Quantum Service and Logistics Pty Ltd v Schenker Australia Pty Ltd

1. [1]

   The issue in this matter is whether an ex parte injunction prohibiting the first defendant from employing the plaintiff's former employee, the second defendant, should be extended until further order of the Court on an interlocutory basis following an inter partes hearing.

2. [2]

   The plaintiff is Quantum Service and Logistics Pty Ltd (Quantum). The first defendant is Schenker Australia Pty Ltd (Schenker), and apparently trades as DB Schenker. The second defendant is Mr Suntherachelvan (Sunther) Murugiah.

Interlocutory proceedings

1. [3]

   Quantum was given leave to file its summons in Court in the Duty List on 4 December 2018.

2. [4]

   By prayer 3, Quantum sought: "An interim order that the defendant be restrained, until further order of the Court, from employing Mr Suntherachelvan Murugiah".

3. [5]

   By order 5, the Duty Judge made an order in the terms of prayer 3 on an ex parte basis. Having done that, his Honour made the summons returnable on the following day, 5 December 2018.

4. [6]

   On the return of the summons, an order was made that Schenker file its evidence in response to the claim in prayer 3 by 4 pm on 7 December 2018, and Quantum was ordered to file its evidence in reply by 4 pm on 11 December 2018. An order was also made for Quantum's claim in prayer 3 to be listed for hearing before the Duty Judge on 12 December 2018.

5. [7]

   On 7 December 2018, the Duty Judge gave leave to Quantum to file an amended summons, which had the effect of joining Mr Murugiah as the second defendant. No relief was sought against Mr Murugiah, but he was joined because he has an obvious interest in the claim by which Quantum seeks an order that would prevent Schenker from employing Mr Murugiah.

6. [8]

   The hearing took place on 12 and 13 December 2018. As it happened, the Duty Judge needed assistance and I agreed to hear the matter.

7. [9]

   At the hearing I gave leave to Quantum to file a further amended summons, but the amendments that were made do not require further consideration for the purposes of this judgment.

8. [10]

   By prayer 4 of the amended summons, Quantum sought an additional interim order that it has not to this stage pursued. I need not set out the terms of that prayer.

9. [11]

   Quantum sought the following final relief.

10. [12]

    The Services Agreement was defined in prayer 4 as the services agreement entered into by Quantum and Schenker on or about 17 May 2018.

11. [13]

    It will be seen that there are a number of obvious difficulties with the claims made by Quantum in prayers 7 and 8, including that the parties generally described in those prayers are not parties to the Services Agreement and are not parties to these proceedings.

12. [14]

    It is to be noted that Mr Murugiah on 7 November 2018 gave 4 weeks’ notice of his resignation of his employment with Quantum, so that his last day of work would be 5 December 2018. Quantum learned at some time before 23 November 2018 that Mr Murugiah intended to accept employment with Schenker, as on that date a meeting took place between representatives of the two parties in which Quantum insisted that Schenker comply with a prohibition in the Services Agreement against employing former employees of Quantum for an agreed period. Schenker replied to Quantum on 23 November 2018 that it regarded its agreement to employ Mr Murugiah as being valid and would not be rescinded by Schenker. A meeting occurred between representatives of Quantum and Mr Murugiah on 26 November 2018, at which Quantum tried to convince Mr Murugiah to continue with his employment with Quantum on terms of employment that would match those offered by Schenker. Mr Murugiah advised Quantum on 28 November 2018 that he declined Quantum's offer to continue working for it. Quantum's solicitors wrote a letter of demand to Schenker on 30 November 2018, in which they explained the nature of Quantum's claim and sought undertakings consistent with Quantum's view of the effect of the Services Agreement. Schenker did not reply to that letter, and Quantum commenced these proceedings on 4 December 2018, as that was the day before Mr Murugiah's employment by Quantum terminated.

13. [15]

    It thus appears that Quantum was informed by Mr Murugiah on Wednesday 28 November 2018 that he had rejected its offer. Quantum's solicitor's letter of demand was written on Friday, 30 December 2018, and Quantum commenced these proceedings on Tuesday 4 December 2018. Quantum proceeded with considerable expedition. That is relevant to a claim made by the defendants in their submissions that the evidence furnished by Quantum concerning its confidential information to which Mr Murugiah was privy was insufficiently detailed to sustain the interlocutory relief sought by Quantum. I will return to this issue.

Principles applicable to interlocutory application in this case

1. [16]

   I respectfully accept that the approach that this Court should take to the determination of a contested application for the continuation of an injunction on an interlocutory basis is as stated by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46, as follows (footnotes omitted):

2. [17]

   In the present case, both defendants relied upon the special considerations (referred to at [72] of the above extract from the judgment of Gummow and Hayne JJ) that may apply in a case where the outcome of the interlocutory application may have the practical effect of finally determining the rights of the parties, as was considered by McLelland J (as his Honour then was) in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533.

3. [18]

   First, it will be appropriate to note the observations made by his Honour concerning the proper approach for the Court to take in the ordinary case where the outcome of the application will only subsist until the later final determination of the proceedings after a contested hearing. His Honour said at 535:

4. [19]

   The notable aspect of these observations is that it is not generally appropriate for the Court to decide contested questions of fact on an interlocutory application, and there are many circumstances in which it will not be appropriate for the Court to decide contested questions of law.

5. [20]

   The defendants relied in the present case on the following special considerations raised by McLelland at 536:

6. [21]

   It must be noted that, when his Honour said that the issue "will be irrevocably determined in a practical sense by the grant or refusal of an interlocutory injunction", he was speaking literally in the sense that the plaintiff had sought an interlocutory injunction to restrain the defendant from dispatching to its shareholders an offer to take up new shares on the terms of an announcement made by the directors on 13 March 1987. The closing date for receipt of acceptances of the offer was 24 April 1987. The proceedings were heard in the period 25 to 27 March and judgment was delivered on 1 April 1987. It was entirely plain that a final hearing of the claim could not take place and judgment be given by the date fixed in the resolution made by the directors for the receipt of acceptances.

7. [22]

   Of course, the constraints imposed on the time needed to finally determine proceedings, which arise out of the need for the parties to have time to properly prepare their cases, from the pressure of the Court's business, and the limited times that are available to set urgent matters down for hearing, and the time that judges may be required to reserve their judgments in order to give proper consideration to the issues, will often have the result that a consideration of the likelihood that the interlocutory judgment will in practical terms finally determine the rights of the parties will present a relative and indeterminate issue. There will be occasions when it is reasonably obvious that the interlocutory determination is likely to be final in a practical sense, but in other cases the outcome will not be clear.

8. [23]

   There have been cases where judges of this Court have mentioned the exceptional aspect of Kolback Securities Ltd v Epoch Mining NL where interlocutory injunctions were sought to enforce restrictive covenants that involved restrictions on employment. In Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658, a case where an application was made for an interlocutory injunction against a former employee who was a junior sales representative in a real estate agency, White J (as his Honour then was) noted at [15] that although the claim was for an interlocutory injunction, the period of the restraint was only for six months so that "the grant or refusal of an interlocutory injunction may substantially resolve finally the relief to which the plaintiff is entitled". His Honour said that it was relevant to assess the strength of the plaintiff's case, referring to Kolback Securities Ltd v Epoch Mining NL at 536.

9. [24]

   Coincidentally, the period of the restraint considered by McDougall J in Pryse v Clark [2017] NSWSC 185 before which the defendants in that case, who had formerly been partners in the legal firm constituted by the plaintiffs, could become members of a new legal firm that would compete with the plaintiffs was six months. McDougall J at [42] observed that the case before him was one where the assessment of where the balance of convenience lies "will require the court to make some assessment beyond the ‘prima facie’ test, of the strength of the plaintiff's case". His Honour also cited the judgment of McLelland J. McDougall J analysed at [43] and [44] the alternatives that would be available within the six-month period if he were to grant the interlocutory injunction sought by the plaintiffs, and concluded: "the Kolback issue is important in the present case".

10. [25]

    As will be seen below, in the present case the relevant term of the Services Agreement, clause 13.13, would if enforced prevent Schenker from employing Mr Murugiah for a minimum period of six months following the termination of the agreement. By clause 2.1, the expiration date of the Services Agreement is 30 April 2020 (if it is not extended under clause 2.4). If effective, the period of the restraint will be to 31 October 2020. That will be about 22 months after the date when this judgment will be delivered.

11. [26]

    As I understand the defendants' submissions, they sought primarily to rely upon the Kolback Securities principle in two ways. One was that they urged the Court to engage with the legal principles that govern the circumstances in which the Court will enforce a restraint of trade in an agreement between potential commercial competitors that will have the effect of preventing one employing a former employee of the other, and to be prepared to make an essentially final decision about how those principles would apply to the apparent facts of the present case. The second, more specific, submission was to urge on the Court that Quantum had not in the present case placed adequately detailed evidence before the Court as to the true nature of any confidential information that Mr Murugiah may have gained during the course of his employment, and as to how the potential injury to the legitimate interests of Quantum could arise from Mr Murugiah’s employment by Schenker, so as to justify an order absolutely preventing Schenker from employing Mr Murugiah during the term of the restraint.

12. [27]

    In Willis Australia Group Services Pty Ltd v Griggs [2012] NSWSC 659, Ward J (as her Honour then was) noted at [46] the submission made on behalf of the defendants concerning the evaluation of the strength of the plaintiffs' case, in reliance upon Kolback Securities Ltd v Epoch Mining NL and Australian Broadcasting Corporation the O'Neill at [72] (which is extracted above from the judgment of Gummow and Hayne JJ), but made the following observation:

13. [28]

    In the circumstances of the present case, I have concluded that the observations made by Ward J are more apt than the exceptional approach that the Court may be inclined to adopt where it is sufficiently clear, as a practical matter, that there is a real likelihood that the outcome of the interlocutory application will determine the final rights of the parties. Of course, the issue is a fluid one in the sense that there will often not be a bright line between the circumstances that will be finally determined by the interlocutory judgment and those that will not. The Court cannot realistically calibrate its preparedness to assess the strength of a plaintiff's case to the expectation of when the Court will be able to determine the case on a final basis, as this would often involve pure speculation. However, each case will depend upon its own facts, and as the issue is ultimately within the discretion of the Court, the trial judge may decide that some deeper consideration should be given to the plaintiff's ultimate prospects of success than would be required by the usual principles governing the determination of applications for interlocutory relief.

14. [29]

    In my view, it is also necessary for the Court to bear in mind its own injunction that claimants for interlocutory relief are required to act with real expedition, and that the need for plaintiffs to make their interlocutory claims will often significantly inhibit the plaintiff's ability to collect and put before the Court evidence in the detail that would approximate the standard of evidence necessary to prove the plaintiff's case at a final hearing.

15. [30]

    The consequences of delay by the plaintiff in instituting proceedings for interlocutory relief were significant in Willis Australia Group Services Pty Ltd v Griggs, and Ward J made the following observation:

16. [31]

    It may be that many judges are now slightly more forgiving than was Young J, but it remains the case that applicants for interlocutory relief are required to make their claims quickly, and are not entitled to delay unduly in order to perfect their evidence, even on an interlocutory basis. That principle is recognised in the general rule that the plaintiff only has to establish that it has a serious question to be tried, or a prima facie case in the sense explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill. Plaintiffs may often be placed on the horns of a dilemma as to whether they will suffer if they delay making an interlocutory application in order to improve the strength of their evidence, because if they do, they may suffer as a result of the delay, but if they do not their evidence may be adjudged to be inadequate. A plaintiff who seeks the interlocutory enforcement of any claim to which the exceptional principle in Kolback Securities Ltd v Epoch Mining NL applies may be at particular risk, if the need for expedition causes them to make their application when their evidence is hoped to be sufficient to establish a serious question to be tried, but then because of the practical finality of the interlocutory outcome their claim is determined on the strength of the evidence.

17. [32]

    This factor is of some importance in the present case because, in the manner that I have described above, Quantum has acted with considerable expedition, and has done so in order to bring its application for an interlocutory injunction before the Court in the limited time available, and in order to enable the summons to be returned on the day when Mr Murugiah was due to commence his employment by Schenker. The need for expedition may have had a practical consequence in limiting the detail of the evidence that Quantum could be expected to put before the Court concerning the precise nature of the confidential information to which Mr Murugiah had access, and the consequences of his having that confidential information while in the employment of Schenker. I will return to this question after I have considered the relevant evidence.

General principles governing enforcement of restraint of trade provisions

1. [33]

   In this State the general principles governing the enforcement of restraint of trade provisions have recently authoritatively been collected by Gleeson JA, with whom Bathurst CJ and Beazley P agreed, in Isaac v Dargan Financial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) [2018] NSWCA 163. I respectfully limit my extract from his Honour’s observations to those that are most material to the present application, as follows:

2. [34]

   It is an important consideration in this case that there is an element of novelty in the way that the validity of the relevant restraint of trade is presented for consideration. On the one hand, the restraint was freely agreed to in a contract between two substantial commercial organisations. However, the restraint affects the ability of each party to employ present or former employees of the other, in circumstances where the restraint may act differently than restraints in the employment contracts between each party and its employees. Furthermore, although the restraint operates in a manner that would restrict the way that each party can compete with the other, it does not appear to be a mere restraint on competition. The Services Agreement is one under which Quantum has sub-contracted to provide services to a customer of Schenker. The Services Agreement contemplates that Quantum would build up the capacity to provide the sub-contract services efficiently, but it does not require Schenker to act in Quantum’s interests or to acquire a minimum level of services from Quantum, or to acquire services exclusively from Quantum. Quantum is exceptionally vulnerable under the Services Agreement to Schenker being able to take over the ‘goodwill’ associated with the sub-contract by employing the employees engaged by Quantum to establish the sub-contract business. There may therefore be special considerations that arise at any final hearing concerning the reasonableness of a restraint intended to maintain Quantum’s workforce, that do not apply where the practical effect of the restraint is merely to inhibit competition between the parties to the agreement.

3. [35]

   In this respect, it is important to note that Gleeson JA stated the essence of the common law restraint of trade principles at [59]. The question will be whether the particular restraint may be enforced because it is reasonably necessary for the protection of the parties concerned and reasonable in the interest of the public. His Honour noted at [64] the observations made by Brereton J (as his Honour then was) concerning the role of legitimate protectable interests, and it is well established that certain interests such as the protection of confidential information and customer connection are legitimate subjects for protection. However, his Honour also considered at [72] the issue of the appropriateness of attempting to ascertain the relevant legitimate interests by placing the relevant agreement in a particular category and then trying to align that category with existing cases.

4. [36]

   As the present is an interlocutory application, it is neither necessary nor appropriate for the Court to attempt to address these issues definitively. It is important for the Court to recognise, however, that the ultimate question is whether in all of the circumstances the particular restraint is reasonable, and the question whether the restraint goes no further than to provide reasonable protection of a legitimate interest of the party seeking to enforce the restraint is a subsidiary question designed to elucidate the more general question. Care should be taken, particularly in an interlocutory context, against ossifying the general principle by inappropriately confining its application to common or generally accepted instances that can be demonstrated historically.

5. [37]

   The Restraints of Trade Act 1976 (NSW) effects a significant alteration to the common law principles that elsewhere govern the effectiveness and operation of provisions in restraint of trade. As will be seen, the operation of that Act is likely to be crucial to the outcome of any final hearing in this matter. I will not set out the relevant terms of the Act, as they may be found at [60] of the above extract from Isaac v Dargan Financial Pty Ltd, and explained at [61]-[62].

6. [38]

   In Woolworths Ltd v Olson (2004) NSWCA 372, Mason P (with whom McColl and Bryson JJA agreed) made the following observations concerning the statement of principle by McLelland J set out above at [61] of the judgment of Gleeson JA in Isaac v Dargan Financial Pty Ltd concerning the operation of s 4(1) of the Restraints of Trade Act:

7. [39]

   In the present case, as has been noted, the relevant restraint of trade is clause 13.13 of the Services Agreement, which is an agreement freely entered into between two substantial commercial corporations. However, its effect is to prevent Schenker giving employment for a relatively long period to employees and former employees of Quantum. The restraint will therefore impinge on both Schenker and any individuals that Schenker is restrained from employing. The case therefore raises the question of how the principles governing the operation of provisions in restraint of trade operate at the intersection of restraints on the activities of commercial competitors and restraints on employees seeking alternative employment.

8. [40]

   In BIS Industries Ltd v Toll Holdings Ltd [2012] NSWSC 1427, Bergin CJ in Eq expressed the following views concerning the effect of the Court of Appeal of England and Wales decision in Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1958] 2 All ER 65:

9. [41]

   Her Honour noted at [90] that the case before her was different, because the term involved was not a joint embargo on two companies employing each other's employees. It was a promise by the defendant not to solicit the plaintiff's employees for 18 months. Her Honour noted that the term in question, which prohibited solicitation, was subject to the exception that the defendant was free to employ the plaintiff's employees by either a bona fide advertising campaign or a bona fide recruiting campaign "targeted to a wide audience of potential application". That exception proved to be significant to her Honour's decision.

10. [42]

    Bergin CJ in Eq expressed the following conclusions:

11. [43]

    Bergin CJ in Eq, therefore, at [99] noted that a restraint between substantial commercial organisations, while different to a restraint in an employment agreement, may be unenforceable if it impacts upon employees of a party to the agreement “in an unreasonable manner”. I do not take this observation to mean that the validity of the restraint should be assessed as if it were somehow part of the employment agreement, so that the reasonableness of the restraint in the actual agreement is to be considered in the same way as if it was a restraint in an employment agreement. Rather, the reasonableness of the restraint in the actual agreement in which it is found must be determined having regard to the effect that it has on the employees of the parties. As the parties may have legitimate interests to protect by way of the actual agreement, the extent to which the protection of those interests may be reasonable may be different to what would be considered to be reasonable protection for an interest that may legitimately be protected by an employment agreement.

12. [44]

    The protection of a party’s confidential information has long been established as a legitimate basis for protection by restraints of trade. The restraint may go further than to prohibit the employee misusing or divulging the confidential information, and it is established that it may be reasonable in appropriate circumstances to hold that a restraint against an employee taking employment from a competitor is valid.

13. [45]

    In Woolworths Ltd v Olson, Mason P said:

14. [46]

    In Cactus Imaging Pty Ltd V Glenn Peters (2006) 71 NSWLR 9; [2006] NSWSC 717, Brereton J considered the circumstances in which the Court might hold enforceable a restraint in an employment contract against an employee who acquires the employer's confidential information taking employment with a competitor of the employer. His Honour said:

15. [47]

    See also Willis Australia Group Services Pty Ltd v Griggs [2012] NSWSC 659 at [107] and Pryse v Clark [2017] NSWSC 185 at [73]-[79].

16. [48]

    One aspect of the relationship between an employer and its employees that has given rise to uncertainty as to the legitimacy of its protection is the employer’s natural objective to maintain a stable workforce.

17. [49]

    In Cactus Imaging Pty Ltd v Glenn Peters (2006) 71 NSWLR 9; [2006] NSWSC 717, Brereton J (as his Honour then was) considered the enforceability of a term in an employment contract that restrained former employees from soliciting or enticing away any employee, consultant or contractor of the plaintiff for a period of 12 months following the end of their employment. The controversy between the parties was as to whether a covenant not to solicit employees is enforceable. That is a different question to the one that arises in the present case, which concerns the limits on the circumstances when one competitor can validly agree with another not to employ that other’s employees.

18. [50]

    Brereton J at [44] noted that in Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd an agreement between two employers in an industry not to employ each other's former employees was held void "at least in part on the basis that it was contrary to the public interest”. His Honour said: "Although acknowledging that an employer had an interest in maintaining a stable and trained workforce, Jenkins LJ, giving the judgment of the Court of Appeal, said that an employer had no legitimate interest in preventing an employee, upon termination, taking employment with a competitor merely because the new employer was a competitor, and that save in exceptional cases involving confidential information, a covenant by an employee not to enter into the employment of a competitor would be void (at 74)" [emphasis added].

19. [51]

    His Honour then undertook a detailed and insightful analysis of the authorities:

20. [52]

    Brereton J then analysed a series of overseas cases which considered this divergence of views; being Kao Lee & Yip v Koo Hoi-Yan [1995] 1 HKLR 248 (at 253); BSC Building Materials Supply Co Ltd v Cheung Chi Hung (1998) HKCFI 991; Emperor Resorts International Ltd v Wong Chi Hang (2004) HKDC 50; Dawnay Day & Co Ltd v de Braconier d’Alphen [1997] IRLR 442; TSC Europe (UK) Ltd v Massey [1999] IRLR 22. His Honour then considered a number of cases in this Court as follows:

21. [53]

    Thus, Brereton J recognised that, independently of protecting its confidential information, an employer may have a legitimate interest in the stability of its workforce that may legitimately be protected by a restraint against solicitation of its employees by a former employee in a manner similar to the legitimate protection of the employer’s customer connection. Once it is accepted (remembering that the acceptance only need be sufficiently arguable at this interlocutory stage of the proceedings) that an employer may have a legitimate interest in imposing restraints that have the practical effect of protecting the stability of its workforce, the issue becomes the identification of the legitimate interests concerned and what may be acceptable as the reasonable protection of those interests.

22. [54]

    It seems to be established that an employer’s interest in maintaining a stable workforce does not constitute a legitimate interest that may validly be protected by the insertion of restraints either in employment agreements against employees accepting employment by a competitor, or in agreements between commercial competitors not to employ the other competitor’s employees, when the restraint is a ‘mere’ restraint against one enterprise’s ability to compete with another’s. There is probably room for argument about what is meant by ‘mere’ in this context.

23. [55]

    If Brereton J in Cactus Imaging Pty Ltd v Glenn Peters is correct, as I am content to accept for the purposes of this interlocutory judgment, a stable workforce adds to the value of the employer’s business in the same way as the employer’s customer connection and is amenable to protection. The nature of the protection accepted by his Honour was the imposition of a restraint on former employees using their connection with remaining employees to entice them to accept employment with another employer. Such a restraint may be reasonable until enough time has passed so that the former employees have lost any special connection with the remaining employees, perhaps by reason of that connection being supplanted by the connection forged by the employees who replace the former employees.

24. [56]

    The present case raises the question whether it is legitimate for an employer to insert into a sub-contract under which the employer agrees to provide services to a customer of its counter-party a restraint against employing its employees during the term of the sub-contract and for a short period thereafter, where the purpose and effect of the restraint is to protect the employer’s enjoyment of the commercial benefits that may arise out of the sub-contract. It is at least arguable that such a restraint should not be classified as a mere restraint against competition, but seen in the context of the whole sub-contract and not isolated from it, it is a legitimate protection of the benefits to which the employer should be entitled to enjoy as a result of its entering into the sub-contract and making the investment necessary to enable it to perform the sub-contract.

Background to the Services Agreement

1. [57]

   The circumstances in which Quantum entered into the Services Agreement with Schenker are relevant to at least two issues raised by the parties. The first concerns the somewhat unusual commercial relationship between Quantum and Schenker, whereby Quantum entered into a sub-contract with Schenker to provide technical services to a client of Schenker, Fuji Xerox Australia (FXA), in circumstances where Quantum's employees undertook the work required by the subcontract at Schenker's premises. For reasons that will appear, Quantum's commercial interests under the sub-contract were particularly vulnerable to Schenker becoming able to undertake the work the subject of the subcontract itself by employing Quantum's employees who carried out the work for Quantum. The second issue is that Quantum has claimed that, by reason of his involvement in the negotiation of the terms of the Services Agreement, Mr Murugiah must have been aware of the terms of clause 13.13 before he commenced to seek employment by Schenker.

2. [58]

   The evidence suggests that Quantum provides technical services to electronics companies and their customers within the Asia-Pacific region. The companies to which Quantum provides services include Dell, Apple, Nokia, Vodafone, Technicolor, Google and HTC, among others. Quantum has approximately 650 employees in the Asia Pacific region. There are approximately 200 employees in Australia.

3. [59]

   The services provided by Quantum include pre-sales services including configurations and installation of software, and post-sales services including warranty claims, repairs and refurbishments. Quantum also provides non-technical services such as packaging and the inclusion of accessories and information guides.

4. [60]

   Schenker apparently is a global provider of supply chain and logistics services, through land transport, worldwide air and ocean freight and warehousing services. It operates worldwide by providing services to various sectors, including automotive, technology, consumer goods, trade fair, special transport and special events logistics. Schenker has about 2000 locations and more than 72,000 employees around the world.

5. [61]

   Schenker has a warehouse facility at an address in Hoxton Park. Quantum has approximately 93 of its employees located at Schenker's Hoxton Park facility. Approximately 15 of those employees are permanent employees. The four employees who do the work required by the Services Agreement all work at the Hoxton Park facility, and are all permanent full-time employees.

6. [62]

   Mr Murugiah was Quantum's business manager who was directly responsible for Quantum's operations at the Hoxton Park facility, which were the premises at which Mr Murugiah worked. It is said that Mr Murugiah had dealings with Schenker's employees at the Hoxton Park facility on a day-to-day basis.

7. [63]

   Quantum's managing director, Mr Prem Reddy, said that on or about 6 April 2018, Mr Michael Hensley of Schenker approached him to discuss a business opportunity involving FXA. On 9 April 2018, at a meeting between representatives of the two companies, Mr Hensley said that FXA wanted to outsource its technical and logistics services, which it had been doing in-house. FXA had agreed to work with Schenker and Schenker wanted to outsource the technical services to Quantum to enhance the “partnership” between the two companies. The parties then negotiated the terms of the Services Agreement. Clause 13.13 was inserted into a draft on 20 April 2018 at the request of Quantum.

8. [64]

   Notes of meetings prepared by Mr Reddy on 9 and 10 April 2018 provide some information concerning the nature of the proposed commercial arrangement between Quantum and Schenker. Mr Reddy did not explain the notes in any detail, but it does appear that it was then envisaged that the work for FXA would proceed in three separate phases commencing in May, and on 31 October and mid to late November 2018. The expected staff required for the three phases was four, 20 to 25, and 10 yielding a total of about 35 to 40.

9. [65]

   Mr Reddy said that Mr Murugiah attended the meeting on 10 April 2018, and Mr Reddy annexed emails to his second affidavit that showed Mr Murugiah being involved in the negotiations. That involvement seemed to start on about 10 May 2018, and appears to have involved Mr Murugiah compiling a scope of work document. It seems that the document was completed after Quantum and Schenker had started to provide their services to FXA, and I suspect that it ultimately consisted of the document called "Process Flow", which forms part of Exhibit A to the Services Agreement. The scope of work document appears to concern the process that would be adopted in performing the Services Agreement, and not its commercial terms. Mr Murugiah provided a copy of a "generic process flow chart" to Mr Hensley on 11 May 2018. Subsequent emails concerning the commercial terms appear to have excluded Mr Murugiah, save that on 14 May 2018 Mr Reddy asked Mr Murugiah: "Please check the Scope to ensure you are ok with it". Finally, on 15 May 2018 Mr Reddy sent an email to Mr Rakesh Khanna, Quantum's Finance & Human Resources Manager, with a copy to Mr Murugiah, in which he asked,:

10. [66]

    This evidence is inconclusive as to whether Mr Murugiah was aware of the terms of clause 13.13. His positive involvement concerned the preparation of the scope of works document. Mr Murugiah could well have thought that clause 13.13 was part of the commercial 'boilerplate' provisions in the agreement.

11. [67]

    I will return to consider whether it has been shown that Mr Murugiah was aware of the effect of clause 13.13 later, when I deal with the events that occurred after Quantum became aware that Mr Murugiah intended to accept employment by Schenker.

Terms of the Services Agreement

1. [68]

   The Services Agreement was signed by Mr Reddy on 15 May 2018 and by a representative of Schenker on 17 May 2018.

2. [69]

   It appears that the template used for the preparation of the Services Agreement was Schenker's standard procurement contract for minor works.

3. [70]

   Relevantly, clause 1 provided:

4. [71]

   Clause 2 provided for an initial term commencing on 1 May 2018 and expiring on 30 April 2020. Clause 2.2 gave the parties a right to terminate for material breach on 30 days' notice, and clause 2.4 provided for termination in the event that the underlying agreement between Schenker and FXA was terminated. Clause 2.3 provided:

5. [72]

   Clause 3 provided for rates and payment terms.

6. [73]

   Exhibit A to the Services Agreement was called "Scope of Procurement". It contained a technical description of the services to be provided by Quantum, using terms that would have been understandable to the technicians who were to provide the services.

7. [74]

   Exhibit B to the Services Agreement was called "Rate Schedule" and set out the rates payable for certain types of services.

8. [75]

   Exhibit C was called "General Purchasing Conditions".

9. [76]

   It seems from clause 2.1 of Exhibit C that Schenker would issue a purchase order in relation to individual services required and those orders would be accepted by Quantum.

10. [77]

    Clause 13.5 of the general purchasing conditions provided:

11. [78]

    The term that is most material to the present dispute, clause 13.13 of the General Purchasing Conditions, provided:

Mr Murugiah's employment with Quantum

1. [79]

   Mr Murugiah commenced employment with Quantum in April 2011. He signed Quantum's standard terms and conditions of employment on 6 April 2011.

2. [80]

   Those terms included a confidentiality provision, in a relatively common form, in the following terms:

3. [81]

   The standard terms and conditions also included a non-solicitation clause in the following terms:

4. [82]

   By letter dated 28 November 2013, Quantum informed Mr Murugiah that his employment terms and conditions were as set out in the Fair Work Act 2009, Clerk's Private Sector Award 2010 and any other applicable legislation. His classification was level 5.

5. [83]

   Mr Murugiah's remuneration was fixed at $XX,XXX plus statutory superannuation. Mr Reddy also said that, in addition to his base salary, Mr Murugiah's terms of employment included a performance incentive program, which consisted of a quarterly bonus if he achieved a percentage margin associated with his key performance indicators.

6. [84]

   The new conditions also entitled either party to terminate the employment by providing notice in writing in accordance with the national employment standards or pay forfeited or paid in lieu.

7. [85]

   Clause 13.1 of the Clerks – Private Sector Award 2010 had the effect that, as Mr Murugiah had been employed by Quantum for more than 5 years, the notice period was 4 weeks.

8. [86]

   Mr Murugiah's role with Quantum was apparently as a business manager. Quantum tendered into evidence a job description dated 6 October 2017 that set out the scope of employment and responsibilities for Quantum's business managers. It is not clear whether the document was given to Mr Murugiah.

9. [87]

   Mr Reddy gave evidence that all of Quantum's employees who are located at the Hoxton Park facility report to Mr Murugiah, who managed Quantum's staffing levels and recruitment at that facility.

10. [88]

    I will set out the evidence given by Mr Reddy concerning the information acquired by Mr Murugiah, as the defendant submitted that the evidence was insufficient to establish that Mr Murugiah was aware of any confidential information to which Quantum was entitled. Mr Reddy said in his 3 December 2018 affidavit:

11. [89]

    Mr Reddy added in his 11 December 2018 affidavit:

Additional factual matters

1. [90]

   Mr Reddy gave evidence of other occasions involving tenders made by Quantum to Dell and Samsung in respect of which there may have been competition between Quantum and Schenker. Quantum’s counsel did not place emphasis on this evidence in his submissions. These matters may have influenced Mr Reddy’s decision to request that clause 13.13 be inserted in the Services Agreement.

2. [91]

   Mr Reddy also gave evidence that, before Schenker offered employment to Mr Murugiah, Schenker employed another employee of Quantum, Mr Jeffrey Chanko, who had been employed between about 2 May 2018 and 12 October 2018 as a technician at the Hoxton Park facility providing services under the Services Agreement. Mr Chanko received instructions from Schenker’s employees on a day-to-day basis regarding services required by Schenker, as well as planning, scheduling and execution of those services.

3. [92]

   More significantly, Quantum tendered a copy of an email dated 26 October 2018 from Mr Murugiah to Mr Reddy on the subject of “FXA Phase 2 opportunity”. The email said:

4. [93]

   While this apparently significant communication did not receive elaboration in the evidence, it does appear to provide some evidence that Schenker in fact was seeking staff to undertake work that would otherwise have been done by Quantum under the Services Agreement.

Mr Murugiah's evidence of his employment with Quantum

1. [94]

   Mr Murugiah said that he has had 18 years’ experience in managing technical operations in IT and electronics, with over 10 years local experience in people management, process improvements, customer service and supply chain operations.

2. [95]

   Mr Murugiah was initially responsible for managing the operations of customs fulfilment services and asset recovery business for Dell based upon a service contract between Dell and Quantum.

3. [96]

   From 2013 until November 2017, Mr Murugiah worked on the Dell contract from Schenker's warehouse in Homebush. He commenced to work at Schenker's Hoxton Park facility from November 2017.

4. [97]

   Mr Murugiah acknowledged his involvement in the negotiation of the Services Agreement, but said that the involvement was limited to the pricing and rates discussion. Although he had access to the drafts of the agreement, he was not involved in the negotiation of the commercial terms, and did not read clause 13.13.

5. [98]

   Mr Murugiah said:

6. [99]

   Mr Murugiah said that at the time he resigned from his employment with Quantum his annual salary was $XX,XXX plus superannuation.

7. [100]

   Mr Murugiah does not appear to have challenged the evidence given by Mr Reddy concerning his involvement in the management of Quantum's business and the information that he acquired as a result of that involvement.

Termination of employment and offer of employment by Schenker

1. [101]

   Mr Murugiah said that he had unsuccessfully applied for other roles with Schenker within the last two years. He had also applied for other positions with different employers at various times during 2018.

2. [102]

   In the second half of 2018, Mr Murugiah saw an advertisement for a technical operations manager with Schenker on Seek. He applied for the position on 8 October 2018, and noted that there was no prohibition in his employment contract restricting him from working for Schenker. Mr Murugiah gave as his reason for seeking a change of employment:

3. [103]

   Mr Murugiah attended interviews with representatives of Schenker on 17 and 29 October 2018. During the second interview, Mr Murugiah was advised by Schenker's Hoxton Park distribution centre manager that his new role "would be working on the Fuji Xerox and Assurant projects at the Hoxton Park facility. He also indicated that I would need to get training at the Fuji Xerox site at Mascot”.

4. [104]

   On 5 November 2018, Mr Murugiah was offered employment by Schenker at a gross remuneration package of $XXX,XXX per annum (about $22,000 more than he was being paid by Quantum).

5. [105]

   Mr Murugiah said that he was not encouraged or invited by Schenker to seek employment with it, and he did so on his own initiative, after seeing the position advertised on Seek.

6. [106]

   Mr Murugiah gave four weeks’ written notice of termination of his employment to Quantum on 7 November 2018, indicating that his last day at work would be 5 December 2018.

7. [107]

   There is some evidence that Mr Murugiah did not formally accept Schenker’s offer of employment until 9 November 2018, although he accepted the offer in principle before that date.

Offer of continuing employment made by Quantum to Mr Murugiah

1. [108]

   On 26 November 2018, Mr Reddy and Mr Mak asked Mr Murugiah to reconsider his resignation. Mr Reddy said that if money was a major concern, then Quantum would be happy to match and better any offer that Mr Murugiah had from Schenker.

2. [109]

   Mr Reddy informed Mr Murugiah that the effect of clause 13.13 of the Services Agreement was that both parties were prohibited from recruiting each other's employees. Mr Reddy said that Quantum would consider taking action to stop Schenker from hiring its staff, and that Mr Murugiah's employment with Schenker may be affected if it did so.

3. [110]

   Mr Murugiah said that he would need to think it over and consult with his family.

4. [111]

   Mr Khanna said that he had a conversation with Mr Murugiah on 7 November 2018, after he received Mr Murugiah's resignation letter. Mr Murugiah at that time was not willing to disclose the name of the company that would employ him. Mr Khanna said that he informed Mr Murugiah that Quantum had an agreement in place with Schenker which forbids Schenker from hiring its staff during the term of the contract and six months after its expiry.

5. [112]

   On about 27 November 2018, Mr Khanna telephoned Mr Murugiah, who informed him that he was seeking legal advice. Mr Murugiah asked Mr Khanna to send him a copy of the contract with Schenker. Ultimately, Mr Khanna invited Mr Murugiah to visit Quantum's office to review the contract, but informed Mr Murugiah that he should have a copy of the contract as an attachment to Mr Reddy's email of 15 May 2018. Mr Murugiah told Mr Khanna that he had found the attachment but was not sure whether it was a final version. Mr Murugiah read out clause 13.13 and Mr Khanna confirmed that the clause was in those terms.

6. [113]

   Mr Murugiah nonetheless informed Mr Khanna that he had decided to stand by his termination of his employment and to continue with the employment offered to him by Schenker.

Mr Murugiah's personal circumstances

1. [114]

   As a result of the granting of the ex parte interlocutory injunction on 4 December 2018, Mr Murugiah is not presently employed.

2. [115]

   Mr Murugiah is the primary breadwinner for his family and he has three children aged 17, 15 and 13 who are dependent on him.

3. [116]

   His wife works casually in packaging in a chocolate factory, and the work is erratic. For example, she had not worked for around four months, but had two days’ work in the week that Mr Murugiah swore his affidavit on 11 December 2018. Mr Murugiah's family home is mortgaged, and he has responsibilities to pay the mortgage on a monthly basis, together with the running costs of the family including electricity, food, clothes, travel expenses, sports and education expenses.

4. [117]

   The family have two motor vehicles because of Mr Murugiah's work, and the children are scattered between three different schools.

5. [118]

   Mr Murugiah also provides financial support for his mother who requires substantial medical treatment in Sri Lanka. There is no equivalent of Medicare in Sri Lanka and medical expenses are paid for by individuals.

6. [119]

   Mr Murugiah's brother in Sri Lanka is presently not working and is married with two children. Mr Murugiah is assisting him and his family financially during the period.

7. [120]

   On 17 November 2018, Mr Murugiah's eldest sister passed away with breast cancer. The sister was a teacher and the primary breadwinner for her family of two children. Mr Murugiah also provides financial support to her family.

8. [121]

   Mr Murugiah usually takes a holiday with his family within Australia during the Christmas period, but without an income he will be unable to do that this year.

9. [122]

   Mr Murugiah said that he wishes to commence employment with Schenker as soon as possible and is ready to do so.

Offers made by Quantum and Schenker

1. [123]

   Both Quantum and Schenker have made offers evidently intended to affect the court's consideration of the balance of convenience in respect of the grant of the interlocutory injunction sought by Quantum.

2. [124]

   In par 27 of his 11 December 2018 affidavit, Mr Reddy said that Quantum remains willing to employ Mr Murugiah on the same terms and conditions as he was previously employed. If Mr Murugiah were to recommence employment with Quantum, he would be placed at the Silverwater facility as a manager at that site. Mr Reddy said this would be a shorter commute from Mr Murugiah's home than his previous commute to the Hoxton Park facility.

3. [125]

   At the hearing, Quantum made an open offer of continuing employment of Mr Murugiah in the following terms (Exhibit P 4):

4. [126]

   On the other hand, on 10 December 2018, by open letter made by Schenker's solicitors to the solicitors for Quantum, Schenker made an offer to settle the proceedings on terms including the following (Exhibit 1D2):

Consideration

1. [127]

   The first issue, as stated by McLelland J in Orton v Melman, and accepted by Gleeson JA in Isaac v Dargan Financial Pty Ltd at [61], is whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed.

2. [128]

   The defendants in this case did not contend that the proposed employment by Schenker of Mr Murugiah would not constitute a breach of clause 13.13 of the Services Agreement, assuming that provision is valid. Schenker is a party to the agreement, Mr Murugiah was an employee of Quantum at the time of the offer of employment and its acceptance, and the Services Agreement remained on foot at the time.

3. [129]

   The second issue is whether the restraint, so far as it applies to that breach, is contrary to public policy. This issue, as I understand it, requires the application of the common law principles in the context of s 4(1) of the Restraints of Trade Act. That is why McLelland J and Gleeson JA expressed the issue in terms of whether the restraint, so far as it applies to the relevant breach, is contrary to public policy. The common law would ask the different question of whether the restraint considered as a whole is contrary to public policy, so that if it is not entirely defensible as being reasonable, it will fail.

4. [130]

   Quantum submitted that clause 13.13 was not against public policy in respect of its operation in the context of Schenker's employment of Mr Murugiah, because it went no further than is reasonable to protect the legitimate interests of Quantum; being (a) its confidential information; and (b) its staff connection and the stability of its workforce in the particular context of the Services Agreement.

5. [131]

   For the reasons that follow, I am satisfied on the evidence before the Court at this interlocutory stage of the proceedings that Quantum has demonstrated a sufficiently strong case to justify the Court in proceeding to consider the balance of convenience, before it decides whether the existing interlocutory injunction should be continued.

6. [132]

   In making this judgment, I have not treated the case as requiring the exceptional approach described by McLelland J in Kolback Securities Pty Ltd v Epoch Mining NL, as I do not consider that the determination of the interlocutory question is sufficiently likely in a practical sense to conclude the issue between the parties to justify that approach. However, as should appear from my consideration of the authorities and the detail of my examination of the evidence, I have treated this case as one that requires the Court to be satisfied that there is more than a bare serious question to be tried. I can be no more explicit than to say that I have satisfied myself that Quantum has a reasonably strongly arguable case, although the present stage of the proceedings is only preliminary, and the Court could not rule out any outcome of the final hearing, after Quantum has been given an opportunity to put its case fully and that case has been strenuously tested.

7. [133]

   I will start by making some observations as to what I consider would be the probable outcome of the application of the common law principles governing the effectiveness of restraints of trade to clause 13.13.

8. [134]

   At common law, clause 13.13 is prima facie invalid because it is a restraint of trade, even though it is contained in an arm’s length agreement negotiated between two substantial commercial corporations. I consider that it is most likely that Quantum will not be able to sustain the burden of proving that clause 13.13 is, in whole, no more than is reasonable to protect the legitimate interests of Quantum, either in respect of Quantum's relationship with Schenker, or in respect of the effect of enforcing the clause on Quantum's present and former employees generally.

9. [135]

   Little need be said about that part of clause 13.13 that purports to prohibit Schenker's "associated entities, sub-contractors or their employees" from acting in the manner stated in the clause. The parties did not focus on this aspect of the provision. In-so-far as clause 13.13 purports to impose restraints on non-parties to the Services Agreement, it is likely to be unenforceable for want of privity, irrespective of the principles governing the validity of restraints of trade at common law. There was no suggestion that clause 13.13 should be construed as imposing upon Schenker an obligation to procure the third parties to act in the manner contemplated by the provision, and accordingly nothing more need be said about the matter.

10. [136]

    Clause 13.13 is a blanket restraint that applies to all employees or ex-employees of Quantum during the period of the Services Agreement and six months after its termination. While, for understandable reasons, the evidence did not explore the extent to which employees or ex-employees other than Mr Murugiah may have possessed relevant confidential information of Quantum, it is extremely unlikely that all employees and ex-employees would possess such confidential information as to justify the imposition of the restraint.

11. [137]

    Further, in the context that four of Quantum's employees, perhaps under the supervision of Mr Paul and the ultimate management of Mr Murugiah, worked at the Hoxton Park facility on the services being provided to FXA under the Services Agreement, with Quantum having about 93 employees at that facility, 200 employees in Australia and about 650 employees in the Asia Pacific region, it is highly likely that clause 13.13 would operate as a mere and impermissible restraint against competition in relation to almost all of the present and ex-employees of Quantum to whom it would literally apply.

12. [138]

    That is why, in my view, it is most likely that clause 13.13 would be found to be an invalid restraint of trade at common law.

13. [139]

    At a contested hearing of these proceedings, the availability of the relief claimed by Quantum is likely to depend on the application of s 4(1) of the Restraints of Trade Act, and the relief that may be granted is likely to be limited to the prohibition of employment of Mr Murugiah, and perhaps other employees of Quantum who have worked on the provision of services under the Services Agreement. (In saying this, I do not speculate on whether evidence may be available concerning other employees who have Quantum's confidential information, or other employees who provide services to other customers than FXA from the Hoxton Park facility).

14. [140]

    So far as the potential application of s 4(1) of the Restraint of Trade Act is concerned, the defendants did not suggest that clause 13.13 was not capable of being applied to the breach alleged, being the employment of Mr Murugiah by Schenker, by an appropriate reading down of the terms of the clause in the sense discussed by the Court of Appeal in the Woolworths case that has been set out above.

15. [141]

    I take it to be the applicable principle that, for a restraint of trade that is prima facie invalid at common law to be shown to be valid, the proponent of the restraint must demonstrate that it reasonably protects the proponent's legitimate interests, and if that is demonstrated, it is open to the opponent to establish that the restraint unreasonably damages the public interest. Relevantly, the touchstone is whether the restraint is reasonable to protect a legitimate interest. There are well established categories of interests that are legitimate subjects for protection, including confidential information and customer connection, and also in perhaps a less developed way, workforce stability. As to this latter aspect, I refer in particular to the extract from the judgment of Brereton J (as his Honour then was) in Cactus Imaging Pty Ltd v Glenn Peters that I have set out above. At [55], Brereton J stated: "In my opinion, staff connection constitutes part of the intangible benefits, which may give a business value over and above the value of the assets employed in it, and thus comprises part of its goodwill. It is amenable to protection by a covenant in a manner similar to customer connection, even in the absence of protectable confidences".

16. [142]

    I do not consider that this statement by Brereton J should be taken as being intended to define the limits within which it will be reasonable for an employer to protect staff connection, or expressed differently, stability of workforce. Brereton J did not in my view purport to limit the extent to which staff connection or stability of workforce may be the subject of reasonable protection to the case that involves parity of reasoning with the protection of customer connection.

17. [143]

    The question in each case requires the identification of the legitimate interest, and a consideration of whether the restraint, so far as it applies to the alleged breach, provides reasonable protection for that interest.

18. [144]

    Recognising the preliminary nature of the present proceedings, it is necessary to notice the particular features of this case arising out of the nature of the Services Agreement and the commercial objectives of the parties.

19. [145]

    First, the Services Agreement is a sub-contract. Initially, Schenker acquired the business of FXA when that company decided to outsource the provision of a range of services. Some of those services fell within the business of Schenker so that it could provide them itself, but certain other technical IT services could not apparently then be provided efficiently by Schenker. It therefore offered the sub-contract to Quantum to further the partnership between the two companies, where the word “partnership" was not intended to operate in its ordinary commercial sense.

20. [146]

    While the evidence is not elaborate, it suggests that the objective was to build up the provision of services to FXA in apparently three phases at various times over 2018. The point is that both Quantum and Schenker would be required to establish the workforce and know how necessary to provide the services required by FXA profitably and efficiently to the satisfaction of that company.

21. [147]

    While the Services Agreement contemplated cooperation between Quantum and Schenker, it clearly did not contemplate a joint venture, and imposed no obligation on Schenker to have regard to the interests of Quantum, any further than the terms of the Services Agreement may have imposed contractual obligations upon it (which may perhaps have included implied obligations to act in good faith). The effect of clause 1.2 was that Schenker was not obliged to purchase any minimum level of services from Quantum, and clause 13.5 expressly excluded an entitlement by Quantum to exclusivity of supply.

22. [148]

    At the hearing, Schenker relied upon the effect of these terms, in support of its case, by saying that the Services Agreement did not in any event ultimately entitle Quantum to any particular reward at all from the implementation of the agreement. In my view there is at least a good argument that, contrary to this submission, the fact that the Services Agreement clearly contemplated that Quantum would cooperate with Schenker to build up from scratch a profitable business providing the outsourced services required by FXA, without Quantum having the benefit of any fiduciary or contractual assurances that Schenker would act in its interests, may provide the necessary justification for clause 13.13 being given an appropriately limited effect by way of preserving the integrity of Quantum's workforce for the period of the Services Agreement and for a short time thereafter.

23. [149]

    The point is that Schenker sub-contracted to Quantum the provision of aspects of the services required by FXA that Schenker could not at the outset supply itself, on the basis that the parties would cooperate and develop in stages the capacity to profitably supply those services, and the benefit of the Services Agreement to Quantum could be usurped by Schenker at any time, by securing the employment of the persons employed by Quantum to provide the sub-contracted services, after Quantum had taken the risk and gone to the trouble of developing the commercial capacity to satisfy FXA's needs by the development of its workforce.

24. [150]

    I do not consider that the effect of the enforcement of clause 13.13 in that context would be to enforce a mere restraint on competition, or a restraint that did nothing more than to preserve Quantum's workforce as if its employees were in effect the property of Quantum. In the absence of any fiduciary obligation requiring Schenker to have regard to Quantum's interests as well as its own, because the parties did not intend to establish a joint venture, and in the absence of any contractual obligation on Schenker's part to provide any agreed minimum level of business to Quantum, or to obtain the sub-contract services exclusively from Quantum, it is difficult to see how Quantum could sensibly protect its legitimate commercial position except by some restraint on Schenker's entitlement to take Quantum's employees into its employment, at least in so-far-as those employees materially participated in the provision of the sub-contract services.

25. [151]

    In practical terms, the risk to Quantum's commercial position was enhanced by the fact that its employees providing the services under the sub-contract worked from Schenker's premises, so that they would naturally be in easy communication with Schenker, who would be in a position to observe the implementation of the Services Agreement by Quantum, and form relationships with Quantum's employees.

26. [152]

    At this stage of the proceedings, I consider Quantum to have a sufficiently arguable case that its legitimate commercial interests, and the reasonableness of the protection of those interests by clause 13.13, should not be considered to involve a mere impediment to competition, in isolation from its context as one provision within the Services Agreement, to justify the conclusion that Quantum has a sufficiently arguable case that it is entitled on a final hearing to the relief sought in prayers 5 and 6 of the further amended summons. This is to recognise the possibility that, at least in relation to the employment by Schenker of Mr Murugiah, clause 13.13 may be reasonably necessary to protect the enjoyment by Quantum of the rights and commercial opportunities that it was intended to gain under the Services Agreement.

27. [153]

    The strength of Quantum's case is also enhanced by its reliance upon the information known to Mr Murugiah about the implementation of the Services Agreement that would have been confidential to Quantum.

28. [154]

    I have set out the evidence on the nature of the confidential information known to Mr Murugiah above. It must be acknowledged that the information was described in relatively general terms. I do not consider that it would have been realistic for Quantum at an interlocutory stage and in the limited time available to have set out the content of all of the relevant confidential information in any real detail. As Mr Murugiah was the manager who had overall supervision of the implementation of the sub-contract, the hiring of the necessary employees, and the establishment and refinement of the scope of works, together with his participation in what I take to be frequent high level management meetings conducted orally (at least in part) by Quantum, there is in my view a high probability that Mr Murugiah does have significant confidential information concerning how Quantum effectively provides the sub-contract services, and also that the time available was insufficient to render all of the necessary evidence into writing in detail.

29. [155]

    Suffice it to say, in my view Quantum has a reasonably strongly arguable case that, at least in relation to Mr Murugiah, the enforcement of clause 13.13 would be no more than a reasonable protection of its confidential information.

30. [156]

    This conclusion is reinforced by the evidence, albeit that it is scant, that Schenker intends to provide the later phases of the subcontract services to FXA itself. Mr Murugiah gave evidence that he was told by a representative of Schenker that he would work on Schenker's contract with FXA. If he did so, it would be hard for him to put out of mind all of his knowledge of how Quantum had successfully gone about providing services to FXA on a sub-contract basis.

31. [157]

    At this interlocutory stage of the proceedings, it is not necessary to make any final findings of fact or to determine how the relevant principles of law will ultimately be applied, but I am satisfied that, in the particular circumstances of this case, and in relation to how it applies solely to Mr Murugiah, Quantum has established a sufficiently strong case that it will obtain the relief sought to justify the Court to proceed to consider the balance of convenience.

32. [158]

    In reaching this conclusion, I have not ignored the significance of the principle that a restraint in a contract between commercial interests that may appear to be reasonable as between the parties may nonetheless be found to be invalid because of the manner in which it impinges upon the freedom of one of the parties' employees.

33. [159]

    As has been set out above, Mr Murugiah's employment agreement contained a restraint against the misuse of confidential information. Even at an interlocutory stage, there is no positive evidence that Mr Murugiah would misuse the confidential information of which he has knowledge. Nonetheless, in the particular context that he would be employed by Schenker, as Quantum's counterparty to the Services Agreement, and as the evidence suggests that he would be employed to provide services for FXA, where there is a risk that Schenker may avail itself of its contractual right to provide the sub-contract services itself, there is in context a legitimate basis for concern that Mr Murugiah may not be able to avoid misusing the confidential information known to him, even if he does not positively disclose it to Schenker.

34. [160]

    Mr Murugiah's employment agreement does not contain any restraint on Mr Murugiah taking employment with any competitor of Quantum. The consequence is that Mr Murugiah would be able to accept employment from any employer, whether or not a competitor of Quantum, except for Schenker during the period of the Services Agreement and for a short period thereafter.

35. [161]

    At this interlocutory stage of the proceedings, it would not be proper in my view for the Court to hold that the limited restraint on the availability of employment to Mr Murugiah is so likely to deny any validity to clause 13.13 to justify a refusal by the Court to continue the interlocutory injunction against Schenker.

36. [162]

    I consider that the balance of convenience in this case warrants the continuation of the interlocutory injunction in terms of prayer 3 of the amended summons, but only on the condition that Quantum implement, and continues to implement, the offer that it has made to Mr Murugiah that has been set out above, and is contained in Exhibit P4.

37. [163]

    First, I consider that if the interlocutory injunction is not continued but Quantum ultimately succeeds in establishing its claim, the absence of the interlocutory injunction will substantially deprive Quantum of the benefit of clause 13.13 in relation to Mr Murugiah.

38. [164]

    I am reinforced in this view in relation to the balance of convenience by the consideration that, in relatively finely balanced cases, there is a positive benefit in holding commercial parties to their bargains. I understand that care must be taken where the relevant aspect of the bargain is prima facie invalid at common law, but for the reasons that I have explained above, this is a relatively special case where the clause was not part of the 'boilerplate', but was specifically agreed in circumstances where, at least in part, the need for the protection provided by the provision can be justified because of the special circumstances of the sub-contract and Quantum's vulnerable commercial position.

39. [165]

    Secondly, if the interlocutory injunction is not continued, it may not be practically feasible for Quantum to demonstrate, after the event, that its confidential information has been wrongly used against its interests, or that the fact of Mr Murugiah's employment by Schenker has materially improved Schenker's ability to provide to FXA the services that are presently provided by Quantum under the sub-contract. I am satisfied that damages is unlikely to be an adequate remedy for Quantum.

40. [166]

    Thirdly, Schenker did not suggest, and did not put forward any evidence to establish, that if it was deprived of the opportunity to employ Mr Murugiah until final judgment in these proceedings it would suffer any significant loss.

41. [167]

    So far as Mr Murugiah's position is concerned, on the evidence presently available, it is unlikely that it will be proved at any final hearing that he became aware of the terms of clause 13.13 at the time of his involvement in the negotiation of the terms of the Services Agreement.

42. [168]

    It is clear that Mr Murugiah was not solicited by Schenker in any direct sense, and Mr Murugiah was given his initial interview as a result of an invitation made by Schenker publicly on Seek.

43. [169]

    It cannot be known, however, at this stage whether Schenker was influenced to offer employment to Mr Murugiah because of its knowledge of his role in the provision of the sub-contract services by Quantum to FXA.

44. [170]

    The most that is likely to be established is that Mr Murugiah may have been specifically informed of the effect of clause 13.13 after Schenker made its offer of employment to him, but before he formally accepted it. That is not a question to be decided at this time.

45. [171]

    Although Mr Murugiah should not be criticised for making the choice that he did, he did choose to confirm the termination of his employment by Quantum and accepted the employment offered by Schenker with his eyes open. If the Court continues the interlocutory injunction, there is a risk that Mr Murugiah will lose the opportunity of being employed by Schenker. However, if the injunction were not continued, Schenker would not be able to continue to employee Mr Murugiah if Quantum succeeded in establishing its right to an injunction to enforce the restraint at a final hearing. The possibility that Mr Murugiah will lose the opportunity to be employed by Schenker is in this sense neutral, and is a matter of timing, because it depends upon who ultimately succeeds in the proceedings.

46. [172]

    Quantum offered to employ Mr Murugiah on terms that met those offered by Schenker, before Mr Murugiah's employment by Quantum formally terminated, but Mr Murugiah, apparently on legal advice, rejected that offer. That is a factor that would weigh in favour of the Court continuing the interlocutory injunction, but would not have been sufficient if Quantum had not made the offer contained in Exhibit P4.

47. [173]

    Although acceptance of that offer, at least until the completion of these proceedings, is not Mr Murugiah's preferred future, the offer does in my view go a very long way to remedying the inconvenience that Mr Murugiah will suffer as a result of the continuation of the interlocutory injunction. That is particularly so, as the continuing effect of the injunction will be made conditional upon Quantum continuing to honour the offer, if it is taken up by Mr Murugiah, and doing so in accordance with its proper spirit.

48. [174]

    I have not ignored the significance of the open offer made by Schenker to settle these proceedings. The terms of that offer do have a material effect on the balance of convenience, although not in my view as significant as the terms of the offer made by Quantum. Paragraph 1(a) would protect Quantum in-so-far as it would prevent Schenker employing any further employees of Quantum who had provided services the subject of the Services Agreement (in addition to Mr Murugiah and Mr Chanko). The prohibition in par 1(b) would restrict Schenker from directing Mr Murugiah to divulge Quantum’s confidential information to it, but it could not of course limit the use of that information by Mr Murugiah during the course of his employment by Schenker in the provision of services to FXA. Schenker’s offer would be effective to limit the potential damage to Quantum if its conduct is ultimately found to be a breach of clause 13.13, but it will not entirely exclude the possibility that practically unprovable damage will occur.

49. [175]

    There was not, as I understand it, any evidence as to whether Mr Murugiah will finally lose the opportunity of employment by Schenker, if the injunction is continued on an interlocutory basis, but a final injunction is not made following the hearing. There is no basis for the Court to speculate on this issue, although it is not unfair to observe, given the strength of Schenker's opposition to Quantum's interlocutory application, that it would be somewhat invidious for Schenker not to find a place for Mr Murugiah, if its defence succeeds, but Quantum does not continue his employment.

Orders

1. [176]

   For the reasons given above, I propose to make the following order. It is implied in Quantum’s submissions that it will give the usual undertaking as to damages, but I will require Quantum’s legal representative to re-state the usual undertaking before I make the order. That order will be:

   1. (1)

      Upon the plaintiff by its counsel giving the usual undertaking as to damages, and subject to the condition that the plaintiff implements and continues in a bona fide way to implement the offer made by the plaintiff to the second defendant in Exhibit P4, the Court orders that the first defendant be restrained, until the final determination of these proceedings or the further order of the Court, from employing the second defendant.

2. [177]

   I am inclined to think that, given that contractual terms of the nature of clause 13.13 are prima facie invalid, the nature of the parties and the factual context of the dispute, the fact that the continuation of the interlocutory injunction impinges on the freedom of employment of Mr Murugiah, and most importantly that the outcome of the interlocutory dispute was relatively finely balanced, that the appropriate order for costs is that the costs of the interlocutory application be each party’s costs in the cause. However, I will hear any party who wishes to contend that a different order for costs should be made. I will invite the parties to provide to my Associate agreed short minutes of order to deal with the issue of costs, but if they cannot agree the matter may be re-listed for oral argument at a convenient time by arrangement with my Associate.