2nd Chapter Pty Ltd v Sealey (No 2)
[2024] VSC 672
•1 November 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 04506
BETWEEN:
| 2ND CHAPTER PTY LTD (ACN 631 879 439) (and others according to the Schedule) | Plaintiffs |
| and | |
| PAUL STUART SEALEY (and others according to the attached Schedule) | Defendants |
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JUDGE: | Matthews J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15–19 July 2024 |
DATE OF JUDGMENT: | 1 November 2024 |
CASE MAY BE CITED AS: | 2nd Chapter Pty Ltd & Ors v Sealey & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 672 |
‑‑‑
CONTRACT – Sale and purchase of business agreements – Restraint of trade – Enforceability of restraint – Legitimate interest – Whether restraints go no further than reasonably necessary to protect interests of party in whose favour they are imposed – Duration of restraint - Severance – Blue pencil principle – Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657, applied.
CONTRACT – Employer and employee – Restraint of trade – Whether post-employment restraint was reasonable – Where restraint unreasonably wide – Severance – Just Group Ltd (ACN 096 911 410) v Peck (2016) 344 ALR 162, applied.
CONTRACT – Employer and employee – Whether employees breached employment contracts by negotiating to become employed by another employer in the future, signing an employment contract to that effect and failing to inform their employer of those matters until after their resignation – Whether breach was repudiatory – No breach established.
PRACTICE AND PROCEDURE – Trial of separate questions – Supreme Court (General Civil Procedure) Rules 2015, r 47.04.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Broadfoot KC with Mr N Elias | Cornwalls NSW |
| For the Defendants | Mr C O’Grady KC with Mr E Gisonda | Seyfarth Shaw Australia |
Contents
A.. Introduction
B.. Background
B.1 Events prior to the acquisition
B.2 Relevant agreements
B.2.1 Share Purchase Agreement
B.2.2 Shareholders’ Agreement
B.2.3 Management Deed
B.2.4 Employment Agreements
B.3 Events after the acquisition
B.4 Payments
B.4.1 Payments under the Share Purchase Agreement
B.4.2 Profit sharing under the Management Deed
B.4.3 Employee wages
B.5 Termination of employment
B.6 Procedural history
C.. Questions to be tried
D.. Evidence and witnesses
E... Relevant law
F... Preliminary matters
F.1 Existence of a legitimate interest
F.1.1 Plaintiffs’ submissions
F.1.2 Defendants’ submissions
F.1.3 Consideration
F.2 The ‘blue pencil principle’
F.2.1 Submissions
F.2.2 Consideration
F.3 Alleged repudiation of Employment Agreements by 2nd Chapter and whether these contentions form part of the separate questions to be tried
G.. Question one: the SPA restraints
G.1 Plaintiffs’ submissions
G.1.1 Scope of the restraints
G.1.2 Geographic reach
G.1.3 Duration
G.1.4 Consideration received
G.1.5 Express acknowledgement and agreement
G.1.6 Severance
G.1.7 Public interest considerations
G.2 Defendants’ submissions
G.2.1 Scope
G.2.2 Geographic reach
G.2.3 Duration
G.2.4 Consideration received
G.2.5 Express acknowledgement or agreement
G.2.6 Confidential information
G.2.7 Severance
G.2.8 The importance of the circumstances of the particular case
G.2.9 Public interest
G.3 Consideration
G.3.1 Legitimate interest and need for restraints
G.3.2 Scope of the restraints
G.3.3 Geographic reach
G.3.4 Duration
G.3.5 Consideration received
G.3.6 Express acknowledgement or agreement
G.3.7 Confidential information
G.3.8 Severance
G.3.9 Public interest
G.3.10 Conclusion regarding question one
H.. Question two: the Management Deed restraints
H.1 Plaintiffs’ submissions
H.2 Defendants’ submissions
H.2.1 Scope
H.2.2 Duration
H.2.3 Geographic reach
H.2.4 Consideration received
H.2.5 Express acknowledgement or agreement
H.2.6 Confidential information
H.2.7 Severance
H.2.8 Public interest
H.3 Consideration
I.... Question three: the SHA restraints
I.1 Plaintiffs’ submissions
I.1.1 Consideration received
I.1.2 Express acknowledgement or agreement
I.1.3 Duration
I.1.4 Geographic reach
I.1.5 Severance
I.1.6 Public interest
I.2 Defendants’ submissions
I.2.1 Why the scope of the restraints is unreasonable
I.2.2 Duration
I.2.3 Consideration received
I.2.4 Confidential information
I.2.5 Express agreement or acknowledgement
I.2.6 Public interest
I.3 Consideration
J.... Question four: clause 13.5 of the Sealey Employment Agreement
J.1 Plaintiffs’ Submissions
J.1.1 Reasonable as between the parties
J.1.2 Birdanco Nominees
J.1.3 Timing of new employment
J.1.4 New employment compensation
J.1.5 Severance
J.1.6 Public interest
J.2 Defendants’ Submissions
J.2.1 The first limb
J.2.2 The second limb
J.2.3 Birdanco Nominees
J.2.4 New employment compensation
J.2.5 Confidential information
J.2.6 Severance
J.2.7 Public interest
J.3 Consideration
J.3.1 The first limb of cl 13.5
J.3.2 The second limb of cl 13.5
J.3.3 Reliance on Birdanco Nominees
J.3.4 Conclusion regarding cl 13.5
K.. Question five: clause 14.1 of the Sealey Employment Agreement
K.1 Plaintiffs’ Submissions
K.1.1 Duration
K.1.2 Geographical reach
K.1.3 Severance
K.2 Defendants’ Submissions
K.2.1 Expiration
K.2.2 Why the restraints are unreasonable
K.2.3 Duration
K.2.4 Geographic reach
K.2.5 Severance
K.2.6 Confidential information
K.2.7 Express acknowledgement or agreement
K.2.8 Public interest
K.3 Consideration
L... Question six: clause 13.5 of the Vickers‑Willis Employment Agreement
L.1 Submissions
L.2 Consideration
M. Question seven: clause 14.1 of the Vickers‑Willis Employment Agreement
M.1 Submissions
M.2 Consideration
N.. Question eight: clause 14.1 of the Allen Employment Agreement
N.1 Plaintiffs’ Submissions
N.2 Defendants’ Submissions
N.3 Consideration
O.. Question nine: Repudiation of Employment Agreements
O.1 The pleadings
O.2 The evidence
O.3 Plaintiffs’ Submissions
O.4 Defendants’ Submissions
O.5 Consideration
P... Conclusion
HER HONOUR:
A Introduction
This decision concerns a trial of separate questions in respect of the enforceability of various restrictive covenants and the alleged repudiation of employment contracts.
The Plaintiffs in the proceeding are:
(a)the first plaintiff, 2nd Chapter Pty Ltd;
(b)the second plaintiff, Focus Escala Holdings, LLC;
(c)the third plaintiff, Focus Financial Partners, LLC; and
(d)the fourth plaintiff, Escala Partners Pty Ltd.
The Defendants in the proceeding are:
(a)the first defendant, Mr Paul Stuart Sealey;
(b)the second defendant, Mr Jonathan Charles Vickers‑Willis;
(c)the third defendant, Terrung Investments Pty Ltd;
(d)the fourth defendant, J C Vickers‑Willis Pty Ltd (JCVW); and
(e)the fifth defendant, Mr William Allen.
Since March 2013, Escala Partners (along with its subsidiary Escala Wealth Management Pty Ltd) have been in the business of providing wealth management services, including financial advisory services. Escala Partners owns all of the issued shares in Escala Wealth Management.
In around February 2019, Escala Partners and Escala Wealth Management were acquired by Focus Escala Holdings and Focus Financial.[1]
[1]Focus Escala Holdings and Focus Financial are both companies registered in the State of Delaware in the United States of America. At CB.1601, there is a company structure diagram which showed the relationship between each of the relevant companies as at 9 February 2024.
Focus Financial is a NASDAQ‑listed company in the business of acquiring and overseeing wealth management and related businesses across the globe, including in the United States of America and Australia. Together, Escala Partners and Escala Wealth Management represent one of six financial advisory businesses which Focus Financial has acquired in Australia. The majority of firms which Focus Financial oversees are based in the United States and approximately 10% of Focus Financial’s revenue is derived from outside the United States.
Focus Escala Holdings is a special purpose vehicle, established for the purposes of the acquisition of Escala Partners. Focus Escala Holdings is a wholly‑owned subsidiary of Focus Financial, such that the latter ultimately owns 100% of the shares in Escala Partners through its ownership of 100% of the shares of Focus Escala Holdings.[2] For convenience and where it is not necessary for a distinction to be made with these two related companies (or when the parties’ submissions have not made such distinction), I will refer in these reasons to Focus.
[2]Fees earned from clients are paid to Escala Partners, and then are distributed up the chain of companies to Focus Financial.
As part of the acquisition of Escala Partners, 2nd Chapter was incorporated as a special purpose management company to manage the Escala Partners business on behalf of Focus Escala Holdings and to employ staff in the business. Shareholdings in Escala Partners were sold to Focus Escala Holdings and the former shareholders whose principals were continuing in the Escala Partners business were given shareholdings in 2nd Chapter. Post‑acquisition, 2nd Chapter received a management fee from Focus Escala Holdings representing around half of the earnings of the Escala Partners business.
The Plaintiffs commenced this proceeding seeking damages and injunctive relief in respect of Sealey and Vickers‑Willis. Sealey and Vickers‑Willis are two former employees of 2nd Chapter and, through that company, they performed investment and financial advisory services for Escala Partners. Through their related entities, they both held shares in Escala Partners which were bought by Focus Escala Holdings in the acquisition, and they are both shareholders in 2nd Chapter. Allen is also a former employee of 2nd Chapter but did not hold shares in Escala Partners and was/is not a shareholder of 2nd Chapter.
Sealey, Vickers‑Willis and Allen are now employed at LGT Crestone Wealth Management Ltd (Crestone). Crestone is an Australian company which provides wealth management services such as financial planning and advice in Australia. It appears to be common ground that Crestone’s business is the same or substantially similar to the Escala Partners business or a material part of it and it is in competition with Escala Partners.
Relevantly, the Plaintiffs seek injunctive relief against Sealey and Vickers‑Willis, restraining them from:
(a)engaging in a business or an activity in the wealth management industry;
(b)soliciting, canvassing, approaching or accepting an approach from a person who is a client (or former client) of Escala Partners with a view to obtaining their custom in a business in the wealth management industry;
(c)interfering with the relationship between Escala Partners and its customers, clients or employees (including by inducing any such person to terminate or modify their relationship with Escala Partners or by making negative or disparaging statements regarding Escala Partners); and
(d)encouraging or inducing any other person to do any of the things set out in (a) to (c) above.
The restraints which the Plaintiffs seek to enforce arise in a number of different agreements which were entered into in connection with the acquisition of Escala Partners by Focus Financial and Focus Escala Holdings in around February 2019. Relevant sections of those agreements are described at section B.2 of these reasons. The Plaintiffs seek to enforce the restraints throughout Australia.
The Defendants say that the restraints sought to be enforced by the Plaintiffs are void as contrary to public policy. While this will be explained in more detail later, it is necessary to note at this juncture that eight of the separate questions concern the enforceability of the restraints. Matters such as whether the restraints have been breached by one or more of the Defendants and damages are not part of this trial. Consequently, when describing the background and evidence, I have not included matters going solely to those issues.
In addition to the eight questions regarding the restraints, question nine concerns an issue of repudiation. The Plaintiffs contend that Sealey and Vickers‑Willis repudiated their employment contracts, which they both deny. That is also a matter to be dealt with as part of this trial of separate questions.[3]
B Background
[3]The Plaintiffs allege that Sealey and Vickers-Willis repudiated their employment contracts in a number of ways, but only part of this is relevant to the separate questions. This will be explained further below.
B.1 Events prior to the acquisition
Since March 2013 Escala Partners and Escala Wealth Management have conducted the business of providing wealth management services, including financial planning and advice.[4] Escala Partners earns revenue principally by charging fees calculated as a percentage of the funds that it manages for its clients, who are mostly high net‑worth individuals and their associated entities.
[4]Escala Wealth Management holds an Australian Financial Services Licence (AFSL) and Escala Partners is its Corporate Authorised Representative. For the sake of convenience in these reason (and unless the distinction is necessary), I will refer only to Escala Partners.
There were eight founders of Escala Partners who each originally took a 12.5% shareholding in the business, none of whom are parties to this proceeding. One of those eight founders is Mr Percival Edwin Perry.[5]
[5]Perry is a director and Chief Executive Officer of 2nd Chapter. He was previously CEO and a director of Escala Partners, until around March or April 2024. He is also an authorised representative of Focus Escala Holdings and Focus Financial.
Sealey and Vickers‑Willis were financial advisors with Escala Partners. Sealey commenced employment as an investment advisor at Escala Partners in around April 2013.[6] Vickers‑Willis commenced his employment in around January 2014 and became a partner at Escala Partners in 2018.
[6]It is unclear when Sealey became a partner, but it was from at least 2014.
Over the years, in addition to the eight founders, other persons obtained shares in Escala Partners, including entities associated with Sealey and Vickers‑Willis. As concerns the interests of Sealey and Vickers‑Willis in Escala Partners:
(a)Terrung is a company of which Sealey is the sole director and shareholder. As at February 2019, Terrung held 60,171 shares (6.2188% of the total shares in Escala Partners), making it the eighth-largest shareholder in Escala Partners. Terrung is trustee of the Sealey Investment Trust.[7]
(b)JCVW is a company of which Vickers Willis is the sole director and shareholder. As at February 2019, JCVW held 324 shares (0.0335% of the total shareholding in Escala Partners), making it the fourteenth-largest shareholder in Escala Partners. JCVW is the trustee of the Vickers Willis Family Trust. JCVW purchased its shares in Escala Partners for $16,491.60 in July 2017.
[7]Terrung did not purchase its shares in Escala Partners. Sealey did not pay any money for an initial 4% shareholding and, at a later stage, obtained a further 2% when he agreed to take a salary cut.
Allen was first employed in the business in 2017 as an associate, before being promoted to an investment advisor role in 2020. Allen did not have a direct or indirect shareholding in Escala Partners. I understand that Sealey and Vickers‑Willis worked together in a team at Escala Partners in the form of a 50:50 partnership and that Allen (among others) worked in that team at the direction of Sealey and Vickers‑Willis while he was an associate. The dynamics of this team changed over time.
In around mid‑2018, negotiations commenced for the acquisition of Escala Partners by Focus Financial.[8] None of the Defendants were involved in those negotiations. At the time of the negotiations, there were 18 shareholders of Escala Partners, most of which were entities associated with fee‑earning advisors employed by Escala Partners.
[8]There were also negotiations in 2014 to 2015 which did not progress to an agreement.
On the Focus Financial side, Ms Molly Lynn Bennard led the negotiations under the oversight and supervision of Focus Financial’s former Co‑Founder and COO, Ms Rajini Kodialam.[9] Perry played a key role on the Escala Partners side of the negotiations.
[9]Bennard held senior roles at Focus Financial from March 2015 to June 2022, and is the former CEO of Connectus Group LLC, director of Escala Wealth Management and director of Escala Partners. Bennard is currently the President of International Operations of Focus Financial. Bennard is a certified public accountant who has worked in the financial services industry since 2003.
On 16 July 2018, Bennard sent to Perry a proposal for Focus’ acquisition of Escala Partners. Bennard sent a revised proposal to Perry on 31 July 2018. An in‑person meeting also occurred on 31 July 2019 with personnel from Focus Financial and Escala Partners (including Kodialam, Bennard and Perry), and further documents relating to the proposed acquisition were circulated after the meeting.
On 8 August 2018, Bennard provided to Perry by email a summary of the restraints proposed as part of the transaction.[10] Those proposed restraints are, in effect, what were ultimately implemented in the acquisition by Focus.
[10]Bennard sent this email in response to a request from Perry on 6 August 2018 to assist him with a meeting to be held on 9 August 2018.
On 31 October 2018, Focus Financial made a non‑binding indicative offer for the acquisition of Escala Partners. This offer included proposed restraints along the lines of those ultimately entered into as part of the acquisition by Focus:
(a)The Director‑Principals would enter into a standard non‑competition agreement that would prevent them from competing with the Company for two years following the termination of the Management Agreement, if the Management Agreement is terminated and, in any event, the Owners would be subject to a standard non‑competition agreement that would prevent them from competing with the Company for a minimum of five years from and after the Closing. The Management Agreement will further provide confidentiality and non‑solicitation requirements for the Director‑Principals which will prevent the Director‑Principals from soliciting other employees or clients of the Company for a period of two years after the termination of the Management Agreement, if the Management Agreement is terminated.
(b)Certain employees of the Company would enter into standard confidentiality and non‑solicitation agreements which will prevent them from soliciting other employees or clients of the Company for a period of two years after their employment with the Company ends.
In around mid‑December 2018, Bennard visited the Escala Partners office in Melbourne to conduct interviews with members of the Escala Partners team as part of due diligence exercises by Focus Financial.[11] Other due diligence carried out by Focus included a third‑party compliance review from a regulatory risk consulting firm in January 2019.
[11]Vickers‑Willis did not meet with Bennard as part of these one‑on‑one meetings.
As to the involvement of Sealey and Vickers‑Willis in the negotiations:
(a)Vickers‑Willis had no involvement in the negotiations leading to the acquisition by Focus and first became aware of the negotiations when he was asked to execute the sale documents. Perry did not dispute this.
(b)Sealey’s evidence is that he was provided with sporadic information about the negotiations, but did not have input other than in respect of a taxation treatment matter. This assessment is disputed by Perry. Perry says he kept partners updated in respect of the negotiations, including Sealey, and the tax input of Sealey arose because Sealey reviewed the draft acquisition document, pulled out a certain paragraph, asked about tax treatment and investigated this further. He did not agree that Sealey had no involvement in the negotiation of the restraints but did not state how Sealey was involved.
On around 20 February 2019, Focus Escala Holdings acquired all of the issued shares in Escala Partners pursuant to a written agreement entitled ‘Share Purchase Agreement’ (SPA). The SPA and other agreements related to the acquisition of Escala Partners are outlined in section B.2 of these reasons. In general terms, the transaction involved the shareholders of Escala Partners selling their shares to Focus Escala Holdings, while the continuing principals entered into a management deed pursuant to which 2nd Chapter was to conduct the day‑to‑day management and operation of the Escala Partners business. The previous shareholders of Escala Partners who were continuing with the business became shareholders of 2nd Chapter, with a shareholders agreement between the shareholders, the principals, and 2nd Chapter. Finally, the principals entered into employment agreements with 2nd Chapter.
As I will set out in greater detail below, following the acquisition the business continued, in effect, to operate as an independent business, although it became a wholly‑owned subsidiary of Focus Escala Holdings. This structure is the preferred acquisition model which Focus employs when it acquires businesses.[12] The structure means that Focus has almost no involvement in the day‑to‑day management of the business and does not interact with clients of the business. As Bennard explained in her evidence, this structure means that Focus places a great deal of trust in principals of the acquired business as part of this ongoing relationship, because the principals continue to maintain client relationships (and those relationships are substantially all of the value of the business).
[12]The structure was slightly modified in this instance from Focus’ usual model, with the primary difference being that all the share capital in the Escala Partners business was acquired rather than solely its assets. This modification was implemented to facilitate the transfer of control of the AFSL and to minimise client disruption.
As at February 2019 (ie, prior to when the acquisition took place), shareholdings in Escala Partners were as follows:
(a)six of the original shareholders and founders each had 118,464 shares (each being a 12.2435% proportion of all shares);
(b)one shareholder had 94,902 shares (being a 9.8084% proportion of all shares);
(c)Terrung had 60,171 shares (being a 6.2188% proportion of all shares);
(d)three shareholders each had 28,060 shares (each being a 2.9001% proportion of all shares);
(e)one shareholder had 15,904 shares (being a 1.6437% proportion of all shares);
(f)one shareholder had 472 shares (being a 0.0488% proportion of all shares);
(g)JCVW had 324 shares (being a 0.0335% proportion of all shares);
(h)one shareholder had 275 shares (being a 0.0284% proportion of all shares);
(i)two shareholders each had 187 shares (each being a 0.0193% proportion of all shares); and
(j)one shareholder had 177 shares (being a 0.0183% proportion of all shares).
In around mid‑to‑late‑March 2019 (ie, after the SPA was executed but before the execution of other agreements in the acquisition of Escala Partners), additional communication occurred between Perry and Bennard regarding details of the acquisition including the transition plan, amendments to proposed agreements, compensation calculations, and non‑solicitation restraints forming part of those proposed agreements.
On 20 March 2019, Perry wrote to the (former) Escala Partners shareholders by email, to ask if they intended to take up shares in 2nd Chapter. Vickers‑Willis replied to that email stating that he ‘would be delighted to take up and purchase shares’, based on their prior discussions regarding an increase in his equity position to 4.5% to 5%, but that if it remained at around 3% equity, he ‘would have to seriously consider whether’ to accept the offer to take up shares in 2nd Chapter.
On 29 March 2019, Perry forwarded to Sealey and Vickers‑Willis by email ‘signing packs’ containing documents for execution including share transfer forms and documents requiring execution (including the SHA and Management Deed).
B.2 Relevant agreements
B.2.1 Share Purchase Agreement
On around 20 February 2019, a number of parties entered into the SPA[13] (pursuant to which Focus Escala Holdings acquired all of the issued shares in Escala Partners). Relevantly, the parties included:
(a)Sealey and Vickers‑Willis as Principals;
(b)Terrung and JCVW as Vendors;
(c)Focus Escala Holdings as Purchaser; and
(d)Focus Financial as Guarantor.
There were several other Principals and Vendors who were parties to the SPA.
[13]On about 29 March 2019, the parties to the SPA executed a Deed of Variation, Confirmation and Termination in relation to the SPA, which is not relevant to this dispute.
In accordance with the terms of the SPA, Focus Escala Holdings agreed to purchase all of the shares in Escala Partners from the Vendors. The SPA contained a number of key terms, detailed in the following paragraphs.
Clause 1.1 of the SPA set out definitions applying to terms of the SPA including:
(a)‘Associate’ means in relation to a person:
(i)a Related Body Corporate of that Person;
(ii)in the case of a natural person, a spouse or de facto spouse of that person;
(iii)a company or trust of which the person has Control;[14] and
(iv)where the person is a Controlled Vendor, its Principal.[15]
(b)‘Business’ means the business carried on by the Group as at the date of this Agreement or the Completion Date (as the case requires) of providing wealth management services (including financial planning and advice);
(c)‘Company’ means Escala Partners;
(d)‘Completion’ means completion of the sale and purchase of the Shares contemplated by the SPA under cl 8.
(e)‘Completion Date’ means the date on which Completion occurs, being the first Business Day of the Calendar month after the month in which each Condition (other than Conditions 2, 3 and 4 in cl 3.1 of the SPA, which must be and remain satisfied immediately prior to Completion) is satisfied or waived (or such other date as agreed between the parties);
(f)‘Group’ means the Company and the Subsidiaries; and
(g)‘Subsidiary’ has the meaning given to that term in the Corporations Act 2001 (Cth) (Corporations Act).
[14]The SPA has a lengthy definition of Control, which it is unnecessary for me to set out.
[15]A list of Controlled Vendors and Principals was contained in Schedule 3 to the SPA.
The restrictive covenant was located in clause 20 of the SPA, which provided as follows:
20.1 Defined terms
In this clause 20:
engage in means to carry on, participate in, provide finance or services, or otherwise be directly or indirectly involved as a shareholder, unitholder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier.
Prohibited Persons means:
(a) each Vendor;
(b) each Principal; and
(c) each Associate of each Vendor and Principal (as applicable).
In this clause 20, a reference to the Business is to the Business as at the Completion Date.
20.2 Prohibited activities
Subject to clause 20.3, each Vendor and Principal (in consideration for the Purchaser entering into this agreement) undertakes to the Purchaser that its relative Prohibited Persons will not:
(a) engage in a business or an activity that is:
(i)the same as, or substantially similar to, the Business or any material part or parts of the Business; or
(ii)in competition with the Business or any material part or parts of the Business;
(b) solicit, canvass, approach or accept an approach from a person who was at any time during the 24 month period ending on the Completion Date a customer or client of the Group or the Business with a view to obtaining their custom in a business that is the same or substantially similar to the Business or any material part of it or is in competition with the Business or any material part of it;
(c) interfere with the relationship between the Group or the Business and its customers, clients, employees or suppliers;
(d) induce or help to induce an Employee to leave their employment;
(e) use a logo, symbol, trade mark or business name which may be misleading or deceptively similar to, or likely to be confused with, a logo, symbol, trade mark or business name owned or used by the Group (including the Business Names and the Trade Marks); or
(f) encourage or induce any other person to do any of the things set out above.
20.3 Several Liability
Notwithstanding any other provision in this agreement:
(a) each Vendor gives the undertakings in clause 20.2 in respect of itself and its Associates only;
(b) each Principal gives the undertakings in clause in clause 20.2 in respect of itself and its Associates only; and
(c) the liability of each Vendor or Principal under this clause 20 is several, and not joint or joint and several.
20.4 Duration of prohibition
The undertakings in clauses 20.2(a) to 20.2(d) and 20.2(f) begin on the Completion Date and end:
(a) on the fifth anniversary of the Completion Date;
(b) on the fourth anniversary of the Completion Date;
(c) on the third anniversary of the Completion Date;
(d) on the second anniversary of the Completion Date;
(e) on the anniversary of the Completion Date.
20.5 Geographic application of prohibition
The undertakings in clause 20,2 apply only if the activity prohibited by clause 20.2 occurs within:
(a) Australia;
(b) New South Wales, Victoria, Western Australia, Australian Capital Territory and Queensland;
(c) New South Wales, Victoria and Western Australia;
(d) New South Wales and Victoria;
(e) Sydney and Melbourne.
20.6 Interpretation
Clauses 20.2, 20.3[16] and 20.5 have effect together as if they consisted of separate provisions, each being severable from the other. Each separate provision results from combining each undertaking in clause 20.2, with each period in clause 20.3, and combining each of those combinations with each area in clause 20.5. If any of those separate provisions is invalid or unenforceable for any reason, the invalidity or unenforceability does not affect the validity or enforceability of any of the other separate provisions or other combinations of the separate provisions of clauses 20.2, 20.3 and 20.5.
20.7 Exceptions
This clause 20 does not restrict a Prohibited Person from:
(a) performing any employment and contractor agreement with the Group or the Management Company;
(b) performing their obligations under the Management Deed;
(c) holding 5% or less of the shares of a listed company; or
(d) acting as an authorised representative of the Company.
[16]This reference to cl 20.3 should be a reference to cl 20.4. I will address this later.
20.8 Acknowledgments
Each Vendor acknowledges that:
(a) all the prohibitions and restrictions in this clause 20 are reasonable in the circumstances and necessary to protect the goodwill of the Business;
(b) damages are not an adequate remedy if a Prohibited Person breaches this clause 20; and
(c) the Purchaser may apply for injunctive relief if:
(i)a Prohibited Person breaches or threatens to breach this clause 20; or
(ii)it believes a Prohibited Person is likely to breach this clause 20.
The Completion Date for the SPA was 31 March 2019, such that the fifth anniversary of the Completion Date was 31 March 2024.
B.2.2 Shareholders’ Agreement
On or about 16 April 2019, a number of parties entered into a written agreement entitled ‘Shareholders Agreement’ (SHA). The final signatures to the SHA were received on 16 April 2019. The parties to the SHA relevantly included:
(a)Sealey and Vickers‑Willis as Principals;
(b)Terrung and JCVW as Shareholders; and
(c)2nd Chapter.
From Bennard’s evidence, I understand that Focus Financial and Focus Escala Holdings (neither of which were parties to the SHA) did not have any input into the negotiation of the SHA.
In paragraphs 41 to 45, I set out the relevant terms of the SHA.
Definitions are included in cl 1.1 of the SHA. The relevant definitions are:
…
(d)Associate means in relation to a person, a company or trust of which the person has Control;
…
(h)Business means:
(i)the business conducted by the Company including providing the Services under the Management Deed; and
(ii)any other activities which the Board decides will be carried on by the Company and its Subsidiaries from time to time;
…
(m)Commencement Date means the date of execution of this Agreement;
(n)Company means 2nd Chapter Pty Ltd (ACN 631 879 439);
…
(r)Controlled Shareholder means, in relation to a Principal, that Shareholder whose name is listed opposite the relevant Principal’s name in Schedule 1;
(s)Controlling Principal means in relation to a Controlled Shareholder, the Principal whose name is listed opposite that Controlled Shareholder’s name in Schedule 1;
(t)Corporations Act means the Corporations Act 2001 (Cth);
…
(bb)Escala means Escala Partners Pty Ltd ACN 155 884 236;
…
(dd)Focus means Focus Financial Partners, LLC, a Delaware limited liability company;
…
(hh)Management Deed means the management deed dated on or about the date of this Agreement between the Company, Escala, Focus and the Principals;
…
(kk)Material Obligations mean the obligations set out in each of clause 13 (Transfer of Shares), clause 15 (Shareholder Departures), clause 16 (Drag Along Rights) 17 (Tag Along Rights), clause 20 (Restrictive Covenants) and clause 22 (Confidentiality);
(ll)Minimum Period means in respect of a Shareholder, the date commencing on the date which that Shareholder or its Controlling Principal entered into a Services Agreement and ending 18 months after that date;
(mm)Principal means a person, nominated by a Shareholder (including the person nominated by a Shareholder and named in Schedule 1 or in a Deed of Accession (as applicable)) who provides services to the Company pursuant to a Services Agreement;
…
(tt)Services means the services to be provided by the Company to Escala under the Management Deed;
(uu)Services Agreement means an agreement between the Company or any one of its Subsidiaries and a Shareholder, or a Shareholder’s Principal for the purposes of providing certain employment related services from time to time;
…
Sealey and Vickers‑Willis are Controlling Principals, and Terrung and JCVW are Shareholders or Controlled Shareholders in the SHA.
Clause 15.4 is entitled ‘Limits on Retirement and Resignation’. It provides:[17]
If a Shareholder or its Controlling Principal (as applicable) chooses to retire or resign under the terms of his or her Services Agreement, the Shareholder or Controlling Principal must (as applicable):
(a)(minimum six months notice) give no less than six (6) months written notice to both the Shareholders and the Board (Departure Notice) of his or her intention to retire or resign under the terms of his or her Services Agreement;
(b)(maximum of one Departure every six months) not retire within the same six (6) month period as any other Shareholder or Shareholder’s Controlling Principal (as applicable). In the event that more than one (1) Shareholder or its Controlling Principal provides a Departure Notice to the Shareholders and the Board in accordance with clause 15.4(a) within the same six (6) month period:
(i)the Departing Shareholder which gives the Departure Notice which is deemed under this Agreement to have been received by the Board first and which complies with the requirements of clause 15.4(a), shall be treated as a Good Leaver; and
(ii)each Departing Shareholder which gives one of the remaining Departure Notice(s) received in the relevant six (6) month period, or a Departure Notice that does not comply with the requirements of clause 15.4(a), shall be deemed to be a Bad Leaver unless the Board resolves otherwise.
[17]There are also various definitions applicable to clause 15 which are set out at cl 15.1.
Clause 20 is the key SHA term for the purposes of this proceeding as it concerns the restrictive covenant. This lengthy clause is worth setting out in full:
20.1 Definitions
In this clause 20:
(a)Business shall include the Business of Escala as that term is defined in the Management Deed;
(b)engage in means to carry on, participate in, provide finance or services, or otherwise be directly or indirectly involved as a shareholder, owner, operator, controller, unitholder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier.
(c)Cessation Date means in relation to:
(i)a Shareholder, the date on which that Shareholder ceases to be a Shareholder; and
(ii)a Principal, the date on which that Principal’s Controlled Shareholder ceases to be a Shareholder.
(d)Current Restraint Term means in relation to:
(i)each Shareholder, the period from the date that the Shareholder became a party to this Agreement, until the Cessation Date applicable to that Shareholder.
(ii)each Principal, the period from the date that the Principal’s Controlled Shareholder became a party to this Agreement, until the Cessation Date applicable to that Principal.
(e)Prohibited Person means (as applicable):
(i)each Shareholder; and
(ii)each Principal.
(f)Solicit includes (without limitation) any mailing, e‑mail message, or other verbal or written communication that is sent directly or indirectly to one or more clients of the Company or Escala informing them:
(i)that any Principal is no longer providing services to the Company or to or on behalf of Escala;
(ii)that any Principal plans to no longer provide services to the Company or to or on behalf of Escala; or
(iii)how to contact any Principal in the event that such Principal ceases to provide services to the Company or to or on behalf of Escala, other than any correspondence or communication approved by the Company in writing prior to sending to the clients.
20.2 Prohibited Activities
Each Prohibited Person undertakes severally to the Company that it will not and that its respective Associates will not:
(a)engage in a business or an activity that is:
(i)the same or similar to the Business or any material part or parts of the Business; or
(ii)in competition with the Business or any material part or parts of the Business;
(b)during the Current Restraint Term, solicit, canvass, approach or accept an approach from a person who is a client of the Company, Escala or the Business with a view to obtaining their custom in a business that is the same or substantially similar to the Business (or any material part of it) or is in competition with the Business (or any material part of it);
(c)solicit, canvass, approach or accept an approach from a person who was at any time during the 24 months ending on the Cessation Date a client of the Company, Escala or the Business with a view to obtaining their custom in a business that is the same or substantially similar to the Business (or any material part of it) or is in competition with the Business (or any material part of it);
(d)interfere with the relationship between the Company, Escala or the Business and its customers, clients, employees, suppliers or collaboration partners (including by inducing any such person to terminate or modify their relationship with the Company or by making any negative or disparaging statements regarding the Company or Escala);
(e)hire or otherwise engage any employee of the Company, or initiate contact with or directly or indirectly solicit any such employee, with a view to hiring such employee, or induce or otherwise counsel, advise or encourage any such employee to leave their employment with the Company;
(f)use a logo, symbol, trade mark or business name which may be misleading or deceptively similar to, or likely to be confused with, a logo, symbol, trade mark or business name owned or used by the Company or Escala; or
(g)encourage or induce any other person to do any of the things set out in this clause 20.2.
20.3 Duration of prohibition
The undertakings given by each Prohibited Person in clause 20.2, begin at the commencement of the Current Restraint Term applicable to that Prohibited Person and (unless a contrary intention is expressed in clause 20.2) end:
(a)on the second anniversary of the Cessation Date applicable to that Principal or Shareholder (as applicable);
(b)on the first anniversary of the Cessation Date applicable to that Principal or Shareholder (as applicable).
20.4 Geographic application of prohibitions
The undertakings in Section 20.2 apply only if the activity prohibited by clause 20.2 occurs within:
(a)Australia;
(b)New South Wales, Victoria, Western Australia, Australian Capital Territory and Queensland;
(c)New South Wales, Victoria and Western Australia;
(d)New South Wales and Victoria; or
(e)Sydney and Melbourne.
20.5 Interpretation
Clause 20.2, clause 20.3 and clause 20.4 have effect together as if they consisted of separate provisions, each being severable from the other. Each separate provision results from combining each undertaking in clause 20.2, with each period in clause 20.3, and combining each of those combinations with each area in clause 20.4. If any of those separate provisions is invalid or unenforceable for any reason, the invalidity or unenforceability does not affect the validity or enforceability of any of the other separate provisions or other combinations of the separate provisions of clause 20.2, clause 20.3 and clause 20.4.
20.6 Exceptions
Subject to a Principal complying with its obligations under the Management Deed, this clause 20 does not restrict a Prohibited Person or any of its Associates from:
(a)holding 5% or less of the shares of a company listed on the Stock Exchange;
(b)being an employee of, or contractor to, the Company or Escala;
(c)continuing to participate or be concerned in, or continuing to hold or have any interest that was held by a Prohibited Person or any Associate of a Prohibited Person at the time of execution of this Agreement;
(d)acting as an authorised representative of Escala;
(e)where a Shareholder or Principal is employed by the Company in a role other than as a client advisor or wealth advisor immediately prior to the Cessation Date, providing services substantially similar to the services provided by that Principal or Shareholder (as applicable) to the Company prior to the Cessation Date;
(f)accepting an approach from a client of the Company, Escala or the Business who is an Affiliate, grandparent, aunt, uncle or first cousin of the relevant Prohibited Person; or
(g)conducting any activities that would otherwise be in breach of clause 20.2 but have been approved by the Board.
20.7 Acknowledgments
Each Prohibited Person acknowledges and agrees that:
(a)all the prohibitions and restrictions in this clause 20 are reasonable in the circumstances and necessary to protect the goodwill of the Business, and have served as a critical inducement to the entry by each Shareholder into this Agreement;
(b)damages are not an adequate remedy if a Prohibited Person breaches this clause 20;
(c)the other parties to this Agreement may apply for injunctive relief if:
(i)a Prohibited Person breaches or threatens to breach this clause 20; or
(ii)it has reasonable cause to believe that a Prohibited Person is likely to breach this clause 20; and
(d)the obligations and restrictions imposed upon him or her under this clause 20 are in addition to, and not in lieu of, the obligations and restrictions imposed upon him or her under the Management Deed (if any).
20.8 Legal Advice
Each Shareholder and Principal acknowledges that in relation to this Agreement and in particular this clause 20, the Shareholder has received legal advice or has had the opportunity of obtaining legal advice.
20.9 Severability
For the avoidance of any doubt, if any of the separate and independent covenants or restrictions set out in this clause 20 is or becomes invalid or unenforceable for any reason:
(a)clause 28.6 of this Agreement applies; and
(b)without limiting the operation of that clause, if the covenant or restriction in question would be valid or enforceable if any activity was deleted or the area or time was reduced, then the clause must be read down by deleting that activity, or reducing that period or area, to the minimum extent necessary to achieve that result.
20.10 Application to Shareholders subject to Services Agreements
In the event a Shareholder or Principal is subject to a Services Agreement, which imposes less favourable restrictions on the Shareholder or Principal than those set out under this clause 20, then the restrictions in this clause 20 prevail.
Clause 27.3 provides:
27.3 Clauses Surviving Termination
Despite any other provision of this Agreement, this clause 27 (Termination) and clauses 1 (Definitions), 20 (Restrictive Covenant), 21 (Public Announcements), 22 (Confidentiality), 23 (Representations and Warranties), 24.2 (Trustee Warranties), and 28 (General) survive the expiry or termination of this Agreement.
Clause 28.6 provides:
28.6 Severability
Any provision of this Agreement that is invalid in any jurisdiction must, in relation to that jurisdiction:
(a)be read down to the minimum extent necessary to achieve its validity, if applicable; and
(b)be severed from this Agreement in any other case,
without invalidating or affecting the remaining provisions of this Agreement or the validity of that provision in any other jurisdiction.
Former shareholders in Escala Partners did not necessarily hold shares in 2nd Chapter in proportion to the shares they had held in Escala Partners. For example, Vickers‑Willis has a larger shareholding in 2nd Chapter through his related entity than he held in Escala Partners.
B.2.3 Management Deed
On 1 April 2019, various parties entered into a deed entitled ‘Management Deed’. The parties to the Management Deed included Focus Financial, 2nd Chapter, Escala Partners, Sealey and Vickers‑Willis.
In brief, the Management Deed governs the terms and conditions upon which 2nd Chapter (as the ‘Management Company’) was engaged to conduct of the day‑to‑day management and operation of the Escala Partners business.
Compensation arrangements for shareholders of 2nd Chapter are set out in Article 4 of the Management Deed. These are described in section B.4.2 below. The arrangement involves the earnings before partner compensation (EPBC) for each calendar year being divided by reference to a target and thresholds as follows:
(a)Threshold one: $500,000 of EBPC.
(b)Threshold two: $4,884,157 of EBPC.
(c)Threshold three: $11,584,157 of EBPC.
(d)EBPC Target: $18,791,430 of EBPC.
The ‘Management Fee’ which 2nd Chapter received from the EPBC is calculated as follows:
(a)100% of the $4,384,157 between thresholds one and two;
(b)100% of the $7,207,273 between threshold three and the EBPC Target; and
(c)50% of any amount that exceeds the EBPC Target.
The amounts which are reserved for Escala Partners, and which thereby flows to Focus Escala Holdings and Focus Financial, were as follows:
(a)100% of the $500,000 up to threshold one;
(b)100% of the $6,700,000 between thresholds two and three; and
(c)50% of any amount in excess of the EBPC Target.
Article 3 of the Management Deed is entitled ‘Non‑Competition and non‑solicitation covenants’. Article 3 relevantly provides:
Section 3.1. Defined terms. In this Article 3:
(a)“Associate” means in relation to a Principal:
(i)a spouse or de facto spouse of that Principal; or
(ii)a company or trust of which the Principal has Control.
(b)“engage in” means to carry on, participate in, provide finance or services, or otherwise be directly or indirectly involved as a shareholder, owner, operator, controller, unitholder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier.
(c)“Cessation Date” means:
(i)in relation to the Management Company, the date on which this Deed expires or is terminated; and
(ii)in relation to a Principal, the date on which that person’s appointment as an authorised representative of the Company is terminated (by either the Principal or the Company).
…
(e)“Current Restraint Term” means:
(i)in relation to the Management Company, during the term of this Deed; and
(ii)in relation to each Principal, the period from the date of this Deed or (if later) the date on which the Company appoints that person as an authorised representative pursuant to their AR Appointment Deed, until the Cessation Date applicable to that Principal.
(f)“Prohibited Person” means (as applicable):
(i)the Management Company; and
(ii)each Principal.
(g)“solicit” includes (without limitation) any mailing, e mail message, or other verbal or written communication that is sent directly or indirectly to one or more clients of the Company informing them:
(i)that the Management Company or any Principal is no longer providing services to the Company;
(ii)that the Management Company or any Principal plans to no longer provide services to the Company; or
(iii)how to contact the Management Company or any Principal in the event that the Management Company or such Principal ceases to provide services to the Company, other than any correspondence or communication approved by Focus in writing prior to sending to the clients.
Section 3.2. Prohibited activities. Each Prohibited Person undertakes severally to Focus and the Company that it will not (and, in the case of each Principal, that its respective Associates will not):
(a)engage in a business or an activity that is:
(i)the same or similar to the Business or any material part or parts of the Business; or
(ii)in competition with the Business or any material part or parts of the Business;
(b)during the Current Restraint Term, solicit, canvass, approach or accept an approach from a person who is a client of the Company or the Business with a view to obtaining their custom in a business that is the same or substantially similar to the Business (or any material part of it) or is in competition with the Business (or any material part of it);
(c)solicit, canvass, approach or accept an approach from a person who was at any time during the 24 months ending on the Cessation Date a client of the Company or the Business with a view to obtaining their custom in a business that is the same or substantially similar to the Business (or any material part of it) or is in competition with the Business (or any material part of it);
(d)interfere with the relationship between the Company or the Business and its customers, clients, employees, suppliers or collaboration partners (including by inducing any such person to terminate or modify their relationship with the Company or by making any negative or disparaging statements regarding the Company or any Affiliated Company);
(e)hire or otherwise engage any employee of the Company, or initiate contact with or directly or indirectly solicit any such employee, with a view to hiring such employee, or induce or otherwise counsel, advise or encourage any such employee to leave their employment with the Company;
(f)in respect of a Principal only, hire or otherwise engage any employee of the Management Company, or initiate contact with or directly or indirectly solicit any such employee, with a view to hiring such employee, or induce or otherwise counsel, advise or encourage any such employee to leave their employment with the Management Company;
(g)use a logo, symbol, trade mark or business name which may be misleading or deceptively similar to, or likely to be confused with, a logo, symbol, trade mark or business name owned or used by the Company; or
(h)encourage or induce any other person to do any of the things set out in this Section 3.2.
…
Section 3.4. Duration of prohibition in relation to each Principal. The undertakings given by each Principal in Section 3.2 begin at the commencement of the Current Restraint Term applicable to that Principal and (unless a contrary intention is expressed in Section 3.2) end:
(a)on the second anniversary of the Cessation Date applicable to that Principal;
(b)on the first anniversary of the Cessation Date applicable to that Principal.
Section 3.5. Geographic application of prohibitions. The undertakings in Section 3.2 apply only if the activity prohibited by Section 3.2 occurs within:
(a)Australia;
(b)New South Wales, Victoria, Western Australia, Australian Capital Territory and Queensland;
(c)New South Wales, Victoria and Western Australia;
(d)New South Wales and Victoria;
(e)Sydney and Melbourne.
Section 3.6. Interpretation. Section 3.2, Section 3.3 or Section 3.4 (as applicable) and Section 3.5 have effect together as if they consisted of separate provisions, each being severable from the other. Each separate provision results from combining each undertaking in Section 3.2, with each period in Section 3.3 or Section 3.4 (as applicable), and combining each of those combinations with each area in Section 3.5. If any of those separate provisions is invalid or unenforceable for any reason, the invalidity or unenforceability does not affect the validity or enforceability of any of the other separate provisions or other combinations of the separate provisions of Section 3.2, Section 3.3 or Section 3.4 (as applicable) and Section 3.5.
Section 3.7. Exceptions. This Article 3 does not restrict a Prohibited Person from:
(a)holding 5% or less of the shares of a listed company;
(b)being an employee of, or contractor to, the Company or the Management Company; or
(c)acting as an authorised representative of the Company.
Section 3.8. Acknowledgments. Each Prohibited Person acknowledges and agrees that:
…
(a)Focus and the Company have entered into this Deed at the request of the Principal;
(b)all the prohibitions and restrictions in this Article 3 are reasonable in the circumstances and necessary to protect the goodwill of the Business, and have served as a critical inducement to the entry by Focus and the Company into this Deed;
(c)damages are not an adequate remedy if a Prohibited Person breaches this ARTICLE 3;
(d)the Company and Focus may apply for injunctive relief if:
(i)a Prohibited Person breaches or threatens to breach this Article 3; or
(ii)it has reasonable cause to believe that a Prohibited Person is likely to breach this Article 3; and
(e)the obligations and restrictions imposed upon him or her under this Article 3 are in addition to, and not in lieu of, the obligations and restrictions imposed upon him or her under the Purchase Agreement).
Exhibit 2.10 to the Management Deed was a transition plan, setting out details of key members of 2nd Chapter as at 1 April 2019. Both Sealey and Vickers‑Willis are listed as shareholders of 2nd Chapter and are included in the transition plan.
The entry for Vickers‑Willis in the transition plan is as follows:
Jono Vickers‑Willis is a senior advisor that is 30 years old. Jono was hired into the business four years ago as and [sic] associate advisor with financial planning skills. Jono learned the job of an advisor as he worked for a number of different senior advisors in the business. In his second year, Jono joined with Paul Sealey to advise clients. They now work in a 50/50 partnership. Both Jono and Paul have a large number of clients and both are senior advisors in the business. They work with an associate advisor that they are training to be the next advisor in the firm. If Jono was no longer part of Escala, Paul would pick up the work with the clients. Their associate advisor, Will Allen, would also step in to cover the work. A number of the clients Jono looks after were clients of Scott Carmichael years ago. Scott would also step in to handle the work load related to those people.
The entry for Sealey in the transition plan is as follows:
Paul Sealey was the first advisor to join Escala Partners. Paul is in his 30s and is a 50/50 partner with Jono Vickers Willis. Both Jono and Paul have a large number of clients and both are senior advisors in the business. They work with an associate advisor that they are training to be the next advisor in the firm. If Jono was no longer part of Escala, Paul would pick up the work with the clients. Their associate advisor, Will Allen, would also step in to cover the work. A number of the clients Jono looks after were clients of Scott Carmichael years ago. Scott would also step in to handle the work load related to those people.
B.2.4 Employment Agreements
On or about 19 March 2019, 2nd Chapter and Sealy entered into a written agreement entitled ‘Employment Agreement’ (Sealey Employment Agreement).
On or about 21 March 2019, 2nd Chapter and Vickers‑Willis entered into a written agreement entitled ‘Employment Agreement’ (Vickers‑Willis Employment Agreement).
On 27 March 2019, 2nd Chapter and Allen entered into a written agreement entitled ‘Employment Agreement’ (Allen Employment Agreement).
The drafting of each of the Sealey Employment Agreement, Allen Employment Agreement and Vickers‑Willis Employment Agreement (collectively, the Employment Agreements) was largely identical.[18] Schedule 2 to each of the Employment Agreements sets out specific information for each employee, including commencement dates, titles and remuneration.
[18]There is a slight inconsistency with the dates of the Employment Agreements, as used by the parties. I have adopted the date used in the Chronology agreed and filed by the parties.
By Schedule 1 of the Employment Agreements, the following definitions apply to terms used in each of the Employment Agreements:
(a)‘Affiliate’ of a person means:
(i)an associate of a person within the meaning of sections 10 to 17 of the Corporations Act;
(ii)any entity in respect of which that person has control as that term is defined under the Corporations Act;
(iii)in relation to a body corporate, any of the body’s related bodies corporate, directors or the holder of a substantial holding (as that term is defined in section 9 of the Corporations Act); and
(iv)in relation to a natural person, any spouse or relative by blood, marriage or adoption of that person.
(b)‘Agreement’ is the particular employment agreement;
(c)Client(s)’ means any ‘business, person, customer, employee, contractor, corporation or firm who has conducted or is conducting business with, or is receiving or has received services from Escala or the Company, or is currently in negotiations with Escala or the Company for these purposes.’
(d)‘Company’ is defined to mean 2nd Chapter and any Related Bodies Corporate and Associated Entities as defined in the Corporations Act.
(e)‘Engage in’ means ‘to carry on, participate in, provide services, or otherwise be directly or indirectly involved as a shareholder, unit holder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier’.
(f)‘Escala’ means ‘(as applicable) Escala Partners…and each of its Related Bodies Corporate as defined in the Corporations Act from time to time’.
Clause 2 of the Employment Agreements sets out various employee duties and requirements, including relevantly:
2.4 In the Position, you agree to:
· devote your whole time and attention and the whole of your skills to your duties during the hours of work and such reasonable additional hours that may be necessary to perform your duties;
· be honest in your dealings with the Company and the Board
· use your best endeavors [sic] to promote the business interests of the Company;
· faithfully, diligently and lawfully perform your duties;
· comply with the Company’s policies and procedures;
· abide by all laws applicable to your duties and position; and
· comply with all reasonable and lawful directions of the Company.
2.5 Without prior written approval of the Company you agree not to:
· undertake any other trade, business or profession; and
· be involved in any activity, which creates or may create a conflict of interest with the Company, Escala or the Clients, the requirements of your position or your ability to carry out your duties. This includes without limitation, being engaged as a consultant, employee, director, partner, executive, officer, mentor, major shareholder, franchisee, trustee or executor. Should any prospective conflict of interest arise, you agree to immediately notify the Company to obtain written permission to engage in such interest or activities.
2.6You acknowledge that you are a party to an Authorised Representative Appointment Deed dated on or around 1 April 2019 with Escala Partners Ltd (AR Deed). It is a requirement of your employment that you comply with the terms of the AR Deed and any breach of the AR Deed by you will constitute serious breach of the terms within this Agreement.
Clause 13 concerns termination of employment and relevantly provides:
Termination with Notice/Notice Period
13.1 In the event that either party wishes to terminate this Agreement after completion of your probation period, you or the Company are to provide:
· 3 months written notice.
Restrictions
13.2 During your notice period, you will continue to be employed by the Company and you must not engage or prepare to engage in any business or activity that is the same or similar to the business activities of the Company in whole or part. You must continue to act in accordance with your Agreement obligations and requirements and remain subject to the Company’s lawful and reasonable directions, including being available if needed.
You will assist with an efficient and thorough transition of all clients that you managed or that you had relationships with, to other Company employees, as directed by the CEO.
…
Non‑compete Period
13.5 The non‑compete period, is for 6 months or if that period is unenforceable, 3 months from the date of termination of employment. During this period, in consideration of this agreement and the payments to you, referred to in clause 7, you must not (and will ensure that your Affiliates do not), directly or indirectly, on your own behalf or on behalf of any other person or entity, in any capacity, engage or prepare to engage in any business or activity that is the same or similar to the business activities of Escala or the Company in whole or part, or that is in direct competition with the business of Escala or the Company.
Without the prior written consent of the Company you also agree;
· not to accept or conduct any activity or business which would be in direct competition with the business of Escala or the Company, with any person or entity who at any time during 12 months preceding your termination was a client of Escala or the Company; and
· not to solicit, encourage, assist or seek to entice any individual to leave their employment with the Company.
Termination without Notice
13.6Your employment may be summarily terminated by the Company without notice if you:
· commit a serious or persistent breach of the terms within this Agreement including without limitation confidentiality and conflict of interest;
· commit an act of serious misconduct or gross negligence;
· refuse or neglect to comply with any lawful and reasonable directions concerning your employment or duties;
· are charged with or convicted of an indictable offence;
· commit a wrongful or dishonest act or conduct which, in the reasonable opinion of the Company, brings the Company into disrepute;
· seriously breach professional obligations under the Corporations Act; and
· breach the Company’s Policies.
13.7 If you are terminated summarily, your Agreement obligations including without limitation the Restraint Covenant and Non‑compete Period, will continue to apply.
Clause 14 of the Employment Agreements sets out the restraint covenant. Clause 14 is in the following terms:
14.0 Restraint Covenant
Restraint (non‑solicit) Period
14.1 In consideration of this agreement and the payments to you referred to in clause 7 which are greater than those payable to at law [sic], you agree that you will not, and will ensure that your Affiliates do not, during the Restraint Period and in the Restraint Area, directly or indirectly, on your or their own behalf or on behalf of any other person or entity, in any capacity:
· solicit, canvas, approach, encourage, entice, or assist any person or entity who at any time during the period of 12 months preceding the termination of your employment was a client of the Company or Escala, to cease doing business with Escala or the Company, or reduce the amount of business the client may or would conduct with Escala or the Company, or alter the terms of the client’s dealings with Escala or the Company;
· assist another person or entity to solicit, canvas, approach, encourage, entice, or assist any person or entity who, at any time during the period of 12 months preceding the date of termination of your employment, was a client of Escala or the Company, to cease doing business with Escala or the Company, or reduce the amount of business the client may or would conduct with Escala or the Company, or alter the terms of the client’s dealings with Escala or the Company;
· do or say anything harmful to the reputation of Escala or the Company or which may lead a person or entity to cease, curtail or alter the terms of their dealings with Escala or the Company;
· accept any approach from any person or entity who, at any time during the period of 12 months preceding the date of termination of your employment, was a client of Escala or the Company with a view to obtain the custom of that client in a business that is the same or as similar to any part or parts of the business of Escala or the Company;
· not interfere with the relationship between any employee, or member of Escala or the Company and any of their clients; and
· not solicit, encourage, entice, assist (including assisting any other person or entity to do so) any individual/s to leave their employment with Escala or the Company.
14.2 Restraint Period means each of the periods described below separately:
· Twelve (12) months; if that is not enforceable, then
· Nine (9) months; if that is not enforceable, then
· Six (6) months; if that is not enforceable, then
· Three (3) months.
14.3 Restraint Area means each of the areas described below, separately:
· Australia; or if that is unenforceable;
· The state of Victoria; or if that is unenforceable;
· the city of Melbourne in Victoria, including all surrounding suburbs.
14.4Each of the Restraints in clause 14.1 (which result from the differing combinations of the Restraint Period and Restraint Area) is a separate, severable and independent Restraint from the other Restraints and obligations imposed (although they are cumulative in effect). You agree that it is the intention that you will be bound by each Restraint for the maximum Restraint Period and Restraint Area permitted by law.
14.5 You agree that the restrictions imposed within this clause are reasonable as to subject matter, geographical area and duration, and are reasonably necessary in order to preserve and protect the proprietary interests of the Company.
14.6 Nothing in this clause whether expressed or implied shall prevent you from being a holder for the purposes of investment only of marketable securities for the time being quoted on a recognised Stock Exchange in Australia or elsewhere.
14.7 You consent to the Company advising any future employers of your restrictions under this clause.
B.3 Events after the acquisition
As a result of the Employment Agreements described above in section B.2.4, from around March 2019, Sealey and Vickers‑Willis were both employed by 2nd Chapter as part of the same team at Escala Partners. At all relevant times, Sealey and Vickers‑Willis worked closely together in their employment, and the nature of their role as investment advisors and financial planners did not change following the acquisition of Escala Partners by Focus Escala Holdings.
Allen was also employed by 2nd Chapter in the same team as Sealey and Vickers‑Willis at Escala Partners from around March 2019, working under them and at their direction, until his appointment to the role of investment advisor.
B.4 Payments
B.4.1 Payments under the Share Purchase Agreement
The SPA upfront purchase price for all shares in Escala Partners was $57,950,000, less certain adjustments and deductions.
The SPA also provides for:
(a)two annual additional purchase price payments (described by the Plaintiffs as ‘retention Earn‑Out payments’) of $7,200,000 to be made on the first and second years following the acquisition if the Earnings Before Partner Compensation (EBPC) in the first and second year was equal to or exceeded $18,032,558. The payments were to be made to the former shareholders of Escala Partners in proportion to their respective former shareholdings in Escala Partners; and
(b)three annual growth Earn‑Out Amounts to be paid in years three, four and five after the acquisition (up to $7,200,000 each), as long as EBITDA growth was 10% or more on an unrounded basis. These growth Earn‑Out Amounts were to be calculated according to formulae set out in cl 5 of the SPA.
According to the Plaintiffs, if the relevant earnings targets were all met, the total purchase price under the SPA would have been $93,950,000.15.
In the event:
(a)the two ‘retention Earn‑Out payments’ were made in full;
(b)the amount paid for the first of the ‘growth Earn‑Out Amounts’, in respect of year three following the acquisition was $6,171,428;
(c)no money was paid for the second of the ‘growth Earn‑Out Amounts’, in respect of year four following the acquisition;[19] and
(d)as at the date of the Plaintiffs’ evidence being finalised in the proceeding, the third and final ‘growth Earn‑Out Amounts’, in respect of year five following the acquisition had not been determined.
[19]The Plaintiffs’ position is that the fourth payment was not earned, following the requirements under the SPA.
The Plaintiffs plead that the amounts paid pursuant to the SPA included the following:
(a)Terrung received around $4,651,504.37; and
(b)JCVW received around $24,988.85.
The Defendants disputed these payment amounts in their pleading.[20] The total of the amounts paid to Terrung to which the Defendants’ refer in closing submissions is $4,375,633.04. The total of the amounts paid to JCVW to which the Defendants’ refer in closing submissions is $24,058.06.
[20]2FASOC and Defence [14]‑[15]: In their pleadings, the Defendants say Terrung was paid a total of $3,973,574.44 and JCVW was paid $24,085.06.
I note that the amounts to which Perry referred in his most recent affidavit evidence (which is supported by trust account statements) appear to match the amounts to which the Defendants refer. Roughly 70% of the amount paid was referable to the upfront purchase price payment and the remainder to the subsequent Earn‑Out payments.
B.4.2 Profit sharing under the Management Deed
As noted in paragraphs 50 to 52 above, the general profit‑sharing arrangement for the Escala Partners business post‑acquisition by Focus was as follows:[21]
(a)Escala Partners would be entitled to the first $500,000 of EBPC;
(b)2nd Chapter would be entitled to retain the next tranche of earnings from $500,000 up to $4,884,157;
(c)Escala Partners would be entitled to retain the next tranche of earnings from $4,884,157 up to $11,584,157;
(d)2nd Chapter would be entitled to retain the next tranche of earnings from $11,584,157 up to the EBPC Target of $18,791,430; and
(e)any excess above the EBPC Target was to be shared equally as between Escala Partners and 2nd Chapter.
[21]The arrangement as set out in the Management Deed was amended to adjust calculations to account for matters such as changes in employee compensation.
Entitlements of Escala Partners would be distributed upwards to Focus Financial. Accordingly, the above means that Focus was, in substance, entitled to $7,200,000 of the first $18,791,430 of EPBC and 50% of any earnings above that amount. Impacting on the size of the Management Fee to which 2nd Chapter would be entitled, was the requirement that Escala Partners and 2nd Chapter each shoulder 50% of future capital expenditure costs incurred by Escala Partners.
The profit share which 2nd Chapter would receive followed payment of employees’ remuneration and compensation. This meant that the amounts which shareholders in 2nd Chapter might receive from the Management Fee under the Management Deed might be significantly reduced if those remuneration costs were high.
Sealey’s evidence is that he received only one dividend as a shareholder of 2nd Chapter of $28,900 on 8 April 2022. JCVW received less still, having a much smaller shareholding in 2nd Chapter.
B.4.3 Employee wages
Sealey, Vickers‑Willis and Allen received wages under their respective employment agreements. For the financial year ended 30 June 2023 (FY23):
(a)Sealey was paid a total of $624,618.39 pursuant to the Sealey Employment Agreement.
(b)Vickers‑Willis was paid a total of $625,082.83 pursuant to the Vickers‑Willis Employment Agreement.
B.5 Termination of employment
According to Sealey, he and Vickers‑Willis began exploring opportunities at other companies in around mid‑2022. Sealey’s evidence also refers to concerns he and other Escala Partners personnel held about the functioning of the Escala Partners business which he says led to this exploration of other opportunities. Vickers‑Willis’ evidence is that he was increasingly dissatisfied with the remuneration model at Escala Partners and its strategic direction. For the purposes of this judgment, however, it is not necessary to delve into these asserted concerns or make any findings in that regard.
The evidence of Sealey and Vickers‑Willis is that Mr Adam Ginnivan at Crestone approached them individually at around the same time, at some point before July 2022.
On around 21 December 2022, Allen tendered his resignation and the Allen Employment Agreement was terminated. Sealey’s evidence is that he did not know or expect that Allen would resign before that date, nor did he know that Allen had been dealing with Crestone.
Since around 27 March 2023, Allen has been employed at Crestone.
On 23 May 2023, Sealey and Vickers‑Willis each entered into an employment agreement with Crestone, and executed sign‑on bonus agreements with Crestone.
On 20 June 2023, both Sealey and Vickers‑Willis provided to Escala Partners written notice of their resignation as ‘an employee and shareholder’ of 2nd Chapter. They were immediately placed on gardening leave.
Sealey’s evidence is that the timing of his resignation from Escala Partners was driven by the busy period at the end of the financial year FY23. He intended to resign after 30 June 2023 so as to complete work for clients for FY23 but, because his team completed the required work early, he moved forward his resignation date. The evidence of Vickers‑Willis is to the same effect.
According to Sealey and Vickers‑Willis, they had a discussion with Perry after they tendered their resignations, in which Perry told them to ‘lay low’ and that they would be provided with a handover protocol within 24 hours. They informed Perry that they were willing to have discussions to negotiate terms of their restraints.
According to Sealey, he was not provided with a handover protocol or other direction regarding what action to take if approached by a client while on gardening leave. Vickers‑Willis’ evidence is the same. Under cross‑examination, Perry confirmed that they were not provided with handover protocols and they were not involved in any transition of clients to other advisors at Escala Partners. The decision was made not to require the assistance of Sealey or Vickers‑Willis.
It is now common ground that the appointment of Sealey and Vickers‑Willis as authorised representatives of Escala Partners appointment pursuant to an AR Appointment Deed was terminated on 21 June 2023.[22]
[22]The Plaintiffs had previously pleaded that the appointments of both Sealey and Vickers‑Willis were not yet terminated, but confirmed that this was incorrect in the 2FASOC: 2FASOC [40].
Following the resignation of Sealey and Vickers‑Willis, the details of when and how the Sealey Employment Agreement and Vickers‑Willis Employment Agreement were terminated are the subject of dispute:
(a)The Plaintiffs say that the Sealey Employment Agreement and Vickers‑Willis Employment Agreement were terminated on 21 August 2023, alternatively 20 June 2023, or further alternatively 24 August 2023.
(b)The Defendants say that the Sealey Employment Agreement and Vickers‑Willis Employment Agreement were terminated on 24 August 2023 and, as a result, from that time 2nd Chapter could not seek to enforce any of the restrains of trade contained therein.
To the extent necessary in respect of the separate questions, these matters will be discussed further below.
Both Sealey and Vickers‑Willis commenced work at Crestone on 16 October 2023. This date was after the interlocutory decision of Waller J was handed down (described at paragraph 94 below).
According to the Plaintiffs, a number of Escala Partners clients have moved to Crestone since July 2023, whereas there had never been any such transfers in the previous decade. Vickers‑Willis disputed this, recollecting a client who requested a transfer to Crestone, and Perry’s evidence at the hearing was that he could not dispute this but had been unable to find any record of it.
B.6 Procedural history
The Plaintiffs commenced this proceeding on 25 September 2023.
On 27 September 2023, the Plaintiffs filed an urgent application in the proceeding, seeking interim orders restraining Sealey and Vickers‑Willis from the same conduct as is sought in the prayers for final relief, pending the hearing and determination of the proceeding. That urgent application was heard by Waller J on 5 October 2023. Justice Waller refused the interlocutory application and dismissed the Plaintiffs’ summons in a ruling dated 10 October 2023.[23]
[23]2nd Chapter Pty Ltd & Ors v Sealey & Ors [2023] VSC 599.
On 27 October 2023, the Plaintiffs filed an amended statement of claim.
On 10 November 2023, the Defendants filed their defence to the amended statement of claim (Defence).
On 24 November 2023, the Defendants filed a summons seeking an order, pursuant to rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules), that separate questions be tried before the trial of the proceeding.
On 28 November 2023, Lyons and Whelan JJA heard the Plaintiffs’ application for leave to appeal the ruling of Waller J. Through their solicitors, Sealey and Vickers‑Willis gave undertakings that they would not solicit, canvass or approach any person who is a client of Escala Partners with whom either of them dealt as an advisor in the 24 months preceding the date of the undertaking with a view to obtaining their custom in the wealth management industry, or encourage or induce any person to do the same. Having regard to the proffered undertakings, the Court of Appeal granted leave to appeal but dismissed the appeal against the ruling of Waller J. Those undertakings remain on foot.
On 8 December 2023, Justice Sifris heard the Defendants’ application for a trial of separate questions and made orders pursuant to r 47.04 of the Rules and ss 47 and 49 of the Civil Procedure Act 2010 (Vic), that nine issues in the proceeding be tried first. The nine issues are set out in section C.
On 18 April 2024, the Plaintiffs filed a further amended statement of claim.
The trial of separate questions occurred before me in the week commencing 15 July 2024. During the trial, the Court granted the Plaintiffs leave to file a second further amended statement of claim (2FASOC). The 2FASOC was filed on 18 July 2024.[24]
[24]Also during the hearing, the Court refused leave to amend the Plaintiffs’ pleading in respect of more substantive changes, largely because of the impact that the proposed amendments would have on the scope of the separate questions before the Court and the potential prejudice that the proposed amendments would have on Sealey in the trial of the separate questions. The Plaintiffs renewed that application on two further occasions during the course of trial and was refused both times. The Court’s reasons for each of the three rulings in respect of the unsuccessful applications by the Plaintiffs for leave to amend are recorded in the transcript of the hearing.
C Questions to be tried
Orders have been made for the Court to try the following nine questions/issues as separate questions, pursuant to rule 47.04 of the Rules:
(a)Question one: Are any of the restrictive covenants set out in cl 20.2 to 20.6 of the SPA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent?
(b)Question two: Are any of the restrictive covenants set out in sections 3.2 to 3.6 of the Management Deed enforceable against either or both of Sealey and Vickers‑Willis? If so, which restrictive covenants are enforceable and to what extent?
(c)Question three: Are any of the restrictive covenants set out in cl 20.2 to 20.5 of the SHA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent?
(d)Question four: Are any of the restrictive covenants set out in cl 13.5 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?
(e)Question five: Are any of the restrictive covenants set out in cl 14.1 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?
(f)Question six: Are any of the restrictive covenants set out in cl 13.5 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?
(g)Question seven: Are any of the restrictive covenants set out in cl 14.1 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?
(h)Question eight: Are any of the restrictive covenants set out in cl 14.1 of the Allen Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?
(i)Question nine: Whether Sealey or Vickers‑Willis has repudiated the Sealey Employment Agreement or Vickers‑Willis Employment Agreement, respectively, as alleged in section E.3 of the 2FASOC?[25]
[25]Question nine initially referred to the previous pleading filed by the Plaintiffs in the proceeding, being the amended statement of claim dated 27 October 2023. During the hearing, the Court granted leave for the Plaintiffs to file the 2FASOC. Section E.3 of the 2FASOC will be set out in section O.1 of these reasons.
D Evidence and witnesses
The Plaintiffs have filed and rely upon the following affidavit evidence:
(a)three affidavits of Perry sworn on 25 September 2023, 4 October 2023,[26] and 9 February 2024; and
(b)an affidavit of Bennard sworn on 9 February 2024.
[26]The Plaintiffs rely on this affidavit and the Defendants’ assertion to the contrary is incorrect.
The Plaintiffs also rely on a number of business records which were tendered at the hearing.[27]
[27]Tender documents in CB tabs 268‑71.
The Defendants have filed and rely upon the following affidavit evidence:
(a)affidavits of Sealey affirmed on 4 October 2023 and 16 February 2024;[28] and
(b)affidavits of Vickers‑Willis affirmed on 4 October 2023 and 16 February 2024.[29]
[28]An affidavit of Sealey affirmed on 9 February 2024 was not read.
[29]An affidavit of Allen affirmed on 4 October 2023 was not read.
Bennard, Perry, Sealey and Vickers‑Willis were cross‑examined at the hearing.
The Plaintiffs made submissions to the effect that I should be careful about what the Defendants say. For example, counsel for the Plaintiffs pointed to the inconsistency in the inclusion of a start date in the employment contract with Crestone of Vickers‑Willis of 22 March 2024 and correspondence from his solicitor on 28 September 2023, in which it was said that Vickers‑Willis had intended to commence work at Crestone in October 2023.
A further potential credibility point was hinted at in respect of the inclusion in Vickers‑Willis’ Crestone website profile of the claim that he had a ‘vast client base spanning across Australia’, with which claim he did not agree when cross‑examined. This point was not pressed in closing submissions, but I feel it is important to note that, had it been pressed, I would not have made any adverse credibility finding because of it.
It is always the practice of the Court to exercise care and caution in the assessment of the evidence given at trial. In respect of Vickers‑Willis’ evidence as to his start date and when that was communicated to the Plaintiffs, I found his explanation to be adequate. I do not accept any implied suggestion that any of the Defendants have lied or attempted to mislead the Court in their evidence, or that there is a need for the Court to be more sceptical or cautious with the Defendants’ evidence than with that of the Plaintiffs.
I found all of the witnesses who gave evidence at trial to be impressive, honest and helpful to the Court. In particular, I make the following observations as to the testimony given:
(a)Bennard’s evidence was clear and forthright. Initially, Bennard appeared to be thinking about why questions were being asked or where they were going, rather than simply responding to the question put to her, and was perhaps reluctant to agree to some propositions put to her as a result. However, once the Court confirmed to Bennard that she should only concern herself with answering the question, she took this on board in subsequent answers, and I do not consider that the quality of her evidence was negatively affected by this.
(b)Perry also came across well and provided clear answers to questions put to him. When speaking of his professional and personal relationship with Sealey in particular, I observed that Perry feels deeply aggrieved by Sealey’s move to Crestone and the circumstances surrounding that move as he understands them.[30] Nonetheless, he came across as an honest witness.
(c)Vickers‑Willis’ evidence was similarly of assistance and, as outlined above, I found him credible. He made concessions where appropriate and his answers appeared to be well considered.
(d)Sealey also came across well. His evidence was clear, cogent, and to the point. He made concessions where appropriate, and gave appropriate context to his answers.
[30]Findings as to these circumstances are not a matter for this trial of separate questions.
E Relevant law
The general principles which are relevant to whether a restrictive covenant imposes an unlawful restraint of trade are well‑established and have been succinctly summarised by the Court of Appeal in Kingdom Animalia LLC v Mecca Brands Pty Ltd:[31]
The applicable principles are well established and were not in dispute. Stated shortly:
(a) where an agreement contains a covenant which restrains one party from freely engaging in trade in respect of its products or services, the party receiving the benefit of the covenant carries an onus to justify the restraint;
(b) to do so, the covenantee must demonstrate that the restraint is reasonable in reference to the interests of both parties and the public, in the sense that it affords not more than adequate protection of its legitimate interests; and
(c) the time of assessing reasonableness is the date of entry into the restraint.
[31](2023) 170 IPR 399, 403 [21].
M.2 Consideration
My findings in respect of the identical clause considered in question five apply, and I refer to section K.3 above. The answer to the question is No. The restraints are not enforceable.
N Question eight: clause 14.1 of the Allen Employment Agreement
Are any of the restrictive covenants set out in cl 14.1 of the Allen Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?
N.1 Plaintiffs’ Submissions
The Plaintiffs point to a summary of the Escala Partners business in which Allen is mentioned as a person who had begun to close out clients on his own and therefore was a source of goodwill himself.
The Plaintiffs say that similar considerations apply in respect of these restraints as the employment contract restraints considered elsewhere in these reasons and repeat the submissions they made in respect of the above questions regarding employment restraints.
N.2 Defendants’ Submissions
The Defendants repeat their submissions for question five mutatis mutandis in respect of the identical clause considered in question eight (see section K.2 above), subject to a handful of differences in the situation of Allen compared with Sealey and Vickers‑Willis.
2nd Chapter permitted Allen to commence his employment with Crestone in April 2023, which is why cl 13.5 of the Allen Employment Agreement is not in issue in these proceedings. There are also differences in that Allen was relatively junior as an employee with an initial base salary inclusive of super of $87,600 (less than half the salaries of Sealey and Vickers‑Willis), he was not a shareholder of Escala Partners at the time of the acquisition and he was not a shareholder of 2nd Chapter.
N.3 Consideration
It is true that Allen was a relatively junior employee when he entered into the Allen Employment Agreement compared to, say, Sealey. However, the assessment of the reasonableness of the restraints at the time when they were entered into can accommodate changes in the employee’s responsibilities such as that he might gain seniority during his employment. That said, my findings in respect of cl 14.1 of the Allen Employment Agreement are the same as in respect of the same clause in the Sealey Employment Agreement and Vickers‑Willis Employment Agreement. Those reasons apply here.
The answer to the question is No. The restraints are not enforceable.
O Question nine: Repudiation of Employment Agreements
Whether Sealey or Vickers‑Willis has repudiated the Sealey Employment Agreement or Vickers‑Willis Employment Agreement, as alleged in section E.3 of the 2FASOC?
O.1 The pleadings
By section E.3 of the 2FASOC, the Plaintiffs allege that:
(a)in 2023 and prior to 23 May 2023, each of Sealey and Vickers‑Willis negotiated with Crestone to become employed by Crestone and:
(i)communicated with Crestone about the benefits that would or may accrue to Crestone if it employed him, whilst he was still employed by 2nd Chapter; and
(ii)communicated with Crestone about the remuneration and other benefits that would or may accrue to him if he were to be employed by Crestone, and if he was able to enhance the economic performance of Crestone’s business, including by generating new business for that firm, whilst he was still employed by 2nd Chapter;
(b)while still employed by 2nd Chapter, entered into an employment agreement with Crestone;[158] and
(c)failed to disclose to the Plaintiffs, the fact that he had communicated and negotiated with Crestone,[159] or had entered into an employment agreement with Crestone, until after the commencement of these proceedings.
[158]The date on which Sealey entered into his Crestone employment agreement is pleaded as on or about 23 May 2023 and the date on which Vickers‑Willis entered into his Crestone employment agreement is stated not to be known: 2FASOC [83], [87].
[159]As alleged at paragraphs [82A] of the 2FASOC (in respect of Sealey) and, in respect of Vickers‑Willis, as alleged in paragraph [86A] of the 2FASOC and to the extent that the conduct was while he was still employed by 2nd Chapter and failed to disclose the same (because the date(s) on which Vickers‑Willis negotiated and entered into the contract with Crestone were stated as not known by the Plaintiffs in the 2FASOC.
The Plaintiffs plead that as a result of the abovementioned allegedly wrongful conduct, each of Sealey and Vickers‑Willis have breached their obligations under the Sealey Employment Agreement and Vickers‑Willis Employment Agreement, respectively, to:
(a)devote his whole time and attention and the whole of his skills to his duties during the hours of work and such reasonable additional hours as may be necessary to perform his duties (as required by cl 2.4);
(b)use his best endeavours to promote the business interests of 2nd Chapter (as required by cl 2.4);
(c)faithfully, diligently and lawfully perform his duties (as required by cl 2.4);
(d)not undertake any other trade, business or profession without prior written approval of 2nd Chapter (as required by cl 2.5);
(e)not be involved in any activity, which creates or may create a conflict of interest with 2nd Chapter, Escala Partners or the Clients, the requirements of his position or his ability to carry out his duties without prior written approval of 2nd Chapter, (as required by cl 2.5); and
(f)devote his full time and energy and efforts to the performance of the Services and the performance of the Management Company’s duty to the Company and to not engage, directly or indirectly, in any other business activity, whether or not similar to that of the Company (other than acting authorised representatives of the Company); (as required by cl 2.6, and also cl 2.6 of the Management Deed).
The Plaintiffs further allege that Sealey and Vickers‑Willis have both evinced an intention no longer to be bound by the Sealey Employment Agreement and Vickers‑Willis Employment Agreement, respectively, and have thereby repudiated their respective Employment Agreements.
The Plaintiffs say that 2nd Chapter accepted the abovementioned repudiations and terminated the Sealey Employment Agreement and Vickers‑Willis Employment Agreement on or about 21 August 2023.
In respect of the alleged repudiation of the Employment Agreements of Sealey and Vickers‑Willis described above, the Defendants plead that Sealey and Vickers‑Willis were not under a legal obligation to make the pleaded disclosure to the Plaintiffs and no cause of action arises from the non‑disclosures.[160] The Defendants plead that the execution of the agreements and non‑disclosure (assuming those are the repudiations) was not repudiatory conduct.[161] On that basis, 2nd Chapter could not have accepted the repudiations by their letter dated 23 August 2023. That letter purported to accept repudiation based on insufficient notice and, at that time, the Plaintiffs were not aware of Sealey and Vickers‑Willis’ new employment at Crestone. The Plaintiffs cannot as a matter of law rely on conduct of which they were not aware to justify what purported to be an acceptance of a repudiation constituted by entirely different conduct.[162]
[160]Defence [84].
[161]Defence [89].
[162]Defence [89].
O.2 The evidence
On 22 May 2023, Vickers‑Willis received a letter of offer of employment with Crestone. The offer specified a commencement date of employment of 22 March 2024.[163] Sealey also received an offer of employment with Crestone on 22 May 2023 which specified the same start date of 22 March 2024.
[163]According to Vickers‑Willis, this start date of March 2024 was based on legal advice he received, and that one factor was that this date would accommodate the gardening leave and six‑month non‑compete period in the Employment Agreements and SHA.
Vickers‑Willis’ evidence is that he decided to resign in mid‑May 2023, just prior to when he received the Crestone offer and negotiated the terms of his contract with Ginnivan. He says he decided the date of resignation would be by 30 June 2023, so that he and Sealey could assist clients with work associated with the busy end of financial year period. Sealey agrees with this evidence from Vickers‑Willis.
By accepting the offers of employment, Vickers‑Willis and Sealey were required to agree with the warranties set out in the offer letters. Those warranties included the following:
You warrant that you are not bound by any legal or other obligation which is inconsistent with you accepting this offer of employment with LGT Crestone or performing your work as an employee of LGT Crestone. In particular, you warrant that;
a. By entering into this Letter and performing your duties under this Letter, you will not be in breach of any agreement with, or obligation owed to, any third party;
b. You are not subject to any restrictive covenant, notice provision, non‑competition or non‑solicitation provision with any former employer or any other agreement or court order that may prevent you commencing or remaining in employment with LGT Crestone or restrict you in the performance of your duties;
c. You have diligently reviewed all copies of your agreements with your former employer to ensure that these warranties are correct…
On 23 May 2023, each of Sealey and Vickers‑Willis executed employment agreements and sign‑on bonus agreements with Crestone. It is common ground that Sealey and Vickers‑Willis did not disclose to the Plaintiffs that they had entered into these employment and sign-on bonus agreements until after the proceeding commenced.[164]
[164]2FASOC [83]‑[84].
Sealey’s evidence is that he made the final decision to join Crestone in late May 2023 and, until he signed his offer of employment letter with Crestone, he was still considering other possible options.
O.3 Plaintiffs’ Submissions
On the question of repudiation, the Plaintiffs say that the following approach is preferable:[165]
One would ordinarily expect that on a repudiation by the grantor (employee) a restraint clause would survive acceptance of the repudiation and would apply notwithstanding termination, because that is the purpose of a clause which is intended to apply after termination of the contract. By contrast on a repudiation by the grantee (employer) the presumed intention would ordinarily be that the restraint trade would not survive termination.
[165]Francis Dawson, ‘Survival of Restraint of Trade Clauses’ (2013) 129 Law Quarterly Review 508, 512.
Whether the clause survives termination is a question of construction of the relevant agreement.[166] The Plaintiffs say that cl 13.7 expressly provides that the restraints were to survive termination.
[166]Heydon, 332.
The Plaintiffs’ case is that 2nd Chapter terminated the Sealey Employment Agreement and the Vickers‑Willis Employment Agreement following the repudiation by Sealey and Vickers‑Willis of those agreements. That repudiation involved both Sealey and Vickers‑Willis, while each was employed by 2nd Chapter:
(a)negotiating and entering into employment agreements with Crestone;
(b)communicating with Crestone about the benefits that would or may accrue to Crestone if it employed either of them; and
(c)communicating with Crestone about the remuneration and other benefits that would or may accrue to either of them if they were to be employed by Crestone, and if they were able to enhance the economic performance of Crestone’s business, including by generating new business for Crestone.
Sealey and Vickers‑Willis did not communicate this information to 2nd Chapter prior to their resignation. The Plaintiffs submit that this conduct evinces an intention not to be bound by their Employment Agreements with 2nd Chapter. Those contracts of employment with Crestone provided for each of Sealey and Vickers‑Willis to receive a relatively low salary and relatively high commission, and a significant sign‑on bonus, as long as they met certain revenue targets.
The Plaintiffs say that the impugned conduct described above was a clear repudiation of the Employment Agreements, which the Plaintiffs were entitled to accept.[167] Entry into the employment contracts with Crestone and failing to disclose this, in the Plaintiffs’ submission, constitutes being involved in an activity that created or may create a conflict of interest with 2nd Chapter, Escala Partners, and its clients, in breach of cl 2.5 of the Sealey Employment Agreement and Vickers‑Willis Employment Agreement. This is a serious and persistent breach of those Employment Agreements.
[167]The Plaintiffs refer in particular to clauses 2.4 to 2.6 of the Employment Agreements.
The Plaintiffs say that cl 2.5 expressly refers to being engaged as an employee of another firm as an act that might create a conflict, and the Employment Agreements also stipulate that the employee must immediately notify 2nd Chapter of any prospective conflict that arises. Because of this, the clause does not require the conflicting employment to have commenced for there to be a breach, if there is no compliance with the requirement for disclosure of the prospect of a conflict. As soon as the contract is signed, it is inevitable that there is a prospective contract with the competitor, and they will be paid under the contract by reference to how much they earn for that competitor. Sealey and Vickers‑Willis have signed up to the competition and are committed to starting on a set date, with obligations owing under their new employment contracts and the general law as soon as they start, and before they start under the terms of the contracts. The Plaintiffs say this is a prospective conflict at the very least. There is a potential conflict in that it might then be to Sealey and Vickers‑Willis’ benefit not to service their existing clients, because the clients may then become unhappy and leave Escala Partners. Those same clients, unhappy with their service by Sealey and Vickers‑Willis at Escala Partners, might think that their advisors’ poor service was due to their imminent exit and then elect to follow Sealey and Vickers‑Willis to Crestone. Counsel for the Plaintiffs says that this potential conflict and turn of events is not speculative, and point to the long‑term relationships and loyalty to which Sealey refers in his Crestone website profile.
According to the Plaintiffs, Sealey and Vickers‑Willis’ obligations under their respective Employment Agreements to act in the best interests of Escala Partners would involve servicing their clients and assisting with the transition of clients to other advisors so as to enable Escala Partners to continue receiving revenue flow, and disclosing their departure to Perry and others at 2nd Chapter so as to facilitate a smooth transition for clients.
The Plaintiffs submit that they did not accept the repudiation at the time because they were not aware of it, but this does not preclude subsequent acceptance of the repudiatory conduct.[168] In this regard, even if 2nd Chapter’s reasons for termination in the 21 August Letter were ‘rolled up’, the Plaintiffs can rely on different grounds based on facts which existed at the time, even if those facts were not known by 2nd Chapter at the time. The grounds can be relied on to entitle 2nd Chapter to terminate the employment of Sealey and Vickers‑Willis without notice pursuant to cl 13.6.
[168]Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359.
The Plaintiffs say that the repudiation is particularly clear because Sealey had been communicating with Crestone as early as July 2022, less than two months after receiving his third Earn Out payment, leading to the inference that Allen left Escala Partners as part of a pre‑arranged plan to ‘establish a beach head’ at Crestone. According to the Plaintiffs, after Allen left Escala Partners, clients who were normally serviced by Vickers‑Willis and Sealey began to leave and refer their work to Allen. The Plaintiffs submit that, as Allen did not give evidence, a Jones v Dunkel inference is available. The Court can infer that Allen left at the instigation of Crestone, Sealey and Vickers‑Willis to establish this base for Sealey and Vickers‑Willis. That is said to be the ‘antithesis’ of the obligations in the Employment Agreements.
O.4 Defendants’ Submissions
The Defendants say that question nine only arises in certain circumstances, namely:
(a)if the Court would otherwise find that some or all of the relevant restraints in the Employment Agreements are valid and enforceable because they are reasonable as between the parties and not unreasonable in the public interest;
(b)by relying on an allegation that Sealey and Vickers‑Willis breached their Employment Agreements by tendering contractually defective resignation notices, 2nd Chapter engaged in repudiatory conduct when it purported to terminate the Employment Agreements on 21 August 2023. In relying on this repudiatory conduct, Sealey and Vickers‑Willis validly terminated the Employment Agreements; and
(c)as a consequence of Sealey and Vickers‑Willis validly terminating their Employment Agreements following the repudiatory conduct of 2nd Chapter, the restraints — which otherwise would have been valid and enforceable — in the Employment Agreement can no longer be relied upon by 2nd Chapter.
I shall put to one side the contentions in (b) and (c) above, as I have already determined that these allegations do not fall to be determined in the trial of the stated separate questions.
In respect of whether Sealey and Vickers‑Willis repudiated their Employment Agreements, the Defendants accept that the dismissal of an employee may be justified on grounds upon which the employer did not act and of which the employer was unaware when the employee was discharged.[169]
[169]Concut Pty Ltd v Worrell (2000) 176 ALR 693, 701 [29]; Melbourne Stadiums Ltd v Sautner (2015) 229 FCR 221, 242-8 [89]-[119].
The Defendants submit that Sealey and Vickers‑Willis’ failure to inform 2nd Chapter that they were moving to Crestone is relevant only up until the point of their notice of resignation on 20 June 2023, after which time their move to Crestone was known.[170]
[170]On 7 July 2023, the Defendants’ solicitors advised the Plaintiffs’ solicitors that their clients consent to 2nd Chapter obtaining their employment contracts ‘from Crestone.’
Leaving aside the issue of 2nd Chapter’s alleged repudiation, the Defendants articulate the following issues arising from question nine:
(a)Issue one: By negotiating to become employed with Crestone, signing an employment contract with Crestone, and then failing to inform 2nd Chapter of these matters until after their notice of resignation, did Sealey and Vickers‑Willis breach the relevant contractual provisions?
(b)Issue two: If yes to (1), would the breaches have entitled 2nd Chapter to terminate the relevant Employment Agreements?
Put shortly, the position of Sealey and Vickers‑Willis is that there was no such repudiatory breach. Nothing suggests that they were evincing an intention not to fulfil their obligations under their respective Employment Agreements.
As to issue one, the Defendants reject the allegation that Sealey and Vickers‑Willis breached terms of their Employment Agreements. Sealey and Vickers‑Willis admit that they engaged in negotiations and discussions with Crestone prior to signing their contracts with Crestone on 23 May 2023. They say that they were not required to resign prior to looking for other employment or to disclose to their employer that they were looking for other work or had signed employment contracts with another employer. Their employment contracts with Crestone provided that their employment would commence on 22 March 2024 (10 months after the contracts were executed). Merely executing contracts of employment to commence in the future does not constitute embarking on another trade, business or profession or any other business activity. Because the work would not start for 10 months, there was no conflict of interest or failure to devote best endeavours to promote the business interests of 2nd Chapter or to faithfully and diligently perform their duties.
Here, the Defendants point to the statement of the High Court in respect of analogous fiduciary interests that ‘[a]n actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises’.[171]
[171]Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66, 81‑82. See also 74.
The Defendants submit that there is no allegation that the negotiations or execution of the Crestone employment agreements took place during business hours or otherwise in a way that prevented Sealey and Vickers‑Willis from doing their work, or took them away from their work, at 2nd Chapter.
The Defendants say that the evidence is to the contrary: Sealey and Vickers‑Willis delayed giving notice of their resignation because they wanted to service clients through to the end of the financial year, as this was an important and busy time for the business.
As to issue two, the Defendants submit that if there was a breach by reason of the impugned conduct, it was not a serious or persistent breach because the employment was not due to start for another 10 months, and so there was no ability of 2nd Chapter to terminate their respective Employment Agreements without notice.[172] Moreover, there is no evidence about the consequences to 2nd Chapter of Sealey and Vickers‑Willis not disclosing that they had negotiated and then executed contracts of employment with Crestone.
[172]Employment Agreement, cl 13.6.
Further, the Defendants reject the Plaintiffs’ argument at paragraph 519 that Sealey and Vickers‑Willis created a conflict of interest or potential conflict of interest because they entered into employment contracts with Crestone, due to commence in March 2024. When Sealey and Vickers‑Willis signed their contracts, they were still employed by 2nd Chapter, they did not have employment obligations to Crestone, and it was contemplated that Sealey and Vickers‑Willis would terminate their employment with 2nd Chapter prior to commencing employment at Crestone. There is no conflict or prospective conflict because it was never envisaged that they would be engaged by both Crestone and 2nd Chapter at the same time.
O.5 Consideration
I agree with the Defendants’ submission that two issues arise here, as set out in paragraph 527 above.
Pursuant to cl 2.5 of the Employment Agreements, Sealey and Vickers‑Willis agreed not to undertake any other trade, business or profession or be involved in any activity, which creates or may create a conflict of interest. As was noted by the Plaintiffs, this clause included an express reference to being engaged as an employee.
I do not accept the Plaintiffs’ contention that by negotiating employment with Crestone, signing an employment contract with Crestone, and then failing to inform 2nd Chapter of these matters until after their notice of resignation, Sealey and Vickers‑Willis breached the terms of their employment contracts. Rather, I accept the Defendants’ submissions on this point. Merely executing a contract of employment to commence in the future does not constitute embarking on another trade, business or profession or any other business activity. No conflict of interest existed at this stage.
Clause 2.5 also contains a requirement that, should a prospective conflict of interest arise, the relevant employee notify 2nd Chapter of the conflict in order to obtain written permission to engage in the interest or activity. I accept the Plaintiffs’ submission that this clause does not require the conflicting employment to have commenced for there to be a breach. However, I do not accept that as soon as the contract is signed, it is inevitable that a prospective conflict will arise. That may have been the case if, for example, the employee planned that their employment with 2nd Chapter and new interest or activity would overlap. That is not this case.
I do not find the Plaintiffs’ submissions on the topic of prospective conflict to be at all persuasive. For example, I find it highly unlikely that either Sealey or Vickers‑Willis could start neglecting their Escala Partners clients but that those same clients would elect to follow the two to Crestone, having surmised that the poor service they received was due to Sealey and Vickers‑Willis’ imminent exit. Especially in the context of the relatively sophisticated and high-net-worth client base of Escala Partners, it appears unlikely that clients who begin to experience poor service would move firm to follow the very same people who provided the poor service. These submissions were highly speculative and are contrary to common sense; I reject them.
The Plaintiffs submit that Sealey and Vickers‑Willis had obligations under their respective Employment Agreements to act in the best interests of 2nd Chapter, which would involve servicing their Escala Partners clients and assisting with the transition of clients to other advisors. However, the Plaintiffs have adduced no evidence that Sealey or Vickers‑Willis failed to act otherwise than in the best interests of the company or that they refused to assist in a transition process.
I accept Sealey’s evidence that he continued to work for Escala Partners in order to service clients’ needs through the end of the financial year, that he ensured that detailed and complete status notes were entered into Escala Partners systems for all clients, and that he sought direction from Perry as to how to comply with his obligations on resignation. This evidence was supported by Vickers‑Willis.
I do not accept the Plaintiffs’ suggestion at paragraph 520 that Sealey and Vickers‑Willis ought to have told their current employer as soon as they signed their contracts with Crestone, and have provided a month’s notice to facilitate a smooth transition. This seems to me to be a spurious argument, which mischaracterises the notices provided by both Sealey and Vickers‑Willis to their employer. I consider that both intended to serve out their notice period rather than to cease their employment immediately on tendering their resignations, and the fact that they continued to be paid their entitlements, along with enquiries they made to Perry about next steps, supports my view. Sealey and Vickers‑Willis properly gave notice of their resignation and, pursuant to their Employment Agreements, there was a three‑month notice period during which 2nd Chapter could direct their cooperation in the transition to new clients. That they were not involved in this way was a decision made by 2nd Chapter. It is hard to see how things would have changed had Sealey and Vickers‑Willis flagged an intention to resign a month earlier than they did; they would likely have been put straight onto gardening leave at that time. I do not see how this would have facilitated a smooth transition as I do not think that Perry would have been any more willing to involve the exiting advisors in the transition process if he was told a month earlier of their intention to exit. As noted earlier, Perry’s evidence regarding involving Sealey in transitioning the clients was unequivocal. This argument simply does not go anywhere.
The Plaintiffs say that the repudiation is particularly clear because Sealey had been communicating with Crestone as early as July 2022. However, I do not consider that this has any bearing on whether a conflict did or was likely to arise. The critical factor is that Sealey and Vickers‑Willis were not set to commence their employment with Crestone until 10 months after the contracts were executed. The date at which negotiations commenced has little if any bearing on this. Further, the Plaintiffs’ repeated allegation that Sealey and Vickers-Willis had facilitated Allen’s exit so as to provide a beach head for their future arrival at Crestone went nowhere. The Plaintiffs adduced no evidence in support of it and the allegations were denied by Sealey and Vickers-Willis in cross-examination. These allegations amounted to little more than unfounded insinuations. Allen is a party to this proceeding and his affidavit was not read and he did not give evidence, so it is possible to infer that his evidence on this topic may not have assisted Sealey and Vickers-Willis. However, the Plaintiffs never made it clear how this allegation, which is not made in section E.3 of the 2FASOC, was relevant to or affected consideration of this question nine.
In my view, Sealey and Vickers-Willis have not breached their Employment Agreements in the manner alleged in section E.3 of the 2FASOC. Nor have they evinced an intention, by virtue of that conduct, no longer to be bound. In signing contracts of employment with Crestone, it is tolerably clear that Sealey and Vickers‑Willis intended to terminate the Employment Agreements in the future. This does not amount to evincing an intention no longer to be bound as soon as that decision was made. They were entitled, under the Employment Agreements, to terminate those agreements in accordance with their terms. Exercising their rights under the Employment Agreements, or evincing an intention to do so, is not repudiatory conduct. Further, there was no renunciation of their employment. To the contrary, the evidence is that Sealey and Vickers-Willis continued to perform work under their Employment Agreements up until they handed in their respective notices of resignation. Thus the question of repudiation does not arise.
Even if the conduct alleged in section E.3 of the 2FASOC constituted a breach of the Employment Agreements, I am not satisfied that this constitutes a repudiatory breach. The Plaintiffs’ submissions on this point seemed to conflate breach and repudiation.
Accordingly, the answer to question nine is: No, neither Sealey nor Vickers-Willis repudiated their Employment Agreements as alleged in section E.3 of the 2FASOC.
P Conclusion
From the findings made above, the Court answers the questions before it as follows:
(a)Question one: Are any of the restrictive covenants set out in cl 20.2 to 20.6 of the SPA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent? No, none of the relevant restraints are enforceable.
(b)Question two: Are any of the restrictive covenants set out in sections 3.2 to 3.6 of the Management Deed enforceable against either or both of Sealey and Vickers‑Willis? If so, which restrictive covenants are enforceable and to what extent? No, none of the relevant restraints are enforceable.
(c)Question three: Are any of the restrictive covenants set out in cl 20.2 to 20.5 of the SHA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent? No, none of the relevant restraints are enforceable.
(d)Question four: Are any of the restrictive covenants set out in cl 13.5 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.
(e)Question five: Are any of the restrictive covenants set out in cl 14.1 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.
(f)Question six: Are any of the restrictive covenants set out in cl 13.5 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.
(g)Question seven: Are any of the restrictive covenants set out in cl 14.1 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.
(h)Question eight: Are any of the restrictive covenants set out in cl 14.1 of the Allen Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.
(i)Question nine: Whether Sealey or Vickers‑Willis has repudiated the Sealey Employment Agreement or Vickers‑Willis Employment Agreement, respectively, as alleged in section E.3 of the 2FASOC? Neither Sealey or Vickers‑Willis has repudiated the Sealey Employment Agreement or Vickers‑Willis Employment Agreement, respectively, as alleged in section E.3 of the 2FASOC.
By 4:00pm on 13 November 2024:
(a)the parties are to confer and provide my Chambers with a proposed form of order to give effect to these reasons, including as to costs; or
(b)if the parties are not able to agree on the form of order, then each party is to provide their preferred form of order to my Chambers.
If sub-paragraph (b) applies, then the proceeding will be listed for 10:00am on 15 November 2024 for the making of orders, including as to costs.
SCHEDULE OF PARTIES
| S ECI 2023 04506 | |
| BETWEEN: | |
| 2ND CHAPTER PTY LTD (ACN 631 879 439) | First Plaintiff |
| FOCUS ESCALA HOLDINGS, LLC | Second Plaintiff |
| FOCUS FINANCIAL PARTNERS, LLC | Third Plaintiff |
| ESCALA PARTNERS PTY LTD (ACN 155 884 236) | Fourth Plaintiff |
| ‑ and - | |
| PAUL STUART SEALEY | First Defendant |
| JONATHAN CHARLES VICKERS‑WILLIS | Second Defendant |
| TERRUNG INVESTMENTS PTY LTD (ACN 163 610 517) AS TRUSTEE FOR SEALEY INVESTMENT TRUST | Third Defendant |
| J C VICKERS‑WILLIS PTY LTD (ACN 616 679 102) AS TRUSTEE FOR THE VICKERS‑WILLIS FAMILY TRUST | Fourth Defendant |
| WILLIAM ALLEN | Fifth Defendant |
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