintiff. In particular, each of the plaintiff and Galbally Carroll carried on business as management consultants advising clients how to increase sales and reduce selling costs, improve market place performance, and on matters relating to marketing channel strategy.

Further, the plaintiff alleges that Galbally Carroll, by its agents Messrs Galbally, Stafford and Chapman, has approached, and attempted to solicit or has solicited business from parties which were clients of the plaintiff during the currency of the Braydale Agreement, and Messrs Stafford’s and Chapman’s employment by the plaintiff. In particular, it is alleged that Galbally Carroll approached Boral Limited, ICI Paints (Asia Pacific) Pte Ltd and ICI Paints (Malaysia) Snd. Bhd.

The plaintiff alleges that in about September 2001, whilst still working for the plaintiff, Mr Galbally copied the Client Databases by downloading the information from the plaintiff’s servers on to a laptop computer and saving it on one or more computer discs. It is alleged that Mr Galbally made the copies of the Client Databases available to Galbally Carroll which, through one or more of Messrs Galbally, Stafford and Chapman, used the confidential information contained therein for the purpose of approaching, and attempting to solicit business from, clients and other contacts of the plaintiff.

The plaintiff alleges that Mr Galbally and Braydale, Messrs Stafford and Chapman have breached the Braydale, Stafford and Chapman Agreements respectively, that Galbally Carroll wrongfully induced those breaches, and that the plaintiff has suffered loss and damage as a result of the alleged wrongful conduct.

Further, the plaintiff alleges that Galbally Carroll has knowingly participated in a breach of confidence by Mr Galbally and is bound to observe and respect the obligations of confidence affecting the Client Databases and to make no further use of them.

The plaintiff claims injunctions to restrain Messrs Galbally, Stafford and Chapman from performing services or soliciting the custom of any person or corporation which, at any time during the Braydale Agreement or the defendants’ employment, was a client of the plaintiff or its related companies, for a period of one year from the time of termination. The plaintiff also claims injunctions to restrain Galbally Carroll, its servants or agents, Messrs Galbally, Stafford or Chapman from copying using or disclosing the Client Databases. The plaintiff also claims delivery up of the Client Databases, damages in lieu of or in addition to injunctions, or alternatively, damages for breach of contract.

Amended Defence

By amended defence dated 30 August 2002 the defendants admit that the Braydale Agreement, the Stafford Agreement and the Chapman Agreement are contained in the terms of the letters of engagement dated 31 July 1998, 31 October 1997 and 18 October 1996 respectively but deny that the agreements contain the implied terms alleged by the plaintiff. Further, or in the alternative, the defendants plead that to the extent that the agreements contain the terms alleged in paragraphs (d) and (f) above, the non-solicitation covenant and restraint on employment for a period of one year after termination of the agreement/employment each term was, and is, void and illegal as being contrary to public policy and an unlawful restraint of trade.

The defendants deny the plaintiff’s allegations that it created and maintained the Client Databases. The defendants deny that the Client Databases have at all times been kept confidential and were disclosed to the plaintiff’s staff and employees only on that basis.

The defendants deny that Mr Galbally copied the Client Databases and made them available to Galbally Carroll for the purpose of soliciting business from the plaintiff’s clients, or that Galbally Carroll, Messrs Galbally, Stafford or Chapman has used the confidential information contained in the Client Databases for any such purpose.

The defendants deny the alleged breaches of the agreement, and the allegation that Galbally Carroll induced those alleged breaches. The defendants further deny the allegation that Galbally Carroll knowingly participated in the alleged breach of confidence by Galbally.

Counterclaim

By counterclaim dated 30 August 2002, the second defendant, Braydale, claims the sum of $39,759.26 and damages in the sum of $19,650 from the plaintiff pursuant to the Braydale Agreement. Pursuant to the order of Warren J made 30 August 2002, the counterclaim was not determined in this proceeding

THE LETTERS OF ENGAGEMENT

The relevant restraint clauses are in identical terms in the letters of offer to Messrs Galbally (Braydale), Stafford and Chapman. The terms of the Galbally/Braydale contract are set out and considered below.

Mr Galbally agreed to supply his services through his family company, Braydale. He signed a letter of offer from the plaintiff dated 31 July 1998 (“the Braydale letter”) on behalf of himself and Braydale.

The Braydale letter relevantly provides:

“Contractual Arrangement
The arrangement is that your company Braydale Pty Ltd will provide your services to IF as Principal (Business Development), responsible for selling IF’s services, initiating assignments, liaising with clients and generally promoting IF.
Commencement Date
August 10, 1998
Confidentiality and Non-Competition
It will be a condition of your company’s contract with IF that any information acquired by you, or your company, or its servants and agents about the company and information provided to the company by clients judged to be confidential, will be held as such and may not be divulged to any third party without express authorisation. [‘clause 1’]
Further, it is a condition that you, your company, its servants or agents will not, for a period of one year from the termination of your company’s contract with IF, offer to perform services and otherwise solicit the custom of any person or corporation which at any time during your company’s contract with it was a client of IF or its related companies. [‘clause 2’]
Special Provisions
The special provisions which are attached as a schedule to this letter will apply to your company’s contract with IF. Therefore,
(a)they apply to you, your company and its servants and agents; and
(b)accordingly, the words ‘your employment’ shall refer to your company’s contract with IF.”

The ‘Special Provisions – Essential Terms – for Braydale Pty Ltd’ relevantly provided –

“You shall not, either during the continuance of your employment by our company or thereafter, except in the proper course of your duties, divulge to any person whomsoever and shall use your best endeavours to prevent the publication or disclosure of any trade secret (including its modes and methods of business) or any information concerning the business or finances of our company or any of its dealings, transactions or affairs which may come to your knowledge during the course of your employment and you will not after the termination of your employment (for whatever reason)
(a)Disclose any such trade secrets or information unless disclosure is required by law, in which event you will inform our company of any such disclosure that you are compelled to make; and
(b)use such trade secrets or information without the prior written consent of our company. [‘clause 3’]
2.Consequential upon paragraph 1 hereof, upon the termination of your employment (for whatever reason) you will not take with you any documents or copies of documents which have come into your possession or control during the course of your employment with our company or in any way use such documents. [‘clause 4’]
3.Upon termination of your employment (for whatever reason) for the period of one (1) year next ensuing you shall not be employed, either directly or indirectly by any person or firm or corporation which is a client of our company as at the date of termination of your employment.” [‘clause 5’]

The Braydale letter was signed by Howard Bellin on behalf of the plaintiff and by Simon Galbally, as director, on behalf of Braydale.

By a letter of offer dated 31 October 1997 (“the Stafford letter”), the plaintiff engaged the third defendant, Mr Stafford, as a consultant in its Melbourne office.

The letter is signed by Charles D. Jones, Management Consultant, on behalf of the plaintiff. It contains the statement, “I acknowledge and accept the contents of the above letter dated October 30, 1997 embodying the terms and conditions of my employment with IF” signed by David Stafford.

A document entitled “Schedule – Essential Terms for David Stafford” is in identical terms as the Schedule for Braydale. However, in contrast to the Braydale letter, there is no reference in the Stafford letter to the incorporation of special conditions or a schedule. The Schedule is not signed by or on behalf of Mr Stafford.

By a letter of offer dated 18 October 1996 (“the Chapman letter”) the plaintiff offered the fifth defendant, Scott Chapman, a position in its Melbourne office with a commencement date of 13 January 1997.

The Chapman letter contains the same confidentiality and non-competition terms as the Braydale letter. The letter is signed by Paula B. Cooke, management consultant, on behalf of I.F. Consulting Group Pty Ltd (the previous name of the plaintiff.) It contains an acknowledgment that it “embodies the terms and conditions of my employment with I.F.” signed by Mr Chapman. The Chapman letter does not refer to the incorporation of any special terms, schedules or provisions.

The Chapman letter may have been accompanied by a “Schedule of Essential Terms” identical to those for Messrs Braydale and Stafford, but with its nominee left blank. There is no evidence before the court on the status of that Schedule.

On analysis, there is a degree of overlap between some of the clauses included in the Braydale letter and the clauses included in the Special Provisions annexed to the letter. Each clause (numbered from 1 to 5 for convenient reference) is considered in detail below. The defendants, by their amended defence, deny that the additional clauses set out in the Essential Terms Schedule were incorporated into the Braydale/Galbally, Stafford and Chapman contracts. That issue was not specifically argued at the trial, which apparently proceeded on the assumption that the additional clauses in the Essential Terms Schedule for Braydale were incorporated into the Galbally‑Braydale contract. It was not established that the Essential Terms Schedules were incorporated into the Stafford and Chapman contracts. Nothing appears to turn on that, as to the extent that the additional clauses have independent operation or create additional obligations, it is the conduct of Mr Galbally which constitutes the alleged breach.

THE PLAINTIFF'S STANDING – WAS IT PARTY TO THE CONTRACTS?

Mr Schlict, for the defendants submitted that there was confusion as to the identity of the “employer”, and which "IF" company was the contracting party. He pointed out that the Braydale letter of engagement was on the letterhead of “I.F. Consulting”, but at the bottom of the page, states that it is “from the office of the Chairman, I.F. Central Pty Ltd, Holding Corporation for the International I.F. Companies”. The Chapman letter is headed “I.F. Consulting” but the letter is from the I.F. Consulting Group Pty Ltd (the plaintiff’s previous name). The Stafford letter is headed “I.F. Consulting” but at the bottom of the page states that it is “from the offices of I.F. Central Pty Ltd, Holding Corporation for the International I.F. Companies”.

The typed note in small print at the bottom of the page of the Galbally letter states “from the Office of I.F. Central Pty Ltd, Holding Corporation for the International I.F. Companies, Marketing Channel Strategy Consultants”. The notation appears to raise questions rather than resolve them. It does not define “the International I.F. Companies”. It does not state their relationship to I.F. Asia Pacific Pty Ltd or to ‘I.F. Consulting.’ It is not clear that they are identifiable, wholly or in part, with “I.F.’s related companies” referred to in clause 2.

Mr Bellin, in his witness statement, states that I.F. Central Pty Ltd owns all the trademarks and industrial and intellectual property of IFAP and I.F. Central Pty Ltd’s subsidiaries, I.F. Consulting Limited and I.F. Consulting Inc. IFAP itself is not stated to be a subsidiary of I.F. Central Pty Ltd, although Mr Bellin states that IFAP is part of “what is termed the I.F. Group”.

The precise relationship of all the named “I.F.” entities inter se was not clear in the relevant contractual documents and was not clearly established at trial. Mr Bellin’s evidence on this matter is discussed below.

The letters of offer do not define the “related companies” of IFAP or their businesses. They do not indicate how such businesses relate to that of IFAP. Further, the extent of the obligations of the employee towards other companies in the ‘IF’ group is not clearly indicated. The clients of “related companies” are expressly included in the non-solicitation convenant. However, the letters of offer refer to “we” and “our company” in a context where several I.F. corporate entities have been named, but their precise relationship to IFAP has not been clarified.

Mr Schlict contended that the confusion was such that the clauses should be void for uncertainty.

The defendants in their amended defence implicitly admitted that the plaintiff was party to the employment contracts. In all the circumstances, I consider that despite the references to more than one “IF” company, there is sufficient certainty as to the identity of the contracting company. The plaintiff has standing to sue on the covenants. As Mr Berkeley QC observed, its claim is not for breach of copyright or misuse of intellectual property.

The Braydale letter is on an IF Consulting letterhead, but is signed by Mr Bellin “for or on behalf of IF Asia Pacific Pty Ltd”. The letter indicates that the company entering a contractual relationship with Mr Galbally and Braydale, was IF Asia Pacific Pty Ltd, the plaintiff in this proceeding. The letter relevantly states “Dear Simon, This letter is our formal offer to your company to provide services to IF Asia Pacific Pty Ltd.” It is therefore clear from the context of the letter that “IF” refers to the plaintiff.

However, the confusion as to the identity of, and relationship between, related “I.F.” companies and their businesses, is, in my view, relevant to the question whether severance may properly be effected, in order to reduce the alleged unreasonable width of clause 2. It is also relevant to the questions whether a limitation reducing the width of clause 2 may properly be implied and whether the plaintiff has established the scope of its legitimate protectable interests with sufficient clarity. This is dealt with in detail below.

CLAUSE 1

Clause 1 requires the employee to treat as confidential “information acquired by you about the company, its services, its clients and information provided to the company by clients judged to be confidential.”

Clause 1 appears to overlap with clause 3, which is broader in scope. Clause 1 does not, in terms, purport to extend a confidentiality obligation beyond the period of employment, in contrast to clause 3. It extends the general law obligation of the employee in that it purports to impose confidentiality obligations in relation to information which may not necessarily have the recognised qualities of confidential information. Mr Berkeley QC in final submissions contended that the word "is" should be inserted so that the clause would read "information acquired by you about the company, its services, its clients and information provided to the company by clients is judged to be confidential". However, relevant authority establishes that the confidential nature of information, and consequent obligations of confidence, do not depend upon the ‘label’ attached by the parties.[5]
[5]Drake Personnel Ltd v Beddison [1979] VR 13.

It is not alleged, and there is no evidence that, Mr Galbally or any other defendant divulged any information about the plaintiff, its services, clients or information provided to the plaintiff by clients during the course of their employment, thereby potentially breaching clause 1. I therefore do not consider clause 1 further.

CLAUSE 4

Clause 4, included in the “Essential Terms for Braydale” provides that “upon termination of your employment for the period of one year next ensuing you shall not be employed, either directly or indirectly, by any person or firm or corporation which is a client of our company as at the date of termination of your employment.”

This restraint clause is limited in duration, imposing a restraint of one year.

The prohibited activity is employment, whether direct or indirect. “Employment” is not defined. The Special Provisions are stated in the accompanying letter to “apply to your company’s contract with IF.” Therefore:

(a)they apply to you, your company and its servants or agents; and
(b)according to the words “your employment” shall refer to your company’s contract with IF.”

“Employment” in the context of the restraint clause may refer to Mr Galbally’s employment by a client in the capacity of an employee, although corporate entities may be interposed. I do not consider that “be employed … by a … client” is an apt or natural expression to describe employment by a party which provides services pursuant to contract on a project by project basis for a former client of the plaintiff. If that be correct, no conduct is alleged which constitutes a breach of clause 4. The individual defendants are employed by Galbally Carroll, which has performed project work for the former clients pursuant to contract.

The clause, in terms, prohibits any employment of Mr Galbally or Braydale or their servants or agents, no matter how limited, of whatever nature, how indirect, or in what geographical area or business, for any client of I.F. as at the date of termination of Mr Galbally’s employment. The restraint in clause 4 is therefore broader than is necessary to protect the plaintiff’s legitimate interests, for the reasons discussed in detail below, in relation to clause 2.

A client “which is a client of our company as at the date of termination of employment” would not appear to encompass a potential or prospective client, or a former client for whom work has been finalised. Rather, it suggests a party whose engagement of the plaintiff was on foot as at 10 September 2001. If so, there would appear to be no breach of clause 4 even if, contrary to the above, the term “be employed” encompasses employment by a contractor which provides services on particular projects to the plaintiff’s former clients. Although the plaintiff had undertaken work for Boral Ltd, ICI Paints (Asia Pacific) Pte Ltd and ICI Paints (Malaysia) Sdn Bhd in the course of the Galbally/Braydale contract, the work for those clients had been completed as at 10 September 2001.

Ultimately, it is unnecessary to reach a conclusion on the meaning, validity or breach of clause 4, as Mr Berkeley QC, in final submissions, made clear that the plaintiff relied on clause 2, the non-solicitation clause, rather than on clause 4. Mr Berkeley QC stated that “the plaintiff doesn’t say that the defendants were employed by anybody. Our complaint is they solicited business, they weren’t employees of any of these companies that they approached”.

CLAUSE 2

Clause 2 is a non-solicitation clause. It provides that for a one year period from termination of “your company’s contract with I.F. you shall not offer to perform services and otherwise solicit the custom of any person or corporation which at any time during your company’s contract with I.F. was a client of I.F. or its related companies.”

Clause 2 imposes a temporal limitation of one year. There is no geographical or “area” limitation. There is no limitation on the nature of the services or the nature of the custom, the offering or solicitation of which is prohibited. There is no definition of the business of the covenantee or the “services” or “custom” it provides, either in clause 2 or in any other clause or part of the contractual documents. There is no definition of the related companies of I.F. or of their businesses.

The clause contains a definition limiting the identity of the persons whose custom must not be solicited. It is limited to “any person or corporation which at any time during your company’s contract with I.F. was a client of I.F. or its related companies”. Such clients are not limited to current clients but include former clients and also clients with whom the employee‑covenantor had no contact.

Mr Schlict contended that clause 2 was too wide. In his submission, the restraint exceeded the minimum necessary to protect adequately the plaintiff’s legitimate interests, (in this context, its customer connection). It was therefore unreasonable and invalid.

Mr Berkeley QC, in reply, sought to rely on Mills v Dunham,[6] G.W. Plowman & Sons Ltd v Ash[7] and Business Seating (Renovations) Ltd v Broad[8] in order to:

(a)“read down” clause 2, limiting it to solicitation of services or custom for a business the same as or similar to that of the plaintiff;
(b)sever the words extending the prohibition to solicitation of clients of related companies.

[6][1891] 1 Ch 576.

[7][1964] 2 All ER 10; [1964] 1 WLR 568.

[8][1989] 1 CR 729.

It would appear that the plaintiff conceded, or did not strenuously oppose, the defendants’ contention that clause 2 is, according to its literal meaning, too wide to be justified by reference to the plaintiff’s legitimate interests.

Clause 2, in terms, prohibits Mr Galbally from soliciting even former clients of a related corporation of the plaintiff operating in any country, irrespective of what business, services or custom are involved and irrespective of whether Mr Galbally had any personal contact with, or knowledge of, such clients.

In my opinion, clause 2, according to its literal meaning, cannot be justified. I accept Mr Berkeley QC’s submission that the absence of limitation to a geographical area is of less significance, given that the clause applies to parties who were clients of the plaintiff and its related companies during the currency of the defendant’s employment. Although it therefore extends to former clients, an extension to former clients was upheld in G.W. Plowman & Sons Ltd v Ash.[9] Nevertheless, in the present case, the clients or former clients are not limited to clients with whom Mr Galbally dealt, as, for example, in Home Counties Dairies Ltd v Skilton[10] and McLachlan Consultants Pty Ltd v Boswell.[11] Some authorities have upheld the validity of a clause which is not limited to customers with whom the employee dealt and in the present case, the defendants did not rely on the absence of such a limitation. However, it is questionable whether the protection of the plaintiff’s legitimate interest, in this case, being its customer connection, reasonably requires the imposition of a restraint in relation to clients with whom Mr Galbally had no contact or dealings, in any geographical area. This issue was not addressed at trial and, if the clause is invalid on another basis, is not relevant to the determination of the proceeding.
[9]Supra; see also Hartley's Limited v P. Martin and J. Martin, Gillard J, 7 August 2002 [2002] VSC 301 at 25.
[10][1970] 1 WLR 526.
[11][1989] 30 1R 417.

Mr Galbally’s role and status in the course of his employment with the plaintiff appears to justify a finding that customers with whom he dealt might rely on or become attached to him, thus justifying a degree of protection for the plaintiff’s “customer connection”.[12] In my opinion, however, the literal prohibition in clause 2 exceeds the minimum protection which the plaintiff has demonstrated to be necessary for adequate protection of its customer connection. Mr Galbally is prohibited from offering services of any nature or description to any former client of a related corporation (however defined) in any country, with whom he never dealt and of whose identity he is unaware. In my opinion, clause 2 will be void, as an unreasonable restraint of trade, unless its literal meaning can be restricted by construction and severance.
[12]Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 209.

The established modern approach to covenants in restraint of trade holds them prima facie unlawful and invalid. The onus lies on the covenantee to justify their validity by proving special justifying circumstances, from which a judge may infer, as a matter of law, that the restraint does not exceed what is needed adequately to protect the covenantee’s legitimate interests. Its “customer connection” is one such legitimate interest.

In this context, it is recognised that an employee of Mr Galbally’s standing might obtain “such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer’s trade secrets as would enable him, if competition were allowed, to take advantage of his employer’s trade connection or utilise information confidentially obtained”.[13]
[13]Per Lord Parker in Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 709.

Employers may legitimately seek protection “for their business connection against the possibility of its being affected by the personal knowledge of, and influence over, the customers which the [employees] might acquire in their employment”.[14]
[14]Linder v Murdocks Garage (1950) 83 CLR 628 at 653.

Restraints which purport to protect employers against competition per se, by former employees, are considered unjustifiable. The courts have drawn a distinction between restraint covenants against employees and restraint covenants associated with the sale of the goodwill of a business, since Lord Macnaghten’s influential judgment in Nordenfeldt v Maxim Nordenfeldt Guns and Ammunition Co.[15]
[15][1894] AC 535 at 543-4.

In determining whether a restraint clause goes further than is necessary in order to protect the legitimate interests of the employer, and is therefore invalid, it is necessary to construe the meaning of the clause. It is necessary to consider the “factual matrix” in which the parties contracted. It is established that the correct approach is to construe the meaning of restraint clauses by reference to the documentary context and surrounding circumstances. If there is ambiguity, a reading down of the literal terms of the covenant may be justified. It is also necessary to consider whether the clause, as construed, goes further than the minimum required to protect the legitimate interests of the employer, as established by evidence of the interest to be protected. Latham J in Lindner v Murdocks Garage stated that the court must –

“ascertain with due particularity the nature of the master’s business and of the servant’s employment therein.”[16]

[16]Supra, at 635.

Fullagar J in that case likewise stated that it was necessary to consider and determine the nature of the employer’s interest “which he may legitimately seek to protect”.[17]
[17]Ibid, at 649.

Where a restraint clause is, according to its literal terms, wider than is needed to protect the legitimate interests of the employer, a construction of the clause “in context” might narrow its meaning and save it from invalidity. It is not, however, permissible to approach the matter by first determining what degree of restriction would be justified, and reading down an unduly wide clause in order to preserve its validity.

In the present case, the literal terms of clause 2 restrain, inter alia, solicitation in any business or offers to provide services of any nature. Unless the literal breadth of the clause is confined by reading down to a restraint on solicitation in the same or, at least, a similar business, it exceeds, on that basis alone, what is reasonable in order to protect the plaintiff’s legitimate interests. The former employees would not be entitled to offer services of any kind to, or solicit any custom from, the plaintiff's clients in any business or capacity.

In Butt v Long,[18] Dixon CJ stated the approach to be adopted in the construction of restraint clauses thus –

“An agreement in restraint of trade, like every other agreement, is to be construed with reference to its subject matter and descriptive words may be restricted in their operation by reference to the circumstances in which the parties contract. But the agreement should be interpreted for the purposes of ascertaining its real meaning independently of the rules prescribing the tests of reasonableness for the purpose of ascertaining its validity. If an evident ambiguity appears from its text, it may be proper to take into account the law relating to the validity of covenants in restraint of trade in resolving ambiguity but a restrictive interpretation of general words is not to be adopted simply to save a covenant or agreement from invalidity.” [19]

[18](1953) 88 CLR 476.

[19]Ibid, at 487.

According to the accepted modern approach, the reading down of a restraint convenant in order to save it from invalidity due to unreasonable width is not justified. While “evident ambiguity appearing from the text” may justify a narrow construction of literal terms, mere generality does not constitute ambiguity.

In Butt v Long the plaintiff and the defendants carried on a partnership business of forwarding, transhipping, stock-station commission agents and produce merchants at Wallangarra and on the Queensland‑New South Wales border. The most significant branch of the business was that of transhipping agents. The partnership was dissolved and the transhipping agents’ branch of the business was transferred to the plaintiff. The defendants covenanted that they “should not carry on the business of a transhipping agent for a period of five years from the date of [the plaintiff's] taking over of such branch of the business”.[20]
[20]Ibid.

The defendants incorporated a company, and acting through it, began to carry on the business of transhipping agents at Wallangarra, in competition with the plaintiff.

At first instance, the geographically unlimited restraint clause was read down to “at the place where, and of a kind previously carried on by the partnership”. The defendants argued that the reading down or limitation should not be implied as a matter of construction.

Dixon CJ accepted that contention. His Honour stated –

“Roper CJ in Eq decided that the clause was not invalid as an unreasonable restraint of trade but his Honour arrived at that conclusion by placing upon the clause a restrictive interpretation”.[21]

[21]Ibid, at 485.

Dixon CJ thought that the circumstances in which the parties contracted showed that by the expression “the business of a transhipping agent”, the parties intended transhipping by road. However, he considered that there was no reason to imply a restriction to any geographical area. His Honour noted “Now the words are perfectly general. There is no reference at all to place and if the operation is to be confined to the junction at Wallangarra it must be by implication. An implication of such a kind ought not to be made unless from subject matter and the contents of the document an inference that the parties so intended arises with such force as to carry conviction to the mind”.[22] His Honour declined to make an implication which would introduce words of limitation “so as to limit quite general words containing no suggestion of locality or the identification of a specific business or thing.”[23] He took the view that “there was no reason to impart a limitation that the parties had not seen fit to express.”[24]
[22]Ibid, at 488.
[23]Ibid, at 489.
[24]Ibid.

The plaintiff bears the onus of establishing the special circumstances which justify the restraint. Kitto J in Lindner v Murdocks Garage[25] stated –

“Any contractual restraint of trade is prima facie unlawful and invalid. It is not that such restraints must of themselves operate to the public injury, but that it is against the policy of the common law to enforce them except in case where there are special circumstances to justify them. The onus of proving such special circumstances must, of course, rest on the party alleging them. When once they are proved, it is a question of law for the decision of the judge whether they do or do not justify the restraint. There is no question of onus one way or another.” Herbert Morris Ltd v Saxelby[26] per Lord Parker of Waddington; Routh v Jones[27] per Lord Greene MR.[28]

[25]Ibid, at 653.

[26][1916] AC 688 at 706, 707.

[27][1947] 1 All ER 758 at 762.

[28]Lindner v Murdocks Garage, supra, at 653.

In Lindner v Murdocks Garage,[29] the plaintiff, which carried on business as a secondhand car dealer, garage and service station, entered an employment agreement with an employee mechanic. The agreement included a restrictive covenant which relevantly provided, “The workman will not during his employment or within one year from the determination thereof in any way carry on or be engaged concerned or interested … in the business of garage proprietors or in any other similar business carried now and hereafter carried on by the employers within the same area.” An attached schedule listed two sales territory areas. The two areas were quite separate. The agreement did not state in what capacity the workman was to be employed. He was in fact employed as a leading hand in the workshop operating in one of the two sales areas. On ceasing his employment with the plaintiff, the employee took a position with a firm carrying on a similar business, in the same sales area in which he had worked for the plaintiff.
[29](1950) 83 CLR 628.

The High Court majority held that the restraint clause was wider than was reasonably necessary to protect the plaintiff’s business, and hence void.

The validity of the restraint “must be decided as at the date of the agreement imposing it … “[30] As the employee could have been employed in either of the two geographical areas, it was not possible to uphold the clause as constituting two distinct and severable covenants.
[30]Ibid.

In the present case, the plaintiff sought to rely in this context on Mills v Dunham.[31] In that case, the English Court of Appeal “read down” the general words of a restraint clause, which placed no limit on the type of business in which soliciting by the former employee was prohibited to “a business similar to that of the plaintiff”.[32] Thus construed, the restraint was no more than was reasonable to protect the plaintiff’s legitimate interests. Hence, it was valid.
[31][1891] 1 Ch 576.
[32]Ibid, at 586.

In Mills v Dunham, the restraint clause in the contract of employment between the plaintiff food preservative manufacturers and the defendant, a travelling salesman, provided that, on termination, the defendant should not, inter alia, “call upon, or directly or indirectly solicit orders from, or in any way deal or transact business with, any person or firm who, during the continuance of this agreement, should be customers of the plaintiff … “.[33]
[33]Ibid, at 577.

The defendant contended that the restraint clause, not being limited to a similar business, was too wide and could not be corrected by being read down to “its being a similar business”.

Chitty J, however, accepted that in context “dealing or transacting business with the old customers means business of the same or a similar kind to that which had been carried on by the plaintiffs”.[34] Chitty J also considered that the indefinite time of the restriction was not unreasonable.[35]
[34]Ibid, at 581.
[35]Ibid.

On appeal, that construction was upheld. Lindley LJ considered other clauses in the contract and construed the restraint clause to confine it to business similar to that of the plaintiff. As such, it did not exceed that which was reasonable for the protection of the plaintiff’s legitimate interests. Therefore it was not void. His Lordship expressly rejected the proposition “that you are to treat a restraint of trade as prima facie bad and throw upon the person supporting it the onus of showing that it is reasonable.”[36]
[36]Ibid, at 586.

Lindley LJ’s rejection of the view that restraints are prima facie bad, casting the onus on the covenantee, has been overtaken by the subsequent judicial development of relevant principles. The rejected proposition now constitutes orthodoxy. The defendants submit that the approach in Mills v Dunham should not be followed, as the decision is based on outdated principles. While Mills v Dunham no longer represents an accurate statement of relevant principles, the application of the approach endorsed by Dixon CJ in Butt v Long does not exclude the possibility that in some contexts, general words might properly be held to have a narrower meaning. Dixon CJ’s approach requires the agreement to be interpreted for its real meaning. The result in Mills v Dunham is not necessarily inconsistent with that approach. In Mills v Dunham, the nature of the plaintiff’s business of manufacturing antiseptic substances was expressly set out in another clause of the agreement. There was apparently no factual dispute concerning the nature of the plaintiff’s business or difficulty in defining it at trial. Similarly, in Business Seating (Renovations) Ltd v Broad,[37] Millet J declined to hold a restraint covenant void despite the absence of a definition of the plaintiff’s business in the covenant, because the preceding clause in the contract described the plaintiff’s business, and the description was borne out by the evidence at trial.[38] Further, in G.W. Plowman & Sons Ltd v Ash,[39] on which the plaintiff also relies, the Court of Appeal confined the application of a clause restraining a past employee from soliciting “any farmer or market gardener” who had been a customer of the employer, (but which failed to specify the type of goods), to the type of goods dealt with by the employer. Harman LJ stated that “you must regard the contract (as you always must) as a whole, and this is a contract for a sales representative … serving a firm which, as appears from the very clause in question, clause 8, is a corn and agricultural merchant and animal feeding stuffs manufacturer.”[40]
[37][1989] 1 CLR 729.
[38]Ibid, at 735.
[39][1964] 1 WLR 568.
[40]Ibid, at 572.

In McLachlan Consultants Pty Ltd v Boswell,[41] Bryson J construed a clause restraining a former employee from offering to perform services or soliciting the custom of the plaintiff employer’s clients, for whom he had performed services during employment, as referring to the services and employment of the kind with which the agreement dealt.[42] In that case, the contractual document specifically stated the nature of the employer’s business and the capacity in which the employee was to serve.
[41][1989] 30 1R 417.
[42]Ibid, at 419.

Applying the principles expressed in relevant authorities to the non‑solicitation clause in the present case, I am unable to conclude that it can be restricted by the applicable canons of construction to services, custom or business “the same as or similar to” those of the plaintiff.

The text of the clause, and the contractual documents, display generality due to the absence of any specific definition, rather than ambiguity. There is no definition in the clause, or in the contractual document, of the plaintiff’s business, custom, or the type of services it provides. There are no specific details of Mr Galbally’s role. There is no definition of the “related companies” of the plaintiff or of their services, custom or businesses. There is a blurring of the “IF” corporate entities, due to usage of more than one corporate name on the contractual documents, the stipulation that obligations will be imposed in relation to clients of undefined “related companies” and the use of the terms “we” and “our company”.

In the authorities most favourable to the plaintiff (including the most closely analogous case of Business Seating (Renovations) Ltd v Broad) the construction that the prohibited business or services meant those of the plaintiff was justified because an express definition of the plaintiff’s business was included elsewhere in the contractual document, although absent from the restraint clause itself. Further, there was no factual dispute or definitional problem concerning the plaintiff’s business. In contrast, in the present case, there is no definition at all of the plaintiff’s business or services in the clause or the contractual documents. There is also an extension to clients of related companies. The related companies, and their businesses, are also undefined. The evidence at trial of the extent and nature of the plaintiff’s business and services was limited and conflicting. Mr Bellin, the plaintiff’s principal witness, had difficulty in stating what the plaintiff did and suggested that descriptions or definitions changed over time or according to the intended audience. (This is discussed below). In the circumstances, I am unable to conclude that the parties’ meaning was limited to services in a business the same as, or similar to, that of the plaintiff. To incorporate such a restriction would be to remake the restraint clause, rather than to give expression to its real meaning. There is no evident ambiguity in the text which requires resolution; rather, there are general words. The subject matter, contents of the document and such evidence as there is of surrounding circumstances do not, in my opinion, cause an inference to arise with “such force as to carry conviction to the mind” that the parties intended the restriction, thus justifying its implication into “perfectly general words”.

As, absent such a restriction, the clause exceeds what is reasonable for protection of the plaintiff’s legitimate interests, in my opinion, clause 2, the non‑solicitation clause, is void on that basis. If that conclusion be wrong, I would nevertheless conclude that the plaintiff has not clearly demonstrated the nature and extent of its legitimately protectible business interests, or that of the defendants’ business is the same or similar. This is discussed in detail below.

THE PARTIES’ BUSINESSES
Nature and Scope of the Plaintiff’s Business

Mr Bellin’s evidence is that in about 1984, he broadened the plaintiff’s business to advising clients not just on franchising but on “marketing channels more generally”. A “market channel” is a term used to describe the means whereby goods and services are delivered from manufacturers to end users. In Mr Bellin’s witness statement he stated that the plaintiff’s business is now the provision of advice to clients on creating or restructuring existing marketing channels, typically focussing on the manner in which a market for a product is best exploited, whether by franchisees, licensees, dealers, distributors or e‑commerce. He further stated in his witness statement that IFAP carries on business as an international management consulting organisation.

The plaintiff changed its name to I.F. Asia Pacific Pty Ltd on 18 November 1997. It was previously named “I.F. Consulting Group Pty Ltd”. Mr Bellin stated in his witness statement that “the name I.F. Consulting is often used on IFAP’s letterhead and other business documents.”

Although at one point Mr Bellin appeared to dispute it, the evidence is that the plaintiff employs two different categories of professional staff to conduct its business. First, there are business developers (or sales persons) who attract the business to the plaintiff, and who also oversee the projects they bring to the plaintiff, liasing with the clients. Secondly, there are consultants, the technicians who go onto the job, organise the project, report to the client with the relevant advice and possibly, oversee the implementation of the advice.

In his witness statement Mr Bellin stated that, “I.F. Central Pty Ltd owns all the trademarks and industrial property of the IFAP business and licenses those trademarks and that industrial property to IFAP and I.F. Central’s subsidiaries. I.F. Central is the holding company for I.F. Consulting Limited, which is a company incorporated in the United Kingdom and which operates in Europe, the Middle East and Africa, and I.F. Consulting Inc, which is incorporated in the United States of America and operates in North and South America. These companies, together with IFAP, comprise what is known as “the I.F. Group”. “I.F. Central Pty Ltd has offices in London and Boston. I.F. Central has a Brazilian office which is currently suspended and has only mail receipt and telephone answering facilities.”

Mr Bellin’s evidence was that IFAP was an international management consulting organisation. It has an office in Melbourne only, but “worked” in “New Zealand, Singapore, Malaysia, Thailand, China, India, Sri Lanka and Taiwan among others”. Mr Bellin stated that IFAP was part of a group, with companies incorporated in the UK and America, with offices in London and Boston. He stated that it worked in conjunction with corporate financiers in providing advice. On cross‑examination, Mr Bellin conceded that he could recall only one corporate financier with which the plaintiff had worked. He appeared to concede that the UK office had difficulties with rental payments.

In his evidence at trial, Mr Bellin did not provide any details of the businesses carried on by the above-named related corporations of IFAP. He asserted that “we worked in New Zealand, Singapore, Malaysia, Thailand, China, India, Sri Lanka, Taiwan, among others.” It was not clear whether in that context “we” referred to IFAP, or to the entire group of companies, or to some entities within the group. Although Mr Bellin said that there was an office for I.F. Central in London, he ultimately conceded that this was through shareholdings in subsidiaries.

His evidence on that issue was evasive, confusing and unclear. It is set out below.

“MR SCHLICHT: Is there an office of I.F. Central in London?---No.
Can you go to your witness statement and explain to the court why you say in paragraph 6, ‘I.F. Central Pty Ltd has offices in London and Boston’?---They’re owned by I.F. Central, I.F. Central holds the shares in the business but they don’t trade as I.F. Central.
Who owns those offices?---What, the buildings?
How does I.F. Central have an interest in the offices in London and Boston?---Through a shareholding.
Of what company?---I.F. Central Pty Ltd owns 98.85 per cent of IF Consulting Limited and 90 per cent of I.F. Consulting Incorporated.
And it’s those companies that have offices in Boston and London, is that correct?---Yes.
I put it to you that you only ever had in Brazil an association with another company?---No.
It was with a Mr Groopo Cierto?---No, that is not his name.
What’s his name then?---Marcello Cierto.
That was cancelled after one year, that association?---Please define association.
What was the arrangement you had with Mr Cierto?---IF Consulting Limitada was 50 per cent owned by I.F. Central and 50 per cent owned by Cierto Networking Limitada.
What is the company’s name again?---Which company.
The company you had the 50 per cent shareholding in in Brazil?---I.F. Consulting Limitada.
Is that still operating in Brazil?---I don’t know.
You’re a 50 per cent shareholder Mr Bellin, how do you not know?‑‑‑Because I sold my shares to Mr Cierto and I don’t know what he did with the company.
So I.F. Central now no longer has any interest in Brazil, correct?----How do you define interest?
Interest by reason of shareholding?---In Brazil? In the country or - - -
Yes, in Brazil Mr Bellin, don’t avoid the questions?---It would be easier if I could understand the questions, would you mind asking me again please.
I.F. Central or any of the I.F. companies no longer has any interest in the Brazilian company?---Do you mean financial interests.
Yes a financial interest?---No it does not.
HER HONOUR: Can I just ascertain that I’ve got the witness’s evidence correct. Is that that I.F. Central has interests in offices in the United Kingdom and Boston through its subsidiaries which are I.F. Central Pty Ltd and I.F. Consulting incorporated respectively?---Your Honour perhaps, the company in Boston – we use two terminology. We call the company in Boston I.F.A., I.F. Americas. The official registered name is I.F. Consulting Incorporated and I.F. Central owns 90 per cent of the shares in I.F. Consulting Incorporated and the English entity is I.F. Consulting Limited, again which I.F. Central owns 98.85 and we refer to that as I.F. EMEA, just Europe, Middle East, Africa.
HER HONOUR: Thank you.
MR SCHLICHT: How many people work in the UK, at I.F. Central Pty Ltd?---I.F. Central Pty Ltd is not in the UK.
What company is in the UK then Mr Bellin?---I.F. Consulting Ltd.
How many work for I.F. Consulting Ltd in the UK?---Two.
In Boston?---One.
Do you have any other offices with other persons?---No.
In the I.F. group?---No.
So I’m putting it to you that there’s no offices indeed in the Middle East or Africa?---No.
And apart from the office in the UK, nothing in Europe either?---No.
And nothing to do with anything in Italy?---No. Sorry, what do yo mean by nothing to do?
You don’t have an office in Italy do you?---No.
You don’t have any association with any company in Italy at this moment?---That is incorrect. What do you mean by association?
You said it was incorrect, you tell me why it’s incorrect?---We talk to Italian companies from time to time.
So apart from talking to Italian companies from time to time, no doubt to try and get work, is that right?---We have some friends there as well.
And social matters?---M’mm.
You don’t have any other involvement in Italy?---No.”

The nature, extent and customer bases of the businesses of the related companies (one of which is the common licensor of intellectual property to the others) were not stated.

Mr Bellin seemed concerned to create an exaggerated impression of the scope of the I.F. companies’ international presence and activities.

Mr Bellin, was uncooperative and evasive in giving evidence about what IFAP did.

He stated that IFAP uses many methodologies, depending on the product. As an example, he stated that IFAP did “health checks”. He also stated that health checks would differ for “franchisee, dealer distributor and direct sales force”. He provided little detail, but identified a major focus as the relationship between the manufacturer and the re‑seller and devising ways to improve it.

Mr Bellin was taken in cross‑examination to a brochure and other material prepared by the plaintiff. He contended that the brochure was a draft or superseded. His evidence was as follows:

“MR SCHLICHT: Are you able to give an explanation as to why the plaintiff hasn’t provided a final version rather than giving a draft version?---No idea. Yes, this thing was printed after these documents were discovered. The brochure was probably printed, I don’t know, March or April of this year. I don’t really know, but this is certainly not anywhere near the document we currently have.
Can you provide to us about this document Mr Bellin – is that a document that - - - ?---Yes, that document is ten years old.
Ten years old is it?---Yes.
Are you able to explain why the plaintiff discovered this document then?---I don’t know.
I’ll provide you another document you discovered Mr Bellin and maybe you can explain whether you use this document at all or explains your company’s business?---Yes, we use this. However, it – whatever document you have, particularly this one, is right at the time of publication, but it’s not printed because it’s changed for the specific people with whom we’re speaking at any time.

It is undisputed that the Tracker data base and Knowledge Bank were freely available to all employees of the plaintiff. All that was required to access the Tracker data base was to log onto Microsoft Windows. It was necessary to log onto the server in order to update the Tracker data base. There was no evidence that access to the training manuals, text or templates was restricted.

Relevant Legal Principles and Case Law

In Drake Personnel Ltd v Beddison,[89] Anderson J rejected the plaintiff employer’s claim that customer and mailing lists, operating formulae or techniques in relation to advertising were trade secrets. His Honour stated that:

“It is obvious that a person cannot, by choosing to use the phrase ‘trade secrets’ in respect of something which the law does not regard as such, transform that something into a ‘trade secret’ which the law will guard.”[90]

[89][1979] VR 13.

[90]Ibid. at 20.

In that case, he found that the plaintiff’s operating formulae were merely variations of known accountancy procedures and its advertising techniques were not unique. In relation to the customer and mailing lists, only a proportion “were actually clients of the plaintiff”.[91] The remaining names were not customers, but were included “in the hope that they may be induced to do business with the plaintiff.”[92]
[91]Ibid.
[92]Ibid.

Anderson J observed that, “No evidence was placed before me to show the identity of persons on the list.” His Honour did not consider that the employer could “place an embargo upon an employee by compiling lists which are a mixture of clients and non‑clients.”[93]
[93]Ibid.

In Robb v Green[94] it was held that (independently of an express covenant in a contract of service) a servant’s surreptitious compilation of a list of the names and addresses of the master’s customers for use in a rival business constituted a breach of the implied term to serve with good faith and fidelity. Similarly, in Measures Brothers Ltd v Measures[95] Joyce J held that the making of a list of employer’s customers for purposes including solicitation in a rival business, was a gross breach of duty to the employer.[96]
[94][1895] QBD 315.
[95][1910] Ch 336.
[96]Ibid, at 343.

In Faccenda Chicken Ltd v Fowler[97] the defendant, who was the plaintiff’s sales manager, established a route for a van sales operations for sales of chicken products. He terminated his employment and employed several of the plaintiff’s van salesmen (each of whom knew the names, addresses, likely requirements of, and prices paid by, customer on the route) in a rival business in the same area. Such information was held to be valuable to a competitor, but could quickly be committed to memory without reference to notes. The defendant’s contract of employment with the plaintiff did not contain an express restrictive covenant protecting trade secrets or confidential information.
[97][1985] FSR 105.

Goulding J categorised confidential information in the context of master and servant in a three fold hierarchy, as follows:

“First, information which because of its trivial character or its easy accessibility from public sources of information cannot be regarded by reasonable persons or by the law as confidential at all. The servant is at liberty to import it during his service.
Secondly, there is information which the servant must treat as confidential (either because he is expressly told it is confidential, or because, from its character, it obviously is so) but which once learned necessarily remains in the servant’s head and becomes part of his own skill and knowledge applied in the course of his master’s business. So long as the employment continues, he cannot otherwise use or disclose such information without infidelity and therefore breach of contract. But when he is no longer in the same service, the law allows him to use the full skill and knowledge for his own benefit in competition with is former master … If an employer wants to protect information of this kind he can do so by an express stipulation restraining the servant from competing with him (within reasonable limits of time and space) after the termination of his employment.
Thirdly, there are specific trade secrets so confidential that, even though the servant may have left the service, they cannot lawfully be used for anyone’s benefit but the masters.”[98]

[98]Ibid, at 114-115.

Goulding J considered the second category of information to include trade information such as customer lists, but he noted that employees had not been restrained from contacting customers whose names they could remember.

He considered that the information in the case before him fell into the second category and, in the absence of an express restrictive stipulation, was not protected.

On appeal, the Court of Appeal in Faccenda Chicken Ltd v Fowler[99] doubted that a restrictive covenant could legitimately protect information in the second category, which fell short of a trade secret. In determining whether information constituted a trade secret, the Court of Appeal considered that the confidential quality could not be secured simply by telling the employee that certain information is confidential.[100]
[99][1987] 1 Ch 117.
[100]Ibid, at 138.

In Faccenda, it was accepted that the names and addresses of customers, looked at separately, did not constitute confidential information and “the defendants were entitled to make use of any recollection they might have of the names and addresses of the plaintiff’s customers.”[101]
[101]Ibid, at 139.

In Wright v Gas Weld Pty Ltd[102] Kirby P and Samuels JA differed from the Court of Appeal in Faccenda Chickens, holding that information in the second category could be protected by an express stipulation.
[102][1991] 20 1PR 481.

Kirby P identified a number of considerations relevant to determining whether information was confidential. They included:

“(a)the fact that skill and effort was expended to acquire the information;
(b)the fact that the information is jealously guarded by the employer, is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others;
(c)the fact that it was plainly made known to the employee that the material was regarded by the employer as confidential;
(d)the fact that the usages and practices of the industry support the assertion of confidentiality;
(e)the fact that the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer’s organisation.”[103]

[103]Ibid, at 498-9.

Applying the above principles to the plaintiff’s claims to confidentiality in the present case, I do not consider that the information included in the Tracker and Knowledge Bank data bases constituted a trade secret. Access to the data bases was not confined to senior employees. There is no evidence that it was “jealously guarded” or not readily made available to all employees. While effort was expended in compiling the data bases, there is no evidence that significant skill would be required to replicate them. In all the circumstances, I consider that, at its highest, the Tracker data base, as a compendium, falls within the second category of Goulding J’s classification. Constituents taken in isolation, such as names or addresses remembered by the employee, are not, in my opinion, protected following termination of employment, whether pursuant to general law or an express covenant.

The evidence suggests that the Knowledge Bank data base consists largely of publicly available information, although some reports containing client information are included. I consider that Knowledge Bank, or aspects of it, at the highest, would fall within the second category of Goulding J’s classificiation. The plaintiff has not, in my opinion, established that confidentiality attaches to its training manuals, methodologies or templates.

Did Mr Galbally Remove Data?

The plaintiff alleges that Mr Galbally copied and removed Tracker data from its premises immediately prior to the termination of his employment, in breach of clause 4, which provides “consequential upon paragraph 1 hereof, upon termination of your employment (for whatever reason) you will not take with you any documents or copies of documents which have come into your possession or control during the course of your employment or in any way use such documents”.

The defendants do not dispute the validity of the clause but deny the alleged breach. It is not denied that Mr Galbally copied the data. It is denied that he removed the copied data from the plaintiff’s premises. The plaintiff did not call any witness to give direct evidence of the alleged removal of the data. Rather, it relies on the evidence of a forensic computer expert and submits that Mr Galbally’s reconstructed activities on the plaintiff’s laptop computer do not logically accord with Galbally’s stated purpose of cleaning the laptop and saving data for his successor.

It appears that the Tracker data base software used by the plaintiff was old (dating from 1987) and did not have the back‑up of its manufacturer, which had gone into liquidation. Although Mr Bellin did not concede it, I am satisfied that the software had significant operational problems, which caused Mr Galbally considerable difficulty. The Tracker software application was loaded onto Mr Galbally’s laptop computer so that he could access the data base contained on the server in the plaintiff’s server. It is not practical to transfer Tracker data/documents to a computer that does not have Tracker software. Tracker data would be indecipherable without the Tracker software application, which is no longer available through legitimate channels but can apparently be obtained from “pirate” sources.

Although the plaintiff’s employees were required to update relevant entries on the Tracker data base, it is difficult to update the data base directly unless logged into the server. Further, Mr Galbally, whose role required extensive travel, gave evidence, which I accept, that he experienced particular difficulties accessing the Tracker data base when he was out of the office and was not logged onto the server at the plaintiff’s premises.

When Mr Galbally recommenced work with the plaintiff in 1998 he was given a laptop computer and a password to access it and the plaintiff’s computer network. His evidence, which I accept, is that his password was known amongst the plaintiff’s staff. Mr Bellin’s secretary, Philip Rich, and Mr Galbally’s secretary, Philip Collyer, would access Galbally’s laptop for a range of tasks, including data base downloading.

Mr Rich’s evidence was that he did not keep a list of passwords, because the computer user passwords change every 60 days. He stated that he did not know Mr Galbally’s password at the date when he ceased employment with the plaintiff. However, Mr Rich agreed that he would ask Mr Galbally what his password was, and he did not deny that he downloaded Tracker data base files to Galbally’s laptop together with Philip Collyer.

Mr Rich agreed that if he did not know a user’s password, as administrator of the computer system, he could change the password and download information from the network and copy data bases onto Mr Galbally’s laptop. Mr Galbally said his laptop was frequently left at the plaintiff’s premises.

Mr Galbally stated that he had difficulty using his laptop computer off-site on his work interstate or abroad, due to the age of the Tracker software. He therefore had to have a separate copy of the data base in the laptop computer, for when it was not connected to the plaintiff’s network. During 1999 Mr Galbally’s laptop computer was upgraded. From that date, Mr Galbally had persistent trouble with accessing Tracker when not connected to the server. Mr Rich did not deny that a consultant was employed and that there were many unsuccessful attempts to address Mr Galbally’s problems with Tracker.

Mr Galbally stated that he occasionally had to download part of the Tracker data base onto his laptop for use when travelling. In particular, he downloaded the contact details of clients, which he transferred to Excel spreadsheets. Because it was not possible to “print off” Tracker reports from the laptop, he used soft copies of the Tracker data base for contact details. Mr Galbally also had client files on his laptop. He said that he also downloaded a number of other relevant materials from Tracker onto his laptop or onto a CD ROM or disk, depending on the purpose.

Mr Galbally stated that the IFAP network server was cluttered and ran out of storage space. He therefore frequently archived personal documentation he kept on the server for backup and file maintenance reasons. He downloaded files to the laptop and sometimes transferred them to CD ROM, rather than maintain them on the laptop. He did so especially when he travelled overseas, to use the CD ROMs’ backup in case of internal disk drive failure. When questioned why he did not keep the material both on the laptop and CD ROM he stated that in some cases the files were large and he needed only removable media (although he conceded in cross‑examination that his hard disk was not fully occupied). He also had a copy of the I.F. Knowledge Bank data base in the form of a computer disk.

Mr Rich agreed that when Mr Galbally was due to leave the plaintiff, he informed Mr Rich that he would “clean up” the computer and backup material belonging to the plaintiff, and review files to get rid of unnecessary files on the plaintiff’s server. He agreed that space was very limited. Mr Rich did not recall Mr Galbally saying that he would put the plaintiff’s backed up material on disk or CD ROM. Nor did Mr Rich recall Mr Galbally telling him on 10 September 2001 that he had left the keys, computer and disks on his password. However, he said that his memory of events was not good and he did not dispute that it had happened. Ultimately, when Mr Rich was asked, “Mr Galbally says that when he was leaving he gave you the keys and said to you that the computer and the backup disks are on my desk together with my password”, he responded, “Probably that would be normal yes”. He had, however, earlier stated that it was not standard practice to provide disks.

The plaintiff submitted that an adverse inference should be drawn against the defendants, or an inference should be drawn in its favour, because Mr Chapman was still employed by the plaintiff on 10 September 2001, but was not called to give evidence about this issue. No other employee of the plaintiff was called and there was no evidence that Chapman witnessed, or had any involvement in, these events. I do not consider that the failure to call Mr Chapman should lead me to infer that Mr Galbally removed the disks. I do not consider that I should presume that Mr Chapman could put a true complexion on any facts established by the plaintiff in this context such that, from failure to call him, I should draw the inference in the plaintiff’s favour, that Mr Galbally, contrary to his denial, removed the disks.

Mr Galbally recollected that over some days prior to departure, he cleaned his laptop for the next user, including downloading files from the server to identify and to remove his own files, which he saved to removable media, and backing up copied files belonging to the plaintiff, which he also saved to CD ROM and floppy disk. He stated that he left behind CD ROMs of file copies of what had been deleted, backed up the Excel spreadsheet of Tracker data onto a disk, and deleted it from the laptop computer.

Mr Galbally’s evidence was that on 10 September 2001 he went to the plaintiff’s office to make a final backup prior to deleting files from the laptop in preparation for departure.

Mr David Wilkins is a computer consultant. His expertise was not challenged. I accept that he is qualified by training and experience to give evidence on whether data belonging to the plaintiff had been downloaded or otherwise copied by means of Mr Galbally’s laptop computer. Mr Wilkins presented as a direct and sensible witness.

On 24 December 2001 he was requested by letter of the solicitor for the plaintiff to examine the laptop previously used by Mr Galbally in order to determine whether data belonging to IFAP had been downloaded or otherwise copied.

Mr Wilkins explained that computers can hold data in “export” files. When the export files are deleted, the data contained in the relevant file does not immediately disappear. The space it occupies can be “overwritten” over the course of time, but the file remains on the computer’s hard drive and can be retrieved by special means until the space has been overwritten several times.

Mr Wilkins retrieved an exact representation of what was on the hard drive of Mr Galbally’s laptop computer.

He found what appeared to be documents relating to Zeal Consulting Pty Ltd, (Mr Galbally’s former employer), and photographs and documents personal to Mr Galbally. He found a document for an entity referred to as DCS Consulting.

He recovered part of a file called “Simon PST”. He concluded that on 8 September 2001, the user exported data from several Tracker data bases, imported them to Excel and saved the resulting Excel file.

Mr Wilkins concluded that on 1 September 2001, data from the IFAP database was exported to the computer and opened in a Microsoft Word programme and on 2 September 2001 data from the IFAP, IFAP Associates Media and I.F. EMEA databases were exported onto the laptop and converted to an Excel spreadsheet. Mr Wilkins concluded that on 8 September 2001, broadly the same data bases were again exported and converted to an Excel spreadsheet.

Mr Galbally agreed that he did export the data and converted it to an Excel spreadsheet or spreadsheets.

On 1, 2, 8 and 9 September 2001 an OMEGA Zip CD 650 (a “CD burner”) was connected to the laptop. Mr Galbally stated that he had connected the CD burner and copied the data.

Mr Wilkins concluded that on 10 September 2001, a person exported the data from the IFAP and IFAP Associates databases into export files, then exported the data into Excel files, which files were then written to a floppy disk.

He also concluded that between 8 September and 10 September, a person deleted a large number of files, including export files, e-mails and Microsoft Office documents.

Mr Wilkins agreed that the only data downloaded onto the Excel spreadsheet on 10 September 2001 were the contact details, names and addresses which were then downloaded onto floppy disk. As far as his examination could disclose, that was the only data downloaded onto floppy disk from Tracker. Mr Galbally confirmed that on 10 September 2001 he went into the plaintiff’s office and did that.

In cross‑examination Mr Galbally stated that his purpose in doing this prior to departure was to clean the machine and put the information on floppy disk in readiness for the next user, in case someone wanted to use them, but also to clean the laptop of them, as they were peculiar to his use.

He said that he did not backup e-mails because he was asked to clean out the e-mail box on his laptop and took the view that, in so far as they related to client contact, they would, in any event, be on the Tracker data base.

His evidence was that at first he attempted to sort out what was on the laptop but not on Tracker data base, but the task became too difficult and he ultimately simply copied all the files on his laptop and copied them onto a CD ROM, which he left at the plaintiff’s premises.

In summary, Mr Galbally did not dispute that he downloaded and copied data from Tracker files during the last weeks of his employment, which accords with the evidence of Mr Wilkins, based on the latter’s retrieval of data. Mr Galbally’s evidence was that his actions were undertaken as an agreed course of action discussed with the computer administrator, Philip Rich, to clean his laptop computer, backup both his own data and the plaintiff’s data, and leave the laptop, password and backup media, with the plaintiff’s data on it at the plaintiff’s office when he left.

There is thus no dispute that the plaintiff’s data were copied onto backup media. The issue in dispute is whether Mr Galbally left the plaintiff’s data in backed up form at the plaintiff’s office as he contends, or whether, as the plaintiff contends, it should be inferred that he took it with him. The plaintiff contends that that inference should be drawn because there is no reason why the downloading and backup activities reconstructed by Mr Wilkins, and not challenged in substance by Mr Galbally, would have been performed for legitimate purposes on behalf of the plaintiff. The plaintiff also points to the presence on the laptop of documents prepared for Zeal Computing Pty Ltd, Mr Galbally’s former employer, and submits that it constitutes evidence of Mr Galbally’s propensity to unauthorised removal of his employer’s material.

Mr Bellin denied that he knew that Mr Galbally had trouble with Tracker, especially when off-site and that he used an Excel spreadsheet for contact details to address that problem. He said that he knew nothing of an Excel spreadsheet. Mr Bellin was a difficult and unresponsive witness. I consider that he did know that Tracker had problems and that there were attempts to address it. Mr Bellin said he left computer matters entirely to Mr Rich. However, he clearly monitored closely what was occurring at the plaintiff’s premises.

Mr Rich agreed that Mr Galbally had a lot of trouble with the computer and the Tracker data base. He agreed that the plaintiff retained a technician through 1999 to 2000 to correct the problem, unsuccessfully, despite multiple attempts. The difficulties were such that a replacement software was considered.

Although Mr Bellin denied any knowledge of an agreement that Galbally would clean up the computer on his departure, he stated that he at that stage trusted Mr Galbally to make a bona fide handover, even permitting him to give a presentation in India during the final days of his employment.

Mr Rich, who had charge of such matters, concurred in Mr Galbally’s account that he was to clean his computer and backup the material belonging to the plaintiff. Mr Rich’s memory of the arrangements discussed with Galbally was not detailed, but he stated, “I remember thinking I just want the machine cleaned up properly so I don’t have to deal with it later.” He did recall, and could not deny, that the agreed arrangement was that Mr Galbally would put material on disks. He agreed that Mr Stafford (and possibly Mr Chapman) gave him disks on terminating employment. However, he said that he did not know why the plaintiff’s material, as distinct from personal files, would need to be put on disks.

Mr Wilkins said what he found was not consistent with someone cleaning his laptop for a successor because he removed not only personal matters but also the Winzip application and the e-mails. The Winzip application is a compression tool and Mr Wilkins agreed that there is no reason at all why it should be removed. He gave no explanation suggestive of legitimate or illegitimate purposes by Mr Galbally. In final submissions, it was contended that the removal of the Winzip application was done in order to conceal the copying. However, Mr Wilkins’ evidence was that “there’s no reason to take Winzip off at all”. I consider that he did not dispute the proposition put to him that there was nothing sinister about deleting Winzip. He ultimately agreed that if Mr Galbally himself had put the Winzip application on to the laptop, that would be a reason for its removal. Galbally explained the deletion of the e-mail. Mr Wilkins agreed that virtually the same data was downloaded onto an Excel spreadsheet on four separate occasions in September, but was not put onto a floppy disk each time. Mr Wilkins agreed that Galbally’s explanation that he needed a more compatible format for the contact names and addresses was consistent with the activities on the four occasions in September.

Mr Wilkins did not detect any other instances of contact details being put in an export file and then converted to an Excel spreadsheet. However, it was possible that the process may have occurred on other occasions, and was not recorded because the Outlook programme was not on at the time.

The plaintiff submits that Mr Stafford, Mr Chapman and Ms Carroll all have access to the Galbally Carroll server and presumably Mr Stafford and Mr Chapman use it all the time” and “would certainly know whether or not any of the plaintiff’s material had been copied onto the defendants’ server”. It contends that I should draw an inference that their evidence would not help the defendant’s case and further, take it into account in deciding whether to accept particular evidence on the matters on which they could have spoken or in drawing inferences of fact open to me on the evidence given.

The principle in Jones v Dunkel requires the establishment of facts which require an answer before an inference can be drawn from silence. In the present case, the undisputed facts are that Mr Galbally copied the IFAP data base and that the defendants have an ACT data base containing 300 entries, as opposed to 1,600 entries on the IFAP data base. They are not necessarily the same entries and there are differences in the detail of some entries for the same client.

I consider the evidence on the reconstructed computer activity inconclusive.

I am not persuaded that the established facts “require an answer” but to the extent to which they do, I do not consider, in all the circumstances, that I should draw the inference that Mr Galbally removed the disks and copied the plaintiff’s data onto Galbally Carroll’s server, having taken into account the failure to call Messrs Stafford, Chapman and Ms Carroll.

In the final analysis, Mr Galbally appeared to me a credible witness who endeavoured to answer questions directly. He stated that he undertook a cleaning and backup process with the consent, and possibly at the request, of Mr Rich, the plaintiff’s responsible officer. It is not denied that deletions and copying occurred. Mr Galbally has testified that he left the disks at the plaintiff’s premises and did not take them with him. Mr Rich does not deny that this may have happened and admits he has not an exact memory. He agreed that Mr Stafford left copied material on disks with the plaintiff.

Although Mr Galbally could not account for every detail of, or provide a coherent purpose for, all the activities reconstructed by Mr Wilkins, there are some factors which would play no role in either party’s version of events (e.g. the deletion of the Winzip application). Further, it is not disputed that Mr Galbally exported virtually the same Tracker data to Excel spreadsheets on four separate occasions on 1, 2, 8 and 9 September 2001. Mr Wilkins agreed that the successive exports were consistent with Mr Galbally’s stated practice for accessing customer names and addresses due to difficulties with Tracker while out of the office. The plaintiff contends that Mr Galbally did not satisfactorily explain how this was consistent with his work requirements towards the end of his employment with the plaintiff. It was submitted that he was in India for some of the time and had not shown why he needed some of that information while in India.

It is unclear why four successive exports of the same data would be necessary to effect a calculated act of unauthorised copying for removal. Mr Wilkins was asked, “If one was wanting to take this data and convert it and put it onto a floppy disk and take it away, you don’t have to do it four times as has shown up in these records, do you? You only have to do it once?” He replied, “That’s true”. The plaintiff submitted that the defendants bear the onus of establishing that Mr Galbally copied the data for the plaintiff’s purposes. However, the plaintiff bears the onus of establishing the breach of clause 4.

I do not consider that the presence on Mr Galbally’s laptop computer of material that he had prepared while working for Zeal Pty Ltd establishes a propensity to unauthorised removal of employers confidential information. The relevant material appears to be reports or presentations prepared by Mr Galbally himself. It is distinguishable from material such as the IFAP customer contact data base. I consider that its removal from Zeal Pty Ltd is consistent with innocent intentions.

Galbally Carroll’s ACT database contains only 300 client names, and includes a number of dissimilarities of detail in relation to clients which are also included on the plaintiff’s IFAP database. While not in itself conclusive, that circumstance fortifies Mr Galbally’s denial that he did not remove the data. In all the circumstances, I believe Mr Galbally’s account. I accept that he had previously created Excel spreadsheets for himself due to problems with Tracker which Mr Rich does not deny. Although Mr Wilkins’ examination did not detect that activity, his evidence is that the reconstruction may not be comprehensive because not all items were recoverable, and the Outlook application might not have been open at the time of a given activity.

I therefore conclude that although Mr Galbally, at the end of his employment downloaded Tracker data and perhaps other data belonging to the plaintiff, and saved them to floppy disk and CD ROM, he did so as part of the clean up process in preparation for a successor and, as he testified, left the saved data on discs with the laptop password and other items at the plaintiff’s premises.

I conclude that Mr Galbally did not breach clause 3. It follows that in my opinion, the allegation in paragraph 13(f) of the further amended statement of claim that “Galbally has made copies of the client data bases of the plaintiff available to Galbally Carroll”, is not established. Further, no breach of any of the defendant’s contracts, and no wrongful inducement to breach the contracts, is made out on that basis.

Did the defendants otherwise use confidential information

It remains to determine whether, in the absence of any copying and appropriation of the data bases in a disk form as alleged, the defendants, or any of them, nevertheless breached clause 3. Clause 3 provides that “during the continuance of your employment by the plaintiff or thereafter, divulge any trade secrets (including its modes and methods of business) or any information concerning the business or finances of the company or any of its dealings, transactions or affairs or use such trade secrets or information without the prior written consent of the plaintiff”.

The plaintiff alleges that Galbally Carroll breached this term by using the information contained in its data bases in approaching and soliciting business from three nominated clients of the plaintiff. Those clients are Boral Limited, ICI Paints (Asia Pacific) Pte Ltd and ICI Paints (Malaysia) Sdn Bhd. The defendants do not deny that they approached Boral and undertook work for the ICI companies.

The plaintiff further alleges that the relevant confidential information was used by Galbally Carroll to approach and attempt to solicit business from “other clients and contacts of the plaintiff’. No particulars of the “other clients and contacts of the plaintiff” were provided in the further amended statement of claim. The plaintiff, in final submissions, pointed to documents discovered by the defendants in the course of the trial, which were not tendered, but indicated a number of further contacts.

Mr Bellin, in his witness statement, gave no evidence of the specific instances of this alleged breach.

In relation to the precise nature of the confidential information allegedly used, in cross‑examination Mr Bellin stated that Mr Galbally had made a presentation to Boral and the confidential information Mr Galbally used “was the consulting work that we completed confidentially for Boral”. However, he was not able to state what the relevant consulting work was or how he knew that the work was used.

Mr Bellin asserted that Mr Galbally had used a report (which was not produced) said to be prepared by the plaintiff for ICI Paints (Malaysia). He stated that the other confidential information of the plaintiff used by Mr Galbally in breach of his confidentiality obligation was “his knowledge gained on how ICI Paints works and is structured” which he conceded was “knowledge that he [Galbally] had in his head” and which he had gained throughout his employment with the plaintiff. Mr Bellin was unable to say whether the defendants had used any of the information contained in the Tracker data base in relation to their contract with ICI Paints (Asia Pacific). He was unable to refute Galbally’s denial that he had used information from the Tracker data base.

Mr Bellin made the general assertion that the defendants used “the work they completed just before their departure [which] would be confidential” in an approach to ICI Paints (Malaysia).

Ultimately, Mr Bellin asserted that the confidential information the defendants used was confidential information of, or concerning, ICI and its markets; “Highly confidential information and information for which we were required to sign confidentiality undertakings, … all sorts of confidential information relating to ICI paints in general, was made available to them.”

Although asserting that the confidential information was used, Mr Bellin could provide no further particulars. He agreed that the approach to ICI Paints (Malaysia) would have to be approved by Mr Alan Preston, a person whose name and position would be within Galbally’s own knowledge.

Mr Bellin stated no basis for direct knowledge of the alleged use of confidential information and his testimony was limited to surmise and assertion.

I do not consider that the matters referred to by Mr Bellin establish that the confidential information of the plaintiff was used in the three incidents relied upon by the plaintiff as constituting a breach of clause 3.

The ACT database

The defendant Galbally Carroll, has a data base known as “ACT” which contains client contact details.

Mr Galbally denied that in compiling the ACT data base he referred to, or made use of, the plaintiff’s data bases. The ACT data base contains approximately 300 hundred records. According to Mr Galbally, it was compiled over a four months’ period. In contrast, the Tracker IFAP data base contains approximately 1,600 client contact entries.

Mr Galbally conceded that, in some instances, he may have taken information from his electronic diary, which had been entered during his employment with the plaintiff and included it in the ACT data base.

In relation to a number of entries in the ACT data base, Mr Galbally asserted that he obtained details of mobile telephone numbers directly from the relevant client, Mr Berkeley QC pointed out instances where there was a mobile phone number for the same client in both ACT and IFAP and instances where there was no mobile phone number for a particular client in either data base.

Mr Berkeley QC submitted that I should infer from the absence of mobile telephone numbers in the entries for five ICI managers, in both the Tracker IFAP and ACT data bases, that the ACT entries were copied from the Tracker IFAP data base. Mr Galbally explained that in compiling the ACT database, he was unable to obtain the relevant mobile telephone numbers either from ICI staff or by direct contact with the relevant managers. I do not consider that I should infer copying from the common absence of certain mobile telephone numbers. The common absence appears equally explicable by the compilers of each data base encountering the same difficulty in obtaining the information from the primary source.

The defendants provided a schedule setting out a number of discrepancies between the Tracker IFAP data base and the ACT data base, revealing various different details of address, e-mail addresses, presence or absence of meeting dates, facsimile numbers, company name, position title, direct lines, and the like, in relation to 14 contact entries. While those differences may be explicable, as Mr Berkeley QC contends, due to subsequent updating by the defendants, they are also explicable by independent compilation.

In summary, Galbally Carroll’s ACT data base client entries are not all identical with the Tracker IFAP data base client entries. The ACT entries constitute only a small proportion of the Tracker IFAP data base client entries, amounting to 300 as compared with 1,600. Mr Galbally, who presented as a credible witness, denied copying. The significance of the failure to call Messrs Stafford, Chapman and Carroll has already been considered above. In all the circumstances, I do not consider that the ACT data base was copied from the Tracker IFAP data base, whether by downloading data and removing discs or by any alternative means.

CONCLUSION

For the reasons set out above, I consider that the covenants in the individual defendants’ contracts of employment with the plaintiff restraining solicitation of business from, or employment by, the plaintiff’s clients, are wider than is necessary to protect the legitimate interests of the plaintiff. They are therefore invalid as an unreasonable restraint of trade. Further, in my opinion, the plaintiff has not established breach (or wrongful induction of breach) of the covenants prohibiting unauthorised use of the plaintiff’s trade secrets and confidential information or removal of the plaintiff’s documents. In my opinion, the plaintiff’s claim should be dismissed.

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[2003] VSC 192

10 June 2003