Otis Elevator Company Pty Ltd v Nolan

[2007] NSWSC 593

CITATION:	Otis Elevator Company Pty Limited v John Nolan [2007] NSWSC 593 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	22 May, 23 May, 24 May
JURISDICTION:	Equity Division Duty List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	24 May 2007
DECISION:	(1) Upon usual undertaking as to damages, Order that until hearing or further order defendant be restrained from publishing, disclosing, using, or reproducing, any confidential information of plaintiff including, in particular, and without limiting the generality of the foregoing, specified material; (2) Upon defendant undertaking to Court that to extent that he retains any confidential information in any form pertaining to affairs of plaintiff he will not use it or disclose it to any person, and upon defendant filing with Court the written undertaking of Kone, and upon defendant further undertaking that until 2 November 2007 he will be employed only in the Modernisation and Tender Repairs Unit of Kone, Order that the balance of the application for interlocutory relief be dismissed; (3) Adjourn proceedings to 30 May 2007 at 10am for mention; (4) Order that costs of interlocutory application be defendant’s costs in the proceedings.
CATCHWORDS:	RESTRAINT OF TRADE – employer and employee – sales manager – confidential information – reasonableness of 6 month restraint – where employee resigned after only one day – INJUNCTIONS – contractual injunctions – to restrain breach of negative stipulation – whether discretion to decline – factors informing discretion
CASES CITED:	Attorney-General v BP (Australia) Limited (1964) 83 WN (Pt 1) (NSW) 80 Aussie Home Loans v X Inc Services [2005] NSWSC 285 Australian Broadcasting Corporation v O’Neill [2006] HCA 46 Bowes v Law (1870) LR 9 Eq 636 Cactus Imaging Pty Limited v Peters [2006] NSWSC 717 Dalysmith Corporation (Aust) Pty Limited v Cray Personnel Pty Limited (NSWSC, Young J, 14 April 1997, unreported, BC9701250) Doherty v Allman (1878) 3 App Cas 709 Harrison v Good (1871) LR 11 Eq 338 John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Kone Elevators Pty Limited v McNay (NSWSC, Young J, 10 March 1997, unreported) Kone Elevators Pty Limited v McNay (1997) ATPR 41-564 Leader v Moody (1875) LR 20 Eq 145 Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Limited [2006] NSWCA 258 RBM Plastic Extrusions Pty Limited v Diaz [2006] NSWSC 1332 Sharp v Harrison [1922] 1 Ch 502 Wood v Corrigan (1928) 28 SR(NSW) 492 Woolworths Ltd v Olson [2004] NSWCA 372 Meagher, Gummow & Lehane, Equity: Doctrines and Remedies (4th ed) Spry, Equitable Remedies (5th ed)
PARTIES:	Otis Elevator Company Pty Limited John Nolan
FILE NUMBER(S):	SC 2832/07
COUNSEL:	Mr A R Moses (plaintiff) Mr R S Warren (defendant)
SOLICITORS:	Mallesons Stephen Jaques (plaintiff) Toomey Pegg Drevikovsky (defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

BRERETON J

Thursday, 24 May 2007

2832/07 Otis Elevator Company Pty Limited v John Nolan

JUDGMENT (ex tempore)

1 HIS HONOUR: The defendant John Nolan is a 41-year old sales manager with many years’ experience in the lift industry, in which he appears to be highly regarded. Following an unhappy period of employment with Jardine-Schindler Group in Hong Kong from 1 January this year until his resignation on 28 March, he returned to Australia and explored opportunities for employment in this country with three of the four major lift companies, namely Schindler, Kone, and the plaintiff Otis Elevator Company Pty Limited. Ultimately, he accepted an offer from Otis, to commence employment with that company on 1 May 2007. On that day he signed a letter of appointment, which included the following provision.

18. Restraint of Trade

...

18.4.1 Upon resignation from the company, you shall not, for a period of six (6) months, directly or indirectly and whether solely or jointly with or as a director, manager or servant of any person or corporation carry on, or be engaged or interested in any of the following businesses in New South Wales which are competitive with the business of Otis Elevator Company Pty Ltd:

a) Schindler Lifts Australia Pty Ltd,
b) Kone Elevators Pty Ltd,
c) ThyssenKrupp Elevator Australia Pty Limited, or
d) Companies related to each of those competitor Companies.

18.5 The restraints herein are acknowledged and accepted by yourself as being reasonable and necessary for protection of the Company’s business.

2 Other provisions of the letter of appointment protected the confidentiality of corporate information of Otis and, in particular, obliged Mr Nolan to keep confidential all information to which he may be privy with regard to the business affairs of Otis.

3 Having signed the letter of appointment, Mr Nolan then received an induction, which involved briefings from various staff members of Otis, in the course of which he was provided with information, both orally and in writing, some of which was unquestionably confidential and was of a type and quality to which only Otis’ nine senior executives in New South Wales had access. Mr Nolan says that he could not digest much of the information that was delivered orally, that he did not read the information that he was provided with in writing, which he left on the desk in his office at Otis when he went home that evening, that he did not remove any of the documentary information from Otis’ premises, that he did not make any copy of them, and that though he made some handwritten notes during a briefing by Ms Veronica O’Bryan, Otis’ Financial Manager, those notes were substantially limited to acronyms, and were subsequently torn up and discarded by him.

4 By the end of 1 May 2007, Mr Nolan had decided that he had made the wrong decision. Early on the morning of 2 May, he contacted Kone and ascertained that, if he resigned from Otis, a position at Kone was still available for him. At about 8am on 2 May, he communicated his resignation to Otis, and later that same day he commenced employment with Kone. After an exchange of correspondence – in which Mr Nolan asserted that he had almost no recollection of the information with which he had been provided during his induction at Otis, proffered an undertaking in any event not to use such information in any way, but at the same time refused to cease to be employed by Kone – Otis filed a summons claiming, in substance, an injunction restraining Mr Nolan from being employed by Kone until 2 November 2007, the expiry of the six month restraint. By Notice of Motion filed at the same time, Otis moves for interlocutory relief to the following effect:

Upon the Plaintiff by it counsel giving the usual undertaking as to damages ... an order that until the final hearing of this matter or further order the Defendant be restrained from:


(a) carrying on or being engaged or interested in the business of Kone Elevators Pty Limited either directly or indirectly, and whether solely or jointly with or as a director, manager or servant of any person or corporation,

(b) publishing, disclosing, using or reproducing any confidential information of the Plaintiff.

5 When the interlocutory application came on for hearing, Mr Nolan, for whom Mr Warren of counsel appeared, did not oppose par (b) of the injunctive relief claimed, but opposed the order claimed in par (a).

6 On an application such as the present for an interlocutory injunction, the question is whether the plaintiff has established a sufficiently seriously arguable case for a final injunction to justify the grant of interlocutory relief, having regard to the balance of convenience. Stating the test that way emphasises, first, that the plaintiff bears the onus of making out a case for interlocutory relief; secondly, that before one comes to the balance of convenience there must be a serious question to be tried; and, thirdly, that the two limbs of the question are interrelated – in that the strength of the plaintiff’s case on the claim for final relief may be relevant to what is required to tip the balance of convenience one way or the other, and vice versa, the preponderance of the balance of convenience may be relevant to the strength of the case required to make out a sufficiently serious question to be tried – as the High Court has explained in Australian Broadcasting Corporation v O’Neill [2006] HCA 46, [65]-[72].

7 Moreover, the strength of the plaintiff’s case for final relief assumes additional significance where the outcome of the interlocutory application will effectively determine the claim for final relief [Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 535-536; Australian Broadcasting Corporation v O’Neill, [72]]. While it is not impossible that an expedited final hearing of this matter might be had prior to 2 November 2007, it would not be long before then, and it is almost inevitable that a substantial period of the restraint will have expired before any final hearing. Accordingly, the outcome of this application will determine, in a practical sense, and, to a large extent, the final result of the case, and it is, therefore, necessary and appropriate to evaluate the strength of the case for final relief.

8 It is sometimes said, in this context, that as well as establishing a serious case for final relief and a preponderance of the balance of convenience, an applicant for interlocutory injunction must establish that damages are an insufficient remedy. However, in the ordinary context, as distinct from, for example, an asset preservation order, the first limb – that is, whether there is a seriously arguable case for a final injunction – itself involves two elements: first, whether there is a viable cause of action for relief, and secondly whether, having regard to relevant discretionary considerations, an injunction as distinct from damages would be the appropriate relief. Those discretionary considerations include the sufficiency of damages as a remedy, but also such other discretionary considerations as are relevant to the granting or withholding of final injunctive relief.

9 I turn first to consider whether there is a seriously arguable claim for final injunctive relief. The principles which I take to apply to the enforcement of restraints of trade in the context of employment contracts were summarised by me in Cactus Imaging Pty Limited v Peters [2006] NSWSC 717 in the following terms:

10. Although at common law a restraint of trade is contrary to public policy and void unless it is justified by the special circumstances of the particular case (for which purpose it is sufficient justification that the restriction is reasonable having regard to the interests of the parties concerned and in reference to the interests of the public, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public) [ Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535, 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 706, 707; Lindner v Murdock’s Garage (1950) 83 CLR 628, 653], in New South Wales a restraint is valid to the extent to which it is not against public policy, even if not in severable terms [ Restraints of Trade Act , 1976 (NSW) s 4(1); Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449, [26]-[27]]. The effect of the Restraints of Trade Act is that, in New South Wales, one approaches this type of case by determining, first, whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed; secondly, whether the restraint in its application to that breach is against public policy; and thirdly, if it is not, then in its application to the alleged infringing conduct, the restraint is valid unless the court makes an order under Restraints of Trade Act , s 4(3) [ Orton v Melman [1981] 1 NSWLR 583; Woolworths Limited v Olson [2004] NSWCA 372, [42]]. That is because the effect of the Restraints of Trade Act , s 4(1), is to require that, for the purpose of determining the validity of a restraint, attention be focussed on the actual or apprehended breach, rather than on imaginary or potential breaches.

11. While the same general principle applies in all cases of restraint of trade, a stricter and less favourable view is taken in respect of covenants in restraint of trade between employer and employee than in commercial agreements for sale of goodwill [ Nordenfelt , 566; Mason v Provident Clothing & Supply Co Limited [1913] AC 724, 731, 738; Herbert Morris Ltd v Saxelby ; Geraghty v Minter (1979) 142 CLR 177, 185; Woolworths Limited v Olson , [38]; J D Heydon, The Restraint of Trade Doctrine , 2nd Ed, pp68-69]. An employer is not entitled to be protected against mere competition, and the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary interests [ Vandervell Products Ltd v McLeod [1956] RPC 185, 192; Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659, 664], including the employer’s trade secrets and confidential information, and the employer’s goodwill including customer connection. In this case, Cactus seeks to support the restraint on solicitation of customers on the basis of protection of both its confidential information and its customer connection.

10 It is, of course, manifest, and not in dispute, that Mr Nolan is and intends to remain, in contravention of the restraint, in that he is “as … servant of any person or corporation [namely, Kone] … engaged … in any of the following businesses in New South Wales which are competitive with the business of Otis … : … b) Kone … .” The next question is whether the restraint is unreasonable in its application to that breach for a period of six months.

11 The reasonableness of a restraint is to be judged at the time at which the restraint is taken [Cactus Imaging Pty Ltd v Peters, [37]], and the starting point is what the parties have negotiated, although it cannot be determinative [Woolworths Ltd v Olson [2004] NSWCA 372; Aussie Home Loans v X Inc Services [2005] NSWSC 285, [36]; Cactus Imaging Pty Ltd v Peters, [41]].

12 A restraint will not be valid unless it protects a legitimate interest, and those interests are typically the employer’s interest in protecting its confidential information and/or its customer connection. In the present case, it was plainly in the contemplation of the parties at the time of the negotiations for and completion of the contract for employment that Mr Nolan would be put into possession of confidential information of Otis, and that that confidential information might have a life of six months or more.

13 As to the reasonableness of the restraint, it is significant that, upon commencing employment with Kone, Mr Nolan was prepared to enter into a wider restraint for a period of 12 months, which was in substantially similar terms to that upheld as not unreasonable by the Court of Appeal in Kone Elevators Pty Limited v McNay (1997) ATPR 41-564.

14 Although Mr Nolan’s employment with Otis in fact only lasted one day, that cannot be relevant to an evaluation of the reasonableness of the restraint, particularly where it was reasonably contemplated that, however short the period of employment might be, during that period Mr Nolan might be put into possession of confidential information that would have a life of six months or more. In this respect, the case is to be distinguished from RBM Plastic Extrusions Pty Limited v Diaz [2006] NSWSC 1332, in which the employee departed the employment after only what was there described as a very short time, a period of three months. The restraint was for a period of 18 months. I said:

23. A restraint for 18 months might have been valid for an employee who was to stay long-term. In any event, for an employee who might stay for a long term, it would plainly be seriously arguable that a restraint for at least six months was not unreasonable. But such a restraint would not cover all the possibilities which had to be foreseen at the time the contract was entered into, including the possibility that the employee might stay for a short time only.

24. It does not seem to me seriously arguable that a restraint based on customer connection, as distinct from confidential information, which lasted for longer than the period of actual employment in the case of a short employment, is reasonable. It does not make sense that it would take a replacement employee longer than the total duration of employment of a short-term employee to build up a similar connection and replace the short-term employee. Such a restraint would be unreasonable because, in reasonably foreseeable events (such as departure of the employee in less than 18 months) it would be excessive, in that it would impose a greater restriction than was reasonably necessary for the protection of the employer's customer connection.

25. Accordingly, insofar as it is based on customer connection, I cannot see that the restraint would be reasonable for a longer period than the duration of Mr Diaz’s employment which, in the event, was a little over three months.

26. Of course, a restraint against working for a competitor, and a fortiori one against soliciting customers, can be supported by confidential information as well as by customer connection. In this case, it was clear that Mr Diaz might come into possession of confidential information at RBM. Other specific provisions of the confidentiality agreement addressed that possibility. However, as I endeavoured to explain in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717, the fact that other provisions might cover confidentiality does not mean that a non-solicitation covenant cannot also be supported by protection of confidential information. In that context, the question which informs reasonableness of duration is, how long might the confidential information that comes into the possession of the employee continue to give the employee an advantage in competing with the employer?

15 In that case I concluded that the employer’s interest in protecting confidential information did not support a restraint for any longer a period than that found reasonable on the basis of customer connection, because there was nothing in the evidence to show that confidential information would give the employee a long-term advantage. But in the present case, there are at least two distinctions. The first is that, unlike Diaz, in the present case the legitimate interest that the covenant protects is not only customer connection but also confidential information. The second is that, when one asks the question, how long does confidential information continue to give the employee an advantage in competing with the employer, the answer in this case is that it was plainly contemplated – as the information that was in fact provided to him shows – that he would be entrusted with information that might remain current and useful for at least six months.

16 In those circumstances, the subsequent fact that the employment turned out to be very short indeed cannot affect the reasonableness of the covenant at the time at which it was taken. It follows, in my opinion, that the proposition that the restraint is not unreasonable is very strongly arguable. Indeed, the contrary was not submitted on behalf of Mr Nolan, whose case ultimately depended on the Court’s discretion to decline to grant injunctive relief on a final basis.

17 The remaining and crucial question, therefore, pertains to the Court’s discretion to grant or withhold injunctive relief. All equitable relief is discretionary. That is so even of an injunction to restrain a breach of a negative contractual stipulation, although discretion to decline relief is rarely exercised in that context. Nonetheless, as I trust the following review of the authorities will show, that discretion exists, and the grant of an injunction on a final basis, even in such a case, remains ultimately discretionary.

18 The starting point for a consideration of this issue, which admittedly points in the opposite direction, is the speech of Lord Cairns in Doherty v Allman (1878) 3 App Cas 709, 719-20:

If there had been a negative covenant, I apprehend, according to well-settled practice, a Court of Equity would have no discretion to exercise. If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury – it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves.

19 However, two learned works on this topic reach the opposite conclusion: see Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies, 4th ed [21-195], and Spry’s Equitable Remedies, 5th ed, 585-588, 589-592.

20 In Wood v Corrigan (1928) 28 SR(NSW) 492, Long Innes J, while emphasising that ordinarily equity restrained by injunction the breach of an express negative covenant, admitted that there were cases in which it would not do so:

It is, however, well settled that, speaking generally, the Court of Equity is bound to restrain by injunction the breach of an express negative covenant: Lumley v Wagner ; Doherty v Allman ; unless the covenantee has by his conduct or omission disentitled himself to that remedy: Osborne v Bradley ([1903] 2 Ch 446, 451); or unless the breach is so trivial that the plaintiff has no ground in conscience to complain of it: Harrison v Good (LR 11 Eq 338, 352); and except in certain others cases of which Sharp v Harrison ([1922] 1 Ch 502) is an instance.

21 The last of those cases, Sharp v Harrison [1922] 1 Ch 502, was a case pertaining to a mandatory as distinct from a prohibitory injunction, but nowadays it is clear that there is no distinction in principle between the jurisdiction to grant a mandatory injunction and that to grant a prohibitory injunction, and the same principles and similar considerations apply to granting and withholding mandatory as to prohibitory injunctive relief. In Sharp v Harrison, Astbury J held that where a defendant committed a breach of a negative covenant after warning, the plaintiff was, generally speaking, entitled to a mandatory injunction without proving damage, but if the defendant proved that no damage had been occasioned and offered undertakings that effectively prevented any future damage from the continuing breach, and the granting of a mandatory injunction would inflict damage on the defendant out of all proportion to the relief it would give the plaintiff, the Court ought refuse it. His Lordship said (at 509), in words which might be applied, albeit with some modification, to the present case:

This is a difficult case to deal with, because no damage or injury of any sort or kind has been or can be inflicted upon the plaintiff; but there is a distinct breach of covenant by the defendant with full knowledge of the covenant and with the plaintiff’s objections to the particular breach.

22 His Lordship referred to Bowes v Law (1870) LR 9 Eq 636, in which James VC had refused a mandatory injunction in a case where there was a clear breach of a covenant, but having regard to the circumstances of the case, held that there was a discretion to refuse injunctive relief where to grant it would inflict an unnecessary injury upon the defendant and give no benefit to the plaintiff. James VC said:

I am of the opinion, having regard to all the circumstances, and considering that no substantial annoyance has been occasioned to the plaintiff, and no substantial injury done to any right of property of his, that a declaration will be sufficient for the purpose of protecting the title, and I do not think it necessary to give the plaintiff the power of doing such an unreasonable and unneighbourly act as that of taking down this vinery, which is a great convenience to the defendant, and the taking down of which would not confer on the plaintiff himself any benefit.

23 Astbury J also referred to another dictum of James VC, in Harrison v Good (1871) LR 11 Eq 338, 352:

We all know that, although the Court of Chancery interferes, when it thinks it right, by way of injunction to prevent the violation of a covenant, yet, if the violation is so slight, formal and unsubstantial, that the plaintiff can have no ground in conscience to complain of it, the Court will not grant an injunction.

24 After reviewing the authorities, Astbury J declined to grant an injunction in the case before him, expressing the basis of his decision in the following terms (at 515):

The reason is this, that if there is really no damage of any sort or kind suffered by a plaintiff by reason of the breach of a negative covenant of this character, and if the granting of a mandatory order would inflict damage upon the defendant out of all proportion to the relief to which the plaintiff ought to obtain the Court will, in my opinion, and ought in my judgment, to refuse it.

25 In Leader v Moody (1875) LR 20 Eq 145, Sir George Jessell MR declined to grant an injunction to enforce a covenant, saying:

By granting an injunction I should be inflicting a great injury on the defendants, and should be giving no benefit to the plaintiff, because it appears from the evidence, which is not contradicted, that there is no reasonable prospect of letting the theatre for operatic purposes during the six weeks which have now to elapse, and considering also the power which has been given me by the Act commonly called Lord Cairns’ Act of substituting damages for injunction...

26 Although in the context of an injunction to restrain the infringement of a public right – as distinct from one to enforce a covenant – the existence of a discretion to decline injunctive relief, although the grounds for it were otherwise made out, was recognised in this Court by Jacobs J (as he then was) in Attorney-General v BP (Australia) Limited (1964) 83 WN (Pt 1) (NSW) 80, 87-88.

27 Moreover, the existence of that discretion has been recognised in the context of applications to enforce restraints of trade: in the first instance decision in Kone Elevators Pty Limited v McNay (NSWSC, Young J, 10 March 1997, unreported), the reversal of which in the Court of Appeal did not affect his Honour’s judgment on that point; in Dalysmith Corporation (Aust) Pty Limited v Cray Personnel Pty Limited (NSWSC, Young J, 14 April 1997, unreported, BC9701250); in RBM v Diaz, at [21]; and in John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 in which, drawing on Kone v McNay and Dalysmith, I said:

Injunctive relief - discretionary considerations

45. Generally speaking, an injunction will be granted to enforce a negative contractual stipulation. In the context of restraints of trade, damages are rarely a sufficient remedy. In this case, as in most, it would be very difficult to prove and quantify the damage that may be suffered, which may accrue of a period of time. In particular, confidential information, once lost, cannot usually be recovered.

46. In exercising the discretion to grant or withhold injunctive relief, the Court has regard to the circumstances at the date of the hearing [ Kone Elevators Pty Ltd v McNay (NSWSC, Young J, 10 March 1997, unreported; reversed, but not on this point, 19 March 1997); Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (NSWSC, Young J, 14 April 1997, unreported, BC9701250)]. Thus even where judged as at the date of the contract a restraint is reasonable, the Court may on discretionary grounds withhold injunctive relief if at the date of hearing there is no protectable interest – for example, if despite contemplation at the date of contract that the employee would have access to confidential information, that did not eventuate. However, it is to be born in mind that restraints of the type contained in the second limb of clause 11 are sought and given because it is recognised that it may be difficult to prove with sufficient specificity the possession of confidential information, and courts should be slow to decline as a matter of discretion to enforce such a restraint, one it is found to be valid when created, on the grounds that it is unclear what confidential information if any the employee in fact possesses: it was to provide certainty and avoid the need for detailed proof of possession and apprehended misuse of confidential information that such clauses are upheld as valid.

28 Finally, in Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Limited [2006] NSWCA 258, Mason P, with whom Handley and Beazley JJA concurred, said [at 62]:

There is no utility in order 2(b). I would, however, make the declaration sought in 2(a), and the orders sought in 2(c) and (d). This is a case involving a negative covenant within the principles of Doherty v Allman (1878) 3 App Cas 709 at 719-20 and for which no compelling discretionary reasons have been advanced for the refusal of injunctive relief.

29 That appears to be an acceptance, even if obiter, by a unanimous Court of Appeal, that there is a discretion to decline to enforce a negative covenant by injunction, for ‘compelling discretionary reasons’.

30 Many of the cases to which I have referred have been considered in Mr Spry’s work, previously cited. Consistently with the analysis in that text, I am of the view that the mere fact that the injury to the plaintiff is slight or non-existent is insufficient to justify declining an injunction on discretionary grounds; so also is the mere fact that enforcement of the injunction would occasion considerable hardship to the defendant. However, where the jeopardy to the plaintiff from declining an injunction is slight, and the hardship that the grant of an injunction would occasion the defendant is disproportionately great, the Court may, as a matter of discretion, decline to grant an injunction, even in the context of a breach of a negative stipulation.

31 I come then to the context of the present case. In favour of granting an injunction is, first, that the form of the covenant itself was intended to place the plaintiff in a position where the difficulties of proving an actual misuse of its confidential information were avoided, since the prohibition on the employee accepting a competitive employment had the prophylactic effect of removing him from the environment in which he might be exposed to circumstances in which, intentionally or otherwise, there would be a temptation or an inevitability of misuse of Otis’ confidential information. Secondly, Mr Nolan voluntarily assumed the obligation of the restraint with full knowledge of its terms and the potential consequences. Indeed, he raised the restraint in the course of the negotiations, indicated some form of objection to it, but then accepted it; and it might well be said that he took his chances. Thirdly, like Mr Birt, in Fairfax v Birt, it might well be said that he is the author of his own misfortune. Having taken his chances, he then resigned from his employment with Otis and assumed employment of the type forbidden by the restraint, in circumstances where Otis was making offers and entreaties to retain him and accommodate what he expressed to be his present needs for a lower intensity of work, or some type of break or rest. Fourthly, he must have known that he was acting in breach of the covenant in accepting employment with Kone, and that is not mitigated by the circumstance that he says that, after telling Kone that he would accept that employment, he says he was informed by an officer of Otis that in the circumstances the restraint would not be enforced.

32 Pointing in the other direction, against enforcement of the restraint, is the striking fact that the employment lasted for one day only, and that during that day Mr Nolan did not retain or copy the confidential information, but left the confidential material in his office at Otis overnight, from where it was recovered by Ms O’Bryan the following morning. The case is rather different in this respect from Cactus Imaging v Peters, on which Otis heavily relied. Mr Peters had over many years acquired an intimate knowledge of Cactus’ pricing structure and tendering techniques, which he could not avoid using in seeking competitive business for his new employer. Mr Nolan, on the other hand, had only had momentary exposure to such of the financial information as was briefed to him, and very limited opportunity to digest it even if he had the ability to do so. The material itself, which is in evidence, is not in a form that would readily be committed to memory in a short time frame by anyone.

33 Next, Mr Nolan is not employed in that division of Kone’s business which corresponds with the division of Otis’ business in which he was, however briefly, employed. At Otis he was engaged in the New Equipment Division, which involves sales of new equipment, whereas at Kone he is engaged in Modernisation, which involves upgrades of existing equipment. Most of the confidential information with which he was provided at Otis, though not all of it, was relevant to the new equipment business. It is understandable that, as Mr Nolan suggests in his affidavit material, he would not have been as attentive to the briefings he received at Otis about modernisation, as to those that related to new equipment. He was provided with information relevant to the modernisation business by Mr Oong. That information, or at least what is said to be the confidential aspects of it, boils down to the quantity of the region’s booking plan 2007, the planned margin, and the margin actually being achieved. I am unable to see, even if he remembered those matters, how mere knowledge of the plan margin or achieved margin, or the bookings plan would provide significant assistance in competing with Otis, particularly in the absence of knowledge of Otis’ cost structure in the modernisation area.

34 Next, in distinction from RBM v Diaz in which there was strong evidence that Mr Diaz had obtained employment with RBM with the deliberate purpose of gaining information about its business in preparation for setting up his own in competition, there is no suggestion advanced in the present case of Mr Nolan having taken employment with Otis other than in good faith at the outset.

35 Next, undertakings have been offered by Mr Nolan and by Kone that Mr Nolan will not use, and that Kone will not seek to obtain from Mr Nolan, any confidential information of Otis in his possession or control. While those undertakings do not have the benefit of avoiding the need to prove an actual misuse of confidential information, they do still protect what ultimately is the interest that Otis is entitled to protect, namely, its confidential information, for which purpose alone in the present context the covenant is supportable. In that way, they secure to Otis the benefit and protection which the covenant was intended to achieve, although depriving Otis of the facility of having in place a prophylactic measure making proof of actual misuse of information unnecessary.

36 Finally, the hardship to Mr Nolan is great. An injunction would effectively prevent his employment in New South Wales in the only industry in which he has experience – other than the hospitality industry, in which he was engaged for a time quite some years ago, and which is now not suited to his family arrangements. The consequences of an injunction are potentially financially as well as personally disastrous for him. The hardship is not reduced by the accurate submission that it is much the same hardship as put forward by defendants in all these cases.

37 It is the combination of that hardship with the extraordinary circumstance that it attends an employment that in the event lasted only one day and the minimal risk of injury to Otis in the light of the area of Kone’s business in which Mr Nolan is employed and the undertakings offered, that persuades me that – while minds might well differ on the topic – a court is more likely than not to decline, on discretionary grounds, to grant a final injunction. Accordingly, despite the very strong case that there is a breach of a valid and enforceable restraint, I am not persuaded that the Court would likely give effect to that restraint by granting a final injunction, but rather more likely would decline to do so, on discretionary grounds. That does not mean that there is not a seriously arguable case for an injunction: there is, but as I have said in a case of this type, where the decision on an interlocutory application will largely be the final decision in the case, the ultimate prospects of success have considerable significance.

38 In that context, I turn to the balance of convenience. It must be remembered that what is involved in the exercise of weighing the balance of convenience – or perhaps more accurately, the balance of the risk of injustice – is on the one hand the injustice to the defendant if an interlocutory injunction is wrongly granted, and on the other hand the injustice to the plaintiff if an interlocutory injunction is wrongly declined.

39 If I wrongly grant an injunction, then Mr Nolan will be put out of his present employment, and out of employment in New South Wales in the industry in which he is likely to be able to obtain employment, until 2 November 2007. That obviously involves significant financial jeopardy and hardship. To some extent that injustice is ameliorated by the undertaking as to damages that Otis would have to give, but it is little comfort to an employee – who has to pay the usual outgoings of life, such as mortgage payments, or rent, or food and household supplies, and so on – to think that if he ultimately succeeds, he will receive the benefit of an undertaking as to damages months down the track. In the meantime, mortgages or leases may go into default, hire purchase agreements broken, chattels repossessed, and the like. On the other hand, if I wrongly decline to grant an injunction, Mr Nolan will retain his employment in breach of its covenant. Otis will be deprived in the interim of the benefit of the prophylactic effect of the restraint, but it will still have the protection of the obligation of confidence contained in the contract and reinforced by undertakings to the Court.

40 In those circumstances, and given the view that I take of the relative strengths of the cases on the claim for a final injunction – in particular, on the discretion to decline injunctive relief – the balance of convenience favours declining interlocutory injunctive relief. But I wish to stress that I regard this as an exceptional case, as indeed it must be to justify declining injunctive relief in the case of a breach of a negative stipulation. What is extraordinary about this case, is the exceptionally short period of employment from which the restraint arises, coupled with the additional factors that Mr Nolan’s new employment is in a different part of the business of the competitor from that in which he was engaged at Otis, and proffering of undertakings by him and his new employer, such as will have the effect of preserving, under penalty of contempt of Court, Otis’ rights in its confidential information.

41 My orders are:

1. Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, Order that until the hearing or further order the defendant be restrained from by himself, its servants or agents, publishing, disclosing, using, or reproducing, any confidential information of the plaintiff including, in particular, and without limiting the generality of the foregoing, the material contained in Exhibit VOB1 referred to in the affidavit of Veronica O’Bryan sworn 21 May 2007, Exhibit MO1 referred to in the affidavit of Matthew Oong sworn 22 May 2007, and Exhibits KM5, KM6, KM7, KM8 and KM9 referred to in the affidavit of Ken Muller sworn 22 May 2007, and the matters contained in paragraphs 5(c), 5(d), 11 and 12 of the affidavit of Veronica O’Bryan sworn 21 May 2007, paragraphs 8 and 10 of the affidavit of Matthew Oong sworn 22 May 2007, paragraph 7 of the affidavit of Peter Tomlinson sworn 22 May 2007 and paragraphs 15, 16, 17, 19 and 29 of the affidavit of Ken Muller sworn 22 May 2007.

2. Upon the defendant undertaking to the Court that to the extent that he retains any confidential information in any form pertaining to the affairs of the plaintiff he will not use it or disclose it to any person, and upon the defendant filing with the Court the written undertaking of Kone Elevators Pty Limited to the Court in terms of paragraph 6 in its letter of 11 May 2007 to Otis, a copy of which is Exhibit GW3 to the affidavit of Gary Warren sworn 21 May 2007, and upon the defendant further undertaking that until 2 November 2007 he will be employed only in the Modernisation and Tender Repairs Unit of Kone, Order that the balance of the application for interlocutory relief be dismissed.

3. Adjourn the proceedings to 30 May 2007 at 10am for mention.

4. Order that costs of the interlocutory application be the defendant’s costs in the proceedings.

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