Federal Court of Australia

Virtual IT Services Pty Ltd v Hamilton [2021] FCA 1637

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s application for further interim injunctive relief be dismissed.

2.    The applicant pay the respondents’ costs of and incidental to the application for further interim injunctive relief.

3.    The proceeding be allocated to a Docket Judge as soon as possible.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J:

Introduction

1    On 3 December 2021, interim orders were made by the then Commercial and Corporations Duty Judge in New South Wales imposing certain restraints on the respondents with respect to Clients and Prospective Clients (as defined in the orders) of the applicant, and restraining the respondents from, amongst other things, using documents, files, or other materials of the applicant. The orders were expressed to remain in force until 5.00 pm on 16 December 2021.

2    On 16 December 2021, I heard an application for further interim injunctive relief. At the conclusion of that hearing, I extended the interim orders made on 3 December 2021 so that they would remain in effect until judgment was delivered in respect of the application for further interim injunctive relief. There was no substantive objection to this step being taken. The applicant, by its counsel, continued the undertaking as to damages that was given on 3 December 2021.

Background

3    The applicant provides managed IT services. In June 2021, its holding company, Virtual IT Group Pty Ltd (VITG) acquired a business known as OmniIT. The business is located in Canberra. The contracts which existed between the former proprietor of the OmniIT business and its clients were not assigned or novated to VITG or to any of the companies in its group.

4    At the time of the acquisition, the first respondent, Mr Hamilton, and the second respondent, Mr Norman, were employees of the OmniIT business. Following the acquisition, they each entered into a written employment contract with the applicant.

5    According to his employment contract, Mr Hamilton was employed by the applicant in the position of Service Manager. Despite what is stated in the contract, Mr Hamilton says that he was employed as an Escalation Engineer. This is the title that the applicant assigned to him when it distributed email accounts and electronic signatures on taking over the business. It was the title he worked under. A VITG organisation chart certainly shows him holding this position, not the position of Service Manager.

6    According to Mr Hamilton, his role, in the position of Escalation Engineer, was to complete “tickets” which were “escalated” to him by another employee of the applicant. He says that he had no managerial responsibilities whatsoever. For example, he had no employees to manage, and he could not delegate his or other work to other employees. He simply responded to work assigned to him by another employee of the business.

7    The fact that Mr Hamilton was, contrary to his contract description, assigned the role of Escalation Engineer was a matter of some disappointment to him. His evidence is that, on 27 July 2021, he had a conversation with Mr Pierro, the applicant’s General Manager People & Culture, in which he (Mr Hamilton) expressed his concerns about his role. He says that, in this conversation, he was told by Mr Pierro that no-one would be reporting to him in the position he held and that he would be working under one of the applicant’s “pods” reporting to Service Delivery Leads. Mr Hamilton’s evidence is that Mr Pierro told him that he could eventually become Technical Alignment Manager—a position in which Mr Hamilton would be used as a technical resource reporting, once again, to Service Delivery Leads, without management responsibilities.

8    When asked to provide Mr Hamilton with a position description of Technical Alignment Manager, Mr Pierro sent Mr Hamilton the position description for a Systems Engineer which stated, in summary, that the primary objective of this position was to provide:

… exceptional customer service, remote & on-site technical support to our clients as well as building/maintaining strong relationships expected by a trusted advisor.

9    Mr Pierro has not contradicted Mr Hamilton’s evidence of the substance of the conversation on 27 July 2021.

10    For the purposes of the present application, I am satisfied that the role which Mr Hamilton actually performed as an employee of the applicant, and his intended future role as an employee of the applicant, was that of an engineer, not that of a Service Manager.

11    On 16 August 2021, Mr Hamilton resigned from the applicant. He gave four weeks’ notice. He later realised that he did not need to give notice. On 23 August 2021, he gave a further notice of resignation in which he resigned immediately.

12    According to his employment contract, Mr Norman was employed by the applicant as an Engineer. The applicant’s Chief Executive Officer, Mr Garcia, has given evidence that, as the main person employed in the business with authorisation to utilise a company vehicle, Mr Norman’s day-to-day responsibilities involved co-ordinating onsite customer services and arranging and providing onsite customer support, as required by the business’s customers.

13    Mr Norman’s evidence paints a different picture. He says that, in his position as Engineer, he was required to work under Service Delivery Leads or Project Coordinators who would assign “tickets” to him. He says that he was required to obtain permission through these employees to do any work other than remote support. He says that he was discouraged from attending clients’ work sites.

14    As to the last-mentioned matter, Mr Norman gave evidence of an incident that occurred as a result of him attending a client’s work site to fix an internet outage. He says that, on this occasion, he was given permission by his Project Coordinator, Ms Williams, to attend the site. However, it seems that he was reprimanded for doing so by Mr Cervice, the Quality Coordinator for VITG.

15    Mr Pierro has responded to Mr Norman’s evidence in this regard. Although challenging Mr Norman’s statement that he was required to “work under” Service Delivery Leads or Project Coordinators, Mr Pierro’s evidence does not support the contention that Mr Norman’s day-to-day responsibilities involved co-ordinating onsite customer services or arranging onsite customer support. To the contrary, Mr Pierro’s evidence is more in line with Mr Norman’s description of his employment responsibilities. Mr Pierro gave this evidence:

6.    Service Delivery Leads operate in effect as ‘traffic controllers’, in that they direct incoming customer requests for support (or ‘tickets’) to appropriate operational staff (such as service desk officers and engineers) in the business, including Norman. Service Delivery Leads are not managers and they are not responsible for overseeing the work of the operational staff. Rather, they control workflow of the business to maximise efficiency. I understand that this was not how OmniIT had previously operated, with staff often fulfilling both roles. In the normal course of Virtual’s business, Norman was allocated tickets by Service Delivery Leads.

7.    While I was not included in the conversations between Leo Cervice and Norman referred to in Norman’s Affidavit, I know that it is the role of coordinators to be aware of where operational employees are, particularly those such as Norman that also work offsite. This is important for Virtual to control workflow, to ensure customers can be serviced in the most efficient manner.

16    For the purpose of the present application, I am satisfied that Mr Norman was not only engaged as an engineer, but undertook the functions of an engineer within the business. On the evidence presently before me, I am not persuaded that the role of arranging and co-ordinating customer services was undertaken by Mr Norman. Rather, this work appears to have been undertaken by others who were responsible for directing incoming customer requests and controlling workflow.

17    On about 11 August 2021, Mr Norman resigned from the applicant. He also gave four weeks’ notice. However, on 24 August 2021, in consultation with Mr Pierro, he finished his employment on that day.

18    In their respective affidavits, Mr Hamilton and Mr Norman give their reasons for resigning. In general terms, their reasons reflect personal frustration and dissatisfaction with how the former OmniIT business was being conducted under the proprietorship of VITG and with the way in which they had to undertake their respective roles in that business.

19    Outside their work, Mr Hamilton and Mr Norman were friends. They spoke to each other about their dissatisfaction with their employment with the applicant. In the course of those discussions they discussed, on 15 August 2021, the idea of establishing their own IT services business. They advanced this idea with another friend, Mr Maybury, from whom they sought financial assistance to establish the business. On 19 August 2021, the third respondent, IT Anomaly Pty Ltd (IT Anomaly) was registered by Mr Maybury’s accountants as the vehicle for conducting the new business. Mr Hamilton and Mr Norman are directors and shareholders of that company. Mr Maybury is also a director and shareholder.

The applicant’s case

20    The applicant’s case is that Mr Hamilton and Mr Norman have undertaken an “orchestrated and systemic” attack on its business. A number of former customers of the OmniIT business (on the applicant’s evidence, 15 customers) have left the business now conducted by the applicant. Most of these customers have engaged IT Anomaly to provide IT services.

21    In its originating application, the applicant seeks, as final relief, declarations that Mr Hamilton and Mr Norman have each breached their respective contractual obligations to the applicant under their respective employment contracts by soliciting business from customers of the former OmniIT business and by using the confidential information of the OmniIT business in operating their new business through IT Anomaly.

22    Relatedly, the applicant seeks declarations that Mr Hamilton has breached an equitable duty of confidence which, it says, he owes to the applicant; that Mr Norman knowingly assisted that breach; and that IT Anomaly knowingly received a benefit from that breach.

23    The applicant also seeks declarations that Mr Hamilton and Mr Norman have each contravened s 183(1) of the Corporations Act 2001 (Cth). In this regard, the applicant also contends that Mr Norman is a person involved in Mr Hamilton’s contravention, and that IT Anomaly is a person involved in Mr Hamilton’s and Mr Norman’s respective contraventions.

24    The applicant seeks various other forms of final relief, including final injunctive relief and pecuniary relief in the form of damages, equitable compensation, or an account of profits.

25    The applicant’s claim for further interim injunctive relief is based on Mr Hamilton’s alleged breach, and Mr Norman’s alleged breach, of their individual employment contracts.

26    To support its claim in this regard, the applicant relies on the timing of Mr Hamilton’s and Mr Norman’s resignations, and the timing of IT Anomaly’s registration, which appear to be co-ordinated events. The applicant also says that three of OmniIT’s original employees have resigned their employment with the applicant and commenced employment with IT Anomaly. The applicant contends that the respondents induced or encouraged these employees to terminate their contracts with the applicant and that they have induced or encouraged the applicant’s customers to terminate or not renew their contracts with the applicant.

27    I should note immediately that there is no evidence that the customers to which the applicant refers have or have had any contracts with the applicant. In oral submissions, I was taken to Annexure D to the Sale of Business Agreement by which VITG acquired the OmniIT business. The annexure is intended to identify Client Contracts and Key Contracts. However, no Client Contracts or Key Contracts are identified. For Client Contracts, only the notation “[excel spreadsheet to be copy/pasted here]” appears. No contracts have been adduced in evidence.

28    Moreover, as I have noted, the applicant acknowledges that, after VITG acquired the business, no customer contracts—if, indeed, any contracts existed—were assigned or novated to VITG or to any other company in its group.

29    Further, all but two of these former clients provided affidavits in the respondents’ case. Many express dissatisfaction with the way in which OmniIT, under VITG’s proprietorship, provided services to them. Some have also given another business reason why they do not now wish to acquire IT services from the applicant. All bar one of the deponents of these affidavits confirm that, regardless of what orders are made in this proceeding, they do not wish to obtain, and will not be obtaining, IT services from the applicant.

30    The deponents also confirm that their custom was not solicited by any of the respondents. Rather, they say that they solicited IT Anomaly’s services by making contact with either Mr Hamilton or Mr Norman in circumstances where they had decided, or were in the process of deciding, for their own reasons, no longer to acquire IT services from the applicant.

31    The applicant challenges this evidence of non-solicitation. Exhibit A in the present application contains a number of emails which, the applicant says, contradict the unequivocal statements made by some of the deponents that it was they who first contacted Mr Hamilton or Mr Norman. Some of these emails raise questions in this regard, but are not necessarily inconsistent with the statements made by the deponents. Further, this evidence does not qualify the expressions of dissatisfaction with the applicant’s services, where dissatisfaction is expressed, or qualify the statements that these businesses will not be obtaining IT services from the applicant.

32    I was also taken to an email chain in Exhibit A which evidences an instance of solicitation by Mr Hamilton. As matters turned out, the client concerned stated that it would be staying with the applicant.

The relevant contractual provisions

33    The employment contracts into which Mr Hamilton and Mr Norman entered contain the following post-employment restraint:

Post Employment Restraints

This clause only applies if you are employed in a Recruitment Consultant, Service Coordinator or Managerial position of the company and does not apply to Support Staff positions.

You agree that following the termination of your employment for any reason, you must not engage in:

∙    any of the activities specified in paragraph (a) of this clause;

∙    for the periods specified in paragraph (b) of this clause;

∙    in the locations specified in paragraph (c) of this clause.

You must not, in any capacity, either directly or indirectly:

(a)

(i)    provide Services to a Client;

(ii)    provide, or prepare to provide, Services in a business or part of a business that competes with the part/s of the Company's business in which you worked during the last 12 months of your employment;

(iii)    accept, canvass, solicit or divert, or attempt to accept, canvass, solicit or divert, the business or custom of any Client or Prospective Client;

(iv)     induce or encourage any Client or Prospective Client to terminate or to not renew any business relationship, contract or arrangement that the Client, or Prospective Client, has with the Company; or

(v)     induce or encourage any employee of or consultant to the Company to terminate or to not renew any business relationship, contract or arrangement that the employee or consultant has with the Company.

(b)    during the period of 12 months from the date of termination of your employment.

(c)    in Australia.

You acknowledge that damages may be inadequate compensation for breach of the obligations contained in this clause and, subject to the Court's discretion, the Company may restrain, by an injunction or similar remedy, any conduct or threatened conduct which is or will be in breach of this clause.

You acknowledge and agree that the restraints in this clause are reasonable and necessary to protect the Company's legitimate business interests, including the preservation of its Client relationships and Prospective Client relationships, the goodwill of its business and its Confidential Information.

34    The word “Services” is defined as follows:

“Services” means tasks and duties which are the same as, or similar to, the tasks and duties that you performed for the Company in the 12 months preceding the date of termination of your employment.

35    The word “Client” is defined as follows:

“Client” means any person or entity to whom the Company provided products or services to for a fee at any time before or during your employment, and with whom you (or a person reporting to you) had personal contact or dealings within the last 12 months of your employment.

36    The words “Prospective Client” are defined as follows:

“Prospective Client” means any person, firm or entity to whom the Company has provided a quote, tender or proposal for the provision of goods or services by the Company at any time [sic] your employment, and with whom you (or a person reporting to you) had personal contact or dealings within the last 12 months of your employment.

37    The employment contracts also contain the following provisions with regard to confidentiality:

Confidentiality

You agree (both during your employment and after the termination of your employment for any reason) to:

(a)    only use or disclose Confidential Information solely for the purpose of performing your employment duties and not for your own purposes or for the purposes of any other person or entity;

(b)    only disclose Confidential Information to other persons or entities (including other employee’s [sic] of the Company), where such disclosure is a necessary part of your employment with the Company and provided further that such disclosure is on a need to know basis only or with the Company's prior written consent;

(c)    maintain proper and secure custody of all Confidential Information;

(d)    immediately notify the Company if you suspect unauthorised access, copying, use or disclosure of Confidential Information;

(e)    immediately take all reasonable steps available to you to prevent or stop suspected or actual unauthorised access, copying, use or disclosure of Confidential Information;

(f)    provide assistance as requested by the Company in relation to any proceedings the Company may take against any person or entity for unauthorised access, use, copying or disclosure of Confidential Information;

(g)    if required to do so at any time, return to the Company all Confidential Information and any copies of such information in your possession, custody or control, or comply with a Company request to destroy or dispose of Confidential Information;

(h)    immediately account to the Company, as directed, for all Confidential Information in your possession, custody or control.

38    The expression “Confidential Information” is defined broadly:

“Confidential Information” means all information (whether in writing or not), which you become aware of or conceive or create, in connection with your employment with the Company, which relates to:

(a)     the Company’s and any Related Entity’s businesses, products, services, customers, suppliers, systems and operations, pricing information and structures marketing information and plans including, but not limited to, all records, reports, computer software, source and object codes, Client and Potential Client lists, financial or actuarial information and projections, business and client proposals, tender documents, quotations, plans, trade secrets and confidential know-how, research materials and manuals and any document or thing identified as being confidential;

(b)     private information provided to the Company or a Related Entity by any arm of Government or by any Client or Prospective Client.

Confidential Information does not include information which:

(a) comes into the public domain other than by way of a breach of the “Confidentiality” provision of this contract by you; or

(b)     you are required by law to be disclosed, provided that you inform the Company, in writing, of any disclosure that is required to be made by you as soon as practicable.

The application for interim injunctive relief

39    At the present time, the applicant seeks the following interim injunctive relief which is claimed in paragraphs 4 and 5 of its originating application:

4.     An order that the first and second respondents are, until further order of this Court, restrained from:

(a)     providing Services to any Client;

(b)    …;

(c)    accepting, canvassing, soliciting or diverting the business or custom of any Client or Prospective Client;

(d)    inducing or encouraging any Client or Prospective Client to terminate or to not renew any business relationship, contract or arrangement that the Client, or Prospective Client, has with the applicant; and

(e)    inducing or encouraging any employee of or consultant to the applicant to terminate or not renew any business relationship, contract or arrangement that the employee or consultant has with the applicant.

(f)    using, copying, forwarding, distributing, or disclosing to any person:

i.    all documents, files or other materials (whether in hard copy or electronic form) taken by the first and/or second respondent from the applicant;

ii.    all documents, files or other materials taken from the applicant’s ConnectWise server account.

(g)    counselling, procuring or assisting any other person to do any of the things referred to in 4f above.

5.    An order that the third respondent is, until further order of this Court, restrained from:

(a)    providing Services to any Client;

(b)    accepting, canvassing, soliciting or diverting the business or custom of any Client or Prospective Client;

(c)    inducing or encouraging any Client or Prospective Client to terminate or to not renew any business relationship, contract or arrangement that the Client, or Prospective Client, has with the applicant; and

(d)    inducing or encouraging any employee of or consultant to the applicant to terminate or not renew any business relationship, contract or arrangement that the employee or consultant has with the applicant.

(e)    using, copying, forwarding, distributing, or disclosing to any person:

i.    all documents, files or other materials (whether in hard copy or electronic form) taken by the first and/or second respondent from the applicant;

ii.    all documents, files or other materials taken from the applicant’s ConnectWise server account.

(f)     counselling, procuring or assisting any other person to do any of the things referred to in 5e above.

40    The originating application defines the terms “Client”, “Prospective Client”, and “Services”. These definitions are adaptations of the definitions used in the employment contracts. The differences between the definitions of these terms in the originating application and in the employment contracts do not appear to be of great moment.

Relevant legal principles

41    The principles on which interim injunctive relief is granted are well-established. They are conveniently discussed in Samsung Electronics Company Limited v Apple Inc [2011] FCAFC 156; 217 FCR 238 at [44] – [74]. There are two main enquiries.

42    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 entitled to the relief it seeks. Establishing a prima facie case does 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 has a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial.

43    The second enquiry is whether the balance of convenience and justice favours the grant of an interim injunction or the refusal of that relief. In Samsung, the Full Court said (at [62] – [63]:)

62 The assessment of harm to the plaintiff, if there is no injunction, and the assessment of prejudice or harm to the defendant, if an injunction is granted, is at the heart of the basket of discretionary considerations which must be addressed and weighed as part of the Court’s consideration of the balance of convenience and justice. The question of whether damages will be an adequate remedy for the alleged infringement of the plaintiff’s rights will always need to be considered when the Court has an application for interlocutory injunctive relief before it. It may or may not be determinative in any given case. That question involves an assessment by the Court as to whether the plaintiff would, in all material respects, be in as good a position if he were confined to his damages remedy, as he would be in if an injunction were granted (see the discussion of this aspect in Spry, The Principles of Equitable Remedies (8th edn, 2010) at pp 383–389; at pp 397–399; and at pp 457–462).

63     The interaction between the Court’s assessment of the likely harm to the plaintiff, if no injunction is granted, and its assessment of the adequacy of damages as a remedy, will always be an important factor in the Court’s determination of where the balance of convenience and justice lies. To elevate these matters into a separate and antecedent inquiry as part of a requirement in every case that the plaintiff establish “irreparable injury” is, in our judgment, to adopt too rigid an approach. These matters are best left to be considered as part of the Court’s assessment of the balance of convenience and justice even though they will inevitably fall to be considered in most cases and will almost always be important considerations to be taken into account.

44    Later, the Full Court said (at [65] – [66]):

65     The resolution of the question of where the balance of convenience and justice lies requires the Court to exercise a discretion.

66     In exercising that discretion, the Court is required to assess and compare the prejudice and hardship likely to be suffered by the defendant, third persons and the public generally if an injunction is granted, with that which is likely to be suffered by the plaintiff if no injunction is granted. In determining this question, the Court must make an assessment of the likelihood that the final relief (if granted) will adequately compensate the plaintiff for the continuing breaches which will have occurred between the date of the interlocutory hearing and the date when final relief might be expected to be granted.

45    The two enquiries are related and the question whether there is a prima facie case should not be considered in isolation from the balance of convenience. The apparent strength of the parties’ substantive cases will often be an important consideration to be weighed in the balance. Importantly, it may also be necessary to consider and evaluate the impact that the grant or refusal of an injunction will have, or is likely to have, on third persons.

Analysis

Does the post-employment restraint apply?

46    The post-employment restraint on which the applicant relies only applies if the employee is employed in a Recruitment Consultant, Service Coordinator, or Managerial position with the applicant. It does not apply to Support Staff positions.

47    None of these capitalised terms are defined in the employment contract. However, as I have noted, the employment contract does define the term “Services”. This definition concerns post-employment activity by the employee. Importantly, it directs attention to the tasks and duties actually performed by the employee whilst employed by the applicant. This suggests that, when referring to an employees’ employment in a Recruitment Consultant, Service Coordinator, or Managerial position, the post-employment restraint is, similarly, concerned with the tasks and duties actually performed by the employee for the applicant. In other words, absent any countervailing definition in the employment, the terms “Recruitment Consultant”, “Service Coordinator”, and “Managerial” are descriptions of actual work tasks and duties which set the threshold condition for the application of the post-employment restraint in a given case.

48    Mr Hamilton did not perform the work of a Recruitment Consultant or a Service Coordinator. Even though his contract refers to him being employed as a Service Manager, it would seem that he did not undertake any managerial function either. In light of the evidence given, one might ask, what “service” did he “manage”? His function appears to have been to provide technical support services in respect of work allocated to him as an engineer.

49    Mr Norman’s case is, perhaps, clearer. He was engaged as, and performed the function of, an engineer. In its written submissions, the applicant contends that Mr Norman’s role with the applicant was such that he was categorised as a Service Coordinator. I do not accept that submission. First, Mr Norman’s employment contract shows that he was employed in the role of Engineer. Secondly, as I have noted, on the evidence presently before me, Mr Norman was not only engaged as an engineer, but fulfilled the functions of an engineer within the business. I am satisfied that the role of arranging and co-ordinating customer services was not undertaken by Mr Norman but was undertaken by others who were responsible for directing incoming customer requests and controlling workflow.

50    In their written submissions, the respondents accept that there is a question to be determined as to whether the post-employment restraint applies to, and is enforceable against, Mr Hamilton and Mr Norman. However, that concession is highly qualified. They submit that the “seriousness” of that question is relatively low, if not negligible, and insufficient to justify the further interim injunctive relief which the applicant seeks. In other parts of their submissions they contend, positively, that the post-employment restraint does not apply to either Mr Hamilton or Mr Norman.

51    I am not satisfied that the applicant has established a prima facie case that the post-employment restraint applies to Mr Norman. The applicant’s case against Mr Hamilton, in this regard, is, perhaps, stronger, but only because Mr Hamilton’s employment contract refers to him as a Service Manager. But, in my view, the better construction of the post-employment restraint is that it applies only to those employees whose actual tasks and duties can be classified, objectively, as recruitment, service coordination, or managerial. The present evidence does not show that Mr Hamilton performed any of these tasks under VITG’s proprietorship of the business. He was a technical “resource” to whom work was allocated by others. On the present evidence, the applicant’s case that the post-employment restraint applies to Mr Hamilton is arguable but, in my assessment, tenuous. Acceptance of the applicant’s case would require the Court to give precedence to the job title specified in the employment contract over the actual job title given to Mr Hamilton by the applicant within its organisational structure and the actual role which, the present evidence shows, Mr Hamilton performed as an employee of the applicant.

52    The applicant submits that, if it be found that the post-employment restraint applies to only one of Mr Hamilton or Mr Norman, it should nevertheless be found that the restraint was imposed on both of them and IT Anomaly as well, given “the manner in which [the two personal respondents] have hitched their wagons to each other”. As a matter of contract law, I do not understand why—and the applicant has not satisfactorily explained why—that would be so.

53    Having regard to the final relief claimed in paragraphs 7 and 8 of the originating application, the applicant sues Mr Hamilton and Mr Norman on separate and discrete employment contracts. Therefore, under Mr Hamilton’s employment contract, the restraint either applies, or it does not apply, to him; under Mr Norman’s employment contract, the restraint either applies, or it does not apply, to him.

54    The applicant does not seek final relief against IT Anomaly in contract. Noting that matter, I observe that the interim injunctive relief sought in paragraphs 5(a) – (d) of the originating application appears to be modelled on clauses in the post-employment restraint. To the extent that the relief claimed in those paragraphs is so based, no contract between the applicant and IT Anomaly has been established on the evidence before me, let alone a contract containing a provision that is equivalent in terms to the post-employment restraint.

Is the post-employment restraint enforceable?

55    Even if the post-employment restraint were to apply to Mr Hamilton and/or Mr Norman, real questions have been raised as to whether it is enforceable against them, or either of them, in any event.

56    The employment contracts are governed by the law of New South Wales by operation of a choice of law clause. The parties accept that this raises a question of enforceability having regard to the provisions of the Restraints of Trade Act 1976 (NSW) (the Restraints of Trade Act or the Act).

57    The post-employment restraint is extremely broad as an employee restraint, particularly having regard to the period of the restraint, its geographical reach, and the breadth of the terms “Client” and “Prospective Client”. That said, s 4(1) of the Restraints of Trade Act directs attention to “actual breaches” rather than “imaginary breaches”, as explained in Orton v Melman [1981] 1 NSWLR 583 at 586 – 588. In other words, for the purpose of determining enforceability, the common law position is altered. A court is entitled to ignore the fact that the restraint is wider than is reasonable provided that, in the circumstances of the particular case, the restraint is breached and, consequently, can be enforced to an extent that is reasonable.

58    Assuming that to be possible here, the terms of s 4(3) of the Act cannot be ignored. This section provides that, in cases of manifest failure to attempt to make the restraint a reasonable restraint, a person subject to the restraint can apply for an order that the restraint, as it applies to that person, is altogether invalid, or valid to such extent only as the court thinks fit.

59    These questions have not been explored in the evidence filed in this application. Nevertheless, the breadth of the post-employment restraint provides some evidence that there has been a manifest failure to attempt to make the restraint a reasonable employee restraint. And although the restraint is accompanied by contractual concessions by the employee as to its reasonableness, I do not think that this precludes examination of the objective reasonableness of the restraint as an employee restraint.

60    These questions were also not dealt with by the parties in their written outlines of submissions. They were fleetingly touched on in oral submissions, but only at my urging. The respondents made clear that they rely on s 4(3) of the Act to say that the Court should hold that, if the post-employment restraint applies to Mr Hamilton and/or Mr Norman, it is altogether invalid. On the other hand, the applicant contends that, if the post-employment restraint does apply to Mr Hamilton and/or Mr Norman, and should the threshold requirement of s 4(3) be met, the restraint should be read down to prevent Mr Hamilton and Mr Norman from doing the acts referred to in the further interim injunctive relief sought against them.

61    In the absence of any proper articulation of the implications of the Restraints of Trade Act in the present case, I am simply left in the position that real questions as to the enforceability of the post-employment restraint against Mr Hamilton and Mr Norman have been raised.

Breach of confidentiality

62    The interim injunctive relief sought in paragraphs 4(f) and 5(e) of the originating application appear to be based on an alleged breach of the confidentiality provision of the employment contracts. This aspect of the applicant’s case was not developed in submissions. It seems to be based wholly on Mr Garcia’s evidence that, on 16 August 2021, Mr Hamilton had access to an application called ConnectWise. ConnectWise is the applicant’s core line of business applications. It contains details of all service records, billing and sales opportunity information, including the buy and sell pricing for services and products supplied to the applicant’s clients.

63    Mr Garcia’s evidence is that Mr Hamilton ran a search of the applicant’s password repository, PassPortal, to provide a report identifying descriptions of the passwords known to users. This search was run against Stephen Burns, the applicant’s Head of Integrations. Mr Garcia says that he is not aware of any justifiable reason for this report to be run. According to Mr Garcia, Mr Hamilton then accessed a password that allowed him to login to the ConnectWise server.

64    Mr Garcia’s evidence is that access to the ConnectWise server and the password repositories would have allowed Mr Hamilton access to the entirety of the applicant’s technical documentation about customers. According to Mr Garcia, by accessing this information, it would be possible to:

(a)    build commercially attractive offers to customers by ensuring the offer is the same or cheaper than that provided by the applicant;

(b)    identify sale opportunities currently being prepared by the applicant where there should be no prior knowledge;

(c)    login to customer environments to scout further information; and

(d)    accelerate establishing service with customers by having access to internal support process documents.

65    This access has been squarely addressed by Mr Hamilton. Mr Hamilton does not deny accessing the password repository on 16 August 2021. He says, however, that he did so under Mr Pierro’s direction. Mr Hamilton says that he was tasked with transferring OmniIT documentation into the VITG systems, including Pass Portal. Mr Hamilton says that the first attempt by Mr Burns to fully integrate the systems failed. He therefore ran a report to show him what Mr Burns had done. He says that he accessed the “CWAdmin” password so that he could access that part of ConnectWise that contained OmniIT data.

66    I observe that, although Mr Pierro has made an affidavit responding to Mr Hamilton’s affidavit, he has not taken issue with Mr Hamilton’s explanation. I observe, further, that Mr Burns has not given any evidence on this matter. For completeness, I also note that Mr Hamilton expressly denies that he has misused the applicant’s confidential information.

67    On the evidence before me, I am not persuaded that the applicant has established a prima facie case that Mr Hamilton has breached or threatens to breach the confidentiality provision of his employment contract, or has otherwise misused or threatens to misuse the applicant’s confidential information.

68    On the evidence before me, there is no case whatsoever that Mr Norman has breached or threatens to breach the confidentiality provision of his employment contract, or has otherwise misused or threatens to misuse the applicant’s confidential information.

69    Therefore, the applicant has not established any entitlement to interim injunctive relief against Mr Hamilton or Mr Norman in terms of paragraph 4(f) and (g) of the originating application.

70    IT Anomaly is not subject to any contractual restraint in respect of the applicant’s confidential information. In light of the findings I have made immediately above, the applicant has not otherwise established any entitlement to interim injunctive relief against IT Anomaly in terms of paragraph 5(e) and (f) of the originating application.

Discretionary considerations?

71    In their written submissions, the respondents raise two discretionary matters which, they say, stand against the granting of further interim injunctive relief.

72    The first matter is that, in their submission, the applicant has been “the architect of its own demise” because, following the acquisition of the OmniIT business, it did not take steps to assign or novate any client contracts.

73    I do not see this as a discretionary reason to deny the applicant further interim injunctive relief, assuming that it is appropriate to grant that relief. I accept, however, that the fact that the applicant did not take steps to assign or novate client contracts (assuming such contracts to exist) is a matter to be taken into account in considering the balance of convenience more generally.

74    The second matter is that, according to the respondents, the applicant has not come to court with clean hands. This contention is somewhat difficult to follow. It appears to be based on an assertion that, somehow, the applicant repudiated its employment contracts with Mr Hamilton and Mr Norman because it did not offer them terms of employment that were “not less favourable” than the terms of employment they had with their former employer—as required by the Sale of Business Agreement entered into with OmniIT—and that, after the employment contracts were entered into, the applicant altered Mr Hamilton’s and Mr Norman’s hours of employment. In Mr Hamilton’s case, the respondents also rely on the fact that, although purportedly employing him as a Service Manager, the applicant, in fact, employed Mr Hamilton as an Escalation Engineer.

75    The fact that the applicant might not have offered Mr Hamilton and Mr Norman employment on terms that were “not less favourable” than the terms on which they were formerly employed, cannot be a repudiation of Mr Hamilton’s and Mr Norman’s employment contracts with the applicant. Moreover, Mr Hamilton and Mr Norman were not even parties to the Sale of Business Agreement. As to the other matters, the evidence does not support a finding that either Mr Hamilton or Mr Norman treated his contract as having been repudiated by the applicant.

76    I am not persuaded, therefore, that the discretionary considerations which the respondents advance stand as a reason to deny the applicant further interim injunctive relief.

The balance of convenience

77    As to the balance of convenience, the applicant draws a distinction between, on the one hand, clients it has lost, who have now entered into arrangements with IT Anomaly, and, on the other, clients it currently retains and prospective clients.

78    As to the former, the applicant accepts that it is left to its remedy (if any) in damages. However, as to the latter, it submits that the balance of convenience weighs in favour of granting the further interim injunctive relief it seeks: paragraphs 4(a), (c), and (d) and paragraphs 5(a), (b), and (c) of the originating application. It submits that, if the clients it is currently servicing are lost, it is almost certain that it will not be able to entice those clients back. It makes the same submission regarding “clients” with whom it is in negotiations to provide services, although it does not identify who those persons might be.

79    As to employees, it submits that it has lost all but one of the six employees (i.e., employees including Mr Hamilton and Mr Norman) who came across from OmniIT. It submits that it has experienced difficulty in replacing these employees and in transferring the corporate knowledge they held. Mr Garcia’s evidence is that the loss in revenue and market share that the applicant has suffered, coupled with the loss of staff, has significantly diminished the viability of the applicant having a Canberra office. He says that, if further staff and customers were to leave, the Canberra office will be unviable and will likely need to be closed.

80    Mr Garcia says, further, that, while the value of the acquired OmniIT business has been largely eroded, it would be difficult to evaluate the losses it would suffer if further staff and clients were to leave.

81    The respondents submit that very little hardship would be occasioned to the applicant if the further interim injunctive relief were to be refused. This is because, on the applicant’s own evidence, a number of its clients have already left it or are leaving it. Further, the respondents submit that neither Mr Hamilton nor Mr Norman has significant savings or means. The respondents submit that I should infer that restraining the personal respondents or IT Anomaly will significantly impact on the ability of IT Anomaly to be profitable.

82    Further, the respondents submit that I should bear in mind the public interest, especially the interests of those clients who have expressed dissatisfaction with the applicant’s services. The respondents submit that the wishes and preferences of those clients should be respected. They should not be treated as “a commodity to be delivered to the victor of litigation”. They should not be forced to remain with the applicant or required to move to “some unrelated provider” for their IT services if they wish those services to be supplied by IT Anomaly.

Conclusion

83    I am not persuaded that I should grant the further interim injunctive relief that the applicant seeks.

84    I am not satisfied that the applicant has established a prima facie case for relief against Mr Norman. It has not established an arguable case that the post-employment restraint applies to him. As I have noted, it has advanced no case whatsoever that Mr Norman has breached or threatens to breach the confidentiality provision of his employment contract.

85    This leaves, therefore, consideration of the balance of convenience in respect of the applicant’s case against Mr Hamilton and IT Anomaly. The applicant’s case against IT Anomaly rises no higher than its case against Mr Hamilton.

86    As to Mr Hamilton, I have also expressed my lack of satisfaction that the applicant has established a prima facie case that Mr Hamilton has breached or threatens to breach the confidentiality provision of his employment contract, or has otherwise misused or threatens to misuse the applicant’s confidential information. Further, I have found that, although arguable, the applicant’s case—that the post-employment restraint applies to Mr Hamilton—is tenuous. Absent application of the post-employment restraint on Mr Hamilton, the applicant has no entitlement to the relief claimed in paragraph 4(a), (c), (d), or (e) of the originating application.

87    Those findings suggest to me that the balance of convenience weighs strongly against the granting of further interim injunctive relief against Mr Hamilton. The applicant accepts that the balance of convenience is against the granting of further interim injunctive relief insofar as it concerns an injunction restraining Mr Hamilton from providing services to current clients of IT Anomaly who fall within the definition of “Client” in the employment contract. I am not persuaded that a different conclusion is warranted in respect of those who (a) are a “Client”; and (b) who presently acquire services from the applicant. Relief, confined in that way, would still be granted on the basis of a tenuous case.

88    As to relief in respect of those who are a “Prospective Client”, there is also the further difficulty of clarity and certainty in respect of the relief that is sought: how are the respondents to know who is a “Prospective Client”? Remembering that this question only falls for consideration in respect of Mr Hamilton’s employment (because I am not satisfied that the applicant has established a prima facie case for relief against Mr Norman), it can be taken that Mr Hamilton will know those with whom he has had personal contact or dealings during his employment with the applicant. However, it does not follow that Mr Hamilton (or the other respondents, to the extent that it matters) will know whether the applicant has provided such persons with a quote, tender, or proposal for the provision of goods or services during that time. There is, therefore, a question of whether further interim injunctive relief in respect of those who are a “Prospective Client” is appropriate, in any event, in the terms sought by the applicant.

89    In considering the scope of the post-employment restraint more generally, it is to be borne in mind that, although the definitions of “Client” and “Prospective Client” for the purposes of the post-employment restraint refer to persons with whom the employee has had personal contact or dealings within the last 12 months of his or her employment, the employment referred to is employment with the applicant, not employment with some other person.

90    Mr Hamilton’s employment with the applicant, under his employment contract, was for the period 3 June 2021 to 23 August 2021. I suspect that the applicant contemplates that the post-employment restraint—assuming it to apply to Mr Hamilton—prevents dealings with anyone who is or was a “Client” or “Prospective Client” of the OmniIT business with whom Mr Hamilton had personal contact or dealings within the past 12 months, even when that business was not under VITG’s proprietorship. But this is not the case. (For completeness, the same false assumption seems to underlie the applicant’s case against Mr Norman.)

91    As to the further interim injunctive relief claimed against Mr Hamilton in paragraph 4(e) of the originating application, I note that the horse has well and truly bolted.

92    In this connection, the applicant retains the employment of one original employee of the OmniIT business—Mr Copping. The evidence is that, although Mr Copping resigned his employment with the applicant on 25 October 2021, he has since withdrawn his resignation and remains with the applicant.

93    Two other former employees, Mr Jones and Mr Cowan, resigned their employment with the applicant. The evidence does not reveal the circumstances of their resignations. There is evidence that Mr Cowan is now employed by IT Anomaly. The evidence does not reveal whether Mr Jones is so employed, although that seems to be the basis on which the parties have proceeded in the present application. I will assume that to be the case. It has not been suggested that Mr Jones or Mr Cowan are subject to the post-employment restraint.

94    The third former employee of the OmniIT business, Mr Reynolds, was, in fact, made redundant by the applicant. The evidence before me is that he was made redundant because he would not sign an employment contract with the applicant. He has now taken up employment with IT Anomaly. Plainly, Mr Reynolds is not bound by the post-termination restraint.

95    This leads to a further consideration which weighs against the granting of further interim injunctive relief. The position is that, in respect of former employees of the OmniIT business, IT Anomaly is staffed by: (a) three individuals (Messrs Jones, Cowan, and Reynolds) in respect of whom the applicant does not contend that the post-employment restraint applies; (b) one individual (Mr  Norman) against whom the applicant has not established a prima facie case that the post-employment restraint applies; and (c) one individual (Mr Hamilton) in respect of whom the applicant has only a tenuous case that the post-employment restraint applies. This leaves out of consideration the further difficult question about the enforceability of the post-employment restraint in any event.

96    There are further considerations which weigh against the granting of further interim injunctive relief.

97    First, insofar as client contracts formed part of the assets the former OmniIT business, these contracts were not assigned or novated to the applicant on VITG acquiring the business. Therefore, the applicant was always exposed to the risk of not retaining the custom of the business that VITG acquired (assuming the goodwill of the business to reside in the applicant, as opposed to VITG itself). This is particularly so in respect of those clients who, for whatever reason, do not wish to be clients of the applicant, or of any other company in the VITG group.

98    Secondly, and relatedly, the former clients of the OmniIT business who are now obtaining IT services from IT Anomaly, appear to be those who do not wish to have the services that the applicant is offering and, regardless of the outcome of this proceeding, will not acquire the services that the applicant is offering. This is because they have tried those services and are dissatisfied with the applicant’s performance, or because there is another sound business reason why they do not wish to deal with the applicant. This appears to be the immediate cause of the loss of which the applicant complains.

Disposition

99    For these various reasons, the applicant’s application for further interim injunctive relief should be refused. Costs will follow the event.

Associate:

Dated:    22 December 2021