Structerre Consulting Engineers (NSW) Pty Ltd v Townend

[2020] NSWSC 1894

Supreme Court

New South Wales

Medium Neutral Citation:	Structerre Consulting Engineers (NSW) Pty Ltd v Townend [2020] NSWSC 1894
Hearing dates:	15 December 2020
Decision date:	21 December 2020
Jurisdiction:	Equity
Before:	Robb J
Decision:	See pars [53], [59] and [60].
Catchwords:	EMPLOYMENT AND INDUSTRIAL LAW — Contract — Restraint of trade — whether employee should be released from an undertaking provided to an employer on an interlocutory basis — where undertaking is inherently indefinite — where, regardless, it is appropriate that the Court allows for a replacement undertaking to be given.
Cases Cited:	Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177; [1981] HCA 39
Category:	Procedural and other rulings
Parties:	Structerre Consulting Engineers (NSW) Pty Ltd (plaintiff / respondent) Greg Townend (defendant / applicant)
Representation:	Counsel: P Afshar (plaintiff / respondent) M Karam / T Arnold (defendant / applicant) Solicitors: Bennett & Philp Lawyers (plaintiff / respondent) Logie-Smith Lanyon Lawyers (defendant / applicant)
File Number(s):	2020 / 208161

Judgment

1. The Court has before it a notice of motion filed by the defendant, Greg Townend, on 9 December 2020, in which he seeks the following relief:

The undertaking provided by the defendant to the Court in paragraph 11 of the orders made by Robb J on 21 July 2020 (Undertaking), is discharged.

Alternatively, the Undertaking is discharged at 5 PM on 31 January 2021.

2. Mr Townend’s notice of motion was heard in the duty list on 15 December 2020.

3. The plaintiff, Structerre Consulting Engineers (NSW) Pty Ltd (Structerre), is the former employer of Mr Townend.

4. Structerre commenced these proceedings by filing a summons on 15 July 2020. The summons sought injunctive relief to enforce what Structerre claims is a post-employment contractual restraint, and also to enforce a contractual and equitable duty owed by Mr Townend to Structerre in respect of the maintenance and non-use of its confidential information. Only the confidential information claim is relevant for the purpose of determining Mr Townend’s notice of motion.

5. The date of 31 January 2021 stated in par 2 of Mr Townend’s notice of motion is the date when the contractual restraint in his contract of employment expires.

6. Structerre sought the following final relief in its summons on its confidential information claim:

2.   Order that the defendant be restrained from, by himself, his servants and agents, directly or indirectly, disclosing to any other person the plaintiff’s confidential information as follows, except as may be required by law:

a.   any information concerning the clients of the plaintiff, including the clients’ names, the names of the clients’ principals or other key personnel, the contact details of the clients’ principals or other key personnel, and the clients’ preferences in relation to engineering services; and

b.   any of the plaintiff’s internal cost and pricing rates for any of its products and services.

7. This claim was based upon a term of the contract dated 18 April 2013, by which Structerre employed Mr Townend, which was relevantly in the following terms:

In the course of your employment you may become privy to confidential information of the Company or that of the Company’s clients, whether in written, computerised or oral form.

You will, both during your employment and for so long as the confidential information remains confidential after the termination of your employment (unless it ceases to be confidential due to your breach of this clause):

not at any time, either directly or indirectly, disclose or communicate to any person any confidential information that may come to your knowledge during or in the course of the employment, unless expressly authorised by the Company or required by law or court order,

use your best endeavours to prevent disclosure or publication of the confidential information where that disclosure or publication is not authorised by the Company,

…

Not use or attempt to use confidential information for your own purposes or for any purposes other than for the purposes of the Company or in any manner which may injure or cause loss directly or indirectly to the Company and/or its business, and

acknowledge and agree that, without prejudice to any other remedy that the Company may have, the Company will be entitled to injunctive and other equitable relief to prevent or cure any breach or threatened breach of this clause.

8. There is no definition or elaboration of the meaning of “confidential information” in the employment contract.

9. It is necessary to explain relevant aspects of the history of these proceedings.

10. Structerre was given leave to file its summons in Court on 15 July 2020, returnable on 21 July 2020.

11. On the return date, I was the duty judge. I made a number of orders by consent and without admissions, including the following:

Upon the plaintiff giving the usual undertaking as to damages, the Court notes that, without admissions, the defendant gives the following undertakings to the Court:

…

12.   From the date of these orders until 5 PM on 31 July 2020, the defendant undertakes to the Court that he will not knowingly (except as may be required by law):

a.   directly or indirectly disclose or communicate to any other person any confidential information concerning the clients of the plaintiff that came into his knowledge during or in the course of his employment with the plaintiff, including:

(i)   the clients’ names;

(ii)   the names of the clients’ principals or other key personnel;

(iii)   the contact details of the clients’ principals or other key personnel; and

(iv)   the clients’ preferences in relation to surveying services;

b.   any of the plaintiff’s internal cost and pricing rates for any of its products and services.

12. There was an issue between the parties as to whether this undertaking was offered by Mr Townend. That is, whether Mr Townend was responsible for its wording in addition to giving it. I understand the position to be that Mr Townend was responsible for the insertion of the expression “not knowingly” in the chapeau to par 12 into a form of words suggested by Structerre.

13. This undertaking is inherently indefinite insofar as the subject matter of sub-par (a) is “confidential information”. It is also indefinite in providing that an indirect disclosure will contravene the undertaking. That is because indirect disclosure may occur in many different ways.

14. To some degree, the risk of inadvertent contravention of the undertaking is reduced by the requirement in the chapeau that the disclosure occur “knowingly”. However, where the subject matter of the prohibition is inherently indefinite or imprecise, knowingly is a problematic qualification. First, the determination of whether there has been a contravention requires proof of a subjective state of mind. Secondly, there is scope for uncertainty as to what knowledge is necessary for the undertaking to be contravened. That is, what is the extent of the knowledge required before the circumstances of disclosure are prohibited? Thirdly, there is scope for uncertainty as to whether intention is necessary, or whether knowledge of the facts that make the information confidential and that disclosure has taken place is sufficient.

15. It may be accepted that the subjects “the clients’ preferences in relation to surveying services” (sub-par (a)(iv)) and “any of the plaintiff’s internal cost and pricing rates for any of its products and services” (sub-par (b)) are, at least at the interlocutory stage, prima facie capable of being confidential information. In my view, it is not necessarily the case that the clients’ names, the names of principals or other key personnel, or contact details are genuinely capable of being confidential information to one service provider. Almost certainly, all clients advertise their existence and an internet search, or a telephone call, will readily discover information of this nature. The commercial success of the clients will depend upon this information being in the public domain. It may be that this restriction was intended only to catch the fact that particular clients were clients of Structerre, but it appears to extend to names and contact details.

16. On 29 July 2020, Ward CJ in Eq made a number of orders, including the adjournment of Structerre’s application for interim relief to 2 PM on Thursday, 13 August 2020. An order was made noting that the undertaking in order 12 made on 21 July 2020 was extended until 5 PM on 17 August 2020. Case management orders were made to facilitate the completion of the evidence for the interlocutory application.

17. The matter came before Ward CJ in Eq again on 10 August 2020. Relevantly, her Honour, by consent and without admissions, made notations and orders that included the following:

The Court notes that the defendant has notified the plaintiff that he will not contest the application for Interim Relief, in circumstances where the parties have agreed to seek referral of the matter to the Expedition List Judge.

…

5.   The operation of the undertakings given by the defendant to the Court, noted in paragraphs 11 and 12 of the orders made by Robb J on 21 July 2020, is extended until the earlier of [the] disposition of the plaintiff’s claim for final relief in this proceeding or other order.

18. Order 5 is the subject of Mr Townend’s 9 December 2020 notice of motion whereby he seeks an order that he be discharged from this undertaking.

19. It is evident that order 5 was made in circumstances where the parties had agreed to seek expedition of the proceedings. No order for expedition had as yet been made.

20. The next day, on 11 August 2020, Ward CJ in Eq made an order that the proceedings be expedited, as well as further case management orders in relation to the completion of the interlocutory evidence.

21. The proceedings were listed on 15 September 2020 for final hearing before me for two days commencing 30 November 2020.

22. At the end of the first day of the hearing, it was adjourned part heard. The adjournment occurred on the application of Mr Townend in the following circumstances. Structerre initially supported its summons by affidavit evidence that focused on the conduct of Mr Townend in relation to two clients of Structerre. Structerre did not widen its case in accordance with the case management orders for the service of further evidence, by serving further affidavits that made claims against Mr Townend in relation to additional clients at the stipulated times.

23. Neither party to these proceedings pressed for an order that the matter proceed on pleadings. Consequently, Structerre was not required to identify all of the clients that it ultimately wished to make the subject of claims. At the hearing, Structerre wanted to pursue a case based upon a substantially higher number of clients and alleged wrongful acts than were foreshadowed in its affidavits. This appeared from a document called “Statement of the Case” that was prepared by Structerre’s counsel during 30 November 2020 (see MFI 1). Structerre wished to pursue a case based upon nine additional clients to the two clients the subject of its affidavits, as well as some 52 incidents, some relating to the restraint claim and others relating to the breach of confidence claim. Many of these incidents concerned clients other than the two that were dealt with in Structerre’s affidavits. Structerre wished to proceed on the basis that it had compiled a significant number of documents, mainly obtained from Mr Townend that were produced in response to notices to produce, and some perhaps from Mr Townend’s new employer, who is a competitor of Structerre. Those documents had been included in the court book that was served by Structerre on Mr Townend some days before the commencement of the hearing. The result was that the absence of pleadings had the effect that Structerre had not informed Mr Townend of the full ambit of its case. In particular, Structerre had not done so by means of service of further affidavit evidence in accordance with the case management orders made by the Court.

24. Mr Townend objected to the hearing continuing on the basis that his own detailed evidence responded to the claim based upon the two clients dealt with in Structerre’s affidavits, but he had not had the opportunity to prepare and serve any evidentiary response to Structerre’s new claims in relation to additional clients and incidents.

25. In the circumstances, I ruled that the hearing should be adjourned.

26. On 4 December 2020, I made consent orders that included an order that Structerre serve points of claim by 18 December 2020, that Mr Townend serve points of defence by 26 February 2021, as well as his evidence in reply to the evidence on which it was now known Structerre would rely. Structerre was given until 12 March 2021 to serve any evidence in reply. The proceedings were listed for the allocation of a new hearing date on 16 March 2021.

27. The points of claim were required to set “out with particularity the plaintiff’s allegations concerning the breaches of the restraint of trade and confidential information clauses (including specifically identifying the information claimed to be confidential)”.

28. Plainly, the hearing will now be completed a substantial time after the anticipated expedited hearing that should have been completed on 1 December 2020. In practical terms, it is likely that the matter has lost the expedition that was given to it, because of the difficulty that will be encountered in finding a suitable time for me to complete the hearing.

29. Mr Townend’s position is that he agreed to give the confidentiality claim undertaking in order to avoid the costs and inconvenience of an interlocutory hearing on that issue, and in the expectation that it was likely that the proceedings would be expedited, so that he would only be burdened by the undertaking for a relatively short time. Given the expected shortness of time, Mr Townend could live with the uncertainty in the content of the undertaking by adopting a conservative response, so as to avoid the risk of contravening the undertaking that might be inherent in the absence of any specificity as to the content of Structerre’s confidential information.

30. Furthermore, Mr Townend says that the conservative course that the undertaking required him to follow was not unduly inconvenient to his new employer when it was expected to be in place only for a number of months, but, now that it is known that the undertaking may be in place for 12 months or more, it has created difficulty for Mr Townend in his relationship with his employer.

31. Specifically, Mr Townend gave the following evidence in his affidavit made on 9 December 2020 in support of his notice of motion:

9.   Given the scope of the Confidentiality Order, in order to ensure compliance with it, it was necessary for me to in effect be quarantined by my current employer…from matters which could potentially involve clients or customers that had ever worked with the Plaintiff, irrespective of whether doing so in fact ever involved the use of whatever the plaintiff asserts is “confidential information”, or their “clients”.

…

13.   In my current role, I am managing the day-to-day operations of the survey section. Given the scope of the Confidentiality Order, it is possible that I essentially risk contravening the orders if I interact with any staff members or trades associated with a builder who may also have a relationship with the plaintiff. I also do not know which “clients” of the plaintiff this may inadvertently occur with.

14.   In the circumstances, while I was previously prepared to agree to the Confidentiality Order as a short-term measure, and with the then support of [Mr Townend’s employer] I cannot now continue to be so severely constrained in my employment activities as a precaution against an inadvertent breach of the Confidentiality Order, nor is [Mr Townend’s employer] prepared to accept such a constraint on my activities. Therefore I now seek to be relieved of the Confidentiality Order made by consent in July and August 2020…

32. Consequently, Mr Townend availed himself of the leave given by the Court to the parties to relist the matter by filing his notice of motion on 9 December 2020 and arranging with the Court for the motion to be heard on 15 December 2020.

33. It is possible that the quarantine arrangements that Mr Townend and his present employer have put in place go further than is necessary to avoid a real risk that Mr Townend will contravene the undertaking. The Court is not in a position to take a view on that question. However, it must be allowed that a natural result of an undertaking being given in terms that are indefinite may be that the regime adopted to avoid unintended contraventions will be much more restrictive and onerous than is necessary or can be justified.

34. Structerre’s response to Mr Townend’s application was to submit that the notice of motion should be dismissed with costs.

35. Structerre relied upon the established principle that the Court should only release a party who has given an undertaking to the Court where “new facts come into existence or are discovered which render its enforcement unjust” and that “the changed circumstances must be established by evidence”: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177; [1981] HCA 39.

36. Structerre submitted that Mr Townend had not established new facts that make it unjust for the Court to hold Mr Townend to the undertaking. Mr Townend proffered the undertaking in order to avoid an interlocutory hearing, he has been given the benefit of Structerre’s usual undertaking as to damages, and he is protected from the potential effect of any indefiniteness in the wording of the undertaking by the inclusion of the expression “not knowingly”. Structerre also submitted that the undertaking was given when there was no certainty that the matter would be given expedition and the undertaking would only operate for a short period.

37. Structerre’s response to Mr Townend’s notice of motion was limited to resisting the relief claimed. Structerre had not prepared a claim for an alternative interlocutory injunction, in the event that the Court released Mr Townend from his undertaking. Counsel for Structerre informed that Court that, if the undertaking were released, Structerre would mount a new application for an interlocutory injunction against Mr Townend in respect of the enforcement of Mr Townend’s obligation concerning Structerre’s confidential information. For that reason, Structerre asked that any release of the undertaking should not take effect until 31 January 2021, so that Structerre would have time to make a new interlocutory application.

38. Structerre filed its points of claim on 18 December 2020. The information that it claimed was provided to Mr Townend on a confidential basis and which was the subject of its confidential information claim was set out in par 11, as follows:

In the course of his employment with the plaintiff, the defendant acquired the following information:

a.   the plaintiff’s internal pricing and pricing structures for survey and engineering services, including the components of such pricing.

b.   the plaintiff’s internal pricing of services and packages of services offered to each client, including the components of such packages and their pricing.

c.   the minimum profit acceptable to the plaintiff for its services and packages of services offered to each client.

d.   the plaintiff’s internal costing for the provision of survey and engineering services, including the costs of disbursements.

e.   market research and customer feedback communicated to the defendant in relation to the plaintiff’s survey and engineering services.

f.   clients’ preferences communicated to the defendant in relation to the plaintiff’s survey and engineering services.

g.   the figures representing revenue and income of the plaintiff from clients.

h.   the plaintiff’s marketing strategies towards its survey clients, including the components of such strategies and the costs thereof.

i.   components and operation of the plaintiff’s client online ordering and scheduling system, including the functions of that system, the inputs of that system, the outputs of that system and the architecture of that system, including changes made to the system in response to market research and customer feedback (ordering system).

j.   market research and customer feedback communicated to the defendant in relation to the ordering system.

k.   the plaintiff’s client lists, including its clients’ names, the names of the clients’ principals, personnel, contact details and the details of their arrangements with the plaintiff…

39. I am not satisfied that Mr Townend has established a justification for the Court to release him from his undertaking completely, whether now or on 31 January 2021.

40. First, Mr Townend made a tactical decision not to contest Structerre’s interlocutory application, and he gained an advantage by taking that course, as well as the benefit of Structerre’s usual undertaking as to damages. Albeit at the interlocutory stage, there was a settlement of Structerre’s claim for interlocutory relief.

41. Secondly, Mr Townend made his decision to avoid an interlocutory hearing by offering the undertaking after he had been given an opportunity to consider Structerre’s interlocutory evidence and to prepare his evidentiary response.

42. Thirdly, even at the interlocutory stage, there is substantial public good in the finality of litigation.

43. Finally, even though there has not been a hearing on the merits of Structerre’s claim for interlocutory relief, I am satisfied that at least some of the subject matter claimed to be confidential information in the undertaking given by Mr Townend is prima facie confidential. Now that Structerre has specified the subject matter of its confidential information claim more fully in par 11 of its points of claim, the subject matter claimed to be confidential information is more extensive than it was at the time that the undertaking was given.

44. No case has been established for requiring Structerre to prove de novo a claim for an interlocutory injunction preventing Mr Townend from disclosing or communicating the information now claimed to be confidential.

45. However, in my view, the question whether or not Mr Townend should be released from his undertaking is not a binary one. While the Court cannot vary an undertaking voluntarily given to it by a party, it can release one undertaking on condition that a more suitable undertaking be given to the Court. There is scope for considerable gradation between the original and the substitute undertakings.

46. In the present case, I have concluded that it will be appropriate to give Mr Townend the opportunity of providing a new undertaking to the Court in substitution for the existing one.

47. I consider that circumstances have changed sufficiently to justify that course, even if they have not changed sufficiently to justify the absolute release of the existing undertaking.

48. First, I accept that the undertaking was given in a context where both parties agreed to apply for expedition, even though expedition had not actually been granted. As the contractual restraint expired on 31 January 2021, the parties had reason to hope that the Court would grant expedition if it could. Other things being equal, the Court does try to determine cases where the enforcement of a contractual restraint of limited duration is involved before the term of the restraint expires. The hope that expedition would be granted was realised the day after the undertaking was given.

49. In my view, without my suggesting that the Court should depart from established principles governing the release of undertakings, circumstances may justify the Court being sympathetic to defendant former employees who choose to give undertakings expressed in less than satisfactory terms. That would be in order to avoid the costs of a contentious interlocutory hearing involving their former employers, who will usually have more substantial means to carry on the litigation. While a defendant who gives an undertaking must be bound by it, if circumstances do not change, the Court should be alive to the real possibility that where they do change, the terms in which the undertaking was given may become unduly oppressive.

50. Secondly, there have been material changes in circumstances. An undertaking given when expedition was reasonably expected will now be in place for a considerably extended period. The enthusiasm of the new employer for restrictions on how Mr Townend can perform his duties required by the need to avoid contravention of the undertaking may wane with the extension of the period during which the undertaking will operate, particularly when the period is indefinite. Furthermore, the undertaking was given at a time when Structerre’s case was based upon events involving two clients, but Structerre has expanded its case in the manner set out in the Statement of the Case, and now more fully elaborated in the points of claim. That has necessarily made the undertaking more onerous than it would reasonably have been expected by Mr Townend to be at the time that it was given.

51. Thirdly, the inherent indefiniteness or imprecision of the undertaking may also be material to whether Mr Townend should be given an opportunity to provide a substitute undertaking. While, to some extent, Mr Townend made a tactical decision to accept the unknown consequences of the indefinite meaning of the undertaking given, the Court ought not ignore the possibility that the consequences may become manifest in a way that makes it unfair for the Court to continue to require strict conformance with the undertaking, having regard to issues relevant to the balance of convenience.

52. Finally, and most significantly, is the consideration that contravention of the undertaking will involve Mr Townend being in contempt of court. The more indefinite the meaning of the undertaking, the greater the risk of unintentional contempts occurring. In my view, where, as in the present case, the change in circumstances includes the replacement of an indefinite description of the subject matter of the undertaking, such as the use of the expression “confidential information”, by objectively intelligible descriptions of the actual information, the Court should be ready to release the original undertaking in return for a more satisfactory one being given. What is more satisfactory in the context is that the new undertaking is sufficiently precise to make it a proper subject of a restriction the contravention of which will make the giver of the undertaking at risk of contempt of court.

53. As the Court cannot vary the original undertaking, it can only give Mr Townend an opportunity to offer an appropriately worded new undertaking in replacement of the existing one.

54. I am satisfied that it is appropriate to include the word “knowingly” in the wording of the undertaking. I consider the words “directly or indirectly” to be problematic insofar as the expression “indirectly” does not adequately describe the actions that may constitute a contravention.

55. I am also satisfied that the information described in sub-pars 11(a) to (j) of the points of claim, and also that part of sub-par 11(k) that states “the plaintiff’s client lists” and “the details of their arrangements with the plaintiff” are, at the interlocutory stage of the proceedings, capable of being the subject of confidential information. A new undertaking whose wording made the restriction dependent upon these categories of information would be appropriate and preferable because of the increased specificity of the description of the restricted information.

56. I am concerned about the inclusion in the undertaking of that part of par 11(k) that reads “including its clients’ names, the names of the clients’ principals, personnel, contact details”. This information is, as observed above, inherently unlikely to be confidential. I am concerned that, if the undertaking extends to this information, the restrictions that will be required to be put in place for Mr Townend’s duties in performance of his obligations to his new employer may be arbitrarily wide and unjustifiable.

57. The more precise description in Structerre’s points of claim of the content of the information that it claims to be confidential should make it easier for Mr Townend and his new employer to determine a regime that will enable Mr Townend to perform his duties to his employer without undue restriction.

58. The objective of the formulation of a substitute undertaking should be to provide adequate protection to Structerre in a way that permits Mr Townend, in a relatively concrete way, to identify the conduct that the new undertaking prohibits. The wording of the undertaking should permit Mr Townend to perform his duty to his new employer in the most extensive way that is compatible with Structerre enjoying a proper level of protection of its confidential information, given the interlocutory nature of the undertaking.

59. The parties should consider these reasons and discuss the formulation of an alternative undertaking to be given by Mr Townend, if he wishes to avail himself of the opportunity to give that undertaking in return for being released by the Court from the existing one. If the parties are unable to reach agreement that permits them to deliver agreed short minutes of order to my Associate, Mr Townend should submit orders for which he contends, and Structerre should submit a response that contains revisions to Mr Townend’s orders. The parties may provide short submissions in explanation of their positions.

60. I consider that both parties have had a measure of success, and the appropriate costs order is that their costs should be costs in the cause.

**********

Decision last updated: 21 December 2020