Pathfinder Systems Australia Pty Ltd v Austact Pty Ltd

[2006] NSWSC 892

CITATION:	Pathfinder Systems Australia Pty Ltd v Austact Pty Ltd [2006] NSWSC 892
HEARING DATE(S):	23 August 2006
JUDGMENT DATE :	23 August 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
EX TEMPORE JUDGMENT DATE:	08/23/2006
DECISION:	Notice of Motion dismissed.
CATCHWORDS:	RESTRAINT OF TRADE – INTERLOCUTORY INJUNCTION – whether plaintiff showed serious question to be tried that former employee using confidential information to solicit customers of plaintiff.
CASES CITED:	Wessex Dairies Ltd v Smith [1935] 2 KB 80
PARTIES:	Pathfinder Systems Australia Pty Ltd – Plaintiff Austact Pty Ltd – First Defendant Ronald Frederick Walters – Second Defendant
FILE NUMBER(S):	SC 4329/06
COUNSEL:	Ms M. Fraser – Plaintiff L.V. Gyles – Defendants
SOLICITORS:	Ledlin Partners – Plaintiff David Hand – Defendants

1    By Notice of Motion served on short notice, the Plaintiff seeks two interlocutory injunctions against the Defendants. The First Defendant is a company which employs the Second Defendant, Mr Walters, in a business which is competitive with the business of the Plaintiff. Mr Walters was, until fairly recently, an employee of the Plaintiff who was engaged in the task, amongst other things, of preparing quotations given by the Plaintiff to potential customers. 2    The Plaintiff and Mr Walters entered into a contract of employment in October 2004 which contains a clause in which Mr Walters undertakes to keep confidential any:
“… confidential information concerning the business, the financial arrangements, the intellectual property or position of the Plaintiff, or any dealings, transactions or affairs of the business of the Plaintiff, or of any customers of the Plaintiff."

There is no covenant in the employment contract restraining Mr Walters from competing with the Plaintiff.

3    The Plaintiff seeks the following orders on an interlocutory basis:

“4. The defendants be restrained until further order from, by themselves, their servants and agents, approaching or soliciting or endeavouring to solicit away from the plaintiff any customer of the plaintiff listed in Annexure B to the affidavit of Ronnie Zahra sworn 17 August 2006.

5. The defendants deliver up to the plaintiff within 14 days any documents, including copies stored on any personal, laptop, notebook or other computer, hard disc drive, floppy disc, compact disc, digital versatile disc, or other device capable of storing or recording data or information by mechanical or electronic means in the possession or control of the defendants or either of them, which documents comprise or include confidential information of the plaintiff including customer lists, contact details, and quotations given by the plaintiff to customers listed in Annexure B to the affidavit of Ronnie Zahra sworn 17 August 2006.”
4    Mr Gyles of Counsel, who appears for the Defendants, submits to an order in terms of paragraph 5 without admissions. Mr Gyles says that the Defendants are content to submit to such an order because there are, in fact, no documents in existence falling within the description in paragraph 5. 5    The debate which has occurred before me has been concerned with whether an injunction in terms of paragraph 4 of the Notice of Motion ought to be granted. Mr Gyles submits that there is no prima facie or arguable case which would support an interlocutory order in terms of paragraph 4. He says that paragraph restrains Mr Walters from soliciting or approaching former customers of the Plaintiff in a way which the law permits him to do. Mr Gyles relies upon the line of authority which is embodied in cases such Wessex Dairies Ltd v Smith [1935] 2 KB 80, at 89. 6 The law is quite clear that in the absence of a valid restrictive covenant an employee is entitled to use retained knowledge of his former employer’s customers – their identity, requirements, contact details and so on – when the employee leaves the employment of his employer and sets up in competition. What the employee is not able to use is any property of the former employer, such as customer lists, which would enable the employee more readily to identify customers of the former employer or contact details of the customers. 7 In the present case, the evidence does not go so far as to suggest, even on a prima facie basis, that Mr Walters has a list of customers taken from the Plaintiff. Ms Fraser of Counsel, who appears for the Plaintiff, concedes that Mr Walters could, by virtue of his experience within the Plaintiff's business, look up the telephone book and identify quite readily a significant number of customers of the Plaintiff without recourse to any list of customers taken from the Plaintiff. 8 The real concern of the Plaintiff is that Mr Walters may use information which he has in his head about quotations which he prepared himself in order to provide the First Defendant with information which it can use to better the quotations given by the Plaintiff and thereby obtain the business of the Plaintiff's customers. 9 However, an injunction to restrain this sort of activity by Mr Walters has not been sought. Despite the fact that I drew Counsel for the Plaintiff's attention to the fact that all that the Plaintiff sought was an injunction restraining solicitation in general terms – meaning thereby restraining approaches to the Plaintiff's customers by both Defendants – the Plaintiff did not seek to narrow the terms of the interlocutory orders sought. 10 It seems to me that no prima facie case has been shown to restrain the First Defendant merely from approaching people who may be or may have been customers of the Plaintiff. There is no prima facie case that in order to make such solicitations or approaches the First Defendant now has in its possession some confidential document or list which sets out the identity and particulars of the Plaintiff's customers. 11 Further, there is no prima facie case that in approaching customers of the Plaintiff for business the Second Defendant, Mr Walters must reasonably be supposed to have in his possession a list of customers or particulars of jobs rather than having in his head by reason of his dealing with the Plaintiff's customers information about the identity of the customers and the identity of contacts within those customers’ companies. 12 The Defendants, appreciating that the real concern of the Plaintiff was not adequately expressed in paragraph 4 of the orders sought in the motion, proffered some further undertakings to the Court in an endeavour to preserve the status quo before the final determination of the proceedings. The words proffered were not acceptable to the Plaintiff. Thus, I have had to decide the question of whether an injunction should be granted in the terms sought in paragraph 4 of the Notice of Motion. 13 For the reasons I have given, I am not satisfied that there is a prima facie or arguable case warranting an order in terms of paragraph 4 against either of the Defendants. 14 The Defendants offer an undertaking to the Court in terms of paragraph 5 of the Notice of Motion. Ms Fraser says an undertaking to the Court is not acceptable because, if an injunction is granted rather than an undertaking accepted, a breach of the injunction is punishable by contempt. The fact is, however, that an undertaking to the Court is punishable as a contempt in the same way and to the same extent as a breach of an order made by the Court. There is no reason to suppose that the Defendants, having offered an undertaking, would be any more likely to breach it than they would be likely to breach an order of the Court expressed as an injunction. I think, therefore, that the offering of an undertaking to the Court is quite acceptable in the circumstances of this case. I therefore note the undertaking by the Defendants to the Court in terms of paragraph 5 of the Notice of Motion filed by the Plaintiff. 15 Bearing in mind that the Defendants say they are willing to give this undertaking because that say that there are, in fact, no documents in existence within the description of paragraph 5, I would not require any undertaking as to damages from the Plaintiff in support of the Defendants’ undertaking. 16 The motion therefore will be dismissed.

(Counsel addressed on the question of costs.)

17    The Defendants seek an order that the Plaintiff pay the costs of this motion. The Plaintiff seeks an order that the costs of the motion be reserved. The Plaintiff did not succeed on the only issue which was contested in the Notice of Motion. The Plaintiff says, however, that costs ought to be reserved because it was not until the matter was called on this morning that the Plaintiff was aware that the Defendants consented to an order in terms of paragraph 5 in the Notice of Motion. 18    I bear in mind that the proceedings were commenced only a few days ago, on 17 August, and were brought back to the Court urgently after the time for service had been abridged. In those circumstances I do not think it unreasonable that the Defendants should have announced their submission to an order in terms of paragraph 5 of the motion until today. The only substantive issue contested between the parties resulted adversely to the Plaintiff. In those circumstances, it seems to me that the costs of this motion ought to be paid by the Plaintiff and I so order.

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