Trademax Australia Limited v Xiang Huang

[2024] NSWSC 1459

Supreme Court

New South Wales

Medium Neutral Citation:

Trademax Australia Limited v Xiang Huang [2024] NSWSC 1459

Hearing dates:

13 November 2024

Date of orders:

13 November 2024

Decision date:

15 November 2024

Jurisdiction:

Equity - Commercial List

Before:

McGrath J

Decision:

See [74]

Catchwords:

EQUITY — equitable remedies — interlocutory injunctions — where employment agreement contains provisions in relation to preserving confidential information and restraints of trade — where plaintiff alleges defendant breached employment agreement and seeks interlocutory and final injunctions to enforce negative contractual stipulations — where defendant is no longer working for employer and says that he has no immediate plans to work in the future — HELD — serious question to be tried — real risk of non-compliance with restraints — no hardship to the defendant — balance of convenience favours granting of interlocutory injunctions

Legislation Cited:

Restraints of Trade Act 1976 (NSW)

Cases Cited:

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2009] HCA 63

Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46

Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1

BMW Australia Ltd v Brewster (2019) 269 CLR 574; [2019] HCA 45

Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717

Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148; [1968] HCA 58

Isaac v Dargan Financial Pty Ltd ATF Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) (2018) 98 NSWLR 343; [2018] NSWCA 163

KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702

Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533

Otis Elevator Co Pty Ltd v Nolan [2007] NSWSC 593

The Littlewoods Organisations Ltd v Harris [1978] 1 All ER 1026

Tullett Prebon (Australia) Pty Ltd v Simon Purcell [2008] NSWSC 852; (2008) 175 IR 414

Warner-Lambert Company LLC v Apotex Pty Ltd (2014) 106 IPR 218; [2014] FCAFC 59

Category:

Principal judgment

Parties:

Trademax Australia Limited (Plaintiff)
Xiang Huang (Defendant)

Representation:

Counsel:
S Fitzpatrick SC and P Gaffney (Plaintiff)
D Allen (Defendant)

Solicitors:
Broaden Legal (Plaintiff)
Du & Associates Lawyers (Defendant)

File Number(s):

2024/00418405

Publication restriction:

Nil

JUDGMENT

INTRODUCTION

1. The plaintiff, Trademax Australia Limited (TAL), brought these proceedings against the defendant, Xiang Huang (who also is commonly known by the English name “Roy”), seeking interlocutory and final injunctive relief to restrain the defendant in accordance with provisions contained in the Employment Agreement dated 22 December 2021 between TAL and the defendant.

2. On 13 November 2024, I heard TAL’s application for urgent interlocutory injunctions against the defendant until the determination of the final relief. I granted those interlocutory injunctions against the defendant. Set out below are my reasons for doing so.

RELEVANT FACTS

TAL’s business and marketing

3. TAL operates trading platforms for its customers to engage in over-the-counter contract-for-difference (CFD) trading of underlying financial products, including shares, commodities, index, crypto-currencies and foreign currencies.

4. TAL’s head office is located in Sydney, New South Wales. TAL also has branch offices in other locations across Australia and overseas. TAL has 224 employees in New South Wales, 32 employees in the Australian Capital Territory (ACT) and 325 employees globally.

5. TAL holds a licence to provide financial services for its customers in multiple jurisdictions, including Australia.

6. In summary, TAL makes a market for its customers by acting as principal in entering into CFD contracts with its customers. TAL is the counterparty to all of its customers’ trades, managing the risk on its own book. Using this model, TAL makes a profit primarily from its customers’ losses.

7. TAL and its related companies worldwide seek new customers to use its trading platform by engaging in marketing campaigns, including by sponsoring globally renowned sports stars, sports teams and sports events. For example, TAL has been a sponsor of the English Premier League team Chelsea since 2023, the Australian Open tennis from 2021 until 2023, the Italian football goalkeeper Gianluigi Buffon (who serves as TAL’s brand ambassador) since 2021 and the football AFF Suzuki Cup in 2020. This has involved TAL spending about US$7 million on marketing in 2023 and US$5 million in marketing in 2024 to date.

8. In TAL’s business, client inquiries come via TAL’s website, live chat, app store, marketing partnership page and various marketing events which are captured as a sales lead by the TAL sales office. Those sales leads are then given to the TAL Office Sales Manager who distributes them amongst team leaders and Accounts Managers. The Account Managers then approach potential customers assigned to them to give them information about TAL’s trading platform and products, answer any queries or concerns, guide them through the on-boarding process of opening a trading account and facilitate that account opening.

9. Once a client opens a trading account it must deposit funds into that account to initiate any trades. After the client commences trading on TAL’s platform, the Account Managers continue to provide support to them. Revenue generated on each account then forms part of the Account Manager’s commission and key performance indicators.

TAL’s competition

10. TAL has a number of competitors who trade in CFDs with clients located throughout the world, including in Australia.

11. One of those competitors is First Prudential Markets Pty Ltd (FP Markets). FP Markets is based in Australia.

Employment of the defendant

12. As mentioned, on 22 December 2021, the defendant and TAL entered into the Employment Agreement pursuant to which the defendant was employed in the full time position of Account Manager based in Canberra, ACT. The base salary payable to the defendant under the Employment Agreement was $55,000.

13. Amongst the obligations required to be performed by the defendant as an employee of TAL were the following:

1. Perform to the best of his abilities and knowledge the duties assigned to him, including duties for the benefit of any Group Company (defined in Schedule 1 to the Employment Agreement to include TAL entities located in the Cayman Islands, Vanuatu, Europe, New Zealand, their subsidiaries, and related bodies corporate) (cl 3.1(a)).

2. Use all reasonable efforts to promote the interests of TAL (cl 3.1(b)).

3. Disclose to TAL any facts which might involve a conflict between the defendant’s interests and the interests of TAL (cl 3.1(c)).

4. Comply with all policies of TAL in place or as varied or replaced and provided or made available to the defendant (cll 3.1(d) and 15).

5. Not act in conflict with TAL’s best interests (cl 3.2(a)).

6. Not be engaged or involved in any business or employment other than for TAL except with the prior approval of TAL (cl 3.2(b)).

7. Not accept any financial or other benefit except from TAL (cl 3.2(c)).

8. Keep confidential and take whatever measures reasonably necessary to preserve all Confidential Information (defined in Schedule 1 to the Employment Agreement to include information with respect to clients and any prospective clients, trade secrets, confidential know how, client lists, prospective client lists, supplier lists, price lists, employee lists, information about products and services in development, financial information about TAL or a Group Company, manuals and reference guides concerning services or products supplied by TAL or a Group Company, business plans, marketing plans, the terms of the Employment Agreement, terms of agreements with clients, suppliers, agencies, introducing brokers and/or employees and computer software owned or used by TAL or a Group Company of which the defendant becomes aware or generates which is not in the public domain) (cll 10.1(b) and 10.4).

14. Importantly, the Employment Agreement also contains a number of restraints on the defendant’s conduct which operated during his employment and after its termination. Those restraints are in the following form:

14.1   Scope of restraint

The employee must not:

(a)   engage or prepare to engage in any business or activity that is the same or similar to the business of the Employer or any Group Company during and after his/her Employment to use, trade with or exploit Confidential Information to gain an advantage for him/herself or someone else, or to cause detriment to the Employer. For the avoidance of any doubt, the operation of this clause does not limit the Employee's obligations to the Employer under s 182/183 of the Corporations Act (Cth) 2001, common law or equity;

(b)   during employment and for 12 months after termination of employment:

in a business that is the same or similar to the business of the Employer or any Group Company, Canvass, solicit, approach or accept any approach from any person who was at any time an existing or prospective client or customer or supplier or Introducing Broker of the employer; or any person who refers business to the employer on a regular or ongoing basis with whom the Employee had contact or influence over, with a view to obtaining custom or engaging supplier or any business referral from that person.

(c)   during employment and for 12 months after termination of employment:

induce or assist in the inducement of an employee or contractor of the Employer or of a Group Company with whom during the Employee's last 12 months' employment the Employee had contact to leave their employment for the purpose of joining a business that is the same or similar to the business of the Employer or any Group Company in which the Employee was employed at any time during the last 12 months' employment.

15. In the Employment Agreement, the defendant acknowledged that each of the restraints in cl 14.1 are reasonable and necessary to protect TAL’s legitimate interests (cl 14.3) and there is also provision for the periods for each of the restraints in cl 14.1(b) and (c) to be read down from 12 months to 9 months, from 9 months to 6 months, and from 6 months to 3 months, and for the restraint in cl 14.1(a) to be read down from 12 months to 6 months and from 6 months to 3 months (cl 14.5). It is notable that the restraint in cl 14.1(a) is not the subject of any time limit. None of the restraints are expressed to have a geographical limit. The restraints are also expressed to operate to protect the interests of TAL and any Group Company.

16. Importantly, cl 17.6 of the Employment Agreement states that it is governed by the law applying to New South Wales.

17. At various dates between 6 December 2022 and 3 September 2024, the defendant acknowledged his awareness of particular policies of TAL.

18. On 3 April 2023, TAL offered the defendant the position of AM Manager for the Canberra office with effect from 1 April 2023, which included a significant increase in the defendant’s base salary to $120,000 per annum along with the AM Manager’s bonus structure, but with all other terms and conditions of his employment remaining unchanged (Variation Agreement).

19. On 13 April 2023, the defendant agreed to the Variation Agreement.

20. In effect, as a result of the Variation Agreement, the defendant was responsible for overseeing the whole of TAL’s operations in its Canberra office, with one of his key responsibilities being to receive leads from the TAL sales office and redistribute those leads to team leaders and Account Managers. The defendant received commission from TAL for undertaking this work. In his evidence, the defendant accepted that he was responsible for overseeing TAL’s business operation in Canberra.

21. During 2023, the defendant received commissions very significantly more than his salary to a level which indicates that he was a senior executive of TAL.

Investigation of the defendant’s conduct and termination of employment

22. On 6 October 2024, Season Huang (who manages the Melbourne, Canberra, and Adelaide offices of TAL) received an oral anonymous complaint about the defendant and informed Tom Yao (the Chief Sales Officer of TAL) of it.

23. On 12 October 2024, at the direction of Mr Yao, Maggie Xie of TAL initiated an anonymous survey of all employees at TAL concerning non-compliance with TAL’s employment handbook, which resulted in further complaints about the defendant, including that he was organising employees of TAL to work for FP Markets.

24. On about 18 October 2024, TAL commenced an investigation of the complaints in relation to the defendant which was overseen by Tongyang Wang (the Chief Compliance Officer of TAL).

25. In essence, the complaints were that the defendant was working for FP Markets secretly, had attempted to induce TAL’s employees to work for FP Markets and unfairly distributed leads between the Canberra office Account Managers.

26. During the course of the investigation, documents were found on TAL computers issued to the defendant which showed that he had a business card identifying him as a Vice President of FP Markets (which indicated that he went by the name of Roy as well as a further alias of Frank, with an Australian based telephone number; had an FP Markets email address using the name of Frank and a WeChat handle of Roy); leads provided to the defendant by TAL were being distributed by him to FP Markets; he was earning commission from FP Markets and was corresponding with staff of FP Markets in Australia between 15 June 2022 and 25 May 2023 about potential clients.

27. One of the documents uncovered in the investigation was an email string comprising the following:

1. An email dated 12 October 2022 from the defendant to Michael Roussos, the Head of Partners of FP Markets (which indicated that Mr Roussos was based at a Sydney CBD office address with an Australian telephone number) in which the defendant refers to the FP Markets team and himself as on “our journey” and states “I’m so glad we’ve achieved significant success and we will definitely keep pushing and stand higher”. In the email the defendant repeatedly refers to himself and the FP Markets team using the plurals “we” and “our”. The defendant also says in the email “I’ve got a potential client who has been trading with [TAL]”, seemingly indicating that he is directing the client away from TAL and to FP Markets, and attaches multiple screenshots of that client’s trading on TAL’s platform. The email concludes by referring to the commission that the defendant and his “team” is seeking from FP Markets.

2. An email dated 3 November 2022 from Mr Roussos to the defendant in response, which states “[w]e are delighted to have your team at FP and hope that our cooperation will continue, grow stronger and bring more success to both sides”. The email requests that the defendant provide more information about the TAL client and asks him to provide a detailed trading history. The email also responds to the proposed commission arrangement to be paid to the defendant by FP Markets.

28. On 21 October 2024, an employee of TAL was interviewed as part of the investigation. In the course of that interview, the employee stated that the defendant was performing work for FP Markets and giving income for that work to that employee of TAL.

29. On 22 October 2024, the defendant participated in an interview with Fiona Lu, Season Huang and Tongyang Wang of TAL. The transcript of that interview records the defendant saying that he started working for FP Markets between 2021 and 2022, had been involved in working for clients with FP Markets, was working with others at TAL in performing work for FP Markets and had received commission from FP Markets for that work. The defendant claimed to have stopped working for FP Markets a long time ago, although he admitted that he had been working with FP Markets for some time (“this has been happening for several years”) and he was still doing work for FP Markets in 2024 (“This year there will definitely be some ongoing enquiries because clients will have follow-up issues”).

30. On 22 October 2024, TAL terminated the defendant’s employment with TAL.

31. On 23 October 2024, TAL’s solicitors sent a letter by email to the defendant requesting information from him.

32. On 25 October 2024, TAL’s solicitors sent a letter by email to the defendant requesting his confirmation that he would not engage with FP Markets in business or activities that are the same or similar to the business of TAL. The letter sought a response by 4pm on 28 October 2024, failing which they stated that they held instructions to commence urgent court proceedings against the defendant.

33. On 28 October 2024, the solicitors for the defendant sent a letter by email to TAL’s solicitors stating they were reviewing the correspondence and seeking instructions, and would provide a response by no later than 6 November 2024. In the letter, the defendant’s solicitors also requested that TAL provide them with evidence of the defendant’s breach of his obligations under the Employment Agreement.

34. On 1 November 2024, TAL’s solicitors sent a letter by email to the defendant’s solicitors requesting that the defendant provide undertakings in the nature of those contained in cl 14.1 of the Employment Agreement by no later than 5pm on 4 November 2024, failing which TAL may commence proceedings seeking injunctive relief against the defendant.

35. On 5 November 2024, the defendant’s solicitors sent an email to TAL’s solicitors stating that they were seeking instructions and would respond by no later than 6 November 2024.

36. On 6 November 2024, the defendant’s solicitors sent a letter by email to TAL’s solicitors denying any wrongdoing by the defendant and refusing to give the requested undertakings.

37. On 8 November 2024, TAL’s solicitors sent a letter by email to the defendant’s solicitors giving him an opportunity to provide the undertakings which had been sought by 9am on 11 November 2024. No response to that letter was provided on behalf of the defendant.

38. On 11 November 2024, TAL commenced these proceedings.

Evidence of the defendant

39. In his evidence, the defendant says that he has not worked since 22 October 2024, he plans to continue to spend time with his family in China, he does not have any plan to work in the immediate future and he is not looking for a job at the moment.

40. The defendant says that he does not have any contractual or business relationship with FP Markets, has not received any benefit from FP Markets and did not provide any of the Confidential Information (as defined in Schedule 1 to the Employment Agreement) to FP Markets.

41. The defendant also says that between 2021 to 2023, he worked as an agent for First Prudential Markets Ltd (FP EU), a company registered in the Republic of Cyprus, and that during this period he introduced people in China who wished to engage in CFD trading to trade with FP EU.

LEGAL PRINCIPLES

Interlocutory injunctions

42. The task of a court determining whether to exercise the power to grant an interlocutory injunction is to do so in a manner which achieves justice between the parties pending the final hearing of the proceedings.

43. This was expressed in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2009] HCA 63, Gleeson CJ at [12] stating:

The justice and convenience of imposing interim restraint, pending the hearing of the final action, if it exists, lies in the need to prevent the practical destruction of that right before there has been an opportunity to have its existence finally established.

44. The principal inquiries to be made in deciding whether to grant an interlocutory injunction have been expressed in slightly different terms but to the same effect.

45. In Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148; [1968] HCA 58, Mason ACJ at [11] said:

In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction.

46. In Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46, Gleeson CJ and Crennan J at [19], after repeating these inquiries, described them as:

…the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed.

47. In O’Neill, Gummow and Hayne JJ (with whose reasoning Gleeson CJ and Crennan J agreed) at [65] expressed the first inquiry in this manner (footnotes omitted):

The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:

"The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted."

By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:

"How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks."

48. The inquiry involving the balance of convenience is determined by whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1, Kitto, Taylor, Menzies and Owen JJ at 622–623. The plaintiff bears the onus of establishing that the balance of convenience lies in favour of granting the interlocutory injunction: O’Neill, Gummow and Hayne JJ at [71].

49. While the factors to be taken into account in determining where the balance of convenience lies will vary with the circumstances of each case, common ones include the strength of the plaintiff’s case, the hardship to the parties and third parties, delay, the utility of the proposed orders and the sufficiency of the plaintiff’s undertaking as to damages.

50. The strength of the party’s case for final relief is an important consideration in determining where the balance of convenience lies, there being a connection between the inquiry about the serious question to be tried and the balance of convenience. In Warner-Lambert Company LLC v Apotex Pty Ltd (2014) 106 IPR 218; [2014] FCAFC 59, Allsop CJ, Jagot and Nicholas JJ at [70] said:

Whether an applicant for an interlocutory injunction has made out a prima facie case and whether the balance of convenience favours the grant of such relief are related questions. It will often be necessary to give close attention to the strength of a party’s case when assessing the risk of doing an injustice to either party by the granting or withholding of interlocutory relief especially if the outcome of the interlocutory application is likely to have the practical effect of determining the substance of the matter in issue or if other remedies, including an award of damages, or an award of compensation pursuant to the usual undertaking, are likely to be inadequate.

51. The stronger the case for final relief and therefore the likelihood of success, the less is needed for the balance of convenience in favour of the grant of the interlocutory injunction: BMW Australia Ltd v Brewster (2019) 269 CLR 574; [2019] HCA 45, Edelman J at [216].

52. The strength of the plaintiff’s case for final relief is significant 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 at 535–536.

Restraints

53. Particular considerations arise in cases where an employer seeks to restrain an employee.

54. The relevant principles relating to the enforcement of a restraint of trade were conveniently expressed in Isaac v Dargan Financial Pty Ltd ATF Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) (2018) 98 NSWLR 343; [2018] NSWCA 163 by Gleeson JA (Bathurst CJ and Beazley P agreeing) at [59]–[68]:

[59]   At common law a restraint of trade is contrary to public policy and void unless justified by the special circumstances of the particular case. A restraint may be enforced if the restraint is reasonably necessary for the protection of the parties concerned and reasonable in the interests of the public: Nordenfelt v The Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 at 565 (Lord Macnaghten); Lindner v Murdock’s Garage (1950) 83 CLR 628; [1950] HCA 48 at 633 (Latham CJ); Buckley v Tutty (1971) 125 CLR 353; [1971] HCA 71 at 376, 379-380.

[60]   In New South Wales, it is necessary to have regard to the Restraints of Trade Act 1976 (NSW) which relevantly provides in s 4:

4 Extent to which restraint of trade valid

(1)   A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.

(2)   Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy.

(3)   Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order.

…

[61] The correct approach to the application of s 4(1) of the Restraints of Trade Act is well settled. In Orton v Melman [1981] 1 NSWLR 583 at 587 McLelland J (as his Honour then was) explained that first, the Court determines whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed. Next, the Court determines whether the restraint, so far as it applies to that breach, is contrary to public policy. If it is not, the restraint is valid, subject to any order which may be made under s 4(3). These principles have been approved in later cases including in this Court: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 328; Woolworths Limited v Olson [2004] NSWCA 372 at [42]–[44]; Jardin and Jardin Investments Pty Ltd v Metcash Ltd and Metcash Trading Ltd [2011] NSWCA 409 at [87].

[62] The effect of s 4(1) of the Restraints of Trade Act is to require, for the purpose of determining the validity of a restraint, that attention be focussed on the actual or apprehended breach, rather than on imaginary or potential breaches: Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [10] (Brereton J).

[63]   The validity of a covenant in restraint of trade is to be judged at the date of its creation: Lindner v Murdock’s Garage at 653 (Kitto J); Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40 at 318 (Gibbs J); Geraghty v Minter (1979) 142 CLR 177; [1979] HCA 42 at 181 (Barwick CJ). Nonetheless, the Court may take into account future events that could have been foreseen: Lindner v Murdock’s Garage at 653. Hence, when exercising its discretion whether or not to grant relief, the Court considers matters as at the date of the hearing: Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [70] (Young JA, Beazley and Basten JJA agreeing); Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 at [88]; (2008) 175 IR 414 at 440 (Brereton J).

[64]   The nature of the interest meriting protection under a covenant in restraint of trade will differ according to the type of restraint under consideration. In Tullett Prebon (Australia) Pty Ltd v Purcell, a case involving restraints in an employment case, Brereton J said at [47]:

Whether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest. A covenantee is not entitled to be protected against mere competition; the legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter [Vandervell Products Ltd v McLeod [1957] RPC 185; Tank Lining Corporation v Dunlop Industries Ltd (1982) 40 OR (2d) 219; 140 DLR (3d) 659 at 664], including trade secrets and confidential information, and goodwill including customer connection.

[65]   However as Young JA explained in Sidameneo (No 456) Pty Ltd v Alexander at [31]-[32], the word “proprietary” is used in a special sense and will include legitimate commercial interests. In this regard, his Honour referred to the view he had expressed in Twenty-First Australia Inc v Shade (Supreme Court (NSW), Young J, 31 July 1998, unrep) and Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 at 612-613.

[66]   “Goodwill” has been described as a rather elusive concept: Sidameneo (No 456) Pty Ltd v Alexander at [54]. Goodwill has been referred to as the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to it: Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; [1998] HCA 42 at [24]. It has been said that it is more accurate to refer to goodwill as having sources than being composed of elements, given that goodwill is to be seen as adding value to a business “by reason of” situation, name and reputation, and other matters, not because goodwill is composed of such elements: Federal Commissioner of Taxation v Murry at [24], citing Inland Revenue Commissioners v Muller & Co’s Margarine Ltd [1901] AC 217 at 235 (Lord Lindley). It has also been recognised that many of the sources of goodwill are not themselves property, nor assets for accounting purposes: Federal Commissioner of Taxation v Murry at [25].

[67]   Generally, a stricter and less favourable view is taken of covenants in restraint of trade between employer and employee than in commercial agreements. As Mason P explained in Woolworths Limited v Olson at [38]:

The courts in general take a stricter and less favourable view of covenants in restraint of trade entered into between employer and employee than of similar covenants in commercial agreements (Geraghty v Minter (1979) 142 CLR 177 at 185). The reasons are explained in J D Heydon, The Restraint of Trade Doctrine (2nd ed., 1999) at pp 68-69. It is nevertheless well established that an employer may have interests capable of protection by a restraint covenant. These interests go beyond protection of goodwill and retention of customers and extend to trade secrets …

[68]   The same point is made by JD Heydon in the most recent edition of The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths) at 96-97, where four main reasons are given for the Court’s approach in employment cases. First, the inequality of bargaining power between the parties. Second, the employee may be giving up that employee’s only asset, which depends on specialised training and which may not be at all negotiable. Third, when labour is hired it remains valuable whether or not the employee later competes. Fourth, once the employee accepts the post-employment restraints, the employer’s power during the contract is much increased by reason of the inhibition on the employee’s ability to threaten to leave and seek work elsewhere.

55. On the issue of whether the common law or the Restraints of Trade Act 1976 (NSW) applies in any particular restraint which is sought to be enforced, in KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702, Austin J at 719 said (citations omitted):

The Restraints of Trade Act applies to a “restraint of trade”, defined in s 2(2) to mean a restraint of trade created by contract, created by the rules of an association, or otherwise created. The Act does not expressly impose any geographical or other limits on the contracts to which it refers. In those circumstances, my opinion is that in the case of a restraint of trade created by a contract, the Act applies only where the proper law of the contract is the law of New South Wales…

56. Where one of the grounds to justify the restraint is to protect the employer’s confidential information, the considerations stated in The Littlewoods Organisations Ltd v Harris [1978] 1 All ER 1026, by Lord Denning MR at 1033 are relevant:

It is … established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period.

57. In addition, the personal connections of an employee which have been developed during their employment by the employer can also be an interest which justifies the protection by a restraint. This concept was explained in Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 by Brereton J at [25] (citations omitted):

It is plain that an employer’s customer connection is an interest which can support a reasonable restraint of trade. Such a restraint is legitimate if the employee has become, vis-à-vis the client, the “human face” of the business, namely the person who represents the business to the customer — or, as it was put by Hoover J: “The personal relation between the employee and the customer [is] such as to enable the employee to control the customer’s business.” While the employer is not entitled to be protected against mere competition by a former employee, the employer is entitled to be protected against unfair competition based on the use by the employee after termination of employment of the customer connection which the employee has built up during the employment — which, because the employee has in effect represented the employer from the customer’s perspective during the employment, might at least temporarily appear attached to the employee, but in truth belongs to the employer.

58. On the question of whether damages would be an adequate remedy in a case of this sort, where the employer is seeking to enforce a negative stipulation by way of prohibitory injunction, there is authority that the inadequacy of damages may not be a critical element other than in an exceptional case, which was dealt with in Tullett Prebon (Australia) Pty Ltd v Simon Purcell [2008] NSWSC 852; (2008) 175 IR 414 at [97]:

Should TPAust be left to a remedy in damages? Although it is often said that equity will decline specific relief where damages are a sufficient remedy, the preferable enunciation of the test is in the terms “Is it just in all the circumstances that the plaintiff should be confined to a remedy in damages?” [Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349, 379 (Sachs LJ); The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445, [48]; Kazzi v Raptime Pty Ltd [2006] NSWSC 1261, [18]]; in the context of negative contractual stipulations, that will be so only in an exceptional case.

59. Additionally, in Tullett Prebon Brereton J at [102] said:

… Equity holds parties to their agreements, rather than allowing them to escape from them at the price of damages.

60. I must also consider the hardship that the interlocutory injunction sought may occasion on the defendant in weighing up my discretion. In Otis Elevator Co Pty Ltd v Nolan [2007] NSWSC 593, Brereton J at [30] said:

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.

61. Even where a restraint is valid, equity retains a discretion as to whether and if so how far to enforce it, including on an interlocutory basis, although exceptional or compelling reasons will be required to persuade the court to decline injunctive relief in relation to a restraint, having regard to the circumstances at the date of the hearing: Tullett Prebon, Brereton J at [88].

SUBMISSIONS

Submissions of TAL

62. In summary, TAL made the following submissions:

1. By way of the investigation conducted by TAL, there is a seriously arguable case with strong prospects of success that the defendant has at least breached the obligations contained in cl 3.2(b) of the Employment Agreement (the obligation not to be engaged or involved in any business or employment other than for TAL except with the prior approval of TAL) and each of the restraints in cl 14.1 of the Employment Agreement.

2. By virtue of cl 17.6 of the Employment Agreement the governing law is that in New South Wales which means that the Restraints of Trade Act will apply to the enforcement of the restraints to the extent that they are not contrary to public policy.

3. At trial, TAL has a seriously arguable case that injunctions to a similar effect as sought on an interlocutory basis will be granted which are no broader than the subject matter, the geographical area and the time limitations prescribed by cl 14.5 and which are reasonably necessary to protect the legitimate interests of TAL. Those interests involve protecting the Confidential Information of TAL, TAL’s customer connections and TAL’s interest in maintaining a stable, experienced and trained workforce.

4. It has only been just over two weeks since the defendant’s employment with TAL was immediately terminated after his misconduct came to light. In those circumstances a recently departed employee who refuses to give an inter-partes undertaking that is in the same terms as the restraints contained in the Employment Agreement gives rise to a real risk that he will not abide by them. The employment of the defendant was terminated for numerous serious breaches of the sort to which the restraints directly go and he has been given three opportunities to confirm that he will abide by those restraints by inter-partes undertaking but he has refused to do so. There is no need for TAL to have uncovered conduct of the defendant within the last few weeks for the benefit of the post-employment constraints to be the subject of an interlocutory order.

1. The defendant says that he is not working, intends to spend time with his family in China and is not looking for future employment. In those circumstances, he should readily have given the inter-partes undertakings sought from him. In light of his intentions, there would be no hardship in the balance of convenience for the defendant to be subject to the interlocutory injunctions sought.

2. Despite the defendant’s assertion that the work he has undertaken has been limited to that for FP EU, the evidence indicates that he was connected to FP Markets in Australia. This is evidenced by the email exchange of 12 October 2022 and 3 November 2022 where he was communicating with FP Markets based in Sydney, Australia. That email also indicates that the defendant was disregarding the obligations under the Employment Agreement with respect to keeping confidential the Confidential Information and also the restraint in cl 14.1(b) requiring him not to solicit existing clients of TAL. Whether the defendant’s employment was with another entity in the FP group, his conduct seems to be relatively connected to Australia.

3. The transcripts from the investigation conducted by TAL indicate that the defendant was in flagrant breach of his obligations under the Employment Agreement by using existing employees of TAL to perform work for FP Markets and assisting FP Markets to obtain clients from TAL. The conduct was also (or at least attempted to be) clandestine, with the defendant using the pseudonym of Frank. The defendant has not denied any of his conduct. The inference should be drawn that the defendant’s misconduct that has been uncovered in the course of the internal investigation means that there is a risk to the Confidential Information of TAL, to its customer connections and to its employees. Given that this conduct was occurring whilst the defendant was employed by TAL, now he is no longer with TAL it should be inferred that he would be even more highly motivated to exploit anything he can having lost that employment.

4. The evidence reveals that the defendant was very well remunerated by TAL and was a substantial recipient of the benefits available under their commissions structure. It also demonstrates that the defendant was a senior employee with supervisory responsibilities over the Canberra office.

5. It should also be inferred that the defendant is likely to look for alternative ways to use his skills and experience productively and what he has not done is give any assurance that he will abide by the terms of his Employment Agreement which continue to operate.

6. The balance of convenience favours TAL. TAL has an interest in ensuring that it has protection from harm in the terms that it bargained for in the restraints contained in the Employment Agreement. Now that the defendant’s employment has been terminated there is an accentuated risk to TAL which tips the balance of convenience in its favour. The fact that the defendant says that he does not plan to work and wants to spend time with his family also positively tips the balance of convenience in favour of TAL.

7. If a final hearing can be held in March 2025, this significantly reduces any possible prejudice to the defendant arising from the interlocutory injunctions being made.

8. Because TAL gives the usual undertaking as to damages, there is protection for the defendant which again tilts the balance of convenience towards TAL.

Submissions of the defendant

63. In summary, the defendant made the following submissions:

1. There is no serious issue to be tried because TAL has failed to establish any actual or anticipatory breach of the restraints contained in the Employment Agreement since it was terminated on 22 October 2024. Section 4 of the Restraints of Trade Act assists that proposition because the court determines whether the alleged breach does or will infringe the terms of the contract and then the court determines whether the constraint, so far as it applies to that breach, is contrary to public policy. As a result, the Restraints of Trade Act only operates if there is an actual breach or anticipated breach.

2. TAL could not possibly plead a case against the defendant when it cannot point to any actual breach at the present time.

3. Because TAL cannot point to any breach, in considering the balance of convenience it cannot be said that damages would be an inadequate remedy.

4. TAL is unable to demonstrate any intention or real threat on the part of the defendant to breach the Employment Agreement.

5. The defendant is not obliged to give anything further than is contained in the Employment Agreement and this is not a case in which the defendant is obliged to give any undertakings to perform the Employment Agreement. An analogy can be drawn to the position in relation to freezing orders where the court would not infer a risk of dissipation of assets merely because of a refusal to give an undertaking not to dispose of assets.

6. If TAL has the benefit of a contract and cannot show any breach, there is no occasion for the court to create rights greater than that provided by the contract by making an order in broad terms which, if breached by the defendant, will visit him with potentially criminal sanctions. The defendant should not be at risk of potential criminal sanctions for contempt pursuant to the imposition of interlocutory injunctions matching the obligations contained in the Employment Agreement. What is sought is merely a restatement of the Employment Agreement.

7. The position might be different if the defendant was seeking to work for FP Markets but he does not.

8. The contractual rights that are sought to be enforced go beyond TAL in Australia and extend to conduct that may be contrary to the interests of the Group Companies. There is no reason why the injunctions ought to extend to enjoining the defendant from undertaking activities that may be considered by TAL to be in breach of the obligations owed to the Group Companies.

9. If any interlocutory injunctions are granted they should not extend beyond 31 March 2025.

CONSIDERATION

64. It is abundantly clear that TAL has a seriously arguable case with strong prospects of success that the defendant has breached multiple terms of the Employment Agreement. The defendant has not denied any of those breaches.

65. In the transcript of the interview with the defendant on 22 October 2024, the defendant made statements that tend to demonstrate that during the course of his employment with TAL he has been engaged or involved in the business of FP Markets without the approval of TAL (breach of cl 3.2).

66. The email exchange of 12 October 2022 and 3 November 2022 tends to demonstrate that the defendant was sharing Confidential Information with FP Markets (breach of cl 10.1), was engaged in a business or activity that is the same or similar to the business of TAL and used and exploited Confidential Information to gain an advantage for himself and FP Markets to the detriment of TAL (breach of cl 14.1(a)) and was soliciting an existing client of TAL with a view to obtaining custom from them (breach of cl 14.1(b)), and was inducing existing employees of TAL to leave their employment to join the business of FP Markets that is the same or similar to the business of TAL (breach of cl 14.1(c)). Despite the defendant’s claim that he only worked with FP EU, the email exchange makes it clear that he was working with FP Markets in Australia.

67. Having been terminated for what appears to be egregious misconduct during the course of his employment, the defendant was then asked by TAL to give an inter-partes undertaking that he would comply with the restraints contained in cl 14.1 of the Employment Agreement. He refused to do so on three occasions. I consider that the nature of the defendant’s conduct during the course of his employment and his refusal to provide an inter-partes undertaking of his intention to comply with his Employment Agreement give rise to a real risk that he will not comply with the restraints, which are directed at protecting TAL’s interests in its Confidential Information, clients and employees. In my view, the fact that TAL has not identified any breach of the Employment Agreement which has occurred in the three weeks since it was terminated does not reduce the risk of anticipatory breach of the restraints by the defendant.

68. The Employment Agreement is governed by the law of New South Wales. At the final hearing, applying KA & C Smith, the enforceability of the restraints contained in cl 14.1 will be determined on the basis of the application of the Restraints of Trade Act. I consider that it is seriously arguable that the restraints in their current form may be subject to narrowing in their breadth both in time, the territory covered by them, as well as the entities which are the subject of the protections. Such matters going to the ultimate judgment of the reasonableness of the restraints cannot be determined on an interlocutory basis, but rather will be the subject of full argument on a final basis. I also give weight to the fact that in cl 14.3 of the Employment Agreement the defendant has given an acknowledgment that the restraints in cl 14.1 are reasonable.

69. The defendant asserts that damages would be an adequate remedy for any prospective breach of the restraints. I disagree. Applying the principles set out in Tullett Prebon, in circumstances such as the present where TAL seeks to enforce negative contractual stipulations, damages will only be an adequate remedy in an exceptional case. There is no basis asserted by the defendant for regarding this as an exceptional case. Further, I consider it is important to apply the approach in equity of holding the defendant to his agreement rather that allowing him to escape it for the price of damages.

70. The defendant says that he does not intend to work, will be spending his time in China with his family and is not looking for a job. This factor operates on both sides of the balance of convenience: on the one hand, it demonstrates that there will be no hardship to the defendant from the imposition of the interlocutory injunctions which are sought, and on the other hand it indicates that there is little risk of the defendant breaching the restraints in the Employment Agreement. Given the nature of the defendant’s seriously arguable breaches of the Employment Agreement, I tend in favour of finding that there would be no hardship to the defendant upon the interlocutory injunctions being made.

71. On current indications, any final trial of these proceedings could be held in March 2025. As a result, the prejudice to the defendant of the interlocutory injunctions remaining in place is considerably reduced as that is just over four months away.

72. Finally, TAL has provided the usual undertaking as to damages, which is also further protective of the defendant if the interlocutory injunctions are made.

73. In my view, on an interlocutory basis, TAL is entitled to enforce the provisions of the bargain it made with the defendant as set out in the Employment Agreement which are protective of TAL’s interests in its Confidential Information, customer connections and employees.

ORDERS

74. At the conclusion of the hearing on 13 November 2024, I made the following orders.

Interlocutory relief

1. Upon the plaintiff giving the usual undertaking as to damages, the defendant is restrained until further order of the court from doing any of the following things:

1. engaging or preparing to engage in any business or activity that is the same or similar to the business of the plaintiff or any Group Company by using, trading with or exploiting Confidential Information to gain an advantage for the defendant or someone else, or to cause detriment to the plaintiff;

2. in a business that is the same or similar to the business of the plaintiff or any Group Company, canvassing, soliciting, approaching or accepting any approach from any person who was at any time an existing or prospective client or customer or supplier or Introducing Broker of the plaintiff; or any person who refers business to the plaintiff on a regular or ongoing basis with whom the defendant had contact or influence over, with a view to obtaining custom or engaging supplier or any business referral from that person; and

3. inducing or assisting in the inducement of an employee or contractor of the plaintiff or of a Group Company with whom during the defendant's last 12 months' employment the defendant had contact to leave their employment for the purpose of joining a business that is the same or similar to the business of the plaintiff or any Group Company in which the defendant was employed at any time during the last 12 months' employment.

Costs

1. The costs are to be the plaintiff’s costs in the cause.

Procedural steps

1. The plaintiff is to file and serve its Commercial List Statement by 4pm on 28 November 2024.

2. The proceedings are listed for directions before the Commercial List Judge at 10am on 29 November 2024.

75. In these orders:

1. Clients means clients of the plaintiff including the Introducing Broker channel partners of the plaintiff and those who referred businesses to the plaintiff for a fee.

2. Clients Information means information with respect to clients and any prospective clients including but not limited to:

1. any terms of agreement;

2. business or affairs of clients or prospective clients;

3. contact details (including but not limited to phone number, WeChat account, other social media account, address and email address);

4. any requirements and specifications with respect to any of the plaintiff's products or services; and,

5. the contents of conversations with clients or prospective clients.

3. Confidential Information means Clients Information, trade secrets, confidential know how, client lists, prospective client lists, supplier lists, price lists, employee lists, information about products and services in development, financial information about the plaintiff or a Group Company, manuals and reference guides concerning services or products supplied by the plaintiff or a Group Company, business plans, marketing plans, the terms of this agreement, the terms of agreements with clients, suppliers, agencies, introducing brokers and/or employees and computer software owned or used by the plaintiff or a Group Company of which the defendant becomes aware or generates which is not in the public domain.

4. Engage in means to participate, assist or otherwise be directly or indirectly involved as a member, shareholder, unit holder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier.

5. Group Company means any of Trademax Global Pty Ltd (Cayman), Trademax Global Limited (Vanuatu), Trademax Global Markets (TMGM Europe) Pty Ltd (Cyprus), Trademax Australia Limited, Trademax Global Markets (NZ) Limited, and any subsidiaries of Trademax Global Pty Ltd and any body corporate related to the plaintiff (as defined in s 50 of the Corporations Act 2001).

6. Introducing Broker means any legal entity, advisor or natural person obtaining commission from the Company for introducing clients or interested parties to the plaintiff.

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Decision last updated: 15 November 2024