Commsupport Pty Ltd v Mirow [2018] QDC 134

DISTRICT COURT OF QUEENSLAND CITATION: PARTIES: FILE NO/S: DIVISION: PROCEEDING: ORIGINATING COURT: Commsupport Pty Ltd v Mirow [2018] QDC 134 Commsupport Pty Ltd ACN107169648 (plaintiff) v Nathan Mark Mulligan (first defendant) Kurt Michael Mirow (second defendant) TD33/2015 Civil Trial Toowoomba DELIVERED ON: 03 August 2018 DELIVERED AT: Brisbane HEARING DATE: 28 February, 1, 2 March and 6, 7 April 2017 JUDGE: Horneman-Wren SC DCJ ORDER: 1. The plaintiff’s claim is dismissed. 2. The parties make written submissions on costs within 14 days CATCHWORDS: EMPLOYMENT – EMPLOYER AND EMPLOYEE – CONTRACT OF EMPLOYMENT – TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – VALIDITY AND REASONABLENESS – proper construction of restrain covenants in employment contract – where 3 month restraints capture all clients in the 6 months immediately preceding termination – where on the evidence the defendant could not possibly have had interactions with all those clients the subject of the 6 month range so as to develop the requisite and protectable customer connection – where inequality of bargaining position between the parties at the time of contract – whether restraints reasonable by reference to its scope – whether restraints supported by consideration – whether former employee breached restraints TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – ROLE OF PUBLIC INTEREST OR POLICY – whether -- 1 of 46 -- 2 restraints exceeded a legitimate protectable interest of the employer so as to offended the public interest in competition TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – ENFORCEMENT OF AGREEMENT – REMEDIES FOR BREACH OF AGREEMENT – DAMAGES – assessment of damages – where probability of future events occurring considered – applicable assessment regime CASES: AGA Australia Pty Ltd v Tokody [2012] QSC 176 Amaco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 Artcraft v Chandler [2003] QSC 102 Arthur Murray Dance Studios of Cleveland Inc v Witter 105 NE 2d 685 at 705 (Ohio) CP 1952 A Schroedar Music Publishing Co Ltd v Macaulay [1974] 3 All ER 616 Brinks v Cain [2007] NSWSC 62 Buckley v Tuffy (1972) 125 CLR 353 Burton & Eising v Wright Trading Pty Ltd [2007] QSC 17 Byrne v Australia Airlines Ltd (1995) 185 CLR 410 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 Charltons CJC Pty Ltd v Fitzgerald (No 3) [2013] NSWSC 1945 Clarke v Newland [1991] 1 All ER 397 Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 Electro Board Administration v O’Brien [1999] NSWCA 452 Electricity Generation Corporation v Woodside Energy Ltd & Ors [2014] 251 CLR 640 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 Dews v Fitch [1920] 2 CH 159 Geraghty v Minter (1979) 142 CLR 177 GW Plowman & Son Ltd v Ash [1964] 1 All ER 10 Hadley v Baxendale (1854) 9 Ex 431Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 Haynes v Doman [1899] 2 CH 13 -- 2 of 46 -- 3 Herbert Morris Limited v Saxelby [1916] AC 688 HRX Holdings Pty Ltd v Pearson [2012] FCA 161Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 Jones v Schiffmann (1971) 124 CLR 303 Lindner v Murdoch’s Garage (1950) 83 CLR 628 Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 Mills v Dunham [1891] 1 CH 576 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] 256 CLR 104 NF Perry Pty Ltd (2002) 84 SA SR 86 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 Peters Ltd (WA) v Petersville Ltd (2001) 205 CLR 126 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 Rannie v Irvine [1844] 7 MAN & G 969 Robinson v Harman (1884) 1 Ex 850 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Wallis Nominees (Computing) Pty Ltd v Pickett [2012] VSC 82 COUNSEL: P Travis for the plaintiff JP Hastie for the defendants SOLICITORS: Aden Lawyers for the plaintiff O’Donnell Legal for the second defendant [1] The plaintiff, Commsupport Pty Ltd, has for many years operated an informatio n technology services business under the name Communications and Computer Support (CCS). In the course of that business it employed Nathan Mulligan and Kurt Mirow as computer technicians. In the latter part of 2012 Mr Mulligan and Mr Mirow established their own information technology services business through the incorporated entity, Identity Computing Pty Ltd (Identity Computing). Each resigned from their employment with CCS. [2] The contracts of employment of both Mr Mulligan and Mr Mirow contained covenants restraining each of them, for a period of three months, from acting for some of CCS’s customers or former clients and from contacting those customers with a view to enticing the customer to use their professional services or those of a third party. -- 3 of 46 -- 4 [3] The second defendant, Mr Mirow, acted in ways that potentially breached each of those covenants. Commsupport seeks damages from him for breach of contract. The essential issues to be resolved in the proceeding are: 1. The proper construction of the covenants; 2. The validity and enforceability of the covenants upon their proper construction; 3. The nature and extent of any breaches of the covenants; 4. What, if any, damages CCS is entitled to as a consequence of such breach. [4] In order to determine each of those issues it is necessary first to consider the business of CCS and Mr Mirow’s employment within it. The business of CCS [5] In April 1997 Mr Russell Fell started the business of CCS with his wife.1 From 2003 they arranged for it to be operated by Commsupport Pty Ltd as trustee for the CCS trust. [6] Mr Fell described the nature of the services provided by CCS as sales and service of computer systems and servers as well as telephone systems. He said that CCS provided “the whole range of IT services for our clients”2 which also included setting up internet networks. The clients of CCS are primarily located within a 100 kilometre radius of Toowoomba with 80 per cent of them being located within the city of Toowoomba, although Mr Fell gave evidence of having “clients all over Australia ”. 3 [7] The business generally operates with a core of three technicians with Mr Fell as a consultant technician. Mr Fell’s wife performs administration assisted by a part-time employee. [8] Mr Fell described existing customers as being critical to the business. Existing customers, particularly those of long-standing, are a significant referral source for the business, as well as providing an ongoing revenue stream. Based on a “quick look in the yellow pages” he thought that there were about 40 competitors in the industry in Toowoomba. [9] When asked to describe the difficulties confronted in acquiring new customers without a referral, he identified the time taken to build rapport with the main decision maker and in getting to know their business model and what they are trying to achieve, and whether CCS is able to provide the services they are seeking. A barrier to approaching new customers is their existing relationship with another IT service provider. He said “you get shown the door pretty quick”.4 He also identified that new entrants to the market did not necessarily have the advantage of established relationships from which referrals could be derived. [10] Mr Fell described the process by which CCS would seek to convert a potential new customer to a long-term client as being one of considerable consultation. He said “I always liked to get them into the office to show them that we’ve got a stable office. That we’re – you know, there’s technicians there and all the rest of it so we’re more than capable of doing it. A lot of whiteboard sessions to work out what they want 1 T1-35.41. 2 T1-35.46. 3 T1-35.40. 4 T1-37.15. -- 4 of 46 -- 5 and, you know, map out where they want to go, what their pain points are at the moment, what they’re suffering, where the problems are, yeah, see where they want to move to”.5 Getting to know, or identify, those people within the customer who have “a bit of technical nous” “can have a huge impact”, as they are able to identify the issues which CCS is then able to work on to solve the problem. Mr Fell suggested that it may take six to twelve months to get full knowledge of the customer which would also include technical matters such as ascertaining software licences, passwords, usernames, domain names and whether hardware is under warranty. Information concerning the customer is stored on CCS’s client relational manageme nt (CRM) package. Senior technicians have full access to that package. [11] Mr Fell identified “quality of service” as the thing which CCS does to ensure that customers remain happy. That includes time of rectifying faults which are identified through CCS’s monitoring systems and which are able to be remotely fixed. [12] When asked to identify measures taken to remind customers that it was CCS with whom they were dealing rather than a particular technician, he nominated its branding. As examples, he referred to: all emails going to a CCS account; staff uniform; CCS branded business cards; website; vehicle signage; and stickers on customer computers with CCS contact details. He said “people are under no illus io n that they’re dealing with CCS”.6 [13] He described the technicians as being involved in the provision of technical support to clients7 and being “in the face of the customers”8 all the time, but did so in contradistinction to the technicians being the face of the business.9 He did not consider that they were the face of the business. [14] Mr Fell’s evidence in this regard was consistent with evidence given by some of CCS’s clients. For example, Mr Mason who operated Party Hut agreed that Mr Fell was his primary point of contact and that his loyalty was to Mr Fell and not to Mr Mirow or Mr Mulligan.10 Similarly, Mr Purcell, a director of the accountancy firm Moore Lewis and Partners, agreed that his business relationship with CCS was primarily based on a relationship with Mr Fell.11 Similarly, Mr Reedy, a director of K&R Plumbing Supplies, agreed that he did not have a personal relationship with either Mr Mirow or Mr Mulligan.12 [15] Mr Fell described the business of CCS as having two distinct parts.13 There is the computer or IT part, and the telephone part. The telephone part, he said, “goes back to my – my knowledge basis that I’ve got communication skills or telephone skills ”. 14 In June 2012 Mr Mulligan and Mr Mirow had expressed interest in purchasing the computer part of the business and Mr Fell would have continued to operate the telephone part. 5 T1-37.33-42. 6 T1-40.4. 7 T1-40.13. 8 T1-42.22. 9 T1-55.24. 10 T1-24.6-13. 11 T1-28.1-6. 12 T1-33.28. 13 T1-43.5. 14 T1-43.6. -- 5 of 46 -- 6 [16] Mr Fell accepted the proposition that he was primarily responsible for managing the ongoing relationships with clients saying “I had the overall consulting final say because it was my company. I had to – yes – make sure we were going in the right direction”.15 As owner, he felt responsible for managing the clients’ expectations. 16 He did, however, “rely on input from my technicians”.17 Proposals to clients had to come through him and he would authorise what was being done.18 Mr Mirow was not permitted to make proposals to clients without that having occurred. Mr Mirow’s evidence was that he had not introduced any new clients.19 [17] In respect of the allocation of work to particular technicians, Mr fell said that where the technicians’ skills fitted the clients’ needs, those technicians did those jobs, but added that more than one person could do a job on a site and that there was always a way of covering if a technician was doing a job.20 He rejected the suggestion that, generally speaking, a particular client had a particular technician allocated to them, 21 saying that there were “no allocations of a technicia n to a client. None”.22 Certain technicians got to know clients’ systems better than others, but if a client needed a technician the available technician went to the job.23 Mr fell rejected suggestions that the work of several identified clients would be allocated to a particular technician, be that Mr Mulligan or Mr Mirow. [18] Mr Fell said that all technicians had relations with all of the CCS clients.24 However, he also said that the computer technicians did not do any of the phone work. That work was performed either by himself or one of the phone technicians who he had over the years.25 Mr Mirow’s employment with CCS [19] It is admitted on the pleadings that starting on or around 5 February 2007 Mr Mirow was employed by CCS as a senior computer technician.26 [20] It is further admitted27 that as a senior computer technician Mr Mirow was responsible for: (a) Providing technical services and support to the plaintiff’s customers; (b) Researching problems and recommending solutions for the plaintiff’s customers; (c) Identifying procedures to improve service support delivery for the plaintiff’s customers; and (d) Handling the technical functions of all aspects of computer systems, networks and communications of the plaintiff’s customers. 15 T1-55.25-29. 16 T1-55.32. 17 T1-55.39. 18 T1-55.44-46. 19 T3-45.5. 20 T1-56.14-16. 21 T1-56.18-19. 22 T1-56.21-22. 23 T1-56.25-31. 24 T1-56.38. 25 T1-56.26-28. 26 Second amended statement of claim (SoC) paragraph 4 and amended defence of the first and second defendants (Defence) paragraph 1. 27 SoC paragraph and Defence paragraph 1. -- 6 of 46 -- 7 [21] Upon first being employed by CCS Mr Mirow entered into an employment contract dated 5 February 2007.28 Although admitted on the pleadings that Mr Mirow was from that time employed as a senior computer technician, his position classificatio n under that first contract was “Technician – Computing”.29 The duties of that position were those listed in the job specification for a Technician – Computing and such other duties as may reasonably be allocated to him from time to time.30 A job specificatio n for the position of Technician – Computing was attached to the contract. It prescribed that the Technician – Computing was to be responsible for the day to day support of the operating systems and infrastructure that the clients of CCS use. He was to report directly to the operations manager. The operations manager was not identified in the job specification, or otherwise in the contract, although clause 3(a) of the contract prescribed that Mr Mirow was immediately responsible to Commsupport Pty Ltd and was to carry out such directions “given by the directors of the company namely Russell Sydney Fell”. [22] The job description prescribed five areas in which Mr Mirow was mainly, but not exclusively, to carry out his duties. It prescribed that the Technician – Computing may also supervise staff performing duties in those areas, and that he was to perform other duties as directed by management. The five prescribed areas were: 1. The provision of support to clients and other technical staff on various identified operating systems; 2. The provision of support to clients and other technical staff on various identified application systems; 3. The provision of support to clients and other technical staff on the networking structure that is required by the operating and application systems; 4. The completion of jobs according to priority; adhering to all CCS procedures and assisting the review of procedures with the aim of constantly improving customer service, assisting with the building of a knowledge base for technica l staff to tap into by trapping information by way of “file notes”, “job cards” and project follow-ups; and 5. Assisting with stock control by participating in new product research and adapting products to clients’ needs. [23] Clause 14(a) of the contract included the following restrictive covenant: “The employee expressly agrees as follows: (a) Not at any time either during or after the determination of the employment for any reason and either on his own account or for any other person or for any firm or company to solicit, interfere with or endeavour to entice away from the employer any person, firm or company who at any time during the continuance of his employme nt shall have been a customer or client of the employer.” [24] The agreement was to take effect from 5 February 2007 and expire on 1 January 2008.31 The parties agreed to commence bargaining for a new agreement 60 days prior to the expiration of that contract.32 There is no evidence of any bargaining having taken place, or of any new contract having been entered into at the end of the contract term. 28 Exhibit 1. 29 Clause 2(a). 30 Clause 2(c). 31 Clause 1(a). 32 Clause 1(b). -- 7 of 46 -- 8 [25] In February 2011 Mr Mirow entered into a further written employment contract with CCS.33 [26] Again, although it is admitted on the pleadings that Mr Mirow was employed as a senior computer technician, recital A recites his having been offered employment “in the capacity of computer technician”. Clause 3.2 of the contract prescribes his duties and responsibilities are to act as a computer technician and as directed by the employer, or its director Mr Fell “as varied from time to time to allow the employer to respond to changes to its requirements”. Clause 3.2(a) provides that a job specification for the position of computer technician is “exhibited in annexure A” to the agreement. There is no annexure A. The intended job specification does not appear to have formed part of the written agreement. It cannot be said, therefore, whether the duties of computer technician under this contract were, or were intended to be, different from those specified in the job specification for Technician – Computing set out in the job specification for the position attached to the earlier contract. [27] As to any difference in Mr Mirow’s level of seniority viewed as at the time of his initial employment and as at the time of the 2011 contract being entered into, Mr Fell’s only evidence was that, at the earlier time, he would describe Mr Mirow’s experience as “probably about a level two technician”. This was in reference to a scale of one to six as provided under “the Award”. By the time the 2011 agreement was entered into Mr Fell said that Mr Mirow had “got to know all our clients. So – so there was – all the work that was – that had to be done he – he was – was there to do it, yep”. He said “we’d basically trained him up to that point. Yes”. He agreed with the suggestion of Mr Travis, who appeared as counsel for CCS, that Mr Mirow had become a more senior technician.34 [28] When asked “had he moved up in the scales?”, apparently intended as, and understood by Mr Fell to be, a reference to the Award pay scales, Mr Fell answered “probably, yeah. Well, they were – yeah at that point they were getting paid level 6 technic ia n or better”.35 [29] None of that evidence assists in understanding how Mr Mirow may have become, or been considered, a more senior technician at the later time. The Award was not put into evidence, so there is no assistance to be drawn from what it might prescribe as skill levels, experience or other indicative qualities for payment at the various pay levels. There is also a more fundamental problem with Mr Fell’s evidence of pay scales under “the Award” and Mr Mirow’s progression through them from the earlier to the later time. 33 On the pleadings (SoC paragraph 9(a); Defence paragraph 4) it is admitted that Mr Mirow’s contract was dated 21 February 2011 and that he entered into a further written contract with the plaintiff on or about that date. That date does not accord with the contract which is Exhibit 2. The document states on its face that it is dated 14 February 2011 and, where it is executed by the parties, s ays that it is dated 1 February 2011. It was tendered during the plaintiff’s opening, without objection, having been identified by counsel for the plaintiff, without explanation, as the contract “which was executed by Commsupport and Mr Mirow on 21 February 2011”, although the court admitted it as “the employment agreement of 14 February 2011”. No evidence was led which casts any light on why the contract would be admitted on the pleadings as having been entered into on 21 February 2011. 34 T1-41.29-45. 35 T1-42.1-5. -- 8 of 46 -- 9 [30] The 2011 employment contract defines “Award” to mean the Federal Modern Business Equipment Award 2010. It defines “Act” to mean the Fair Work Act 2009. Recital B to the contract recites that ‘the employees wage and conditions are governed by the Business Equipment Award 2010 and the Fair Work Act 2009”. [31] The award under which Mr Mirow was employed, or which set relevant pay scales ranging from 1-6 in 2007, could not have been the same award as that which governed his wage and conditions under the 2011 contract. It did not exist at the earlier time. The Act under which it was made had not yet been enacted. [32] Mr Fell’s evidence in this regard is meaningless and provides very little assistance in understanding how Mr Mirow’s seniority had progressed from the earlier time to the later time when the admitted fact is that he was employed as a senior computer technician from the outset of his employment. [33] As has already been mentioned, in 2012 there was a proposal that Mr Mirow and Mr Mulligan would acquire the computer part of CCS’s business and that Mr Fell would continue to operate the telephone part. This proposed acquisition did not eventuate. [34] On 9 August 2012 Mr Mirow tendered his resignation giving four weeks’ notice. 36 His last working day was to be 6 September 2012. [35] In early August 2012 Mr Mulligan also tendered his resignation to be effective from 29 August 2012.37 At the time at which each gave notice of termination of their employment they were aware that Mr Fell was leaving on a holiday to France on 10 August 2012. He was to return on 27 August. Mr Fell considered it “pretty poor timing”.38 He told them that he expected them to work while he was away. The restraints and their proper construction [36] Each of Mr Mirow’s and Mr Mulligan’s 2011 employment contracts with CCS included the following Clause 13: “13 Restraint of trade 13.1 For a period of three months from the date the employee’s employment with the employer concludes (for any reason), the employee may not directly or indirectly, in any capacity whatsoever: (a) Act for any person or entity (natural or otherwise) that the employer had or has as a client during the six month period immediately prior to the employment with the employer concluding; or (b) Contact or cause another to make contact with any person or entity (natural or otherwise) that the employer had as a client during the six month period immediately prior to the employees employment with the employer concluding, with a view to enticing that person or entity to use the professiona l services of the employee or a third party; or 36 Exhibit 3. 37 SOC paragraph 12, defence paragraph 4. 38 T1-43.36. -- 9 of 46 -- 10 (c) Solicit or assist any other person in soliciting any person who is or was an employee of the employer or to induce or attempt to induce any such employee to terminate its employme nt with the employer. 13.2 Each covenant in this clause 13.1 is a separate covenant. If one or more of the covenants is held to be void or unenforceable the validity of the remaining covenants shall not be affected. 13.3 The parties acknowledge and agree that: (a) The covenants set forward in this clause 13 are reasonable in scope and in all other respects; and (b) The employer would not have entered into this agreement but for the covenants contained herein; and (c) The covenants contained herein have been made in order to induce the employer to enter into this agreement. If at any time of enforcement of clause 13, a court of competent jurisdiction shall determine that any such restriction is void or ineffective but would be valid and effective if some part thereof were deleted or the duration or area of application reduced such restriction shall apply with such modification as may be necessary to make it valid and effective.” [37] In Electricity Generation Corporation v Woodside Energy Ltd & Ors39 French CJ, Hayne, Crennan and Kiefel JJ said the following in respect of the construction of commercial contracts: “Both Verve and the Sellers recognised that this Court has reaffir med the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideratio n of the language used by the parties, the surrounding circumsta nc es known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercia l result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercia l inconvenience”.” [38] More recently, in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,40 French CJ, Nettle and Gordon JJ said: “46 The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, 39 [2014] 251 CLR 640 at [35]. 40 [2015] 256 CLR 104 at [46]-[52]. -- 10 of 46 -- 11 document or statutory provision referred to in the text of the contract) and purpose. 47 In determining the meaning of the terms of a commercia l contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. 48 Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. 49 However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals. 50 Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations. 51 Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercia l nonsense or working commercial inconvenience". 52 These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd. (Citations omitted).” -- 11 of 46 -- 12 [39] In Clarke v Newland41 Neill J drew the following rules of construction of agreements and restraint of trade from an analysis of earlier cases:42 “1. The question of construction should be approached in the first instance without regard to the question of legality or illegality; 2. … the clause should be construed with reference to the object sought to be obtained; 3. …in a restraint of trade case the object is the protection of one of the partners against rivalry in trade…; 4. …the clause should be construed in its context and in the light of the factual matrix of the time when the agreement was made.” [40] Applying those rules, any ambiguity in the provision being construed which would, on the one hand result in a narrow and valid restraint, or on the other hand result in a wide and invalid restraint, should be resolved in preference for the former rather than the latter.43 [41] In his written submissions, Mr Travis argued that: “…the restraint is limited to soliciting for the provision of professiona l services of the kind offered by Commsupport, that is, professional IT services, and acting for customers in a capacity that competes in Commsupport’s provision of those services. It would be contrary to the approach in Mills v Dunham to suggest that the restraint was also aimed at preventing Mr Mirow, for example, from acting for, or soliciting Commsupport’s customers for professional accounting, legal or medical services, or as a “watch maker” or “umbrella maker”.”44 [42] Mr Travis submits that a construction which extended beyond that for which he contends would be “unnatural and unintended”.45 [43] The submissions of Mr Hastie for Mr Mirow are to the contrary. He submits: “…the restraint clause for courts to restrict the second defendant from acting for any person or entity who has been the customer of the plaintiff “in any capacity whatsoever”. It can, therefore, be readily seen that the clause is not limited to preventing the plaintiff (sic) from acting for a customer of the plaintiff in a capacity other than with respect to the provision of information technology services.”46 [44] The submission for Mr Mirow more directly addresses the construction of the separate restraint contained in clause 13.1(a). The submissions for CCS address, in a combined way, both the separate restraints contained in subclauses 13.1(a) and (b). There is a danger in the latter approach. It risks conflating the two separate and distinct restraints such that one gives unwarranted and unintended meaning to the other. 41 [1991] 1 ALL ER 397 at 402. 42 In his seminal work on the subject, The Restraint of Trade Doctrine, Third Edition 2008 at 136-137, JD Heydon cites Neill LJ’s rules as “a modern statement of the rules of construction” adding further footnotes in support of the first and second rules. 43 Heydon at 136 citing Mills v Dunham [1891] 1 CH 576 at 589-590. 44 The plaintiff’s closing submissions, paragraph 47. 45 Ibid, paragraph 48. 46 Submissions of the second defendant, paragraph 44. -- 12 of 46 -- 13 [45] The submissions for Mr Mirow also address, and seek to give meaning to, the word “whatsoever” as it is used in clause 13.1. The submissions for CCS do not address that part of the text of the provision. [46] In construing the meaning of each of the restraints, it is necessary to consider what the words “in any capacity whatsoever”, which appear in that part of clause 13.1 which applies generally to all of the restraints, qualify in each of the specific restraints contained in subclauses (a) and (b). In each case those general words qualify the action which introduces each subclause. [47] In subclause 13.1(a) that action is acting for any person or entity. It prohibits the former employer from acting for such a person or entity in any capacity whatsoever. It would, therefore, exclude the former employee from acting for the person or entity in the capacity of a contractor to them. It would also extend to excluding acting for such a person or entity in the capacity of an employee of them. So to it would extend to prohibiting acting for them in the capacity of their agent. Because the word “whatsoever” is used, each and every capacity in which the former employee may act for such a person is prohibited. [48] On its face, subclause 13.1(a) does not confine areas of activity in which the former employee is prohibited from acting (within any capacity) for the relevant person or entity. The prohibition against acting for the person in any capacity whatsoever, does not distinguish between various acts which the former employee may perform for the person in any capacity. The prohibition would include acting for the person in the provision of professional IT services to them, but it is not, in its terms, restricted to that activity. It differs from clause 13.1(b) in that regard. It does not permit the former employer to act for the person as their employee, provided the employment is not of a particular kind, or in a particular area of activity, or involve certain duties. [49] The restraint in subclause 13.1(b) is confined to an area of activity being the professional services of the former employee or a third party. Given the context and evident commercial objects of the agreement, restricting the professional services referred to in subclause 13.1(b) to professional IT services is the construction, of that restraint, to be preferred. The expression “professional services” as used in that restraint is ambiguous, and the circumstances of the making of the agreement would result in that ambiguity being resolved by construing that expression to mean professional IT services. [50] However, I do not consider that the expressed restriction on the restraint contained in subclause 13.1(b) should be read into the restraint contained in subclause 13.1(a). The prohibition in subclause 13.1(a) is not ambiguous; it is absolute. Given the interest of CCS to be protected was its customer connection, it cannot be said that an absolute prohibition on acting for a former customer in any capacity whatsoever, such that it would, for example, restrain Mr Mirow from entering any employment of whatever kind during the restraint period, was unintended. Complete separation during the period may have been precisely what was intended. [51] Commencing employment with a client of CCS, even in a role entirely unrelated to IT and, initially at least, with no intention Mr Mirow should do any such work, may nonetheless, over time, result in Mr Mirow, because of his presence as an employee of that person or entity, performing IT work. It could not, in my view, be said that the avoidance of such a situation by prohibiting Mr Mirow from acting for the client -- 13 of 46 -- 14 in any capacity whatsoever “cannot be reasonably supposed to have been contemplated by the parties”.47 [52] Just as the court is “not bound to look for improbable and extravagant contingenc ies to make it void”,48 “full effect should be given to all the possibilities which fall within the terms in which the parties have expressed their agreement” even if such an event which would fall within its terms is an “unlikely possibility”.49 [53] In subclause 13.1(b), the expression “in any capacity whatsoever” qualifies the activity of contacting or causing another to make contact with CCS’s clients with a view to enticing them to use the professional services50 of the former employee or any third party. What is prohibited is contact with the relevant intent, no matter in what capacity that contact is made or caused to be made by another person. Whether the contact be in the former employee’s own personal capacity as a potential employee whose professional IT services might be used in house, or as a contractor providing such services on his own account, or as a director of some corporate entity, or as an employee or agent of some third party offering IT services, it is prohibited. [54] The construction of the restraints is otherwise straight forward. The period of restraint in respect of each is three months commencing from the date of termination. The prohibition against acting for clients in the case of subclause 13.1(a) and the contacting or causing to be contacted former clients in the case of subclause 13.1(b), extends to such activity engaged in either directly or indirectly. As such it would extend to Mr Mirow causing Mr Mulligan to make contact with such persons or entities. The contact prohibited under subclause 13.1(b) is only that engaged in with a view to enticing the person or entity to use the professional IT services of the former employee or a third party. As such it would extend to Mr Mirow contacting, or causing Mr Mulligan to contact, such persons with a view to enticing them to use the professional IT services of Identity Computing. [55] Under each restraint the relevant persons or entities which Mr Mirow is prohibited from acting for or contacting are those who CCS have had as a client in the six months immediately prior to the cessation of his employment. Are the restraints valid? [56] The legal principles to be applied by the courts in considering whether to uphold covenants in restraint of trade are of long-standing. Lord MacNaghten’s statement of the underlying principles in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Limited51 in 1894 remains as current today as it was then. Lord MacNaghten said: “All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individ ua l liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable – reasonable, that is, in 47 Haynes v Doman [1899] 2 CH 13 at 24-7. 48 Rannie v Irvine [1844] 7 MAN & G 969 at 976. 49 Geraghty v Minter (1979) 142 CLR 177 at 180. 50 Limited to professional IT services as already explained. 51 [1894] AC 535 at 565. -- 14 of 46 -- 15 reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is no way injurious to the public.” [57] So too the explanation provided in 1916 by Lord Parker of Waddington in his speech in the House of Lords in Herbert Morris Limited v Saxelby52 of the test of reasonableness in the interests of the contracting parties, as referred to by Lord MacNaghten, continues to be cited as a touchstone when considering the issue. Lord Parker put it this way: “With regard to the former test, I think it must afford no more than adequate protection to the party in whose favour it is imposed.”53 [58] In order for there to be a valid restraint of trade it must be directed toward some legitimate interest of the employer recognised as being capable of being the subject of protection, rather than toward protection against mere competition.54 Each of trade secrets and confidential information and loss of customer connection are interests which an employer may legitimately protect by means of a covenant in restraint. Customer connection has long been accepted as an interest of the employer legitimately the subject of a covenant in restraint obtained from an employee.55 The issue which arises in any particular case is whether the particular employee, by virtue of his or her employment with the employer, has had contact with the customers such that the relationship between the employee and the customers is one whereby the employee holds some influence over the customer.56 [59] The matter was put somewhat colourfully by Hoover J in Arthur Murray Dance Studios of Cleveland Inc. v Witter57 when he said: “… the employee, by contact with the customer, gets the customer so strongly attached to him that when the employee quits and joins a rival he automatically carries the customer with him in his pocket.” [60] And later His Honour said: “The personal relationship between the employee and the customer [is] such as to enable the employee to control the employe r’s business.”58 [61] The requisite relationship has otherwise been described as one whereby the employee has become the “human face” of the employer’s business,59 or that the employee was the “persona” of the employer.60 52 [1916] 1 AC 688 at 707. 53 For restatements of these principles in the High Court of Australia see Lindner v Murdoch’s Garage (1950) 83 CLR 628 at 653; Buckley v Tutty (1972) 125 CLR 353 at 379; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315-316. 54 Lindner v Murdoch’s Garage (1950) 83 CLR 628 at 634; Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 at 301; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [28]. 55 For example, see Lindner v Murdoch’s Garage. (1950) 83 CLR 628 at 654. 56 Herbert Morris Limited v Saxelby at 702; Dews v Fitch [1920] 2 CH 159 at 181; Lindner v Murdoch’s Garage at 654. 57 105 NE 2d 685 at 705 (Ohio) CP, 1952. 58 Ibid at 706. 59 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 at [25]; Brinks v Cain [2007] NSWSC 62 at [5]. 60 Burton & Eising v Wright Trading Pty Ltd [2007] QSC 17. -- 15 of 46 -- 16 [62] Such a relationship will be much more readily recognised in circumstances in which the role of the employee concerned involved the development of the employer’s business and extending the customer base. Where that is so, Brereton J in Koops Martin Financial Services Pty Ltd v Reeves said: “A more robust view is taken where the employee’s role includ es obtaining and extending custom for the employer’s business. Where an employee’s duty includes to build up the employer’s clientele as well as to deal with existing clients, a wide restraint is more likely to be upheld, because in such circumstances the employer is entitled to protection against the employee taking advantage of the period of service to prepare for later competition [GW Plowman & Sons Ltd v Ash [1964] 1 WLR 568; [1964] 2 All ER 10; Normalec Ltd v Britton [1983] 9 FSR 318 at 324; Dean, The Law of Trade Secrets, 2nd Ed [11.150]. In such a case, the establishment of a customer connection is not merely incidental to the employment, but its purpose. In that context, a covenant is considered reasonable, first, to remove the temptation that by cultivation of the target market during employme nt, the employee may prepare the ground for its exploitation by himself after the employment ends, rather than for his employer during the employment; and, secondly, to prevent exploitation after terminatio n of the employment by the employee of a connection with the customer which the employer has paid the employee to establish for the employer’s benefit … .”61 [63] Similarly, in HRX Holdings Pty Ltd v Pearson,62 Buchanan J in upholding a two year restraint against a former employee who had been integral to the development of his former employer’s business, described the employee thus: “Mr Pearson is regarded as having a very special ability to connect with prospective clients, gain their trust and convince them of the benefits of the techniques and strategies which he has (with HRX in more recent years) developed. Mr Pearson shares the view that he has a particular ability to engage with prospective (and current) clients and gain their trust. It is meant that he has been a key component of HRX’s success to date in first entering, and then growing in, a small and competitive market in Australia. Various witnesses refer to Mr Pearson ‘sprinkling fairy dust’ and Mr Pearson in his evidence did not seem uncomfortable with characterisations of this sort. Although the operations of HRX have grown substantially since the time since that Mr Pearson executed the executive service agreement it was always contemplated that the business would initially be built around him and that he would continue to play a pivotal role in business development.” [64] By way of contrast, in Wallis Nominees (Computing) Pty Ltd v Pickett,63 Sifris J in the Victorian Supreme Court, in refusing to restrain an IT specialist from moving into an in-house management position with a former client of the business for whom the employee had performed work, said: 61 [2006] NSWSC 449 at [44]. 62 [2012] FCA 161. 63 [2012] VSC 82 at [63]-[64]. -- 16 of 46 -- 17 “Pickett’s role did and was not intended to include obtaining or extending the client base of DWS. He was in an altogether different position to that of Mr Peters in Cactus Imaging or Mr Reeves in Koops Martin. In this case, DWS did not, at the time the agreement was entered into (or indeed at any stage), propose to develop goodwill around Pickett or other individual consultants or the services they were to and did provide. Rather, the evidence establishes that DWS at all times promoted and directed its marketing and advertising skills to the enhancement of the goodwill of the DWS name and presence. Where DWS was to provide individual consultants to clients as was contemplated in the case of Pickett and others, it did so with the intention of enhancing its presence and share of work from that client, rather than making or promoting Pickett or other individ ua l consultants as the ‘human face’ of its business.” [65] In my view, Mr Mirow’s role in CCS aligns much more closely with that considered in Wallis Nominees than in HRX Holdings. [66] McMurdo J in the Queensland Supreme Court in AGA Australia Pty Ltd v Tokody said of the test of whether there is a customer connection of the requisite degree: “The relevant interests to be protected in this respect is the value of the relationships which the defendant had developed with clients and which were acquired in the course of her employment. Such relationships are beneficial to the employer, and the benefit is treated as an interest which justifies some reasonable protection upon the cessation of the employment. A restraint upon competition is not justified simply from a history of contact between the employee and customers. There must be a relationship of a kind which could make it a contributing factor in a customer’s decision to give its business to a competitor for whom the former employee now works.”64 [67] A point upon which restraints often fail in respect of the customer connection interest, is not that the employee sought to be restrained had no such relationship of influe nce over customers of the employer, but rather the restraint has been drawn so broadly that it applies not only in respect of those customers with whom there was such a relationship, but also to those whom there was no such relationship. It is at this point that the legitimacy of the interest gives way to the restraint being seen as one merely against competition.65 The employee could be considered to have no more influe nce over such customers than a stranger.66 [68] The relevant bargaining position of the parties is also relevant to the consideration of whether the restraint is reasonable in the interests of the parties.67 64 [2012] QSC 176 at [17]. 65 Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at [30]. 66 Burton & Eising v Wright Trading Pty Ltd [2007] QSC 17 at [47]. 67 Amoco Australia Pty Ltd v Rocco Bros Motor Engineering Co Pty Ltd, supra at 136-137; A Schroeder Music Publishing Co Ltd v Macaulay [1974] 3 All ER 616 at 623; AGA Assistance Australia Pty Ltd v Tokody, supra at [33]; Artcraft v Chandler [2003] QSC 102 at [33]. -- 17 of 46 -- 18 [69] Applying these principles to this case leads me to the conclusion that the restraints imposed by each of subclauses 13.1(a) and (b) are not reasonable and extend beyond what might be adequate to protect the legitimate interests of CCS. [70] To explain my reasons for that conclusion, it is convenient to commence with the last of the principles referred to above: the bargaining positions of the parties. [71] At the time at which the contract was entered into in February 2011, Mr Mirow had been working for CCS for just on four years. The contract which governed his employment for the first 11 months contained provisions in restraint of trade. That contract ended on 1 January 2008. Despite Mr Fell’s evidence that he had restraints with his technicians “right from when I first hired my first worker in 1998”,68 it is clear on the evidence that Mr Mirow’s employment contract did not contain any provisions in restraint of trade from 1 January 2008 until this agreement was entered into in February 2011.69 The employment relationship is contractual in origin.70 Although the employment relationship continued after the expiration of the 2007 contract, it did so under a different contract.71 It is not necessary to determine what the terms of that contract were. It suffices to observe that they did not include restraint provisions amongst them. [72] The 2011 contract was drafted by Mr Fell with the help of his solicitor. Mr Fell presented Mr Mirow with the 2011 contract the day before it was to be signed. Mr Fell made it very clear to Mr Mirow that he would not agree to any changes to its terms whatsoever. The following day, prior to signing the contract, Mr Mirow raised a number of concerns about the contract with Mr Fell. Those concerns included the restraint of trade.72 Mr Mirow was told by Mr Fell that the contracts were not going to be changed. Had Mr Mirow not signed the contract, unaltered, his employme nt with CCS would not have continued.73 [73] Mr Mirow had asked Mr Fell if there was to be any additional remuneration. Mr Fell said there would not be; Mr Mirow was to remain on his then current remuneratio n. 74 [74] Mr Hastie, counsel for Mr Mirow, submits that this evidence clearly establishes that the parties were far from being in a position of equal footing in relation to entering into this contract. He submits that CCS “held all the cards” and that Mr Mirow was presented with the contract on a “take it or leave it” basis.75 He submits that Mr Mirow was bargaining from a very weak position, essentially having to sign the agreement notwithstanding his concerns if he was to preserve his employment of four years. There was no negotiation over the terms of the contract.76 [75] On a related issue, Mr Hastie also contends that the restraint clause was not supported by sufficient consideration, Mr Mirow obtaining no advantage whatsoever from signing the agreement. 68 T1-41.4-5. 69 Throughout that period the employment relationship between the parties continued. 70 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 420. 71 Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 at 573. 72 T3-40.46. 73 Mr Fell’s evidence T1-50.25 to 1-51.3 and T1-54.20 to T1-55.4. 74 T3-41.1-5. 75 Submissions of the second defendant, paragraphs 14 and 16. 76 Ibid at paragraph 18. -- 18 of 46 -- 19 [76] Mr Travis, in his oral submissions, submitted that Mr Hastie had misunderstood the authorities upon which he based his submissions on this point.77 Mr Travis submitted that all that those authorities stood for was “the proposition that if the parties were to seek to rely upon the suggestion that because they’re both grown-ups, because they have gone and entered into an agreement and assented to certain terms, that they are therefore – that should satisfy the reasonableness requirement. 78” [77] Mr Travis submitted that it was for that reason the plaintiff did not seek to rely upon clause 13.3(c) of the agreement which is such a clause by which the parties agree to the reasonableness of the restraint. Mr Travis sought to make good this point by reference to “an authority coming out of the UK”, referred to in Mr Hastie’s written submissions. This would seem to be Mr Hastie’s reference to A Schroeder Music Publishing Co Ltd v MacAulay79 in support of his contention that inequality in bargaining position is relevant to the reasonableness of the restraint. Mr Travis submitted that it established only that in situations in which employers may be imposing restraints on employees “the courts have to be vigilant about whether these clauses are, in fact, reasonable as between the parties”.80 [78] In my respectful opinion, the submissions of Mr Travis misunderstand the authorities. It is true that in Schroeder Lord Diplock did state:81 “The fact that the appellant’s bargaining power vis a vis the respondent was strong enough to enable them to adopt this take it or leave it attitude raises no presumption that they used it to drive an unconscionable bargain with him, but in the field of restraint of trade it calls for vigilance on the part of the court to see that they did not.” [79] However, his Lordship had observed of a party who was able to offer goods and services on a “take it or leave it” basis: “To be in a position to adopt this attitude towards a party desirous of entering into a contract to obtain goods or services provides a classic instance of superior bargaining power.” [80] This observation had been made in his Lordship’s analysis of contracts, as was the contract under consideration, which were in standard forms. He considered there to be two forms of standard contracts, “the first of very ancient origin are those which set out the terms on which mercantile transactions of common occurrence are to be carried out”. Of those his Lordship observed: “If fairness or reasonableness were relevant to their enforceability the fact that they are widely used by parties whose bargaining power is fairly matched would raise a strong presumption that their terms are fair and reasonable.” [81] Part of the court’s vigilance as referred to by Lord Diplock involves, in assessing the issue of reasonableness as between the parties, consideration of their respective bargaining strengths. 77 T5-26.45. 78 T5-26.46 to T5-27.5 and T5-27.28-30. 79 [1974] 3 All ER 616. 80 T5-27.25-30. 81 At 624. -- 19 of 46 -- 20 [82] Mr Travis’ further submission that the authorities go no further than supporting the proposition that the parties own assent to the contract and agreement as to its reasonableness will not bind the court, also misunderstands the full extent of those authorities in my respectful view. For example, in Artcraft Pty Ltd v Chandler,82 Muir J (as His Honour then was) said: “In determining whether the restraint is reasonable in the interests of the parties, it is relevant that the parties have bargained at arm’s length on an equal footing. It would appear, however, from the judgment of Gleeson CJ, Gummow, Kirby and Hayne JJ in Peters Ltd (WA) Ltd v Petersville Ltd83 that little weight is to be attached to the consensual nature of the restraint.” [83] The issues of bargaining position referred to in the first sentence, and of consensus in the second sentence, although perhaps related in a particular case, are nonethele ss distinct. So much is evident from His Honour’s citation of that part of the judgme nt in Peters Ltd (WA) Ltd v Petersville. In that part of the judgment the plurality considered the consensual nature of the restraint, but the issue of respective bargaining position did not feature in those considerations. [84] The fact that the 2011 contract was presented on what may fairly be described as a “take it or leave it” basis in the circumstances as set out above does not, of itself, render the restraint unreasonable: but it is a matter relevant to a consideration of whether it is unreasonable between the parties. [85] There can be no doubt that there was a vast disparity in the relative strengths of the parties’ bargaining positions. Without prior notice or negotiation Mr Mirow, as an employee, was presented with a non-negotiable contract which would not only govern the employment relationship which was then of four years standing into its future, but would also restrict the use which Mr Mirow could make of his skills and labour after the cessation of that relationship. If he did not agree his employment would end, and the security which such employment brings would be lost. On the evidence, Mr Mirow had no reason to fear that his employment was otherwise insecure. In fact, the requirement to enter into the new ongoing contract is evidence that his employment was otherwise secure. [86] On the related issue of consideration, Mr Travis submitted on behalf of CCS that what was being offered in return for the restraint was continued employment which was substantial consideration because it provided ongoing salary, ongoing access to clients and an ongoing ability to learn how the various systems operated while being paid. That is a complete answer to the contention that Mr Mirow obtained no advantage whatsoever in return for signing the 2011 agreement. Although no authority was cited in support of the submission, it exists. [87] In Electroboard Administration v O’Brien84 the New South Wales Court of Appeal considered a case in which an existing employee was asked to sign a letter which would add a term in restraint of trade, including post-employment restraint, to her contract. For about a year she worked on without signing the letter, but under mounting pressure eventually capitulated and signed. The trial judge’s conclusio n was that it was clear that she had signed because she was concerned that she might 82 [2003] QSC 102 at [23]. 83 (2001) 205 CLR 126 at 142-143. 84 [1999] NSWCA 452. -- 20 of 46 -- 21 lose her employment. Of the contention that the new term was not supported by consideration, Meagher JA, with whom Mason P and Priestley JA agreed, said at [10]: “They lost before Cohen J because his Honour held that the new term was not supported by any consideration. In my view the appellant’s are correct in submitting that his Honour fell into error. On his Honour’s own finding, the appellants said to Mrs O’Brien ‘we shall dismiss you if you don’t sign’, or alternatively ‘we shall not dismiss you if you do sign’, I cannot see how such an agreement lacks consideration: this is a benefit to the employers in obtaining the signature, and a benefit to the employee in diverting the prospect of imminent dismissal.” [88] The element of the restraint in each of subclauses 13.1(a) and (b) which establishes their unreasonableness as between the parties is its extension to any person or entity which CCS had as a client during the six month period immediately prior to the conclusion of Mr Mirow’s employment. The inclusion of all clients goes beyond what is adequate to protect the legitimate interests of CCS being its confidentia l information and its customer connection established through Mr Mirow. [89] It may readily be concluded that Mr Mirow would have developed relationships with a number of clients of CCS through the work he performed for them on behalf of CCS. It also may readily be concluded that amongst those clients with whom he had developed such relationships would be included some or all of those in respect of whom he is alleged to have breached the covenants contained in either or both of subclauses 13.1(a) and (b). It may further readily be concluded that the nature of those relationships was such as to justify some reasonable protection of CCS on the cessation of Mr Mirow’s employment. However, it could not be concluded on the evidence that such relationships extended, or could reasonably have been expected at the time of which the parties entered into the contract to extend, to the clients captured by the covenants. [90] The plaintiff’s written submissions contend that, being limited to only those clients of CCS in the six months preceding the cessation of Mr Mirow’s employment, the restraints are “focussed on those customers over which Commsupport maintained a reasonable expectation of repeat business.85 It is further submitted that the restraint is justified because of Mr Mirow’s senior position and access to confidentia l information which would mean that he would reasonably be expected to have personal contact with any of Commsupport’s customers or “may well in one way or another through his employment acquire special influence over or knowledge of the requirements of any of the employers customers.”86 The quoted passage in this submission comes from the judgment of Russel LJ in GW Plowman & Son Ltd v Ash.87 It is to be noted that the matter before the court in that case was an interlocutor y appeal from a dismissal of a motion for an interlocutory injunction restraining the employee pending trial. Russel LJ said “In the present state of authority, I would not on a motion hold that a covenant in this form when it was entered into went beyond what was reasonably necessary for the protection of the business”. [91] In his oral submissions on this point, Mr Travis submitted that because the restraint was limited to those who were clients in the six months before the employee’s 85 The plaintiff’s closing submissions, paragraph 45. 86 Ibid at paragraph 46. 87 [1964] 1 All ER 10 at 14 as cited by Heydon at page 165 -- 21 of 46 -- 22 departure they were “clients over whom my client would have a reasonable expectation of an ongoing customer connection”.88 [92] He further submitted: “But what we also have is we need to look forward from the point that the contract is signed, and determine what is reasonable between the parties looking forward. And so when we look forward, we – the parties are not in a position to determine, given the way that work is allocated – and I’ll go into – I’ll make some comments on the evidence shortly, but the way that the work was allocated, it simply was the parties were not in a position to determine in advance which clients they would be exposed to. And – and, in fact, it may well be the case that they could be exposed to all of the clients.”89 [93] Mr Travis sought to illustrate the submission by reference to the evidence that although Mr Mulligan or Mr Mirow would often be assigned to a particular client, not in a formal sense but in the sense that they would develop relationships with particular customers because their skill sets were a good match for the customer, there was in each instance contact with the other technician. The other technician, as it was put, would step in from time to time and do some work for the client. Whilst some clients may have seen Mr Mirow as a “background player” he was nonethele ss “somebody who they may have been exposed to”. If Mr Mulligan were to leave, Mr Travis submitted that “it would be, looking forward from the time of contracting, completely reasonable to expect that Mr Mirow would have to step in and fill the shoes of Mr Mulligan.”90 It was submitted that there were urgent requirements, for example when staff were away, when any of these technicians could be servicing any of the clients on the book. On this basis, Mr Travis submitted: “And at the time the contracting it doesn’t make any sense to sit there in advance and determine who the technicians would be working for and who they would be restrained from approaching.”91 [94] In addressing why a restraint worded so as to limit the excluded clients to those for whom Mr Mirow had performed work in the past six months would not be appropriate, Mr Travis submitted that such a clause would not be suitable to the business of CCS because not only was work done for clients on site where there was face to face interaction such that the employee may recall for whom it was that he performed work, there would be multiple interactions on any one day some of which “are going to be remote back in the office.” He submitted that in such situations “an ex employee would be straying into the prospect of litigation…on the basis of their reliability of who they did work for during the six months before they left”. [95] He submitted: “And so a much neater and reasonable approach in that case is to simply say in advance, “you may be exposed to confidentia l information of any of my clients. You may be exposed in terms of customer service to any of my clients. You may know their contact information, where they are, what their – systems they operate. Even if you do not go out to any particular client, you may well know 88 T5-29.23-25. 89 T5-29.40 to T5-30.2. 90 T5-30.15-18. 91 T5-30.1-25. -- 22 of 46 -- 23 confidential information about them. You may learn about it in the tea room talking to Mr Mulligan about his clients.” So there is not only a customer connection here; there’s confidential information, as well, that needs to be taken into account. And this is just going to be flowing through the business. And the idea that there’s – that there be silos between the two technicians is unreasonable. So this was an entirely appropriate clause to deal with the situation where somebody leaves. All that is required in this situation – the only hurdle that would be required is if Mr Mirow, for example, had some uncertainty about whether a person was a customer within the last six months of CCS, ask before taking another step. That’s all that would be required in this situation.”92 [96] It was submitted that it was not a situation where the employer was trying to bargain for something that was clearly beyond any reasonable entitlement. Rather it was said that: “This is a clause which is, is at least been attempted to be drafted to meet serious concerns regarding the enforceability of the clause, which of course, necessarily takes in the reasonableness of the clause as between the employer and the employee.” [97] Mr Travis further illustrated the contended for reasonableness by reference to the three month term of the restraint period and that it only extended to clients within the preceding six months.93 [98] As to the restraints extending to all of the clients in the relevant six month period, including those in the telecommunications part of the business for which Mr Mirow did not perform any work, it was submitted for CCS that Mr Mirow’s evidence was not that he did no work for these clients but rather that he was not responsible for providing telecommunication services to them. Thus it was submitted that “there was no evidence that these clients are distinct from the clients who get the IT services”, with reference to Mr Mirow’s evidence that he provided some cabling for some such clients.94 [99] It may immediately be accepted that both the three month period of the restraint and the six month relation back period are, of themselves, reasonable. However, I do not accept the submissions otherwise as to the reasonableness of the covenants. The evidence does not support those submissions. [100] Before turning to consider the “all clients” aspect of the restraint, I would observe in relation to the reasonableness of the three month duration that the reasonableness of the period of restraint is to be judged on the basis of how long it will take for the connection between the ex-employee and the customers to die away.95 92 T5-31.14-45. 93 T5-32.9-17. 94 T5-39.15-30. 95 Heydon at 168 footnote 137 citing NF Perry Pty Ltd v Judge (2002) 84 SASR 86 at 91 [28]-[30], 92 [35]. 96 [60] and [63], 98 [72], 103-104 [101] and [103] as stating the correct test rather than a duration no longer than that necessary for the employer to put a new man in the job and for the new employee to have a reasonable opportunity to demonstrate his effectiveness to the customers, as the test had otherwise been stated. -- 23 of 46 -- 24 [101] In order for the covenants in restraint to be reasonable as between the parties, it is insufficient that there simply be, at the time at which the agreement is entered into, some prospect of some interaction between the employee and the employer’s clients. What is necessary is interaction of such a kind or to such an extent as would give rise to a level of connection between the employee and the client in respect of which the employer is entitled to protection. Mere exposure, or potential exposure, to the employer’s clients will not be sufficient. [102] The only evidence in the plaintiff’s case as to the extent of Mr Mirow’s interactio n with all of the clients of CCS was Mr Fell’s evidence that “he got to know all our clients”. I do not accept that to mean, literally, that Mr Mirow got to know each and every of CCS’s clients. Rather, I take that to mean he got to know each of the clients with whom he had substantial dealings. It could not be taken to mean that Mr Mirow got to know all the clients through insubstantial or fleeting interaction with them. If Mr Fell did intend to convey such a meaning, I would reject the suggestion. It does not accord with the evidence. [103] No attempt beyond that evidence of Mr Fell was made in the plaintiff’s case to demonstrate how Mr Mirow would have developed a protectable customer connection with (or how he would have come to know the business of) even all of the clients of CCS with whom he may have some interaction in the six months prior to the cessation of his employment. Evidence of the extent of the clients who would be captured is contained in annexure 5.2 to the report of Ms Joanne Wilson, the expert accountant called in the plaintiff’s case. That report is Exhibit 25. [104] An analysis of annexure 5.2 reveals that in the six month period comprising April 2012 to December 2012 there were 203 clients who transacted business with CCS. There is no evidence of what business each of those clients transacted. It can, however, be seen that some transacted business which resulted in substantial revenue to CCS. The number of transactions giving rise to that revenue cannot, however, be discerned as the report discloses only a single revenue figure for each client in each month. It is also evident from this report that there are a large number of clients with whom there is very limited commerce transacted in the relevant period. The sums involved in some of those commercial transactions are so modest, some as low as $11.00 or $14.00, many as low as $62.00 or $65.00, that it may be inferred that the transactions would not be numerous. It may also be inferred that whatever the customer contact which may have occurred, it was insubstantial. Mr Travis conceded in the course of his oral submissions that the restraints would extend to all of those clients.96 In making that concession Mr Travis observed that it can’t be a criticism of the business that it has such a broad range of clients. That is true; but it is not to the point. What is to the point, given the broad range of clients which CCS has, is whether the restraints can be criticised as unreasonable because they extend over that entire range. In my view they can be. [105] Annexure 5.1 to Ms Wilson’s report is also of assistance in considering whether the extension of the covenants to all of the clients of CCS in the six months preceding cessation of employment is reasonable. Annexure 5.1 is a summary of the invoices of CCS for each of the full financial years of 2009 to 2013 and the part financial year from July 2013 to February 2014. That summary reveals that of the 696 customers the business had over that period 261, or 37.5 per cent, transacted business of a value 96 T5-34.1. -- 24 of 46 -- 25 of less than $500.00. 208 of those customers transacted business in one of those years only. The summary also demonstrates that such a pattern of transactions would have been known to the parties at the time of entering into the agreement in February 2011. [106] Upon this evidence, it could not be said that at the time of entering into the agreement it was reasonable as between the parties that the covenants extend to all of the clients of CCS in the six month period before cessation of Mr Mirow’s employment. It could not have been thought, at that time, that there was any potential at all for Mr Mirow to have interactions with, or be exposed to, all of those clients such that he would have or develop a connection with them such as would give rise to a legitima te protectable interest on the part of CCS. Nor does that evidence suggest that Mr Mirow would be likely to become privy to confidential informa tion of all of those clients, or confidential information of CCS in respect of them. There was no evidence in the plaintiff’s case which would establish the acquisition by Mr Mirow of any knowledge of any confidential information of or concerning those clients. There was no information of a particular kind stored on the Client Relational Management package about these clients which was identified. [107] At the time of entering into this agreement Mr Mirow had been employed by CCS for four years. It must have been known by the parties at that time, based upon their experience of Mr Mirow’s employment within the business, that he would not develop a connection with all of CCS’s clients in any six month period of a kind or to an extent that would give rise to a legitimate protectable interest. Indeed, in his submissions, Mr Travis acknowledged that “It may well be the case that some of those people have walked – have been visiting from Western Australia, have walked in, had a one off transaction, bought a cable and walked out, and that those people will get caught up (in the restraint)”.97 On that concession, it could not possibly be said that Mr Mirow was ever likely to develop a connection with such customers warranting protection. In those circumstances, the further submission that the clause was a “sensible mechanism” cannot be accepted.98 [108] Whilst it is submitted for CCS that there was no evidence that the clients within the telecommunications part of the business were distinct from those within the IT part, the better point is that there was no evidence that they were not. The evidence establishes that there were some clients common to both; but it does not establish that all were. [109] Much of Mr Fell’s evidence concerning the servicing of clients also suggests that those customers with whom Mr Mirow may have had such a connection which would give rise to a legitimate interest in CCS to protect would be limited. Mr Fell disavowed the technicians being the face of the business. Much was done to brand the business such that, as Mr Fell put it, the customers knew they were dealing with CCS. He did not identify the technicians as those who built the rapport with the client in the early stages of the relationship. He emphasised his role in that. It was his role to manage client relationships. The technicians could not put proposals to customers without first going through him. He had the overall final say. This was consistent with Mr Mirow’s evidence that he introduced no new clients. Much of what Mr Fell said as to the connection with clients that kept them happy seemed to be deliberate ly non-specific to any particular technician. That is, that CCS as a business was able to 97 T5-35.3-10 98 T5-34.5-10. -- 25 of 46 -- 26 react and respond to the needs of the clients as and when assistance was required and that this was not reliant on the individual knowledge of any one technician. The evidence of Mr Fell as to there being no real detriment when Mr Mirow and Mr Mulligan left, that CCS was not about to promote that they had left, and that he and Mr Thompson were able to fill the gap with no real drop in service level, also suggests that the alleged customer connection was not great. [110] All of these matters favour the conclusion that Mr Mirow would have limited customer connection, or put differently, the customers with whom he would have a relevant connection would be limited. [111] I do not accept the submission that these covenants were drawn in an attempt to meet serious concerns about their enforceability. Mr Fell gave no direct evidence of that. It would be wrong to infer it. The breadth of the covenants in respect of their extending to all customers being unwarranted based upon the history of the working relationships in the years preceding the agreement is against such a conclusion, as is the absence of any negotiation, or preparedness to negotiate, with Mr Mirow about their terms. [112] In my opinion, the conclusion must be that each of the covenants contained in subclauses 13.1(a) and (b) goes beyond that which adequately protects CCS. The covenants are unreasonable as between the parties. As such the covenants are not valid and are not enforceable. [113] Although Mr Mirow did not attempt to establish that the restraints were unreasonab le for reasons other than those already addressed, I should record, for completeness, that I would otherwise have found each of the restraints in subclauses 13.1(a) and (b) to be reasonable. [114] As already said, the 3 month restrain and the 6 month relation back period are each reasonable particularly when taken together. So too, in my view, the restraint in subclause 13.1(a) which prohibits the former employee from acting for the former client in any capacity whatsoever, when restricted to 3 months, would also have been reasonable. As already addressed, complete separation from the client may be reasonable in order to bring to an end the established customer connection between the technician and the client and to allow that connection to die off. [115] In respect of subclause 13.1(b), properly constructed so as to be limited to prohibiting contact with the intent to entice the former client to engage the professional IT services of the former employee or a third party, it too would be reasonable given the 3 month limit to the restraint. Breach of the covenants [116] It is admitted by Mr Mirow that each of ten businesses identified by CCS in its pleading were its customers in the six month period preceding the cessation of his employment. Those businesses are: Robertson Scannell Accountants; RD Administration; Graham Financial; Wilsonton News; Interstate Finance and Leasing; Hooper Centre News; Brown Steel; Party Hut; K&R Plumbing; and Moore Lewis and Partners. [117] Mr Mirow also admits that during the period from 29 August 2012 to 6 December 2012 he (or Identity Computing) acted for five of the businesses: Robertson Scannell -- 26 of 46 -- 27 Accountants; RD Administration; Graham Financial; Wilsonton News; Hooper Centre News; and Interstate Financing and Leasing. Had the covenants in subclause 13.1(a) of the agreement been valid and enforceable, Mr Mirow having acted for those clients in that period would have been in breach of that covenant. [118] Annexure 6 to Ms Wilson’s report99 identifies that, collectively, those clients were issued 20 invoices by Identity Computing from 4 October 2012 to 23 January 2013. The total amount invoiced, including GST was $23,338.13. [119] CCS alleges that Mr Mirow also contacted each of the ten identified clients during the restraint period with a view to enticing those businesses to use his professiona l services or those of a third party. Mr Mirow admits this allegation only in respect of Brown Steel. Had the covenant contained in subclause 13.1(b) been valid and enforceable, that contact would have been in breach of it, as would any other contact established on the evidence as having occurred with the relevant intent during the restraint period. [120] CCS submits that there is circumstantial evidence arising from the course of events which Mr Mirow admits from which inferences as to breaches of the covenant in clause 13.1(b) could be drawn. The first of those events identified is services having been provided to CCS clients during the restraint period which suggests that information must have been provided for that to have occurred. The second is the departure of long standing customers of CCS to Identity Computing. It is submitted that the court need not assume that this was mere coincidence. It is said that it would be an incredible coincidence even if they were all to have left at the one time, but an extraordinary coincidence for them to have done so and for them to have gone to Identity Computing, “unless Identity Computing Pty Ltd, Mr Mirow or his partner, Mr Mulligan, had solicitous communications with those customers.”100 [121] The third identified event is the unsuccessful solicitation of three CCS customers. [122] In addition to those general matters, specific evidence in relation to individual clients of CCS from which it was submitted that it would be inferred that Mr Mirow breached subclause 13.1(b) was addressed. [123] Robertson Scannell Accountants had been a client of CCS since about 2000. In 2012 one of the directors, Mr Mahoney, was the main person in charge of the firm’s IT. Ms Garland was the office manager. The firm dealt primarily with Mr Mulligan with whom there was a good relationship and who was viewed as a ‘known quantity’ who was familiar with the firms systems. [124] On 2, 10 and 19 September 2012101 emails were sent to Robertson Scannell. The first two were sent to Ms Garland and the third to a Ms Kahler. In its submissions, CCS says that each email was sent from Identity Computing Pty Ltd. On one level of abstraction that is correct. However, when one descends to a more detailed level, it was Mr Mulligan, not Mr Mirow, who sent the emails. In my view it is necessary to consider the emails at this more detailed level because although the submissions for CCS are put on the basis that the court would infer that “Identity Computing Pty Ltd, Mr Mirow or his partner Mr Mulligan, had solicitous communications with the 99 Exhibit 25. 100 The plaintiff’s closing submissions, paragraph 57(b). 101 Respectively Exhibits 6, 7 and 8. -- 27 of 46 -- 28 customers” such an inference, if drawn, would not make out a breach of subclause 13.1(b) by Mr Mirow. [125] In order for a breach of subclause 13.1(b) by Mr Mirow to have occurred, it must be found, by inference or otherwise, that he contacted or caused another to make contact with a relevant client. To say that the contact was made by Identity Computing says little, or nothing, about whether Mr Mirow may have breached that restraint. Contact by the corporation must have been made by some real person. If the contact was made by Mr Mulligan, no breach would be made out unless it is also established that Mr Mirow directly or indirectly caused Mr Mulligan to make that contact. Only in that sense could Mr Mirow be said to have caused Identity Computing to make the contact. [126] Mr Travis referred to the way in which CCS became aware that Robertson Scannell had taken their business elsewhere, and to the first invoice issued to the firm by Identity Computing on 19 September 2012, two days before CCS noticed that the firm was offline from CCS’s server, as being the date upon which services were first supplied to them. That work was described as “change user details/passwords (five users), change password on exchange server, app server, TS1 and TS2 19/09/2012.”102 [127] Mr Travis also referred to Robertson Scannell having terminated its 12 year relationship with CCS within two weeks of the departure of Mr Mirow and Mr Mulligan. [128] I accept the submission for CCS that from this and the other evidence identified in the submissions the inference would be drawn that there were solicito us communications to Robertson Scannell during the restraint period which caused them to take their business to Identity Computing. However, I would not infer that any such communication involved contact by Mr Mirow. The evidence is against such an inference. The emails establish that on all those occasions it was Mr Mulligan not Mr Mirow who made the contact. Any other contact is likely to have been by Mr Mulligan. It was he who Robertson Scannell had a relationship with, not Mr Mirow. It was Mr Mulligan not Mr Mirow who knew their systems. [129] Nor would I infer that Mr Mirow caused Mr Mulligan to make contact with Robertson Scannell, even indirectly. It is much more likely that Mr Mulligan initiated such contact as was had with Robertson Scannell without Mr Mirow having caused that to occur. [130] As to Interstate Finance & Leasing, Mr Mirow’s evidence was that he did not believe that they were approached by him or to his knowledge by Mr Mulligan with a view to enticing them to use Identity Computing. Mr Budden, a director of Interstate Finance & Leasing, was called in the defence case. He described the accounting firm Robertson Scannell as a business partner of Interstate Finance and Leasing. Robertson Scannell do a lot more IT than does Mr Budden in Interstate Finance & Leasing and his organisation just followed what Robertson Scannell did. If Robertson Scannell were to take their IT business to another entity, Interstate Finance & Leasing would simply follow them. They had done so on a number of occasions.103 102 Exhibit 9. 103 T3-37.16-29. -- 28 of 46 -- 29 [131] Not being satisfied that Mr Mirow breached subclause 13.1(b) in relation to Robertson Scannell, I am likewise not satisfied that he did so in relation to Interstate Finance & Leasing. [132] I would draw the same conclusions in respect of Graham Financial. The emails in evidence, although referred to in the plaintiff’s submissions as having come from Identity Computing, were all written and sent by Mr Mulligan.104 There is no evidence from which it would be found that Mr Mirow caused that, or any other, contact. The inference is that it was Mr Mulligan who prepared the quotes referred to in the emails. Mr Mirow denied that he himself contacted that firm with that view in mind. [133] Similarly, Mr Mirow denied the suggestion that he contacted Wilsonton News. His evidence was that he had very limited contact with that business as an employee of CCS, it being restricted to perhaps three or four occasions over a six year period. There is no evidence to the contrary. One would pause to note that contact of such a limited kind is not likely to give rise to a connection as between Mr Mirow and the customer which it would be legitimate for CCS to protect. I would not infer that Mr Mirow made any contact or caused any to be made in the restraint period. [134] As for Hooper Centre News, Mr Mirow also denied having made any contact. He said that he only did work for them on a handful of occasions during the time he worked for CCS and went so far as to say that if he walked into their shop they would not know who he was. I again pause to note that this again demonstrates that the “all clients” aspect of the restraints is too broad. There is no contrary evidence which would cause me to doubt this evidence. [135] Mr Mirow also denied having contacted Party Hut, or having knowledge of Mr Mulligan having done so. Again, he gave evidence of having had limited dealings with Party Hut as an employee of CCS. Mr Mason who is the owner of Party Hut gave evidence in the plaintiff’s case. He recalled having a conversation with Mr Mulligan during the period of time when Mr Fell was overseas.105 Whilst he said “they told me they were starting up their own business”,106 his evidence was not that he spoke with Mr Mirow, and in cross-examination he confirmed that the conversation was with Nathan Mulligan. He agreed that Mr Mulligan told him that he was starting his own business.107 On the evidence I would not infer that Mr Mirow contacted Party Hut, or caused another to do so. [136] Similarly, Ms Purcell who was a director of the accounting firm Moore Lewis & Partners, which is another of the relevant clients of CCS, gave evidence of Mr Mulligan having come to the firm’s offices in mid-2012 saying that he was leaving CCS and starting a firm with Mr Mirow.108 She said that when Mr Mulligan said that they were going out on their own “I sort of believed the reasons were possibly he didn’t think that CCS were the most up-to-date in what they were doing for us, but he didn’t directly say to me you know, ‘we can look after you’”.109 104 Exhibits 11, 12, 13 and 14. 105 T1-22.37. 106 T1-22.41. 107 T1-24.25-31. 108 T1-27.13-16. 109 T1-27.16-23. -- 29 of 46 -- 30 [137] That description of the conversation by Ms Purcell might permit a finding that although Mr Mulligan did not speak in such direct terms, the contact was nonethele ss with the intent to entice Moore Lewis & Partners to use his and Mr Mirow’s professional services, or those of some entity which they formed. It would not, however, permit the further finding that Mr Mirow caused Mr Mulligan to make that contact. [138] Mr Reedy who was a director of K&R Plumbing gave evidence of Mr Mulligan and Mr Mirow coming to his workplace and telling him that they had gone out on their own and started their own business. They asked if there was an opportunity to quote for the business of K&R Plumbing or to provide services to the firm. Mr Reedy gave them an opportunity to price a job for the firm in respect of new hardware and software. There had also been discussion of utilising the cloud rather than servers. [139] There was some doubt in Mr Reedy’s evidence as to when these events took place. In his evidence-in-chief he simply agreed that they had called at his store “at some point after they had gone out on their own”.110 Mr Reedy then said that having given them an opportunity of pricing the job “I just had a look at their price, and then I spoke to Russell about him giving me a price on it as well, and that’s when I found out that they had a withholding agreement, and they shouldn’t have been there”.111 That evidence would suggest that the quote was provided and the discussion was held with Mr Fell within the restraint period. [140] In cross-examination, Mr Reedy placed the conversation at his shop “about a week or so after they’d left”.112 [141] It was put to Mr Reedy that the quote was only provided in March 2013. Exhibits 32 and 33 being, respectively, the quote and an email from Mr Mirow to Mr Mulliga n concerning the quote, suggest that it was completed in the early hours of 18 February 2013, not March 2013, but still outside the restraint period. If it was the provision of the quote which prompted Mr Reedy to speak with Mr Fell to get a quote from him, and if it was then that he was informed of the restraint, then that would also have occurred outside of the restraint period. Mr Reedy’s evidence was that the conversation had not occurred at the time of receiving the quote. He did not know how long after the conversation the quote was provided. He did not know “whether it was months or not”.113 [142] On re-examination he confirmed that those two events occurred at distinctly different times and that the conversation “was within weeks of them leaving, but as for the – the quote, I don’t know what time and date the quote took place”.114 [143] Mr Reedy’s recollection that the contact in his shop was made by Mr Mirow and Mr Mulligan in the weeks following their leaving CCS should be accepted; notwithstanding that the quote for the provision of services initially discussed at that time was only provided many months later. It is consistent with other evidence. [144] Although Mr Fell did not give evidence of Mr Reedy having told him of contact having been made by Mr Mirow and Mr Mulligan, he gave evidence of his having 110 T1-30.12-13. 111 T1-30.37-40. 112 T1-31.24-26. 113 T1-31.22-42. 114 T1-34.17. -- 30 of 46 -- 31 instructed his solicitors to write to Mr Mirow and Mr Mulligan to tell them to stop soliciting CCS clients. He said that he did this after he noticed an advertising rubber hammer in the offices of a client, Gilbert Transport.115 He had been informed by the office manager of that business that Identity Computing had been trying to get the client’s work. Mr Fell said: “That this was the first time we started to become aware of it.”116 [145] Solicitors for CCS wrote to Mr Mirow on 21 September 2012.117 That letter states, amongst other things, that CCS had become aware that Mr Mirow had contacted its clients since the cessation of his employment. Notably, it does not list Gilbert Transport amongst those clients contacted. However, it does include K&R Plumbing. There is no evidence from which it might be found that Mr Fell became aware of the contact made by Mr Mirow and Mr Mulligan with that business other than through the conversation which Mr Reedy says he had with Mr Fell after Mr Mirow and Mr Mulligan had spoken to him in his workplace. I would therefore conclude that the contact by Mr Mirow and Mr Mulligan and the conversation between Mr Reedy and Mr Fell both occurred prior to 21 September 2012. I would also conclude that the contact of each of Mr Mirow and Mr Mulligan was made with the intent of enticing K&R Plumbing to use their professional services or those of Identity Computing. They directly asked Mr Reedy if there was an opportunity to provide services to the firm. [146] In any event, while such contact was in breach of subclause 13.1(b), none of the contact with K&R Plumbing, Party Hut or Moore Lewis & Partners resulted in any of those businesses leaving CCS or using the services of Identity Computing. CCS would be entitled to no more than nominal damages in respect of those breaches. [147] Of the alleged breaches of subclause 13.1(b) that leaves only the alleged contact with RD Administration. Mr Mirow denied having contacted them with a view to enticing them to have work done by Identity Computing. Unlike other firms who were contacted, it is unlikely that Mr Mulligan would have initiated any contact with RD Administration. Mr Mirow himself said so. This was because Mr Mulligan “had virtually no contact with anyone there throughout the course of his employment”.118 [148] Exhibit 39 is a letter from Identity Computing to RD Administration dated 3 October 2012. Mr Mirow is the author. It describes his having “attended on site on Thursday, 21 September to investigate reports of computers being infected with a lot of viruses ”. He describes what he found to be the problem and the solutions he put in place over the following weeks. The first invoice for work performed for RD Administration by Identity Computing was issued on 4 October 2012. [149] In my view, it is reasonable to infer that there would have been contact between someone on behalf of Identity Computing and RD Administration prior to this work occurring. It is reasonable to conclude that such contact would have come from Mr Mirow. It is reasonable to conclude that Mr Mirow would have contacted RD Administration with a view to enticing it to use his or Identity Computing’s professional services. 115 One of the rubber hammers advertising Identity Computing is Exhibit 19. 116 T1-44.25-32. 117 Exhibit 4. 118 Transcript 3 – 85.1-5. -- 31 of 46 -- 32 Damages and causation [150] Of assessing damages for breaches of covenants in restraint of trade, Heydon observes, pithily, “damages can be difficult to calculate”.119 [151] The principles which must be applied when determining whether CCS has sustained any loss, and if so assessing any damages for such loss, are as follows. [152] A party who sustains loss by reason of a breach of contract is, so far as money can do, to be placed in the same position, with respect to damages, as if the contract had been performed.120 [153] Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract, as the probable result of the breach of it.121 [154] A plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed.122 Parties to a contract are kept to the benefits and the burdens of the contract they have made: the plaintiff recovers no more than the net benefit he would have received under the contract; the defendant acquires no right to profit by his breach.123 [155] In Malec v J C Hutton Pty Ltd124 Deane, Gaudron and McHugh JJ discussed the difference of the approach at common law to determining on the balance of probabilities whether an event has occurred on the one hand and considering the probability of future or hypothetical events occurring on the other hand. Of the former it was stated that if it was more probable than not that the event occurred it is treated as certain, or, if it is more probable than not that it did not occur, it is treated as having not occurred. In respect of the latter, that is future or hypothetical events, their Honours said: “If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9 per cent - or very low - 0.1 per cent. But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an 119 Heydon at 319. 120 Robinson v Harman (1884) 1 Ex 850 at 855. 121 Hadley v Baxendale (1854) 9 Ex 431 at 354. 122 Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82 per Mason CJ and Dawson J. 123 Ibid at 99 per Brennan J. 124 (1990) 169 CLR 638 at 642-643. -- 32 of 46 -- 33 event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability.” [156] It is for the plaintiff to prove on the balance of probabilities that he or she has sustained some loss or damage.125 [157] In the Commonwealth v Amann Aviation Pty Ltd, Mason CJ and Dawson J said: “The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. Indeed, in Jones v Schiffmann126 Menzies J went so far as to say that the ‘assessment of damages … does sometimes, of necessity involve what is guesswork rather than estimation’. Where precise evidence is not available the court must do the best it can. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages.” [158] In Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd,127 Hayne J said: “[37] Placer undoubtedly bore the burden of proving not only that it had suffered damage as a result of Thiess Contractors' breach of contract, but also the amount of the loss it had sustained. It goes without saying that it had to prove these matters on the balance of probabilities and with as much precision as the subject matter reasonably permitted. [38] It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can may find their most apt application in cases of the former rather than the latter kind. This case did not invite attention to such questions. Placer sought to calculate its damages precisely.” [159] In this matter, CCS has sought to calculate its damages with precision. However, for reasons which I shall later develop, there is some estimation, if not guesswork, involved. [160] In the context of a restraint of trade case, Rein J in Charltons CJC Pty Ltd v Fitzgerald (No. 3)128 approached the matter in this way: 125 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 per Mason CJ, Dawson, Toohey and Gauldron JJ. 126 (1971) 124 CLR 303 at 308. 127 (2003) 196 ALR 257 at [37]-[38]. 128 [2013] NSWSC 1945 at [22]-[23]. -- 33 of 46 -- 34 “[22] In undertaking the comparison between what would have occurred had the defendants not breached their duties and obligations and what in fact occurred, I think it is necessary to approach the matter by asking and answering two quite separate questions: (1) Would the relevant client have been likely to have left Charltons within the 12 month restraint period (i.e. after the defendants left Charltons) and in which period the defendants could not perform any work for the client, had the defendants not acted in breach of their duties and obligations? (2) If the answer to (1) is no, would the client have been likely to leave Charltons at the end of the restraint period? [23] The second question which I have framed is closely linked to the question of whether any additional amount is to be allowed for lost income after the expiry of the restraint period.” [161] In my view, it is appropriate to apply his Honour’s approach in this case in determining whether CCS would have sustained the loss in respect of the identified clients in respect of whom damages are claimed, and in assessing what those damages would have been. [162] Having found each of the covenants in restraint of trade to be invalid and unenforceable it is strictly unnecessary for me to assess the damages which would have otherwise been recoverable for the established breaches. However, as much of the trial was directed to this issue, I will proceed to make findings relevant to an assessment of damages and to assess the damages which I would have awarded. Subclause 13.1(b) breaches [163] The breaches concerning subclause 13.1(b), and any damages which may have been recoverable by CCS as a consequence of them, can be placed into three categories. 1. the admitted contact with Brown Steel; 2. the proven contact with K&R Plumbing; 3. the proven contact with RD Administration. [164] Dealing first with the admitted contact with Brown Steel, the contact took the form of Mr Mirow on 19 September 2012 emailing Brown Steel passing on new contact details for himself from a Mr Mulligan and Identity Computing. He also set out services which they could offer and the charging structure (without prices) for those services. This contact directly solicited the business of Brown Steel. It also offered to facilitate Brown Steel’s migration to a new, third party, IT provider. [165] This contact did not result in Identity Computing acting for that business. Brown Steel did stop using the services of CCS after September 2012. The issue is whether but for the solicitous contact made, CCS would have retained Brown Steel as a client. [166] No-one from Brown Steel gave evidence. Mr Fell was asked if Brown Steel had explained to him, or given him any indication, as to why they were leaving. Mr Fell’s evidence was: -- 34 of 46 -- 35 “They – I’d rung Pat. And he was – he was concerned that he was being approached by our ex-employee. And – and he was concerned. And his – his comments were you’ve got to deal with this. And that was – that was his – his comments.” [167] He was asked if Pat expressed any concerns about his business as a result of this approach and Mr Fell said: “Yeah. He wasn’t – yeah. He wasn’t happy. He muttered a few expletives and – and told me – as I said you’ve got to – got to deal with these expletive, expletive people.” [168] I would not, on that evidence, conclude that it was the contact made by Mr Mirow on behalf of himself, Mr Mulligan and Identity Computing which caused Brown Steel to cease using the services of CCS in favour of some other, unidentified, third party provider after September 2012. In my view, there is some evidence that as at September 2012 Brown Steel were considering such a move in any event, and that such was unrelated to the departure of Mr Mirow and Mr Mulligan from the employ of CCS or the contact made by Mr Mirow. Mr Mirow’s letter of 19 September 2012 included the following: “I have been in contact with a number of SharePoint Consultants to get an idea of what we are looking at to move forward with your document management solution and am in the early stages of working with them to develop a solution and to provide you with some estimates on cost. We would very much like to bring Brown Steel on as clients and work with you and Pat to develop a cost effective and robust solution to handle your business needs. Alternatively if I can be of any assistance in helping you migrate to a new IT provider, please don’t hesitate to contact me (if I can help you migrate to a new provider there will be no charges associated with this from Identity Computing). ” [169] That may have been an attempt by Mr Mirow to use confidential information obtained by him concerning Brown Steel in the course of his employme nt to his or Identity Computing’s advantage. That, however, is not the case against him. What it is relevant to, for present purposes, is that it suggests that there was something concerning Brown Steel’s document management which required a solution. It also suggests that there may be a migration by Brown Steel to a new, third party, IT provider. This, in fact, is what appears to have happened shortly after, seemingly within weeks, of this letter having been sent. Mr Fell did not give evidence of any knowledge on his part of any issues with document management which required solution or of any prospect of a migration of the client to another IT provider. He gave no evidence of having been informed of such matters by “Pat” when contacted by him about Mr Mirow and Mr Mulligan having attempted to solicit his business. Those matters suggest that remaining with CCS was not likely and that such had been the case before Mr Mirow made contact with the firm. [170] For these reasons, I would conclude that Brown Steel, would have ceased being a client of CCS within the three month restraint period even without contact from Mr Mirow or anyone else on behalf of Identity Computing. [171] The next category, which comprises the proven breach concerning K&R Plumbing, can be dealt with briefly. It is not alleged that CCS sustained any losses as a -- 35 of 46 -- 36 consequence of contact made with that business. It would sound in nominal damages only. [172] To this I should add that my conclusion would have been the same in respect of both Party Hut and Moore Lewis & Partners if the alleged breaches in respect of those clients had been established. [173] Turning then to the third category, the proven contact with RD Administration. There was an admission that Mr Mirow had acted for that client of CCS in the restraint period; that would have been in breach of subclause 13.1(a) had that clause been valid and enforceable. I would conclude that the loss suffered by CCS which would sound in damages would have flown from the breach constituted by Mr Mirow actually acting for the business in the restraint period rather than the breach constituted by the contact made with the business which may have led to Identity Computing acting for it. Therefore, the breach of subclause 13.1(b) would only result in an award of nominal damages. [174] I should also observe in respect of this category that my conclusion would have been the same had a breach by Mr Mirow of subclause 13.1(b) been proven in respect of each of Robertson Scannell, Graham Financial, Wilsonton News and Hooper Centre News. Subclause 13.1(a) breaches [175] In addition to the matters identified above when considering whether breaches of subclause 13.1(b) had been made out in respect of the various clients for whom Mr Mirow or Identity Computing acted in the restraint period, some further observations concerning the evidence relevant to them should be made in considering any loss suffered by CCS because of a breach of subclause 13.1(a), and any damages which would result. [176] In respect of Robertson Scannell, a director of that accounting firm, Mr Mahoney gave evidence in the defendant’s case. He said that by the time Robertson Scannell left CCS in September 2012 he would not describe himself as being satisfied with the level of service CCS was providing.129 I accept Mr Mahoney’s evidence of his dissatisfaction. He expressed it in the letter he wrote Mr Fell notifying him of the decision to move their IT consultancy services elsewhere.130 [177] Earlier in the year he had commissioned an audit from a third party provider. He sent a copy of the audit report to Mr Fell on 18 May 2012. Mr Fell responded on 29 May 2012.131 Mr Fell thought that some of the issues raised in the audit were totally incorrect.132 In Mr Fell’s opinion Robertson Scannell was a totally satisfied customer. On the evidence before me, Mr Fell’s opinion was wrong. His failure to recognise his client’s dissatisfaction with the level of service being provided to it is likely to have given rise, together with the dissatisfaction itself, to a situation where the client would withdraw its custom and take it to another service provider when an opportunity to do so presented itself. The departure of Mr Mirow and Mr Mulliga n and their establishment of Identity Computing created such an opportunity. 129 T3-17.40. 130 Exhibit 21. 131 Exhibit 20. 132 T1-62.5. -- 36 of 46 -- 37 [178] Had Mr Mirow declined to act for Robertson Scannell during the restraint period, in my opinion their business would more probably than not have remained with CCS during that period. However, it is also my opinion that their business would have been withdrawn from CCS and moved to Identity Computing after the restraint period. At that time Mr Mirow and Mr Mulligan would have been free to solicit the custom of Robertson Scannell. In my view it is likely that Mr Mahoney would have been receptive to such solicitation. Even if there had been no solicitation, I am of the view that Mr Mahoney would likely have moved to Identity Computing if he otherwise became aware that they were available to provide services. There is no reason to conclude that he would not have become aware of their availability. [179] In this regard it is relevant that the restraint period of only three months was, as already observed, quite short. It is for that reason that had the restraint not been unreasonably wide as to the clients captured by it, I would have held it to be reasonable. But, as also already noted, it would have been reasonable because three months would not have been more than was necessary to break the connection between a client such as Robertson Scannell with whom a technic ian (Mr Mulliga n in this instance) had close connection. Indeed, if the restraint had been limited to those clients, a longer period of restraint may have been reasonable. Whilst the proper test is how long is needed to break the connection rather than how long is needed to employ a suitable replacement and allow that person to demonstrate competence to the customer, those matters of appointment and demonstration of competence are not irrelevant to breaking the connection. [180] In that regard, Mr Fell’s evidence of steps taken following the departure of Mr Mirow and Mr Mulligan, and those taken after he learned of their having performed work for or contacted CCS clients, is relevant. As to what was done when they left he said “well it was just all hands on deck”. He said that the other technician and himse lf were more than capable of covering the gap. He said that he immediately put an advertisement on Seek to recruit staff and the administrative staff “pitched in”. He said that there was no detriment to any of the services to any of the clients.133 He did not say how long it took to replace the technicians. He said, though, that from the client’s point of view, it would just be like when someone went on holidays, someone else would turn up. He said “we weren’t about to promote that we’d lost staff. That’s nothing to do with the client, and in terms of that – we’re about doing our service to the clients. That’s what we’re about.”134 As to whether he canvassed his client base to see if anyone else had been approached by Identity Computing he said “no, definitely not. We were not about to advertise that – advertise their business”. [181] Specifically in respect of any steps he took to retain Robertson Scannell as a client after he learned in September 2012 that they had left CCS (which preceded the confirmation in the letter of 8 October 2012) he telephoned Mr Mahoney from his solicitor’s office. After that he did not take any further steps to contact Mr Mahoney. To the suggestion that he could have had he chosen to, Mr Fell said “well, they terminated our services”.135 [182] In the circumstances of Robertson Scannell, in my view even after three months when Identity Computing was free to act for it, the attraction to relocate their custom to that firm would still have been strong. Mr Fell’s belief as to Robertson Scannell’s level 133 T1-40.17-27. 134 T1-40.30-36. 135 T1-76.45. -- 37 of 46 -- 38 of satisfaction prior to learning of their departure from CCS would have contributed to that. Mr Fell does not appear to have considered it necessary or desirable to take any steps during the restraint period to break any connection which the client may have had with the former employees other than continuing to service the clients. That also would be likely to have contributed. The opportunity to take their business to another service provider would again have presented itself at that time. [183] It cannot be said with precision as to when that would have occurred after the restraint period had Identity Computing not acted for them during that period. However, in my view it is extremely probable that it would have occurred within three months following the end of the restraint. Therefore, the custom of Robertson Scannell would in all probability have been lost to CCS, in any event, within six months of the cessation of Mr Mirow’s employment. [184] In relation to Interstate Finance and Leasing, given Mr Budden’s evidence to which I have already referred in addressing the alleged subclause 13.1(b) breaches, I hold the same opinion as I do concerning Robertson Scannell. If Robertson Scannell would in all probability have left CCS within six months following the cessation of Mr Mirow’s employment, so too would Interstate Finance and Leasing. [185] In relation to Graham Financial, a director, Mr Webb, also gave evidence in the defendant’s case. Mr Webb’s evidence was that in the period prior to Graham Financial ceasing to be a client of CCS they had been experiencing email difficulties. An email was sent to CCS on 5 September 2012 raising the issue of emails. Mr Thompson responded on 13 September 2012.136 Mr Webb described Mr Thompson as “a dude who would get in touch with us once every now and then. I didn’t understand him to have any IT skills.”137 [186] Mr Webb did not consider a response eight days later to be timely. Having received a response from Mr Thompson, Mr Webb responded to him telling Mr Thompson not to change anything, saying that it was Mr Mirow and Mr Mulligan who understood the small system which Graham Financial had. He enquired as to who was replacing them. Mr Webb explained this when cross-examined. He said that he didn’t think that he would have known Mr Thompson’s capabilities well enough to give him permission to “change stuff”.138 [187] When asked how he learned that Mr Mirow and Mr Mulligan had left CCS and what they were doing afterwards, Mr Webb said he wasn’t sure of the exact time and that he “would have started ringing their mobiles and asking for assistance”. 139 Mr Webb’s evidence stands in rather stark contrast to Mr Fell’s belief that there was no detriment to any of the services to any of the customers. It also demonstrates that his view that he and Mr Thompson were more than capable of covering the gap upon the departure of Mr Mirow and Mr Mulligan was not a view shared by at least one client which had regularly been serviced by those ex-employees. [188] Mr Fell’s evidence that the response to Mr Webb’s initial email eight days later was timely given the nature of the issue, it not in his view being “mission critical”, was also in contrast to the view taken by the client. Again, the evidence establishes that 136 Exhibit 23. 137 T2-48.18-20. 138 T2-53.15-20. 139 T2-53.32-35. -- 38 of 46 -- 39 there would have remained a strong attraction for Mr Webb to have taken the business of Graham Financial to Identity Computing after the end of the restraint period even if work had not been performed during that period. Mr Webb neatly illustrated that attraction in his evidence under cross-examination. Mr Webb agreed that as of at least 27 September 2012 the relationship which he had with CCS had not been irretrievably destroyed by his frustration over the intermittent email issue.140 He also agreed that he had come to know Mr Mirow and Mr Mulligan as the technicians who came to his site, that he got on with them reasonably well and that they did a reasonably good job in meeting his service requirements. He further agreed that it was important to him that if he was going to go to another IT support provider that they have some familiarity already with his system and his requirements. [189] When suggested to him that it was therefore very unlikely that he was just going to go to a provider who had no familiarity with his systems, requirements or staff, Mr Webb answered: “Well, we weren’t faced with that question. I had an option, so I don’t think I could answer you unequivocally whether it was very likely. I had a readymade solution so I didn’t go testing the market further, if you’re saying whether we would have or whether we had the skill set to test the market, I would suggest to you very much we do, but at that point in time, I didn’t feel the need to, know.”141 [190] A number of things may be inferred from this. First, as Mr Travis submits, it supports the conclusion that due to Identity Computing solicitation a 10 year relationship was severed within weeks of Mr Mirow leaving CCS to join up with Mr Mulligan and Identity Computing.142 [191] However, it also supports the conclusion that Mr Mirow and Mr Mulligan in their new business of Identity Computing would still have provided Mr Webb with a readymade solution at the conclusion of the restraint period had he remained with CCS throughout the balance of that period. Again, Mr Fell’s apparently different view to that of Mr Webb of the level and quality of service being provided to CCS in September 2012 suggests that the readymade option which would have still been available at the later time. Mr Fell apparently not seeing any need or desirability to take any particular steps to preserve CCS’s relationship with the client, or to severe the connection of the former employee with the client, would have contributed to that attraction. Mr Fell’s evidence was that he recalled talking to Ben Graham who was the owner of the business who was based in Brisbane. He asked him “the question”, which I take to be why CCS’s services had been dispensed with, and was told that the decision had been made in Toowoomba after which Mr Fell took no further steps and moved on.143 [192] It also supports the conclusion that even if Identity Computing had not acted for Graham Financial during the restraint period that business may have gone to the market to find another IT service provider in which case its business would have been lost to CCS. I’m not prepared to find that on the balance of probabilities that would have occurred. I think it is more likely that they would have stayed with CCS during the restraint period. However, I am of the view that it is extremely likely that the 140 T2-56.1-5. 141 T2-60.20-36. 142 The plaintiff’s closing submissions para 92. 143 T1-77.28-46. -- 39 of 46 -- 40 business would have gone to Identity Computing after the restraint period. I am of the view that this would have occurred within three months of the end of the restraint period, that is within six months of the cessation of Mr Mirow’s employment. [193] Mr McHugh is a dentist and a director of RD Administration. He was the fourth director of former clients of CCS who took their business to Identity Computing to give evidence in the defendant’s case. When asked to explain why RD Administration ceased to be a client of CCS he responded in this way: “Certainly. There were problems at work with computers, as there always are. CCS provided us, and had been providing us, with services for five or six years. I had heard from my practice manager that there had been a split with our main person on site, who was Kurt, and he split with Russell. I was actually sympathetic towards Russell’s position. I employ people and they have a restriction clause so I thought it was morally and ethically right and Russell had always done the right thing by me so I actually heard about their split … with CCS. The main thing I look for in my business providers is service and good service. Once Kurt had left, some new employees of Russell’s came onto the site and there were several instances of where, really, there was not good service. The results weren’t good. I was unhappy with what was happening and so I made a business decision, at that point, that despite my, yeah, my ethical considerations that I had to consider my business first and I wanted someone who could fix my IT problems and keep that service coming to the company.”144 [194] The main issue he could recall was that a management decision taken to have a password changed by CCS resulted in an inability to access the computers for at least half a day. There was another large issue to do with antivirus software but he could not recall the detail of that. Mr Travis urged upon me that given Mr McHugh’s lack of detailed memory of the issues I would conclude that he is overstating any supposed frustration that he recalls. I have not formed that conclusion. Inherent in it would be the conclusion that Mr McHugh did not cease the relationship with CCS for the reasons stated but for some other reason. [195] The reason which seems to be suggested by Mr Travis in his questions of Mr McHugh and his submissions was “that his very competent and assertive practice manager, upon being advised of Mr Mirow’s new business, wanted to take RD Administratio n’s business over to Identity Computing.145 However, Mr McHugh also said that he, initially, told his practice manager that “it was not going to happen”.146 [196] I found Mr McHugh to be very candid in his evidence as to how it was that some of his business’s IT work was being performed by Identity Computing whilst other work remained with CCS. He said: “I would say that, basically, slightly behind my back, my practice manager was farming out things to Mr Mirow’s company. If he couldn’t get success through CCS, the final decision to leave CCS was my own because, again, it was just getting frustrating that things weren’t getting done, simply, because the people that were employed by CCS didn’t seem to know what they were doing. They certainly 144 T4-49.12-27. 145 The plaintiff’s closing submissions, para 76. 146 T4-49.32. -- 40 of 46 -- 41 weren’t of the same standard as we’d been used to and things were repeatedly breaking down and going wrong. I had, again, my practice manager in my ear telling me that it wasn’t, sort of, good enough. I’m the boss. I had to make the decision, so I said, ‘Right, we’ll, find someone else.’”147 [197] I accept that he experienced an ethical and moral dilemma as he described in deciding to send work to former employees of CCS. I find no reason to doubt the reasons which he gave for sending that work. [198] Mr Fell was asked what attempts he had made to try and convince RD Administratio n to retain CCS for all its services. Mr Fell said “I had spoken to Greg McHugh, the principal, the owner, and, again, it was – he’d rolled over and let his practice manager do – do the deal. So, yeah.”148 [199] I take that evidence to be Mr Fell’s interpretive description of what he was told by Mr McHugh, rather than what Mr McHugh actually said in conversation with Mr Fell. Understood in that way it is not inconsistent with how Mr McHugh described how events unfolded in his evidence, although Mr Fell’s description of Mr McHugh having “rolled over” seems unnecessary, even if understandably, pejorative. [200] Mr McHugh believed that he would have raised his concerns with Mr Fell, saying that they had an open and frank relationship and discussed most things, although he could not specifically recall a conversation. Mr Fell could not recall Mr McHugh raising any issues with him about CCS’s performance. Mr Fell was of the view that CCS provided a timely response to the issues experienced by RD Administration and that the services were provided to the satisfaction of the client149 [201] However, Mr Fell also had no recollection of something going wrong when the passwords were changed which resulted in RD Administration effectively being locked out of their computer system. I am satisfied on Mr McHugh’s evidence that this did in fact occur and that caused the frustration associated with it which he described. [202] In my view, Mr Fell’s belief in the satisfaction of this client at the relevant time is another example of Mr Fell’s views of these matters being in discord with those of the clients themselves. [203] On Mr McHugh’s evidence I am not satisfied that but for Mr Mirow and Identity Computing acting for RD Administration during the restraint period CCS would have retained them as a client. The performance of the work by Identity Computing during that period would have contributed to the loss of the RD Administration work which occurred during that period. In my view, however, even had Identity Computing not performed that work during that period, IT work of RD Administration would have moved from CCS to Identity Computing, or some other provider, in the months following the end of the restraint period. The fact that RD Administration continued to send some of its work CCS both during the restraint period and after its conclusio n, but that it ceased sending any work to CCS in March 2013, supports that conclusio n. So too does the fact that when dissatisfied with Identity Computing and the service 147 T4-52.22-30. 148 T1-78.18-26. 149 T4-42.10-31. -- 41 of 46 -- 42 and timeliness of service that Mr Mirow was providing, Mr McHugh took his work to a third provider.150 Mr McHugh apparently had little difficulty in locating a third party provider who was able to provide support for RD Administrations systems despite them being somewhat specialised.151 [204] Again, I would conclude that notwithstanding Identity Computing having acted for this client during the restraint period, the client would have been lost to CCS within six months of the cessation of Mr Mirow’s employment. [205] The only evidence concerning the other two clients for whom Identity Computing did work during the restraint period, Wilsonton News and Hooper Centre News, came from Mr Fell. [206] Wilsonton News became a customer in 2004. In October 2012 when in the shop buying a Lotto ticket one of the owners informed Mr Fell that they were using Identity Computing; that they were going to give them a go.152 Mr Fell took no steps after that discussion to attempt to retain them although they did continue to send some work to CCS into 2013.153 [207] The summary of customer sales at annexure 5.2 to Ms Wilson’s report154 reveals that CCS performed work for Wilsonton News in January 2013, although not October, November or December 2012. CCS did not perform work for Wilsonton News in August 2012. In the previous financial year from July 2011 to June 2012, no work was performed by CCS for Wilsonton News in each of November and December 2011 or April and May 2012. Considering that pattern of work and the other matters to which I have referred regarding Mr Fell’s response, I am of the view that in the months following the end of the restraint period Wilsonton News would have given Identity Computing “a go” even if it had not acted for that business during the restraint period. [208] I would come to the same conclusion in respect of Hooper Centre News. Mr Fell’s evidence was that Hooper Centre News became a customer of CCS in 2000. It was subsequently sold, but the evidence does not reveal when this occurred. Mr Fell did refer, however, to being informed in October 2012 by “Julie”, who he referred to as “one of the new owners” that CCS’s services were no longer required. Contact had been made by one the administration staff of CCS with Julie because a renewal of the managed anti-virus services would have been coming due or “something along those lines” as Mr Fell put it.155 No further evidence of the services provided to this client was given by Mr Fell. There is no evidence of Mr Fell or anyone else on behalf of CCS making any attempts to retain the business of Hooper Centre News, although services were provided in November 2012 and March 2013. [209] No services had been provided to Hooper Centre News by CCS in either of September or October 2012. In the 2011/2012 financial year CCS provided services to Hooper Centre News in one month only: March 2012. In the financial year preceding that, July 2010 to June 2011, services were provided in only three months: August 2010; 150 T4-52.33-40. 151 T4-51.1-20. 152 T1-46.31-35. 153 T1-78.32-34. 154 Exhibit 25. 155 T1-47.9-17. -- 42 of 46 -- 43 March 2011 and April 2011. Similarly, in the 2009/2010 financial year services were provided only in July 2009 and April 2010. And in the 2008/2009 financial year services were provided only in October 2008, March 2009 and June 2009. An analysis of the figures shows that lengthy periods of six, eight or ten months fell between occasions of provision of services by CCS to Hooper Centre News. [210] Again, considering this history of service provision, the detail of which is not disclosed on the evidence, I would conclude that to the extent to which Hooper Centre News came to use the services of Identity Computing subsequent to the expiry of the restraint period in December 2012 it would have done so regardless of Identity Computing having acted for it during the restraint period. The last services provided by CCS were six months after Mr Mirow’s departure. That period, to me, seems the outermost point to which any damage suffered by CCS as a consequence of the loss of Hooper Centre News as a client could be said to have been causally related to Mr Mirow or Identity Computing having performed any work for that business during the restraint period. [211] My conclusion that each of these clients would have been lost to CCS within six months of Mr Mirow having ceased his employment even had Identity Computing not acted for them during the three month restraint period leads to the rejection of the basis for the calculation of damages contended for by Mr Travis on behalf of CCS. That basis of calculation was the Capitalisation of Future Maintainable Earnings (CAPFME) method as explained in the further report of 7 March 2017 by Ms Wilson156 and as further explained in her oral evidence. [212] Central to the contention for the CAPFME model are Mr Travis’s submissions that the loss of a client who would otherwise have left in any event is not an “interve ning event” of the kind which renders the CAPFME method inappropriate and, even if it were, there was no evidence in this matter on which such an intervening event would be found. I accept neither submission. The second because the foregoing analysis of the evidence demonstrates not only that findings are open that the relevant clients would have been lost to CCS either within or outside of the restraint period in any event, but they should be made. [213] As to the first, I do not accept that such matters are not intervening events rendering the CAPFME method inappropriate because that submission is not supported by, or consistent with, the evidence, including the expert evidence of Ms Wilson called in the plaintiff’s case. [214] The other method for calculating damages identified by the experts was the Discounted Future Cash Flows (DFCF) method. That method is appropriate, the experts agree, if there are known intervening breaks to the period of loss. This method is also appropriate if there is a known life period at the end of which there could be no further loss, such as a mine with a finite life or a retail business that must close upon the expiration of a lease. Another example is the loss associated with the failure of only one season of an agricultural crop. Again, Mr Travis submits that there are no such circumstances, or intervening breaks, of which there is evidence in this case, thus making the DFCF inappropriate and the CAPFME preferable.157 156 Exhibit 34. 157 The plaintiff’s closing submissions paragraph 128; T5-46 to 5-48. -- 43 of 46 -- 44 [215] The examples referred to in Mr Travis’ submissions are all drawn from paragraph 4.4 of Ms Wilson’s second report.158 At paragraph 4.6 she states that “if there is no evidence to indicate that there is a break in the plaintiff’s losses, it is not appropriate to apply the discounted future cash flows method. In that case the capitalisation of future maintainable earnings method is appropriate to adopt”. [216] Ms Wilson then went on to provide three hypothetical examples, the first two involving intervening events. At paragraph 4.9 she identifies the first such hypothetical intervening event as being “at the conclusion of the three month restraint of trade, the lost clients would have left the plaintiff’s business in any event. Thus the intervening event breaks the plaintiff’s losses as a result of the allegations”.159 [217] Ms Wilson then identifies, at paragraph 4.10, that “in that situation, the plaintiff has only lost income from the clients to the end of the restraint period. That is, the allegations are not the cause of the loss after the end of the restraint period, because the loss would have been suffered in any event”. [218] Then, at paragraph 4.12, Ms Wilson refers to paragraphs 5.3 to 5.5 of her earlier report of 14 July 2014160 where she had noted that the lost customers had “been with the plaintiff for more than four years”. She then opined that, based on that fact, “an intervening event occurring three months after the breach may not be reasonable”. (Emphasis added) [219] Whether or not such an intervening event is reasonable is, however, a matter of fact for the court to determine on the evidence. Not only is that so, Ms Wilson understood it to be. In the first joint statement of experts to the court, Ms Wilson and Mr Haines, the defendant’s expert, identified their agreement “that the customers lost and the period that the plaintiff would have experienced losses as a result of the allegations is a matter for the court based on all the evidence before it.” [220] Furthermore, and more directly, Ms Wilson said at paragraphs 5.4 and 5.5 of her earlier report, to which she had specifically referred in this regard at paragraph 4.12 of her second report: “5.4 It is difficult to predict the length of time each of the customers identified would have remained with the plaintiff but for the alleged breaches. I have for the purposes of my assessment identified losses based on the customers remaining with the plaintiff for five (5) years and ten (10) years. 5.5 It may be reasonable that these clients would have stayed with the plaintiff for longer. In that case, the court may consider the permanent loss of business value is appropriate. I am able to undertake these calculations upon instruction, and losses would be higher than those calculated in scenario three of my report.” [221] Two points are worth noting in respect of paragraph 5.5. [222] The first is that the calculation of damages performed by Ms Wilson using the CAPFME method in her second report in March 2017 was that which she identif ied that she could perform, if instructed to do so, back in July 2014. It appears that she 158 Exhibit 37. 159 The “allegations” being the conduct in breach of the covenants in restraint. 160 Exhibit 25. -- 44 of 46 -- 45 was not instructed to do so until 6 March 2017.161 On that basis, there was argument as to whether her further opinion ought be admitted given that there had been directions for the preparation of a joint experts report. [223] The second point is that the first sentence appears on its face to lack a verb. That verb, it would be inferred on a reading of paragraph 5.5 in context would be “to assume”. In the course of argument on whether Ms Wilson’s further opinion ought be admitted there was a debate as to whether the expression of that opinion was based upon a further assumption not previously disclosed and considered in the joint report of the experts. Mr Travis’ position was that it did not. He submitted that it was a further opinion based upon no new assumptions. Mr Travis conceded, however, that if the verb “to assume” was missing from the first sentence of paragraph 5.5, then the expression of that further opinion by Ms Wilson would be based upon such a further assumption, and that such would go beyond the limited basis upon which he had submitted the opinion was expressed.162 Mr Travis also conceded that it would not, therefore, be admissible on the limited basis which he identified. [224] Ms Wilson was not asked about the issue in evidence in chief. Nor was she cross- examined about it. I did, in the course of her cross-examination, raise the issue with her. She confirmed that the verb “to assume” was indeed missing from the first sentence of paragraph 5.5.163 [225] At that point, the limited basis upon which Mr Travis sought to adduce the evidence was exceeded and, strictly speaking, it was not admissible. However, no objection had been taken to it. [226] What all of that leads to, however, is that, as identified by Ms Wilson at paragraph 5.5 of her first report, the assumption which underlies the use of the CAPFME method is that the clients would have remained with the plaintiff for longer than the ten years identified in her earlier report and in the joint experts’ report. In cross-examinatio n, Ms Wilson confirmed this.164 She agreed that if she had been presented with evidence that some of the lost customers would have left the plaintiff, irrespective of the breach, the CAPFME method of calculation would be inappropriate and that the DFCF method would be the correct way to calculate the loss.165 [227] The second hypothetical example of an intervening event given by Ms Wilson in her second report is that the clients would have left the business after the end of the restraint period for reasons other than the allegations. She gave examples of such reasons which included, at paragraph 4.14.2, the client engaging a competitor of the complainant. This can be seen to be closely aligned with the first hypothetica l example. Again, Ms Wilson identifies the DFCF method as the only appropriate method of calculation in such circumstances.166 She identifies the joint statement of the experts as having calculated those losses with hypothetical events happening at six months, twelve months, five years and ten years.167 161 Letter of instructions from Aden Lawyers attached to Exhibit 37. 162 T2-10.5 to T-11.16. 163 T4-64.35-45. 164 T4-64.24. 165 T4-64.45 to T4-65.6. 166 Paragraph 4.16. 167 Paragraph 4.17. -- 45 of 46 -- 46 [228] The third hypothetical example Ms Wilson gave was where there was no evidence presented that a hypothetical intervening event would break the plaintiff’s losses. In that case, the CAPFME method would be appropriate. Its use is thus limited to such cases. Ms Wilson expressed her opinion that this was the preferred methodology in this case because she had not been provided with evidence which suggested, to her, that the clients would have left CCS at a specific time, but for the allegation.168 [229] On the basis upon which Ms Wilson was asked to express her opinion, her preference for that method is appropriate and understandable. However, on the basis of the evidence in the trial and the findings which I have made, it is not. [230] On the findings which I have made the appropriate method of calculation would have been that set out in scenario two at schedule two to the joint experts’ report applying the DFCS method and calculating the loss at six months. The loss would be calculated only on the group A clients with the inclusion in that group of Interstate Leasing and Finance.169 [231] It is the application of that method of calculation which is consistent with the need to assess the likelihood or probability of future hypothetical events occurring. Having assessed the probability as being so high as to be almost certain 6 months after the cessation of employment, that is the appropriate point at which to determine damages caused by the breaches. [232] Two further issues need to be addressed. Those are the two areas of disagreement between the experts as to the inclusion of irregular income and the appropriate treatment of costs of sales. In the circumstances, these issues can be addressed briefly. [233] In respect of the former, I accept Mr Haines approach. Particularly given the relatively short period over which any losses suffered by CCS would have been caused by breaches of the covenants; the inclusion of irregular income, which occurs in infrequent and abnormal levels, would be inappropriate. Furthermore, there was evidence of clients’ changing needs given advances in and changes to technology, the movement from clients maintaining their own service to cloud based solutions being the most notable. Those circumstances further demonstrate the inappropriateness of including irregular income, and particularly on a historical basis. [234] In relation to costs of sales, I accept the approach of Ms Wilson. I agree with her that Mr Haines giving a greater weighting to results over the past two years is inconsiste nt with his exclusion of irregular income: which is the approach I accept. Costs [235] The appropriate order would appear to be that the plaintiff pay the defendant’s costs of an incidental to the proceeding, including reserved costs, on the standard basis. The parties may make submissions in writing within 14 days as to why this is not the appropriate order, should they wish to do so. 168 Paragraph 5.4. 169 Which appears in group B in the report at which the parties agree should be included in group A. -- 46 of 46 --