Metrohm Australia Pty Ltd v Arumugam

[2024] NSWSC 1361

Supreme Court

New South Wales

Medium Neutral Citation:

Metrohm Australia Pty Ltd v Arumugam [2024] NSWSC 1361

Hearing dates:

15 October 2024

Date of orders:

15 October 2024

Decision date:

28 October 2024

Jurisdiction:

Equity - Duty List

Before:

Pike J

Decision:

Injunctive relief granted

Catchwords:

RESTRAINT OF TRADE – application for interlocutory injunctive relief – employee restraint – whether restraint on former employees is necessary to prevent disclosure of confidential information or exploitation of former client relationships – whether injunction should be made on balance of convenience

Legislation Cited:

Restraint of Trade Act 1976 (NSW) s 4(i)

Cases Cited:

A.T. Kearney Australia Pty Ltd v Crepaldi [2006] NSWSC 23

Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618

HiTech Group Australia Limited v Riachi [2021] NSWSC 1212

John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995

Koops Martin Financial Services Ltd v Reeves [2006] NSWSC 449

Provida v Sharpe [2012] NSWSC 1041

Woolworths v Olson [2004] NSWCA 372

Texts Cited:

Nil

Category:

Procedural rulings

Parties:

Metrohm Australia Pty Ltd (Plaintiff)
Sivanesan Arumugam (First Defendant)
Kalaivani Govindasamy (Second Defendant)
ScienceGears Pty Ltd (Third Defendant)

Representation:

Counsel:
B Rauf (Plaintiff)
A Guy (Defendants)

Solicitors:
Holman Webb Lawyers (Plaintiff)
Gorval Lynch Lawyers (Defendants)

File Number(s):

2024/00324218

Publication restriction:

Nil

JUDGMENT

Introduction

1. The plaintiff seeks orders, until further order, restraining the defendants, who are two former employees of the plaintiff and a company associated with those former employees, from engaging in certain conduct. The orders sought by the plaintiff are as follows:

1.   Orders that, until further order, the Defendants be restrained from using, disclosing, communicating or publishing any:

a.   Confidential Information; and/or

b.   Intellectual Property,

unless such material is generally known or available by publication, commercial use or otherwise.

2.   Orders that, until further order, the First Defendant and Second Defendant be restrained from attempting personally or by letters, advertisements or otherwise to obtain the custom or business of customers or clients of the Plaintiff within Australia, for any person, firm or company which is a competitor of the Plaintiff.

3.   Orders that, until further, the First Defendant and Second Defendant be restrained, whether on their own account or for any person, firm or company, from soliciting, interfering with or endeavouring to entice away from the Plaintiff any person, firm or company who at any time during the employment of the First Defendant or Second Defendant by the Plaintiff has been a customer or client of the Plaintiff.

4.   Orders that, until further order, the Third Defendant be restrained from being engaged, concerned or interested in any enterprise, corporation, firm, trust, joint venture or syndicate, which carries on any business the same as or substantially similar to or in competition with any business conducted by the Plaintiff.

5.   Orders that the First Defendant and Second Defendant be restrained from using in any manner all documents, files or written materials, whether in hard copy or electronic form, in their possession, custody or control, which contain or refer to Confidential Information and/or Intellectual Property.

6.   Orders that the First Defendant, Second Defendant and Third Defendant will take all reasonable steps to delete and make irretrievable all documents, files or written materials, whether in hard copy or electronic form, in their possession, custody or control, which contain or refer to Confidential Information and/or Intellectual Property.

7.   Orders that, within seven days of the date of these orders, the First Defendant, Second Defendant and Third Defendant will confirm that they have complied with Order 7 above.

8.   Notes that, in these Orders, the terms “Confidential Information” and “Intellectual Property” have the same meaning as set out in the contract of employment between the Plaintiff and the First Defendant found at pages 20-22 of Exhibit BC; and the contract of employment between the Plaintiff and the Second Defendant found at pages 40-42 of Exhibit BC.

2. At the commencement of the hearing in the Equity Duty List on 15 October 2024, counsel for the defendants indicated that order 2 was not opposed, nor was order 6. After some debate, orders 7 and 8 were not pressed in circumstances where it was accepted by the plaintiff that the only confidential information previously in the possession of the defendants is now contained on a USB that has been delivered up to the Court and the first and second defendants indicated, through their counsel, that they have no intention of seeking the return of that USB, save for seeking access to certain personal information on it, if agreement cannot be reached with the plaintiff. In these circumstances, it appeared that there were no further steps that could practically be taken by the first and second defendants to further deal with any confidential information in their possession.

3. The real issue that the hearing on 15 October 2024 concerned, was orders 3 to 5 (the disputed orders). Having heard argument, I determined that the disputed orders should be made and the matter placed in the Expedition List on 1 November 2024. These are my reasons for making those disputed orders.

Brief overview of the proceedings

4. The proceedings have a brief procedural history. They were commenced on 2 September 2024 before Hammerschlag CJ in Eq sitting as the Duty Judge. His Honour granted certain ex parte interlocutory relief.

5. On 4 September 2024, and by consent, the interlocutory orders were continued until 1 October 2024 or until further order, whichever first occurred. On 30 September 2024, Hmelnitsky J extended that interlocutory relief until further order or 15 October 2024, whichever occurs earlier. That interlocutory relief included relief in the same terms as the disputed orders.

6. In support of the interlocutory relief claimed, the plaintiff relied upon the following evidence:

1. affidavit of the plaintiff’s instructing solicitor, Robin James Young, made 29 August 2024;

2. affidavit of Bjorn Christensen, the Chief Executive Officer and Managing Director of the plaintiff, made 29 August 2024 together with an exhibit to that affidavit;

3. a confidential affidavit of Bjorn Christensen made 29 August 2024 together with a confidential exhibit. In relation to this affidavit and exhibit, I continued the non-publication order made by Hammerschlag J on 2 September 2024;

4. affidavit in reply of Bjorn Christensen made 15 October 2024; and

5. expert report of Rodney McKemmish made 11 October 2024.

7. There was some confusion concerning the numerical ordering of the defendants. In the amended summons filed in Court before Hammerschlag CJ in Eq on 4 September 2024, the first defendant was named as Dr Sivanesan Arumugam, and the second defendant was named as Dr Kalaivani Govindasamy. However, on several documents filed after this date, the naming of the first and second defendants was reversed, and each referred to themselves in the reverse order to the amended summons in their affidavits. To avoid any confusion, I proceed on the basis that the order given in the amended summons is correct.

8. The defendants relied upon an affidavit made by the second defendant (Dr Govindasamy) on 26 September 2024, together with an exhibit to that affidavit and an affidavit of the first defendant (Dr Arumugam) made 30 September 2024, together with an exhibit to that affidavit.

9. No witnesses were required for cross-examination.

10. Mr B Rauf appeared for the plaintiff and Mr A Guy appeared for the defendants.

Overview of the Facts

11. Appreciating that it is not the function of the Court to determine contested factual matters on an application of the present kind (see Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622), I set out below a summary of the facts on which I proceeded to determine whether the disputed interlocutory relief should be granted.

12. The plaintiff (Metrohm) manufactures high-precision instruments for chemical analysis, specialising in ion analysis spectroscopy. The instruments include titrators, ion chromatographs, near infra-red spectrometers and electrochemistry devices such as voltameters, which are sensitive electronic devices which use components such as potentiostats and galvanostats to measure voltage and amperes.

13. These instruments are used in electrochemistry by and for customers for a range of education and research applications requiring observation of materials, for example, corrosion, as well some medical treatment research such as cancer treatments, and commercial applications for example, car battery and battery recycling.

14. Metrohm is a global company with a small presence in Australia and New Zealand. It commenced operations in Australia in about 1998. At that time there was no existing client base and so this was established over years and built up from scratch. In Australia, it is a niche business which services a limited local market. Metrohm employs 60 employees in Australia.

15. According to Bjorn Christensen, Metrohm has four main competitors in Australia, all of whom are global operators. Metrohm has a broad client base which includes local and global companies across a wide range of industries. The services and products are highly specialised and are serviced by employees with very specific technical qualifications, mainly in chemistry, software and electronics.

16. Dr Arumugam and Dr Govindasamy are a married couple. Dr Arumugam was employed by Metrohm on 18 April 2017 and Dr Govindasamy was employed on 29 June 2017. Metrohm contends that it sponsored their visas when they migrated to Australia, although it appears that there is a dispute about this. The employment of each was summarily terminated on 1 August 2024.

17. Each of Dr Arumugam and Dr Govindasamy executed an employment agreement with Metrohm. The agreements are in materially similar terms. The employment agreement of Dr Arumugam records that he was employed as Product Manager in Electrochemistry and Spectroscopy. The job description attached to the employment agreement included, relevantly:

• Represent MEP on all sales and technical matters in dealing with prospective or present customers with regard to the product portfolio.

• Train new and existing MEP staff as well as customers in the use and application of the products.

• Ensure that relevant product information flows to the sales, service and administrative personnel.

• Assist in marketing activities to promote the products throughout the territory.

• Liaise with the suppliers on all product related matters.

• Oversee any issues relating to the product portfolio.

• Actively contact or visit key prospective and present customers within your designated territory and report on the consequences of such visits.

• Keep abreast with territory developments; advise management of any changes in competition, customer development or changes that affect the sale of company products.

• Maintain contact with existing users to develop and maintain a mutually comfortable business relationship.

18. Clause 17 contained certain provisions in relation to confidential information in the following terms:

17. Confidential Information

17.1 The Employee acknowledges that during the course of employment with the Company the Employee may become acquainted with or have access to confidential information (including but not limited to the Company's financial information, customers’ financial information, customers’ confidential information, customers list, prospect lists, profit margins, domestic and overseas contacts, instructions and manuals). The Employee further acknowledges that disclosures of any such confidential information to any third party or the use of such confidential information for personal purposes would be highly detrimental to the best interests of the Company. The Employee therefore agrees to maintain the confidence of the confidential information and to prevent its unauthorised disclosure to or use by any other person, firm or company.

17.2. The Employee agrees that the Employee will not use or reveal any of the trade secrets, secret or confidential information and/or operations, processes or dealings or any information concerning the organisation business, finances, transactions or affairs of the Company or any of its Related Corporations and/or its customers and clients, and must keep with complete secrecy all confidential information entrusted to or obtained by the Employee from whatever source during the course of the Employee's employment. The Employee further agrees not to use the confidential information for any purpose other than for the benefit of the Company during or after the Employee's employment with the Company, without limitation in time.

17.3. The Employee must not for any purpose other than for the benefit of the Company, remove the confidential information in whatever form, from the premises of the Company without the written consent of the Company.

17.4. The Employee must not, for whatever reason, either for himself or herself or any third party, appropriate, copy, memorise or in any manner reproduce or reverse engineer any of the confidential information.

17.5. The Employee agrees at the Employee's own expense to return any or all confidential information in whatever form, in the Employee's possession or control, on request to the Company.

17.6. The restrictions contained in this clause continue to apply after the termination of this Agreement for whatever reason and without limit in point of time.

17.7. Nothing in this Agreement imposes an obligation on the Employee with respect to maintaining confidence regarding any portion of the confidential information which is:

17.7.1. generally known or available by publication, commercial use or otherwise; or

17.7.2. is already known by the Employee at the time of disclosure,

17.7.3. nor is it intended to prevent the Employee from using the Employees own skill in any business in which the Employee may be engaged after the termination of the employment with the Company.

19. Further clause 22 contained certain post-employment restrictions in the following terms:

22. Post-Employment Restrictions

The Employee expressly undertakes and agrees at any time either during the employment under this Agreement or for the period referred to in Item 10 of the Schedule after the termination of the Employee's employment for any reason:

22.1. not to attempt personally or by letters, advertisements or otherwise to obtain the custom or business of customers or clients of the Company or any of its Related Corporations within any part of the area referred to in Item 11 of the Schedule, for any person, firm or company (other than the Company) which, in the reasonable opinion of the Company, is a competitor of the Company;

22.2. neither on the Employee's own account nor for any other person, firm or company, to solicit, interfere with or endeavour to entice away from the Company or any of its Related Corporations, any person, firm or company who at any time during the continuance of the employment by the Company has been a customer or client of the Company or any of its Related Corporations; and

22.3. neither on the Employee’s own account nor for any other person, firm or company, to solicit, interfere with or endeavour to entice away from the Company or any of its related corporations, any person who at any time during the continuance of the employment has been an employee of the Company or any of its Related Corporations

22.4. not to, within the area referred to in Item 11 of the Schedule, be engaged, concerned or interested, whether on your own account or as a member, shareholder, consultant. agent, employee or otherwise in any organisation that Anton Paar establishes or operates either in Australia and New Zealand or any enterprise, corporation, firm, trust, joint venture or syndicate, which is engaged, concerned or interested in or carrying on any business the same as or substantially similar to or in competition with any business conducted by the Company.

20. The area referred to in Item 11 of the Schedule is Australia and New Zealand (although I note that the restraint in the orders is only sought in respect of Australia). The period specified in Item 10 is six months.

21. The employment agreement in relation to Dr Govindasamy records that she is employed as an Applications Chemist. Her job description includes supporting customers on hardware/software issues. Her employment agreement also contains a similar provision in relation to confidential information as well as a similar post-employment restraint as exists in the employment agreement with Dr Arumugam.

22. Mr Christensen deposes to the fact that both Dr Arumugam and Dr Govindasamy had access to sensitive commercial information and intellectual property belonging to Metrohm during the period of their employment. This included client details, pricing information, customer quotes, division budgets and profit margins. Product prices, client names and requirements and the level of discount capable of being applied were other examples of confidential information to which both Dr Arumugam and Dr Govindasamy had access.

23. This information was largely stored and shared using their work-issued email addresses.

24. Together, Dr Arumugam and Dr Govindasamy were responsible for managing Metrohm’s electro chemistry department from 1 January 2023. This was the discrete part of the business which provided the products and services referred to above. As such, each of Dr Arumugam and Dr Govindasamy had responsibilities relating to sales and interacted with customers.

25. Dr Arumugam commenced personal leave from 27 February 2024 and Dr Govindasamy commenced personal leave from 14 February 2024. Each subsequently made workers’ compensation claims and were absent from the workplace from the time of their leave until their employment was summarily terminated on 1 August 2024.

26. On 6 June 2024, Metrohm received a letter from solicitors acting on behalf of Dr Govindasamy raising various allegations and seeking a resolution by way of a separation agreement. Amongst other things, the letter stated that Dr Govindasamy’s continued employment could be rendered untenable.

27. On 12 June 2024, Metrohm sent letters to Dr Arumugam and Dr Govindasamy issuing a direction to each to return company property on the basis that whilst they remained employees, there was no basis for them to retain possession of such property as a consequence of their prolonged absence from the workplace and the requirement for a temporarily placed employee to perform their duties. This direction was apparently issued after previous informal attempts at retrieving this property had been unsuccessful.

28. On 14 June 2024, Dr Arumugam and Dr Govindasamy provided separate responses to Metrohm confirming that they would return all of Metrohm’s property. In this correspondence, both Dr Arumugam and Dr Govindasamy separately confirmed that all confidential information, including client records was either entered into the client relationship management software of Metrohm or stored on the laptops that each was returning. Each of Dr Arumugam and Dr Govindasamy stated that they did not possess any other property of Metrohm other than that which was identified for return. As will appear below, this was not correct, as there was certain information in their possession which was subsequently produced to the Court on a USB.

29. Dr Arumugam and Dr Govindasamy subsequently returned their laptops. A third-party service provider was engaged on 25 June 2024 to conduct an examination of the log files of the laptops returned by Dr Arumugam and Dr Govindasamy. On 10 July 2024, that third-party service provider provided a report in respect of these matters. That report stated, inter alia, that Dr Arumugam had accessed his company laptop 11 times during the period 1 May to 20 June 2024. Dr Govindasamy had also accessed her company issued laptop on a similar number of occasions. This is while they were on leave and at least partly after a solicitor’s letter had been sent seeking separation. Further, the report concluded that on several occasions each of Dr Arumugam and Dr Govindasamy had attempted to create a backup of all Outlook emails on the local drive of their laptop, and that on 16 June 2024 an external storage device was inserted into Dr Govindasamy’s laptop.

20. In late July 2024, Mr Christensen was provided access to and observed a file labelled “To Do List” in Dr Arumugam OneDrive files held by Metrohm. On the second and third pages of that list were what appeared to be preparatory steps to establish a competing business, including researching and registering a company name “ScienceGears Pty Ltd”. The “To Do” file was dated 22 October 2023.

21. Mr Christensen made further enquiries which revealed that, the third defendant, ScienceGears Pty Ltd (ScienceGears), and its holding company, Arumugan Holdings Pty Ltd, were registered on 7 February 2024 and that Dr Arumugam and Dr Govindasamy were shareholders and directors of Arumugan Holdings Pty Ltd. Those enquiries also revealed that ScienceGears had an extensive online presence including a website, monthly blog posts and a LinkedIn page.

22. Mr Christensen also discovered that ScienceGears listed Admiral Instruments, Neware and Zahner-Elektrik products on its website and that Zahner-Elektrik referred to ScienceGears and Dr Govindasamy as its Australian distributor. Admiral Instruments and Zahner-Elektrik compete with Metrohm in relation to complete electrochemistry solutions, serving both industry/commercial clients as well as education and research and development clients. Neware is more focussed on industry clients in the battery testing segment but remains a competitor of Metrohm. Mr Christensen contends that Dr Arumugam was made aware of a battery testing product which Metrohm has been developing at an annual product managers meeting which was conducted in the Netherlands in May 2023. At that meeting, the product managers underwent training and attending presentations on new market strategies.

23. On 31 July 2024, Metrohm’s Chief Operating Officer sent emails to Dr Arumugam and Dr Govindasamy requesting that they attend a meeting with him on 2 August 2024 for the purposes of discussing employment matters, face-to-face. Dr Arumugam responded by email on 1 August 2024 requesting the topics of employment matters for discussion.

24. Later that day, by emails dated 1 August 2024 sent at 11.22 am and 11.23 am to Dr Arumugam and Dr Govindasamy respectively, Metrohm informed Dr Arumugam and Dr Govindasamy that a decision had been made to terminate their employment on the grounds of serious and wilful misconduct and the meeting was for the purpose of explaining the reasons.

25. Thereafter, the solicitors for Metrohm engaged in further correspondence with the Dr Arumugam and Dr Govindasamy. This correspondence included Metrohm reminding Dr Arumugam and Dr Govindasamy of the post-employment restraints and confidentiality provisions. The correspondence set out what was then known by Metrohm’s solicitors in relation to the conduct of Dr Arumugam and Dr Govindasamy.

26. The solicitors for Metrohm also engaged in correspondence with Admiral Instruments, Neware and Zahner-Elektrik. That correspondence revealed that correspondence between Admiral Instruments and ScienceGears commenced as early as January 2024 and Admiral Instruments appointed ScienceGears as a distributor for Australia with an effective date of 1 March 2024.

27. In relation to Zahner-Elektrik, by letter dated 13 August 2024, Zahner-Elektrik notified the solicitors for Metrohm that Zahner-Elektrik had recently established a relationship with ScienceGears and, to the date of the letter, no financial transactions have occurred. The relationship appears to be a distribution arrangement although the letter also stated that Dr Govindasamy pro-actively informed Zahner-Elektrik last week about the ongoing legal dispute with Metrohm and assured Zahner-Elektrik that he would deactivate the ScienceGears website and cease all business activities in the region until the legal matters are resolved. A subsequent email indicates that the distribution arrangement with Zahner-Elektrik commenced on 1 April 2024, although the first contact with ScienceGears was in early January 2024.

28. In his confidential affidavit made 29 August 2024, Mr Christensen set out his concerns in relation to the disclosure and use of confidential information by Dr Arumugam and Dr Govindasamy. I do not need to summarise the contents of that confidential affidavit in these reasons, other than to record that the material to which the defendants had access and attempted to backup from company servers to Dr Govindasamy’s local drive, included information about the identity of Metrohm’s clients, suppliers, products, pricing, financial matters and commercial activities. A further document extracted by Dr Govindasamy includes details of Metrohm’s profit margins and budgets.

29. The affidavits of Dr Arumugam and Dr Govindasamy give further insight into the establishment of the third defendant and their plans. It would appear that it was in or about September 2023 that Dr Arumugam and Dr Govindasamy registered a sole trader business name “ScienceGears”. At this time, Dr Arumugam was in dispute with Mr Christensen and Dr Arumugam and Dr Govindasamy started to grow concerned about their future with Metrohm.

30. In or about mid-October 2023, Dr Arumugam and Dr Govindasamy wrote to Ivium Technologies with a proposal to enter into a distributor arrangement to distribute all of Ivium’s products in Australia. According to Dr Arumugam, whilst Ivium is a direct competitor to Metrohm, in the sense that both distribute tentiostats and electrochemical accessories, Ivium distributes high power products which Metrohm does not. The email proposal is informative in a number of ways.

31. Relevantly, the email refers to the fact that Dr Arumugam and Dr Govindasamy have “strong technical knowledge in electrochemistry, a strong ECF network (across academic & industry), business and market knowledge in Australia & New Zealand.” It also refers to the fact that “[o]ver the last seven years, [Dr Arumugam] has had the privilege to serve as a Product Manager & Business Manager for Electrochemistry [the Metrohm business division], where [he has] garnered significant experience in selling and promoting electrochemical equipment and accessories.” Dr Arumugam also notes that he has observed the Australian market closely and has identified a unique set of opportunities for growth and expansion in the domain of electrochemical instrumentation.

32. As part of the proposal, in the email Dr Arumugam indicates that he brings to the table “Deep Product Knowledge” and an “Existing Network” together with “Local Market Understanding”.

33. According to Dr Arumugam, on or around 5 January 2024 ScienceGears entered into an agreement with Neware to distribute battery cyclers and testing chambers in Australia and New Zealand.

34. According to Dr Arumugam, on 2 February 2024, ScienceGears entered into an agreement with Admiral Instruments to distribute their products in Australia. On 22 February 2024, ScienceGears entered into an agreement with Zahner-Elektrik to distribute their products in Australia. On 17 July 2024, ScienceGears entered into an agreement with Wuhan Semokin Electromechanical Equipment Co. to distribute their products in Australia.

35. The proposal documents provided by ScienceGears to each of these organisations were not in evidence. It is likely that they were in a similar form to that circulated in October 2023 identifying what it is that the defendants have to offer.

36. As set out above, ScienceGears was incorporated on 7 February 2024.

37. Dr Arumugam and Dr Govindasamy are currently in receipt of workers’ compensation payments in respect of claims made whilst they were employed by Metrohm. Apparently, each is currently certified as being medically unfit for work. The payments being received by each of Dr Arumugam and Dr Govindasamy are less than what they were being paid by Metrohm. Apparently, each was initially paid at 95% of their wage with Metrohm and this has recently reduced to 80%. Each will continue to receive 80% of their final wage until they are certified as fit to return to work again.

38. Each of Dr Arumugam and Dr Govindasamy contended that they were wishing to return to work and that they expected that they will slowly recover over the ensuing months. Each contended that they were suffering financial hardship because of their reduction in income whilst in receipt of workers’ compensation payments. Each deposed to the fact that they have a young family as parents to two young children.

39. The proceedings were commenced on 2 September 2024. On 4 September 2024, orders were made by Hammerschlag CJ in Eq, which included orders requiring Dr Arumugam and Dr Govindasamy deliver up to the Court any further confidential information in their possession or control and deliver up the USB storage device, which the plaintiff was by then aware of, that was in the possession of Dr Arumugam and Dr Govindasamy. The USB storage device was subsequently delivered up to the Court and analysed by Rodney McKemmish, who produced a report dated 11 October 2024.

Relevant Legal Principles

50. The principles relevant to the current application are well understood. The relevant principles were comprehensively summarised by Ward CJ in Eq (as the learned President then was) in HiTech Group Australia Limited v Riachi [2021] NSWSC 1212 (HiTech) at [30]-[51].

51. The Court is required to consider whether there is a serious question to be tried and, assuming there is, whether the balance of convenience favours the grant of the interlocutory relief.

52. In the context of a post-employment restraint, they are valid to the extent to which they are not against public policy: see s 4(i) of the Restraint of Trade Act 1976 (NSW) and the discussion in cases such as Koops Martin Financial Services Ltd v Reeves [2006] NSWSC 449 at [26]-[27]. A person seeking to enforce a restraint of trade must show that the restraint is no wider than is reasonably necessary to protect its legitimate interests.

Determination

53. The first issue to consider is whether there is a serious question to be tried – relevantly that the post termination restraints will be held to be valid so as to support the injunctive relief claimed.

54. In circumstances where the post termination restraints are for a period of six months – expiring 1 February 2025 – there is a significant risk that even with an expedited final hearing, the matter will not be determined on a final basis before the expiry of the post termination restraint period. The determination of the present application thus has a real likelihood of determining the substance of the matter. In these circumstances, I am required to evaluate the strength of the plaintiff’s case for final relief in the context of the interlocutory application: see HiTech at [33].

55. Counsel for the plaintiff contended that the post termination restraints were valid as they protected the plaintiff’s confidential information. Reliance was placed on Provida v Sharpe [2012] NSWSC 1041 at [20] and the cases there referred to and John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995.

56. Counsel for the defendants contended that there was no serious question to be tried. The post termination restraints were said to be invalid. They did not support any legitimate interest of the plaintiff and were simply an attempt to prevent competition. Any legitimate interest of the plaintiff is appropriately covered by the orders to which they did agree concerning not using confidential information.

57. I am satisfied that there is a serious question to be tried as to the validity of the post-termination restraints. On the material before me I would assess the case as reasonably strong.

58. It is well settled that restraints may be valid where they are reasonably necessary to prevent disclosure of confidential information garnered by the former employee in the course of his or her former employment, or the exploitation of a connection built up by that employee with the former employer’s customers in the course of that employment: A.T. Kearney Australia Pty Ltd v Crepaldi [2006] NSWSC 23 at [53] per McDougall J.

59. It was not in dispute that the industry in which Metrohm operates is a niche industry. The employment agreements for each of Dr Arumugam and Dr Govindasamy make it clear that they were both to be employed in specialised positions, exposed to confidential information of Metrohm and also interacting with Metrohm’s customers.

60. Whilst the question of reasonableness is of course assessed at the date of the relevant agreements, the proposal email sent by Dr Arumugam in mid-October 2023 identifies the advantages which Dr Arumugam and Dr Govindasamy thought they had to offer. These advantages arise in no small part out of their employment. They include an “existing network” which is no doubt a reference to existing customer contacts. These advantages were likely very much in the contemplation of the parties at the time the employment agreements were entered into. It is legitimate for Metrohm to seek to protect its confidential information and the exploitation of customer connections built up by Dr Arumugam and Dr Govindasamy.

61. The fact that the law offers a degree of protection against the unauthorised use or dissemination of trade secrets by former employees does not mean that contractual protection by means of a post termination restraint is necessarily unreasonable or unavailable: see Woolworths v Olson [2004] NSWCA 372 (Woolworths v Olson) at [38] per Mason P (with whom McColl and Bryson JJA agreed). The same is true where the contract also contains a separate contractual provision protecting against misuse of confidential information. This does not necessarily render a post-termination restraint unreasonable. Although not conclusive, the Court also gives considerable weight to what the parties have negotiated and embodied in their contracts: Woolworths v Olson at [39] per Mason P. In the present case, the parties have agreed to a six-month post-employment restraint.

62. There is no suggestion in the present case that what was contemplated at the time the agreements were entered into – namely exposure to confidential information, and customers and the like – did not come to pass. The evidence of Mr Christensen was to the contrary. The proposal document dated mid-October 2023 also relies heavily on Dr Arumugam and Dr Govindasamy’s knowledge built up during their employment and existing customer contacts.

63. The length of the restraint – six months – is also relatively short. No submission was advanced on the part of the defendants to the effect that a six-month period was excessive, as opposed to no restraint at all.

64. There is thus a serious question to be tried as to the validity of the restraints. I turn now to consider the balance of convenience.

65. The plaintiff’s position was the well-known one that if there was no restraint there is a significant risk that Dr Arumugam and Dr Govindasamy will continue to operate the third defendant or operate on their own account. This will include distributing products of Metrohm competitors including to Metrohm’s existing customers. If the restraints are ultimately found to be valid, Metrohm will then be put in the difficult position of seeking to establish that it has lost customers as a result of the defendants’ activities and to prove the financial loss it has suffered as a result.

66. The position of Dr Arumugam and Dr Govindasamy was a little more complex. At the present time, each is in receipt of workers’ compensation. Whilst there was a dispute as to the precise amount being paid to each, it appeared to be common ground that it was previously 95% of their respective wage with Metrohm and is now 80% and will remain at 80% for at least the foreseeable future if each is unable to work. At the moment each has been certified by a medical practitioner as being unfit to work. I infer that this has been the situation since earlier this year and for the period that Dr Arumugam and Dr Govindasamy were on leave from Metrohm prior to their termination.

67. Each of Dr Arumugam and Dr Govindasamy expressed their desire to return to work. Dr Govindasamy said that whilst she presently has no capacity for work, her capacity to work will increase gradually over time.

68. Dr Arumugam said that, at the moment, he has limited capacity to work due to the psychological injury sustained during his employment with Metrohm. Whilst his capacity to work will slowly increase over the next six to nine months depending on his recovery, the sales cycle for his products is typically very long, and it will take around one year from the first point of contact to even receive the purchase order.

69. Both Dr Arumugam and Dr Govindasamy contended that they were in a detrimental financial situation given their overall reduction in income.

70. The defendants also contended that the plaintiffs had delayed in commencing the proceedings and seeking the interlocutory relief. It was contended that the plaintiff was aware of Dr Arumugam and Dr Govindasamy’s conduct by sometime between 21 June 2024 (when Dr Arumugam and Dr Govindasamy provided their laptops) and 1 August 2024 when they were terminated. The proceedings were not commenced until early September 2024.

71. The plaintiff responded that there was no delay and pointed to the correspondence between the plaintiff’s solicitor and the defendants and third parties in August 2024.

72. In my view the balance of convenience clearly favours the disputed interlocutory relief being granted. As Ward CJ in Eq, as her Honour then was, observed by reference to authority in HiTech at [50]:

[50] In cases where a negative covenant is being sought to be enforced, it has been said that damages will rarely be considered an adequate alternative remedy… Damages are not likely to be an adequate alternative remedy where it is likely that there will be substantial difficulty in establishing causation between any loss of business and any actions of the employee; and a further difficulty in calculating the quantum of any damage arising from any loss of business.

73. That accurately describes the position of the plaintiff. Damages are unlikely to be an adequate remedy.

74. It is difficult to identify any significant hardship to the defendants if an injunction is granted pending an urgent final hearing. At the moment, each of Dr Arumugam and Dr Govindasamy contend that they are unfit to work. The extent to which they will be fit for work over the next few months – being the time for a final hearing – is unclear on the evidence.

75. I infer that if Dr Arumugam and Dr Govindasamy are unfit for work that this means they will not be able to carry on any business of the third defendant. I observe, however, that activity, including entering into distribution agreements with Metrohm’s competitors, appears to have been carried on by the defendants during the period prior to 1 August 2024 when Dr Arumugam and Dr Govindasamy were similarly unfit for work. This conduct of Dr Arumugam and Dr Govindasamy, whilst apparently unfit for work, is troubling and weighs in favour of injunctive relief being granted.

76. The likelihood is that Dr Arumugam and Dr Govindasamy will continue to receive workers’ compensation payments over the ensuing months if an injunction is in place. If no injunction is in place, there is perhaps the prospect that Dr Arumugam and Dr Govindasamy will seek to carry on some work, but it is difficult to predict what, if any, monetary return will in fact be earned from this.

77. The plaintiff has provided the usual undertaking as to damages and as such, if the defendants are ultimately successful at a final hearing, they will be able to be compensated for any losses suffered by reason of the injunction.

78. I do not accept that there has been any relevant significant delay in the commencement of the proceedings. Metrohm has acted promptly and responsibly in investigating the defendants’ activities, and liaising with Metrohm’s competitors with whom the defendants were dealing, prior to commencing proceedings. A further relevant factor in this regard is that there has been in place, by consent, an injunction for approximately six weeks up to 15 October 2024.

73. I have balanced what I assess, at this stage and on the evidence presented (which has been untested), as a reasonably strong case for Metrohm, coupled with likely irreparable harm to Metrohm if the disputed orders are not made, against the lack of any adverse or irremediable prejudice to the defendants if the disputed orders are made. This balancing strongly favours the disputed orders being made.

74. It was for these reasons that I made the disputed orders on 15 October 2024.

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Decision last updated: 28 October 2024