Miles v Genesys Wealth Advisers Limited [2009] NSWCA 25 (24 February 2009)

Last Updated: 25 February 2009

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Miles v Genesys Wealth Advisers Limited [2009] NSWCA 25


FILE NUMBER(S):
40282/08

HEARING DATE(S):
10 December 2008, 11 December 2008

JUDGMENT DATE:
24 February 2009

PARTIES:
Raymond John MILES (Appellant)
GENESYS WEALTH ADVISERS LIMITED (Respondent)

JUDGMENT OF:
Hodgson JA Basten JA Handley AJA

LOWER COURT JURISDICTION:
Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):
SC 2919/08

LOWER COURT JUDICIAL OFFICER:
Palmer J

LOWER COURT DATE OF DECISION:
7 August 2008, 12 August 2008

LOWER COURT MEDIUM NEUTRAL CITATION:
[2008] NSWSC 802, [2008] NSWSC 842

COUNSEL:
I M NEIL SC/ C COCHRANE (Appellants)
A J MEAGHER SC/ G K J RICH (Respondent)

SOLICITORS:
Harmers Workplace Lawyers (Appellant)
Atanaskovic Hartnell (Respondent)

CATCHWORDS:
CONTRACT – Employment – Equity – Restraint of Trade – Covenant by employee on termination not to engage in identified business and not to deal with clients for 30 months – Proscribed business identified by reference to potentiality for use of confidential information to employer’s detriment – Whether confidential information needed to be identified with precision – Whether “clients” included certain agents of the employer – Whether period of restraints excessive.

LEGISLATION CITED:
Restraints of Trade Act 1976 s 4

CATEGORY:
Principal judgment

CASES CITED:
Australian Retail Wholesalers v Stafford [2007] NSWSC 572; (2007) ATPR 42-168
Beak v Robson [1943] AC 352
Connors Bros Ltd v Connors [1940] 4 All ER 179 PC
DalySmith Corporation (Australia) Pty Limited v Cray Personnel Pty Limited (Supreme Court of New South Wales, Young J, 14 April 1997, unreported)
Del Casale v Artedomus (Australia) Pty Limited [2007] NSWCA 172; (2007) 73 IPR 326
DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423
GlaxoSmithKline Australia Pty Ltd (GSK) v Ritchie [2008] VSC 164; (2008) 77 IPR 306
Haynes v Doman [1899] 2 Ch 13 at 25-26
Herbert Morris Limited v Saxelby [1916] 1 AC 688
Higgs v Olivier [1952] Ch 311 CA
John Fairfax Publications v Birt [2006] NSWSC 995
Kone Elevators Pty Limited v McNay (No 2) (1997) Aust Contract R 90-080
Koops Martin v Dean Reeves [2006] NSWSC 449
Littlewoods Organisation Limited v Harris [1977] 1 WLR 1472
Mason v Provident Clothing and Supply Co Limited [1913] AC 724
O’Brien v Komesaroff [1982] HCA 33; (1982) 150 CLR 310
Peppers Hotel Management Pty Limited v Hotel Capital Partners Limited [2004] NSWCA 114
Pioneer Concrete Services Limited v Galli [1985] VR 675
Portal Software v Bodsworth [2005] NSWSC 1179
Sir W C Leng & Co v Andrews [1909] 1 Ch 763
Stenhouse Ltd v Phillips [1973] UKPC 1; [1974] AC 391
Woolworths Limited v Olson [2004] NSWCA 372
Wright v Gasweld Pty Limited (1991) 22 NSWLR 317

TEXTS CITED:
J D Heydon The Restraint of Trade Doctrine, 3rd ed, (2008)

DECISION:
(1) Order 1 below varied by substituting for par a(ii) thereof the following:
(ii) in any capacity or role, a business conducted or carried on or to be conducted or carried on within Australia which is competitive with the business of the Plaintiff and which involves the provision of financial products or services to retail clients by the agency of financial planning firms or practices.
(2) Notes 4 and 5 below deleted.
(3) Appeal otherwise dismissed.
(4) Appellant to pay respondent’s costs of the appeal.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40282/08

SC 2919/08

HODGSON JA

BASTEN JA

HANDLEY AJA

24 FEBRUARY 2009

Raymond John MILES v GENESYS WEALTH ADVISERS LIMITED

Judgment

1 HODGSON JA: On 12 August 2008, in proceedings brought by the respondent (Genesys) against the appellant (Mr Miles) and in which Mr Miles had put on a cross-claim against Genesys, pursuant to reasons given on 7 August 2008 and 12 August 2008, Palmer J made the following orders:

1. The Defendant be restrained, until 15 September 2009, from:

a. directly or indirectly engaging or preparing to engage in:

(i) in any capacity or role, a new financial services business involving Suncorp Metway Limited and a corporate entity which is to hold an Australian Financial Services licence and provide financial services primarily to business and high net worth clients by authorised corporate representatives; or

(ii) in any capacity or role in which he may be able to make use of any part of the Confidential Information to the detriment of the Plaintiff, any other business or activity conducted or carried on or to be conducted or carried on within Australia which is the same as, substantially similar to or competitive with the business of the Plaintiff in which the Defendant worked at any time during the period 31 March 2006 to 30 March 2007, excepting that the Defendant may directly or indirectly engage in, or prepare to engage in, any Genesys practice that he buys into;

b. directly or indirectly soliciting, attempting to solicit or dealing with a person or entity who is and was at 31 March 2007 a party to a Member Firm Agreement with the Plaintiff (which has not been lawfully terminated).

2. The Cross-Claim be dismissed.

3. The Defendant pay the Plaintiff's costs of the proceedings, as agreed or assessed.

The Court notes that:

4. In Order 1(a)(ii), "Confidential Information" means all confidential information, including but not limited to:

(a) confidential financial information concerning the Challenger Group of whatever nature, including, without limitation, confidential financial information (including employee remuneration details), forecasts, business plans, product or corporate strategies, anything relating to the proceedings of the boards of any company in the Challenger Group and customer lists;

(b) trade secrets of the Challenger Group; and

(c) confidential know-how of the Challenger Group, of which the Defendant became aware or generated (both before and after 4 July 2006) in the course of, or in connection with, his employment with Challenger,

but does not include information which is in the public domain other than as a result of a breach, by any person, of an obligation of confidentiality owed by them to any company in the Challenger Group.

5. In note 4, "Challenger" means Challenger Group Services Pty Limited and "Challenger Group" means Challenger Group Services Pty Limited and each of its related bodies corporate (as defined in the Corporations Act 2001 (Cth)).

2 The appellant appeals from those orders.

Circumstances
3 The circumstances giving rise to the proceedings are set out as follows in the judgment of the primary judge in a manner that is not challenged on the appeal; except in certain limited respects which I will indicate:

[1] The Defendant, Mr Miles, was employed by the Plaintiff (“Genesys”) as a Managing Director responsible for a particular area of the company’s business. He ceased employment on 30 March 2007. He and Genesys had executed a Deed of Release on 28 February 2007 providing the terms upon which the parties would part company. In broad terms, the Deed of Release imposed restraints on Mr Miles’ entitlement to compete with Genesys for a period expiring on 15 September 2009, in consideration of certain benefits to be provided by Genesys.

[2] Genesys alleges that Mr Miles has breached the terms of the restraint clauses in the Deed of Release and that he proposes to continue such breaches unless prohibited by injunction. Mr Miles denies that his activities since leaving the employment of Genesys have been in breach of the restraint clauses. In the alternative, by his Cross Claim, he seeks a declaration that to the extent that the restraint clauses prohibit the activities in which he is engaging, they are invalid as contrary to public policy and are not saved under s 4(1) of the Restraints of Trade Act 1976 (NSW).

[3] There is little, if any, dispute, as to the essential material facts. Determination of the issues in the case largely turns on construction of the restraint clauses in the Deed of Release, in the light of the factual circumstances known to both parties. It will be more convenient to set out the relevant facts before turning to the clauses in the Deed of Release and to the precise issues to which they give rise.

The structure of Genesys’ business

[4] Genesys is the holder of an Australian Financial Services Licence issued under s 911A of the Corporations Act 2001 (Cth). Genesys enters into agreements with firms of financial planners, who are referred to as Member Firms. Two of the Member Firms are owned by Genesys itself, and some are partly owned, but the vast majority, some 133, are independently owned.

[5] Under the Member Firm Agreements Genesys provides services to the Member Firms in consideration of annual fixed fees and a percentage of the Member Firm’s turnover, together with certain other fees. The services which Genesys provides include:

— enabling Member Firms (by granting authority to nominated authorised representatives) to provide financial services advice under the Australian Financial Services Licence which has been obtained and is maintained by Genesys;

— providing Member Firms with documentation, such as statements of advice and financial services guides, to enable authorised representatives to provide financial services advice in a manner which complies with the Corporations Act and other regulatory obligations;

— providing Member Firms with financial planning software which they use to issue their statements of advice and to maintain their client relationship management data;

— entering into product distribution agreements with financial product providers (such as AMP, AXA, BT, MLC). The products are placed on an approved products list, which is made available to Member Firms. Member Firms are able to recommend such products to their clients. When a client purchases such a product, the product provider pays commission or other remuneration to Genesys and Genesys pays the Member Firm a portion of that amount in accordance with the Member Firm Agreement;

— providing a master professional indemnity insurance policy which covers Genesys as a financial services licensee and its authorised representatives (who are engaged by the Member Firms);

— providing professional development seminars to enable authorised representatives to comply with their continuing education obligations;

— providing specialist support to Member Firms, such as business consultants, process and systems coaches, marketing consultants, human resources support and assistance with brand management; and

— supervising and monitoring the operations of authorised representatives, including auditing their compliance with statutory obligations as authorised representatives and maintaining a facility for the resolution of client complaints.

[6] The Member Firms have their own clients with whom they deal directly and to whom they give financial planning advice. Genesys does not derive any revenue from the provision of financial provisions or services to persons or entities who are not clients of an existing or previous Member Firm.

[7] The Member Firm Agreements provide that, subject to the consent of Genesys, the authorised principals, directors, employees or contractors of the Member Firms may act as advisers to clients if such advisers enter into an Adviser Deed with Genesys. The Adviser Deed authorises the advisers, as agents of Genesys, to give financial advice and to provide other services to clients of the Member Firms. By this means, advisers employed by Member Firms become authorised representatives of Genesys, as the holder of an Australian Financial Services Licence, for the purpose of compliance with s 911A and s 911B Corporations Act.

[8] Only advisers engaged by the Member Firms deal directly with clients requiring financial planning services. Genesys itself has no direct contact with the clients of the Member Firms except in limited circumstances, such as when a client of a Member Firm wishes to make a complaint against a financial planner.

Mr Miles’ position and the information available to him

[9] From 1989 to 2004, Mr Miles was Chief Executive Officer and, subsequently, Managing Director, of Associated Planners Financial Services Ltd (“APFS”). Like Genesys, APFS provided financial services to independently owned financial planning firms, also called “member firms”, for a fee.

[10] In August 2004, the shares in APFS were acquired by Challenger Financial Services Group Ltd (“Challenger”). Mr Miles accepted full time employment by a subsidiary of Challenger in a role described as “Managing Director, Associated Planners”. Challenger’s financial planning services business was merged with that of APFS and the amalgamated business was conducted under the name “Genesys Wealth Advisers”. At present, more than 40% of the Member Firms in the Genesys network were previously member firms of APFS and these firms account for about 63% of Genesys’ projected revenue from product margins and franchise fees for the 2008 financial year.

[11] Mr Miles describes his duties and responsibilities while Managing Director of Genesys thus:

(a) to develop the vision and strategy for the business;

(b) to oversee the development and implementation of the business plan;

(c) to manage the key divisions in the business, including the operations division, the finance division, and the sales division;

(d) to manage the staff of Genesys;

(e) to manage the high level relationships with member firms;

(f) to take responsibility for public relations and the profile of the business; and

(g) to take responsibility for business acquisitions or sales.

[12] Mr Miles says that in the course of his duties as Managing Director he had access to the following information:

(a) financial information;

(b) employee remuneration details for the 120 staff within the Genesys business;

(c) financial forecasts;

(d) business plans;

(e) corporate strategies;

(f) board minutes and papers;

(g) internal policies and procedures;

(h) best practice models for financial planning practices; and

(i) advice models for financial planning practices.

[13] In 2006, Mr Miles was offered, and accepted, employment by Genesys itself in the position of “Managing Director — Member Firm Relations & Acquisitions”. He was required to work a four day week in this position and reported to Genesys’ managing director. He and Genesys entered into an employment contract, contained in a Letter of Offer dated 26 June 2006. Clause 5.3 imposed a restraint on competition following the termination of Mr Miles’ employment. I will come to that restraint clause in more detail later. The contract also provided a Long Term Incentive Plan (“LTIP”) which entitled Mr Miles to take up allocations of shares in Challenger at certain prices and at certain times.

[14] Mr Miles’ role, while employed by Genesys as Managing Director — Member Firm Relations and Acquisitions, required him to deal with existing Member Firms directly on a regular basis and to endeavour to recruit new Member Firms into the Genesys network. He was responsible for dealing with any substantial problems which Member Firms might have, so as to ensure that they did not leave the Genesys network. He did not, as part of his regular duties, deal directly with clients of Member Firms although, on occasion, he met them socially. He had performed the same role while employed by Challenger from August [2004] and, earlier, while employed by APFS.

[15] By the time Mr Miles had come to leave the employment of Genesys in March 2007 he had, for almost twenty years, been responsible for managing the relationship between financial planning firms and the provider of financial services to those firms. He had developed a very good relationship with those firms and their principals and he had a high reputation in the financial planning services industry. Members Firms confided financial information to him about their businesses which they would not have provided if he was not in the position which he occupied and if they had not known and trusted him in that position.

[16] I turn now to the information which Mr Miles received in the course of his employment with Genesys. I will refer only to those categories of information which Genesys has emphasised as highly confidential.

[17] Mr Miles received monthly brokerage reports which identified the amount of gross brokerage revenue which Genesys received from each Member Firm. The brokerage reports were not distributed widely within Genesys and were not made available outside Genesys. The brokerage reports enabled a reader to identify quickly which Member Firms were generating the most income for Genesys.

[18] In mid-2006 Mr Kirk, the CEO of Genesys, commissioned a firm of consultants, Booz Allen Hamilton (“BAH”) to conduct a review of the business operations of Genesys. Their review was undertaken over a period of eight weeks.

[19] A steering committee of senior executives of Genesys was formed to assist BAH in conducting its review of the Genesys business. Mr Miles was a member of the committee. The committee met a number of times during the review process and BAH made presentations to it, including analyses of sources of revenue and profit to Genesys and of the profitability of particular Member Firms.

[20] On 6 November 2006, BAH provided to Mr Kirk a presentation of the results of their review. Based on that presentation and other information collected by Mr Kirk, Mr Kirk presented to the Board of Genesys on 16 November 2006 a Strategic Plan for 2007 to 2011. Mr Kirk says that the Strategic Plan is the “blue-print” for how he is presently running the Genesys business and for what he hopes to achieve in the next few years.

[21] A copy of the Strategic Plan was made available to Mr Miles and to a few other senior executives of Genesys. It was not generally available within Genesys nor was it available to anyone outside Genesys or the Challenger group.

[22] On 20 September 2006, a senior executive of Challenger sent to a number senior executives of Genesys, including Mr Miles, an analysis of the economic importance of the Member Firms who selected the Synergy administration platform (“Synergy”) for their clients’ investments. Synergy is administered by Genesys. The document contained information, not publicly available, as to the amount of Funds Under Advice which particular Member Firms had invested with Synergy. That information enables the reader to identify which particular Member Firms have the most funds under advice invested with Synergy and are therefore the most profitable to Genesys.

[23] On 9 October 2006, Mr Miles sent to senior executives of Genesys a list of Member Firms, graded according to his assessment of those in serious danger of leaving the Genesys network, those in some danger, and those unlikely to leave. The list was compiled for the purpose of devising a strategy for retaining Member Firms. This information was not generally available in Genesys. Obviously, the list was compiled from information made available to Mr Miles in the course of his employment. Genesys says, and I accept, that the information would assist a competitor to assess which Member Firms were ‘ripe for the picking’.

[24] On 20 October 2006, the Chief Financial Office of Genesys sent to the directors, including Mr Miles, a paper setting out the identity of those Member Firms which were entitled to certain incentives under Genesys’ Incentive Plan, the amounts of their respective entitlements and the applicable vesting date for those entitlements. Member Firms would lose their entitlement under the Incentive Plan if they terminated their Member Firm Agreements before the vesting date. That information was not generally available within Genesys and the Challenger group. The information would enable a competitor to know which Member Firms were unlikely to terminate their relationship with Genesys because of the imminence of their entitlement vesting date, and which firms may be susceptible to solicitation because their vesting date had passed and they had received their entitlement under the Incentive Plan.

Mr Miles’ departure and his proposed new business

[25] Shortly before Christmas 2006, Mr Miles had a discussion with Mr Kirk in which Mr Miles said that his role in Genesys was not providing him with enough challenges and he wanted to leave but did not want to forfeit his LTIP benefits.

[26] In January 2007, Mr Miles told Mr Kirk that, following his departure, he would like to invest in one of Genesys’ Member Firms called “Brown Bulley”. Mr Kirk said that in order to preserve Mr Miles’ LTIP benefits he would have to get authorisation from the CEO of the Challenger group, Mr Tilley. Mr Kirk was of the view that if Mr Miles left the employment of Genesys at the time envisaged, he would not be entitled to benefits under the LTIP. Mr Miles, however, held the view that he had been made redundant and was therefore entitled to the benefits. Mr Kirk says, and I accept, that he recommended that Mr Miles receive his LTIP benefits, notwithstanding the disagreement as to his entitlement, in consideration for restraints on competition to be imposed on Mr Miles under a Deed of Release which was being negotiated between the parties.

[27] The Deed of Release was executed and exchanged on 27 February 2007. I will set out the relevant terms later.

[28] In negotiating the terms of the Deed of Release, Mr Miles had the advice of independent solicitors experienced in employment law. It is clear that he read the terms of the various draft Deeds carefully, made some suggested amendments, and received detailed advice about the implications of the Deed.

[29] When he left the employment of Genesys, Mr Miles took an equity position in, and commenced working with, a Member Firm, Brown Bulley, later known as Stamford Brown. The Deed of Release expressly permitted him to take up this position. He sold his equity and ceased working for Stamford Brown in March 2008.

[30] Mr Miles frankly admits that he proposes, prior to expiry of the restraint period, to go into a new business venture which will compete directly with the business of Genesys. He has already had discussions with a major financial backer, Suncorp Metway Ltd (“Suncorp”). He will be the Managing Director of the new venture and will be responsible for preparing its business plan. He intends to approach a number of Member Firms in the Genesys network to entice them away to the new business venture, and he has already approached five or six of the Member Firms for that purpose.

[31] Mr Miles admitted in cross examination that:

a) on 26 May 2008 he had a meeting with a representative of Suncorp in which plans for the new business were discussed;

b) one of the first items for discussion was an indemnity which Mr Miles sought from Suncorp to cover his legal costs of defending proceedings which he thought Genesys might bring against him to restrain his participation in the new venture;

c) it was agreed that he would solicit Member Firms in the Genesys network and he proposed to select them by reference to the amount of funds under advice which they had, their gross revenues, and also the qualities and characteristics of the principals of those Member Firms;

d) while working with Genesys and, previously, APFS, he had gained insights into the principals of the Member Firms and into the businesses of those firms;

e) the offers which he would make to the Member Firms to solicit them away from Genesys would be pitched so that they were more attractive than the terms which the Member Firms were presently getting from Genesys;

f) he was in a very good position to make such offers because he had a long-standing involvement in the Genesys business and in the preparation of its current business plan;

g) he proposed that his new business would buy the practice of a particular Member Firm in the Genesys network which had a significant amount of funds under advice, a fact which he knew because of information provided to him in his position at Genesys;

h) the new business venture would use BT as the Wrap Administrator or investment platform because it would enable easy transfer of funds under advice from Genesys Member Firms to the new business;

i) the new business would seek to attract Member Firms with the largest funds under advice;

j) when he left Genesys in March 2007, he had a fairly good idea of the amount of funds under advice that each Member Firm had in investment platforms used by Genesys, derived from the monthly reports which he had been receiving;

k) in competing with Genesys in the new business, he would have a head start over others who had no knowledge of Genesys’ business.

[32] There is no doubt that Mr Miles will implement his intentions in relation to his new business venture unless he is restrained because his activities fall within the restraint clauses of the Deed of Release.

The Deed of Release

[33] The Deed recites that Mr Miles had participated in the LTIP and was allocated a certain number of shares at a certain price, of which a fifth had vested as at the date of the Deed. It provides for a termination of Mr Miles’ employment on 30 March 2007 and recites that the parties’ agreement on the terms of the Deed is without admission of liability on either side.

[34] In so far as is presently relevant, the Deed provides that on 15 September 2007 and 15 September 2008 a certain proportion of the shares available to Mr Miles under the LTIP will be released to him and the balance will be released on 15 September 2009. However, the Deed also provides that the shares will be released to Mr Miles only if, at the time for release, he has complied with, and continues to comply with, his obligations under cl 6.1. It further provides that if Mr Miles breaches cl 6.1 he will forfeit his entitlement to all shares under the LTIP which have not been released to him by that time.

[35] Clause 6.1 of the Deed of Release provides:

In consideration of the Company’s agreement to provide the payments and benefits to the Employee outlined in this Deed, the Employee and the Company agree that clause 5.3(a) and (b) of the Letter of Offer will be amended with effect from the date of this Deed by the deletion of those clauses and their replacement with the following:

The following clause contains a number of important definitions that are set out in clause 20 of the General Terms. You should read these defined terms carefully.

In addition, for the purpose of this clause, ‘Genesys Wealth Advisers Client’ means client or customer of Genesys Wealth Advisers Limited.

You agree that you will not:

(a) for the period from the termination of your employment to 15 September 2009, without the prior written consent of Genesys:

(i) directly or indirectly engage or prepare to engage in any business or activity conducted or carried on or to be conducted or carried on within Australia which is the same as, substantially similar to or competitive with the business of Genesys in which you worked at any time during your last 12 months employment with Genesys in any capacity or role in which you may be able to make use of any part of the Confidential Information to the detriment of Genesys, except that you may directly or indirectly engage in, or prepare to engage in, any Genesys practice that you buy into (including the ‘Brown Bulley’ Genesys practice);

(ii) become an employee of or directly or indirectly contract to, any Genesys Wealth Advisers Client with whom you dealt or to whom you provided services at any time during the last 12 months of your employment with Genesys, but this restraint only applies if at any time during the period of this restraint you are not an owner (or part of an owner) of a Genesys practice (whether ‘Brown Bulley’ or otherwise);

(iii) directly or indirectly solicit, attempt to solicit or deal with, any Genesys Wealth Advisers Client with whom you dealt or to whom you provided services at any time during the last 12 months of your employment with Genesys; and

(iv) directly or indirectly solicit or attempt to solicit the business of, or deal with, any person with whom Genesys was directly negotiating to acquire their business or custom at the time of the termination of your employment with Genesys.

Genesys may require you to provide a statutory declaration confirming to its reasonable satisfaction that you are not in breach of this clause.

You acknowledge that each of the restrictions specified in this clause are, so far as you are aware, reasonable and necessary to protect Genesys’ legitimate interests.’

Clause 8 provides:

Confidential Information

Without limiting the terms of the Letter of Offer, following the Termination the Employee must keep confidential all Confidential Information other than Confidential Information:

(a) that was public knowledge when this Deed was signed or became so at a later date (other than as a result of a breach of confidentiality by the Employee); or

(b) that the Employee is required by law to disclose; or

(c) that is part of the Employee’s general skill and knowledge but is not a trade secret or highly confidential.

[36] “Confidential Information” is further defined in the General Terms incorporated in Mr Miles’ Letter of Offer as follows:

(a) confidential financial information concerning the Challenger Group of whatever nature, including, without limitation, confidential financial information (including employee remuneration details), forecasts, business plans, product or corporate strategies, anything relating to the proceedings of the boards of any company in the Challenger Group and customer lists;

(b) trade secrets of the Challenger Group; and

(c) confidential know-how of the Challenger Group, of which you become aware or generate (both before and after the day this Agreement is signed) in the course of, or in connection with, your employment with Challenger,

but does not include information which is in the public domain other than as a result of a breach, by any person, of an obligation of confidentiality owed by them to any company in the Challenger Group.

Decision of primary judge
4 The primary judge identified the issues in the case as follows:

[37] Genesys says that Mr Miles has breached, and proposes to continue to breach, the restraints imposed by cl 6.1(a)(i) and 6.1(a)(iii) of the Deed of Release.

[38] As to cl 6.1(a)(i), Genesys says that:

— Mr Miles is proposing to engage in a business in direct competition with its business, in the role of managing director;

— the information concerning the Genesys business to which it has specifically referred is Confidential Information;

— in his role as managing director of the new business, Mr Miles may be able to make use of that information to the detriment of Genesys.

[39] Mr Miles responds that:

— Genesys must prove that he has information which is, in truth, confidential;

— there is no satisfactory evidence that any of the information upon which Genesys relies was expressly identified to Mr Miles as being confidential;

— Genesys has failed to prove that any of the information which it identifies is, in truth, confidential;

— he does not now remember much detail of the information said to be confidential — Genesys must prove that he does in fact remember this information, there being no evidence that he has taken away with him any records of such information;

— even if Mr Miles has confidential information which he retains in his memory — Genesys must prove that use of that information would cause it detriment, and it has failed to do so.

[40] As to cl 6.1(a)(iii), Genesys says that:

— on their true construction, the words “Genesys Wealth Advisers Client” — defined earlier in the Deed as “client or customer of” Genesys — means each Member Firm in the Genesys network with whom Mr Miles was dealing;

— Mr Miles expressly admits his intention to solicit such “clients”, so that he should be restrained from doing so.

[41] Mr Miles responds that, on their true construction, the words “client or customer” of Genesys refer to a retail customer of a Member Firm, not to the Member Firm itself, so that his solicitation of Member Firms is not caught by this restraint;

[42] By his Cross Claim Mr Miles seeks declarations that the restraints in cl 6.1 of the Deed of Release are invalid as contrary to public policy and that he is free to engage in the new business as he proposes. He says that:

— Genesys bears the onus of proving that the restraints are no more than adequate to protect its business interests;

— Genesys has not proved what business interests need protection by the restraints;

— Genesys has not proved what risk Mr Miles poses to its business interests so as to justify the protection of the restraints;

— the period and territorial extent of the restraints are unreasonable having regard to the fact that the original restraint period in Mr Miles’ Letter of Offer in June 2006 was thirteen weeks from the cessation of employment, whereas the restraint period in the Deed of Release is two and a half years.

[43] Genesys responds that:

— by virtue of Mr Miles’ well established relationships with, and knowledge of, the Member Firms, his competition is inherently likely to have a severe impact on Genesys’ business;

— valuable consideration was given for the restraints and Mr Miles had independent legal advice when negotiating them;

— the restraints did not prevent Mr Miles from earning livelihood in the financial planning industry;

— continuing the restraints until 15 September 2009 is not more than is adequate to protect Genesys’ interests bearing in mind the severity of the impact his competition is likely to have on the business of Genesys.

5 The primary judge decided that information that Mr Miles was shown to have was confidential; that his proposed engagement was in a capacity in which that information “may be” used to the detriment of Genesys; that the Member Firms of Genesys did fall within the expression “client or customer” in cl 6.1 of the Deed of Release; that the restraint was not unreasonable; and that orders should be made as set out above.

Issues on appeal
6 The grounds of appeal that are relied on are set out over many pages of the notice of appeal. As argued for Mr Miles, the appeal was brought on the basis that the primary judge had erred in four areas:

(1) In finding that Member Firms were within the expression “client or customer of Genesys Wealth Advisers Limited” in cl 6.1 of the Deed of Release;

(2) In finding that Mr Miles would in his proposed activity engage in a capacity or role in which he may be able to use confidential information to the detriment of Genesys;

(3) In finding that the restraint was reasonable; and

(4) In the form of the orders made, notably order (1)(a)(ii).

7 I will consider these issues in turn.

Client or Customer
8 Mr Ian Neil SC for Mr Miles submitted that the primary judge mischaracterised the relationships between Genesys, the Member Firms and the retail clients, in saying that the retail clients were clients of the Member Firms and that Genesys provided services for the Member Firms for fees. In truth, he submitted, the clients were clients of Genesys; the Member Firms acted as Genesys’s agent in dealing with them; Genesys retained all rights in connection with providing financial services to the clients; and Genesys received payment for those services from the clients, retained some of such payments, and paid the balance to the Member Firms.

9 Mr Neil submitted that the primary judge’s finding (Judgment at [70]) that “the business of Genesys consisted of attracting, retaining and dealing with Member Firms” should be replaced by a finding that “the business of Genesys consisted of providing financial products and services to retail clients using Member Firms as its agent for that purpose”.

10 Mr Neil further submitted that retention of retail clients was important to Genesys, and something which Genesys would wish to ensure. They were the source of the revenue of Genesys, they could leave the Genesys network immediately (whereas Member Firms had to give three months notice), they could be influenced by Mr Miles’ reputation in the financial planning industry, and their identity was confidential (whereas the identity of the Member Firms was published on the Genesys website). He submitted that some individual clients were of substantial importance to the business of Genesys, and could be lost to Genesys if Mr Miles took employment with them. He submitted that Mr Miles’ undisputed evidence showed direct contact with some retail clients.

11 Mr Neil submitted that the fact that Mr Miles dealt with all Member Firms within the last twelve months of his employment would mean that the limitation in clause 6.1 to clients “with whom you dealt or to whom you provided services at any time during the last twelve months of your employment” would be superfluous and inappropriate, if Member Firms were taken to be clients.

12 Mr Neil submitted there was no basis for any inference of a common intention that the Deed restrain Mr Miles from soliciting Member Firms. At most, there was evidence that this was the intention of Mr Kirk; and to rely on that in construing the contract would involve error of the kind identified in DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423 at 429. To the extent that the primary judge relied on business common sense, that required caution: see Peppers Hotel Management Pty Limited v Hotel Capital Partners Limited [2004] NSWCA 114 at [124]- [127].

13 The actual wording of the Deed, Mr Neil submitted, was contrary to the primary judge’s decision. Member Firms were not customers or clients in the ordinary sense of the words; and in the same clause, they were referred to by the different expression “Genesys practice”. Member Firms were not referred to as customers or clients in any contractual documents.

14 I accept Mr Neil’s submission set out in the second sentence of par [8] above, and I accept that the primary judge’s characterisation of the relationships between Genesys, Member Firms and retail clients has to be understood subject to the matters set out in those submissions.

15 However, even if the primary judge’s finding that “the business of Genesys consisted of attracting, retaining and dealing with Member Firms” is considered subject to those considerations, and even if it were to be replaced by a finding that “the business of Genesys consisted of providing financial products and services to retail clients using Member Firms as its agents for that purpose”, it was plainly the case that attracting, retaining and dealing with Member Firms was central to the success of the business of Genesys.

16 Further, it is also plain that at no relevant time, and particularly at no time during the last twelve months of his employment, was there any retail client “with whom [Mr Miles] dealt or to whom [Mr Miles] provided services”. Although there was evidence of some social and other contact between Mr Miles and some retail clients, it is plain that this contact did not fall within that expression. Further, the business of Genesys was such that Genesys would know this, apart from the remote possibility that, without the knowledge of Genesys, there may have been some limited dealing of the kind referred to by Mr Kirk, such as dealing with a complaint to Mr Miles by a retail client about the conduct of a Member Firm. Accordingly, if “Genesys Wealth Adviser’s Client” is interpreted as contended for Mr Miles, pars (ii) and (iii) of cl 6.1(a) would, to the knowledge of both Mr Miles and Genesys, have been to no effect whatsoever.

17 In my opinion, the words used plainly manifested an intention that the class identified by the words “Genesys Wealth Adviser’s Client with whom you dealt or to whom you provided services” would extend to some entity with whom Mr Miles dealt or to whom he provided services; and this could be so only if the words extended to Member Firms. That this was the intention is confirmed by the circumstance that the great potential for damage to the business of Genesys was by way of subsequent solicitation of Member Firms and subsequent dealings with them.

18 In my opinion, the definition in terms of “client or customer” is apt to extend both to Member Firms and to retail clients, although for the reasons given above the restriction in pars (ii) and (iii) of cl 6.1(a) would only apply to Member Firms, because it was only Member Firms with whom Mr Miles dealt or to whom he provided services.

19 Accordingly, in my opinion the decision of the primary judge was correct on this question.

Confidential Information
20 Mr Neil submitted that the primary judge erred in finding there was confidential information, and in finding that there was confidential information that could be used to the detriment of Genesys. On the former point, Mr Neil submitted that it was necessary both to identify with some precision what was alleged to be confidential information and to show that it was truly confidential. He referred to O’Brien v Komesaroff [1982] HCA 33; (1982) 150 CLR 310, where at 326 to 328 Mason J referred to the importance of identifying the information said to be confidential; and to Pioneer Concrete Services Limited v Galli [1985] VR 675 at 711-712, where the same point was made by the Full Court of the Supreme Court of Victoria. He also referred to GlaxoSmithKline Australia Pty Ltd (GSK) v Ritchie [2008] VSC 164; (2008) 77 IPR 306, where Harper J at [20] referred to the first task as being to identify what was confidential. In the present case, Mr Neil submitted, the agreement itself did not identify what was confidential information except in the broadest terms; and the documents put into evidence by Genesys contained much that was plainly not confidential. The global claim of confidentiality over the whole of the documents was plainly invalid, he submitted.

21 As regards “use to detriment”, Mr Neil submitted that, particularly in circumstances where Mr Miles had not taken any documents and did not now remember the detail of information, much of which would in any event now be out of date, it was not shown that any of this information could now be used to the detriment of Genesys. To the extent that there was information concerning the position and performance of Member Firms, such information was readily obtainable, as shown by the evidence of Mr Dulin.

22 In my opinion, it is important to keep in mind that this is not a case where what is relied on is (1) an equitable obligation of confidentiality (as in O’Brien); or (2) the existence of a trade secret (as in GlaxoSmithKline); or (3) a direct restraint against use of confidential information (as in Pioneer, and also Wright v Gasweld Pty Limited (1991) 22 NSWLR 317 and Del Casale v Artedomus (Australia) Pty Limited [2007] NSWCA 172; (2007) 73 IPR 326). Rather, it is (4) a case where there is a restraint on engaging in certain conduct, by reference to the potentiality for confidential information to be used to the promisee’s detriment, as in Kone Elevators Pty Limited v McNay (No 2) (1997) Aust Contract R 90-080.

23 In relation to categories (1) to (3), it is plainly necessary to identify with some precision the confidential information, not least because an injunction in terms of a prohibition against using undefined confidential information would be inappropriately vague and uncertain, while an injunction restraining the use of globally defined information only some of which was confidential could not be justified.

24 However, there are different considerations that apply in relation to category (4). In Kone, there was a restraint in similar terms to that in cl 6.1(a)(i) in this case. Sheller JA (with whom Meagher and Cole JJA agreed) referred to Littlewoods Organisation Limited v Harris [1977] 1 WLR 1472, and continued (at 90,595):

In Littlewoods Organisation Ltd v Harris, Lord Denning MR after pointing out at 1478 that a master cannot stipulate for freedom from competition but can protect his trade secrets or his confidential information (Herbert Morris Ltd v Saxelby [1916] 1 AC 688), said at 1479:

"It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not: and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period."

25 Then, at 90,597 (having referred earlier to Haynes v Doman [1899] 2 Ch 13 at 25-26), he said this:

However this may be, as Lord Lindley said in Haynes v Doman, the covenant must be construed with reference to the objects sought to be attained by it. That object is described in the passage that I have quoted from the judgment of Lord Denning in Littlewoods Organisation Ltd v Harris, namely to protect Kone's confidential information by taking a covenant from the employee by which he is not to go to work for a rival in trade. Thus are avoided the difficulties and impracticabilities of investigating whether or not and to what extent the employee possessed confidential information or was likely to pass it on to Schindler. That is not the question the covenant poses. The question is whether the employee proposed to engage in any business in Australia as a consultant or employee which could make use of confidential information as defined to the material detriment of Kone's business.

26 In my opinion, as submitted by Mr Meagher SC for Genesys, the material identified by Genesys (as set out in par [17]-[24] of the primary judge’s judgment) did include information that was confidential to Genesys; and in my opinion, that information plainly could be used to the detriment of Genesys by a competitor, in particular by assisting it to target Member Firms by reference to their value to a business of the type conducted by Genesys and their vulnerability to being persuaded to leave Genesys, and to formulate attractive offers to such Member Firms, and also to structure the competitor’s business plan taking into account the business plan of Genesys.

27 In my opinion, having regard to the circumstance that this was a category (4) case, there was sufficient identification of information that was sufficiently confidential to justify a restriction of the kind discussed in Kone. The question of the extent of the restriction so justified is a matter going to the reasonableness of the restraint; and in that regard, the question of the extent to which such information might not be remembered by Mr Miles and/or might become stale is relevant to the reasonableness of the restraint, to which I will now turn.

Reasonableness of Restraint
28 The primary judge dealt with the question of the reasonableness of the restraint in par [73]-[84] of his judgment as follows:

[73] I have concluded that, in carrying out the role which he intends to fulfil in his new business, and by soliciting some existing Member Firms, Mr Miles has breached and will continue to breach the restraints imposed upon him by cl 6.1(a)(i) and (iii) of the Deed of Release. The question now is whether the restraints are void as contrary to public policy or are valid under s 4(1) of the Restraints of Trade Act to the extent that they prevent him from undertaking the relevant activities up to 15 September 2009: Orton v Melman [1981] 1 NSWLR 583, at 587 per McLelland J (as his Honour then was).

[74] Mr Miles submits that the restraints are void and cannot be saved under s 4(1) of the Restraints of Trade Act because:

— Genesys has not proved that the restraints protect its legitimate business interest rather than merely stifling competition;

— Genesys has not proved that the duration of the restraint is no longer than is adequate to protect its interest, bearing in mind that the restraint imposed under Mr Miles’ Letter of Offer in June 2006 was thirteen weeks from cessation of employment;

— Genesys has not proved that it would suffer any real detriment if Mr Miles was not restrained from competition in the terms provided in cl 6.1.

[75] I am unable to accept any of these submissions.

[76] First, it is clear that the information received by Mr Miles and identified by Genesys was at a high level of confidentiality. It directly equipped a competitor to attack Genesys’ weak points in its relationships with Member Firms and to build upon them. The Strategic Plan told Mr Miles what directions Mr Kirk, as CEO of Genesys, would take in the years up to and beyond 15 September 2009. It is commercially unreal to suggest that it is merely stifling competition to prevent one particular competitor who has that kind of inside information from using it.

[77] Mr Miles’ potential to damage the business of Genesys by using the confidential information and by soliciting its Member Firms was very high, as may be gauged from the target of one billion dollars in funds under advice which Mr Miles hoped to achieve within two years and for which Suncorp was prepared to offer many millions of dollars as an incentive.

[78] I am satisfied that Genesys had a legitimate business interest to protect in seeking the restraints against competition from Mr Miles provided in cl 6.1.

[79] I acknowledge that the territorial reach of the restraints is wide. However, the evidence shows that the Member Firms are scattered across Australia. I am not persuaded that the duration of the restraints is unreasonable. I have regard to the following considerations.

[80] First, Mr Miles’ relationship with Member Firms at a senior level was very lengthy, almost twenty years. Mr Miles is very experienced in the financial planning industry generally and enjoys a high reputation with Member Firms. His recollection of the thrust and substance of the relevant confidential information provided to him is likely to be good and, at the least, useful in his new business. His ability to solicit Member Firms from the Genesys network to his own business would inevitably take some time for Genesys to counter and neutralise. What Mr Miles has built up over some twenty years could not be undone in thirteen weeks. Mr Miles himself concedes that his new business is “likely to have an impact on Genesys”: affidavit 27 May 2008, [70].

[81] At the time that the parties were negotiating the Deed of Release they were on an equal footing and Mr Miles had the benefit of independent and experienced legal advice in making a contractual admission that the restraints were reasonable. Although the Court does not regard such an admission as conclusive, the Court gives it considerable weight where the parties have negotiated on an equal footing and with the benefit of legal advice: Woolworths Ltd v Olson [2004] NSWCA 372 at [39] per Mason P; Queensland Co-operative Milling Assn v Pamag Pty Ltd [1973] HCA 24; (1973) 133 CLR 260, at 268.

[82] It is significant that, in support of his argument that the restraint period is unreasonable, Mr Miles does not rely upon any fact that was not known to both parties at the time that the restraint was negotiated.

[83] I do not think that the restraint period of thirteen weeks provided in Mr Miles’ original contract in June 2006 is a reliable guide as to what was reasonable in February 2007. By that time, he had received substantial new confidential information in the form of the Strategic Plan. Further, he was negotiating a settlement of a disagreement with Genesys as to his entitlement to benefits in the LTIP. The benefits he was to receive from that compromise would be substantial as the value of the shares in the LTIP then stood. The fact that those shares have diminished considerably in value since execution of the Deed of Release does not detract from the fact that settlement of the dispute as to Mr Miles’ entitlement to retain his benefits in the LTIP was a valuable commercial consideration which Mr Miles was obtaining in exchange for the restraint clauses.

[84] For these reasons, I am satisfied that the restraints in cl 6.1(a)(i) and (iii) go no further than are reasonably necessary to protect Genesys’ legitimate business interests against competition from Mr Miles for the remainder of the restraint period. I hold that the restraint clauses are valid.

29 Mr Neil submitted that, in relation to the restraint against soliciting or dealing with Member Firms, the primary judge did not identify the legitimate interest of Genesys which could be protected, or address the question of what extent of protection was justified.

30 He submitted that the claim for protection must be based on some advantage that can properly be regarded as the employer’s property, and that it would be unjust to allow the employee to appropriate (Stenhouse Ltd v Phillips [1973] UKPC 1; [1974] AC 391 at 400); and client connection based on the employee’s personal qualities does not belong to the employer (J D Heydon The Restraint of Trade Doctrine, 3rd ed, (2008) at 121,133; Herbert Morris Limited v Saxelby [1916] 1 AC 688 at 714). The restraint could be justified only if Genesys had proved its employment of Mr Miles caused him to acquire inducing influence over the Member Firms, and caused the Member Firms to regard him as the personification of its business (Australian Retail Wholesalers v Stafford [2007] NSWSC 572; (2007) ATPR 42-168 at [55]- [60]; John Fairfax Publications v Birt [2006] NSWSC 995 at [30]). The only relevant findings made by the primary judge (at [77] and [80]) did not address these issues.

31 As regards the period of restraint, Mr Neil submitted that restraint could only be justified for such period as was reasonably necessary for Genesys to put someone else in Mr Miles place and for that employee to have a reasonable opportunity to demonstrate his effectiveness to Member Firms (DalySmith Corporation (Australia) Pty Limited v Cray Personnel Pty Limited (Supreme Court of New South Wales, Young J, 14 April 1997, unreported) at 13). There was no consideration of this matter by the primary judge.

32 As regards the period of the restraint on the basis of confidential information, Mr Neil submitted there was no basis for a conclusion that there was a risk of detriment to Genesys after 14 months (and for the remainder of the 30 months) from use of confidential information such as to justify a restraint that effectively precluded Mr Miles from performing senior executive roles in the planning industry.

33 Mr Neil also submitted that the primary judge erred in not having regard to the length of restraint imposed by Genesys on employees in positions similar to Mr Miles, and in rejecting evidence in relation to that matter. Evidence is admissible as to what is usual in similar circumstances (Sir W C Leng & Co v Andrews [1909] 1 Ch 763 at 770; Mason v Provident Clothing and Supply Co Limited [1913] AC 724 at 732-3) and in the business of the particular employer (Portal Software v Bodsworth [2005] NSWSC 1179 at [79]; Koops Martin v Dean Reeves [2006] NSWSC 449 at [56]- [59]).

34 Mr Meagher submitted that some of the statements relied on by Mr Neil were too restrictive, and he referred to the judgment of Brereton J in Koops at [26], [29]-[34], [80] and [83]-[84].

35 Mr Meagher submitted that Mr Miles was intimately involved, on behalf of Genesys or its predecessor, with the principals of Member Firms for 20 years, and so had influence that had been acquired in the service of or for the benefit of Genesys. Further, he had participated extensively in the preparation of a business plan for Genesys for the next five years. He had legal advice in entering the relevant Deed, and he and Genesys were in the best position to judge what was reasonable to protect the legitimate interest of Genesys. The restraint was also not unreasonable in that it allowed for him to work for Brown Bulley.

36 In my opinion, there is no precise rule on the basis of which the period for which an employer is legitimately entitled to protection can be determined. I would not endorse the statement by Young J in DalySmith at 13 that “a restraint that enures after the time taken for a reasonably competent new employee to master the job and be able to demonstrate to the customer that he or she is effective and efficient will be too long”.

37 I would respectfully adopt the general statement of principle by the Privy Council in Stenhouse at 400:

The accepted proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full any personal skill or experience even if this has been acquired in the service of his employer: it is this freedom to use to the full a man’s improving ability and talents which lies at the root of the policy of the law regarding this type of restraint. Leaving aside the case of misuse of trade secrets or confidential information (which is separately dealt with by clause 3 of the agreement and which does not arise here), the employer’s claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee may have contributed to its creation. For while it may be true that an employee is entitled – and is to be encouraged – to build up his own qualities of skill and experience, it is equally his duty to develop and improve his employer’s business for the benefit of his employer. These two obligations interlock during his employment: after its termination they diverge and mark the boundary between what the employee may take with him and what he may legitimately be asked to leave behind to his employers.

38 Where, as in this case, a senior officer of an employer company has on behalf of that employer fostered close and productive relationships with customers, having dealings on behalf of the employer with principals of those customers and being to them the human face of the employer, there may be a relationship of the employee with the customers that “can properly be regarded as, in a general sense, [the employer’s] property”. Of course, insofar as the employee’s own qualities of skill and experience recommend him or her to the customer, the employee should be free to employ that, but subject to considerations of the unfairness of the employee being able to exploit relationships that are properly regarded as the employer’s property.

39 In my opinion, that approach may, in cases such as the present, justify a restraint longer than that contemplated by Young J in DalySmith.

40 I accept Mr Neil’s submission that the length of restraints imposed on employees in similar positions has some relevance and should not have been excluded, just as the restraint of 13 weeks in Mr Mile’s own earlier contract has some relevance. However, in my opinion the relevance is not greatly significant in this case, where the relevant restraint was freely agreed upon in negotiations in which Mr Miles was by no means disadvantaged and in which he had legal advice.

41 In my opinion, the relationship shown to exist between Mr Miles and the Member Firms and their principals could properly be regarded as being, to a substantial extent, the property of Genesys, as well as being something supported by Mr Miles’ own qualities of skill and experience. A fair and proper balance between these competing considerations is a matter of judgment, as to which reasonable minds could differ. Having regard to the length and quality of the connection maintained on behalf of Genesys, a judgment that a restraint of 30 months was appropriate to protect the employer’s legitimate interests would not in my opinion be an unreasonable one.

42 As put by Mr Meagher, the persons in the best position to make that judgment were Mr Miles and Genesys, and that judgment was expressed in an agreement reached in the way mentioned. In my opinion, this is sufficient to justify the restraint protective of the customer connection.

43 In relation to the confidential information restraints, the position is less clear. One justification for restraints of the kind used in this case and in Kone is the difficulty of protecting confidential information in any way other than by precluding types of employment. However, provisions of that kind are extremely restrictive when those types of employment are broadly co-extensive with the employee’s area of expertise, as in this case. This is to some extent ameliorated in this case by the qualification permitting Mr Miles to engage in something like the area of his expertise in the particular way contemplated at the time, namely in any Member Firm that he buys into; and of course the reasonableness of the restraint has to be judged at the time of entry into the agreement: Woolworths Limited v Olson [2004] NSWCA 372 at [40].

44 However, an important part of the confidential information sought to be protected in this case was information concerning Member Firms which could assist Mr Miles to target Member Firms and to formulate offers attractive to them; and Genesys has some protection against misuse of that confidential information by the covenant against soliciting or dealing with Member Firms. That protection is not absolute, and would no doubt be assisted by a prohibition on working in areas where there is the possibility of Mr Miles covertly trying to deal with Member Firms, or doing so indirectly (as pointed out by Handley AJA); but in my opinion, the blanket restraint on Mr Miles working in the area of his expertise (other than with Brown Bulley or some other Member Firm) for the period between 14 months and 30 months after termination of his employment goes beyond what is reasonably necessary to protect the legitimate interests of Genesys in relation to confidential information concerning Member Firms, when Mr Miles is bound by his agreement during this period not to deal at all with Member Firms.

45 As regards the remainder of the confidential information, concerning Mr Miles’ knowledge of the business plan of Genesys, in circumstances where no documents were taken it is unlikely that such information as Mr Miles could recall after 14 months would be sufficiently detailed or currently relevant to have the potential to be used in any effective way to the detriment of Genesys; and in my opinion, in this respect also, a blanket restraint on Mr Miles working in the area of his expertise (other than with Brown Bulley or some other Member Firm) for the period from 14 to 30 months after termination of his employment goes beyond what is reasonably necessary to protect the legitimate interests of Genesys.

46 The primary judge did not explicitly address these questions; and in my opinion it is appropriate for this Court to give effect to its own views on them.

47 For those reasons, I would uphold the appeal to the extent that it relates to the restraint based on confidential information.

Form of Orders
48 The only real issue concerns the form of orders concerning the restraint based on confidential information; and on the view I have taken, it is not necessary to review the form of order adopted by the primary judge. However, on the basis that the majority decision is otherwise, I agree with Handley AJA that the alternative order proposed by the respondent is preferable to that adopted by the primary judge, in that it specifies the type of business proscribed rather than leaving this to be ascertained later by reference to the potentiality for use of confidential information to the detriment of Genesys. In my opinion, this minor adjustment has no costs consequences.

49 In my opinion, it is appropriate to declare on the cross-claim that the restraint of trade in cl 6.1(a)(i) of the Deed of 28 February 2007 is invalid to the extent that it purports to operate on and after 26 May 2008. For the avoidance of uncertainty, I would make it clear that this declaration would not be made on the basis of s 4(3) of the Restraints of Trade Act 1976, but on the basis that the restraint is void as at general law and not saved by s 4(1) of the Restraints of Trade Act in respect of the period specified. In my opinion, since the evidence of breach of the relevant covenant relates to the period on and after 26 May 2008, there is no need to address the question of validity as at any earlier date.

50 There may have been an interlocutory injunction with an undertaking as to damages, and there may be a question as to whether an application can be made for assessment of any damages.

Conclusion
51 The appeal would thus, according to my decision, have been partly successful. Having regard to the result, and the extent to which time was taken on matters on which the appellant was unsuccessful, my tentative view would be that each party should pay its own costs of the appeal. As regards the costs of the trial, my tentative view would be that Mr Miles should pay one-half of the costs of Genesys of the proceedings below.

52 Accordingly, I would propose the following orders:

(1) Appeal allowed in part.

(2) Orders below set aside and in lieu thereof:

(a) Mr Miles be restrained until 15 September 2009 from directly or indirectly soliciting, attempting to solicit or dealing with a person or entity who is and was at 31 March 2007 a party to a Member Firm Agreement with Genesys (which has not been lawfully terminated).

(b) Declare that the restraint of trade in cl 6.1(a)(i) of the Deed of 28 February 2007 is invalid to the extent that it purports to operate on and after 26 May 2008.

(3) Direct that within 14 days Mr Miles provide written submissions concerning costs and any application concerning an enquiry as to damages, that Genesys provide written submissions in response within a further 14 days, and that any submissions strictly in reply be provided within a further 7 days.

53 However, in accordance with the majority decision, the order of the Court will be:

(1) Order 1 below varied by substituting for par a(ii) thereof the following:

(ii) in any capacity or role, a business conducted or carried on or to be conducted or carried on within Australia which is competitive with the business of the Plaintiff and which involves the provision of financial products or services to retail clients by the agency of financial planning firms or practices.

(2) Notes 4 and 5 below deleted.

(3) Appeal otherwise dismissed.

(4) Appellant to pay respondent’s costs of the appeal.

54 BASTEN JA: Subject to the point of departure discussed by Handley AJA (with which I agree), I agree with the reasons of Hodgson JA. Accordingly, the appeal should be dismissed with costs.

55 HANDLEY AJA: In this matter I have had the considerable benefit of reading the reasons for judgment of Hodgson JA in draft. He has set out the facts, the terms of the contractual restraints, the history of the proceedings, and the relevant parts of the judgment of the primary judge. I agree with everything his Honour has written up to paras [44]-[47], but must respectfully dissent from the views expressed in those paragraphs.

56 Hodgson JA has proposed (para [1]) that the appeal be allowed in part and that para [1](a) of the injunction granted by Palmer J be set aside because the restraint imposed by cl 6.1(a)(i) (para [3] sub-para [35]) on which that injunction was based was invalid to the extent that it purported to operate on and after 26 May 2008. This would leave in place the injunction against directly or indirectly soliciting or attempting to solicit or dealing with a person or entity who was a party to a Member Firm agreement with the plaintiff on 31 March 2007 (herein clients of the plaintiff).

57 The foundation for the reasoning of Hodgson JA is therefore that the covenant against solicitation of clients of the plaintiff in cl. 6.1(a)(iii) of the Deed of Release provides all the protection for the plaintiff that it could reasonably require against the misuse of its confidential information by the defendant on and after 26 May 2008.

58 In my opinion, the covenant against solicitation does not provide sufficient protection for the plaintiff during the period between 26 May 2008 and 15 September 2009. That part of the covenant and the related injunction prevent the defendant from directly soliciting clients of the plaintiff during that period and any attempt by him to do this personally would expose him to serious risks of punishment for contempt.

59 The covenant against solicitation also extends to indirectly soliciting or attempting to solicit, or deal with a client of the plaintiff but a breach of this limb of the covenant and the related injunction would be very difficult to prove. The organisation that Suncorp proposed to establish, centred on the skills and experience of the defendant and his personal connections with the plaintiff's clients, could well include sales representatives who could approach clients of the plaintiff.

60 Such approaches would not necessarily be a breach of the injunction against indirect solicitation, but could be in particular circumstances. However the facts which could establish an indirect solicitation by the defendant would occur within the organisation established by Suncorp and would be very difficult for the plaintiff to establish.

61 The targeted solicitation of the plaintiff's clients who were both vulnerable and valuable could be disguised by including them within a larger group of the clients which are identified on the plaintiff's website. In this and other ways, the confidential information about the plaintiff's clients could be used to its detriment without any obvious or provable breach of the covenant and injunction against indirect solicitation.

62 The plaintiff has some 133 independent clients, about 40% of which, or approximately 53, had been clients of Associated Planners Financial Services Ltd (APFS), but these provided 63% of the plaintiff's projected revenue for the 2008 financial year. The defendant who was the founding Chief Executive Officer of APFS in 1989 held that position until he became its Managing Director in 1992 or 1993. He retained the latter position until APFS was taken over by the plaintiff's parent company in 2004. There is no evidence that the defendant owned shares in APFS which he sold in the takeover, and this possibility must be disregarded. If proved, it would have been highly relevant: Connors Bros Ltd v Connors [1940] 4 All ER 179 PC.

63 The defendant said that he did not take away any of the plaintiff's documents when he left its employment, and that must be accepted. However he could hardly forget the former clients of APFS with whom he had worked closely, perhaps for a great many years before the takeover, and for the next three years until he left the plaintiff's employment. He could not help remembering which were the most important in terms of funds under management and revenue. He would also remember the clients with whom he was on especially close terms and those who were free to leave and minded to do so.

64 In these circumstances, the principles applied in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 CA, 1478 and by this Court in Kone Elevators Pty Ltd v McNay [1997] Aust Cont R 90-080 establish the prima facie justification for a restraint on the defendant's employment with a trade rival of his former employer. Sheller JA, giving the principal judgment of the Court in the Kone case, said at pp 90596-7:

"There was a legitimate interest in an employer's protecting itself from a competitor poaching an employee who possesses information about new products and future marketing strategies... the covenant must be construed with reference to the objects sought to be attained by it. That object is... to protect Kone's confidential information by taking a covenant from the employee by which he is not to go to work for a rival in trade. Thus are avoided the difficulties and impracticabilities of investigating whether or not and to what extent the employee possessed confidential information or was likely to pass it on to [the new employer]. That is not the question the covenant poses. The question is whether the employee proposed to engage in any business in Australia as a consultant or employee which could make use of confidential information as defined to the material detriment of Kone's business. To this, in my opinion, there can be only one answer, namely, that the employee by taking employment with [the new employer] proposed to do exactly that... In my opinion, Kone is entitled to protect itself from having the employee engage in a business as employee which 'could' make use of such information to the material detriment of Kone's business."

65 In that case, the evidence established (p 90596) that within six to twelve months the employer's new products would be well established, and the employer did not seek to enforce the restraint after six months. There was no evidence in this case that the confidential information was likely to become obsolete or public knowledge before 15 September 2009.

66 Factors which tend to support the reasonableness of the restraint in time include its acceptance by the defendant for what, at the time, was thought to be valuable benefits, (compare Beak v Robson [1943] AC 352; Higgs v Olivier [1952] Ch 311 CA) and that it was the result of armslength bargaining with legal advice on both sides. It is also relevant that the defendant was free to work for any of the plaintiff's clients, and intended to exercise this freedom by working for Brown Bulley, later known as Stamford Brown, in which he took an equity position. He sold his equity and ceased working for that firm in March 2008, but could either have remained with them, or worked for another client until his restraints expired.

67 In these circumstances, I have not been persuaded that the contractual period was unreasonably long, or that any lesser period would have given the plaintiff no greater protection than what was reasonably necessary for the protection of its confidential information. In my opinion, the appeal fails.

68 During the appeal the respondent proffered a simplified alternative form of order 1(a)(ii), which would read:

1. The Defendant be restrained, until 15 September 2009 from:

(a) directly or indirectly engaging or preparing to engage in:

...

(ii) in any capacity or role, a business conducted or carried on or to be conducted or carried on within Australia which is competitive with the business of the respondent and which involves the provision of financial products or services to retail clients by the agency of financial planning firms or practices.

The appellant did not accept it as satisfying the challenges he mounted against the original, but accepted that it raised no additional problems and avoided some difficulties of expression. It is appropriate to adopt the alternative and, to that extent, the orders made by the trial judge should be varied. The appeal should otherwise be dismissed and the appellant pay the respondent’s costs in this Court.

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LAST UPDATED:
24 February 2009