DXC Eclipse Pty Ltd v Wildsmith

1. [1]

   BELL CJ:

Introduction

1. [2]

   This appeal concerns a restraint of trade dispute between DXC Eclipse Pty Ltd (DXC Eclipse or the Appellant), the First Respondent (Mr Wildsmith) and the Second Respondent, On-Key Consulting Pty Ltd (OKC) as trustee for the Wildsmith Family Trust.

2. [3]

   DXC Eclipse acquired a software solutions business called Sable37 by way of a Securities Purchase Agreement (SPA) entered into on 4 April 2018 with a number of “sellers”, including Mr Wildsmith and OKC. Their share of the consideration was $9.5 million.

3. [4]

   At the time the SPA was signed, Mr Wildsmith was the “Global Managing Director” of Sable37. He was also the owner and controller of OKC, which held one third of the shares in Sable Systems Pty Ltd (Sable Systems).

4. [5]

   The terms of the SPA required that Mr Wildsmith serve as DXC Eclipse’s “ANZ Director – Microsoft” for at least one year. Mr Wildsmith in fact stayed longer but resigned from this position in July 2021. The SPA contained a number of different covenants which bound the “sellers”, including Mr Wildsmith and OKC. These included non-competition and non-solicitation covenants.

5. [6]

   On 21 December 2021, Mr Wildsmith incorporated a new software solutions business called Will Thirty Three Pty Ltd (Will Thirty Three). The majority of the shares in Will Thirty Three are held by OKC.

6. [7]

   DXC Eclipse commenced proceedings on 30 March 2022 for interlocutory injunctive relief against Mr Wildsmith and OKC on the basis that the Respondents’ new software solutions venture violated the non-competition and non-solicitation covenants in the SPA.

7. [8]

   On 2 May 2022, Slattery J granted interlocutory injunctive relief restraining the Respondents from “carrying on” the business of Will Thirty Three. Some amendments were made to those orders on 4 May 2022: DXC Eclipse Pty Ltd ACN 051 758 199 v Wildsmith [2022] NSWSC 512. The dispute was then listed for hearing on an expedited basis.

8. [9]

   On 30 September 2022, Parker J (the primary judge) found that the interlocutory orders should be discharged and that there was no basis for DXC Eclipse’s claim for injunctive relief: DXC Eclipse Pty Ltd v Wildsmith (No 2) [2022] NSWSC 1330 (the primary judgment or PJ).

9. [10]

   On 10 October 2022, after the parties were invited to make submissions about any errors in the primary judgment, the primary judge made minor alterations to and affirmed the primary judgment. His Honour also temporarily stayed the orders discharging the earlier interlocutory orders made by Slattery J until 24 October 2022: DXC Eclipse Pty Ltd v Wildsmith (No 3) [2022] NSWSC 1361.

10. [11]

    On 24 October 2022, Parker J declined DXC Eclipse’s application for an extension of the stay of orders made on 10 October 2022: DXC Eclipse Pty Ltd v Wildsmith (No 4) [2022] NSWSC 1452.

11. [12]

    On 3 November 2022, Macfarlan JA refused an application by DXC Eclipse for injunctive relief pending determination of the appeal proceedings on the basis that each party faced prejudice depending on whether or not the interlocutory relief sought was granted. His Honour thus resolved the deadlock by reference to the Respondents’ entitlement to enjoy their victory at first instance: DXC Eclipse Pty Ltd v Wildsmith [2022] NSWCA 224.

12. [13]

    On 16 December 2022, Parker J made costs orders in favour of the Respondents: DXC Eclipse Pty Ltd v Wildsmith (No 5) [2022] NSWSC 1710.

13. [14]

    The Appellant sought leave to appeal from the decision of the primary judge and such leave, to the extent required, was not opposed. All necessary leave was granted at the outset of the hearing of the application for leave to appeal.

14. [15]

    In order to understand the issues raised for consideration, both at first instance and on appeal, it is necessary to supply further factual background before turning to the terms of the SPA, the primary judgment and the grounds of appeal.

Background

1. [16]

   DXC Eclipse is a Microsoft business software solutions company. It is part of a multi-national group of companies (DXC Group) and is an indirectly wholly owned subsidiary of DXC Technologies Australia Holdings Pty Ltd. Prior to its acquisition of Sable37, DXC Eclipse specialised in the supply of a product known as “NAV”, or “Dynamics NAV”.

2. [17]

   Sable37 was a Microsoft software solutions business. It was owned by Sable Systems, as trustee for the Sable Systems Unit Trust (Sable Systems Trust). OKC held one third of the units in the Sable Systems Trust.

3. [18]

   Sable37 originally specialised in the supply of a Microsoft product, which was more advanced than NAV, called “AX” or “Dynamics AX”, alongside software called “CRM” or “Dynamics Customer Relations Management”.

4. [19]

   As noted above, prior to its acquisition by DXC Eclipse, Mr Wildsmith was the “Global Managing Director” of Sable37 and was well-known for his expertise in the field and for his relationship with Microsoft.

5. [20]

   The NAV and AX software which were supplied by DXC Eclipse and Sable37 respectively are “Enterprise Resource Planning” (ERP) products, as opposed to “Customer Relations Management” (CRM) products. Put most simply, ERP software is used to deal with internal accounting, manufacturing and record-keeping, while CRM software is used to support business’ dealings with their customers.

6. [21]

   Before installation, both ERP and CRM software can be customised to suit business’ needs by incorporating “add-ins” and “add-ons”. An “add-in” refers to a process by which software is customised through supplementary computer code. An “add-on” refers to the supplementation of software with additional modules that perform additional functions.

7. [22]

   The process of customising software with add-ins and add-ons and then installing it for customers is referred to as the supply of a “software solution”. Software solutions are supplied by businesses, such as DXC Eclipse, Sable37 and Will Thirty Three, who are referred to as “value added resellers”.

8. [23]

   Both AX and NAV were originally “on premises” ERP software. This meant that customers were provided with a licence and the software was installed on the customers’ own servers. However, in July 2016, Microsoft announced its cloud-first, internet-based strategy for its business applications by announcing “Dynamics 365” or “D365”.

9. [24]

   In October 2016, AX (the Sable37 product) was rebranded as “Dynamics 365 for Operations” and again in July 2017, as “Dynamics Finance and Operations” (F&O). Similarly, Dynamics CRM was relaunched as “Dynamics 365 Customer Engagement” (CE).

10. [25]

    Prior to its acquisition by DXC Eclipse, Sable37 specialised in the supply of solutions based on F&O and CE, alongside its AX offering.

11. [26]

    The purchase of Sable37 by DXC Eclipse followed a marketing campaign launched in 2017. The sale and negotiations were handled by KPMG. In the Information Memorandum prepared by KPMG in relation to the sale of Sable37 (which is referred to as “Bluejay” throughout), its business was described generically in the following terms:

12. [27]

    Bluejay (Sable37) was also described as “leading the industry transition and embracement of cloud” and as an “early adopter of the D365 platform and Microsoft’s strategic cloud-based vision.” The Information Memorandum also recorded that:

13. [28]

    The primary judge noted that the Information Memorandum was “framed in broad and generic terms”. His Honour went on to observe, however, that “at no point did it actually state that Sable37 sold or planned to sell all of the Dynamics 365 products”: PJ [171]. Rather, the primary judge indicated that the position was made clear in a Due Diligence Report, also prepared by KPMG but provided only to prospective purchasers, in which Sable37’s “Key products and services” were described more specifically as:

14. [29]

    Non-binding offers to purchase Sable37 were first made by DXC Eclipse in November 2017. DXC Eclipse then entered negotiations concerning the terms of the SPA. Several draft agreements were exchanged between the parties between November 2017 and April 2018.

15. [30]

    On 2 April 2018, Microsoft launched “Microsoft Dynamics 365 Business Central” (BC), a cloud-based version of NAV. It was common ground between the parties that, when the SPA was entered into on 4 April 2018, Sable37 did not offer BC based software solutions.

16. [31]

    After the SPA was signed, DXC Eclipse merged its business with that of Sable37, supplying solutions based on AX, F&O and CE which previously lay within Sable37’s area of speciality. The supply of these products was seen as complementing, rather than competing with, DXC Eclipse’s supply of solutions based on NAV. The merged business never offered solutions based on BC.

17. [32]

    In an Affidavit of 15 May 2022, Mr Stuart Dickinson (General Manager of DXC Eclipse) deposed to the fact that after BC was rebranded, Microsoft Dynamics 365 comprised a “suite of business applications”, namely:

18. [33]

    Mr Dickinson also deposed to the fact that while F&O comprised several core modules or programs from the Dynamics 365 suite, principally Dynamics 365 Finance, Dynamics 365 Project Operations, Dynamics 365 Supply Chain Manager and Dynamics 365 Intelligent Order Management, BC was a “standalone all-in-one ERP solution”. The primary judge held at PJ [74]-[75]:

19. [34]

    When cross-examined at first instance, Mr Phillip Walsh (Chief Business Architect for DXC Eclipse) described the supply of BC, F&O and CRM as each requiring different certifications and training. The significance of this matter was highlighted in the course of arguments by Dr Higgins SC who appeared for Mr Wildsmith, as will be seen further below.

20. [35]

    Following execution of the SPA in early April 2018, Mr Wildsmith managed DXC Eclipse’s merged business in his capacity as “ANZ Director – Microsoft” until his resignation in July 2021. The terms of his employment were governed by an Employment Contract dated 27 March 2018, which also included separate non-solicitation and non-competition restraints. Mr Wildsmith was subject to a one year minimum term of employment alongside a six month non-compete period by cl 29.4 of his Employment Contract.

21. [36]

    On 21 December 2021, following his resignation from DXC Eclipse, Mr Wildsmith incorporated Will Thirty Three, a business focused on the supply of software solutions based on BC. In February 2022, he was appointed to the board of Sentient Dynamics Pty Ltd (Sentient), a business specialising in the supply of add-ins and add-ons using Power Platform, a suite of programming tools that could be used either alone or in conjunction with Microsoft’s other software such as BC. When Mr Wildsmith announced the establishment of Will Thirty Three, he was approached by representatives of Microsoft and met with them in February 2022 to discuss his new venture. In email correspondence with those Microsoft representatives, Mr Wildsmith described the business of Will Thirty Three as exploiting a gap in the market “in the high end of the BC opportunity underneath D365 F&O”.

22. [37]

    The primary judge explained that Mr Wildsmith’s new venture effectively involved two elements: first, that Will Thirty Three would sell BC solutions (and that it had no intention to sell F&O or CE); secondly, that Will Thirty Three would be able to team with Sentient which could produce add-ins and add-ons to supplement the BC solutions being produced by Will Thirty Three: PJ [103]-[105].

23. [38]

    When launching Will Thirty Three on LinkedIn, Mr Wildsmith also made a post which included the following:

The SPA and restraints

1. [39]

   Before the primary judge, DXC Eclipse alleged that the Respondents’ new venture was in breach of both non-competition and non-solicitation covenants in the SPA. As such, it sought injunctive relief to restrain Mr Wildsmith and OKC from pursuing those ventures.

2. [40]

   Clause 16.1(c) of the SPA provides:

3. [41]

   “Competing Business” is defined in cl 16(1)(a)(b) as “any business or operation competitive with the Business”.

4. [42]

   “Business” is defined in cl 1.1 as meaning:

5. [43]

   The “Seller Restraint Period” refers to a cascading series of time periods which commenced from 4 April 2018 (the Completion Date) and which range from seven years to one year. At the time that Will Thirty Three was incorporated (21 December 2021), three and a half years had passed since the Completion Date and more than four and a half years had passed by the time the primary judgment was delivered.

6. [44]

   The “Restraint Area” is a cascading series of geographical areas from the entire world down to a more confined area including New South Wales, Queensland, Victoria, Western Australia and South Australia.

7. [45]

   Clause 16.4 of the SPA, headed “Acknowledgements”, provides:

8. [46]

   It was argued before the primary judge that Will Thirty Three was a “Competing Business” either:

   1. (1)

      directly because it was a business based on the supply of BC, a “Microsoft Dynamics product” or a “future, successor, or derivative product” within the meaning of the SPA; or

   2. (2)

      indirectly because, even if it was not a business based on the supply of a “Microsoft Dynamics 365 product” within the meaning of the SPA, it was a business based on the supply of BC which was competitive with a business based on the supply of F&O which plainly was a “Microsoft Dynamics Product” which Sable37 supplied as at the Completion Date.

9. [47]

   Consequently, DXC Eclipse sought an injunction in the following terms:

10. [48]

    It may be observed that the injunctive relief sought was effectively for the maximum temporal restraint period (seven years from the Completion Date). The restraint area sought in the injunctive relief was the second broadest area nominated in cl 16.1(b)(b) of the SPA, namely Australia, New Zealand, United Arab Emirates, India, Fiji, the Philippines and the United States.

11. [49]

    Given that the business of Will Thirty Three is premised on the supply of BC, the primary judge proceeded on the basis that BC would be specifically identified as a “Microsoft Dynamics 365” product in the terms of the injunctive relief sought: PJ [114]-[115].

12. [50]

    Sub-subclauses (a), (b) and (d) of subclause 16.3(b) of the SPA provide that:

13. [51]

    DXC Eclipse contended before the primary judge that, by meeting with Microsoft in relation to Will Thirty Three and making the LinkedIn post set out at [38] above, there had been a breach of the non-solicitation covenant sufficient to warrant the grant of injunctive relief, in the following terms:

14. [52]

    A further injunction was also sought in relation to the employee non-solicitation covenant:

15. [53]

    Before leaving the terms of the SPA, cl 4.4 of Schedule 1 to the SPA should be noted. It draws on the definition of Business in a way that the Respondents contend can only be consistent with the construction of that term favoured by the primary judge and which focuses upon the specific Microsoft products used by Sable37 as at the Completion Date. Clause 4.4 provides:

Restraints of Trade Act 1976 (NSW) (the Act)

1. [54]

   It was common ground between the parties that the non-competition and non-solicitation covenants are restraints of trade, the enforceability of which is governed by the Act.

2. [55]

   Section 4 of the Act, headed “Extent to which restraint of trade valid”, provides that:

3. [56]

   In Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 (Isaac), Gleeson JA provided the following summary relating to the correct approach to the application of s 4(1) of the Act:

4. [57]

   In Belflora Pty Ltd v Vinflora Pty Ltd (2021) 106 NSWLR 67; [2021] NSWCA 178 (Belflora) at [46], Brereton JA observed that:

5. [58]

   On the question of onus of proof, Gleeson JA in Isaac made the following observations:

6. [59]

   At first instance in the present case, the Appellant, as the party seeking to enforce the restraint, accepted that it bore the onus as to reasonableness. The Respondents did not introduce any evidence at first instance as to the unreasonableness of the restraints, either inter partes or in the public interest.

7. [60]

   An issue arose in the course of the hearing of the appeal as to the correctness of the decision of Palmer J in Idameneo (No 123) Pty Ltd v Angel-Honnibal [2002] NSWSC 1214; [2003] ATPR 41-918 (Idameneo (No 123)) at [44] on the question of onus, it being posited that insofar as s 4(1) of the Act modified the traditional common law position, it was in fact the party seeking to assert the invalidity of a restraint on public policy grounds who bore the onus of establishing that the restraint was unreasonable.

8. [61]

   Idameneo (No 123) and, more pertinently, the decision of the Court of Appeal in Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [82], had not been formally challenged in the proceedings at first instance. Dr Higgins opposed any challenge being raised for the first time on appeal on the basis that her clients may have led evidence challenging the reasonableness of the Restraint Period had it been signalled at first instance that the Appellant did not accept that it bore the onus on the question of reasonableness.

9. [62]

   There was force to this submission in my view (see Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12) and this appeal should be determined on the basis that it was fought at first instance, namely that DXC Eclipse bears the onus of establishing the reasonableness of the restraints which it seeks to enforce.

Primary judgment

1. [63]

   The primary judge considered the non-competition, supplier solicitation and employee solicitation restraints in turn.

2. [64]

   At PJ [115], his Honour identified the two questions which he saw as arising in relation to the non-competition restraint as: first, whether on its true construction, the non-competition restraint extended to software solutions based on BC; second, whether, if it did, the restraint was reasonable.

3. [65]

   The primary judge first contemplated whether Will Thirty Three, a business based on the supply of BC, was a “Competing Business” such that the Respondents could be considered to have breached the non-competition covenant in cl 16.1 of the SPA. This question turned predominantly on the meaning of “Business” in cl 1.1 of the SPA and, in particular, whether BC was a product “based on Microsoft Dynamics 365 technologies” or a “future, successor, or derivative” product.

4. [66]

   The primary judge noted the argument that “Microsoft Dynamics 365 technologies” as referred to in the definition of “Business” should be read as not including BC, given that no such business based on the sale of BC solutions was being operated by Sable37 as at the Completion Date (April 2018). While it was accepted that “Dynamics 365” is a label placed on a bundle of products released by Microsoft which includes BC, his Honour found that the term must be understood in its contractual context. Importantly, the primary judge noted that the definition of “Business” in cl 1.1 begins by referring to the “business of the Sable37 Group as at the Completion Date [4 April 2018]”: PJ [120]-[121]. His Honour said that, “These words in their natural meaning limit the reach of the definition to activities in fact carried out by Sable37 as at April 2018”: PJ [121].

5. [67]

   It was common ground between the parties that, when the SPA was signed, Sable37 was not supplying solutions based on BC. As such, the primary judge held at PJ [132] that:

6. [68]

   The difficulty with the “parenthetical words” in the definition of “Business” was identified as lying with the word “future”. His Honour noted that a “successor” or “derivative” product readily related back to a product previously used, but that the same could not necessarily be said for the word “future”: PJ [133]. This opened up the possibility that, although BC was not sold or incorporated in solutions sold by Sable37, nevertheless BC was a “future product” and thus part of Sable37’s business. This possibility was described by the primary judge at PJ [134] as presenting a choice:

7. [69]

   The reference by the primary judge to “the initial words of the chapeau” were to the words “as at the Completion Date”, which his Honour characterised as being in apparent tension with the notion of “future” products. The reference to the drafter having “perhaps, forgotten that the definition applied beyond the competition covenant” was to the fact that “Business” appears elsewhere in the SPA and the broad interpretation of “Business” urged by DXC Eclipse did not sit comfortably with its use in other parts of the SPA. His Honour at PJ [131] pointed especially to the double use of the term “Business” in the non-solicitation clause (see [50] above) as necessarily requiring reference to the business of Sable37 as it was actually conducted prior to April 2018.

8. [70]

   The primary judge rejected DXC Eclipse’s attempt to refer to evidence of the contractual negotiations between the parties which it submitted supported an interpretation of cl 1.1 of the SPA that did not limit the reference to Sable37’s business to the particular Microsoft products with which Sable37 was dealing on 4 April 2018: PJ [144].

9. [71]

   At PJ [142]-[143], his Honour referred to the well-known statement of Mason J in Codelfa Constructions Pty Ltd v State Rail Authority (1982) 149 CLR 337 at 352-353; [1982] HCA 24 (Codelfa) in relation to prior negotiations:

10. [72]

    Although the primary judge held that the exception propounded by Mason J has been accepted at the intermediate appellate level, his Honour did not consider that the exception was engaged. This was primarily because, as in Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108; [2017] NSWCA 27 (Walker) at [114]-[120], the correspondence between the parties in relation to drafting changes did not establish why the changes were made or the vendor’s actual agreement with them: PJ [145]-[149].

11. [73]

    At PJ [148]-[149], the primary judge concluded as follows:

12. [74]

    The Appellant submitted that it was implicit in these observations that his Honour effectively invoked Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 (Fitzgerald) to omit the words in the parenthesis in sub-para (a) of the definition of “Business”, rather than reading them down.

13. [75]

    The primary judge also considered but rejected DXC Eclipse’s alternative argument that, if BC was not a “Microsoft Dynamics 365 product” within the meaning of the definition of “Business” in cl 1.1, Will Thirty Three was still a “Competing Business” (and thus the non-competition covenant was engaged) because it is a business based on the supply of BC, a product which is competitive with F&O which formed part of the Sable37 business: PJ [150].

14. [76]

    The primary judge heard competing expert evidence, although not all of the experts were independent. His Honour found the evidence of the Respondents’ witness, Mr Paff, the most useful. At PJ [81], he quoted the following important extract from Mr Paff’s Report:

15. [77]

    The primary judge ultimately found that BC and F&O products were different on a “technical level”, had “separate origins”, possessed different “features and pricing” and were “targeted at different sectors of the market”: PJ [152]. Earlier in his judgment at PJ [78], the primary judge held that:

16. [78]

    His Honour accepted Mr Paff’s evidence, however, that there was a “grey area” where customer needs could potentially be satisfied by either F&O or BC and that this area might be a target for Will Thirty Three: PJ [154]. His Honour nevertheless held at PJ [155] that, in order for the businesses to be competitive, the following threshold must be met:

17. [79]

    In assessing whether the threshold had been satisfied, the primary judge made the following observations at PJ [156]-[157]:

18. [80]

    His Honour concluded that the “evidence is lacking in the present case” and expressed himself as “not satisfied that Will Thirty Three is “competitive with” the Ex-Sable37 Business”: PJ [158].

19. [81]

    Although the primary judge found that there was no direct or indirect breach of the non-competition restraint, his Honour nonetheless went on to consider whether the restraint was reasonable in scope, on the assumption that it did extend to a business supplying software solutions based on BC: PJ [159].

20. [82]

    His Honour held that reasonableness must be determined by reference to what was reasonably necessary to protect DXC Eclipse’s legitimate interest in the goodwill purchased when it acquired Sable37: PJ [160]. His Honour at PJ [162] emphasised that the “protectable interest is limited to the goodwill of the business acquired as at the date of acquisition”: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 318; [1973] HCA 40. Further, the threshold for the reasonableness of the non-competition restraint to be made out was held not to be higher because of the fact that the SPA also contains non-solicitation restraints: PJ [166]-[168].

21. [83]

    The primary judge held that a restraint preventing Will Thirty Three from selling solutions based on BC could not derive from the goodwill purchased under the SPA. None of the information about the Sable37 business provided to DXC Eclipse suggested that Sable37 intended to, or did, supply solutions based on BC. Furthermore, Will Thirty Three was held not to be competitive with a business based on F&O and, even if it was, that “that would not justify protection against competition in the space opened up by changes to, or developments of, F&O by Microsoft”: PJ [173].

22. [84]

    Consequently, his Honour held that the scope of the non-competition restraint was unreasonable and, therefore, that it was unnecessary to consider the reasonableness of its duration: PJ [175]. As shall be seen below, the Respondents contended by Notice of Contention that the non-competition restraint was unreasonable as to duration, at least to the extent that it exceeded four years.

23. [85]

    With respect to the supplier solicitation restraint which was sought, and which is set out at [50] above, the primary judge held that there was no issue of construction, only reasonableness: PJ [178].

24. [86]

    His Honour found that Microsoft’s dealings with Will Thirty Three did not affect DXC Eclipse. Mr Wildsmith had not attempted to solicit Microsoft to cease dealing with DXC Eclipse nor did his dealings with Microsoft involve the appropriation of any confidential information: PJ [181].

25. [87]

    Accordingly, it was held that an injunction in the form sought was not reasonably necessary to protect the interests of DXC Eclipse in that it had no relationship to the goodwill purchased. Rather, his Honour noted at PJ [182] that:

26. [88]

    In relation to the employee solicitation restraint, the primary judge noted that there was a real question as to whether the LinkedIn post made by Mr Wildsmith (see [38] above) reached the point of “trying to persuade employees of the relevant DXC companies to leave their current employment” such that there was a breach of the restraint in cl 16.3(b)(d) of the SPA: PJ [188].

27. [89]

    His Honour held, however, that it was not necessary to resolve this as “the fundamental difficulty with DXC Eclipse’s case is reasonableness”: PJ [189]. The primary judge went on to hold that it was not reasonably necessary to protect the goodwill of the Sable37 business purchased in 2018 to restrain the Respondents from soliciting employees of a larger group of companies who only joined the business after the date of the SPA: PJ [189]. Although ground 7 of the draft Notice of Appeal originally challenged this conclusion, this ground of appeal was abandoned.

Grounds of appeal

1. [90]

   There were seven grounds of appeal pressed by the Appellant. They can be summarised as follows:

   1. (1)

      that the primary judge erred in construing the non-competition restraint such that the Respondents’ conduct was not in breach of the SPA either:

   2. (2)

      that the primary judge erred in holding that the non-competition and non-solicitation covenants (insofar as it restrained the Respondents conduct in relation to Microsoft’s supply to Will Thirty Three) were not reasonable; and

   3. (3)

      as a consequence of the other grounds of appeal, that the primary judge erred by not granting the injunctive relief sought.

2. [91]

   The Respondents also filed a Notice of Contention in which they contend that the primary judge’s decision could also be supported on the basis that the duration of the restraints, not just their scope, was unreasonable, especially because the restraints ran from the Completion Date (as opposed to Mr Wildsmith’s departure from DXC Eclipse). Thus, DXC Eclipse had had the benefit of some four and a half years of absence of any competitive conduct by Mr Wildsmith and OKC, it being accepted that Mr Wildsmith was not in breach of any post-employment restraint under his Employment Contract with DXC Eclipse.

The Direct Application Argument – the parties’ contentions

1. [92]

   The Appellant submitted that the reference to the “business of [Sable37] as a whole as at the Completion Date” in cl 1.1 should not be construed as referring only to the Microsoft “products of Sable37” at that particular point in time. Instead, with reference to the way in which it was described in the KPMG Information Memorandum (various passages of which have been set out at [26]-[27] above), the Appellant proposed that the business of Sable37 extended beyond the supply of specific Microsoft products (namely, F&O, AX and CRM) and was concerned more broadly with the supply of Microsoft software solutions in an inherently dynamic and rapidly evolving software industry. It was put that the list of products provided by Sable37 detailed in the Due Diligence Report (see [328] above) should not be understood as a statement of Sable37’s whole business but, rather, as a factual statement about the products which Sable37 was selling or developing solutions with on 4 April 2018.

2. [93]

   If the business of Sable37 were construed in this broad fashion, the Appellant argued that the tension in the chapeau identified by the primary judge between, on the one hand, the reference to “as at the Completion Date” and, on the other hand, the reference to and isolation of “future” products in the parenthesis in sub-para (a) of the definition of “Business”, would fall away. No ambiguity or inconsistency of the kind discussed in Fitzgerald could emerge by including “future, successor or derivative products”, such as BC, within the meaning of cl 1.1 on their preferred construction.

3. [94]

   In this context, the Appellant submitted that the decision of the Full Court of the Federal Court in Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111 at [32], which was relied upon by the primary judge, was invoked prematurely and should not have been used to override ordinary rules of construction. It was there said, in the context of a non-competition restraint, that:

4. [95]

   Given that there was a construction of cl 1.1 available which did not give rise to ambiguity, it was submitted that it was unnecessary for the primary judge to have read down or ignored the words in the parentheses of the definition of “Business” on the basis that they gave rise to a result which was not “consistent with the purpose of the restraint”: PJ [129].

5. [96]

   Furthermore, the Appellant submitted that, even if there was ambiguity, the factual premise upon which Pearson was invoked was incorrect. If the business of Sable37 had been understood more broadly as concerning the supply of software solutions, not merely the particular products with which it was dealing on 4 April 2018, then there was a commercial purpose in protecting that wider business against competition which was not limited to protection against competition associated with a list of products frozen in the past.

6. [97]

   In response, the Respondents submitted that the business of Sable37 could never have encompassed the supply of solutions based on BC. This is because BC and F&O, more than being different Microsoft products, rely on different computer languages, certification, licencing and training such that Sable37’s business, even on the broad construction contended for by the Appellant, could never be taken to have involved competence in selling solutions based on BC. Relying on the Due Diligence report, the Respondents submitted that there was no evidence that the business of Sable37 was wider than the particular products with which it was dealing on 4 April 2018.

7. [98]

   Furthermore, the Respondents submitted that, if the Appellant’s preferred construction of the business of Sable37 were adopted, this would generate ambiguity elsewhere in the SPA where the term “Business” is used, including in the non-solicitation restraints. They pointed especially to the warranty in Schedule 1, cl 4.4 of the SPA that:

8. [99]

   It was also submitted by the Respondents that the primary judge was correct to read down the words in the parentheses such that, in accordance with Pearson, the non-competition restraint was construed in a manner consistent with its commercial purpose.

9. [100]

   Although it was not entirely clear as to the precise manner in which the primary judge had either read down or omitted the words in the parentheses in the definition of “Business”, it was submitted that the primary judge had read the term “future” in a manner anchored only to the future manifestations of those products with which Sable37 was dealing at the time the SPA was executed. In this sense, the reference to “future” products aligned with “successor” or “derivative” products, the other words used in the parenthesis in sub-para (a) of the definition of “Business”. If the words were not read in this manner, the Respondents contended with some force that the restraint would attach to the universe of consulting and development activities associated with the entirety of the list of Microsoft 365 technologies referred to at [32] and all “future” manifestations of those products. On their submission, such a construction lacks any meaningful connection to the business of Sable37, given the limited range of products with which it was actually dealing and thus, could not be adopted.

10. [101]

    The Appellant also submitted that if the ambiguity pointed to by the primary judge still arose on the Court’s construction of cl 1.1, then it ought to have been resolved with reference to evidence of the SPA negotiations. It was submitted that the primary judge erred in finding that those negotiations did not support the existence of “mutual concurrence” between the parties such that they were admissible pursuant to an exception to the parol evidence rule set out in Codelfa.

11. [102]

    It was the Appellant’s argument that the contractual negotiations, when read alongside the oral evidence of Mr Wildsmith, have the character of an explicit agreement between the parties that the definition of “Business” should not be harnessed to the particular point in time products with which Sable37 was dealing. It was thus put that the negotiations were not merely indicative of the ebb and flow of, or evolving character of, a commercial and highly complex agreement and, in this sense, were distinguishable from those in Walker.

12. [103]

    In response, the Respondents submitted that the primary judge correctly found that the emails to which the contractual drafts were attached, even when read alongside the evidence of Mr Wildsmith and other witnesses, disclosed no reason for the changes that were being made to the SPA and left open the possibility that the parties had very different understandings of the definition of “business” in cl 1.1 such that mutual concurrence in the Codelfa sense was not made out.

13. [104]

    It was the Respondents’ submission that, if every draft version of an agreement exchanged which differed from its predecessor were admitted as evidence of mutual concurrence, what has always been regarded as an extremely narrow exception to the parol evidence rule would be drastically expanded.

The Direct Application Argument – consideration

1. [105]

   Both parties’ submissions before the primary judge as to the proper construction of the definition of “Business” in cl 1.1 of the SPA were at either end of a spectrum: the Respondents, insofar as they sought to confine the definition only to the Dynamics 365 products with which Sable37 was dealing at the time the SPA was entered into; the Appellant insofar as it contended that the Sable37 business, as defined, extended to all Microsoft Dynamics products and all future such products. That last contention was, on any view, too broad.

2. [106]

   Insofar as the primary judge said at PJ [134] that “the result is a choice”, I do not consider that it was a binary one and as between the two extreme positions presented at first instance. The definition is concerned with the actual “business of the Sable37 Group as a whole as at the Completion Date.” It may readily be concluded that the business went beyond the sole use of two Microsoft Dynamics 365 technologies actually dealt with by Sable37 and extended to consulting, developing, supporting, and training in respect of information products and services that were themselves based upon Microsoft Dynamics 365 technologies: see sub-para (a) of the definition of “Business”. This recognises that Sable37’s business was as a “value added reseller”.

3. [107]

   The focus of sub-para (a) of the definition is on various types of work “based around information, products and services based upon Microsoft Dynamics 365 technologies”. These “products” and “services” must have been identifiable and capable of identification, not least because the warranty clause in cl 4.4 of Schedule 1 required them to be in order for it to be commercially effective, as did the non-solicitation restraints. Accepting this, the key issue of construction relates to the words, “(and future, successor or derivative Microsoft Dynamics 365 products, services and technologies)” in sub-para (a) of the definition of “Business”.

4. [108]

   A “successor” or “derivative” Microsoft Dynamics 365 product is one which succeeds (in the sense of being the next iteration of “an existing product”) or derives from an existing Microsoft Dynamics 365 product. The definition thus captures successor and derived products which have some connection with products used by Sable37 as at the Completion Date. By way of contrast to the words “successor” and “derivative”, the element of some connection with a currently used product is not inherent in the word “future”. However, its construction is informed by the context in which it appears, alongside “successor” and “derivative”. The use of the word “future” in parentheses in sub-para (a) of the definition of “Business” may, thus, reasonably be construed as referring to successor or derivative products which emerge in the future, that is to say, subsequent to the Completion Date, but which still bear the requisite connection with those Microsoft Dynamics 365 products or services in actual use by Sable37 as at the Completion Date.

5. [109]

   While this construction may, on one view, have a degree of redundancy to it, it gives meaning to the words in parentheses in sub-para (a), recognises that a business may include an element of potentiality (just as the concept of goodwill may involve an element of prospectivity), does not require a Fitzgerald reading out of the word “future” in the definition of “Business” in the SPA, and gives effect to the commercial need to be able to identify what comprised the Business as at the Completion Date.

6. [110]

   To the extent that the Appellant sought to repeat its attempt to introduce evidence of the parties’ commercial negotiations, pursuant to the Codelfa exception to the parol evidence rule, and criticized the primary judge for not admitting the material, the primary judge was, in my opinion, correct to reject that material for the reasons he gave.

7. [111]

   It follows that, albeit for slightly different reasons, I agree with the primary judge’s conclusion that BC was not a “future, successor or derivative” of the Microsoft Dynamics 365 products used in the business of Sable37 within the meaning of “Business” in the SPA, and that it did not form part of “the business of the Sable37 Group as a whole as at the Completion Date”.

The Indirect Application Argument – the parties’ contentions

1. [112]

   With respect to the Indirect Application Argument, the Appellant submitted that even if a business based on BC did not fall within the definition of “Business” in cl 1.1 of the SPA, the primary judge erred in not finding that the conduct of the Respondents was nonetheless in breach of cl 16.1, particularly cl 16.1(c)(b), in that the business of Will Thirty Three (being a business based on the supply of BC solutions), in partnership with Sentient, was competitive with Sable37’s F&O business, and thus a “Competing Business”.

2. [113]

   It was accepted that the real issue was not whether there was any competition, but whether the level of competition was sufficient to meet the tests articulated in Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37 (Veda) and Employsure Ltd v McMurchy [2021] NSWSC 1179 (Employsure). Mr Neil SC, who appeared for the Appellant, submitted orally that “the existence of that acknowledged grey area of overlap satisfied that test of competition for the purpose of this contract.”

3. [114]

   In Veda at [28], Black J, citing Sea Containers Ltd v ICT Pty Ltd (Supreme Court (NSW), O’Keefe J, 27 October 1994, unrep), accepted that:

4. [115]

   In Employsure at [343], Sackar J indicated that he had found Black J’s discussion in Veda of value and also referred with approval to McDougall J’s observation in News Life Media v Janeke [2016] NSWSC 1835 at [39] that “in assessing the question of competition, it is necessary to look at the extent to which there is competition in some particular market.”

5. [116]

   First, the Appellant submitted that the primary judge had misstated and misapplied the test for competition with the result that the threshold was overstated and ought to have been satisfied by the existence of a “grey area” where a customer’s needs could be met by either BC or F&O. In particular, it was put that the primary judge had failed to emphasise that the real test was, with respect to Veda, whether Will Thirty Three “might [as opposed to will] create a real competitive threat” and, with respect to Employsure, whether there was “some” overlapping segment of economic activity.

6. [117]

   The Respondents’ contention was that the primary judge’s omission of the qualifying words when stating the tests for competition in Veda and Employsure was a semantic point. It was their submission that the substance of the primary judge’s reasoning suggests that the test was not overstated. In support of that submission, the Respondents emphasised the primary judge’s findings in PJ [74]-[75], set out at [33] above. In oral argument, Dr Higgins also highlighted the following paragraph of Mr Wildsmith’s affidavit evidence:

7. [118]

   Second, the Appellant submitted that, in assessing whether the threshold was met, the primary judge erred by understating the extent of the overlap between solutions based on BC and those based on F&O. It was submitted that this arose because the primary judge had assessed the substitutability between “extremes”; namely, “out of the box” BC versus F&O, instead of BC with Sentient supplied add-ons versus F&O. While the Appellant accepted that the cheaper BC and more costly F&O were directed towards distinct customer bases and had different functionality levels, their submission was that once add-ons were accounted for, the price and functionality differential was less clear-cut. Although disputed by the Respondents, the Appellant also rejected that there was a point at which the use of those add-ons became impractical such that BC with add-ons and F&O could never be truly competitive.

8. [119]

   The Respondents’ response was that, in making this argument, the Appellant had accepted that there was no real direct competition, only competition between augmented BC and F&O. Dr Higgins submitted that the evidence, taken at its highest, only supported the existence of direct competition between BC and F&O to the extent that one customer received a statement of work from the Appellant indicating they could possibly have upgraded from AX to either BC or F&O. She then pointed the Court to evidence which showed that even substantially augmented BC solutions were much less costly than F&O solutions such that they must be targeted at a different customer-base with limited competition between them.

9. [120]

   Third, the Appellant submitted that the primary judge, in error, preferred the evidence of Mr Paff and disregarded the evidence of other experts, namely Mr Walsh, Mr Dickinson and Mr Hotham. If given appropriate weight, it was argued that this evidence would have supported the Appellant’s argument as to the existence of substantial competition between BC and F&O. For instance, the Appellant emphasised the evidence of Mr Dickinson suggesting that either BC or F&O might be suitable for around 50-60% of customers.

10. [121]

    The Respondents pointed to the fact that the primary judge considered the evidence of all experts and accurately found Mr Paff to be most reliable based on his independence and unique experience in modifying solutions based on BC using add-ons. It was their submission that the primary judge’s findings of fact which were premised on his Honour’s assessment of the credibility of a witness must be upheld, unless shown that the primary judge failed to use or misused his advantage, or that he acted on evidence which was inconsistent with the facts incontrovertibly established by the evidence or which was glaringly improbable. In oral argument, Dr Higgins relied upon the following part of Mr Paff’s evidence in relation to the “grey area”:

11. [122]

    Next, the Appellant submitted that the primary judge failed appropriately to consider contemporaneous documentary evidence which suggested that Will Thirty Three’s stated purpose was to compete with F&O by supplying BC solutions at the higher end of the market and using Power Platform add-ons to achieve higher complexity and functionality.

12. [123]

    The Respondents disputed that the evidence supported that this is Will Thirty Three’s business model. Rather it was submitted that the contemporaneous documents which had been summarised by the primary judge at PJ [106]-[107], alongside Mr Wildsmith’s evidence, support the view that Will Thirty Three sought to create a product that would not be attractive to customers who might choose F&O.

13. [124]

    Finally, the Appellant argued that the primary judge had erred by failing to consider the existence of competition between AX and BC. It was its submission that Sable37 had small and medium customers who could, and did, switch from AX to BC and that, on this basis, BC was competitive with the business of Sable37, insofar as it involved the supply of solutions based on AX. However, the Respondent argued that, although there was evidence of one customer who had taken this course of action, no further evidence was presented by the Appellant to demonstrate the existence of such competition.

14. [125]

    Before turning to consider these arguments, I will also note the competing contentions of the parties in relation to the question of reasonableness.

Reasonableness of the competition restraints – the parties’ contentions

1. [126]

   The Appellant submitted that the primary judge erred in his contingent finding that the non-competition covenant was not reasonable in scope.

2. [127]

   In relation to the reasonableness of the scope of the restraints, it was accepted by the Appellant that the primary judge correctly found that a restraint will be reasonable if it relates to the legitimate interest that a purchaser has in protecting the goodwill of the business it has purchased. In this vein, the Respondents submitted that:

3. [128]

   However, the Appellant submitted that the primary judge erred in concluding that its legitimate interest in the protection of the goodwill purchased did not extend to protection against competition in the space opened up by changes to F&O by Microsoft, or that goodwill only “follows the product”. Rather, the Appellant conceived of goodwill as attached to the “business” which, on its wider construction of the business of Sable37, would extend beyond goodwill associated with the particular products with which Sable37 was dealing on 4 April 2018 and encompass wider developments in an inherently dynamic software industry.

4. [129]

   In oral argument, Mr Neil accepted that evidence of competition between F&O and BC alone would have been insufficient to support a determination that the non-competition restraint was reasonable. Rather he accepted that, the extent of the competition was relevant. Nonetheless, it was submitted that if the non-competition restraint was engaged by competition within the meaning of the SPA, then protection against that kind of competition was obviously reasonable.

5. [130]

   The Appellants also submitted that in assessing the reasonableness of the restraint, the primary judge failed to account for several factors.

6. [131]

   It was first put that the significant consideration paid for the business ought to have been a relevant, although not determinative, factor in his Honour’s reasoning. As to this, the Respondents pointed to the observations in JD Heydon, The Restraint of Trade Doctrine (4th ed, 2018, LexisNexis Butterworths) at 230 to the effect that, whilst a low consideration may point against the reasonableness of a restraint, reliance upon the fact that significant consideration was paid for the acquisition of a business is apt to distract the court from analysing the interest being protected and the question of what was reasonably necessary to protect that interest.

7. [132]

   The Appellant also submitted that the primary judge had failed to make findings as to the importance of Mr Wildsmith’s relationships with Microsoft in establishing Sable37 as a reputable Dynamics 365 solutions provider and thus, to the goodwill purchased by the Appellant. It was put that Mr Wildsmith had leveraged his relationship with Microsoft to establish the new Will Thirty Three business and bolster its ability to compete with Sable37. Accordingly, the Appellant argued that the non-competition covenant was reasonably necessary to protect the interests of the Appellant in the business it had purchased by restraining Mr Wildsmith as a vendor of Sable37.

8. [133]

   The Respondents’ submission was that, to the extent that the relationship between Sable37 and Microsoft formed part of the goodwill purchased by the Appellant, it was irrelevant in that Mr Wildsmith’s relationship with Microsoft through his new venture had no capacity to derogate from that goodwill by damaging the relationship between the Appellant and Microsoft or by taking away custom. Rather, the relationship between Microsoft and Sable37 was limited to leads concerning the work that could be performed by Sable37, namely the provision of solutions based on AX, F&O or CRM (and future, successor or derivative products limited to those products used and promoted by Sable37 as at the Completion Date). Thus, the relationship between Microsoft and Sable37 could not justify a blanket non-competition restraint in respect of all Microsoft products for all future times.

9. [134]

   The Appellant also submitted that when assessing the reasonableness of the scope of the non-competition restraint, the primary judge erred by finding that the parties’ acceptance of the restraint as being reasonable in cl 16.4 of the SPA could have no weight. Whilst it was accepted by Mr Neil in oral submissions that the clause could not add much to the Court’s assessment of the restraint’s reasonableness, he argued that it demonstrates that the parties turned their minds to the question of reasonableness, which was said to be particularly significant given that both parties are commercially sophisticated and were legally represented.

10. [135]

    On this point, the Respondents submitted that it is unclear from this clause what exactly was being acknowledged as reasonable by the parties. They further added that the clause suggests that, more than turning their minds to reasonableness, the parties were aware that the restraints could be struck down by the Court as unreasonable if found to be excessively broad, and therefore that the contractual acknowledgement should not be given significant weight.

The Indirect Application Argument and reasonableness – consideration

1. [136]

   It is convenient to consider the Indirect Application Argument and the reasonableness of the non-competition covenant together for the reason that, if the level of competition in question between a vendor and a purchaser of a business is slight, the greater the nature or extent of the restraint, the less likely it is to be reasonable.

2. [137]

   As has been seen, the primary judge did not consider that such evidence as there was of competition met the threshold so as to warrant a finding that the Respondents were directly in breach of the non-competition restraint. His Honour held that Will Thirty Three was only in slight competition with that element of DXC Eclipse’s business which offers solutions based on F&O, and then only in what was described by Mr Paff as a “grey area”: see [78] above. Mr Paff’s evidence set out at [121] above is also relevant, as is his Honour’s unchallenged finding at PJ [101] that:

3. [138]

   His Honour reached his conclusion as to competition given the benefit he had had over the course of a five day trial of receiving the evidence and assessing the witnesses who addressed the topic of competition. The primary judge focused his evidentiary findings, and ultimately his conclusions in relation to the question of competition, on the evidence of Mr Paff. His Honour observed at PJ [73] that:

4. [139]

   In oral argument, Mr Neil accepted that, even if some competition could be pointed to, if the level of competition was de minimis, it could be discounted. In my view, not only would protection against de minimis competition be unreasonable, but also the legitimate protection of the purchase of the goodwill of a business does not require protection against the slight area of competition in what was referred to as the “grey area”. Such a limited field of competition did not reasonably require protection to the extent set out in the non-competition restraint, still less more than 4 years after the goodwill was acquired: see [151] ff below.

5. [140]

   The Respondents were not selling or threatening to sell similar products to DXC Eclipse “so as to compete with it seriously” or which might “pose a real commercial threat” to DXC Eclipse, to borrow language endorsed by Black J in Veda: see [114] above. Nor, on the evidence, were solutions based upon BC substitutable for those which were the subject of Sable37’s business in 2018 when it, and the goodwill in it, were acquired by the Appellant. As the Respondents put it in their written submissions, “[t]he proper analysis is concerned with the core and not the penumbra of a business’ commercial activities.”

6. [141]

   An additional point to be made in consideration of whether there was in fact any, or a sufficient level of, competition between BC as used by Will Thirty Three and F&O as used by DXC Eclipse is that it was common ground that those products were not direct competitors but that, to the extent they competed at all, it was only when BC was the subject of add-ons supplied by Sentient using Power Platform.

7. [142]

   Black J’s useful description and collection of authorities in Veda referred to at [114] emphasises that slight or insubstantial competition will generally not be enough to establish a breach of a non-competition covenant, accepting of course that every case will turn upon the language of the restraint in question and the reasonableness of the restraint in the circumstances of the particular case.

8. [143]

   The primary judge was also correct to find at PJ [151] that this threshold was not met by the existence of competition between AX and BC on the basis that the Appellant could not point to evidence that the business of Will Thirty Three was operating to “seriously” compete with DXC Eclipse in respect of customers who might transition from AX to BC.

9. [144]

   Accepting that the primary judge, no doubt inadvertently, used the word “will” rather than “might” in quoting Veda (see at [116] above), his Honour was correct not to be satisfied on the evidence that Will Thirty Three “might pose a real commercial threat” to, or would compete with, DXC Eclipse “seriously”.

Reasonableness of the non-solicitation restraints

1. [145]

   Ground 6 of the Notice of Appeal was that:

2. [146]

   The primary judge’s findings in relation to the non-solicitation restraint and the injunctive relief sought on the basis of it have been set out at [85]-[87] above.

3. [147]

   The Appellant submitted that the primary judge erred in finding that the non-solicitation restraint was unreasonable in that it had an insufficient relationship with the goodwill purchased by DXC Eclipse. Rather, the Appellant contended that a source of the goodwill of Sable37 was its relationship with Microsoft and that a restraint directed to preserving or maintaining a personal or corporate connection with a supplier may be reasonable: Belflora at [29].

4. [148]

   So much may be accepted as a matter of principle but, as the Respondents pointed out, the reasonableness of the restraint needs to be analysed in a more focussed way. They submitted, and I accept, that the primary judge correctly stated that there was no suggestion that Microsoft’s dealings with Will Thirty Three would have any effect on Microsoft’s existing relationship with the Appellant, and that the form of injunction in fact sought by the Appellant based upon the non-solicitation clause was “not reasonably necessary to protect the legitimate business interests of the Appellant”: PJ [183]. The Appellant said little by way of reply to this submission, and its submission that “[i]n building [Will Thirty Three], Mr Wildsmith sought to leverage his existing key strategic relationship with Microsoft”, does not explain how DXC Eclipse’s acquisition of the goodwill of Sable37 was in fact eroded by that conduct, especially in circumstances where it had had Mr Wildsmith’s services for more than three years longer that it had contracted for.

5. [149]

   The Respondents also pointed to the following unchallenged affidavit evidence of Mr Wildsmith which reinforces the primary judge’s finding on this aspect of the case:

6. [150]

   I would reject appeal ground 6 but, in any event, for the reasons given in the following section of these reasons, a restraint in excess of four years was not shown to be reasonable and I would not have been inclined, in the exercise of my discretion on a rehearing, to grant the injunction based on the non-solicitation clause in the terms sought by the Appellant.

Notice of Contention – reasonableness of the Seller Restraint Period

1. [151]

   By their Notice of Contention, the Respondents contended that, although the primary judge found it unnecessary to consider, his Honour ought to have found that the non-competition restraint was unreasonable in that the Seller Restraint Period was longer than was reasonably necessary to protect any legitimate interest of the Appellant in the goodwill it acquired in Sable37.

2. [152]

   In written submissions this contention was refined in light of the period that has elapsed since the Completion Date from which the Seller Restraint Period had started to run. It was submitted that:

3. [153]

   The Appellant submitted in response that the Respondents had, in agreeing to the SPA, accepted that the seven year restraint period was reasonable.

4. [154]

   It is correct that, at least in the area of vendor/purchaser contracts for the acquisition of a business, there are statements in the authorities that recognise the importance of holding parties to their bargains: see, eg, Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 at 268; [1973] HCA 24, North Western Salt Co Ltd v Electrolytic Co Ltd (1914) AC 461 at 471 and Belflora at [54]. On the other hand, even in that context, such a consideration will not be determinative nor is it capable of providing a finding of reasonableness. As Sackar J observed in Employsure at [95], citing Woolworths v Olson [2004] NSWCA 372; (2004) 55 AILR 200-133 at [39]:

5. [155]

   It should also be noted that the Acknowledgement as to reasonableness contained in cl 16.4 of the SPA (see [45] above) is in terms confined to the non-competition restraint and does not extend to the customer, supplier and employee restraints imposed by cl 16.3 of the SPA.

6. [156]

   A further aspect of Dr Higgins’ response to the Acknowledgement in cl 16.4 was the contention that, given the cascading series of restraint periods identified in cl 16.1 of the SPA, the clarity, and therefore the force, of the Acknowledgement is diminished, especially in view of cl 16.5’s recognition that aspects of the restraint (including the restraint period) may be struck down. That clause provides:

7. [157]

   The Appellant also placed reliance upon Mr Pickering’s evidence that it would take the Appellant at least seven years from 4 April 2018 to recover its full investment following the purchase of Sable37. Consideration as to how long it may take to recover the full investment based on the agreed purchase price is not to the point. The key question is, as Brereton JA observed in the course of oral argument, how long does it take to protect the goodwill from being subtracted from by the vendor or former employee. This accords with the observations of Le Miere J in Sear v Invocare Australia Pty Ltd [2007] WASC 30 at [93]; [2007] ATPR 42-129.

8. [158]

   The Appellant also contended that, when Mr Wildsmith left Sable37 on 2 July 2021, this left it with less than four years to consolidate the goodwill of Sable37. It should be noted however that, given that he served out his post-termination employment restraint, at the time of the commencement of proceedings, DXC Eclipse had had four years without competition from Mr Wildsmith or any company associated with him. This period had grown to four and a half years by the time of judgment.

9. [159]

   There was some debate in the course of oral argument as to whether an assessment of the reasonableness of the duration of the non-competition restraint could be affected by the far shorter post-employment restraint period in Mr Wildsmith’s Employment Contract.

10. [160]

    The Appellant resisted the submission that the lesser post-employment restraint period in Mr Wildsmith’s Employment Contract should inform the Court’s assessment of the reasonableness of the longer period provided for in the SPA. It was submitted that this was because the restraint in the Employment Contract and that in the SPA protected different interests, with the former protecting DXC Eclipse in relation to any confidential information and customer connection Mr Wildsmith acquired whilst in its employ and the latter protecting its acquisition in the goodwill of the Sable37 business.

11. [161]

    Whilst this distinction was validly made, I do not think that the disconformity between the restraint in Mr Wildsmith’s Employment Contract and the maximum seven year restraint period in the SPA is wholly irrelevant.

12. [162]

    Although the reasonableness of any restraint is to be assessed as at the time at which the relevant contract has been entered into, the discretion whether to enforce any restraint may be informed by considerations at the time enforcement is sought: see, eg, Veda at [48], Isaac at [63] and Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414 at [88].

13. [163]

    In the present case, at the time of the application for injunctive relief, more than four years had passed since the inception of the non-competition restraint. No evidence was led, nor explanation given to as to how or why the Appellant would be deprived of the benefit of the goodwill it had acquired so long ago. This is especially notable in circumstances where the Appellant’s ability to realise the benefit of the goodwill was greatly enhanced by the fact that Mr Wildsmith had remained with DXC Eclipse for more than three times as long as he was contractually required to remain under the terms of his Employment Contract. The fact that Mr Wildsmith was only contractually required to remain with DXC Eclipse for 12 months provides some pointer as to how long the Appellant considered it would be necessary to realise the goodwill it had acquired. In fact, it enjoyed his skill and expertise for much longer than that.

14. [164]

    Even if I had reached the view that the primary judge erred in his findings as to breach and contingent findings as to reasonableness, I would not, in the exercise of the discretion the Court has on a rehearing pursuant to s 75A of the Supreme Court Act 1970 (NSW), have exercised that discretion favourably to the Appellant so as to grant the injunctive relief sought.

Conclusion

1. [165]

   For the above reasons, notwithstanding the skilful arguments adduced by Mr Neil, the appeal should be dismissed with costs.

2. [166]

   BRERETON JA: I have had the benefit of reading in draft the judgment to be delivered by the Chief Justice. I agree with the orders proposed by his Honour, for the reasons his Honour gives.

3. [167]

   SIMPSON AJA: I agree with the Chief Justice.