Genesys Wealth Advisers Ltd v Miles

[2008] NSWSC 802

CITATION:	Genesys Wealth Advisers Ltd v Miles [2008] NSWSC 802
HEARING DATE(S):	16, 17 and 18 July 2008
JUDGMENT DATE :	7 August 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Plaintiff entitled to injunctions as sought.
CATCHWORDS:	EMPLOYMENT – CONTRACT – CONSTRUCTION – CONFIDENTIAL INFORMATION – whether Defendant had confidential information which he may use to compete with Plaintiff to its detriment – meaning of “client” or “customer” in particular factual context – whether duration of restraint no more than adequate.
LEGISLATION CITED:	Corporations Act 2001 (Cth) – s 911A, s 911B Restraints of Trade Act 1976 (NSW) – s.4(1)
CATEGORY:	Principal judgment
CASES CITED:	- Coco v A.N. Clark (Engineers) Ltd [1969] RPC 41 - Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 - International Air Transport Association v Ansett Australia Holdings Ltd (2008) 82 ALJR 419 - Orton v Melman [1981] 1 NSWLR 583 - Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 - Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 - Woolworths Limited v Olson [2004] NSWCA 372 - Wright v Gasweld Pty Ltd [1991] 22 NSWLR 317
PARTIES:	Genesys Wealth Advisers Ltd (Plaintiff) Raymond John Miles (Defendant)
FILE NUMBER(S):	SC 2919/08
COUNSEL:	A.J. Meagher SC, G.K.J. Rich (Plaintiff) I.M. Neil SC, Ms C.L. Cochrane (Defendant)
SOLICITORS:	Atanaskovic Hartnell (Plaintiff) Harmers (Defendant)

2919/08 Genesys Wealth Advisers Ltd v Miles

JUDGMENT
7 August 2008

Introduction

1 The Defendant, Mr Miles, was employed by the Plaintiff (“Genesys”) as a Managing Director responsible for a particular area of the company’s business. He ceased employment on 30 March 2007. He and Genesys had executed a Deed of Release on 28 February 2007 providing the terms upon which the parties would part company. In broad terms, the Deed of Release imposed restraints on Mr Miles’ entitlement to compete with Genesys for a period expiring on 15 September 2009, in consideration of certain benefits to be provided by Genesys. 2 Genesys alleges that Mr Miles has breached the terms of the restraint clauses in the Deed of Release and that he proposes to continue such breaches unless prohibited by injunction. Mr Miles denies that his activities since leaving the employment of Genesys have been in breach of the restraint clauses. In the alternative, by his Cross Claim, he seeks a declaration that to the extent that the restraint clauses prohibit the activities in which he is engaging, they are invalid as contrary to public policy and are not saved under s 4(1) of the Restraints of Trade Act 1976 (NSW). 3 There is little, if any, dispute, as to the essential material facts. Determination of the issues in the case largely turns on construction of the restraint clauses in the Deed of Release, in the light of the factual circumstances known to both parties. It will be more convenient to set out the relevant facts before turning to the clauses in the Deed of Release and to the precise issues to which they give rise.


The structure of Genesys’ business

4 Genesys is the holder of an Australian Financial Services Licence issued under s 911A of the Corporations Act 2001 (Cth). Genesys enters into agreements with firms of financial planners, who are referred to as Member Firms. Two of the Member Firms are owned by Genesys itself, and some are partly owned, but the vast majority, some 133, are independently owned. 5 Under the Member Firm Agreements Genesys provides services to the Member Firms in consideration of annual fixed fees and a percentage of the Member Firm’s turnover, together with certain other fees. The services which Genesys provides include:


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

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

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

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

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

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

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

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

6 The Member Firms have their own clients with whom they deal directly and to whom they give financial planning advice. Genesys does not derive any revenue from the provision of financial provisions or services to persons or entities who are not clients of an existing or previous Member Firm. 7 The Member Firm Agreements provide that, subject to the consent of Genesys, the authorised principals, directors, employees or contractors of the Member Firms may act as advisers to clients if such advisers enter into an Adviser Deed with Genesys. The Adviser Deed authorises the advisers, as agents of Genesys, to give financial advice and to provide other services to clients of the Member Firms. By this means, advisers employed by Member Firms become authorised representatives of Genesys, as the holder of an Australian Financial Services Licence, for the purpose of compliance with s 911A and s 911B Corporations Act . 8    Only advisers engaged by the Member Firms deal directly with clients requiring financial planning services. Genesys itself has no direct contact with the clients of the Member Firms except in limited circumstances, such as when a client of a Member Firm wishes to make a complaint against a financial planner.


Mr Miles’ position and the information available to him

9    From 1989 to 2004, Mr Miles was Chief Executive Officer and, subsequently, Managing Director, of Associated Planners Financial Services Ltd (“APFS”). Like Genesys, APFS provided financial services to independently owned financial planning firms, also called “member firms”, for a fee. 10    In August 2004, the shares in APFS were acquired by Challenger Financial Services Group Ltd (“Challenger”). Mr Miles accepted full time employment by a subsidiary of Challenger in a role described as “Managing Director, Associated Planners”. Challenger’s financial planning services business was merged with that of APFS and the amalgamated business was conducted under the name “Genesys Wealth Advisers”. At present, more than 40% of the Member Firms in the Genesys network were previously member firms of APFS and these firms account for about 63% of Genesys’ projected revenue from product margins and franchise fees for the 2008 financial year. 11    Mr Miles describes his duties and responsibilities while Managing Director of Genesys thus:

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

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

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

(d) to manage the staff of Genesys;

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

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

(g) to take responsibility for business acquisitions or sales.”
12    Mr Miles says that in the course of his duties as Managing Director he had access to the following information:

“(a) financial information;

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

(c) financial forecasts;

(d) business plans;

(e) corporate strategies;

(f) board minutes and papers;

(g) internal policies and procedures;

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

(i) advice models for financial planning practices.”
13    In 2006, Mr Miles was offered, and accepted, employment by Genesys itself in the position of “Managing Director – Member Firm Relations & Acquisitions”. He was required to work a four day week in this position and reported to Genesys’ managing director. He and Genesys entered into an employment contract, contained in a Letter of Offer dated 26 June 2006. Clause 5.3 imposed a restraint on competition following the termination of Mr Miles’ employment. I will come to that restraint clause in more detail later. The contract also provided a Long Term Incentive Plan (“LTIP”) which entitled Mr Miles to take up allocations of shares in Challenger at certain prices and at certain times. 14    Mr Miles’ role, while employed by Genesys as Managing Director – Member Firm Relations and Acquisitions, required him to deal with existing Member Firms directly on a regular basis and to endeavour to recruit new Member Firms into the Genesys network. He was responsible for dealing with any substantial problems which Member Firms might have, so as to ensure that they did not leave the Genesys network. He did not, as part of his regular duties, deal directly with clients of Member Firms although, on occasion, he met them socially. He had performed the same role while employed by Challenger from August 2000 and, earlier, while employed by APFS. 15    By the time Mr Miles had come to leave the employment of Genesys in March 2007 he had, for almost twenty years, been responsible for managing the relationship between financial planning firms and the provider of financial services to those firms. He had developed a very good relationship with those firms and their principals and he had a high reputation in the financial planning services industry. Members Firms confided financial information to him about their businesses which they would not have provided if he was not in the position which he occupied and if they had not known and trusted him in that position. 16    I turn now to the information which Mr Miles received in the course of his employment with Genesys. I will refer only to those categories of information which Genesys has emphasised as highly confidential. 17    Mr Miles received monthly brokerage reports which identified the amount of gross brokerage revenue which Genesys received from each Member Firm. The brokerage reports were not distributed widely within Genesys and were not made available outside Genesys. The brokerage reports enabled a reader to identify quickly which Member Firms were generating the most income for Genesys. 18    In mid-2006 Mr Kirk, the CEO of Genesys, commissioned a firm of consultants, Booz Allen Hamilton (“BAH”) to conduct a review of the business operations of Genesys. Their review was undertaken over a period of eight weeks. 19    A steering committee of senior executives of Genesys was formed to assist BAH in conducting its review of the Genesys business. Mr Miles was a member of the committee. The committee met a number of times during the review process and BAH made presentations to it, including analyses of sources of revenue and profit to Genesys and of the profitability of particular Member Firms. 20    On 6 November 2006, BAH provided to Mr Kirk a presentation of the results of their review. Based on that presentation and other information collected by Mr Kirk, Mr Kirk presented to the Board of Genesys on 16 November 2006 a Strategic Plan for 2007 to 2011. Mr Kirk says that the Strategic Plan is the “blue- print” for how he is presently running the Genesys business and for what he hopes to achieve in the next few years. 21    A copy of the Strategic Plan was made available to Mr Miles and to a few other senior executives of Genesys. It was not generally available within Genesys nor was it available to anyone outside Genesys or the Challenger group. 22    On 20 September 2006, a senior executive of Challenger sent to a number senior executives of Genesys, including Mr Miles, an analysis of the economic importance of the Member Firms who selected the Synergy administration platform (“Synergy”) for their clients’ investments. Synergy is administered by Genesys. The document contained information, not publicly available, as to the amount of Funds Under Advice which particular Member Firms had invested with Synergy. That information enables the reader to identify which particular Member Firms have the most funds under advice invested with Synergy and are therefore the most profitable to Genesys. 23    On 9 October 2006, Mr Miles sent to senior executives of Genesys a list of Member Firms, graded according to his assessment of those in serious danger of leaving the Genesys network, those in some danger, and those unlikely to leave. The list was compiled for the purpose of devising a strategy for retaining Member Firms. This information was not generally available in Genesys. Obviously, the list was compiled from information made available to Mr Miles in the course of his employment. Genesys says, and I accept, that the information would assist a competitor to assess which Member Firms were ‘ripe for the picking’. 24    On 20 October 2006, the Chief Financial Office of Genesys sent to the directors, including Mr Miles, a paper setting out the identity of those Member Firms which were entitled to certain incentives under Genesys’ Incentive Plan, the amounts of their respective entitlements and the applicable vesting date for those entitlements. Member Firms would lose their entitlement under the Incentive Plan if they terminated their Member Firm Agreements before the vesting date. That information was not generally available within Genesys and the Challenger group. The information would enable a competitor to know which Member Firms were unlikely to terminate their relationship with Genesys because of the imminence of their entitlement vesting date, and which firms may be susceptible to solicitation because their vesting date had passed and they had received their entitlement under the Incentive Plan.


Mr Miles’ departure and his proposed new business

25    Shortly before Christmas 2006, Mr Miles had a discussion with Mr Kirk in which Mr Miles said that his role in Genesys was not providing him with enough challenges and he wanted to leave but did not want to forfeit his LTIP benefits. 26    In January 2007, Mr Miles told Mr Kirk that, following his departure, he would like to invest in one of Genesys’ Member Firms called “Brown Bulley”. Mr Kirk said that in order to preserve Mr Miles’ LTIP benefits he would have to get authorisation from the CEO of the Challenger group, Mr Tilley. Mr Kirk was of the view that if Mr Miles left the employment of Genesys at the time envisaged, he would not be entitled to benefits under the LTIP. Mr Miles, however, held the view that he had been made redundant and was therefore entitled to the benefits. Mr Kirk says, and I accept, that he recommended that Mr Miles receive his LTIP benefits, notwithstanding the disagreement as to his entitlement, in consideration for restraints on competition to be imposed on Mr Miles under a Deed of Release which was being negotiated between the parties. 27    The Deed of Release was executed and exchanged on 27 February 2007. I will set out the relevant terms later. 28    In negotiating the terms of the Deed of Release, Mr Miles had the advice of independent solicitors experienced in employment law. It is clear that he read the terms of the various draft Deeds carefully, made some suggested amendments, and received detailed advice about the implications of the Deed. 29    When he left the employment of Genesys, Mr Miles took an equity position in, and commenced working with, a Member Firm, Brown Bulley, later known as Stamford Brown. The Deed of Release expressly permitted him to take up this position. He sold his equity and ceased working for Stamford Brown in March 2008. 30    Mr Miles frankly admits that he proposes, prior to expiry of the restraint period, to go into a new business venture which will compete directly with the business of Genesys. He has already had discussions with a major financial backer, Suncorp Metway Limited (“Suncorp”). He will be the Managing Director of the new venture and will be responsible for preparing its business plan. He intends to approach a number of Member Firms in the Genesys network to entice them away to the new business venture, and he has already approached five or six of the Member Firms for that purpose. 31    Mr Miles admitted in cross examination that:


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

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

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

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

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

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

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

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

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

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

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

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

The Deed of Release

33    The Deed recites that Mr Miles had participated in the LTIP and was allocated a certain number of shares at a certain price, of which a fifth had vested as at the date of the Deed. It provides for a termination of Mr Miles’ employment on 30 March 2007 and recites that the parties’ agreement on the terms of the Deed is without admission of liability on either side. 34    In so far as is presently relevant, the Deed provides that on 15 September 2007 and 15 September 2008 a certain proportion of the shares available to Mr Miles under the LTIP will be released to him and the balance will be released on 15 September 2009. However, the Deed also provides that the shares will be released to Mr Miles only if, at the time for release, he has complied with, and continues to comply with, his obligations under Clause 6.1. It further provides that if Mr Miles breaches Clause 6.1 he will forfeit his entitlement to all shares under the LTIP which have not been released to him by that time. 35    Clause 6.1 of the Deed of Release provides:

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

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

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

You agree that you will not:

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


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

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

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

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


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

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

Clause 8 provides:

“ Confidential Information

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

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

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

(c) that is part of the Employee’s general skill and knowledge but is not a trade secret or highly confidential.”
36    “Confidential Information” is further defined in the General Terms incorporated in Mr Miles’ Letter of Offer as follows:

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

(b) trade secrets of the Challenger Group; and

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

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


The issues

37    Genesys says that Mr Miles has breached, and proposes to continue to breach, the restraints imposed by Clause 6.1(a)(i) and 6.1(a)(iii) of the Deed of Release. 38    As to Clause 6.1(a)(i), Genesys says that:


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

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

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

39    Mr Miles responds that:


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

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

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

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

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

40    As to Clause 6.1(a)(iii), Genesys says that:


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

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

41    Mr Miles responds that, on their true construction, the words “client or customer” of Genesys refer to a retail customer of a Member Firm, not to the Member Firm itself, so that his solicitation of Member Firms is not caught by this restraint; 42    By his Cross Claim Mr Miles seeks declarations that the restraints in Clause 6.1 of the Deed of Release are invalid as contrary to public policy and that he is free to engage in the new business as he proposes. He says that:


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

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

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

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

43    Genesys responds that:


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

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

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

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



Whether information confidential

44    The first question is whether the information upon which Genesys relies, and which it says Mr Miles may be able to use, is confidential. 45    It is important to bear in mind at the outset that there are two categories of confidential information which the Courts will protect at the suit of a former employer: first, information which is of its nature so confidential or secret that the ex-employee cannot use it even if not bound by any contractual restraint; second, information which is to a degree confidential but, because it is closely linked to the know-how and experience which an employee acquires in the course of employment in a particular field, it will not be protected by the Court except where there is a valid contractual restraint on the employee. On the other hand, information which has no confidentiality, because of its triviality or because it is in the public domain, will not be protected by the Court even if it expressly described as confidential in a contractual restraint: see Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172, at [37]-[38] per Hodgson JA; Wright v Gasweld Pty Ltd [1991] 22 NSWLR 317 at 333E-334A, 339E. 46 This case is concerned with information said to be within the second category of protection, i.e. information which is to a degree confidential, being not trivial and not in the public domain, and which is the subject of a valid express contractual restraint. 47 Whether information divulged to an employee in the course of employment has any confidentiality may be ascertained by reference to the following, non-exclusive, indicia:


– the extent to which the information said to be confidential can readily be identified by the employer;

– the extent to which the information is known outside the employer’s business;

– the extent to which the information was known inside the business;

– the extent of measures taken to protect the secrecy of the information;

– the value of the information to the employer and its competitors;

– the amount of effort or money expended by the employer in developing the information;

– the ease or difficulty with which the information could properly be acquired or duplicated by others;

– whether it was plainly made known to the employee that the information was confidential;

– the fact that the usages of the industry support the conclusion of confidentiality;

– the fact that the employer reasonably believes the information to be confidential;

– the extent to which the information can readily be isolated from the employee’s general know-how acquired by experience in the particular industry: see per Hodgson JA in Del Casale at [40]; Wright v Gasweld at 334B per Kirby P.

48    Mr I.M. Neil SC, who appears with Ms Cochrane for Mr Miles, submits that the information in the brokerage reports was not confidential at all because each Member Firm knew what gross brokerage revenue it generated for Genesys and some would be likely to divulge that information to Mr Miles after he left Genesys. 49    I am unable to accept this submission. The information of an employer may be confidential even if it is known to persons outside the employer’s business, as long as the information is not widely known or freely available to competitors: Del Casale at [39]; Coco v A.N. Clark (Engineers) Ltd [1969] RPC 41, at 47. 50 Here, the monthly brokerage reports enabled one to see at a glance which Member Firms were the top performers for Genesys in producing revenue. This is information which would otherwise have taken a competitor considerable time to piece together from enquiries made of Member Firms, one at a time, if they were willing to divulge that information. The brokerage reports were not distributed widely within Genesys and were not made available outside the business. The information as to which Member Firms were top performers and which were not was obviously valuable both to Genesys and to Mr Miles as a competitor, as it would enable one to know what Member Firms were worthwhile having in a network, and which were not, and how to apportion one’s efforts accordingly. 51 I am satisfied that the monthly brokerage reports contained information which was confidential, within the meaning of that term in Clause 6.1 of the Deed of Release. 52 Mr Neil did not submit strongly that the Strategic Plan prepared by Mr Kirk following the BAH review did not contain confidential information. Rather, his submissions were more directed to whether use of such information could be detrimental. I will return to this aspect shortly. 53 There could be no doubt that the Strategic Plan, which Mr Miles conceded he received, contained highly confidential information as to the present operations of Genesys and its future direction. The Strategic Plan was the result of a lengthy and, doubtless, costly analysis carried by outside consultants. It was distributed only to the Genesys Board and to a few senior executives. It contained analyses of the strengths and weaknesses of the business and set out in some detail how the business would be developed in the future. A great deal of financial information concerning the business was incorporated in it. There could be no doubt that a great deal of the information in that Plan would be of considerable value to a competitor of Genesys in that it would show what weaknesses of Genesys could be exploited and what proposed course of action by Genesys could be countered. 54 I am satisfied that the Strategic Plan contained information which was confidential within the meaning of that term in Clause 6.1 of the Deed of Release. 55 For the same reasons as apply to the brokerage reports and the Strategic Plan, I am satisfied that the remaining documents relied upon by Genesys contained confidential information, namely, the analysis dated 20 September 2006, the list of Member Firms in danger of leaving, dated 9 October 2006, and the analysis dated 20 October 2006 of the vesting dates of Member Firms’ entitlements under the Genesys Incentive Plan. Each of those documents was circulated to only a few senior executives in the business and was not available outside the business. Each was the result of analytical work done within Genesys on the basis of reliable information which it possessed and could conveniently collate. Each contained information which a competitor would find time saving and useful in targeting Member Firms to entice away from the Genesys network. 56 I am satisfied that each of the documents contained information which was confidential within the meaning of that term in Clause 6.1 of the Deed of Release.


Detriment

57    There is no allegation that Mr Miles has taken away with him records of any of the confidential information now relied upon by Genesys. Mr Miles says that:


– he cannot now remember much of the detail of the information contained in the confidential information;

– a great deal of the confidential information would, in any event, be of no use now as it is out of date.

58    Accordingly, Mr Miles says, even if he acts in a role or capacity in which he may be able to use confidential information, Genesys has failed to prove that such use would be “to the detriment of Genesys” , as required by Clause 6.1(a)(i). 59    I am unable to accept this submission. It is important to recall, as Mr A.J. Meagher SC emphasises, that the prohibition in the Clause 6.1(a)(i) is not against “using confidential information to the detriment of Genesys” . Rather, the clause prohibits Mr Miles from working in a role in which he may be able to use confidential information to the detriment of Genesys. 60    There could be no doubt that Mr Miles’ role in his new business is one in which he could cause severe detriment to the business of Genesys were he to be able to use the confidential information contained in the documents given to him. Mr Miles is, quite clearly, the heart and mind of the new business. He is to draw up its business plan and it is an essential part of that plan that the new business prey upon the existing Member Firms of Genesys in the most effective way possible. The business plan which Mr Miles is developing with Suncorp calls for the new business to acquire one billion dollars in funds under advice within two years. To enable that targe to be reached, Suncorp will provide incentives of many millions of dollars. 61    Mr Miles does not say that he remembers nothing at all of the confidential information provided to him in the documents upon which Genesys relies. In view of the concessions which he made in cross examination, he could not do so. It is clear that he has already endeavoured to select Member Firms to solicit for the new business by reference to their performance for Genesys and by reference to their current investment platform use – all confidential information provided to him in the course of his employment: see particularly [31](c), (d), (e), (f), (g), (i), (j) and (k) above. 62    Mr Miles attempted to show that all of the confidential information which he might recollect would now be out of date and of no use, so that nothing he did in his role in the new business could be to the detriment of Genesys. I am far from persuaded by this submission. 63    Mr Kirk says, and I accept, that the Strategic Plan is still the blue-print for the future development of Genesys. The evidence is that, while there have been some changes in the constituency and performance of Member Firms since Mr Miles left Genesys, their overall position is not markedly different. Finally, Mr Miles himself conceded that, in competing with Genesys in the new business, he would still have a head start over those who had no knowledge of Genesys’ business. I find it inherently unlikely that Mr Miles cannot recollect any part of the confidential information entrusted to him which may still be of competitive use. 64    For these reasons I find that in proposing to commence and conduct as a principal a new business in competition with Genesys within the restraint period, Mr Miles is in breach of the terms of Clause 6.1(a)(i) of the Deed of Release.


Definition of “client or customer”

65 Mr Miles says that the clients or customers whom he is prohibited by Clause 6.1(a)(iii) from soliciting are not the Member Firms but the clients or customers of the Member Firms. 66 Mr Miles says, first, that the representatives of the Member Firms who are authorised to advise retail customers are, by virtue of the Adviser Deeds, made the agents of Genesys for the purposes of s 911A Corporations Act , so that the retail customers are, in truth, the customers or clients of Genesys and fulfil the ordinary description of those words, as used in the Deed of Release. 67    Mr Miles points to the fact that the Member Firm Agreements and the Adviser Deeds refer to the retail clients or customers of the Member Firms as clients or customers of Genesys. For example, Clause 16.6 of the Member Firm Agreements provides:

“We [i.e. Genesys] have the legal right to conduct a financial services business and other business of providing financial services and financial products to clients through you as our authorised representative and to receive commission and fee income as a result of the provision of the financial services to clients , but you and we agree and acknowledge that:

(a) during the term of this Agreement, you introduce clients to us and you have a proprietary interest in the client relationship and the client files and all other documents held by you in relation to the clients (including the right to exploit those client files and other documents) and your interest:

(i) is separate and distinct from, but co-existing with, our interests; and

(ii) will not be used to prevent or hinder us exercising our rights in respect of the client relationship and the client files and all other documents held by you in relation to the clients ;

(b) on termination of this Agreement, but subject to this Clause 16.6 and all applicable laws , as between you and us, you have:

(i) all rights in connection with providing financial services and financial products to the clients ;

(ii) ownership of and all rights in connection with, the client files and all other documents held by you in relation to the clients ; and

(iii) ownership of and all rights in connection with, any goodwill associated with the clients including the income stream associated with the clients ; and ….”

“Client” is defined as:
“… a person in respect of whom services have been provided by advisers during the term of this Agreement.”

“Adviser” is defined as:
“… a principal and such other, if any, of your directors, employees or contractors who have been both authorised by you and approved by us, to perform services on our behalf.”
68    Mr Miles says that the ordinary meaning of “customer” is “a buyer or purchaser” and Member Firms do not buy anything from Genesys. 69    I am unable to accept these submissions. The words of the Deed of Release are to be construed in the context of the relevant facts known to both parties, and by reference to the purpose of the Deed and the object which it was intended to secure: International Air Transport Association v Ansett Australia Holdings Ltd (2008) 82 ALJR 419, at [8], [53]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]. The purpose and object of the Member Firm Agreements and of the Adviser Deeds were manifestly different from those of the Deed of Release. 70 The relevant facts known to Genesys and Mr Miles at the time of execution of the Deed of Release were:


– Mr Miles was a very senior executive of Genesys, having been Managing Director and subsequently the person directly responsible for recruiting and maintaining Member Firms as part of the Genesys network;

– the business of Genesys consisted of attracting, retaining and dealing with Member Firms, not dealing directly with the clients or customers of those Member Firms;

– Mr Miles, throughout the whole of his career with Genesys and its predecessor, AFPS, dealt with the Member Firms and not with their clients, to the extent that he was not qualified to provide financial advice to the clients of Member Firms;

– the revenue of Genesys was derived from a percentage of fees earned by the Member Firms and from fees for services charged by Genesys to the Member Firms.

71    The evident purpose of Clause 6.1(a)(iii) of the Deed of Release was to protect Genesys from the damage which Mr Miles was able to do to its business by solicitation. The most effective solicitation which he could engage in was to entice away existing Member Firms to a new business. It would be absurd to conclude that the parties’ use of the words “client with whom you dealt or to whom you provided services” in Clause 6.1(a)(iii) prevented solicitation by Mr Miles only of persons with whom Mr Miles had never dealt and to whom he had never provided services, and left him free to solicit those with whom he had dealt and to whom he had provided services. 72    I conclude that “clients or customers” of Genesys for the purposes of Clause 6.1(a)(iii) of the Deed of Release means those to whom Genesys had provided services for a fee and with whom Mr Miles had dealt on behalf of Genesys, i.e. the Member Firms.


Whether restraints void

73 I have concluded that, in carrying out the role which he intends to fulfil in his new business, and by soliciting some existing Member Firms, Mr Miles has breached and will continue to breach the restraints imposed upon him by Clause 6.1(a)(i) and (iii) of the Deed of Release. The question now is whether the restraints are void as contrary to public policy or are valid under s 4(1) of the Restraints of Trade Act to the extent that they prevent him from undertaking the relevant activities up to 15 September 2009: Orton v Melman [1981] 1 NSWLR 583, at 587 per McLelland J (as his Honour then was). 74 Mr Miles submits that the restraints are void and cannot be saved under s 4(1) of the Restraints of Trade Act because:


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

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

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

75    I am unable to accept any of these submissions. 76    First, it is clear that the information received by Mr Miles and identified by Genesys was at a high level of confidentiality. It directly equipped a competitor to attack Genesys’ weak points in its relationships with Member Firms and to build upon them. The Strategic Plan told Mr Miles what directions Mr Kirk, as CEO of Genesys, would take in the years up to and beyond 15 September 2009. It is commercially unreal to suggest that it is merely stifling competition to prevent one particular competitor who has that kind of inside information from using it. 77    Mr Miles’ potential to damage the business of Genesys by using the confidential information and by soliciting its Member Firms was very high, as may be gauged from the target of one billion dollars in funds under advice which Mr Miles hoped to achieve within two years and for which Suncorp was prepared to offer many millions of dollars as an incentive. 78    I am satisfied that Genesys had a legitimate business interest to protect in seeking the restraints against competition from Mr Miles provided in Clause 6.1. 79    I acknowledge that the territorial reach of the restraints is wide. However, the evidence shows that the Member Firms are scattered across Australia. I am not persuaded that the duration of the restraints is unreasonable. I have regard to the following considerations. 80    First, Mr Miles’ relationship with Member Firms at a senior level was very lengthy, almost twenty years. Mr Miles is very experienced in the financial planning industry generally and enjoys a high reputation with Member Firms. His recollection of the thrust and substance of the relevant confidential information provided to him is likely to be good and, at the least, useful in his new business. His ability to solicit Member Firms from the Genesys network to his own business would inevitably take some time for Genesys to counter and neutralise. What Mr Miles has built up over some twenty years could not be undone in thirteen weeks. Mr Miles himself concedes that his new business is “likely to have an impact on Genesys” : affidavit 27 May 2008, [70]. 81    At the time that the parties were negotiating the Deed of Release they were on an equal footing and Mr Miles had the benefit of independent and experienced legal advice in making a contractual admission that the restraints were reasonable. Although the Court does not regard such an admission as conclusive, the Court gives it considerable weight where the parties have negotiated on an equal footing and with the benefit of legal advice: Woolworths Limited v Olson [2004] NSWCA 372 at [39] per Mason P; Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260, at 268. 82 It is significant that, in support of his argument that the restraint period is unreasonable, Mr Miles does not rely upon any fact that was not known to both parties at the time that the restraint was negotiated. 83 I do not think that the restraint period of thirteen weeks provided in Mr Miles’ original contract in June 2006 is a reliable guide as to what was reasonable in February 2007. By that time, he had received substantial new confidential information in the form of the Strategic Plan. Further, he was negotiating a settlement of a disagreement with Genesys as to his entitlement to benefits in the LTIP. The benefits he was to receive from that compromise would be substantial as the value of the shares in the LTIP then stood. The fact that those shares have diminished considerably in value since execution of the Deed of Release does not detract from the fact that settlement of the dispute as to Mr Miles’ entitlement to retain his benefits in the LTIP was a valuable commercial consideration which Mr Miles was obtaining in exchange for the restraint clauses. 84 For these reasons, I am satisfied that the restraints in Clause 6.1(a)(i) and (iii) go no further than are reasonably necessary to protect Genesys’ legitimate business interests against competition from Mr Miles for the remainder of the restraint period. I hold that the restraint clauses are valid. 85 It follows that Mr Miles’ Cross Claim should be dismissed.


Orders

86    Genesys is entitled to orders restraining Mr Miles, until 15 September 2009, from engaging in the activities referred to in paragraph 1 of the Amended Summons. The parties may wish to discuss the precise terms of the orders. 87    I will stand the proceedings over to enable the Plaintiff to bring in Short Minutes of Order. I will then hear argument, if any, as to costs.
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