Australian Timber Supplies Pty Ltd v Welsh [2021] QSC 266

SUPREME COURT OF QUEENSLAND CITATION: PARTIES: FILE NO/S: DIVISION: PROCEEDING: ORIGINATING COURT: Australian Timber Supplies Pty Ltd v Welsh [2021] QSC 266 AUSTRALIAN TIMBER SUPPLIES PTY LTD (applicant) v DUNCAN WELSH (respondent) BS 11060 of 2021 Trial Division Application Supreme Court DELIVERED ON: 15 October 2021 DELIVERED AT: Brisbane HEARING DATE: 13 October 2021 JUDGE: Freeburn J ORDER: An interlocutory injunction be granted to the applicant restraining the respondent from operating certain businesses (form of order to be determined). CATCHWORDS: EMPLOYMENT – RESTRAINT AND CONFIDENTIALITY – INTERLOCUTORY INJUCTION – RESTRAINT OF TRADE CLAUSE – Where Mr Welsh was initially employed by ATS, in Sydney, as a purchasing officer – Where Mr Welsh was subsequently employed by ATS, in Brisbane, as a Category manager (Hardware, Flooring, and Decking) – Where Mr Welsh’s contracts included an exclusivity clause and a restraint of trade clause – Where, during the course of his employment with ATS, Mr Welsh commenced a new business – Where Mr Welsh registered the new business, DIY Deck Build, on 1 November 2019 – Where Mr Welsh created a website and Instagram page for this new business – Whether ATS has a prima facie case for an interlocutory injunction – Whether ATS has shown that the balance of convenience favours the granting of the relief claimed – Whether the restraint of trade is valid. Tribal Health Pty Ltd v Flush Fitness Pty Ltd [2016] QSC 103, applied. Slevin v Associated Insurance Brokers of Australia (Qld) Pty Ltd [1996] QCA 18, applied. -- 1 of 12 -- 2 COUNSEL: DD Keane for the applicant Mr Welsh appeared for himself SOLICITORS: K & L Gates No solicitors on the record REASONS Introduction [1] The respondent, Mr Duncan Welsh, was a valued employee of the applicant, Australian Timber Supplies Pty Ltd (“ATS”). Mr Welsh was first employed by ATS in Sydney as a purchasing officer from 21 August 2017. His focus was flooring and hardware. That initial employment contract was in writing and includes a restraint of trade.1 At that point his salary was $65,000 plus 9.5% superannuation. [2] Mr Welsh then held increasingly more significant positions. In April 2021, when he expressed a desire to move to Queensland, ATS employed Mr Welsh as Category Manager (Hardware, Flooring and Decking) at its office in Stapylton, south of Brisbane. By this time his salary was $90,500 plus 9.5% superannuation, plus a company American Express Card and a company mobile phone. With his move to Queensland and his new position, Mr Welsh and ATS signed another employment contract. That new contract also included a restraint of trade clause.2 [3] According to ATS, Mr Welsh was then employed as the Acting State Manager for Queensland on a temporary basis from 31 May 2021.3 Mr Welsh disputes that. He points to his emailed resignation letter which, in the signature block says ‘Duncan Welsh, Formwork & Civil, Qld.’4 [4] However, the text of that letter includes this: Regarding our conversation on Thursday, I appreciate the offer to become branch manager in QLD but I am not the person to take this forward. I feel that after four years of service I need to move on to something new.5 [emphasis added] 1 Ex CE-1 to Ms Elias’ affidavit filed 28 September 2021. 2 Ex CE-2 to Ms Elias’ affidavit file 28 September 2021. 3 Ms Elias’ affidavit at [11]. 4 Ex CE-4 to Ms Elias’ affidavit filed 28 September 2021. 5 Ibid. -- 2 of 12 -- 3 [5] And so, it may be that Mr Welsh was offered but had not accepted the position of branch manager for Queensland. There remains a dispute as to whether he was employed as the Acting State Manager for Queensland in the meantime. Possibly not much turns on that dispute. [6] The ‘something new’ that Mr Welsh had in mind, it turns out, was a new business Mr Welsh had commenced establishing in November 2019 – during the course of his employment with ATS. A week or so after his emailed resignation Ms Elias, ATS’s Human Resources Manager discovered that Mr Welsh had: (a) on 1 November 2019, registered a business name, DIY Deck Build; (b) on 4 November 2019, registered a website with the URL address https://www.diydeckbuilding.com/ (Website); (c) in December 2019, created an Instagram account with the handle @eagletimberproducts; (d) on 25 July 2021, updated the registered business name to Eagle Timber Products; (e) some time before 26 July 2021, established a warehouse from which to operate the business at 70 Landseer Street, Acacia Ridge (Warehouse), which is about a 15 to 20 minute drive from ATS’s warehouse; and (f) from 26 July 2021 to 6 August 2021, taken an ATS vehicle to that location on 7 occasions during his work hours for periods of up to 1 hour and 35 minutes.6 [7] Mr Welsh disputes only sub-paragraph (e) on that list. He says that ‘no supporting evidence for this.’7 Curiously, Mr Welsh does not say that he disputes establishing a warehouse from which to carry on his proposed business. He merely criticises the lack of evidence.8 6 Ms Elias’ affidavit at [21]. 7 Mr Welsh’s affidavit at [2]. 8 The position is similar with Ms Elias’ evidence (at [25] and Ex CE-8) that during his employment he travelled on seven occasions to the warehouse. -- 3 of 12 -- 4 [8] In any event, there does not appear to be a substantive dispute that in fact during his employment with ATS, that is from November 2019, Mr Welsh established a new business that was ultimately called Eagle Timber Products.9 [9] The principal disputes that Mr Welsh raises are as follows: (a) the business of Eagle Timber Products is different and operates in a different market to ATS; (b) Mr Welsh has not used or disclosed confidential information in his operation of Eagle Timber Products. [10] I will come back to those two principal grounds. [11] Mr Welsh also raises some other disputes which seem to have little relevance. First, Mr Welsh complains about being required to reimburse ATS for a sum of $6,100 for a section 457 sponsorship visa application fee under the Migration Act 1958 (Cth). He has threatened legal proceedings against ATS. [12] Second, Mr Welsh says that after he relocated to Brisbane the ATS Brisbane branch made a profit for the first time. He also says that he was required to resign his position in Sydney and then re-sign for the company in Brisbane. [13] Third, Mr Welsh complains that several outrageous allegations were made against him during the course of a zoom meeting on 13 August 2021 – which is when his employment was terminated. At the time Mr Welsh was on leave and serving a period of notice. He complains that during the course of the zoom meeting the ATS representatives were aggressive and harassing and threatening. He also complains that ATS have refused to supply a video copy of that zoom video conference. [14] Fourth, according to Mr Welsh, various other employees have left the employ of ATS and have been employed by competitors of ATS but ATS has chosen not to pursue those employees in the courts. [15] Suffice it to say that none of those complaints are relevant. 9 See Ex PAH-2 at [4] of Mr Hardman’s affidavit filed by leave. -- 4 of 12 -- 5 Relevant Legal Principles [16] In Tribal Health Pty Ltd v Flush Fitness Pty Ltd10 Bond J summarised the principles to be applied where an interlocutory injunction is sought: (a) The law in Australia has long regarded it to be necessary to make two main inquiries: (i) whether the applicant has shown that it has a prima facie case; and (ii) whether the applicant has shown that the balance of convenience favours the granting of the relief claimed. (b) The significance of the requirement that a prima facie case be shown is elaborated upon in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 and Live Earth Resource Management Pty Ltd v Live Earth LLC [2007] FCA 1034 at [11] to [13]. (c) The considerations brought to bear on the balance of convenience requirement were the subject of discussion in Australian Broadcasting Corporation v O’Neill and Bowen Central Coal Pty Ltd v Aquila Coal Pty Ltd [2011] QCA 334, the latter case clarifying that the adequacy of an award of damages and the question of the sufficiency of the usual undertaking were to be considered as part of the totality of the balance of convenience question. (d) The progression of the two main inquiries is not a mechanical exercise. Whether the relief sought is prohibitory or mandatory, the Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’ in the sense of granting an injunction to a party who fails to establish his right at an ultimate trial, or in failing to grant an injunction to a party who succeeds at trial. In making that decision, the Court should weigh in the balance all relevant factors, including matters pertaining to the strength of the case to be tried and the balance of convenience. (e) Where the effect of an injunction would be to alter the status quo and effectively finally to determine a respondent’s legal rights against the respondent in advance of a trial, it would be appropriate to require an applicant to establish its case that the respondent should not be afforded those legal rights with a high degree of assurance. [17] It is necessary to apply those principles. 10 [2016] QSC 103 at [23]. His Honour also applied the same principles in SDW2 Pty Ltd v JLF Corporation Pty Ltd [2017] QSC 1 at [21]. The original consideration is in Stacks Managed Investments Ltd v Tolteca Pty Ltd [2015] QSC 234 at 3 to 5. -- 5 of 12 -- 6 Prima Facie case [18] Mr Welsh’s conduct in establishing Eagle Timber Products was plainly in breach of both the 2017 and the 2021 employment contracts. Both contracts require exclusivity – that is that Mr Welsh not undertake any work for any other corporate entity or business without the prior written consent of ATS.11 There is no suggestion of any consent or written consent. [19] The requirement of exclusivity was plainly reasonable. Only in very unusual circumstances will a restraint of trade that operates during the employment be found to be unreasonable; a term which merely prevents an employee from working for another during the period of employment is not unreasonable.12 [20] It is also likely that Mr Welsh’s conduct in establishing his own business was in breach of his duties under section 180, 181 and 182 of the Corporations Act 2001 (Cth). Curiously, both in the correspondence and at the hearing Mr Welsh seemed unapologetic about the fact that he pursued the establishment of his own business whilst employed by ATS. [21] However, the establishment of Eagle Timber Products has already occurred. The proposed interlocutory injunction is not directed to reversing that situation. Instead, the interlocutory injunction sought by ATS seeks to restrain Mr Welsh from operating his new business until trial or until 12 August 2022. That date is the expiry of 12 months from his resignation – the restraint of trade clause’s temporal limit of 12 months from the termination of employment. [22] It is necessary to examine the restraint of trade clause. Clause 16.1 requires that Mr Welsh must not, for the restraint period of 12 months, engage in any competing business.13 There are also requirements that Mr Welsh not approach clients, customers, employees or contractors within that same 12 months. [23] The geographical limitation on the engagement in a competing business is expressed in a cascading way, that is, Australia, then Queensland, then within 100km of 11 Clause 1.7 of the 2017 employment contract (ex CE-1 to Ms Elias’ affidavit) and clause 1.8 of the 2021 employment contact (Ex CE-2 to Ms Elias’ affidavit). 12 Buckenara v Hawthorn Football Club Ltd [1988] VR 39 at 44 (per Crockett J); see also Curro v Beyond Productions Pty Limited (1993) 30 NSWR 337 at 344. 13 Clause 16.1 of the 2021 employment contract. I will return below to the issue of whether the businesses are competing. -- 6 of 12 -- 7 Stapylton. As I understood Mr Keane for ATS, as well as the terms of the order proposed by ATS, only the last of those restraints was pursued as the relevant restraint. [24] A restraint clause that imposes obligations on employees after their employment terminates is prima facie void at common law14 unless it imposes no greater restraint than that which is reasonably necessary for the protection of the legitimate interests of the party seeking to uphold it.15 The onus of demonstrating its validity rests on the party seeking to rely on the covenant.16 [25] The affidavit of Mr Dacayo explains the nature of ATS’s timber business. The focus of ATS is on the retail sale of timber products for building use. That accounts for 80% to 90% of its business. ATS’s range of timber products includes framings, floorings, formply and hardwares to connect timber products such as screw bolts.17 Mr Welsh’s role included a high level of knowledge of ATS’s products and pricing, suppliers and customers, including some confidential information.18 Since the COVID pandemic commenced there have been disruptions to supply chains19 which has made supply arrangements more critical.20 [26] In the circumstances, as at April 2021, ATS had a legitimate business interest in restricting Mr Welsh from walking from ATS’s employment to a competitor and immediately trading in competition with ATS using business knowledge of customers, suppliers, products and pricing he gained in his employment with ATS. Mr Welsh says that in conducting his new business he would be exploiting knowledge from his previous work experience and he would not be exploiting any of ATS’s confidential information. It seems to me that it is likely that Mr Welsh would exploit a broad amalgam of knowledge and that it is likely that he would exploit knowledge acquired from his recent employment by ATS. 14 See, for example, Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535. 565 and Woolworths Limited v Mark Konrad Olson [2004] NSWCA 372, [37]. 15 Arthur Moses, Restraints of Trade in New South Wales, [2004] UNELawJl 10; see also Buckley v Tutty (1971) 125 CLR 353 at 376 and Vision Eye Institute Ltd v Kitchen [2014] QSC 260. 16 Ibid; see for example, Herbert Morris v Saxelby [2016] 1 AC 688, 715. 17 Mr Dacayo’s affidavit at [10]. 18 Ibid at [18]. 19 Ibid at [28]. 20 Note that the reasonableness of the restraint is to be assessed at the time of the agreement: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 308. -- 7 of 12 -- 8 [27] It is true that an employee should be free to pursue a career in the employee’s chosen field.21 However, the restrictions imposed by the restraint are relatively modest. Mr Welsh is entitled to be employed or to conduct his business anywhere in Australia except within 100km of Stapylton. After 12 months there are no geographical restrictions. [28] Mr Keane referred to Slevin v Associated Insurance Brokers of Australia (Qld) Pty Ltd22 where Thomas J said: It is therefore important that the restraint should not be permitted to operate for a period greater than that during which the respondent’s customer list would remain a valuable tool in the hands of the appellants. In Bullivant (above) [Roger Bullivant Ltd v. Ellis [1987] ICR 464] the Court recognised this, observing that it was necessary to consider how long the advantage might reasonably be expected to have lasted, and to limit the duration of the order to that period. In that instance the Court limited the interlocutory injunction to a maximum period of twelve months after the termination of the former employee’s employment. [29] It is difficult to draw any parallels with the temporal limitations in other cases involving other industries or trades, but the passage of time certainly diffuses the advantage an employee takes to new employment or a new business. On balance, 12 months appears to be a reasonably short time designed to protect ATS’s legitimate business interests in the industry of supplying timber products to the building industry. [30] ATS also seeks to establish a prima facie case that Mr Welsh has misused confidential information.23 One difficulty with this submission is that the specific confidential information said to have been misused is not identified. In Slevin v Associated Insurance Brokers of Australia (Qld) Pty Ltd the confidential information taken by the employee was a client list of 470 contacts. Mr Welsh is not said to have taken anything specific from his employment at Stapylton. [31] However, that inability to identify specific confidential information is one of the reasons for the restraint clause. When an employee leaves employment it is no easy task to distinguish between the information that forms part of the employee’s stock of general knowledge, skill and experience, and the information that has been acquired in confidence and which he seeks to use for his own advantage. A further 21 Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [262]. 22 [1996] QCA 18 (per Thomas J at page 3). 23 See paragraphs 26-35 of ATS’s written submissions. -- 8 of 12 -- 9 complication is that confidential information that is carried away by an employee in his head is just as deserving of protection as confidential information embodied in a document such as a client list.24 [32] Those considerations underscore the reasons and reasonableness of a relatively confined restraint such as clause 16.1. Competing Businesses? [33] Mr Welsh disputed that Eagle Timber Products and ATS operated in the same market. He said that the target of his business was ‘mum and dad’ customers. He sought to portray ATS as supplying timber to large corporations. He claimed that small percentage of ATS’s customers were ‘mums and dads’. There was no evidence to support that. And the nature of the business appears to me to make any such differentiation in the market unlikely. Even ‘mum and dad’ customers are customers seeking building products for a construction project. [34] Mr Welsh pointed out that his business is an internet-based on-line business. He claimed that ATS operated a traditional business. Again, there is no evidence that this is true or, more importantly that it makes a difference. Both ATS and Eagle Timber Products have a website. The fact that customers of Eagle Timber Products can place orders on-line does not seem to be a significant point of difference that would place the two businesses in different markets. The ability to order on-line is a detail related to the way in which each timber supply business operates rather than a feature that takes the new business into a different market. [35] There are two compelling facts that convince me that the two businesses are operating in the same market. The first is that Mr Dacayo has performed an exercise of comparing each of the products advertised for sale by Eagle Timber Products on their website and compared those products with the products sold by ATS. That comparison shows that, of the 59 products that are advertised for sale by Eagle Timber Products, 54 products are identical to the equivalent products sold by ATS.25 24 See the discussion in the article by Moses, supra. 25 Mr Dacayo’s affidavit at [44], [45]. -- 9 of 12 -- 10 [36] Mr Welsh has not adduced evidence disputing that comparison. The evidence is powerful because they indicate that ATS and Eagle Timber Products are offering the same products to the building industry – whether the customer happens to be a large developer or an owner/builder. [37] The second fact is that Mr Welsh has said that he decided to establish his own business because, whilst employed by ATS, he identified ‘a gap in the market’.26 It seems to me that inherent in that statement is a recognition that there is one market. Of course also, the gap in that market became clear to him during the course of his employment with ATS. [38] Of course, the views expressed here are all preliminary in the sense that the court is required to assess whether there is a prima facie case. No final determinations are made. However, with that caveat, it seems that the businesses are competing businesses. No Misuse of Confidential Information [39] Mr Welsh says that has not used or disclosed confidential information in his operation of Eagle Timber Products. [40] It is possible that Mr Welsh has not consciously misused confidential information. There are, however, some significant similarities between ATS marketing and Eagle Timber Products marketing. Both are apparently ‘one-stop’ stores for timber and building products. One is ‘unbeatable’. The other is ‘hard to beat’.27 [41] The similarity in products means that Mr Welsh is likely to have had in mind the prices charged by ATS when fixing his prices. He could not fail to know the details of suppliers and some customers. As explained above, it may not be possible to distinguish between Mr Welsh’s stock of knowledge and the special information that a person of ordinary intelligence and honesty would regard as the property of his former employer.28 26 Mr Welsh’s affidavit at [21]. 27 Mr Dacayo’s affidavit at [47], [48]. 28 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 40. -- 10 of 12 -- 11 [42] It follows that ATS has established a prima facie case as to the breach of a reasonable restraint of trade in clause 16.1 of the 2021 employment contract. The existence of a prima facie case of a breach of confidentiality is less likely. [43] One issue that arises is whether this is one of those cases where the decision to grant or refuse an interlocutory injunction will, in a practical sense, determine the substance of the matter in issue.29 In cases where the period of the restraint of trade is only six months, the grant or refusal of an interlocutory injunction may substantially resolve finally the relief to which the plaintiff is entitled.30 In those cases it becomes relevant to assess the strength of the plaintiff's case.31 However, it seems to me that it is reasonably foreseeable that: (a) the parties could, if they acted with appropriate speed, be ready for a trial early next year; and (b) the court could accommodate such a trial, subject though to the length of the proposed trial.32 [44] For those reasons, it is not necessary to assess the strength of ATS’s case. In any event, were such an assessment necessary, it seems to me that ATS’s case is strong. Balance of Convenience [45] The Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’ in the sense of granting an injunction to a party who fails to establish his right at an ultimate trial, or in failing to grant an injunction to a party who succeeds at trial. In making that decision, the Court should weigh in the balance all relevant factors, including matters pertaining to the strength of the case to be tried and the balance of convenience.33 29 See Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536; NWL Ltd v Woods [1979] 1 WLR 1294 at 1306-1307; [1979] 3 All ER 614 at 625-626 per Lord Diplock. 30 Examples of case where there were restraints of only 6 months are Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 and Pryse v Clark [2017] NSWSC 185. Both those cases and the principle in Kolback Securities were discussed by Robb J in Quantum Service and Logistics Pty Ltd v Schenker Australia Pty Ltd [2019] NSWSC 2 at [20]-[24]. 31 Kolback Securities (supra) at 536. 32 Much may depend on the issues that are to be raised by the pleadings. 33 See the principles stated above. -- 11 of 12 -- 12 [46] There is little or no doubt that Mr Welsh has established his business in breach of the exclusivity clauses of his employment contracts. In that sense, even if I am wrong in granting an interlocutory injunction restraining him from operating that business, the result is that he is not able to immediately commence a business he established by breaching his contract with ATS. He would be prevented from taking advantage of his own breach. [47] Certainly, though, the consequence of granting an interlocutory injunction would be that for 12 months Mr Welsh would be prevented from plying his trade within 100km of Stapylton. There is no evidence which explores the extent to which that might, or might not, have a significant effect on Mr Welsh. The economic impact on him is not canvassed in any evidence. It is a fair assumption, however, that there may well be a significant impact on Mr Welsh’s earning capacity. There is, however, the undertaking as to damages offered by ATS which would compensate Mr Welsh. [48] On the other hand, if the court were to refuse to grant the interlocutory injunction, the economic impact on ATS might well be significant and beyond recovery. The damages that ATS might suffer could be beyond recovery because it will be difficult to detect the extent to which Mr Welsh has competed and the extent to which he has exploited confidential information. Similarly, it may be difficult for ATS to establish causation and damage.34 [49] The balance of convenience favours the grant of an interlocutory injunction. [50] I will hear the parties on the form of the interlocutory injunction and costs. 34 See Mr Keane’s submissions at [40]. -- 12 of 12 --