Safety Direct Solutions Pty Ltd v Challen
[2020] WASC 34
•7 FEBRUARY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: SAFETY DIRECT SOLUTIONS PTY LTD -v- CHALLEN [2020] WASC 34
CORAM: MASTER SANDERSON
HEARD: 30 JANUARY & 6 FEBRUARY 2020
DELIVERED : 6 FEBRUARY 2020
PUBLISHED : 7 FEBRUARY 2020
FILE NO/S: CIV 2931 of 2019
BETWEEN: SAFETY DIRECT SOLUTIONS PTY LTD
Plaintiff
AND
GRAHAM CHALLEN
First Defendant
TALIS GROUP PTY LTD
Second Defendant
EION WAYNE VAN BILJON
Third Defendant
Catchwords:
Employment law - Application for interlocutory injunction to restrain former employee - Turns on own facts
Legislation:
Nil
Result:
Injunction granted
Category: B
Representation:
Counsel:
| Plaintiff | : | Ms E Hensler |
| First Defendant | : | Mr R J S French |
| Second Defendant | : | Mr R J S French |
| Third Defendant | : | Mr R J S French |
Solicitors:
| Plaintiff | : | Michael Paterson & Associates |
| First Defendant | : | Gilchrist Connell |
| Second Defendant | : | Gilchrist Connell |
| Third Defendant | : | Gilchrist Connell |
Case(s) referred to in decision(s):
Austal Ships Pty Ltd v Clay [2018] WASC 178
MASTER SANDERSON:
This was the plaintiff's application for an interlocutory injunction restraining the first defendant from undertaking certain activities during the course of his employment with the second defendant. After hearing argument I made orders in terms sought by the plaintiff. These are my reasons for making the orders.
The writ of summons in this matter was filed on 8 November 2019. The chamber summons seeking the interlocutory injunction was filed on 11 November 2019. A statement of claim was filed on 28 November 2019. The defendants' opposition to this application focused particularly on the terms of the contract as pleaded in the statement of claim. It is convenient then to begin by an analysis of the pleaded claim.
The plaintiff is identified as a business 'providing fire, rescue, medical and high risk management services and training'. The first defendant was an employee of the plaintiff between August 2013 and March 2015 and between August 2017 and 19 September 2019. The plaintiff is and has been since 1 October 2019 a shareholder and director of the second defendant. The second defendant carries on the business of providing high risk management solutions to clients including gas testers, medical and rescue personnel and operational equipment training and services. It is a competitor of the plaintiff. The third defendant is a director of the second defendant and a former employee of the plaintiff. In their defence filed 18 December 2019 the defendants admit all these facts save for points of detail which are not relevant to this application.
The plaintiff says the first defendant was employed by it pursuant to three employment agreements. For present purposes it is the third of those agreements defined in the pleading as the '2018 Employment Agreement' which is relevant. The plaintiff says the first defendant resigned from his employment with the plaintiff on 19 September 2019 and immediately took up employment with the second defendant. The plaintiff alleges in doing so the first defendant breached restraint clauses which are contained in the 2018 Employment Agreement. The statement of claim details other claims against the defendants such as the use of confidential information and alleged breaches of fiduciary duty. Certain undertakings were given by the defendants to the plaintiff so that by the time this application was heard the focus was solely on whether or not the restraint provisions in the 2018 Employment Agreement justified an injunction being granted.
The orders I made were as follows:
The first defendant, directly or indirectly, be restrained, pending the hearing and determination of these proceedings, or further order, from persuading, or attempting to persuade or counsel any of the plaintiff's:
(a)clients as at 19 September 2019, to cease doing business with the plaintiff or reduce the amount of business it does with the plaintiff; and
(b)employees or contractors, as at 19 September 2019, to terminate their employment or contract with the plaintiff, or to become employed by, or contracted to, any other person or entity, other than the plaintiff.
There was no dispute between the parties as to the principles applicable to the grant of an interlocutory injunction. It was for the plaintiff to establish there was a serious question to be tried and that the balance of convenience favoured the grant of an injunction. Both parties accepted there is no difference between the general approach of the court in relation to the grant of interlocutory injunction against breaches of contract and its approach in relation to the grant of interlocutory injunctions against covenants in restraint of trade: see Austal Ships Pty Ltd v Clay.[1] It was the defendants' position that the plaintiff had not established there was a serious question to be tried nor had it established the balance of convenience favoured the grant of an injunction. Allied to the second of these two points, the defendants said the plaintiff had not established damages would not be an adequate remedy in the circumstances.
[1] Austal Ships Pty Ltd v Clay [2018] WASC 178 [53] – [56].
A copy of the 2018 Employment Agreement appears as attachment RJK2 to an affidavit of Richard John Kaminski sworn 8 November 2019. Clause 11 of the Agreement is sub‑headed 'Trade Restraint and Solicitation of Clients'. By cl 11.1(b) the first defendant agreed he would not 'Act Against the Interests of the Employer' for a period of two years after the termination of the Agreement. Clause 11.3 then reads as follows:
11.3Act Against the Interests of the Employer means to directly, or indirectly:
(a)promote, participate in, undertake or enter into (whether on its own account or in partnership or by joint venture) any other business similar to or in competition with the business of the Employer; or
(b)be concerned or interested, other than as an employee, directly or indirectly in any capacity, including as principal, agent, shareholder, director, beneficiary, independent contractor, consultant or adviser in any business which competes with the business of the Employer; or
(c)persuade, attempt to persuade or counsel any Client:
(i)to cease doing business, or reduce the amount of business it does with the Employer; or
(ii)not to award any new assignment, project or account to the Employer, or to award the same to any other person, firm or company that carries on the same or a similar business to that carried on by the Employer; or
(d)solicit, or attempt to solicit, representation rights
for:
(i)the Employee; or
(ii)an organisation by which the Employee is then employed,
from:
(iii)any Client with which the Employee has dealt personally during the term of this Agreement; or
(iv)any competitor of a Client of which the Employee has acquired knowledge during the term of this Agreement; or
(e)persuade, attempt to persuade or counsel any employee or contractor of the Employer to terminate the Employee's employment or to become employed by, or contracted to, any other person or entity.
It was counsel for the defendants' submission that on the evidence this clause was an unacceptable restraint of trade and unenforceable. It was submitted the clause was so widely drawn and such an obviously unacceptable restraint on the first defendant there was no serious question to be tried. Counsel's submission had to it a number of aspects. First, there was no geographical limitation on the operation of the claim. Counsel pointed out not only would it operate in Western Australia but also in the rest of Australia and perhaps even internationally. Second, the clause was by its terms extremely wide. That is to say it really prevented the first defendant from engaging in any way with a business operating directly or indirectly with the business of the plaintiff. Third, it was said the length of the restraint was clearly unreasonable. To an extent this submission was fact specific – it was submitted the first defendant was not in a position with the plaintiff which made a restraint for this period reasonable. To a degree at least the second submission was also fact specific although counsel made submissions which put this issue in a wider context.
Turning then to the evidence, it is convenient to begin with the affidavit of Mr Kaminski to which I have referred above. Mr Kaminski is a director of the plaintiff and is also 'Technical Director of National Operations'. He says on 1 February 2018 the first defendant was promoted to High Risk Management Services (HRM) Manager of the plaintiff. By par 7 of his affidavit, Mr Kasminski says the first defendant's tasks included:
(a)the day to day running of HRM operations and operational personnel nationally;
(b)managing business development task and services;
(c)quoting clients;
(d)being the point of contact for clients;
(e)HRM consulting services;
(f)HRM compliance; and
(g)operational equipment sourcing.
Mr Kaminski says the first defendant, while working under supervision, was given freedom to manage the Western Australian, Northern Territory and New South Wales HRM teams. He also met with clients, sometimes alone, sometimes in the company of Mr Kaminski and others. The picture that emerges is that the first defendant had considerable autonomy and a detailed understanding of the plaintiff's business. The remainder of the affidavit details instances which might be categorised as breaches of the restraint provisions. Essentially Mr Kaminski says the first defendant contacted clients and suppliers in an attempt to win business for the second defendant and in such a way as would adversely affect the plaintiff's business. The plaintiff relied on four further affidavits, two of Stewart Grant Masson, one by Joshua Douglas Webb and one by Beth Sharon Croy. All of these affidavits led evidence which sought to confirm the first defendant was soliciting clients, contractors and personnel related to the plaintiff. For present purposes it is unnecessary for me to deal in any detail with this evidence. I will explain why that is so later in these reasons.
In opposition to the application the defendants relied on four affidavits of the third defendant. The first sworn 22 November 2019, the second sworn 4 December 2019, the third sworn 17 January 2020 and the fourth sworn 29 January 2020. They also relied on two affidavits of the first defendant. The first sworn 22 November 2019 and the second sworn 4 December 2019. In his first affidavit the first defendant agrees that his role with the plaintiff included those matters listed in par 7(a) – (g) which I have quoted above. The first defendant does say that he did not have full access to the plaintiff's employee details and he did not have access to budget information. What is clear from both the first and third defendants' affidavits is that the second defendant, with the assistance of the first defendant is likely to compete with the plaintiff in attracting clients. In his fourth affidavit, the third defendant deals with the role of the first defendant. He puts the position this way:
7.Graham is very important for Talis' business as he assists to expand and capitalise existing leads with clients that are not currently clients of Talis.
8.Graham's experience is in fire and rescue and high risk management, whereas I have experience as a paramedic.
9.I am involved in two businesses and as a result, I have a large administrative commitment across those two businesses.
10.Other than casual employees who perform work it is only Graham and I who run the business and engage clients in relation to high risk management services. Therefore, it is not feasible for myself alone to be engaging new clients for Talis without Graham's involvement.
11.I see Graham as the linchpin for Talis on a professional and social level in terms of securing, servicing and dealing with staff and clients.
12.As Graham is a shareholder and director of Talis, he needs to have control over the business of Talis, including securing new clients. If he was unable to secure new clients, that would affect the profitability and success of Talis and it also would affect me personally in my capacity as a director and a shareholder of Talis.
…
16.Even though there are many businesses providing services in our industry, there is a small number of primary defence contractors for us to win work with and most of those have previously engaged SDS. Were Graham to be restrained from dealing with clients of SDS then, in effect, it would make it difficult for Talis to win any new work.
Without reference to any of the evidence of the plaintiff it is clear that the activities of the first defendant – the very purpose for which he was engaged – is to compete with the plaintiff. For the purposes of this application it is not necessary to have a complete understanding of how the first defendant will go about obtaining clients for the second defendant. But it is clear that if he is to perform the role the third defendant anticipates he would be in breach of the restraint clause in the 2018 Employment Agreement. So the question then is whether or not it is arguable that Agreement is enforceable.
In my view, the plaintiff's position is arguable. It is clear both the plaintiff and the second defendant operate in a niche market. All of the evidence is to that effect. While the third defendant says that there are a significant number of companies competing for the work available it appears the plaintiff and the second defendant are highly specialised and could be expected to compete with one another. That leads to the conclusion the first defendant, with his specialised knowledge, could reasonably be the subject of a restraint when his contract terminated. The question then is whether the restraint is reasonable. That must be tested against the standards in the industry. I would accept the restraint is wide – it is wide in scope, it is wide geographically and it is wide temporally. If it is a valid restraint it must surely be at the outer limits of what is reasonable. But it is not so obviously unreasonable as to be unenforceable. In other words, based on all of the evidence I am satisfied it is arguable the restraint is no more than is necessary to protect the plaintiff's business.
The question then is whether the balance of convenience favours the grant of the injunction. The difficulty with a case such as this is knowing what effect the activities of the first defendant might have on business being diverted from the plaintiff to the second defendant. As the third defendant notes, the second defendant has only two employees. It therefore seems likely the first defendant will be instrumental in any business going to the second defendant rather than the plaintiff. But in contracts of this type there must be a broad range of factors which influence a client to retain the services of one contractor as against another. It might, for instance, be the very fact the second defendant is a small operation with the principals of that business having day to day 'hands on' control of its operations, which is decisive in persuading a client to choose the second defendant. It may have nothing at all to do with the first defendant. On the other hand, a client may have had contact over time with the first defendant and trusts his expertise. That, taken together with other factors, might persuade the client to engage the second defendant. It is very difficult to see how it would be possible to tease out precisely what effect the first defendant's engagement with the second defendant would have on a potential client. If the restraint is enforced then there should – in theory at least – be no suggestion the first defendant, in breach of the restraint has benefited the second defendant's business.
Following on from the above it is difficult to see how, in a case such as this, damages could be an adequate remedy. If the plaintiff were to establish the first defendant was in breach of the restraint and was able to point to a contract which had gone to the second defendant in preference to the plaintiff, issues of causation would arise. Those issues would be significant and the damages very difficult to calculate.
For these reasons I was satisfied that an injunction should be granted. That said, it is clear this matter ought be determined as soon as possible. An early mediation has been arranged and if that mediation is unsuccessful then an early trial should follow. The costs of this application will be reserved.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson7 FEBRUARY 2020
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