CPB Financial Services Pty Ltd v Kalic - [2019] SADC 80

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application for Review)
CPB FINANCIAL SERVICES PTY LTD v KALIC
[2019] SADC 80
Judgment of His Honour Auxiliary Judge Clayton
24 June 2019
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSIDERATION
The plaintiff claims damages for alleged breach of an Employee Confidentiality and Non-Competition Deed. A Master ordered that four questions relating to the enforceability and interpretation of the Deed be determined as a preliminary issue pursuant to DCR 211. At a directions hearing a judge ordered that the defence of duress also be determined as a preliminary issue. At the hearing the parties agreed that the defence of undue influence should also be determined as a preliminary issue.
Held:
1. Deed was executed correctly and is binding.
2. Four questions as to the interpretation of the Deed answered.
3. The evidence does not establish the defences of duress or undue influence.
Law of Property Act 1936 SA s 41; District Court Rules 2006 r 211, referred to.
Emeco International Pty Ltd v O’Shea [No2] [2012] WASC 348; Commsupport Pty Ltd v Mirow [2018] QDC 134; Just Group Limited v Peck [2016] VSCA 334; Russ Australia v Benny [2006] NSWSC 1118; IF Asia Pacific Pty Ltd v Galbally [2003] VSC 192 [2003] VSC 192; Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658; Burton & Eising v Wright Trading Pty Ltd [2007] QSC 17; Koops Martin v Dean Reeves [2006] NSWSC 449; Edith White v Judith Liane Wills [2014] NSWSC 1160; Bridgewater v Leahy [1998] HCA 66; 194 CLR 457; Tulloch (deceased) v Braybon & ors (No 2) [2010] NSWSC 650, considered.

CPB FINANCIAL SERVICES PTY LTD v KALIC
[2019] SADC 80

The plaintiff carries on the business of providing financial services. The defendant is a qualified financial planner who was employed by the plaintiff between 2003 and January 2016.
The defendant acknowledges that he executed an Employment Confidentiality and Non-Competition Deed in May 2004. There is a contest, which I discuss later, as to the date and circumstances in which the Deed was executed.
In these proceedings the plaintiff seeks judgment in the sum of $498,470 or alternatively damages, an account of profits or equitable compensation plus interest by reason of the fact that the defendant solicited clients of the plaintiff in anticipation of his resignation and accessed and used the plaintiff’s confidential information. It is alleged that about 84 clients of the plaintiff terminated their engagement with the plaintiff and engaged the defendant or his new employer to provide financial planning advice.
In his defence, the defendant alleges that the employment contract in its various forms is invalid or unenforceable and that he did not owe fiduciary duties to the plaintiff. He alleges that he signed an Employee Confidentiality and Non‑Competition Deed under duress or the undue influence of the plaintiff’s agents. He also alleges that the Deed was not properly witnessed and is therefore not lawfully binding.
The defendant denies that he solicited clients of the plaintiff to the new business or made use of confidential information for that purpose.
Initially the defendant was represented by solicitors but they have ceased acting and he is now self-represented.
On 19 March 2019, on the application of the plaintiff, a Master made an order that the court determine as a preliminary issue pursuant to DCR 211 four questions which were set out in the application. Those questions are:
1Were the formal requirements for execution of the Confidentiality Deed satisfied such that the Confidentiality Deed was properly entered into and therefore became binding on the parties on or about 26 May 2004?
2On the assumption that the defendant is an employee, do (or did) the non-competition and non-solicitation provisions in clause 4.3 of the Confidentiality Deed apply to the defendant?
3Is the operation of clauses 4.6, 4.7 and 4.8 of the Confidentiality Deed (concerning deemed solicitation and compensation) dependent upon the application of clause 4.3 of the Confidentiality Deed, or do the provisions in clauses 4.6, 4.7 and 4.8 apply even where clause 4.3 does not apply?
4Is compensation payable by the defendant to the plaintiff pursuant to clauses 4.6 and 4.7 of the Confidentiality Deed if solicitation is deemed to have occurred pursuant to clause 4.8?
In paragraph 15 of the Defence the defendant acknowledges that he signed the Deed but asserts that it is not enforceable because it was signed under duress and it was not properly witnessed or executed. At the time of the application before the master the plaintiff acknowledged that the issues of duress and whether the document is otherwise unenforceable were matters not to be determined by its application. The plaintiff’s proposal was that the court should determine the four questions which I have referred to and that the issues of duress and whether the document is otherwise unenforceable were matters which were not to be determined, that is duress and the other arguments relating to unenforceability were to be left to the trial.
The Master concluded that it was appropriate to have the trial judge determine pursuant to DCR 211 the four questions prior to the balance of the factual issues on the trial. The Master said that although the four questions were matters of law, they are so closely connected with the factual dispute that the trial judge should determine the preliminary points and then, to the extent that other matters remain outstanding, determine those remaining matters.[1] The Master was influenced by the fact that the determination of the legal issues in the four questions on undisputed factual assumptions might take half a day whereas the trial of all issues would take a number of days. The Master said that if the plaintiff was successful on the application then the other issues relating to duress and invalidity or unenforceability along with any calculable loss could be determined in a separate hearing.
[1] Orders and Comments of District Court Master Rice emailed to parties on 19 March 2019 – FDN21 [34].
Directions hearings were conducted by his Honour Judge Tilmouth. On 27 March 2019. His Honour expressed concern about the fact that the duress issue had been carved out.[2] Mr Kalic said he was not sure why they were “carving out the duress component”.[3] On 29 March 2019 Judge Tilmouth made an “order under rule 211.15 and if necessary .20 separating the issues of duress and the Master Rice questions from the balance of the trial.”
[2] T 2 - proceedings on 27 March 2019.
[3] Ibid T4.17.
His Honour also made an order under r 12.3 of the Fast Track Rules placing the case in the Fast Track list and fixed a date for hearing.[4] His Honour made orders that the affidavits already filed in the proceedings be evidence in the trial and giving each party rights of cross-examination.[5] His Honour informed Mr Kalic that the defence of duress was difficult to make out and observed that Mr Kalic would need to deal with the fact that the contract had been on foot for a number of years.
[4] T 8.31 – proceedings on 29 March 2019.
[5] Ibid T9.16.
When the trial of the preliminary issues commenced Mr Williams, who represented the plaintiff, observed that in addition to the defence of duress Mr Kalic was raising the defence of undue influence which had not been pleaded. After he took instructions the plaintiff agreed that the court should deal with the defence of undue influence in addition to duress.[6]
[6] T 10.2 - proceedings on 20 May 2019.
I raised with the parties the question of whether the fourth question reserved by the Master raised the issue of whether the damages provisions of the Deed were a penalty. Mr Williams responded that issue was not pleaded, that his client was not on notice and would be prejudiced if the issue is to be argued. He submitted that if the issue of penalties is to be determined that should be at the subsequent trial.[7] Accordingly, the question of whether the provision in the Deed is a penalty was not argued but the defence of undue influence was added to the four questions reserved by the Master and the defence of duress which had been introduced by his Honour Judge Tilmouth.
[7] Ibid T 5.17, T 6.26, T 10.3.
The plaintiff tendered three affidavits of Mr R E Atkins who is, and was at the relevant time, the Practice Manager of the plaintiff and an affidavit of Mr F M Reiter, who was an employee of the plaintiff between 1999 and June or July 2004, and was an owner of the plaintiff until he retired in February 2019. Mr Kalic tendered four affidavits. Each of the deponents to the affidavits was cross-examined.
Mr Kalic acknowledged that he had signed the Deed but there was a fundamental dispute between the witnesses as to the circumstances in which the Deed was signed.
The evidence of Mr Kalic as to the signing of the Deed is as follows:[8]
5. Roger (Mr Atkins) came into the office and presented me with the document, I don’t recall the word Deed being used. Roger told me that the document had to be signed and that it had to go out in that evening’s mail, I recall there was a sense of urgency. Roger told me that the others had already signed their copies. This was the first time that I had seen the Deed. Initially Roger sat with me at the small round table whilst I had a go at reading the Deed, this did not last long, Roger left me alone for between 15 to 30 minutes to read the Deed. When Roger returned, I signed the Deed in front of him, I do not recall any other signatures on the Deed prior to me signing; no one else other than Roger was present when I signed on the Deed. That was the last time I saw the Deed. I was not given a copy of the Deed & I wasn’t given an opportunity to take the Deed home, nor was I given the option to seek legal advice before signing the Deed.
6. When I signed Deed I did not ask any questions, the Deed was extremely complex and very difficult to comprehend, but I didn’t say anything. At that point in my employment I did not have any clients, I was not giving financial advice and I had no meaningful relationship with any of CPB’s clients. I was very much a junior in the office and Roger’s style of managing me was very much he was boss and my opinions on any matter were rarely sought. I signed the Deed because Roger told me I needed to & it had to go out in that night’s mail, I simply did not have the confidence to question what was happening. Roger’s authority over me was such that I felt I had no choice and according to Roger the others had all signed theirs. There was no hint from Roger that any of the other employees had raised any concerns about the Deed. The next time I saw the Deed was when Roger emailed me a copy in January 2016.
[8] Affidavit of Vlado Kalic sworn 13 March 2018.
As I have mentioned his Honour Judge Tilmouth pointed out that Mr Kalic needed to deal with the fact that the contract had been on foot for a number of years. Mr Kalic took up his Honour’s suggestion in an affidavit sworn 26 April 2019. His case is that he only spent 30 minutes with the Deed on 26 May 2004, was never given a copy and once he signed it the on 26 May 2004 he never sought to challenge it as he never gave it a moment’s thought from that day onwards.[9]
[9] Affidavit of Vlado Kalic sworn 26 April 2019 [1 ff].
When counsel put the plaintiff’s case to Mr Kalic he denied everything that was put.[10] He gave the following evidence of his conversation with Mr Atkins:
It’s just that it happened very quickly. So as per my affidavit, Roger came in and asked me to sign the document. He said it had to go out in the evening’s mail. He said with me (sic), not for long. He then left the room. I was then left alone with it. I attempted to read it. He came back in. I signed it in front of him and I never saw it again. That was the extent of it.[11]
[10] T 39.1 – 42.21.
[11] T 43.25.
Mr Kalic maintained that there was a sense of urgency about it and that the document had to go out in the evening’s mail.[12] He denied that he was given several weeks to consider the Deed.[13] However he did acknowledge that he had an understanding that the purpose of the Deed was to protect the CPB client base. He denied that Mr Atkins gave him a copy. He said he only had possession of the document for 15 minutes to half an hour.[14]
[12] T 42.37 – 44.21.
[13] T 44.30.
[14] T 44.34 – 45.14, T 46.7.
Mr Kalic gave evidence about the circumstances in which his employment at CPB came to an end. The sequence of events commenced with a letter dated 4 January 2016 from Mr Kalic to the CPB Board.[15] In that letter Mr Kalic gave notice of his intentions and stated that he wished to come to an agreement which would have permitted him to contact the clients that he currently provided advice to. He acknowledged that CPB would like to be compensated and wrote that he was open to discussions. He wrote:
In the unfortunate event that we are unable to come to an agreement and I am forced to leave CPB, from an ethical standpoint I will still make a $500.00 payment for each client that decides to contact me of their own volition (terms and conditions will apply).
No agreement was reached.
[15] Exhibit “REA 9” to second affidavit of Roger Ellis Atkins.
In cross-examination Mr Kalic acknowledged that he was asking for permission because he understood that the data belonged to CPB and he understood that he needed to pay compensation to CPB.[16] In re-examination Mr Kalic said that it was always his intention to negotiate and pay a fair price for the clients but that the environment was hostile and CPB terminated his employment.[17]
[16] T53.2ff.
[17] T 57.27.
Mr Atkins is currently a director and shareholder of the plaintiff. He has been a director since 30 June 2004. He has held the position of Practice Manager since 6 August 2001. On 4 February 2003 he sent a letter to Mr Kalic offering him the position of Trainee Financial Planner. On 10 February 2003 Mr Kalic signed a copy of that letter of offer and he signed a confidentiality undertaking set out in a deed poll attached to the letter. Copies of the signed letter of offer and the signed confidentiality undertaking are exhibit “REA-3” to Mr Atkins affidavit.[18]
[18] Affidavit of Roger Ellis Atkins sworn 19 February 2018 [6] – [8].
Mr Atkins said that on 4 May 2004 he met separately with Mr Butcher and Mr Prior, who were both directors of the plaintiff and witnessed both of them signing a copy of the Employee Confidentiality and Non-Competition Deed to which the common seal of CPB and been attached. After Mr Butcher and Mr Prior had each signed a copy of the Confidentiality Deed Mr Atkins signed a copy on his own behalf and dated the document 4 May 2004.
Mr Atkins said that later on 4 May 2004 he met with each employee of CPB individually, including Mr Kalic, and gave them a copy of the Confidentiality Deed that had been signed by Mr Butcher and Mr Prior and had the company seal affixed. At the time he gave each employee, including Mr Kalic, a copy of the Confidentiality Deed. In his affidavit he stated:
13. … At the time I gave each employee, including Mr Kalic, a copy of the confidentiality deed, I said to them words to the effect that CPB was asking them to sign the deed so that it could reinforce the protections it already had in place for its confidential information, including the CPB client base. I said that the client base was an important asset of CPB and that the information in it was confidential to CPB. I said that CPB wanted to make sure it was protected if they left the business and wanted to take clients with them. I said that CPB was just reinforcing the documents they had already signed. I also said to each of them words to the effect that they would have time to get independent legal advice about signing the confidentiality deed.
14. Over the following 2 weeks or so, I asked Mr Kalic on at least two occasions whether he had looked at the confidentiality deed that I had given to him and if he had any concerns about it. In response, he said to me words to the effect “yes, it’s here. I’ve been busy”. These conversations took place in Mr Kalic’s office. When he said “it’s here” he rustled in his in-tray and on at least one of the occasions, picked up the deed.
15. On 26 May 2004, approximately three weeks after I had given Mr Kalic the confidentiality deed to sign, I spoke to him in his office. I again asked him how he was progressing with the signing of the deed, and what he had done with it. He indicated - by pointing and saying words to that effect - that it was still in his in-tray. I asked him if he felt there was a reason why he could not sign it. I said to him words to the effect that the purpose of the deed was so that if he left CPB in the future and took any of CPB’s clients with him without compensating CPB, then CPB would likely sue him. I said to him that some other employees had raised specific issues about the deed and that CPB had considered and addressed those concerns. I sent to Mr Kalic that if he did not have any specific concerns then he should sign the confidentiality deed.
16. Mr Kalic did not say to me that he had any concerns about confidentiality deed or that he needed any more time before signing it. Instead, I saw Mr Kalic take out the confidentiality deed and sigh it. After Mr Kalic signed the deed, I then signed it as the witness to his signature. I then took the signed deed. Consistent with my usual practice, I believe that I would have given a copy of the deed to Mr Kalic. Exhibited to this affidavit and marked “REA-4” is a copy of the confidentiality deed containing the signatures of Director Butcher, Director Prior and Mr Kalic, as well as CPB’s common seal.[19]
[19] Affidavit of Roger Ellis Atkins sworn 19 February 2018 [13] – [16].
The copy of the Employee Confidentiality and Non-Competition Deed which is exhibit “REA-4” is dated 26 May 2004.
Mr Atkins was cross-examined but never resiled from any of the statements made in his affidavit. While he was waiting for Mr Kalic to sign the document Mr Atkins told him that he needed to do something with the Deed, that he needed to either sign it or get some advice about it but it wasn’t an option to leave it sitting in his tray.[20] He denied Mr Kalic’s suggestion that there was some urgency and pressure for Mr Kalic to sign on the very day that he had been presented with the document.[21]
[20] T 14.16, T 25.1.
[21] T 15.33, T 25.7.
Fred Michael Reiter swore an affidavit dated 10 May 2019. He started work at CPB as a licensed planner in 1999 and remained with that company until he retired in February 2019 except for a brief period in 2003. He was an owner of CPB from June or July 2004. He recalled when Mr Kalic commenced employment with CPB in or about February 2003. He worked closely with Mr Kalic. He gave evidence of the circumstances leading up to the execution of the Confidentiality Deed by the employees of CPB. He said that in around May 2004 Mr Atkins gave him a copy of the Confidentiality Deed and told him that he could get legal advice on its content and that he would be retrieving the Confidentiality Deed back from all the employees in a few weeks.[22]
[22] Affidavit of Fred Michael Reiter sworn 10 May 2019 [14].
Mr Reiter did not get advice on the Deed, took it home to read and signed it a few weeks after it had been given to him. He returned the signed Deed to Mr Atkins.
From discussions with Mr Kalic, Mr Reiter believes that Mr Kalic was well aware that the effect of the Confidentiality Deed would require Mr Kalic to compensate CPB if he left and clients followed him.[23]
[23] Ibid [19].

A few weeks after the Confidentiality Deed was distributed, Mr Atkins told him that there were a few staff who had not executed and returned the Deed, one of whom was Mr Kalic.[24] Mr Reiter said:
21. Because Mr Kalic and I worked closely together, I went and spoke to him. I said words to the effect that I understood that he had not signed the Deed and I asked him if he gone to get legal advice about it. I recall that Mr Kalic responded with words to the effect that he did not need to get legal advice because he was not going anywhere. I understood this to mean that he did not intend to leave CPB. Mr Kalic then said words to the effect that he had not signed the Deed because he had not got around to it. He said he would sign it.
22. I recall that sometime afterwards I heard that he had signed the Deed.
23. There was no suggestion from Mr Kalic to me at the time that he felt uneasy about the confidentiality deed. He did not express any reluctance to sign it. He did not raise any concerns about its terms or effect with me. My observation was that he was very relaxed about it and understood what its purpose was.[25]
[24] Ibid [20].
[25] Ibid [21] - [23].
Mr Reiter also gave evidence of discussions with Mr Kalic about Mr Kalic obtaining an interest in CPB. When he spoke about the concerns of the other owners about Mr Kalic’s commitment to the business Mr Kalic told Mr Reiter “words to the effect that he had signed an agreement and knew that he could not leave and take clients with him”.[26]
[26] Ibid [29].
In cross-examination Mr Kalic asked how Mr Reiter had come to the conclusion that Mr Kalic was well aware of the effect of the Confidentiality Deed and Mr Reiter replied:
You had come from another financial planning business. You were employed as a financial planner with us. It was common knowledge what that deed was about. It would have been pretty unusual for you not to understand what it was about, given that just about everyone in the office did.[27]
Mr Reiter said that they had spoken about the Deed. He said to Mr Kalic (the cross-examiner):
Well we had the conversation when I came into your office and you hadn’t signed it, and I asked you if you had received legal advice, and you told me something along the lines of “No, it’s not necessary, it’s never going to apply to me, I’m not going anywhere”. So it was pretty clear from that reply that you knew exactly what the deed was about.[28]
[27] T 31.7.
[28] T 32.6.
He had the impression that Mr Kalic had read the Deed and understood the Deed.[29]
[29] T 32.30.
I accept the evidence of Mr Reiter. I do not accept the evidence of Mr Kalic which is inconsistent with the evidence of Mr Reiter and also the evidence of Mr Atkins.
I find Mr Kalic was given a copy of the Confidentiality Deed on about 4 May 2004, that he was given an opportunity to obtain legal advice and that he executed the document on 26 May 2004.
I find that the evidence does not establish the defences of duress or undue influence. In doing so I reject Mr Kalic’s evidence that he only had the Deed in his possession for 15 or 30 minutes. I reject his evidence that there was urgency about the transaction because of the need to post the document on the day that it was provided to Mr Kalic because of a pending change in ownership. There was more than one month between the execution of the Deed on 26 May 2004 and the time when the sale of CPB was effected. The evidence does not establish any reason why the Deed needed to be sent to anyone on 26 May 2004 or that the Deed was in fact posted to any other person.
I find that Mr Kalic was in possession of a copy of the Deed from about 4 May 2004 until 26 May 2004, that he had the opportunity to obtain legal advice if he so desired and he was aware of the general nature of the Deed, that is to protect CPB if a financial advisor left.
I have considered the paragraphs in Mr Kalic’s affidavit sworn 26 April 2019 under the headings Duress and Presumed Undue Influence.[30] The affidavit contains a mixture of submissions as to the law and statements of fact. The evidence does not establish that Mr Atkins placed improper pressure on Mr Kalic to sign the Deed. I have rejected Mr Kalic’s claim that Mr Atkins created a sense of urgency and provided him with very limited time to execute the document. I have rejected the claim that Mr Kalic was not given the option of obtaining independent advice.[31] The evidence does not establish presumed undue influence and I reject the assertion that Mr Kalic did not sign the Deed of his own free will and did not understand the risks.[32]
[30] Affidavit of Vlado Kalic sworn 26 April 2019 [10] – [20].
[31] Ibid [16].
[32] Ibid [18].
I have referred to the cases cited by Mr Kalic in his affidavit[33] and the cases referred to in the Defendant’s Written Closing for Hearing on 20-21 May 2019.[34]
[33] Edith White v Judith Liane Wills [2014] NSWSC 1160, Bridgewater v Leahy [1998] HCA 66; 194 CLR 457.
[34] Emeco International Pty Ltd v O’Shea [No2] [2012] WASC 348 at 187, 188, 195, 197, 200, 218, 219, Commsupport Pty Ltd v Mirow [2018] QDC 134 at 67, 88, 89, 106, 112, Just Group Limited v Peck [2016] VSCA 334 at 38(d), Russ Australia v Benny [2006] NSWSC 1118 at 34, IF Asia Pacific Pty Ltd v Galbally [2003] VSC 192 at 92, 97, Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at 32, 33, 34, Burton & Eising v Wright Trading Pty Ltd [2007] QSC 17 at 60, Koops Martin v Dean Reeves [2006] NSWSC 449 at 62, 63, 64, 65, 66, 70.
None of the cases which he has referred to assist Mr Kalic.
I accept the plaintiff’s submission that any presumption of undue influence is rebutted on the basis that the actions of Mr Kalic were the independent, well understood acts of a person exercising free judgement.[35]
[35] Tulloch (deceased) v Braybon & ors (No 2) [2010] NSWSC 650 [39].
It is unnecessary to consider the submissions that if the plaintiff made out his case with respect to duress and undue influence the contract would be voidable, not void, and that there has been delay so that the principle of laches would bar any recovery. Similarly it is unnecessary to consider the submission that the contract was affirmed.
I leave the question of whether the liquidated damages provision amounts to a penalty for determination at trial.
The questions referred by the Master
The plaintiff’s Interlocutory Application seeking the order that the four questions be determined set out what were said to be “Relevant facts”. The Interlocutory Application stated:
The questions below are to be determined on the basis of the factual admissions contained in paragraphs 1 to 3, 8, 14 and 24 of the Defence, and on the basis of the following factual assumptions:
1. The terms of the defendant’s employment with the plaintiff were set out in a letter of offer dated 4 February 2003, which the defendant countersigned on about 10 February 2003;
2. On about 10 February 2003 the defendant executed a confidentiality undertaking expressed in terms of a deed poll;
3. On about 4 May 2004 the Employee Confidentiality and Non-Competition Deed (Confidentiality Deed) was executed by the plaintiff. Execution took place by Wayne Butcher, a director of the plaintiff, affixing the plaintiff’s common seal to the deed and signing the deed, and by Viv Prior, another director of the plaintiff, also signing the deed;
4. On 26 May 2004 the Confidentiality Deed was executed by the defendant. Execution took place by the defendant signing the deed in the presence of, and having his signature witnessed by, Roger Atkins;
5. The defendant was not provided any additional consideration in relation to his signing the Confidentiality Deed; and
6. Since 7 March 2016 the defendant has practised as an employee financial planner of Payneham Financial Services Pty Ltd.”
It is unnecessary for me to consider the appropriateness of ordering that questions should be determined on the basis of assumptions which remained to be established. I am satisfied that each of the six assumptions which I have referred to have now been established by the evidence.
The plaintiff’s Interlocutory Application stated under the heading “Issues not to be considered”:
The questions below are to be determined without considering the following allegations made by the defendant in the defence:
1. The Confidentiality Deed was entered into under duress (see paragraph 15 of the Defence).
2. The Confidentiality Deed as a whole, and clause 4.8 of it in particular, are invalid and unenforceable (see paragraphs 4, 25(e), 28(a), 2 (d), 28(e), 32 and 35 of the Defence).
As I have mentioned the defence of duress was considered pursuant to the directions of his Honour Judge Tilmouth. The issues reserved to be considered by paragraph 2 of the Interlocutory Application remain.
Questions for determination
1. Were the formal requirements for execution of the Confidentiality Deed satisfied such that the Confidentiality Deed was properly entered into and therefore became binding on the parties on about 26 May 2004?
The following submissions were made by Mr Williams for the plaintiff:
The execution of deeds is governed by section 41 of the Law of Property Act 1936 (SA) and an instrument executed in accordance with section 41 is a deed if it is expressed to be a deed. The Confidentiality Deed clearly satisfies that requirement.
No consideration is needed in order for deed to be binding.
Natural persons execute a deed by signing or making a mark (Law of Property Act s 41(1)(a)) which execution must be attested by at least one witness who is not a party to the deed (Law of property Act s 41(2) (a)).
Bodies corporate execute a deed by affixing the common seal in accordance with the rules governing the use of the common seal. The rules of CPB governing the use of common seal are contained in paragraph 112 of its memorandum and articles of association. (Exhibit REA2 to Mr Atkins first affidavit) which require that the CPB common seal be fixed by a person with authority in the presence of a director who signs the instrument and then the instrument is signed by (among others) another director.
I accept that the requirements of paragraph 112 have been satisfied. The common seal was affixed by Mr Butcher, a director of CPB, who signed the Confidentiality Deed.[36]. That is the seal was affixed in the presence of a director who signed the Deed. Mr Butcher had authority to fix the seal[37]. The Confidentiality Deed was countersigned by another director, Mr Prior.
[36] Mr Atkin’s first affidavit [10].
[37] Mr Atkin’s second affidavit [16].
I find that all of the requirements of section 41 of the Law of Property Act were satisfied in respect of the execution of Confidentiality Deed.
I find that Mr Kalic signed the Confidentiality Deed voluntarily and that he has not made out the defences of duress or undue influence.
Mr Kalic has submitted that because Mr Atkins was appointed a director on 30 June 2004 that when he witnessed Mr Kalic’s signature on 26 May 2004 he was a party to the Deed because he was about to become a shareholder and director of CPB. I reject that submission. Mr Atkins was not a director and he was not a party to the Deed signed by Mr Kalic on 26 May 2004.
I find that the answer to question 1 is “Yes”.
2. On the assumption that the defendant is an employee, do (or did) the non-competition and non-solicitation provisions in clause 4.3 of the Confidentiality Deed apply to the defendant?
The plaintiff submitted that the answer to question 2 is “No”. In view of Mr Kalic’s evidence that he only worked as an employee after he left CPB[38] the plaintiff accepts that the non-competition and non-solicitation provisions in clause 4.3 do not apply to him.[39]
[38] T 37.37.
[39] Plaintiffs’ Written Closing for Preliminary Hearing on 20-21 May 2019 [18].
The defendant submitted that the answer to question 2 is “No”. The defendant submitted that clause 4.3 does not apply as he was not an employee.[40]
[40] Defendant’s Written Closing for Hearing on 20-21 May 2019 [1] and [5].
Because there is agreement as to the way in which this question should be answered is unnecessary to discuss the question further.
The parties agree that the answer to question 2 is “No” and I so find.
3. Is the operation of clauses 4.6, 4.7 and 4.8 of the Confidentiality Deed (concerning deemed solicitation and compensation) dependent upon the application of clause 4.3 of the Confidentiality Deed, or do the provisions in clauses 4.6, 4.7 and 4.8 apply even where clause 4.3 does not apply?
The plaintiff submitted that clauses 4.6, 4.7 and 4.8 apply, regardless of the application of clause 4.3.[41]
[41] Plaintiff's Written Closing for Preliminary Hearing on 20-21 May 2019 [31].
Clause 4.3 appears in the Deed under the heading “Non Competition and Solicitation After Termination of Employment”. It provides that the employee must not, without the permission of the employer, compete with the employer or solicit the clients of the employer.
Clause 4.6 permits the employee to solicit clients after the termination of employment if the employee complies with the terms of the Deed in relation to such solicitation. The clause provides:
4.6 Permitted Solicitation of Clients after Termination of Employment
Notwithstanding the obligations set out in Clause 4.3, solicitation of clients is permitted if the Employee complies with the terms of this Deed in relation to such solicitation. Should the Employee fail to comply with the requirements of this Deed in relation to permitted solicitation, the Employer may choose to:
4.6.1 Enforce the requirements of the non solicitation clause; and/or
4.6.2Enforce the provisions of this Deed in relation to the circumstances in which solicitation is permitted.
If during the Restraint Period after the termination of the employment of the Employee, the Employee induces or solicits clients of the Employer to deal with:
4.6.3the Employee; or
4.6.4any person, firm or corporation employing or associated with the Employee,
the Employee must compensate the Employer for the value of the client portfolio lost to the Employer if the clients so solicited or induced ceased to deal with the Employer.”
Clause 4.7 governs the procedure by which any solicitation or inducement is permitted to occur and it sets out a formula to be used to calculate the value of the client portfolio if the employee does not follow the procedure set out in the proceeding sub-clauses of the Deed.
Clause 4.8 describes circumstances in which solicitation or inducement of clients is deemed to have occurred. As a deeming provision it applies whether the employee actually solicits or induces the client.
It can be seen that clause 4.6 commences with the phrase “Notwithstanding the obligations set out in clause 4.3…” It therefore permits the solicitation of clients by the employee even if the employee is prevented by clause 4.3 from soliciting them.
In the second part of clause 4.6, after sub clause 4.6.2, the Deed sets out what should happen if the employee does induce or solicit clients of the employer. The employee must compensate the employer for the value of the client portfolio lost to the employer if the clients who are solicited or induced cease to deal with the employer.
I accept the submission of the plaintiff that clause 4.6 applies to all instances of solicitation whether prohibited or not.[42]
[42] Plaintiff's Written Closing for Preliminary Hearing on 20-21 May 2019 [26].
I also accept the submission that clause 4.6 does not contain restraints on an employee but its role is to ensure that an employee who induces or solicits clients pays compensation.[43]
[43] Plaintiff's Writting Closing for Preliminary Hearing on 20-21 May 2019 [27].
I find that clauses 4.6, 4.7 and 4.8 apply regardless of the operation of clause 4.3.
The answer to question 3 is “Yes”.
4. Is compensation payable by the defendant to the plaintiff pursuant to clauses 4.6 and 4.7 of the Confidentiality Deed if solicitation is deemed to have occurred pursuant to clause 4.8?
The plaintiff submitted that the answer to question 4 is “Yes”.[44]
[44] Plaintiff’s Written Closing for Preliminary Hearing on 20-21 May 2019 [32] ff.
The defendant submitted “No compensation is payable as per the reasons stated in pg 5-13 above.”[45] Paragraph 13 reads:
The principal (sic) that a non-solicitation clause will be unenforceable if it restrains a person, from dealing with any customer or potential customer is applicable in my case. I was not the face of the business and I did not hold a senior role.
[45] Defendant’s Written Closing for Hearing on 20-21 May 2019.
I reject that submission which is unsupported by authority.
The circumstances in which solicitation or inducement is deemed to have occurred are described in clause 4.8. I accept the plaintiff’s submission that where clause 4.8 is enlivened, inducement or solicitation for the purposes of clause 4.6 occurs and that compensation must be paid by the employee to CPB pursuant to clause 4.6. The amount of the compensation is either to be agreed or determined in accordance with the provisions of clause 4.7.[46]
[46] Plaintiff’s Written Closing for Preliminary Hearing on 20-21 May 2019 [35].
I find that the answer to Question 4 is “Yes”.
Consequences
I will hear the parties as to the form of the order that should be made, costs and the future conduct of the action.