Janala Pty Ltd v Hardaker (No 2)

[2022] NSWSC 1222

Supreme Court

New South Wales

Medium Neutral Citation:

Janala Pty Ltd v Hardaker (No 2) [2022] NSWSC 1222

Hearing dates:

31 August, 1-2 September 2022

Date of orders:

12 September 2022

Decision date:

12 September 2022

Jurisdiction:

Equity

Before:

Richmond J

Decision:

Application to set aside or stay subpoena refused in part.

Catchwords:

PRACTICE AND PROCEDURE – application to set aside or stay subpoena – whether subpoena lacks legitimate forensic purpose – whether documents sought to be obtained “apparently relevant”

Cases Cited:

Adamson v NSW Rugby League Ltd (1991) 31 FCR 242

AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176; 224 IR 219

Amoco Australia Pty Ltd v Rocca Bros. Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40

Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717

Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg (2002) 1 Qd R 482; [2002] QCA 348

Employsure Ltd v McMurchy [2021] NSWSC 1179

ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640

Informax International Pty Ltd v Clarius Group Ltd (2011) 192 FCR 210; [2011] FCA 183

Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163

Janala Pty Ltd v Hardaker [2022] NSWSC 822

Jardin v Metcash Ltd [2011] NSWCA 409; 285 ALR 677

Lindner v Murdock’s Garage (1950) 83 CLR 628; [1950] HCA 48

McHugh v Australian Jockey Club Ltd [2014] FCAFC 45; 314 ALR 20

McPherson v Moiler (1920) 20 SR (NSW) 535

Metcash Ltd v Jardin (No 3) [2010] NSWSC 1096; 273 ALR 407

Paciocco v Australia & New Zealand Banking Group Ltd (2015) 258 CLR 525; [2016] HCA 28

Putsman v Taylor [1927] 1 KB 637

Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145

Texts Cited:

J D Heydon, Cross on Evidence (13th Australian ed, 2021, LexisNexis)

J D Heydon, Heydon on Contract (2019, Thomson Reuters)

J D Heydon, The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths)

Category:

Procedural rulings

Parties:

Janala Pty Limited (Plaintiff)
Lonnie Hardaker (First Defendant)
Freight Solution Services Pty Ltd (Second Defendant)

Representation:

Counsel:
J Fernon SC with A Vial (Plaintiff)
I Pike SC with D Reynolds (Defendants)

Solicitors:
K&L Gates (Plaintiff)
Mills Oakley (Defendants)

File Number(s):

2022/138739

Judgment

1. Application is made by the defendants by a notice of motion dated 25 August 2022 to set aside a subpoena issued by the plaintiff to GPI (General) Pty Ltd t/a PFM Corp (PFM) on 10 August 2022 and paragraph 3 of the notice to produce served by the plaintiff on the first defendant on 10 August 2022. The subpoena and notice to produce are directed to obtaining communications between Mr Hardaker, the first defendant, and customers of the plaintiff, including EverX Pty Ltd (EverX) and Business Relocation Consulting Pty Ltd (BRC), after termination of his employment with the plaintiff in April 2022.

Background

2. These proceedings concern the enforceability of post-employment restraints contained in the employment contract Mr Hardaker entered into with the plaintiff on 17 November 2014 (Employment Contract) and in an undertaking he signed on 2 February 2022 (Undertaking). On 17 June 2022 the Court made interlocutory orders which inter alia restrained Mr Hardaker from working for a competitor of the plaintiff except PFM in a limited capacity referred to as the “warehouse proposal”: Janala Pty Ltd v Hardaker [2022] NSWSC 822 at [3], [67] and [74]. The final hearing is set down for 3 days commencing on 5 October 2022.

3. On 10 August 2022, the plaintiff applied to the duty judge for leave to file in Court a notice of motion dated 9 August 2022 seeking the variation of the interlocutory orders and for leave to issue the subpoena and notice to produce. In the hearing before Lindsay J, as duty judge, senior counsel for the plaintiff informed the Court that “the documents that are sought are sought urgently for the purposes of the application on the motion.” Lindsay J made orders granting the leave sought. Ultimately, on 15 August 2022, with the consent of the defendants, the variation to the interlocutory orders sought in the notice of motion were made. This has the effect of preventing Mr Hardaker from working for PFM in any capacity in the period to the conclusion of the final hearing.

4. In the meantime, on 12 August 2022, the plaintiff filed a notice of motion charging Mr Hardaker with contempt on the basis that he had breached the orders made by the Court on 17 June 2022. Mr Hardaker personally attended Court on 15 August 2022 at which he admitted breach of the interlocutory orders and made an apology to the Court through his senior counsel. The issue of penalty has been deferred until the conclusion of the proceedings.

5. On 22 August 2022 the plaintiff was granted leave, with the defendants’ consent, to file an amended statement of claim which contained new sections headed “Ongoing conduct: 20 July 2022 email from EverX Pty Ltd” and “Ongoing conduct: 20 July 2022 email to Business Relocation Consulting Pty Ltd” which alleged that Mr Hardaker had in the period after the cessation of his employment with the plaintiff solicited EverX and BRC, both of which are customers of the plaintiff, in breach of the restraint clauses in his Employment Contract and the Undertaking. The particulars of these allegations were identified as two emails: (1) an email dated 20 July 2022 from Mr Hardaker to “[email protected]” which is an email address for BRC (a customer of the plaintiff), and (2) an email dated 20 July 2022 from EverX (a customer of the plaintiff) to two employees of the plaintiff which was copied to Mr Hardaker. These two emails are referred to in the subpoena (see below).

6. On 25 August 2022 the defendants served their defence to the amended statement of claim which admitted each allegation pleaded in the new sections of the amended statement of claim.

7. Also on 25 August 2022 the defendants wrote to the plaintiff inviting it to withdraw the subpoena which invitation was rejected. The defendants then filed the notice of motion which is now before the Court. In the defendants’ written submissions in support of the motion, the defendants accept that they do not and will not take any point at trial that the Court should in the exercise of its discretion, refuse to enforce the restraints should they be valid. Accordingly, in the event that the Court determines at the final hearing that the restraints are valid no discretionary defence will be advanced by the defendants against the granting of final injunctive relief.

Documents sought

8. The documents sought by the subpoena fall into 12 categories as follows:

“(1)   A copy of the email dated 20 July 2022 at 1:35:48 pm AEST from “Lonnie Hardaker >” to “ >” with the subject “Heavily Lift Opportunities”.

(2)   A copy of each Document:

a.   that is a reply to; or

b.   relates to,

the email dated 20 July 2022 at 1:35:48 pm AEST from “Lonnie Hardaker “ ” to “ ” with the subject “Heavily Lift Opportunities”.

(3)   A copy of each Document recording a direction or instruction from GPI (General) Pty Ltd trading as PFM Corp (PFM Corp) to Lonnie Hardaker (Mr Hardaker) during the course of his employment with PFM Corp to the effect that for any of the period up to the date of this subpoena:

a.   Mr Hardaker is not permitted or authorised to have any dealings with current or potential PFM Corp clients; and/or

b.   Mr Hardaker is to limit his interactions at work for PFM Corp to his co-workers; and/or

c.   Mr Hardaker is not to receive customer or contractor visits; and/or

d.   if a customer or contractor requests to see Mr Hardaker, an alternative PFM Corp employee is to deal with that person.

(4)   A copy of each Document recording a direction or instruction from PFM Corp to any employee of PFM during the course of Mr Hardaker’s employment with PFM Corp to the effect that for any of the period that includes the period up to the date of this subpoena:

a.   Mr Hardaker is not permitted or authorised to have any dealings with current or potential PFM Corp clients; and/or

b.   Mr Hardaker is to limit his interactions at work for PFM Corp to his co-workers; and/or

c.   Mr Hardaker is not to receive customer or contractor visits; and/or

d.   if a customer or contractor requests to see Mr Hardaker, an alternative PFM Corp employee is to deal with that person.

(5)   A copy of the email dated 20 July 2022 at 10:55 am from “Anil Wadhwa >” to “Tia Paranihi <[email protected]>” and “Linda Peterson ” with subject line, “Fiona Stanley Hospital, WA – Removal of 4 x GE ultrasound systems”.

(6)   A copy of each Document:

a.   that is a reply to; or

b.   relates to,

the email dated 20 July 2022 at 10:55 am from “Anil Wadhwa” >” to “Tia Paranihi <[email protected]>” and “Linda Peterson ” with subject line, “Fiona Stanley Hospital, WA – Removal of 4 x GE ultrasound systems”.

(7)   A copy of each Document recording communications from Mr Hardaker (including from the email account [email protected]) to Everx Pty Ltd or from Everx Pty Ltd to Mr Hardaker (including to the email account [email protected]) during the course of Mr Hardaker’s employment with PFM Corp.

(8)   A copy of each Document recording communication during the course of Mr Hardaker’s employment with PFM Corp between Mr Hardaker (including from the email account [email protected]) and any employee of PFM Corp that concerns the provision of or request for the services of PFM Corp to EverX Pty Ltd.

(9)   A copy of each Document recording communication between any employee of PFM Corp in reply to the email of Anil Wadhwa of Everx dated 20 July 2022 at 10:55 AM (including at <[email protected]>) with the subject “Fiona Stanley Hospital, WA – Removal of 4 x GE ultrasound systems”.

(10)   A copy of each Document recording communication during the course of Mr Hardaker’s employment with PFM Corp between Mr Hardaker (including at <[email protected]>) and any employee of PFM Corp that concerns the provision of or request for the services of PFM Corp to Business Relocation Consulting Pty Ltd (including to the email address ).

(11)   A copy of each Document recording communication during the course of Mr Hardaker’s employment with PFM Corp between Mr Hardaker (including at ) and Tony Hayward concerning:

a.   the provision of services by PFM Corp;

b.   opportunity for PFM to provide services,

to Business Relocation Consulting Pty Ltd.

(12)   A copy of each Document recording communication during the period of Mr Hardaker’s employment with PFM Corp between Mr Hardaker (including at ) and any current or potential clients of PFM Corp.”

9. In essence, paragraphs 1 and 5 are the two emails referred to at [5] above copies of which the plaintiff has already obtained. Paragraphs 2 and 6 seek replies to those emails or documents relating to them. Paragraphs 3 and 4 seek documents relating to the warehouse proposal. Paragraphs 7 and 9 seek communications between PFM and EverX and BRC regarding the provision of services by PFM to those entities during the period of Mr Hardaker’s employment with PFM and paragraphs 8, 10 and 11 seek internal PFM communications relating to the provision of such services. Paragraph 12 seeks communications during the period of Mr Hardaker’s employment with PFM between him and any “current or potential” clients of PFM (not the plaintiff).

10. The notice to produce identifies 10 categories of documents in substantially the same form as paragraphs 1-3, 5-8 and 10-12 of the subpoena. On 22 August 2022 the Court, by consent, stood over until the final hearing of the matter all paragraphs of the notice to produce except paragraph 3 which is materially the same as paragraph 3 of the subpoena.

Principles

Setting aside a subpoena

11. It is common ground that a subpoena is liable to be set aside where it lacks a legitimate forensic purpose, i.e. the documents sought lack apparent relevance to the issues in the proceeding, and the party issuing the subpoena bears the onus of establishing the apparent relevance of the documents sought. To establish that the documents sought under a subpoena are “apparently relevant”, the issuing party is required to show that it is likely (or “on the cards”) that the documents sought to be produced will materially assist on an identified issue or there is a reasonable basis beyond speculation that it is likely (or “on the cards”) that the documents subpoenaed will so assist: Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 at [65] per Bell P (McCallum JA agreeing) and [89] per Brereton JA. As that decision establishes, it is not necessary that the material assistance that the subpoenaed documents would be likely to afford is material assistance to the case of the party that issued the subpoena: at [80], [90].

12. Bell P (as his Honour then was) added at [68] that:

“The word “apparent” admits of the possibility that the documents sought by way of subpoena may not ultimately turn out to be relevant. Their apparent relevance, however, should be able to be ascertained by an examination of the description or identification of the document or documents sought in the schedule to the subpoena in light of the issues in the case, as they present themselves on the pleadings, in particulars and/or in affidavits or witness statements if they have been filed or served at the time of the issue of the subpoena.”

13. In the present case the plaintiff relied on the pleadings to support the apparent relevance of the categories of documents sought under the subpoena. As I understood the plaintiff’s argument, the subpoena was said to be relevant to the issue of whether the restraints in the Employment Contract and the Undertaking were reasonable to protect the confidential information and goodwill of the plaintiff, in particular because during Mr Hardaker’s employment with the plaintiff he developed and maintained personal relationships with and influence over the plaintiff’s customers: see paragraphs 15 and 56–59 of the amended statement of claim.

Relevance of subsequent events to the validity of the restraints

14. As the parties were not in agreement as to the extent to which subsequent events are relevant to the validity of a restraint, it is necessary to deal with the authorities in a little detail.

15. It is not in dispute that the date for determining the validity of the restraint and in particular whether the restraint is no wider than is reasonably necessary to protect the employer’s legitimate business interests, is the date the restraint was entered into: Lindner v Murdock’s Garage (1950) 83 CLR 628 at 638 per Latham CJ and 653 per Kitto J; [1950] HCA 48; Amoco Australia Pty Ltd v Rocca Bros. Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 318 per Gibbs J; [1979] HCA 42. What is in dispute is the extent to which events after the date the restraint was entered into can be taken into account.

16. The authorities establish three propositions relevant to this question: (1) the reasonableness of the restraint is determined by reference to the circumstances at the date the restraint was entered into including what was foreseeable in the future at that time; (2) facts occurring after the restraint was entered into are relevant where they throw light on the circumstances existing at the time the restraint was entered into; and (3) the reasonableness of a restraint is to be tested not by reference to what the parties have actually done under it but rather by what the terms of the contract entitle or require them to do: see J D Heydon, The Restraint of Trade Doctrine (4^th ed, 2018, LexisNexis Butterworths) at 48-50.

17. In relation to the first proposition, in Lindner Kitto J said at 653 (emphasis added):

“The validity of the restraint must be decided as at the date of the agreement imposing it. “The question is not whether experience gained during the service has shown the restriction to have been excessive or insufficient. The question is whether the covenant was a reasonable one for the parties to agree to at the outset of the service on the best estimate which they could then make of the future”: Putsman v Taylor [1927] 1 KB 637 at 643.”

18. As is clear from this passage, in assessing reasonableness at the date the restraint is entered into the court may take into account, as Salter J said in Putsman v Taylor, “the best estimate which [the parties] could then make of the future” or, to put it another way, the future probabilities which could have been foreseen (see ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 671). The full statement by Salter J on this topic in Putsman v Taylor [1927] 1 KB 637 at 643 was as follows:

“The question is not whether experience gained during the service has shown the restriction to have been excessive or insufficient. The question is whether the covenant was a reasonable one for the parties to agree to at the outset of the service on the best estimate which they could then make of the future. If, for example, a long service as manager was contemplated as probable, and it proves in fact to be short, it may appear that a narrower restriction would have been sufficient. If, on the other hand, a short service was contemplated, and it proves to have been a long one, it may well be that if the parties could have foreseen the future they may have agreed on a wider covenant.”

19. The plaintiff sought to rely on the last two sentences as indicating that the court could have regard to the actual performance and conduct of the parties in assessing the reasonableness of the restraint because it was necessary to do so in order to assess the best estimate which the parties could make of the future. It is significant that it was only the first two sentences of this passage which Kitto J adopted with approval in Lindner and not the last two, and I have been unable to locate any authorities which approve the last two sentences. A leading text concludes that the last two sentences are incorrect because they are inconsistent with the established principle that a restraint is invalid ab initio or valid ab initio, and a restraint which is initially unenforceable cannot become enforceable due to the way it operates in changed circumstances, and vice versa: see J D Heydon, The Restraint of Trade Doctrine at 50-51 and the cases there cited including Gledbow Autoparts Ltd v Delaney [1965] 1 WLR 1366 at 1377 per Diplock LJ. No authority has been brought to my attention which doubts the correctness of that criticism.

20. The kinds of matters which might be relevant as being future probabilities which could have been foreseen at the date the restraint was entered into were identified by Sackar J in Employsure Ltd v McMurchy [2021] NSWSC 1179 as follows:

“[93]  The reasonableness of a restraint is tested at the time of entering into the contract, but taking into account future probabilities that could have been foreseen (Woolworths v Olson [2004] NSWCA 372 (Woolworths v Olson ) at [40]). Some allowance can be made for potential developments in the role and the nature of the business for which an employee might be responsible in the future (Stacks Taree v Marshall [No.2] [2010] NSWSC 77 at [46] ). Potential developments include the prospect of promotion as an ordinary incident of employment (Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 (Cactus) at [37]). Further, if the parties should be expected to realise that they are dealing with a business that might be expanding, the covenant can be that which is reasonable to protect the contemplated expansion (Sidameno (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [71]).”

21. One of the cases cited by Sackar J is Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [37] where Brereton J accepted that a relevant matter is the prospect at the date the restraint is entered into that the employee will be promoted to positions of greater responsibility as an ordinary incident of his employment.

21. The plaintiff relied on two authorities (in addition to Putsman v Taylor) in support of a broader proposition that the court can have regard to future events that could have been foreseen rather than merely what was foreseeable as to the future at the relevant date. The first is Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 where Gleeson JA (with whom Bathurst CJ and Beazley P agreed) said (emphasis added):

“[63] The validity of a covenant in restraint of trade is to be judged at the date of its creation: Lindner v Murdock’s Garage at 653 (Kitto J); Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 318 (Gibbs J); [1973] HCA 40; Geraghty v Minter (1979) 142 CLR 177 at 181 (Barwick CJ); [1979] HCA 42. Nonetheless, the court may take into account future events that could have been foreseen: Lindner v Murdock’s Garage at 653. Hence, when exercising its discretion whether or not to grant relief, the court considers matters as at the date of the hearing: Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [70] (Young JA; Beazley and Basten JJA agreeing); Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414 at 440; [2008] NSWSC 852 at [88] (Brereton J).”

23. The sentence in bold needs to be read in context. In my opinion, what his Honour was referring to is the proposition that in assessing reasonableness at the date the restraint is entered into the court may take into account future probabilities which are foreseeable at that time, given that the authority cited is the statement of Kitto J in Lindner to that effect. (The final sentence is not relevant in the present context because the first defendant accepts that if the restraint is valid, there are no discretionary factors which would weigh against the grant of declaratory relief.)

24. In all of these cases where future probabilities are taken into account, the focus is on what was foreseeable as to relevant future events at the time the restraint is entered into. The future events that actually occur are only relevant in so far as they support an inference as to what was foreseeable at the date the restraint was entered into: see [28] below and BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105; [2010] NSWCA 347 at [49].

25. The plaintiff also relied on the observations of Sheppard J in Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 at 246-247. The only part of his Honour’s judgment relevant to the present issue is the following passage at 247:

“When one comes to the question, as one does in this case, of whether it has been established that an attempted restraint goes no further than is reasonably necessary to protect the interests of those who have imposed it, I have not understood why the likely or potential effect on those most affected by it — in this case professional football players — is not a matter relevant to be taken into account. The ultimate question is whether the restraint is unreasonable. If one does not make a judgment about how it is likely to affect the players whose ability to earn their living is or may be restricted by it, one will not have the complete picture. The restraint, as I have said, affects the clubs, but they are parties to it. It also has drastic consequences for the players who are not. Unless one examines the consequences or potential consequences upon the players, one will not be able to make an adequate or satisfactory judgment on the question whether the persons who have imposed the restraint have established that it goes no further than is reasonably necessary to protect their legitimate interests. An important part of the mosaic will be absent.”

26. I agree with the defendants that this passage does no more than recognise that in assessing the reasonableness of the restraint it is necessary to have regard to the likely or potential effect of the restraint on the employee (or other person restrained) assessed at the time the restraint is entered into, and does not support the proposition that subsequent events are relevant to the question of validity in a manner inconsistent with the three propositions stated at [16] above. It is clear from what Sheppard J said at 246 that he was in agreement with the substance of the reasons of Gummow J at 285-286 which set out the limited relevance of subsequent events to the validity of a restraint of trade.

27. The second proposition stated at [16] above has its genesis in the observation of Gibbs J in Amoco at 318 where he said (emphasis added):

“Moreover, I should add that although it appears to be settled that the validity of the restraint must be decided as at the date of the agreement, it would seem to me that facts that have occurred since that date would not necessarily be irrelevant; such facts might throw light on the circumstances existing at the relevant date and might, for example, absolve the court from the necessity of speculating as to the value of the consideration agreed to be furnished by the covenantee when, at the date of the litigation, it might be possible to quantify that consideration exactly.”

28. It is apparent that Gibbs J contemplated that events after the date the restraint was entered into may, but need not, throw light on the circumstances at the relevant date: McHugh v Australian Jockey Club Ltd [2014] FCAFC 45; (2014) 314 ALR 20 at [4(h)]. As J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [19.140] points out, the way in which subsequent events can be relevant to the position at an earlier point in time is through a process of retrospectant circumstantial inference. J D Heydon, Cross on Evidence (13^th Australian ed, 2021, LexisNexis) explains at [1170] that retrospectant evidence is a type of circumstantial evidence in which the later occurrence of an act, state of mind or state of affairs justifies an inference that an act was done or the state of mind or state of affairs previously existed. This is potentially relevant in the context of a restraint in at least two ways.

29. First, where a party seeks to establish the reasonableness of a restraint, or lack thereof, by reference to what was foreseeable at the date the restraint was entered into, “evidence of the later occurrence of an event can be probative of an earlier probability of that event occurring”: Paciocco v Australia & New Zealand Banking Group Ltd (2015) 258 CLR 525; [2016] HCA 28 at [169] per Gageler J (said in a different context but equally applicable here). For example, if it is sought to establish that despite the fact that the employment contract is determinable by the employer on one month’s notice a longer period of employment was probable when the contract was made, the actual period of the employment may throw light on that matter: McPherson v Moiler (1920) 20 SR (NSW) 535 at 541.

30. Second, communications between the employee and the employer’s customers after the restraint is entered into could potentially support a retrospectant circumstantial inference as to the nature of the personal relationship between the employee and the employer’s customers at the earlier time when the restraint was entered into: see, e.g. Metcash Ltd v Jardin (No 3) [2010] NSWSC 1096; 273 ALR 407 at [52] (affirmed on appeal in Jardin v Metcash Ltd [2011] NSWCA 409; 285 ALR 677 at [87]-[107]). These communications could either support the inference that the employee has influence over the employer’s customers’ propensity to give their custom which would point to the conclusion that the restraint is reasonable or, conversely, that the employee does not have such influence which would point the other way. Given that a contractual restraint which is an unreasonable restraint of trade has no legal effect and is treated as if it was not in the contract, the trial judge was obliged to determine that question irrespective of whether the employee’s conduct after the contract was made was illegal: see Cedar Hill Flowers at [35]-[37].

31. The third proposition stated at [16] above is a consequence of the requirement that the validity of a restraint is determined at the date it was entered into. It does not conflict with the second proposition as is evident from observations of Gummow J in Adamson v NSW Rugby League Ltd (1991) 31 FCR 242. The issue in that case was whether rules of the New South Wales Rugby League which established a system called an “internal draft” were an unreasonable restraint of trade. The rules set out a mandatory procedure to be followed by the clubs and players whose contracts with a particular club had come to an end which determined which club the player would then be permitted to play for regardless of that player’s own preference. After referring to the observation of Gibbs J in Amoco quoted at [25] above Gummow J said at 285 (emphasis added):

“But there always remains the basic proposition, as Scott J has expressed it, that the reasonableness of a restraint of trade must be tested, not by reference to what the parties have actually done or intend to do, but what the restraint entitles or requires the parties to do: Watson v Prager [1991] 3 All ER 487 at 507-8. In my view, it would have been permissible to have had regard, in the sense described by Gibbs J, to the operation of the internal draft had effluxion of time yielded such material. But, to the contrary of what the primary judge appears to have indicated in several passages (at 556, 563), in my view it was not the case that the issue of reasonableness of the restraint was to be determined by looking to the manner in which from time to time it operated in practice or might operate in practice. The fundamental question involves an assessment of what was permitted to the League and the clubs by the terms of the arrangement between them, as set down in the rules. Thus, in my view, it was not correct upon the state of the facts in the present case to enter upon an inquiry leading to his Honour's conclusion (at 558) that “no club would nominate a player under the draft who clearly did not wish to play with that club”.”

32. There is a clear recognition in the highlighted sentence that Gibbs J’s observation in Amoco sits comfortably with the requirement not to have regard to what the parties have actually done.

33. An application of the third proposition is that subsequent conduct of the employee in breach of the restraint is irrelevant to the determination of its validity. In Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg (2002) 1 Qd R 482, [2002] QCA 348, Williams JA (with whom the other members of the Court agreed) said at [25]:

“Another consequence of the test of reasonableness being considered at the time the contract is made is that subsequent conduct of the employee asserted to be in breach of the covenant is irrelevant to the determination of that issue. In the present case the validity of the restraint provisions was not to be determined, or affected by, whether the appellant had appropriate licences to carry on his competing business after August 2001.”

34. This statement was adopted by McMurdo J in AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176; 224 IR 219 as follows at [28]:

“The validity of a restraint must be decided as at the date of the agreement imposing it: Amoco Australia Pty Ltd v Rocco Bros. Motor Engineering Co Pty Ltd; Lindner v Murdock’s Garage. Accordingly, subsequent conduct of the employee asserted to be in breach of the company is irrelevant to the determination of this issue: see Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg. It is therefore irrelevant to consider at this point the scope of the defendant’s work with her new employer and the particular propensity for that to affect the plaintiff’s business.”

35. It is important to recognise the context in which Williams JA made the statement set out at [33] above. The case involved an employee who had, while employed by the plaintiff, breached his obligations to the plaintiff under a restraint in his employment contract by secretly setting up a partnership business in competition with the plaintiff. That business involved the sale of an Australian native plant harvested in Queensland which was illegal because the employee had failed to obtain the necessary licences. The plaintiff sought to enforce the contractual restraint by injunction. It succeeded at first instance because the trial judge considered that the restraint of trade doctrine could not be invoked by the employee to attack the enforceability of the contractual restraint in respect of conduct which was illegal.

36. On appeal, it was held that the trial judge had erred in failing to consider whether the restraint was reasonable at the time it was entered into, which was a question unaffected by whether the employee had appropriate licences to carry on the competing business. Given that a contractual restraint which, at the time it is entered into, is an unreasonable covenant in restraint of trade is void and unenforceable, the trial judge was obliged to determine that question irrespective of whether the employee’s conduct after the restraint was entered into was illegal: see Cedar Hill Flowers at [35]-[37].

37. The reasoning in Cedar Hill Flowers and AGA Assistance Australia reflects the third proposition stated above. The reason why subsequent conduct by the employee asserted by the employer to be in breach of a restraint is generally irrelevant is that the mere fact of such conduct by the employee cannot assist the Court in the determination of whether the restraint when entered into satisfied the test for validity. However, nothing said in either Cedar Hill Flowers or AGA Assistance Australia suggests any qualification was intended to either the first or second proposition stated in [16] above.

38. The defendants submitted that the only exception to the principle that subsequent conduct of the parties is irrelevant to the validity of the restraint is the first proposition stated at [16] above. In particular, it was submitted that the subsequent conduct would only be relevant if it went to the issue of the parties’ expectations, at the time of contracting, as to the likely future development of the employee’s role or responsibilities within the employee’s business. In my opinion, that submission is not correct because it overlooks the exception recognised by Gibbs J in Amoco that facts which have occurred since the date the restraint was entered into may throw light on the circumstances existing at that date. Evidence of subsequent events which throw light on the circumstances existing at the date the restraint was entered into, assuming they are circumstances relevant to the question whether the restraint goes no further than is reasonably necessary to protect the legitimate business interests of the employer, would be admissible on that question. That would be so even if those events involved conduct of the employee in breach of the restraint.

Consideration

39. As noted above, the ostensible purpose of the issue of the subpoena was to obtain documents to support the notice of motion dated 9 August 2022 which was an application to vary the interlocutory injunction granted on 17 June 2022. Ultimately that relief was granted on 15 August 2022. The plaintiff now seeks to support the 12 categories of documents sought in the subpoena on a different basis which is that they have apparent relevance to the validity of the restraints contained in the Employment Contract entered into in November 2014 and the Undertaking which was signed on 2 February 2022.

40. Clearly, paragraphs 3 and 4 cannot be supported on this basis as they relate only to the warehouse proposal. What is said below addresses the remaining 10 categories of the subpoena.

41. In relation to the remaining categories, the defendants contended that none has any legitimate forensic purpose because subsequent conduct of Mr Hardaker in breach of the restraints is irrelevant to the validity of the restraints.

42. The plaintiff sought to support the subpoena in two alternative ways. First, the plaintiff contended that the documents sought by the subpoena throw light on conduct that could have been foreseen at the time the Employment Contract and the Undertaking were entered into and thereby bear upon the reasonableness, validity and enforceability of the constraints. In my opinion, this is not a basis supported by the authorities for bringing in evidence regarding subsequent events, for the reasons given above.

43. Second, the plaintiff contended that each of the categories of documents sought in the subpoena would elicit documents which indicated the nature of the relationship of Mr Hardaker with the plaintiff’s customers during his employment with the plaintiff and that was relevant to whether the restraints in the Undertaking were valid (it being accepted, as I understood it, that the same could not be said for the restraints in the Employment Contract given that it was entered into 8 years earlier). It was submitted that a relevant matter to the reasonableness of the restraint is whether Mr Hardaker had become the “human face” of the business of the plaintiff, and the documents sought by the subpoena have a “sufficient apparent connection” as to whether and the extent to which Mr Hardaker was the “human face” of the plaintiff at that time (2 February 2022).

44. One of the legitimate business interests which the plaintiff may protect by a restraint is its customer connection (i.e. goodwill). In some of the authorities the necessary relationship is described as one in which the employee is the “human face” of the employer to indicate that the employee must represent the business to the customer and have some control over the customer’s propensity to deal with the employer. Perram J summarised the relevant principles in Informax International Pty Ltd v Clarius Group Ltd (2011) 192 FCR 210; [2011] FCA 183 as follows:

“[28]  An employer’s interest in protecting the connexion it has with its customers against diversion by its former employees does not extend to every employee. Few firms, for example, need to defend their client base from poaching at the instance of their former tea ladies or office boys. The guiding principle appears to be that a covenant to restrain a former employee from dealing with an employer’s clients will be supportable on the basis that it protects the employer’s customer connexions where there is “some element in the employee-customer relationship which causes customers to rely on the employee and to regard the employee as the business to the exclusion of the employer”: J D Heydon, The Restraint of Trade Doctrine, 3rd ed, 2008, p 121. In that analysis, which involves real world questions, practical issues will naturally intrude such as the frequency of the contact between the employee and customer, the location at which the services are provided by the employee and, indeed, the nature of those services. Notions, too, of importance and seniority have their part to play.

[29]  The mechanical application of such tests should not, however, be permitted to obscure the mischief which the principle is designed to address which is the fact that there are employees whose position is such that they have the practical ability to control the business of their employer’s customers as if those customers were their own. It is against that particular risk that this doctrine is pitched and the various tests articulated in this area are all necessarily hewn to the end of identifying that risk in the case of particular employees. Where the risk (2011) 277 ALR 495 at 504 is found to exist, however, an employer is entitled to be protected against it. The Restraint of Trade Doctrine quotes (p 122) Hoover J’s statement in Arthur Murray Dance Studios of Cleveland Inc v Witter 105 NE (2d) 685 at 706 (Arthur Murray) (Ohio CP, 1951) that “the important thing is that the personal relation between the employee and the customer be such as to enable the employee to control the customer’s business as a personal asset” which I take to be to much the same effect. That statement has been referred to with approval in a number of decisions of Brereton J in the Supreme Court of New South Wales: Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [34] (Koops Martin); Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 ; [2006] NSWSC 717 at [25] (Cactus); John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [30] ; see also Twenty-First Australia Inc v Shade (unreported, NSWSC, Young J, 31 July 1998, BC9803667) at 12. In RKR Dance Studios Inc v Makowski , Superior Court, judicial district of Hartford, Docket No CV 084035468 (46 Conn L Rptr 389) (September 12, 2008), Elgo J of the Superior Court of Connecticut described (at 9) the decision in Arthur Murray as “a tour de force exposition on the law of employment noncompete agreements” (citing M Garrison and J Wendt “The Evolving Law of Employee Noncompete Agreements: Recent Trends and an Alternative Policy Approach” (2008) 45 Am Bus LJ 107, p 124). The same question can be posed a different way by asking, as Brereton J did in Koops Martin at [34] , whether the employee (in the extended sense) has become the “human face” of the employer with the client.”

45. See also Jardin v Metcash Ltd [2011] NSWCA 409; 285 ALR 677 at [95]-[97] where the relevant criterion is expressed in terms of a personal relationship between the employee and the customer which gives the employee an ability to influence the customer.

46. In my opinion it is likely (or on the cards) that communications between Mr Hardaker and one or more of the plaintiff’s customers in a period relatively soon after the Undertaking was signed in February 2022 will assist on the question whether Mr Hardaker was the “human face” of the plaintiff’s relationship with that customer when it was signed, particularly as Mr Hardaker only continued to work for the plaintiff for around two months after that time. The tenor of those communications is likely to provide a basis for an inference, one way or the other, on the question whether at the time the Undertaking was signed, Mr Hardaker could be said to control or influence the customer’s business dealings with the plaintiff. Either way, that would have the potential to materially assist on the question of whether the restraints in the Undertaking were, when given, valid. While it may be true, as the defendants submitted, that the plaintiff has access to internal emails comprising correspondence with customers more proximate in time to the date the Undertaking was signed, “evidence can be relevant even though it may be unnecessary in the sense that other evidence to the same effect is tendered”: J D Heydon, Cross on Evidence, [1490]. Ultimately, of course, whether the documents produced in response to the subpoena are relevant will be a matter to be determined at the time of the tender.

47. For these reasons, I agree with the plaintiff’s submission that there is a legitimate forensic purpose in seeking the documents in paragraphs 1, 2, 5, 6, 7 and 9 of the subpoena.

48. I agree with the defendants’ submission that paragraphs 3, 4, 8, 10, 11 and 12 of the subpoena fall within the exclusionary principle stated in Cedar Hill Flowers set out at [33] above. Put another way, none of those categories in the subpoena is likely to throw light on the circumstances existing at the date on which the restraints were entered into in a manner relevant to the reasonableness of the restraints.

49. The defendants also submitted in the alternative that the subpoena should be set aside on case management grounds. I have considered carefully the reasons given in support of that submission and reject it on the basis that first, paragraphs 1, 2, 5, 6, 7 and 9 of the subpoena are relatively confined and do not in my view expand the issues in the proceedings; and second, I was informed that PFM had previously indicated its preparedness to comply with the subpoena and has not suggested that it would be oppressive for it to comply.

Conclusion

50. In my view, for the reasons given above, paragraphs 1, 2, 5, 6, 7 and 9 of the subpoena should not be set aside, and paragraphs 3, 4, 8, 10, 11 and 12 of the subpoena and paragraph 3 of the notice to produce should be stood over until the conclusion of the hearing of the validity of the restraints.

51. In relation to costs, I note that the parties did not make submissions on costs at the hearing of the motion. I indicate that my preliminary view is that as each party has had some success, the appropriate order is that costs be in the cause but if either party wishes to press for a different order they should notify the Court by 5pm Wednesday, 14 September 2022 by email to my associate of the costs order they seek and send by email to my associate written submissions of no more than two pages by 5pm on Thursday, 15 September 2022. If no party seeks any other order as to costs, I will make final orders on Thursday, 15 September 2022 including that costs be in the cause.

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Decision last updated: 13 September 2022