Federal Court of Australia

AEI Insurance Group Pty Ltd v Martin [2022] FCA 1384

ORDERS

THE COURT ORDERS THAT:

1.    Until final orders are made in this proceeding or until 2 September 2023, whichever occurs first, the defendant be prohibited and injuncted from directly or indirectly soliciting, canvassing, dealing with, approaching, or accepting any approach from, any person or organisation who was at any time during the last 12 months of the defendant’s employment a client or customer of the plaintiff in the part or parts of the business of the plaintiff in which the defendant was employed and with whom the defendant had dealings or influence over.

2.    Until final orders are made in this proceeding or until 2 September 2023, whichever occurs first, the defendant be injuncted or otherwise restrained from using or disclosing to anyone any confidential information of the plaintiff comprising or including client contacts and client lists which he acquired in the course of his employment with the plaintiff.

3.    The costs of the plaintiff’s interlocutory application filed 8 November 2022, as amended, be costs in the cause.

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

REASONS FOR JUDGMENT

(Revised from transcript)

WIGNEY J:

1    AEI Insurance Group Pty Ltd is a heavy motor transport broker. Until recently, it employed Mr Craig Martin as an account manager and after-hours client contact.

2    Mr Martin’s contract of employment relevantly provided that he must not “solicit, canvass, deal with or approach or accept any approach from any person or organisation” with whom he had dealt, with a view to obtaining the business of that client. That restraint, under the terms of the contract, continued during a 12-month period following the termination of Mr Martin’s employment.

3    The employment contract also provided that Mr Martin was prevented from using or disclosing confidential information obtained in the course of his employment, including “client contacts and client lists”.

4    AEI has commenced proceedings against Mr Martin alleging, amongst other things, that he breached those provisions of his employment contract. Pending the hearing of that application, AEI seeks interlocutory relief in the nature of an injunction restraining Mr Martin from breaching those provisions of his employment contract.

5    AEI’s interlocutory process came before me urgently as duty judge. It was not immediately apparent to me why the application was of such urgency that it warranted immediate determination, particularly as the parties’ solicitors had been engaged in correspondence concerning the dispute in the weeks preceding the application. Mr Martin did not, however, oppose the application being heard and determined as a matter of urgency.

The employment agreement

6    The relevant clauses of the employment contract between AEI and Mr Martin were as follows.

7    Clause 12(c) provided:

12.     Restraint

The Employee must not either directly or indirectly:

…

(c)    during their employment with the Company and for the Restraint Period, solicit, canvass, deal with or approach or accept any approach from any person or organisation who was at any time during the last 12 months’ [sic] of the Employee’s employment a client or customer of the Company in that part or parts of the business of the Company in which the Employee was employed and with whom the Employee had dealings with or influence over, with a view to obtaining the business of that client or customer in a business that is the same or similar to or in competition with the business of the Company;

8    The “Relevant Period” is defined in the following terms in clause 12.7(b) of the contract:

Relevant Period means each of the following periods commencing from the termination of the Employee’s employment:

(i)    12 months;

(ii)    9 months;

(iii)    6 months;

(iv)    3 months;

9    Clause 13.1(a)(i) of the contract provided as follows:

13.1    Acknowledgment

The Employee acknowledges that:

(a)    all trade and business secrets, other confidential information and any documents (in whatever form, however stored, and including copies and extracts) relating to the affairs and business of the Group or which the Employee acquired in the course of their employment with the Company, whether or not originally supplied by a Group Company, including the following:

(i)    client contacts and client lists;

10    Clauses 13.2(a) and (b) provided as follows:

13.2     Confidentiality and return of Confidential Information

The Employee agrees that:

(a)    they must only use Confidential Information for the purpose of performing their duties for the Company under this Agreement;

(b)    during the Employee’s employment and thereafter, except in the proper course of their duties, the Employee will not use or disclose to anyone any Confidential Information, and will use their best endeavours to prevent unauthorised use or disclosure of the Confidential Information by third parties, unless required by law;

11    Clause 15.6(e) of the contract, under the heading “What happens on Termination”, provided that: “the Employee’s obligations under this clause, and clauses 12 and 13 continue after termination”.

12    The proceedings commenced by AEI against Mr Martin allege that Mr Martin breached clauses 12(c) and 13.2(a) and (b) of the employment contract. It is also alleged that Mr Martin breached s 183 of the Corporations Act 2001 (Cth), which relates to the improper use of information obtained by an employee in the course of his or her employment.

THE APPLICATION

13    AEI’s application for interlocutory relief was supported by affidavit evidence of one of its directors, Mr Michael Donaldson. Mr Donaldson was not cross-examined, no doubt because of the interlocutory nature of the application.

14    Mr Donaldson’s evidence was, in short summary, as follows.

15    Mr Martin was first employed by AEI in 2011. He was employed as an account manager in a business development role. During the course of his employment, Mr Martin had access to client details, developed close relationships with clients and was made aware of business opportunities. He was provided with a mobile phone and laptop computer and was able to log into AEI’s client management system. He was paid a relatively sizable base salary.

16    Mr Martin notified AEI of his resignation on 29 August 2022. He initially declined to indicate what his intentions were in terms of future employment, but eventually admitted that he would be working for one of AEI’s competitors, MA Insurance Brokers. AEI subsequently diverted to Mr Donaldson any calls that were made to the phone that had been provided by AEI to Mr Martin.

17    Shortly after Mr Martin’s resignation, Mr Donaldson sent Mr Martin an email which reminded Mr Martin of his obligations under the employment contract in relation to confidential information and restraint.

18    On 5 September 2022, Mr Donaldson became aware that a text message had been sent to one of AEI’s clients. That text message provided information in respect of Mr Martin’s new phone number. When Mr Donaldson became aware of that text, he caused AEI to write to Mr Martin and again draw his attention to clauses 12 and 13 of his employment contract. Mr Martin responded to that communication through his solicitors.

19    Further correspondence ensued between AEI and its solicitors and Mr Martin or his solicitors. In the course of that correspondence, Mr Martin’s solicitors confirmed that Mr Martin had sent a text message advising of his new mobile phone number to all of his contacts, including family and friends. The problem was that Mr Martin’s contacts also included the clients with whom Mr Martin had dealt while he was employed by AEI.

20    In early November 2022, Mr Donaldson became aware that a sizable number of AEI’s clients had withdrawn their business from AEI and engaged with MA Insurance Brokers. The business conducted by MA Insurance Brokers was similar to the business conducted by AEI. They were competitors.

21    Mr Donaldson, along with some other officers or employees of AEI, subsequently contacted the clients who were believed to have shifted their business from AEI to MA Insurance Brokers. They asked the clients why they had shifted their business to MA Insurance Brokers. The results of those enquiries were summarised in a table annexed to Mr Donaldson’s affidavit.

22    The enquiries revealed, in summary, that the clients had shifted their business to MA Insurance Brokers as a result of the fact that Mr Martin had moved to MA Insurance Brokers. Some of the clients confirmed that they had been contacted by someone at MA Insurance Brokers and told that Mr Martin now worked there. At least one of the clients indicated that he had had a conversation with Mr Martin after he had moved to MA Insurance Brokers. A number of the clients indicated that they had had no adverse issues with AEI and had had no contact or dealings with MA Insurance Brokers prior to the shift of their business.

23    Mr Donaldson claimed that 21 former clients of AEI had moved their business to MA Insurance Brokers following Mr Martin’s relocation there.

24    The interlocutory relief sought, as amended, by AEI was in the following terms:

1    The defendant be prohibited and injuncted from soliciting, canvassing, dealing with, approaching or accepting any approach from any person or organisation who was at any time during the last twelve months of the defendant’s employment a client or customer of the plaintiff with whom the defendant had dealings with or influence over, either directly or indirectly with a view to obtaining the business of that client or customer in a business that is the same or similar to or in competition with the business of the plaintiff until such time as final orders are made in these proceedings.

2    The defendant be injuncted or otherwise precluded from accessing, using or otherwise relying upon any confidential information of the plaintiff until final orders are made in these proceedings.

3    Costs.

(Mark-up not included.)

25    Despite the matter being brought on for hearing urgently and at short notice, Mr Martin was represented by senior counsel at the hearing.

26    Mr Martin opposed the grant of the interlocutory relief sought by AEI. His primary submission was that the evidence upon which AEI relied was insufficient to establish a prima facie case or serious question to be tried. He submitted that the documentary evidence relied on by AEI did not show that the clients who had departed from AEI had moved their business to MA Insurance Brokers. He also submitted that in any event it was not sufficient for AEI to simply demonstrate that clients had shifted their business from it to MA Insurance Brokers. Rather, AEI had to prove a prima facie case that the shift was as a result of a breach by Mr Martin of his contractual obligations concerning restraint and confidential information. In Mr Martin’s submission, the evidence in the form of the table annexed to Mr Donaldson’s affidavit indicated that many of the clients had shifted their business to MA Insurance Brokers simply because Mr Martin now worked there. In most cases, there was no suggestion that there had been any direct or indirect contact with Mr Martin. Even in those instances where there had been some contact between the client and MA Insurance Brokers, that contact was with someone other than Mr Martin. There was only one instance where there had been a direct communication between a former client and Mr Martin and even then there was no indication that Mr Martin had contacted that client with a view to obtaining the business of that client for MA Insurance Brokers.

Relevant principles

27    The applicable principles in respect of interlocutory injunctions are settled and do not need to be rehearsed at length in this judgment.

28    In order to secure an interlocutory injunction, the plaintiff must generally show: first, 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; second, that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and third, that the balance of convenience favours the granting of an injunction: see Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63 at [13]; Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238; [2011] FCAFC 156 (Samsung v Apple) at [53].

29    The Court’s task of assessing the balance of convenience and justice requires the Court to determine whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused is outweighed by the injury which the defendant would suffer if an injunction were granted: see Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; Samsung v Apple at [58].

30    The question of whether or not the plaintiff must show that he will suffer irreparable harm if no injunction is granted is one of the matters which will ordinarily need to be addressed in the Court’s consideration of the balance of convenience and justice. 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 if an injunction were granted. The matter should not be elevated into a separate and antecedent enquiry, but rather, is best left to be considered as part of the Court’s assessment of the balance of convenience and justice: see Samsung v Apple at [61]-[63].

31    Resolution of the question of where the balance of convenience and justice lies requires the Court to exercise a discretion. In exercising that discretion, the Court is required to assess and compare any prejudice and hardship likely to be suffered by the defendant, third persons, and the public generally if an injunction is granted, and 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”: see Samsung v Apple at [66].

32    The question of whether there is a serious question to be tried or whether there is a prima facie case “should not be considered in insolation from the balance of convenience”, and the “apparent strength of the parties’ substantive cases will often be an important consideration to be weighed in the balance”: see Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2009] FCA 595 at [15]; Samsung v Apple at [67].

Issues for determination

33    As can be seen from that brief summary of principles, the critical questions raised by AEI’s interlocutory application are as follows.

34    First, has AEI made out a prima facie case or serious question to be tried against Mr Martin in relation to the breach of clauses 12 and/or 13 of his employment contract?

35    Second, if so, does the balance of convenience favour the grant of the injunction or the making of the orders sought by AEG?

Has AEI made out a prima facie case?

36    I am satisfied that AEI has established a prima facie case that Mr Martin has breached clauses 12(c) and 13.2(a) and (b) of his employment contract.

37    It is clear that, following his termination, Mr Martin sent text messages to clients with whom he had dealt while employed at AEI and advised them of his new telephone number. It may perhaps be accepted that Mr Martin may have sent those text messages to all of his contacts, including his family and friends, and that this was a consequence of the fact that AEI had diverted the telephone number he had used while employed at AEI. Even so, it may be inferred that Mr Martin must have appreciated that his contacts included AEI’s clients. It is also difficult to accept that this contact with AEI’s clients was inadvertent or unintended, particularly as Mr Donaldson had reminded Mr Martin of his contract obligations concerning contact with clients and confidential information soon after his resignation.

38    The evidence also suggests that the contact between Mr Martin and AEI’s clients was not limited to the initial text message. As has already been noted, the enquiries conducted by Mr Donaldson and AEI’s employees revealed that at least some of the clients who had moved their business to MA Insurance Brokers had been contacted by Mr Martin, or someone else from MA Insurance Brokers, advising that Mr Martin now worked at MA Insurance Brokers.

39    One of AEI’s former clients, for example, told Mr Donaldson that he had shifted his business to “support Craig” and referred in that context to a “discussion which he had had with Craig a week or so ago”. Another former client of AEI told Mr Donaldson that he had known Mr Martin for a long time and “when he left and they received his number via text that they followed him up with a call and Craig introduced them to Barry Mathison”, presumably another employee or officer of MA Insurance Brokers. Another client advised an officer of AEI that they had “moved because someone who Craig works with contacted them and a few others”.

40    It is open to infer, at least to a prima facie standard, that even where someone from MA Insurance Brokers other than Mr Martin contacted the AEI client, that was done as a result of the actions of Mr Martin and constituted, at the very least, an indirect dealing or approach by Mr Martin. It is equally open to infer that Mr Martin provided the person from MA Insurance Brokers with the client contact details. The circumstances and nature of the contact between Mr Martin and other persons from MA Insurance Brokers and the AEI’s clients also supports the inference, at least to a prima facie standard, that the contact was made with a view to MA Insurance Brokers obtaining the business of that client.

41    In my view, the evidence adduced by AEI made out a prima facie case that, relatively soon after resigning from AEI and commencing employment with one of its competitors, Mr Martin breached clauses 12(c) and 13.2(a) and (b) of his employment contract. He did so by either directly indirectly approaching or dealing with clients of AEI with whom he had dealt while employed at AEI with a view to obtaining the business of that client for MA Insurance Brokers. He also used confidential information – client lists and contact details – which he obtained while employed at AEI to that end. While I would perhaps not characterise AEI’s case at this stage as being strong or compelling, in my view, it is nevertheless a prima facie case.

42    It should finally be noted that Mr Martin did not go so far as to submit at this interlocutory stage that the restraint clause in clause 12(c) of his employment contract with AEI was void or invalid. There was brief note in the written submissions relied on by Mr Martin which suggested that the restraint clause was not necessary to protect the legitimate interests of AEI. That point was not pursued, or at least pursued with any vigour, in oral submissions. For more abundant caution, however, I should note that if Mr Martin had challenged the validity of the restraint clause in 12(c) of the employment contract, in my view, AEI had at least a prima facie case that the clause was reasonable to protect its legitimate interests and therefore valid.

The balance of convenience supports the injunction

43    As for the balance of convenience, as previously noted, one of the issues which ordinarily arises in the context of the balance of convenience is whether damages would be an appropriate remedy. In that regard it is well established that where what is involved is the enforcement by injunction of a contractual negative stipulation, it is a rare case in which relief will be declined on the basis that damages are a sufficient remedy: see Emeco International Pty Ltd v O’Shea [2012] WASC 282 at [20]-[22]; Liberty Financial Pty Ltd v Jugovic [2021] FCA 607 at [283]-[285]. That is largely because of the inherent “difficulty in detecting breaches” of such obligations, the “difficulty of establishing causation between any loss of business with customers and any actions of the ex-employee”, and the “difficulty of the calculation of the quantum of any damage arising from loss of business”: Emeco at [21].

44    In my view, the balance of convenience in this case lies in AEI’s favour. That is because the evidence establishes that AEI would suffer a significant disadvantage if Mr Martin is not restrained from any further or ongoing breaches of clauses 12 and 13 of his employment contract. The evidence establishes, at least to a prima facie standard, that AEI has already lost the business of a number of clients. It may readily be inferred that the loss of clients may continue if Mr Martin is not restrained from further breaching his contractual obligations. I am also not persuaded that Mr Martin would suffer any, or any serious, prejudice if the orders sought by AEI are made. That is because they essentially just restrain Mr Martin from doing what he otherwise should not be doing given the terms of his contract with AEI.

The appropriate orders

45    Order 1 of the orders sought by AEI, as amended, is couched in the same terms as clause 12(c) of Mr Martin’s employment contract. It essentially just restrains Mr Martin from breaching that clause.

46    Order 2 of the orders sought by AEI is intended to restrain Mr Martin from breaching clause 13 of his employment contract. In my view, however, it is couched in overly broad and general terms. It should be limited to restraining Mr Martin from using or relying on confidential information in the nature of client contacts and client lists which he obtained in the course of his employment with AEI, rather than confidential information generally. The evidence at this point suggests no more than that Mr Martin has used AEI client contacts and client lists.

Disposition

47    In all the circumstances, I am satisfied that it’s appropriate to grant the interlocutory relief sought by AEI, upon it giving the usual undertaking as to damages, albeit order 2 will be in slightly different terms to the order proposed by AEI.

Associate:

Dated:    21 November 2022