Property – Injunctive relief to preserve the integrity of a family business where the respondent and son set up a business in direct competition
In Grimmond & Hartin [2021] FedCFamC1F 107 (7 October 2021) Berman J heard an application by a de facto wife for injunctive relief against the de facto husband and one of the adult children of the relationship.
The parties were in a de facto relationship from 1988 to 15 June 2020 and had two adult children of the relationship, “X” and “Y”.
The parties were the owners and operators of a successful business C Pty Ltd (“CPL”). The adult child X was an employee of CPL.
In 2020, after the wife refused a request to transfer her shares in CPL to X, the husband and X incorporated a company “B Pty Ltd”. Concerned that B Pty Ltd would be in direct competition with CPL, the wife instructed her solicitor to write to the husband’s solicitor raising her concern. The husband was removed as a director and shareholder of B Pty Ltd in late February/early March 2021.
The wife amended her Initiating Application joining X as second respondent and B Pty Ltd as third respondent. She sought various interim restraints against the three respondents in relation to the operation, property and clients of CPL, competition with CPL and orders for discovery. She did not seek final orders against the second and third respondents but sought to retain as much of the customer base as possible to enable the current state of the business to maintained before it was sold.
The Court said (from [67]):
“In considering the nature of injunctive relief sought by the applicant, it is important to be aware of the general principle that ‘equity intervenes to the minimum extent necessary to do justice’ [ed. Norton & Lock (2013) FLC 39-567]
[68] In the context of family law proceedings, in Sieling & Sieling [1979] FamCA 23; … the Full Court said:
‘The power to grant injunctions is, of course, a discretionary power, not to be exercised lightly. The Court must balance the hardship to each party of granting or refusing an order, and frame its order in such a way as to impose no further restriction that is necessary to achieve the protection of the applicant’s interest. It will not lightly interfere with the rights of an owner of property on the basis of a vague or uncertain claim.’
( … )
[80] It was not argued that the Court does not have power to make an order of injunction directed to a third party but rather that the Court should decline to do so in circumstances where the second respondent was a mere uncontracted employee of CPL.
[81] I consider that I have power to make an order against the second and third respondents pursuant to s 114(2A)(c) and s 114(3) of the Act.
[82] I have also considered whether a common law restraint might apply to information that an employee can access after leaving a business.
[83] If there is no contract or expressed term of confidentiality in an existing contract, a duty of confidentiality may be implied. The Court in Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724 categorised information that an employee may come across in their employment as trivial information, knowhow or trade secrets.
[84] Trivial or well-known information cannot be protected.
[85] It is likely that knowhow can only be protected through a reasonable restrictive covenant that restrains the employee from competing with the employer for a period of time that in all the circumstances is considered reasonable and not onerous.
[86] The question therefore is what information could be considered a trade secret. The test is whether the information can be regarded as part of an ‘employee’s stock of knowledge’ (Printers and Finishers Ltd v Holloway [1965] 1 WLR 1) or whether it would be considered property of the employer. … [A] trade secret may include information to which a high degree of confidentiality would apply.
[87] In the decision of Ormonoid Roofing & Asphalts Ltd v Bitumenoids Ltd [1930] NSWStRp 88; (1930) 31 SR (NSW) 347 at 354 Harvey CJ considered the status of an attempt to use a client list of an employer or to entice a customer of the employer to transfer their business to another entity in the following terms:
‘… [W]here an employee has in the course of his employment and for the purposes of his employment has obtained particular information with regard to his employer’s business such as knowledge of processes, details of management or particulars of customers which have been stored up in his mind as a necessary consequence of the way in which his master employed him, there is no justification in the absence of express contract, for preventing him from making use of that knowledge.’
[88] In … Forkserve Pty Ltd v Pacchiarotta [2000] NSWSC 979; … Young J considered that the proposition of John Dyson Heydon in The Restraint of Trade Doctrine (Butterworths, 2nd edition, 1999) at 80 was correct law:
‘The … employee can approach a particular customer or client whom that employee can recall without a list or deliberate memorisation.’
[89] [X] denies that it was his intention or plan to make use of confidential information including client lists, company processes and trade secrets.
[90] The evidence relied upon by the applicant presents an arguable case that [X] initially with the assistance of [the husband] but then apparently on his own, utilised information with an employee’s assistance to set up B Pty Ltd, obtain credit and indicate a position that B Pty Ltd was to be in direct competition to the business of CPL either in whole or in part.
[91] The communication passing between [X] and [the wife] demonstrates a clear mindset that he holds her in low regard and would be unconcerned if her interest in CPL was significantly diminished in value.
[92] Irrespective of what ultimately may be determined as to the motivation of [X] a summary of his evidence is that he did not need to utilise CPL information or trade secrets because the intention is that B Pty Ltd will trade upon the knowledge of the second respondent in respect of the design and development of specialist switchboards.
( … )
[94] … [I]t would be an unreasonable restraint on the ability of [the husband] and [X] to restrain them from approaching existing clients of CPL given the potential clients were memorised by [X] and not obtained from client lists, client documents or personal files. …
[95] I do not consider that there is any justification for an order restraining [X] and [B Pty Ltd] from setting up any company business or trading in competition with CPL in the Northern Territory.
( … )
[97] It would be an unnecessary incursion into the financial affairs of B Pty Ltd to require it to account to CPL for profits received by the use of company information and any clients that have transferred their business to CPL.
[98] In any event, it must be remembered that the proceedings as between the parties do not include a cross vested or accrued jurisdiction claim for damages against [X and B Pty Ltd]. The issue is one of value of CPL, either were it to have been retained by [the husband] or, more likely, its value if sold.
[99] I do not ignore the [wife’s] belief that the [husband] remains highly supportive of [X] and has an allegiance to [X] that transcends his loyalty and duties to the applicant and CPL. …
[100] The issue for [the wife] and [the husband] may not be the actions of [X] but rather the value of which CPL may be brought to account depending upon the conduct of the parties.”
The Court made various injunctive orders against husband, X and B Pty Ltd albeit on a more limited basis than those sought by the wife, and there was no order as to costs.