Naiad Dynamics US Inc v Vidakovic
[2017] WASC 109
•20 APRIL 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NAIAD DYNAMICS US INC -v- VIDAKOVIC [2017] WASC 109
CORAM: LE MIERE J
HEARD: 24 MARCH 2017
DELIVERED : 20 APRIL 2017
FILE NO/S: CIV 1342 of 2017
BETWEEN: NAIAD DYNAMICS US INC
First Plaintiff
NAIAD MARITIME GROUP INC
Second PlaintiffAND
STEVEN VIDAKOVIC
Defendant
Catchwords:
Injunction - Application for an injunction - Construction of commercial contract - Non-competition clause - Foreign law - Law of Connecticut - Turns on own facts
Legislation:
Nil
Result:
Interlocutory injunction granted
Category: B
Representation:
Counsel:
First Plaintiff : Mr S M Davies SC
Second Plaintiff : Mr S M Davies SC
Defendant: Mr K M Pettit SC
Solicitors:
First Plaintiff : Harmers Workplace Lawyers
Second Plaintiff : Harmers Workplace Lawyers
Defendant: Borrello Graham Lawyers
Case(s) referred to in judgment(s):
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57
Beecham Group Limited v Bristol Laboratories Pty Ltd (1968) 118 CLR 618
Emeco International Pty Ltd v O'Shea [2012] WASC 282
Ezeatm Ltd v Zani [2014] WASC 25
Habitat 1 Pty Ltd v Formby [2016] WASC 376
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
Nielson v Overseas Projects Corporation of Victoria Ltd [2005] HCA 54; (2005) 223 CLR 331
Scruple Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315
Sidameneo (No 456) Pty Ltd v Plint [2015] WASC 243
LE MIERE J:
Summary
The first plaintiff, Naiad, is a wholly owned subsidiary of the second plaintiff, Naiad Maritime. Both companies are incorporated in Connecticut, USA. The business of the plaintiff is the design, engineering, manufacture, installation and sale of maritime stabilisation, manoeuvre and ride control systems in the global luxury yacht, commercial shipping and military shipping markets.
In June 2009 Naiad and the defendant, Dr Vidakovic, entered into a written contract (Employment Agreement) by which Naiad employed Dr Vidakovic in the position of Global Sales Director of Naiad and its affiliates. On 4 December 2016 Dr Vidakovic tendered his resignation effective 15 January 2017. Dr Vidakovic's last day at work was 16 December 2016. His last date of employment was 15 January 2017.
On 24 January 2017 Dr Vidakovic commenced employment with Veem Ltd, a company based in Perth as its Global Sales Manager - Gyrostabilisers. Veem manufactures and sells marine stabilisation systems. Naiad says that Mr Vidakovic made unauthorised copies of and removed from Naiad confidential information in breach of the Non‑disclosure of Confidential Information clause in the Employment Agreement. Naiad further says that by being employed by Veem Dr Vidakovic is in breach of the Non‑Competition clause of the Employment Agreement.
Naiad commenced this action against Dr Vidakovic seeking injunctions, orders for delivery up of confidential information and damages. On 10 March 2017 I granted an interim injunction restraining Dr Vidakovic from carrying out duties or work for Veem or any related entity. Naiad now seeks an interlocutory injunction that Dr Vidakovic be restrained from being employed or engaged by Veem or any related entity.
For the reasons which follow the defendant will be restrained until judgment or further order from being employed or engaged by Veem or any related entity.
The Employment Agreement
The Employment Agreement was made by and between Dr Vidakovic and Naiad and any affiliated companies. The term of employment is for an indefinite duration subject to termination in accordance with the agreement. The agreement provides that Dr Vidakovic will be initially assigned to the company's Connecticut location with regular and frequent periods onsite of the company's Maryland location and he agrees to render such services and perform such duties as assigned by the company's management which will require domestic and international travel.
There are two termination clauses. Clause 5 (Termination by Employee) provides that Employee (Dr Vidakovic) may terminate employment at will, for any reason, with at least 60 days prior written notice to the Company. Clause 6 (Termination by the Company) provides that the Company may terminate Employee's employment at any time. Clause 6(a) provides that the Company may terminate Employee's employment at any time for cause, which includes misconduct, for death or legal incapacity or physical or mental incapacity. In the event of termination for any of these reasons the Severance Provisions in [7] of the agreement shall not apply. Clause 6(b) provides that the Company may terminate Employee's employment at any time with at least 60 days' notice or the payment in lieu of notice for any reason other than those set forth in [6(a)], in which case the Severance Provisions at Paragraph 7 of the Agreement shall apply. Clause 7 (Severance) is:
As further consideration for Employee's non‑disclosure of confidential information, disclosure and assignment of inventions and innovations, non‑competition and non‑solicitation obligations as set forth in this Agreement, if Employee performs Employee's obligations hereunder faithfully at the best of the Employee's ability … and (1) Employee's employment is terminated for any reason other than the reasons set forth in Paragraph 6(a) above; and (2) Employee signs, delivers, and does not rescind a Separation Agreement & General Release form provided to Employee upon termination, the Company shall pay Employee severance in an amount equal to …
Clause 8 (Non‑Disclosure of Confidential Information) deals with confidential information. The clause provides:
In connection with services provided to the Company, Employee will have access to confidential information consisting of some or all of the following categories of information. Company and Employee consider their relationship to be one of confidence with respect to such information which shall include, without limitation:
(a)Financial and Business Information, including …;
(b)Manufacturing, Design and Application Information, including …;
(c)Supply and Service Information, including …;
(d)Sales and Marketing Information, including …;
(e)Personnel Information, including …;
(f)Customer Information, including … customer lists, customer requirements or preferences, customer's confidential, proprietary or trade secret information, information relating to past, existing or prospective customers' names, addresses or backgrounds, records of agreements, orders, customer prices, customer discounts, proposals or agreements between customers and Company, status of customers' accounts or credit, or related information about actual or prospective customers;
(g)Compensation Agreements, Purchase Agreements, Letters of Intent, such as …; and
(h)Inventions and Technological Information, including …
All of the foregoing is hereinafter referred to as 'Trade Secrets and Confidential Information.' … During and after the term of this Agreement and any employment under this Agreement, regardless of the reason for termination, Employee agrees: to hold all Trade Secrets and Confidential Information in confidence and not discuss, communicate or transmit to others, or make any unauthorized copy of or use the information in any capacity, position or business except as it directly relates to Employee's relationship with Company; … and that any of the Trade Secrets and Confidential Information, whether prepared by Employee or which may come into Employee's possession during Employee's employment hereunder, are and remain the property of the company and its affiliates, and all such information, including copies thereof, together with all other property belonging to the Company or its affiliates, or used in their respective businesses, shall be delivered to or left with the Company.
…
Clause 11 (Non‑Competition) is the clause upon which Naiad relies. The clause is:
Employee agrees that during employment with the Company and for twenty four (24) months after the conclusion of employment with the Company, regardless of the reason, Employee shall not, directly or indirectly, on Employee's own behalf or another's behalf, be employed by, be contracted to, own, manage, operate, control, participate in, or be associated in any manner with the ownership, management, operation or control of any company or business engaged in boat or ship systems, technologies, or technical services in the fields of (a) stabilization, ride control or motion control, or (b) manoeuvring, including the manufacture or sale of products and/or services in competition with the products and/or services manufactured, provided, sold or being offered or developed for manufacture or sale, by the Company or its affiliated companies prior to the date of termination. This restriction shall apply throughout the United States, including, but not limited to, the states of Connecticut, Maryland, Florida and Washington and throughout the countries of the Netherlands, United Kingdom, France, Italy, Germany, Australia, Taiwan ROC, and China.
Clause 12 (Non‑Solicitation of Customers and Suppliers) is relied upon by Dr Vidakovic. Dr Vidakovic says that his compliance with this clause and cl 8 (Non‑Disclosure of Confidential Information) sufficiently protect the interests of Naiad so that cl 11 (Non‑Competition) is not necessary for the protection of Naiad's legitimate interests. Clause 12 (Non‑Solicitation of Customers and Suppliers) is:
Employee agrees that while employed by the Company, Employee will have contact with and become aware of some, most or all of the Company's customers, representatives of those customers, suppliers, representatives of those suppliers, their names and addresses, specific customer and supplier needs and requirements, and leads and references to prospective customers. Employee further agrees that loss of such customers and suppliers will cause the Company great and irreparable harm. Employee agrees that during employment with the Company and for twenty‑four (24) months after the conclusion of employment with the Company, Employee will not directly or indirectly solicit, contact, call upon, communicate with or attempt to communicate with any customer, former customer, prospective customer, supplier, former supplier or prospective supplier of the Company for the purpose of providing or obtaining any product or service reasonably deemed competitive with any product or service then offered by the Company. This restriction shall apply only to:
(a)any customer, former customer, prospective customer, supplier, former supplier or prospective supplier of the Company with whom Employee had contact during the last twelve months of Employee's employment with the Company, or
(b)any customer, former customer, prospective customer, supplier, former supplier or prospective supplier of the Company for which the Employee has obtained confidential information, as defined by this Agreement, during the last twelve months of Employee's employment with the Company.
For the purposes of this paragraph, 'contact' means interaction between Employee and the customer, former customer, prospective customer, supplier, former supplier or prospective supplier which takes place to further the business relationship, or performing services for the customer, former customers, prospective customer, supplier, former supplier or prospective supplier on behalf of the Company.
Clause 15 (Reasonableness of Restrictions) provides that the Employee agrees that the time period and restrictions imposed in the agreement are fair and reasonable and are reasonably required for the protection of the Company. Clause 16 (Court's Right to Modify Restrictions) provides that if the scope or enforceability of the agreement is any way disputed at any time, a court may modify and enforce the agreement to the extent necessary to be reasonable and comply with the law. Clause 17 (Severability) provides that if any provision is determined to be in violation of any law or otherwise unenforceable and cannot be modified to be enforceable, such determination shall not affect the validity of any other provision of the agreement which shall remain in full force and effect. Further, each provision, paragraph and subparagraph is severable from every other provision, paragraph and subparagraph and constitutes a separate and distinct covenant.
Clause 22 (Injunctive Relief and Remedies for Breach) provides that the Employee understands, acknowledges and agrees that in the event of a breach or threatened breach of any of the covenants and promises contained in the agreement the Company shall suffer irreparable injury for which there is no adequate remedy at law and the Company will therefore be entitled to injunctive relief in joining the employee from engaging in activities in breach of the agreement and shall also be entitled to any and all other available legal and equitable remedies.
Clause 23 (Governing Law) provides that the Agreement shall be subject to and governed by the laws of the State of Connecticut.
Plaintiff's case
The plaintiff seeks to enforce cl 11 (Non‑Competition) of the Employment Agreement by a permanent injunction and other relief. It is common ground that the law of Connecticut is the governing law of the Employment Agreement and the law which applies in determining whether cl 11 is enforceable and whether it has been breached. The plaintiff says that applying the laws of Connecticut there is a prima facie case that the Non‑Competition clause would be enforced and if it was not enforced in its original terms, the doctrine of 'blue pencilling' would allow it to be severed or modified and after any severance or modification the clause would still restrain Dr Vidakovic from working for a competitor for two years.
Naiad says that Dr Vidakovic is employed by a company engaged in boat or ship systems, technologies or technical services in the fields of stabilisation, ride control or motion control or manoeuvring including the manufacture and sale of products and services in competition with the products and services of Naiad and therefore Dr Vidakovic is in breach of the Non‑Competition clause.
It is common ground that the grant or withholding of injunctive relief is governed by the law of Western Australia. In my view that is correct. A plaintiff who seeks to enforce a right governed by a foreign law can only obtain relief in the form and manner that the forum provides. The plaintiff says that damages are inadequate because of the difficulty of detecting breaches, the difficulty of establishing causation between a breach and any loss of business by the plaintiff and the difficulty of calculating the quantum of loss. Naiad says that the balance of convenience favours the grant of an interlocutory injunction.
Defendant's case
Mr Vidakovic says that Naiad has failed to make out a prima facie case or that there is a sufficient likelihood of Naiad obtaining final relief to justify the grant of the interlocutory injunction sought for two reasons. First, Naiad repudiated the Employment Agreement by refusing to pay Dr Vidakovic the severance payment due to him and under cl 7 (Severance) of the Employment Agreement. Dr Vidakovic says that he has accepted the repudiation, the Employment Agreement has been terminated and he is therefore released from all further performance of the Agreement including the Non‑Competition clause. Secondly, the defendant says that the Non‑Competition clause will be enforced under Connecticut law only to the extent it is necessary to protect Naiad's legitimate interests which do not include preventing Dr Vidakovic being employed by a competitor. The defendant says that Naiad has not shown that there is a necessity to prevent employment altogether in order to protect those legitimate interests.
The defendant further says that the court should in the exercise of its discretion refuse to grant the injunction sought because the harm which will be caused to Dr Vidakovic by the injunction outweighs the benefit to Naiad's legitimate interests that would be served by the injunction.
Interlocutory injunctions - legal principles
The principles governing the grant of an interlocutory injunction were set out by the High Court in Beecham Group Limited v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 and reaffirmed in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57. Before the court will exercise its discretion to award an interlocutory injunction, a plaintiff must satisfy the court that:
•there is a prima facie case, in the sense that there is a serious question to be tried as to the plaintiff's entitlement to relief, and a sufficient likelihood of success to justify the preservation of the status quo pending trial;
•the plaintiff is likely to suffer injury for which damages will not be an adequate remedy; and
•the balance of convenience favours the granting of an injunction.
The requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought: Australian Broadcasting Corporation v O'Neill [71] ‑ [72] (Gummow & Hayne JJ).
The first of those matters, the reference to the nature of the rights asserted by the plaintiff, directs attention to the relief sought in this application ‑ an injunction to restrain a former employee from engaging in employment contrary to a contractual post‑employment of non‑competition promise.
Prima facie case Non‑Competition obligation not discharged
The evidence presently before the court is that Naiad, by Mr Venables, refused to pay Dr Vidakovic a severance payment in accordance with cl 7 of the Employment Agreement. On 16 December 2016 Naiad gave Dr Vidakovic a discretionary Christmas cash bonus. Dr Vidakovic subsequently asked Mr Venables whether the severance in his employment applied. Mr Venables responded to the following effect:
No Steven, severance is specifically for when the company terminates a person to provide them with some transition income in the gap to finding another job. You resigned on your own, so severance does not apply.
Naiad says that on a proper construction of cl 7 Dr Vidakovic is not entitled to a severance payment, hence Naiad did not repudiate the Employment Agreement and the Non‑Competition clause survives the termination of the agreement. Naiad's construction is as follows. Clause 7 provides that the Company shall pay Employee severance if, amongst other things, 'Employee's employment is terminated for any reason other than the reasons set forth in paragraph 6(a) above'. The condition that 'Employee's employment is terminated' means terminated by the Company not terminated by the Employee. Paragraphs 6(a) and (b) are the only provisions which refer to the severance provisions in cl 7. Paragraph 6(a) provides that in the event of termination for any of the reasons set out in that paragraph the Severance Provisions shall not apply. Paragraph 6(b) provides that in the event of termination for any reason other than those set forth in paragraph 6(a) the Severance Provisions shall apply. Clause 5 which provides for termination by Employee makes no reference to the Severance Provisions in cl 7. Furthermore, the purpose of a severance payment is to help a person who is newly unemployed and such assistance is not applicable to an employee who voluntarily resigns whether to take up another job or for some other reason.
The High Court set out the correct approach to the construction of commercial contracts in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104:
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
…
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties … intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience' [46] ‑ [51].
Naiad's construction and Dr Vidakovic's construction of cl 7 are both arguable. The words 'Employee's employment is terminated' are capable of applying to termination by the Employee as well as termination by the Company. The words 'any reason other than the reason set forth in Paragraph 6(a)' are capable of applying to termination by the employee, which is necessarily a reason other than the reasons in paragraph 6(a). The words are also capable of applying to termination by the Company for any reason other than those set out in paragraph 6(a). The commercial purpose of the Severance payment might be to help a former employee newly made unemployed because his position has become redundant or for some other reason beyond his control. On the other hand, cl 7 expressly states that the consideration for the severance payment is the employee's non‑disclosure of confidential information, disclosure and assignment of inventions and innovations, non‑competition and non‑solicitation obligations in the agreement which operate after termination of employment and irrespective of whether the employment was terminated by the Company or the employee.
There is a prima facie case that the company is not obliged to pay the Employee severance when the Employee resigns and hence Naiad did not repudiate the agreement and Dr Vidakovic has not been released from his obligations under the Non‑Competition provision of the Employment Agreement. A prima facie case does not mean that the plaintiff is more likely to succeed than not. I find that there is a sufficient likelihood of Naiad succeeding on the issue concerning the construction of cl 7 of the Employment Agreement to justify Dr Vidakovic being restrained from contravening the Non‑Competition obligation of the Employment Contract pending trial.
Enforceability of Non‑Competition clause - Connecticut law
Foreign law is a question of fact to be proved by expert evidence: Nielson v Overseas Projects Corporation of Victoria Ltd [2005] HCA 54; (2005) 223 CLR 331 [115] (Gummow & Hayne JJ) (Nielson). Expert evidence about foreign law can be divided into evidence about the content of the law and evidence about its application to the facts of a particular case. The former is said to be admissible; the latter is not. But a distinction between content and application evidence is not to be understood as precluding an expert from examining in evidence how a power or discretion would be exercised by a foreign court: Nielson [120].
The plaintiff adduced expert evidence of the law of Connecticut from Kevin Greene, an attorney who has been admitted to the Bar for the State of Connecticut since 1995. There is no challenge to his expertise nor to his opinion of the content of Connecticut law. However, both parties submitted that in so far as Mr Greene opines as to how Connecticut law would be applied to the facts of this case it is inadmissible.
Mr Greene provided the following summary of his opinion:
Connecticut recognizes the validity and enforceability of post‑employment restrictive covenants in order to provide reasonable protections to businesses so that former employees do not unfairly compete with the company, solicit customers or use confidential proprietary trade secret information. Connecticut has no statute or regulation that governs non‑competition agreements generally and the enforceability of non‑compete agreements in Connecticut is governed by case law. To be enforceable, the restrictive covenant must be supported by adequate consideration. Restrictive covenants, including non‑competition and non‑solicitation provisions, that are entered into at the inception of employment are valid and supported by consideration under Connecticut law.
The essential elements for non‑compete enforcement include an analysis and balancing of the following factors: a) length of time of the restriction; b) geographic scope; c) fairness of the protection provided to the employer; d) how much the non‑compete provision restricts the employee from pursing the employee's occupation; and e) the extent of any interference with the public interest if the non‑compete agreement were enforced. The burden is on the employer to prove that a non‑compete has been breached. The employee has the burden to demonstrate the unreasonableness of a non‑compete agreement.
The five factor test above is disjunctive, rather than conjunctive, meaning a finding that any single factor is unreasonable generally will render the covenant not to compete unenforceable. However, the well recognized exception to this general rule is the doctrine of severability which is often referred to as 'blue pencilling.' Connecticut courts can modify, or 'blue pencil', the terms of the restrictions found to be unreasonable or overly broad and enforce them as modified. Yet, for a court to consider applying a 'blue pencil', the non‑compete agreement must clearly state that it is the intention of the parties to make the terms severable and modifiable. Connecticut courts will not 'blue pencil' the agreement if the agreement does not state that the terms are severable.
Connecticut courts will enforce the type of post‑employment restrictive covenants referenced in Sections 11 and 12 of Mr Vidakovic's employment contract, dated June 14, 2009, through the issuance of an injunction.
The remainder of the summary of Mr Greene's opinion is an opinion as to how the law of Connecticut would be applied to the facts of this case as stated by Naiad's lawyers to Mr Greene. It is common ground that that opinion is not admissible.
Prima facie case that non‑competition clause is enforceable
To be enforceable the restrictive covenant must be supported by adequate consideration. Mr Greene says that under Connecticut law restrictive covenants entered into at the inception of employment are valid and supported by consideration. I find that the Non‑Competition clause is supported by adequate consideration.
Covenants that restrict the activities of employees during and after termination of employment are valid and enforceable if:
(1)they are partial and restricted in scope as to time and place;
(2)they are reasonable and necessary to afford fair protection of the interests of the employer; and
(3)they are not so large in operation as to interfere with the interests of the public.
Greene opinion page 33.
The Non‑Competition restraint is partial and restricted in scope as to time and place. The essential question is whether the restraints are reasonable and necessary to afford fair protection to the interests of Naiad.
Connecticut courts consider five factors in evaluating the reasonableness of a restrictive covenant:
(1)the length of time the restriction operates;
(2)the geographic area covered;
(3)the fairness of the protection accorded to the employer;
(4)the extent of the restraint on the employee's opportunity to pursue his occupations; and
(5)the extent of interference with the public's interest.
Greene opinion page 33.
Dr Vidakovic is prohibited from participating in a business engaged in boat or ship systems, technologies or technical services in the fields of stabilisation, ride control or motion control or manoeuvring for two years following termination of his employment with Naiad. Dr Vidakovic's knowledge of Naiad's customer list and his connection with Naiad's customers is a potential threat to Naiad's business and Naiad is entitled to protect that and other confidential information for a reasonable period of time. Having regard to the nature of Naiad's business and the order cycle, that is the usual time between receiving a request to tender and securing an order, it could reasonably and logically be found that a two year restriction is reasonable.
The defendant says that the territorial reach of the restraint is unreasonable. That submission was based on Mr Greene's opinion that a Connecticut court would disallow as unreasonable the contract's purported application to any state of the United States not specifically named. Mr Greene says that the restraint would nevertheless be valid as to the named countries, including Australia. Senior counsel for Dr Vidakovic, Mr Pettit SC, submitted that this results in an absurdity: Dr Vidakovic, an Australian, is able to be employed by a competitor of Naiad, an American company, in any of the 46 States of the USA but is not able to be so employed anywhere else in the world. Mr Pettit submitted, relying on Scruple Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315, 325 that in the face of a bizarre result, under Australia's law as to choice of law rules, an Australian court may interpret the law itself. Further, Mr Pettit submitted that Mr Greene's opinion is coloured by instructions that are not correct and omit important facts. I do not agree that Mr Greene's opinion is absurd. In any event, that aspect of Mr Greene's opinion is his opinion as to the application of Connecticut law to the facts of this case, which is inadmissible. Naiad carried on business in, amongst other places, Australia. It actively sells to customers in Australia. It has sold stabilisers to clients in Australia. Naiad sales staff are the principal point of contact for all new and existing customers. Dr Vidakovic was Global Sales Manager. He personally interacted with Naiad's customers. It could reasonably and logically be concluded that a restriction that applies to territories including Australia is not unreasonable in area. If the restraint is unreasonable in so far as it applies to other territories they may be 'blue pencilled' and the restraint so modified may be valid.
The defendant submitted that the Non‑Competition restraint is not reasonably necessary to protect fairly Naiad's interest. In essence, the defendant says that the non‑disclosure of confidential information and non‑solicitation of customers and suppliers provisions of the Employment Agreement are sufficient to protect the legitimate interests of Naiad. Those legitimate interests are its confidential information and customer connections. Dr Vidakovic may succeed on that issue at trial. However, it cannot be concluded at this interlocutory stage that the restraint is not reasonably necessary to protect fairly Naiad's interest for the following reasons.
In assessing the enforceability of a restrictive covenant, in addition to protecting the employer, the interest of the employee must also be protected. A restrictive covenant is unenforceable if by its terms the employee is precluded from pursuing his occupation and thus prevented from supporting himself and his family: Greene opinion page 35.
The parties debated what is meant by 'occupation' in this context. Senior counsel for the defendant, Mr Pettit, gave it a narrow meaning focusing on Mr Vidakovic's employment for the last eight years in the field of ship systems or technologies in the fields of stabilisation, ride control or motion control or manoeuvring. Senior counsel for the plaintiff, Mr Davies SC, focused on Dr Vidakovic's professional qualifications in the field of aerodynamics and fluid mechanics and his employment prior to Naiad in sales, managerial and research in the pharmaceutical, automation, research and defence industries. In my opinion the reference to 'occupation' must be seen in the context of preventing an employee from supporting himself and his family. Dr Vidakovic has particular expertise and experience in the field of sales of ship stabilisation, ride control and motion control systems. However, the evidence does not establish that he is prevented from supporting himself and his family in any other employment. After Dr Vidakovic had tendered his resignation he met with Mr Venables, President of Naiad. They had a conversation to the following effect:
VENABLES: Do you have a new job lined up? What are you going to do next?
DR VIDAKOVIC: I plan to do a bit of consulting …
VENABLES: Consulting in what fields?
DR VIDAKOVIC: In any of a wide range, almost anything. You know my background, degree in aerodynamics/fluid mechanics and management, pharma, automation, defence, research, and maybe now even a bit of marine. Anything.
I accept that Dr Vidakovic may have been putting up a brave front in a difficult situation and acting more confidently about his prospects of employment in other areas than he truly believed. Nevertheless, the evidence before the court does not establish that Dr Vidakovic is unable to support himself or his family in any employment other than employment in the sale of ship stabilisation, ride control and motion control systems or related marine systems.
The defendant has not established in relation to any of the five factors that the restraint is so clearly unreasonable that there is not a prima facie case that it is enforceable. Put another way, on the evidence before the Court there is a prima facie case that the Non‑Competition restraint is enforceable. Of course, the court is merely considering whether or not the plaintiff has made out a prima facie case. Whether or not the restraint is, as a matter of fact and law, unenforceable is a matter to be determined at trial.
No evidence of disclosure of confidential information
Naiad submitted that there appears to be a reasonable inference that Dr Vidakovic has removed confidential information of Naiad. Dr Vidakovic has addressed the issue of disclosure of confidential information in his affidavit sworn 17 March 2017. His answer in essence is as follows. During his employment he had access to many documents that fall within the definition of Trade Secrets and Confidential Information in cl 8 of the Employment Agreement, which he describes as Confidential Documents. In the final months of his employment nearly all of the Confidential Documents accessible by Dr Vidakovic were stored on the Dell laptop supplied to him by Naiad or were accessible through that computer from Naiad's central digital data storage. From 4 December to 16 December 2016 he did not transfer any Confidential Documents from or via the Dell computer onto any USB device. Except possibly for five USB devices he did not retain after 16 December 2016 any Confidential Documents to the best of his knowledge and belief. Dr Vidakovic retained five USB devices containing Cardscan information and a copy of the 2016 year Expense Reports for the company Amex. He has not copied any of the information from those devices. On 16 March 2017 he gave those devices to Naiad's Perth solicitors as ordered by the court notwithstanding that they may not constitute Confidential Documents for the purposes of that order.
The evidence does not make out that since the termination of his employment Dr Vidakovic has used or disclosed any confidential information of Naiad.
Naiad has not made out a prima facie case that Dr Vidakovic has breached or threatened to breach the Non‑Disclosure of Confidential Information provision of the Employment Agreement except to the extent that some confidential information was stored on one or more of the USB devices retained by Dr Vidakovic. Dr Vidakovic has returned those devices to Naiad.
Damages inadequate
I do not consider in this case that damages would be an adequate remedy for Naiad if the restraint clause were found at trial to be valid. An injunction to restrain a breach of a negative covenant is not usually declined on the grounds that damages are an adequate remedy. Reasons why damages are often inadequate include the difficulty of detecting breaches, the difficulty of establishing causation between a breach and any loss of business on the part of the plaintiff and the difficulty of calculating the quantum of loss.
In Emeco International Pty Ltd v O'Shea [2012] WASC 282 Edelman J said:
It has often been said, in the context of injunctive relief for apprehended breach of a restrictive covenant that 'where what is involved is the enforcement by injunction of a contractual negative stipulation, it is a rare case in which relief will be declined on the basis that damages are a sufficient remedy': Cerilian Pty Ltd v Graham Fraser [2008] NSWSC 1016 [10] (Brereton J); John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 [45] (Brereton J); Willis Australia Group Services Pty Ltd v Griggs [2012] NSWSC 659 [129] - [130] (Ward J).
The reasons why damages are often inadequate in these cases includes (i) the difficulty of detection of breaches of the obligations; (ii) the difficulty of establishing causation between any loss of business with customers and any actions of the ex-employee; and (iii) the difficulty of the calculation of the quantum of any damage arising from loss of business: Huhtamaki Australia Ltd v Botha[2004] NSWSC 386 [17] (Hamilton J) [20] ‑ [21].
See also Ezeatm Ltd v Zani [2014] WASC 25 [17]; Sidameneo (No 456) Pty Ltd v Plint [2015] WASC 243 [60]; Habitat 1 Pty Ltd v Formby [2016] WASC 376 [79].
The relevant damage will largely relate to Naiad's good will and customer connection. It may not be easy to identify transactions lost to Naiad due to Dr Vidakovic's employment by Veem. The evidence before the Court is that such damage is not reasonably capable of precise quantification. Naiad would have to prove what profit Naiad lost by reason of Dr Vidakovic being employed by Veem. Such an analysis would require assumptions to be made which Naiad would have to prove as to what business Dr Vidakovic would have secured for Naiad which is not necessarily the same as the business he would gain for Veem and such matters are not easily proven. In those circumstances compensation for a breach of contract is an inferior remedy to prevention of the breach.
In his affidavit sworn 17 March 2017 Dr Vidakovic said:
•I will not solicit customers of Naiad with whom I have had contact in the 12 months before termination of my employment [50a];
•I will not disclose any trade secret and confidential information to Veem or any competitor of Naiad [50a];
•I will not use Naiad's confidential information for my own personal advantage [50c];
•I have no access to any volume of Naiad or NMG company data [50d];
•I do not intend to solicit on behalf of Veem any clients of Naiad with whom I have had contact in the last 12 months [51];
•I have been told by Mr Mark Miocevich of Veem, and believe it to be true, that Veem will not require me to solicit on behalf of Veem any clients of Naiad with whom I have had contact in the last 12 months [51].
In answer to a question from me senior counsel for Dr Vidakovic, Mr Pettit, said that Dr Vidakovic was willing to give suitable undertakings to ensure that Naiad did not lose business as a result of Dr Vidakovic's conduct or that any loss could be identified and calculated. I asked the defendant to formulate the undertakings he was willing to give to the Court. Mr Pettit subsequently informed the Court that after giving the matter careful attention the defendant had been unable to formulate any undertakings which he believed would be satisfactory to the plaintiff. Mr Pettit made it clear that there had been no discussions between the lawyers for the plaintiff and the lawyers for the defendant concerning the terms of any undertakings to be offered. Mr Pettit said that the difficulty in formulating suitable undertakings particularly flowed from the difficulty in defining customers of Naiad in a way that did not capture customers of Veem. This difficulty reinforces my opinion of the difficulties of Naiad proving recoverable loss as a result of a breach of the Non‑Competition restraint by Dr Vidakovic.
Balance of convenience
If I do not grant an injunction and Naiad succeeds at trial the damage to Naiad's business is likely to be irreparable. One the other hand, the grant of an injunction will inevitably cause a loss to Dr Vidakovic who will be required to terminate his employment with Veem. In my opinion the balance of convenience, or the balance of injustice, is in favour of granting the injunction sought. The principal reason is that Dr Vidakovic agreed to the Non‑Competition restraint. It is part of the bargain he made with Naiad. Of course, it may be determined at trial that the restraint is unenforceable. However, Dr Vidakovic agreed to the restraint. It is not clearly unenforceable. To the contrary, there is a prima facie case that it is enforceable. In those circumstances Dr Vidakovic should be held to his bargain unless and until it is determined at trial that the restraint is unenforceable.
Conclusion
Upon the plaintiff giving the usual undertaking as to damages, the defendant will be restrained until judgment or further order from being employed or engaged by, either directly or indirectly, Veem or any related entity.
The matter should proceed to trial as soon as possible. In the meantime, the parties should be referred to mediation.
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