Hipost Pty Ltd v Bidalam Pty Ltd

[2015] NSWDC 230

District Court

New South Wales

Medium Neutral Citation:

Hipost Pty Ltd & Ors v Bidalam Pty Ltd & Ors [2015] NSWDC 230

Hearing dates:

27–30 April, 1, 4, 5, 6 and 22 May 2015; Plaintiff’s written submissions 18 May and 16 June 2015; Fifth Defendant’s written submissions 18, 21 May and 1 June 2015

Date of orders:

12 October 2015

Decision date:

12 October 2015

Jurisdiction:

Civil

Before:

Hatzistergos DCJ

Decision:

Verdict for the Fifth Defendant

Catchwords:

TORTS – interfering with contractual relations – procuring or inducing breach of contract – “knowledge” and “intention” of conduct constituting breach of contract – wilful blindness and reckless indifference

 

EQUITY – breach of fiduciary duty – Barnes v Addy general principles – knowingly assisting breach of fiduciary duty – knowingly profiting from breach of fiduciary duty

 

CONTRACTS – restraint of trade – assessment of the reasonableness of a restraint – the distinction between non-dealing and non-solicitation restraints

 

EVIDENCE – inferential fact-finding – circumstantial evidence – balance of probabilities

  OTHER – damages – prohibition against double recovery

Legislation Cited:

Civil Liability Act 2002 (NSW) Part IV s 34
Civil Procedure Act 2005 (NSW) s 95
Evidence Act 1995 (NSW) s 97,98 and 136
Restraints of Trade Act 1976 (NSW) s 4
Uniform Civil Procedure Rules 2005 (NSW) rr 15.4, 31.24 and 31.26

Cases Cited:

Allstate Life Insurance v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26
Barnes v Addy (1874) LR 9 Ch App 244
Barrett v Ecco Personnel Pty Ltd [1998] NSWCA 30
Baxter v Obacelo Pty Ltd [2000] 48 NSWLR 522
Baxter v Obacelo Pty Ltd (2001) 205 CLR 635
Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341
Bridge v Deacons [1984] AC 705
Briginshaw v Briginshaw (1938) 60 CLR 336
Brown v Cunich (1994) ATPR 46-117
Carlton v United Breweries Ltd v Tooth & Co Ltd (19860 7 IPR 581
Civic Video Pty Ltd v Paterson [2014] WASC 321
Cubillo v Commonwealth (2000) 103 FCR
DC Thomson & Co Ltd v Deakin [1952] Ch 646
Daebo Shipping Co Ltd v Ship Go Star (2012) 207 FCR 220
Diver v Loktronic Industries Limited [2012] 2 NZLR 388
Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Fightvision Pty Ltd v Onisforou (1999) NSWCA 323
Hampton Court v Crooks (1957) 97 CLR 367
Hanna v OAMPS Insurance Brokers Limited [2011] NSWCA 267
Hasler v Singtel Optus Pty Ltd [2014] 87 NSWLR 609
Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394
Jaddcall v Minson (No 3) [2011] WASC 362
Jameson v Central Electricity Generating Board (2000) 1 AC 455
Johnson v Perez (1988) 166 CLR 351
LED Technologies Pty Ltd v Road Vision Pty Ltd [2012] FCAFC 3
Manly Council v Byrne [2004] NSWCA 123
McCrohon v Harith [2010] NSWCA 67
Michael Wilson & Partners v Slater [2014] FCCA 2871
Miles v Genesys Wealth Advisors Ltd [2009] NSWCA 25
Millar v Bassey [1994] E.M.L.R.44
Network Ten Pty Ltd v Seven Network (Operations) Ltd [2014] NSWSC 692
Northern Territory v Mengel (1995) 185 CLR 307
OBG v Allan; Douglas v Hello! Ltd (No 3); Mainstream Properties v Young [2007] UKHL 21
Payne v Parker (1976) 1 NSWLR 191
Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187
Permanent Custodians Ltd v Geagea (No 3) [2014] NSWSC 1489
Planet Fitness Pty Limited v Brooke Dunlop & Ors [2012] NSWSC 1425
Qantas Airways Ltd v Transport Workers Union of Australia [2011] FCA 470
Ruffino v Grace Bros Pty Ltd [1980] 1 NSWLR 732
Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262
Short v City Bank of Sydney (1912) 15 CLR 148
Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418
Todorovic v Waller (1981) 150 CLR 402

Texts Cited:

R P Balkin and J L R Davis, The Law of Torts (5th Edition, LexisNexis Butterworths)
H Carty, ‘The Economic Torts in the 21st Century’ (2008) 124 LQR 641
J D Heydon, Cross on Evidence (10th Edition, LexisNexis Butterworths)
JD Heydon, The Restraint of Trade Doctrine (3rd Edition, LexisNexis Butterworths)
Ritchie’s Uniform Civil Procedure NSW (LexisNexis, Sydney, 2005)

Category:

Principal judgment

Parties:

Hipost Pty Ltd (First Plaintiff)
Priano Pty Ltd (Second Plaintiff)
HK Christensen Pty Ltd (Third Plaintiff)
Bizak Pty Ltd (Fourth Plaintiff)
Guthega Holdings Pty Ltd (Fifth Plaintiff)
MFC Holdings (NSW) Pty Ltd (Sixth Plaintiff)
Stretched Red Pty Ltd (Seventh Plaintiff)
Platinum Red Pty Ltd (Eighth Plaintiff)
Jabah Nominees Pty Ltd (Ninth Plaintiff)
Keshmont Pty Ltd (Tenth Plaintiff)

  Bidalam Pty Ltd (First Defendant)
Amalbi Pty Ltd (Second Defendant)
Dianne Margaret Bainbridge (Third Defendant)
Huon Partners Pty Ltd (Fourth Defendant)
Huon Financial Planning Pty Ltd (Fifth Defendant)
Huon Financial Services Pty Ltd (Sixth Defendant)

Representation:

Counsel:
Mr A Harding (Plaintiffs)
Mr D Lowenstein (First, Second & Third Defendants)
Mr C Botsman (Fifth Defendant)

  Solicitors:
M+K Lawyers (Plaintiffs)
Timothy Hemsley & Associates (First, Second & Third Defendants)
Kell Moore Solicitors (Fifth Defendant)

File Number(s):

2012/223262

Publication restriction:

Nil

Judgment

Introduction

1. The Plaintiffs are companies associated with individual partners constituting the accounting, financial planning and advisory service partnership now known as Focus Partners. The First and Second Defendants are nominee companies of the Third Defendant, Ms Dianne Bainbridge. Ms Bainbridge was a former partner and employee of Focus Partners. She ultimately left the employ of Focus Partners on 16 March 2012, commencing with the Fifth Defendant, Huon Financial Planning Pty Ltd (hereinafter “HFP”), as an employee on 20 March 2012. She remained there until 15 March 2014 when her employment was terminated by HFP. [1]

   1. Exhibit B, p1760 at [179]

2. After Ms Bainbridge left the Plaintiffs, 43 entities constituting 31 Focus Partners clients left that practice to go to HFP and the Fourth Defendant’s accounting practice known as Huon Partners (hereinafter “Huon Partners”). [2] The circumstances in which they did so and whether it was in violation of certain restraints to which Ms Bainbridge were matters in issue. The clients are referred to in this judgment as the “schedule A” clients being a reference to the schedule annexed to the Plaintiffs’ Further Amended Statement of Claim. Subsequent to Ms Bainbridge’s employment with HFP ceasing, 26 of the 31 clients referred to earlier left HFP. [3] Requests were made by clients to transfer to Ms Bainbridge’s new practice Gold Financial Planning. [4]

   2. References to their dates of commencement with HFP are set out in Exhibit B, p 366 (being Attachment S to the Report of Bill Charlton dated 3 April 2014) and reproduced as an appendix herein.

   3. Exhibit B, p 1761 at [186]

   4. Exhibit B, p1760 at [181]

3. Proceedings against Huon Partners were brought but resolved by consent orders on 30 January 2014 dismissing the proceedings with no order as to costs.

4. Proceedings against the First to Third Defendants alleging breaches of contract on the part of Ms Bainbridge were brought but resolved by consent orders on 28 April 2015 specifying:-

1. Judgment for the Plaintiffs against the First, Second and Third Defendants in the sum of $66,000.00; and

2. No order as to costs (with the intent and effect that the Plaintiffs and each of the First, Second and Third Defendants pay their own costs of the proceedings).

5. Proceedings against HFP continued, asserting:-

1. A claim based on knowingly assisting in the breach of fiduciary duty or knowingly profiting by breach of the duty in accordance with the principles in Barnes v Addy; [5]

2. Procuring or inducing breach of contractual relations. [6]

   5. (1874) LR 9 Ch App 244; See also Exhibit B, pp 16-17, Further Amended Statement of Claim at [22]-[26]

   6. Exhibit B, pp 17-18, Further Amended Statement of Claim at [27]-[28A]

6. HFP denied the Plaintiffs’ claim on both bases. It also contended, that the extent of the contractual obligations owed by the First to Third Defendants through Ms Bainbridge, were in breach of the Restraints of Trade Act (1976) (NSW) and/or unreasonable or excessive at law. [7]

   7. Exhibit B, p 37, Further Amended Defence of the Fifth Defendant at [30(A)]

7. HFP further pleaded that if it is found to be liable for any part of the Plaintiffs’ claim then liability is limited in such proportion of the loss or damage as the Court considers just, having regard to the extent of relative responsibility pursuant to the proportionate liability provisions of Part IV of the Civil Liability Act (2002) (NSW). [8] However no submissions were ultimately made to this end.

   8. Exhibit B, p 37, Further Amended Defence of the Fifth Defendant at [31]

8. Three witnesses gave oral evidence in the liability component of the Plaintiffs’ case. These were Ms Christensen (on behalf of the Plaintiffs who was a Director of the Third and Fourth Plaintiffs), Ms Ann Marie Humphries (sole director and shareholder of HFP) and Ms Diane Sibbald (a former employee of Focus Partners and friend of Ms Bainbridge). Affidavits were read from a limited number of clients without requirement for cross examination.

9. Despite Ms Christensen verifying an affidavit in support of the allegations in the pleadings it became clear that many of the allegations were based on assumptions. In oral evidence she acknowledged as much. She conceded that she took Ms Bainbridge’s resignation very personally and she was upset as she felt that Ms Bainbridge had lied to her. [9] Nevertheless I did not regard Ms Christensen’s substantive evidence in the proceedings as generally unreliable. The Plaintiffs’ case however was essentially a circumstantial one resting on a rejection of Ms Humphries’ evidence and inferential reasoning to the contrary. As these reasons will elaborate I have had cause to carefully scrutinise the evidence of Ms Humphries who at times I found unreliable. Neither Ms Bainbridge nor any of the representatives of Huon Partners were called in the proceedings. As these reasons will further elaborate, inferences were sought to be advanced (in part) on the basis of that failure.

   9. T 160.30-161.4

Principles of Inferential Reasoning

10. The principles relevant to inferential reasoning were canvassed in Seltsam Pty Ltd v McGuiness,[10] where Spigelman CJ stated:-

    10. (2000) 49 NSWLR 262 at [84]-[88]

“[84] It is often difficult to distinguish between permissible inference andconjecture. Characterisation of a reasoning process as one or the other occurs on a continuum in which there is no bright line division. Nevertheless, the distinction exists.

[85] Lord Macmillan in Jones v Great Western Railway Co (1930) 144 LT 194, in the context of stating that a possibility that a negligent act caused injury was not enough, said (at 202):

“The dividing line between conjecture and inference is often a verydifficult one to draw. A conjecture may be plausible, but is of no legal value, for its essence is that it is a mere guess. An inference in the legal sense, on the other hand, is a deduction from the evidence, and if it is a reasonable deduction it may have the validity of legal proof. The attribution of an occurrence to a cause is, I take it, always a matter of inference.”

[86] After referring to this passage, Sir Frederick Jordan in Carr v Baker (1936) 36 SR (NSW) 301 at 306 said:

“The existence of a fact may be inferred from other facts when those facts make it reasonably probable that it exists; if they go no further than to show that it is possible that it may exist, then its existence does not go beyond mere conjecture. Conjecture may range from the barely possible to the quite possible.”

[87] As Lord Wright put it in a frequently cited passage in Caswell v PowellDuffryn Associated Collieries Ltd [1940] AC 152 at 169-170:

“Inference must be carefully distinguished from conjecture or speculation. There can be no inference unless there are objective facts from which to infer the other facts which it is sought to establish. In some case the other facts can be inferred with as much practical certainty as if they had been actually observed. In other cases the inference does not go beyond reasonable probability. But if there are no positive proved facts from which the inference can be made, the method of inference fails and what is left is mere speculation or conjecture.”

[88] The test is whether, on the basis of the primary facts, it is reasonable to draw the inference: see, eg, Luxton v Vines (1952) 85 CLR 352 at 358.”

11. More recently this decision was favourably cited in State of New South Wales v Fuller-Lyons. [11] Although the factual findings in that case were reversed on appeal by the High Court, the principles relating to the application of inferential fact-finding were not. [12]

    11. [2014] NSWCA 424

    12. Fuller-Lyons v New South Wales [2015] HCA 31

12. In Henderson v Queensland [2014] HCA 52, Gageler J referred to the principles for drawing inferences and stated:-

“[89] Generally speaking, and subject always to statutory modification, a party who bears the legal burden of proving the happening of an event or the existence of a state of affairs on the balance of probabilities can discharge that burden by adducing evidence of some fact the existence of which, in the absence of further evidence, is sufficient to justify the drawing of an inference that it is more likely than not that the event occurred or that the state of affairs exists. The threshold requirement for the party bearing the burden of proof to adduce evidence at least to establish some fact which provides the basis for such a further inference was explained by Kitto J in Jones v Dunkel [94]:

"One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that in that actual case a specific event happened or a specific state of affairs existed."

[90] That description of the ordinary operation of the civil standard of proof applies equally to a case in which the legal burden of a party is to prove the non-happening of an event or the non-existence of a particular state of affairs as to a case in which a party's legal burden is to prove the happening of an event or the existence of a particular state of affairs. As Davidson J earlier explained in the Supreme Court of New South Wales in Ex parte Ferguson; Re Alexander [95]:

"In all legal proceedings the basic principle at common law is that in civil cases a plaintiff must prove the essential elements of his case even if that course involves establishing the assertion of a negative ... He must establish what is really the affirmative in substance, not what is merely affirmative in form ... But if the party bearing the onus furnishes some evidence which gives rise to a presumption or inference of fact in his favor or that presumption already exists, the onus shifts to the other party".

His Honour's reference to evidence adduced by the party bearing the legal burden of proof giving rise to a "presumption or inference of fact" was to nothing more than an inference of fact drawn, in accordance with ordinary processes of inferential reasoning, in the absence of further evidence[96]. His Honour's reference to an "onus" then shifting to the other party was to nothing more than the practical need (sometimes referred to as a "tactical burden") for an opposing party to adduce further evidence if that party wants to prevent such an inference of fact actually being drawn in the circumstances of the case[97].”

13. Although His Honour’s decision was a dissenting one, neither party submitted that it inaccurately referred to the relevant principles.

14. The principles relevant to the drawing of inferences where witnesses were not called and other evidence in relied on were discussed in Manly Council v Byrne. [13] In that case, Campbell J (with whom Beazley JA and Pearlman AJA agreed) referred to the decision of the High Court of Australia in RPS v R [14] and stated:-

    13. [2004] NSWCA 123

    14. (2000) 199 CLR 620

“[57] In RPS v R [2000] HCA 3; (2000) 199 CLR 620 a majority of the High Court (Gaudron A-CJ, Gummow, Kirby and Hayne JJ), dealing with a case where a complainant gave direct evidence of sexual misconduct by the accused towards her, and the accused failed to give evidence, set out at [23] a passage from the judgment of Abbott CJ in R v Burdett (1820) 4 B & Ald 95 at 161-162; (1820) 106 ER 873 at 898:

"It is useful to start by referring to the well-known cases of R v Burdett and Jones v Dunkel. Burdett arose from a prosecution for criminal libel.

Abbott CJ said:

"A presumption of any fact is, properly, an inferring of that fact from other facts that are known; it is an act of reasoning; and much of human knowledge on all subjects is derived from this source. A fact must not be inferred without premises that will warrant the inference; but if no fact could thus be ascertained, by inference in a court of law, very few offenders could be brought to punishment. In a great portion of trials, as they occur in practice, no direct proof that the party accused actually committed the crime, is or can be given; the man who is charged with theft, is rarely seen to break the house or take the goods; and, in cases of murder, it rarely happens that the eye of any witness sees the fatal blow struck or the poisonous ingredients poured into the cup. In drawing an inference or conclusion from facts proved, regard must always be had to the nature of the particular case, and the facility that appears to be afforded, either of explanation or contradiction. No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction; but when such proof has been given, and the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily; but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected; and it is one of the peculiar advantages of our jurisprudence, that the conclusion is to be drawn by the unanimous judgment and conscience of twelve men, conversant with the affairs and business of life, and who know, that, where reasonable doubt is entertained, it is their duty to acquit; and not of one or more lawyers, whose habits might be suspected of leading them to the indulgence of too much subtlety and refinement.”

Their Honours continued at [23]:

"This mode of reasoning was described by Windeyer J in Jones v Dunkel as "plain commonsense", and so it is. But it is essential to note its limits. It relates to the drawing of inferences or conclusions from other facts. It is not a mode of reasoning that is concerned, for example, with whether the direct evidence of an eyewitness should be accepted."

[58] I do not take that passage as deciding that inference from failure to call a witness never has a role to play in deciding whether evidence of an eyewitness should be accepted. Rather, the passage is directed to the particular type of reasoning set out by Abbott CJ, where an ultimate fact is being proved by inference, and a witness who could cast light on whether that ultimate fact is really true fails to give evidence. Manifestly, deciding whether an eyewitness should be accepted is not reasoning of that type.

[59] In RPS, their Honours also said, at [26]:

"In a civil trial there will very often be a reasonable expectation that a party would give or call relevant evidence. It will, therefore, be open in such a case to conclude that the failure of a party (or someone in that party's camp) to give evidence leads rationally to an inference that the evidence of that party or witness would not help the party's case and that:

"where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.""

The two Jones v Dunkel inferences are ones which, if drawn, can sometimes be taken into account in deciding whether to accept evidence of an eyewitness. If a party called an eyewitness, but the judge had some doubts about the credibility of that witness, the story of that witness did not mesh well with other established facts, and there was a basis in the evidence for concluding that the eyewitness's evidence was incorrect, a trial judge could sometimes be justified in using the failure of a party to call other available eyewitnesses as part of the reasons for not accepting the evidence of the eyewitness who was called. Further, whether the light was on is not itself an ultimate question in the case, but just one matter which needs to be decided as part of a complex of facts which are evaluated to decide whether the Council took reasonable care. For these reasons, I would not regard the fact that the question of whether the light was on depended partly on evidence of eyewitnesses as in itself meaning that no inference of a type licensed by Jones v Dunkel could be drawn.”

15. With these principles in mind I turn to consider the issues.

Facts

16. Dianne Bainbridge commenced working for Howard and Christensen (as Focus Partners was previously known) in superannuation administration on 10 November 2004. Although she had no formal educational qualifications, it was not in issue that she had acquired significant experience in this area. [15]

    15. Exhibit B p 212 at [7]

17. In 2006 Howard and Christensen purchased a financial planning practice from Colin Trinnick. Ms Bainbridge was then provided with external financial planning training by Howard and Christensen and subsequently was involved in the work which flowed from this practice. Ms Bainbridge was provided with a portfolio of approximately 160 clients, none of whom were existing clients of Howard and Christensen.

18. During the period that Ms Bainbridge undertook this financial work, she befriended, Ms Anne-Marie Humphries. This friendship commenced in 2006. At that time Ms Humphries was an authorised representative of Lonsdale Finance Group Limited (hereinafter referred to as Lonsdale) and Ms Bainbridge joined the Group. They would regularly speak at Lonsdale professional development events. The evidence was that Ms Bainbridge would telephone Ms Humphries and ask questions in relation to technical issues when she first moved into financial planning. [16]

    16. Exhibit B, p 140

19. HFP was incorporated on 27 May 2010 with Ms Humphries as the sole director and shareholder. [17] The incorporation occurred before Ms Humphries changed dealer groups from Lonsdale to Securitor Financial Group Ltd (hereinafter referred to as Securitor).

    17. Exhibit B, p 1614

20. On 16 February 2010 Howard and Christensen made an offer to Ms Bainbridge to become a partner. Negotiations then followed. Ms Humphries’ evidence was that Ms Bainbridge sought advice from her when she was considering this offer. She stated that:-

“She (Ms Bainbridge) had some misgivings at the time about the proposed arrangements with Focus Partners and the people and personalities involved.” [18]

18. Exhibit B, p 141 at [13]

21. On 8 June 2010 Ms Bainbridge signed an option deed which enabled her to acquire a 5% interest in the partnership on 1 July 2010 and an option to acquire a further 5% on 1 July 2011 by signing a deed of accession, under which she would be bound by the partnership upon delivering a signed option notice.

22. On 1 July 2010 Ms Bainbridge exercised the first option by signing the deed of accession on behalf of her nominee companies, the First and Second Defendant, by which she agreed to be bound by the partnership deed dated 8 June 2010, signing and delivering an option notice. [19]

    19. Exhibit B, p 564

23. Whatever misgivings Ms Bainbridge may have had, on 2 July 2010 Ms Christensen advised her “now you really are a partner, congratulations” to which Ms Bainbridge responded in positive terms. [20]

    20. Exhibit B, pp 572-3

24. Ms Bainbridge’s involvement in the partnership did not last long. Shortly before the second option was to expire, Ms Bainbridge resigned as a partner giving six months’ notice. The notice cited an inability to participate effectively in the ongoing management of the business, needless stress and impact on health. Ms Bainbridge indicated a willingness to continue as an employee. [21]

    21. Exhibit B, p 586

25. On 30 November 2011, Ms Bainbridge and her nominee companies formally resigned as partners of Focus Partners [22] and Ms Bainbridge entered an employee agreement which contained a restraint. [23] Ms Humphries gave evidence of meeting Ms Bainbridge around this time. The details were:-

    22. Exhibit B, p 605

    23. Exhibit B, p 603

“31. In about November 2011, I had a meeting with Di at Café Grove that included the following conversation:

Me: ‘My business has been doing well. I really need to get some scale. I am looking at employing another adviser. You should give some thought to working with me if the new arrangement at Focus Partners doesn’t work out.’

Di: ‘Thanks. I’m still looking at some options with other Lonsdale firms in Melbourne and Sydney and I have also been approached by AMP to take over the running of a practice her in Albury-Wodonga.’

Me: ‘Well if you are interested in working with me, you should know that it would be on the basis that you would be starting from scratch again. I would be prepared to cover your wage from the existing business revenue for the first 12 months while you build up a new business and help me with my clients as well as marketing. We would then need to review things to see how we are travelling after the initial 12 month period.’

32. Given my knowledge of the industry we work in, and my experience in financial planning, I expected that Di would probably be under a restraint of trade and would definitely not be able to contact any of her former clients at Focus Partners if she was to resign from her job with them.” [24]

24. Exhibit B, pp 143-4

26. When Ms Bainbridge resigned from the partnership and a new employment contract was to be arranged, Ms Christensen recorded, in an email to Ms Suzy Salomon of Focus Partners, discussions which she had had with Ms Bainbridge about this matter. The email is dated 11 December 2011, suggesting that the employment agreement was executed afterwards but to commence from 30 November. Nevertheless the email records:

“Just a quick note about something that is concerning me a little. Everything is going well along with getting the changeover of all the partnerships organised. Meeting with Di out and Josh in from 30 November. All except one thing that is. I gave Di her employment contract on 1 December and she immediately told me that she wouldn’t be signing it till everything was done, and when I asked why, she said it is because she doesn’t trust Terry and Josh. The response does not add up, because clearly she means that she doesn’t trust me either. I’m just not at all sure what her reason could be for holding back on this contract. I made it clear to her that there is a two year restraint of trade in there to keep it in line with the partnership deed. She wanted to know why hers was different to the rest of the staff. Then I made it clear to her that she already has a two year restraint of trade from the partnership deed anyway and that the rest of the staff would be re-evaluated with some of those having a longer period of restraint imposed when their contracts are renewed next.

I haven’t gone back to her about it, as I don’t want to let her think it is concerning me at all. I’m thinking maybe she just wants to blow a bit of smoke and make us feel that she has something up her sleeve? Maybe almost a bit of a tantrum? Or maybe she has got something going? I really have no idea, but I would like it signed before we pay her out. Have you any thoughts on how we should handle this one? Maybe give it some thought before you come up and we’ll talk about it on Wednesday.

If we were in a position where we could have the contracts drawn up and pay her out this week so that the price is now ascertainable. I might draw them up and have them ready so that we can decide which way to go on Wednesday. May need your expertise to negotiate this without Di getting off side.

Talk soon. ” [25]

25. Exhibit 5

27. Not long after recommencing as an employee, Ms Bainbridge commenced advising clients that she was leaving Focus Partners.

28. The two clients concerned were Norm Jessup and Lorraine Shennan. Evidence relating to them will be discussed later in these reasons.

29. There was evidence of Ms Bainbridge discussing her contemplating resignation with Ms Humphries in February 2012 including advising her that she had had legal advice as the restraint of trade clause in her employment contract and being advised by her solicitor that it was “overly restrictive and probably not enforceable.” [26] However Ms Humphries denied discussion of any specific details of Ms Bainbridge’s contracts or agreements with Focus Partners at this time. [27]

    26. Exhibit B, p145 at [34]

    27. Exhibit B, p145 at [35]

30. On 20 February 2012, Ms Bainbridge provided a hand-written letter to the partners at Focus Partners, giving four weeks’ notice of her resignation. [28] The resignation was stated to be in accordance with the employment agreement.

    28. Exhibit B, p 622

31. The circumstances in which the resignation from Focus Partners was submitted to Ms Helen Christensen was set out (from Ms Christensen’s perspective) in a file note. That file note records:-

“Just had an awful conversation with Di. I asked her to come and talk to me, and she did. Very aggressive. She said she simply cannot do it anymore. Asked her what she was going to do and she said that she had no idea, but has had job offers from Sydney, Melbourne, Geelong, Westpac and even Lonsdale approached her (so she says). She said that she cannot do it anymore, and that ‘…clearly there are opportunities out there’ for her. She wanted to know when she would be finishing up, and I said I would have to think a bit more about that." [29]

29. Exhibit B, p 625

32. Ms Humphries stated that Ms Bainbridge contacted her and informed her of her actions on or around 20 February 2012. [30] Specifically, Ms Bainbridge is said to have told Ms Humphries:-

“I’ve decided that I will stay in Wodonga as previously discussed. I would like to come and work with you. I am not interested in equity or anything like that, I just want a job. Like you, I can see some real opportunities to grow your business and I would like to be part of that.”

30. Exhibit B, p 146 at [38]-[39]

33. Ms Humphries is said to have responded as follows:-

“I am pleased to hear that. We will need to catch up to work out what needs to be done. I imagine that they will cancel your AR status with Lonsdale pretty much straight away so we would need to sort out employment details, AR applications with Securitor and so forth. Let me know what happens.”

34. On 22 February 2012, Ms Bainbridge was informed that she should serve out her notice period at home. [31] On the same day, Ms Bainbridge completed and answered a checklist. [32] In that checklist, was a broad acknowledgment and agreement by Ms Bainbridge that she had returned all originals and copies of client information, including but not limited to client lists, portfolio information, SMSF information, bank account details and data. Ms Bainbridge was specifically reminded about the existence of:-

1. Clause 28 of the partnership deed which states: “Restriction on outgoing partners which you are obliged to comply with”; and

2. The restraint of trade clause in her employment agreement. [33]

   31. Exhibit B, p 218 at [25]

   32. Exhibit B, p 621

   33. Exhibit B, p 621

35. It appears that later that day on 22 February 2012, Ms Bainbridge contacted Ms Humphries. In that conversation, Ms Humphries indicated that she needed to organise Ms Bainbridge’s authorised representative application with Securitor and arrangements would be made for the forms to be completed forthwith. [34]

    34. Exhibit B, p 146

36. One of the issues raised by the Plaintiffs was whether or not the circumstances of Ms Bainbridge commencing with HFP had advanced prior to the submission of the resignation. In this respect, the Plaintiffs drew attention to the fact that the application for Securitor Financial Group Ltd was submitted in respect of Ms Bainbridge on 23 February 2012. [35] That form, [36] is said to have been given by Ms Humphries to Ms Bainbridge after being notified by the telephone call of the resignation on 22 February 2012. At section 14 of the form it recorded that in transitioning to Securitor and changing from the previous license arrangement, Ms Bainbridge anticipated the cancellation of the existing license on 25 February 2012 and subject to the application being approved, she could commence with Securitor on 20 March 2012. [37] However, the form also recorded the following:-

“Unable to determine a starting date at this time, dependant on current employer reaction to lodgement on notice to terminate employment.”

35. Exhibit B, p 647

36. Exhibit B, p 627

37. Exhibit B, p 637

37. The above comment was crossed out. The Plaintiffs submitted that its presence indicated that the form was supplied to Ms Bainbridge before 22 February 2012. [38] In cross-examination, Ms Bainbridge indicated that she could not be fully sure that it was on or after 22 February 2012 that she obtained the forms from Securitor and gave them to Ms Bainbridge. [39] When it was then drawn to her attention that she had sworn to this effect in her affidavit, Ms Humphries stated:-

“I would think that was the case. I had been having discussions with Securitor about the possibility of Di joining me prior to that in terms of clarifying what their requirements would be should she decide to do that. So…” [40]

38. Plaintiff’s submissions, 18 May 2015 at [15].

39. T 356.14

40. T 356.17

38. It was clear that the document submitted to Securitor required a number of documents to be annexed, including a compliance report and copies of proposed stationary. Ms Humphries suggested that the letterhead already existed as did the fax header sheet and the business card was also available as there was a template for her. [41] Ms Bainbridge indicated that, insofar as business cards were concerned, her printer would have a template but she did not have any copies. She stated that setting up the template was a straight forward matter involving simply putting the new name on the existing template. [42]

    41. T 361.10

    42. T 361.12-362.14

39. Ms Humphries gave evidence that the submission of the form was done very quickly. She stated in evidence:-

“It was done very quickly. I do recall that. I am aware that Di was very concerned about not having income from employment and was not wanting a break between employment because of her financial position. So I do believe that she came back with the forms very quickly.” [43]

43. T 357.8

40. When the contents of her affidavit were drawn to Ms Humphries’ attention she stated in reference to this matter:-

“If it says that in the affidavit, yes it does.” [44]

44. T 356.10

41. Then, when it was put to Ms Humphries as to whether she was sure, she stated:-

“I can’t be fully sure.” [45]

45. T 356.14

42. Then further, it was suggested to her that the form was given to Ms Bainbridge before 22 February 2012 and Ms Humphries responded:-

“I don’t believe that was the case.” [46]

46. T 356.23

43. Following that and in response to my own question as to whether the form was given to Ms Bainbridge before her employment was terminated, Ms Humphries responded:-

“No. No, she asked me for all of those forms after she had resigned from Focus Partners.” [47]

47. T 360.20

44. Finally, when it was suggested to her that the form was provided to Ms Bainbridge and completed by her at a time that was before her being placed on ‘garden leave’ by Focus Partners on 25 February, Ms Bainbridge responded:-

“I don’t agree. I don’t believe that was the case.” [48]

48. T 356.19

45. Ms Humphries’ evidence wavered. The contents of the form are more consistent with the form having been provided to Ms Bainbridge before 22 February 2012. In particular, the notation on the form (crossed out) and the subsequent insertion of the date upon which it was proposed that Ms Bainbridge’s earlier authorisation would be cancelled (being 25 February) suggests that the form was supplied to her and first completed at a time when she was uncertain as to her commencement date. Ms Humphries’ attempts, in cross-examination, to explain the entry by reference to the cancellation of Ms Bainbridge’s status as an authorised representative of Lonsdale was inconsistent with the primary reading of the document. The provision of the form prior to 22 February 2012 was also more consistent with what was expressed by Ms Humphries as Ms Bainbridge’s desire not wanting a break between periods of employment for financial reasons. In all the circumstances I am satisfied that the form was supplied to Ms Bainbridge prior to 22 February 2012 contrary to Ms Humphries’ evidence.

What were the terms of the restraints?

46. It is not in issue between parties that Ms Bainbridge was bound by the terms of the partnership deed on 1 July 2010 when she signed a deed of accession, by which she agreed to be bound by its terms, and also signed and delivered an option notice. In terms of the partnership deed, the pertinent restraints were agreed between the parties as being relevantly set out in clause 28.2 of the deed which provides as follows:-

“The Outgoing Partner and its Representative agree with the Remaining Partners that during the period of 2 years after the Completion Date (“Restraint Period”) they will not:

(a) solicit, canvass or in any way whatsoever seek the custom of or provide goods or services of the type provided by any of the Businesses to any person who was a client of any of the Businesses within the period of 24 months prior to the Completion Date;

…

(c) approach directly or indirectly any client of any of the Businesses to influence him or her to cease to be a client of the relevant Business or otherwise to entice him or her away from the relevant Business; or

1. …” [49]

   49. Exhibit B, p 502

47. It is not in issue that the completion date, for the purposes of this clause, was defined in clause 1.1 of the deed and was essentially 90 days after the date on which the purchase price of an outgoing partner’s partnership had been determined. Ms Bainbridge resigned from the partnership on 11 May 2011 [50] and received payment for her partnership interest on or after 30 November 2011. [51] Accordingly, the “completion date” occurred on or after 30 November 2011 and the restraint in clause 28.1 commenced 90 days after that date being approximately 28 February 2012. The restraint therefore ended on or about 27 February 2014.

    50. Exhibit B, p 586

    51. Exhibit B, p 217-8

48. The restraint in the employment agreement was in these terms:-

“You shall not, directly or indirectly, except with the prior written consent of Focus Partners, at any time during the term of this Agreement and for a period of two years following termination of this Agreement:

…

Canvas or solicit business from or interfere in any manner with any client of Focus Partners with whom you had dealings with, or performed services for, during your employment with Focus Partners, whether or not you dealt with them personally;

Perform or cause to be performed in any capacity and by whatever means any business or services for any client of Focus Partners with whom you had dealings or performed services for during your employment with Focus Partners; or

...” [52]

52. Exhibit B, p 603

49. As noted earlier, Ms Bainbridge gave notice of her termination of employment on 20 February 2012 and it was effectively brought to an end on 16 March 2012 when the notice period expired. [53] It follows that, by its terms, the restraint in the employment agreement commenced on 16 March 2012 and ended on 15 March 2014.

    53. Exhibit B, p 622; see also Exhibit B, p 10, Further Amended Statement of Claim at [11]

Enforceability of the restraints

50. HFP made submissions as to the enforceability of the aforesaid restraints. With the exception of the argument that the claim that the obligations were breaches of the Restraints of Trade Act 1976 and /or unreasonable or excessive at law [54] they were not pleaded in the defence and objected to by the Plaintiff. [55] However for reasons that will become apparent it is unnecessary for me to consider this point.

    54. Exhibit B, p 37, Amended Defence at [30A]

    55. HFP did not plead to [6], [5] and [16] of the Further Amended Statement of Claim; see Exhibit B, pp 31-33, Amended Defence at [6] - [21A]]

51. HFP first contended that clause 28.2(a) in the partnership deed was a hybrid restraint because it contained a non-dealing restraint and a non-solicitation restraint with the non-dealing restraint being “buried” within the non-solicitation restraint. It contended that a clause which was intended to simply restrain a Defendant from providing services should be clearly expressed. Otherwise, it was submitted that the covenant informs a restraint of one thing which he or she must do but then gives three alternatives with no mechanism for determining which of the three applies. Reference was made in this regard to the decision of Allsop P in Hanna v OAMPS Insurance Brokers Limited. [56]

    56. [2011] NSWCA 267 at [28]

52. The relevant restraint in that case was hybrid referring to both soliciting and dealing. It also had varying restraint periods. In upholding the clause’s validity Allsop P stated:-

“[28]…….. If, on its true construction, a covenant tells a party that there is just one thing he or she must not do, but then gives three alternatives and no mechanism for determining which of the three applies, then that covenant may be uncertain. If there is no inconsistency in what is required (albeit there may be accumulation and repetition) as explained in JQAT, there is no uncertainty. The difference is one of form in drafting. Nevertheless, form in drafting is the basis of the creation of the relevant legal obligations.”

53. The context in which those remarks were made related to the clause there in question. In my view those comments are not applicable to clauses of the nature in the instant case which have different obligations but one restraint period of two years each.

54. Reference was next made to the decision of White J in Planet Fitness Pty Limited v Brooke Dunlop & Ors. [57] In that case, at paragraph [3], the relevant restraint read as follows:-

“Restraint of Trade: During the term of this agreement and during the Restraint Period, the Contractor must not directly or indirectly or through any interposed entity (including a corporate vehicle, trust or partnership) without the prior written agreement of the Company, solicit, canvass or secure the custom of any person who is the Company's client. In this clause:

(a) 'Client' means a person who has been a member of the Company (or any other ' Planet Fitness ' branded gym) or otherwise attended any ' Planet Fitness ' branded gym at any time whilst the Contractor is providing the Services under this agreement; and

(b) 'Restraint Period' means a period of three months after this agreement is terminated.

This clause survives termination of this agreement.” (emphasis added)

57. [2012] NSWSC 1425

55. In that context, White J found that there was a strong prima facie case that a personal trainer had solicited or canvassed persons for whom she had provided personal training services and was contracted to the Plaintiff. An issue arose as to whether an injunction could be granted to restrain the trainer from providing ongoing personal training services to clients as so attracted. The Plaintiff submitted that, as the restraint included a restraint against securing the custom of any person, it would be breached on an ongoing basis by the continuing provision of personal training services to such persons. The Plaintiff submitted that when the personal training services were first provided to the clients in the Second and Third Defendant’s gymnasiums, the First Defendant had secured their custom and that there would be continuing acts of “securing the custom” by the continued provision of the services. Accordingly, the act of providing services to such persons was said to be continuing breaches of the restraint clause. White J disagreed with this construction and stated at [18] and [19]:-

“[18] I do not think that that is the proper construction of clause 3.5. I agree with the submission of counsel for the second and third defendants that the words "solicit, canvas or secure the custom of" have to be read as a whole phrase and that each word in it gives sense to what is restrained. I agree that, considered as a whole, the clause is a restraint against endeavouring to attract, or achieving the attraction of, custom of the former clients of the first defendant, after her contract with the plaintiff had been terminated.

[19] A clause which was intended simply to restrain the first defendant from providing services to former clients would need to be clearly so expressed. Different questions might then arise as to the enforceability of such a clause. I think the clause is one directed against soliciting and was not intended to deal, for example, with the case where a former client of his or her own volition wished to continue to use the first defendant as his or her personal trainer.”

56. HFP’s contention was that, as in Planet Fitness, a construction of the hybrid restraint involves reading the phrases as a whole and giving sense to each word to indicate that the clause is a restraint against attracting former clients. I do not accept this analogy.

57. Clause 28.2(a) clearly covers both solicitation and dealing as did the clause in Hanna v OAMPS Insurance Brokers Limited. [58] I do not believe that it can be reasonably contended that uncertainty arises in its scope. This is particularly so when one bears in mind the contents of the clause as a whole. Clauses 28.1 and 28.3 make provision for circumstances in which an outgoing partner may be able to service a former client subject to meeting the requirements therein. Ms Christensen acknowledged that the purpose of clause 28.2(a) was to include a restraint on providing services and that the partnership deed was constructed by the parties including Ms Bainbridge. According to Ms Christensen’s evidence, the partners “looked at those clauses intently.” [59]

    58. Supra: clause 1(b)

    59. T 139.25-140.10

58. HFP further contends that, even if the second “or” in clause 28.2(a) of the partnership deed is construed as operating disjunctively, ambiguity persists because two terms applied to the same conduct, that is, a former client switching to a new firm, the non-solicitation clause is superfluous because the non-dealing restraint would encompass all transactions caught by the non-solicitation restraint. HFP contends that the non-solicitation restraint was inserted for a reason and the solution is to resolve the ambiguity in favour of the employees (nee outgoing partner) by giving the clause its narrowest operation which is as a non-solicitation clause. I do not accept this contention.

59. Solicitation may ultimately involve the provision of goods or services but it does not necessarily encompass it. Clearly the clause was designed to protect the interests of the partnership by restraining both forms of conduct. In this sense, I do not regard the non-solicitation restraint as superfluous.

60. HFP next contends that, if its arguments as to the hybrid restraint are rejected, the non-dealing aspect of the restraint and the duration of the restraint are captured by the Restraints of Trade Act 1976 which requires the parties to be kept to their agreements only to the extent compatible with public interest in the freedom of trade and legitimate competition.

61. HFP contended that the employer is entitled to protect its customer connection but adequate protection is provided by the non-solicitation clause in circumstances where the non-dealing restraints are generally reserved for cases where the gravitational pull of an employee is significant. Reference in this respect was made to the decision in Pearson v HRX Holdings Pty Ltd. [60] In that case a two year non-compete clause (being a restraint more restrictive than a non-dealing restraint) was upheld as reasonable in circumstances where:-

    60. (2012) 205 FCR 187

1. The employee was the company’s primary presenter to prospective clients;

2. The employee was “the human face of the business”;

3. The particular restraint was the subject of specific negotiation; and

4. It was the subject of separate consideration in the form of payments during the majority of the restraint period.

62. HFP contended that Ms Bainbridge was not the face of the business, was not a threat to the business in the sense of being good at attracting new clients and, accordingly, a non-dealing restraint was not reasonably necessary to protect the Plaintiff’s interests in this customer connection. It was further contended that a 24 month restraint was not reasonably necessary, having regard to Ms Christensen’s evidence as to the time it would take to re-establish relationships with accounting clients (meaning “no time at all”). [61] For those clients who were exclusively involved in financial planning, the process took a bit longer “probably a couple of months.” [62]

    61. T 121.27

    62. T 121.36

63. The Plaintiff submitted, the restraint in the partnership deed was reasonable and should upheld for the following reasons:-

1. The partnership was entitled to have the goodwill of the entire firm protected in the form of a restraint: Bridge v Deacons. [63]

   63. [1984] AC 705 at [716]-[717]

2. Focus Partners in 2006 had paid valuable consideration to acquire the financial planning practice of Colin Trinnick, and most of the clients that were allocated to Ms Bainbridge had been obtained as a result of that purchase. Focus Partners were entitled to have their investment protected. Focus Partners’ investment also included the fact that it had arranged and paid for Ms Bainbridge to be trained up and qualified as a financial planner, and had invested considerable time and effort in the process.

3. The terms of the partnership deed, including the restraint were the product of intensive negotiations over many months. Ms Bainbridge was actively involved in those negotiations. I accept that the partners should be treated as being in the best position to assess what is reasonable and in their own interests for the protection of the goodwill of the partnership.

4. The restraint clause is, of its kind, relatively narrow. It does not prevent Ms Bainbridge from going into practice as a financial planner, or from competing with Focus Partners. Instead, it is limited to preventing Ms Bainbridge from providing services to or soliciting clients of Focus Partners.

5. Each partner was subject to a restraint in the same terms, so it cannot be said that Ms Bainbridge was singled out for any special or unfair treatment.

6. The reasonableness of the restraints was further supported by the need to protect the goodwill of the partnership in so far as it related to clients that had been serviced by Ms Bainbridge, and the confidential information of the partnership.

64. The Plaintiff further submitted that the restraints in the employment agreement were also reasonable and should be upheld for the following reasons:-

1. It was substantially modelled on the terms of the partnership deed, which was itself reasonable for the reasons set out in the preceding paragraph. Ms Bainbridge, as a former partner, continued to be bound by the restraints in the partnership deed and the restraints in the employment agreement were no further than those restraints (and in one respect were narrower – see (3) below). The end dates of the restraints were approximately the same.

2. After resigning as a partner, Ms Bainbridge chose to remain as an employee and entered into the employment agreement, including the restraint, of her own free will and volition. This was claimed to be an important factor supporting the reasonableness of the restraint.

3. The restraint was narrower than the restraint in the partnership deed, in that the restriction on providing services to former clients of Focus Partners was limited to those clients with whom Ms Bainbridge had had dealings or performed services during her employment with Focus Partners (cf. the partnership deed, in which the restriction applied to all clients of Focus Partners).

4. The restraint did not prevent Ms Bainbridge from going into practice as a financial planner, or from competing with Focus Partners. Instead, it was limited to preventing Ms Bainbridge from providing services to or soliciting clients of Focus Partners.

5. Focus Partners was entitled to be protected from the customer connection which Ms Bainbridge had been able to establish with clients of the practice. Ms Bainbridge was given the vast majority of her clients by Focus Partners and became the face of the business to certain clients. Whilst at Focus Partners, Ms Bainbridge was extremely good at cultivating and nurturing strong, comfortable relationships with clients. Ms Humphries said the same was true of Ms Bainbridge at HFP. [64] Ms Humphries also accepted that, in financial planning, it can take a long time to build relationships with clients. [65] In these circumstances, two years is not an unreasonable estimate of the length of time it would take Ms Bainbridge’s replacement at Focus Partners to build up a relationship of trust and rapport with Ms Bainbridge’s former clients.

6. The reasonableness of the restraints was also supported by the confidential information which they protected. Confidential information was defined in the employment agreement to include client information, to which Ms Bainbridge had access. Ms Humphries accepted that client information is confidential and that the employment agreements used by HFP likewise protect as confidential information relating to clients. [66]

   64. T 321.35

   65. T 321.27

   66. T 321.46-322.3

65. In Brown v Cunich (1994) ATPR 46-117 at [53 550], Bryson J stated:-

“The situation in relation to a restraint accepted in a partnership deed, and still more on the occasion of dissolution of a partnership and in return for tangible benefits, is in my opinion quite different to the situation where restraints are imposed in contracts of employment. The situations are significantly different in that the situations of the parties are far more equal and if the parties are far more likely to be in a position to decide for themselves in an informed way and free of inappropriate operations of economic advantages and disadvantages.”

66. Both parties, in their submissions, acknowledged a fundamental distinction between restraints in a partnership deed and in an employment agreement, being that in the former the partnership is entitled to gain the protection of the goodwill of the entire firm and not merely that associated with the former employee’s clientele. [67] References were made to the decision in Bridge v Deacons [68] and JD Heydon, The Restraint of Trade Doctrine (3rd Ed) pp 216-217.

    67. Plaintiff’s Outline of Closing Submissions at [36] and First Submissions of the Fifth Defendant at [87]

    68. [1984] AC 705 at [716]-[717]

67. HFP did not contend that the restraints were not required to protect the legitimate interests of Focus Partners. Rather specifically in relation to the employment agreement (not being the subject of the complaint about certainty), the contention was that the relevant restraint was unreasonable by reason of its length of 24 months. In this respect, the Defendant drew attention to the average duration of restraints in Focus Partners’ employment agreements as being 12 months. [69] Although Mr Terry Howard had a 24 month restraint it was contended that this was because he was the face of the Focus Partners business. [70]

    69. T 108.18

    70. T 108.26-34

68. HFP drew attention to the fact that Ms Bainbridge’s first employment agreement had a 12 month restraint but in the second employment agreement the duration was increased to 24 months and the addition of the non-dealing restraint. [71] This was justified by Ms Christensen on the basis that the restraint should be consistent with the partnership deed. [72] Ms Christensen acknowledged the differences between the partnership deed and the employment agreement. [73] She accepted that Ms Bainbridge had only added a few clients of her own to the firm [74] and that, while she was good at servicing existing clients, she was less skilled at bringing in new clients. [75] Ms Christensen accepted that the purpose of the restraints was to protect Focus Partners’ business interests. [76]

    71. T 141.24

    72. T 141.46

    73. T 147.13-.21 and 148.33

    74. T 150.29

    75. T 151.2-.11

    76. T 151.29

69. In Miles v Genesys Wealth Advisors Ltd,[77] Hodgson JA stated at [36]-[38]:-

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

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

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

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

77. [2009] NSWCA 25

70. Basten JA and Handley AJA did not disagree with these statements of principle.

71. In Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341, Robson AJA (with whom Redlich JA agreed) stated:-

“[81] In those circumstances, was the three year “restraint” unreasonable? The Privy Council in Stenhouse Australia Ltd v Phillips put the test as follows:

… The question is not how long the employee could be expected to enjoy, by virtue of his employment, a competitive edge over others seeking the clients’ business. It is rather, what is a reasonable time during which the employer is entitled to protection against solicitation of clients with whom the employee had contact and influence during employment and who were not bound to the employer by contract or by stability of association. This question, secondly, their Lordships do not consider can advantageously form the subject of direct evidence. It is for the judge, after informing himself as fully as he can of the facts and circumstances relating to the employer’s business, the nature of the employer’s interest to be protected, and the likely effect on this of solicitation, to decide whether the contractual period is reasonable or not. An opinion as to the reasonableness of elements of it, particularly of the time during which it is to run, can seldom be precise, and can only be formed on a broad and common sense view.

[82] Justice Heydon suggests a test that has particular relevance in this case: “how soon the hold of the old employee over customers will weaken: that is, what is the time that would have to elapse before a branch manager who has quit the territory would no longer be able to return and acquire his business?””

72. Maxwell J stated at [9]:-

“[9] The duration of such a restraint is usually an important factor in determining whether the restraint is reasonable. The assessment of duration will depend, in particular, on the nature of the employer’s interest which is being protected and on “the field in which [the restraint] was designed to operate”.10 When the clause in question is (as here) directed at preventing the solicitation of clients, it is relevant to consider the risk of such solicitation occurring.”

73. I have noted HFP’s references to comparable restraints in other employment agreements and circumstances. The pertinent restraints however were accepted voluntarily by Ms Bainbridge following a period of negotiation. Furthermore, I accept the evidence of Ms Christensen as set out in paragraphs [16] and [17] of her affidavit of 1 July 2014 where she stated:-

“The restraint clause contained in the Partnership Deed and agreed to by Ms Bainbridge and other partners, provided for the protection of the Focus Partners partnership. Financial planning and accounting services required detailed knowledge of clients’ financial needs and history, and having regular contact is therefore necessary. Because of this specialised need the Focus Partners partnership partners and senior employees are encouraged to have regular close contact with the clients to service this requirement. Without the restraint clause or restriction on outgoing partners, the Focus Partners partnership was at risk of solicitation of clients, loss of fees, reputational damage and goodwill damage.

I have been a practising accountant for 28 years. From my experience it is common practice that partners and senior employees have post-employment restraints of the type contained in the Partnership Deed.”

74. This statement found some support from Ms Humphries in the following exchange:-

“Q. Did it therefore come as a great surprise to you when a large number of, approximately 28, clients from Focus Partners came across with Ms Bainbridge and asked to become clients of Huon Partners?

A. It didn't surprise me based on what I observed with Dianne when she was in meetings with - with my clients. It also didn't surprise me because when clients, former clients of Focus Partners, would come in I would be introduced to them as the practice principal and they would speak to me very positively about the value that they placed on their relationship with Dianne in many cases pointing out to me that she was the only advisor or person that they knew at Focus Partners. But, also, you refer to the 28 clients that came across. I'm aware that 24 of those clients are retirees, Mr Harding. In those cases, as a financial planner, we're dealing with these peoples life-savings. There's a tremendous amount of trust that they place in us to - to look after their interest. That's why, from my perspective, I was very, you know, focused on making sure I continued to do a good job for my clients but that I wanted some backup there to insure that that could be done if I wasn't there.” [78]

78. T 401.7-.22

75. It is clear that Ms Bainbridge came to service a significant part of the clientele of Focus Partners in relation to questions of financial planning. The restraint which was imposed on her after she resigned the partnership was narrower than the restraint in the partnership deed in that the restriction of providing services to former clients of Focus Partners was limited to those clients with whom Ms Bainbridge had dealings or performed services during her employment with Focus Partners, as compared to the Partnership Deed in respect of which the restriction applied to all clients of Focus Partners. Ms Bainbridge was not prevented from going into practice as a financial planner or from competing with Focus Partners. She was limited, however, to preventing her from providing services or soliciting clients of Focus Partners.

76. Ms Bainbridge was given the vast majority of her clients by Focus Partners and became the face of the business to certain clients. She developed a strong relationship with those clients. [79] Ms Humphries said the same was true of Ms Bainbridge at HFP. [80] Ms Humphries further acknowledged that in financial planning it could take a long time to build a relationship with clients. [81] The evidence satisfies me that in many respects Ms Bainbridge cultivated a personal relationship and her clients at Focus Partners such as to enable her to control the customer’s business as a personal asset. [82]

    79. T 177.43-178.1

    80. T 321.35-.37

    81. T 321.27

    82. Birdanco Nominees v Money (2012) 36 VR 341 per Robson AJA at [45]-[46]

77. The reasonableness of the restraint is also supported by the confidential information which was protected, including client information and “confidential information”. [83]

    83. Exhibit B, pp 601-2

78. In my opinion, the risk which arises in these circumstances was significant. It was the risk that a senior Focus Partner employee had the opportunity to develop a relationship with a client and to acquire a knowledge and understanding of the client’s affairs which were the very things which were likely to make it attractive for the client to leave Focus Partners when the employee leaves in order to maintain that relationship and take advantage of the accumulated knowledge and understanding. When those considerations are brought to bear it does not appear to me that a 2 year restraint was unreasonable in circumstances which included Ms Bainbridge having ceased being a partner and immediately resuming employment.

79. I accept the submission of the HFP that restraints imposed on employees in similar positions has some relevance. However the question of the reasonableness of the restraint is to be considered at the time and circumstances it is entered into. [84] In effect its operation broadly corresponds with that in the partnership agreement. In this context I do not consider that the circumstances of others equate with the position that Ms Bainbridge. There was no suggestion that the level of her client contact and work changed between partnership and employment. The issue needs to be assessed more broadly than the time Ms Christensen and Mr Howard needed to contact and persuade some clients to remain.

    84. JD Heydon, ”The Restraint of Trade Doctrine”, 3rd Edition, Lexis Nexus Butterworths

80. Nor do I consider that the circumstances of cascading level of restraints [85] in the Lonsdale Adviser Deed [86] are instructive as to the reasonableness of the restraints in the employment agreement. Those restraints are specifically expressed to relate to the nature and extent of the benefit which the Adviser (Ms Bainbridge) obtains from the Lonsdale under the Advisor Deed. [87]

    85. being for lesser periods of 12, 6 and 3 months

    86. Exhibit B, p 544

    87. Exhibit B, p 556 at clause [7.2]

81. In the circumstances, there is no case for the application of s 4 of the Restraints of Trades Act 1976. Despite the fact that HFP raised issue of the potential application of s 4(3), no application has been identified.

Knowingly Assisting in Breach of Fiduciary Duties or Knowingly Profiting by Breach of Fiduciary Duties in Accordance with the Principles of Barnes v Addy

82. In paragraph 23 of the Further Amended Statement of Claim it was asserted that HFP received benefits by reason of the breach of fiduciary duty with knowledge that the benefits were earned in breach of those equitable and fiduciary duties. [88] In the particulars it was asserted that HFP was notified of Ms Bainbridge’s duties to the Plaintiffs by the Plaintiff’s solicitors’ letter dated 23 March 2012. [89] In the alternative, it is asserted that HFP, knowing of Ms Bainbridge’s fiduciary duties and the existence of Ms Bainbridge’s dishonest design to breach those duties assisted in that design by using confidential information obtained in breach of confidence to induce the Plaintiffs clients to move their business to HFP. The particulars are said to refer back to paragraph 15.

    88. Exhibit B, p 16

    89. Exhibit B, p 1219

83. In opening, the Plaintiffs’ case under the principles of Barnes v Addy was outlined as follows:-

“It was our case against Ms Bainbridge that she, during her employment, was targeting and soliciting clients. Forget about the restraints which operate only after the employment, but during her employment she was in breach of her duties as a fiduciary enticing clients away. That claim is relevant to (d)(v) because of the Barnes v Addy principle. The Barnes v Addy principle says that where somebody has knowingly assisted in a breach of fiduciary duty or has knowingly profited or gained by a breach of fiduciary duty by another, then that party can be liable to give equitable compensation or an account of profits.

So we still maintain that case against d(v), namely that d(v) was knowingly involved in the targeting by Ms Bainbridge of clients of Focus Partners in breach of her duties as a fiduciary, although it should be said that those clients are only a small subset. We are only talking about a few client here, compared to the overall case of breach of contract which is a much larger pool of all the clients that Ms Bainbridge managed to get across to Huon Financial Planning after her employment ended.” [90]

90. T 8.33

84. On day 3 of the hearing further details were sought from counsel for the Plaintiffs regarding how this aspect of the claim was being advanced. During the course of the hearing counsel made clear that the duties which were the subject of this component of the Plaintiffs’ claim were owed between 1 July 2010 and 16 March 2012. [91] It was further made clear that the allegations of breach of those were set out in paragraph 15(a), (b), (c), (d), and (g) of the Further Amended Statement of Claim. It was further stated that, beginning from March, HFP received benefits. Those benefits were said to include “the fruit of Ms Bainbridge’s unlawful activities whilst still an employee of Focus Partners”. [92]

    91. T 55.33

    92. T 56.12

85. Thereafter I raised with counsel for the Plaintiffs the necessity to revise its statement of issues. [93] The amended statement of issues referred to Ms Bainbridge’s breaches of fiduciary or equitable duties owed to Focus Partners and under the assumption that these were made out, proposed as an issue:-

“…did Ms Bainbridge’s new employer, the Fifth Defendant: (a) know that Ms Bainbridge owed equitable and fiduciary duties to Focus Partners; (b) receive the benefits of those breaches of equitable or fiduciary duties with the knowledge that the benefits were earned in breach of those equitable and fiduciary duties; and/or (c) knowingly assist Ms Bainbridge to breach the equitable and fiduciary duties owed to Focus Partners.”

93. T 61.41

86. Counsel for the Plaintiff stated that, in relation to the Barnes v Addy claim:-

“I can only succeed if I can establish that Huon Financial Planning took the benefit of clients who must have been induced by Ms Bainbridge at the time she was still employed to go across.” [94]

94. T 61.48

87. In the Plaintiffs’ submissions, there is only one instance referable to the claim of breach of fiduciary and/or equitable duties owed to Focus Partners. This relates to the circumstances of Mick McCormick Family Superannuation Fund. Reference is made to an email sent by Ms Humphries to Glen McGrath, a partner at Huon Partners Pty Ltd, on 8 March 2012. [95] At the time of that email, Ms Bainbridge remained employed by the Plaintiff. The email requested that Mr McGrath organise an ethical letter to be sent out to the Plaintiffs in relation to the Mick McCormick Family Superannuation Fund. The email records that the Fund was referred by Ms Dianne Bainbridge and that Mr McGrath would need to meet with him once “Di is on board.”

    95. Exhibit B, p 666

88. In evidence, Ms Humphries stated that she spoke to Mr McCormick and described the circumstances in the following terms:-

“Mr McCormick had contacted Di Bainbridge of his own volition to say that he was leaving Focus Partners and Di gave him Glenn McGrath's name. The phone call was put through to me because Glenn McGrath was unavailable and because I work on the self-managed superannuation financial advice. So again, and I think I stated in my affidavits, I felt that if a client approached us - if the client approached Di rather than - if Di had rung Mr McCormick and Mr McCormick had said, "Di Bainbridge has called me and told me that I should transfer my business to Huon Partners Chartered Accountants I would have had a very different view.” [96]

96. T 406.6

89. When questioned, Ms Humphries accepted that it was not proper or appropriate for Ms Bainbridge, while still employed by Focus Partners, to be giving a client of Focus Partners the contact details of another accounting firm. She accepted that she overlooked the fact and facilitated a meeting with an ex-client of Focus Partners and Mr McCormick. [97] She accepted that there was a realistic expectation that Huon Partners would benefit from a new client, however, she did not accept that it would potentially be of benefit to HFP. [98]

    97. T 408.1

    98. T 408.23

90. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[99] it was clearly established that liability under the “second limb” of Barnes v Addy is confined to cases where the breach of trust or fiduciary duty amount to a “dishonest and fraudulent design”. [100] The Court stated that an allegation of dishonest and fraudulent design was of a seriousness which meant that it ought to have been pleaded and particularised with the assessment required by Briginshaw v Briginshaw [101] kept in mind. Nowhere in the Plaintiff’s pleadings, particulars, opening or submissions has fraud been alleged. Nevertheless, it was not in doubt that the Plaintiff was seeking to allege a breach pursuant to the second limb of Barnes v Addy and such evidence as was led relevant thereto was not objected to on the part of the Defendant. [102] In Hasler v Singtel Optus Pty Ltd [2014] 87 NSWLR 609, Leeming JA (with whom Gleeson JA agreed) stated:-

“It is perfectly clear that breaches of fiduciary duty "vary greatly in their seriousness"; some are well-intentioned and some are trivial, but others amount to serious fraud: Farah at [184]. It is perfectly clear from Farah that only breaches which answer the description of a "dishonest and fraudulent design" can engage Barnes v Addy liability (the position is different in places where the reformulation of principle in Royal Brunei applies). It is perfectly clear that the breach need not be a breach of trust, but may be some other breach of fiduciary duty: Farah at [179]. However, it is very unclear what a "dishonest and fraudulent design" means in this context in Australia at present. The reason for that is the recent decision of the Western Australian Court of Appeal in Bell, which this Court was invited not to follow.” [103]

99. [(2007) 230 CLR 89

100. At [179]

101. (1938) 60 CLR 336 at [170]

102. Hasler v Singtel Optus Pty Ltd [2014] 87 NSWLR 609 at [57]

103. Supra per Leeming JA at [109]

91. It is not entirely clear the context in which Ms Humphries, in her evidence used the term “breach of trust”. [104] Nevertheless, the Plaintiff has not demonstrated any breach by Ms Bainbridge in the circumstances engaging the description of a “dishonest and fraudulent design.” As was stated by Leeming JA in Hasler v Singtel Optus Pty Ltd:-

“As much is confirmed by what had been said in Farah at [170] about the need to plead and particularise fraud and establish it in accordance with Briginshaw. The language there used is consistent only with every breach which is sufficient to answer the description of conduct which is "dishonest and fraudulent" being subject to familiar strictures as to pleading and proof. That is inconsistent with the proposition that there may be breaches of duty falling short of dishonest conduct which may still engage the second limb of Barnes v Addy.” [105]

104. T 407.35

105. Supra

92. Mr McCormick did not give evidence in the proceedings. Ms Christensen’s evidence was that he was a client brought to Focus Partners by Ms Bainbridge who was paid for her interest in so doing when she left the partnership. [106] Ms Humphries evidence was that he was desirous of leaving Focus Partners. Ms Humphries’ file note suggests that the conversation with Ms Bainbridge took place at a time when the later had already given notice of her departure from Focus Partners and was serving out a period of enforced leave. There was no evidence that the HFP benefitted from the transfer of the accounting services. There was some evidence that HFP carried out some transactional work (buying and selling shares) for Mick McCormick Family Superannuation Fund in 2012. [107] The Plaintiffs did not submit any breach arose from HFP doing so. I will address later in these reasons the file note constructed by Ms Bainbridge relevant to the Mick McCormick Family Superannuation Fund dated 22 March 2012. [108]

    106. Affidavit of Helen Christensen sworn1 July 2014, Exhibit B, p 217 at [22]

    107. T 408.32-409.14

    108. Exhibit B, p 931

93. At this stage it suffices to state that the pleaded case in paragraphs [22]-[25] of the Further Amended Statement of Claim has not been established and nor has the second limb of Barnes v Addy been engaged. Further no claim for equitable relief was advanced.

94. This part of the Plaintiff’s claim therefore fails.

Did Ms Bainbridge Breach the Restraints?

Non-Dealing Restraints

95. In paragraph [15] of the First to Third Defendant’s Defence which was tendered in the proceedings, [109] Ms Bainbridge admits to having provided services as an employee of HFP to the clients listed in “schedule A” of the Amended Statement of Claim and that all of those clients ceased to be clients of the Plaintiffs. Furthermore, both experts called by the parties agreed as to the identity of the clients who had left Focus Partners and substantially agreed to the total amount of fees generated by each of those clients. [110] The expert called by HFP, Mr Charlton, in his report dated 6 May 2015 was provided with a schedule which recorded his instructions as to the date on which the ex-Focus Partners clients commenced with HFP. [111]

    109. Exhibit B, p 43

    110. Exhibit C, Joint Witness Expert Report dated 5 May 2015 at [11]

    111. This is recorded in the Appendix herein

[83] Although limiting the inquiry, Lord Hope accepted that whether receipt ofthe settlement amount enlivened the rule against double satisfaction depended on whether the settlement amount was received in full satisfaction of the tort. Inquiry by the court determining what it would have assessed as the plaintiff's damages was excluded. But where, from the terms of settlement or for some other reason within the inquiry, it was shown that the settlement amount was not received in full satisfaction of the tort, the settlement amount would not be full satisfaction for the purposes of the rule against double satisfaction, and there would be no bar to further proceedings against another tortfeasor or other tortfeasors. This recent discussion of the House of Lords is consistent with the principle earlier essayed. In my opinion, judgment for an agreed settlement amount does not necessarily bar the plaintiff from proceeding against a joint or concurrent tortfeasor.

[84] It would be unfortunate if the position were otherwise. Settlement is to beencouraged, and a plaintiff who makes a reasonable settlement should be able to receive its fruits; he should not be inhibited in receiving the settlementamount by fear of the effect on maintaining a claim against another tortfeasoror other tortfeasors. The common law rule that the release of one jointtortfeasor released the other or others should not re-emerge as an uncriticaloperation of the rule against double satisfaction. (In Thompson v AustralianCapital Television Pty Ltd the settlement amount seems to have been paid (see at 576), but it was not suggested that the plaintiff had received fullcompensation for his loss.) It may be noted that the Restatement (Second) ofJudgments (par 50) and of Torts (pars 885-886) both provide that an agreedpayment to the plaintiff by one tortfeasor does not discharge the liability ofanother tortfeasor or other tortfeasors except to the extent that it is so agreed,and W P Keeton, Prosser and Keeton on the Law of Torts, 5th ed (1984) West Publishing Co, Minnesota states at 355 (citations omitted):

“The only desirable rule would seem to be that a plaintiff should never be deprived of a cause of action against any wrongdoer when the plaintiff has neither intentionally surrendered the cause of action nor received substan­tially full compensation. If the statutes are taken into account, this is now the rule actually applied in most American jurisdictions. Where there has been such full satisfaction, or where it is agreed that the amount paid under the release is so received, no claim should remain as to any other tortfeasor; but these are questions of fact, and normally to be determined by the jury, wherethe amount of the claim is unliquidated. The release, however, may very well be taken as a prima facie acknowledgment of satisfaction, and the burden placed upon the plaintiff to prove that it is not.”

[85] In the present case it is not necessary to explore the burden of proof or the extent of permissible factual inquiry. The facts are there and do not go beyond the undoubtedly permissible. In my view, the opponents did not agree to the judgment for, or receive, the $250,000 in full satisfaction of their loss. Mr Whitehead was released in consideration of payment of $250,000, but thedeed of release did not include language such as that in Jameson v CentralElectricity Generating Board, to the effect that the $250,000 was in satisfaction of the opponents' proceedings. On the contrary, it made it plain that the opponents intended to continue the proceedings against the claimant. The $250,000 cannot have been received in full satisfaction of the opponent's loss, because recovery of further compensation was contemplated.” [350]

350. Ibid at [82]-[85]

281. The decision in Baxter was dismissed on appeal by the High Court. [351] At [48] Gleeson CJ and Callinan J stated:-

“….If, either expressly or by implication, a settlement agreement manifested a common intention of the parties to the agreement that the settlement sum was to be paid and received in full satisfaction of the rights of the plaintiff, against the defendant or anyone else, in relation to the loss or damage incurred, then, for both of those reasons, a further claim would fail. The most obvious way to negative such an intention would be by an express reservation of rights. While the effect of the settlement agreement, in the ordinary case, will be the most significant factor bearing upon either or both of the two possible grounds mentioned, it is not possible to eliminate any other circumstances which, in a given case, could indicate unconscientiousness, or loss of the subject matter of a claim. Bearing in mind the obligation to give credit for the amount already recovered, a defendant who could show that the actual loss or damage incurred by the plaintiff did not exceed the amount already recovered would succeed in any event. Leaving aside questions of onus of proof, to say that there is no such excess is simply to say that the loss has been fully recouped.”

351. Baxter v Obacelo Pty Ltd (2001) 205 CLR 635

282. Gummow and Hayne JJ came to a similar conclusion at [69].

283. In the present case, it was clear at the time of the settlement with the First to Third Defendants that the Plaintiffs proposed to continue proceedings against HFP. The proceedings against Huon Partners had earlier been dismissed. There was no acceptance of the sum paid under settlement as full satisfaction of the loss or damage that the Plaintiffs alleged they had suffered. HFP has not amended their Defence to allege that the actual loss of damage said to have been suffered by the Plaintiffs did not exceed the amount already recovered, nor to raise an issue of credit.

284. I do not regard the decision in Permanent Custodians Ltd v Geagea (No 3) [2014] NSWSC 1489 as supportive of HFP’s claim that the payment of damages by one jointly liable defendant is to be taken into account in fixing the liability for damages of another defendant in the way contended by HFP. That case referred to the application of Part IV of the Civil Liability Act 2002 (NSW) which relates to proportionate liability. By reason of s 34 of the Act, its application does not extend to intentional torts. Although HFP raised the decision of Michael Wilson & Partners v Slater [2014] FCCA 2871 at [76]-[80], it did not explain how the discussion in that case assisted in its argument. For all these reasons, I would not uphold this aspect of HFP’s argument.

Damages

285. In order to support its case as to damages, the Plaintiffs qualified Adjunct Professor Wesley McMaster from the College of Business, Victoria University. Professor McMaster is a certified financial planner and fellow of the Financial Planning Association of Australia. Between November 1997 and November 1999, he was the chair of the board of Financial Planning Association of Australia. Apart from expertise in Financial Planning, his CV [352] shows expertise in the business of financial planning, including writing articles and presentations on the valuing of financial planning businesses.

     352. Exhibit B, p 275 (Attachment 5)

286. HFP’s expert was Mr Bill Charlton of Altitude Accounting Pty Ltd. Mr Charlton is a chartered accountant with some 35 years’ experience and specialises in business advisory services, valuations, taxations and financial planning. He also has a consultant role with Securitor Financial Group Limited and in that role has provided valuation business improvement advice for financial planning and accounting firms. [353]

     353. Exhibit B, p 293

287. The experts of both parties produced primary reports and responses to each other’s reports. Professor McMaster produced his first report, dated 7 October 2013. [354] In response, Mr Charlton provided an opinion for the Defendant on the profits derived by HFP from the acquisition of the clients that were formerly Focus Partners’ clients. That report is dated 3 April 2014. [355] Professor McMaster was required to comment on Mr Charlton’s report and consequently produced a supplementary report on 15 April 2014. [356] Before that report, however, Mr Charlton produced a second report [357] dated 6 May 2014 in which he highlighted the need for further information as to financial statements and other explanations used by Focus Partners to understand and respond to the calculations made by Professor McMaster. It is not in issue that these documents were not produced.

     354. Exhibit B, p 260

     355. Exhibit B, p 389

     356. Exhibit B, p 367

     357. Exhibit B, p 347

288. Professor McMaster subsequently made observations on both of Mr Charlton’s reports on 11 June 2014. These observations did not result in the production of documents by Focus Partners. Mr Charlton subsequently produced a third report [358] dated 27 August 2014. Following a request by the Plaintiff’s solicitors, Professor McMaster produced a supplementary report dated 24 April 2015. [359]

     358. Exhibit B, p 1829

     359. Exhibit B, p 1918

289. On 27 April 2015, orders were made directing both experts to confer in accordance with UCPR 31.24 with a view to producing a joint expert report pursuant to UCPR 31.26. A teleconference occurred on 28 April 2015 and the joint expert report was admitted into evidence as Exhibit C7. That report discloses several matters in respect of which the experts agreed for the purpose of the calculation of damages; these are were:-

1. A finalised list of “Schedule A” clients, being those whose matters were lost to Focus Partners; [360]

   360. Exhibit B, p 355

2. Total of fees per client were principally agreed, [361] however, there was no financial information on the list of clients or amounts billed or received from Focus Partners;

   361. Exhibit B, p 349 (Mr Charlton’s report of 27 August 2014)

3. The discount rate used to calculate net present value;

4. The fact that the list of “Schedule A” clients indexation should not be applied to financial planning fees;

5. The salary costs certainly do need to be taken into account when calculating the profitability when providing accounting and financial planning services;

6. The net present value methodology in calculating the loss basis is appropriate; and

7. The principle of calculating the loss to Focus Partners has been the amount of accounting and financial planning services fees which Focus Partners did not receive from lost clients for the period of longevity of each client less the period that Mr Charlton estimated that each client had been a client of Focus Partners was logical and reasonable.

290. There were essentially two areas in which the parties were in dispute relevant to the question of damages. These were:-

1. The longevity of clients; and

2. Costs.

Longevity

291. In her affidavit of 1 July 2014, Ms Christensen stated at [8]-[9]:-

“8. As at 30 November 2011 Focus Partners had approximately 1250 clients and an annual turnover of $1,500,000. Focus Partners Financial Services had approximately$496,000. I know this from records of the business..

9. In relation to the accounting practice, my best estimate, based on experience since 1985, of approximately 28 years, is that:

1. 75% of clients have been clients of the practice for more than ten years (and half of these would have been clients for more than 20 years);

2. About 15% would have been clients for between 10 and 15 years;

3. About 10% would have been clients for less than 5 years; and

4. My estimates are based on my knowledge of my client base, experience and understanding of the Focus Partners business and I therefore believe that the above estimates are accurate an reasonable. We do not have accurate records setting out when clients commenced using our services because our computer records are upgraded every few years."

292. HFP submitted that damages should be calculated for no longer than the period of the restraint or a reasonable period found by the Court. In my view this contention is misconceived. The question is: what is the loss which flowed from the breach. This cannot be calculated by reference to the period of the restraint based on the clients remaining with Focus Partners for longer than two years had the breach not occurred. In my view there is no basis, fact or principle upon which to limit the recovery as HFP contends.

293. Using these figures, Professor McMaster averaged the longevity of the clients in the first instance and came to a figure of 9.03 years. [362]

     362. Exhibit B, p 266 at [29]

294. In evidence, Professor McMaster agreed that he subsequently reduced the weighted average following comments from Mr Charlton that there would be a delay in a client being referred to a financial planner due to the period of time that it would require for the accounting relationship to be established. [363] In his report of 15 April 2014, Professor McMaster calculated the revised weighted average longevity at 7.68 years. [364] Then, supplied with new information from an email of M+K Lawyers on 23 April 2015, Professor McMaster revised the longevity period again to 9.8 years (weighted average) based on advice that, of the 164 financial planning clients not affected by Ms Bainbridge, that there was evidence of a 95% retention rate over 9 years. [365] In cross-examination, Professor McMaster conceded that this calculation was based on an assumption that the 156 clients of those acquired in 2006 (from an original 177) which were still with Focus Partners. He had not been provided with information which related to the remaining 169 clients that made up the 346 financial planning clients of Focus Partners. [366] Professor McMaster stated that he was not given any reason for including information about 177 of the 346 financial planning clients. [367] Professor McMaster further conceded that clients could leave a firm for a variety of reasons, including poor service, disagreements of advice or loyalty to a departing financial planner. [368] Professor McMaster’s attention was then drawn to the contents of paragraph 32 of his report of 7 October 2013 where he stated:-

“It is my experience that it is highly unusual for a client to leave a professional services business and move to another professional services business, assuming the first business provider’s satisfactory service without being approached by the second business or referred to the second business by an intermediary.”

363. T 217.5

364. Exhibit E, p 373 at [33]

365. Exhibit B, p 1921 at[17]

366. T 218.7-.29

367. T 219.22

368. T 219.36-.46

295. He conceded that there were no references in his instructions to the reasons the clients’ leaving being the result of any inducements by HFP. He further conceded that this was an assumption that he made. [369] It was then put to Professor McMaster that his calculation, including only 10% of clients moving within 2.5 years was understated because the actual proportion wrongly supposed that the “lost” clients were included in the sample size. Mr Charlton indicated that if the departing clients were included in the calculation but the proportion of clients moving in less than 2.5 years would not be as high as 20% but would be around 16%. [370] Professor McMaster indicated that he was only aware from the hearing that the firm had something like 350 clients and if that were the case then it should have been possible to make a calculation based on a wider and broader profile which would be more accurate. [371] He conceded that he had not been provided with any information in relation to the remaining 169 clients. [372]

     369. T 227.13-.21

     370. T 230.45

     371. T 230.22

     372. T 230.32

296. The information which was the subject of Ms Christensen’s earlier affidavit was supplemented by an affidavit sworn 24 April 2015 in which she stated:-

“8. I refer to paragraphs 8 and 9 of my Supplementary Affidavit of 1 July 2014 [at CB p 238], in which I set out information in relation to the average longevity of clients.

I have identified the clients Focus Partners purchased from Colin Trinnick in 2006 from the Visiplan software Colin provided to us when we purchased the business. Of the 177 clients purchased from Colin:

(a) 6 have since deceased

(b) 2 are no longer clients

(c) 13 went with Bainbridge

(d) 156 remain as clients of Focus Partners Financial Planning.” [373]

373. Exhibit B, p 1878

297. Mr Charlton gave a detailed critique of Professor McMaster’s report in his report of 27 August 2014. [374] In contrast to Professor McMaster who adopted a generalised approach based on estimates provided to him from Ms Christensen Mr Charlton carried out calculations of assumed longevity which the Plaintiffs, in submissions, [375] accepted as based on “actual demonstrated longevity of the “Schedule A” clients themselves.” It is clear from attachment R [376] of his report and the analysis conducted in attachment S [377] that Mr Charlton has shown that the Schedule A clients display an average longevity of 6.54 years retention. Mr Charlton indicated in his report of 27 August 2014 that, in order to simplify his calculations and remove any further contention, he standardised this longevity figure across all clients across both accounting and financial planning and on all future income calculations in the expert report. [378]

     374. Exhibit B, p 1830

     375. See submissions dated 18 May 2015 at [101]

     376. Exhibit B, p 363-4

     377. Exhibit B, p 366

     378. Exhibit B, p 1839

298. I accept Mr Charlton’s opinion as the more credible basis on which to assess the issue of longevity as it is based on an actual analysis of the Schedule A clients themselves and not on the more subjective estimates provided by Ms Christensen.

Costs

299. The next issue in dispute was the approach to the calculation of costs that would have been incurred by the Plaintiffs to service the lost “Schedule A” clients.

300. Ms Christensen indicated, in her affidavit of 1 July 2014 at paragraph [6]-[7], that she was asked to determine the variable costs of the accounting and financial planning clients to Focus Partners, being the additional costs which would have been incurred in the clients were required to be serviced. [379] In determining the additional costs for the accounting clients, Ms Christensen stated that she factored in “printing, stationary, postage, telephone, salaries and superannuation for the accounting staff” before concluding that the costs of the accounting clients represented 47% of the total accounting income of Focus Partners in 2012/13. In relation to financial planning clients, Ms Christensen stated that there would not be a need to increase staff as Focus Partners’ existing staff would be able to service all of the lost clients, however, there would be additional costs for “printing, stationary, postage, telephone and the monthly license fee from Lonsdale.” She concluded that the financial planning clients represented 9% of the total financial planning income of Focus Partners, based on the 2012-13 financial year. Attached to Ms Christensen’s affidavit was a summary which set out the basis of her calculation.

     379. Exhibit E, p 237

301. Ms Christensen was cross-examination extensively as to attribution of costs, attributable to the Schedule A clients. [380] Ms Christensen conceded that, at the request of her solicitors, she prepared a variable costs approach. [381] She further conceded that, insofar as instructing Professor McMaster, she informed him that the cost of servicing the financial planning clients was 9%. [382] She stated that she believed that he was expert enough to have requested any further information should he have required it. [383] Details of Ms Christensen’s calculations were provided at Exhibit B, p 240, however, it was acknowledged that this was an extract. [384] A full profit and loss statement was supplied and was contained in Exhibit B, p 1884 in relation to financial planning and at p 1886 for accounting. Critically, the full profit and loss included salaries as service costs for financial planning clients. [385] It was contended that when these were included for 2012/13 year, the profits were about 20% of the income. [386]

     380. T 121.38-137.40

     381. T 136.48

     382. T 130.22

     383. T 130.31-.40

     384. T 131.35

     385. T 133.38

     386. T 134.27

299. The basis upon which Ms Christensen excluded the salary component from her marginal costs approach was explained in Ms Christensen’s affidavit of 24 April 2015 at [4] where she stated:-

“4. At paragraph 7 of my Supplementary Affidavit of 1 July 2014 I stated that there would not be a need to increase financial planning staff to service the clients that went to Huon, as Focus Partners’ existing staff would be able to service all of those clients. By way of further explanation:

(a) at the time of Diane’s departure, our financial planning staff were not working with a client portfolio filled to capacity and would have been capable of servicing the departed clients;

(b) prior to Ms Bainbridge notifying of her departure, we had already planned to have Zac Trinnick join our financial planning team. I, along with Terry Howard, assisted with client care during the transition period only.

(c) we now have more financial planning clients than we did when Dianne departed and have been able to service these clients without any increase in financial planning staff numbers from the time that Dianne was last employed, We had 2 financial planners including Dianne during the time of her employment, and we still have 2 financial planners. At all relevant times we employed only 2 administrative staff, Shannon Knight and Rowena Galley, in relation to the Financial Planning aspect of the business.” [387]

387. Exhibit B, p 1877

303. Whatever view one takes of Ms Christensen’s ability to calculate additional expenses attributable to the lost clients, I do not accept the assumption that salary related costs are not to be included in light of the agreement reached by both experts – that they need to be taken into account in calculating the profitability of providing accounting and financial planning services. [388]

     388. Exhibit C7 at [3](v)

304. I accept that rationale provided by Mr Charlton in his report dated 27 August 2014 at [22], where he states:-

“22. Whilst I have no doubt that Ms Christensen can calculate selected variable expenses as a percentage of income after 28 years as a Chartered Accountant, the question is whether a marginal cost approach (where some clients are fixed with the full costs of servicing – including salaries – whilst other clients are only fixed with variable costs – excluding salaries) is an appropriate methodology in this case and if it is, whether it is appropriate to apply such a methodology selectively (i.e. To Financial Planning clients but not Accounting clients). In simple terms, Prof McMaster says that wages should be taken into account in assessing the post-costs income from Accounting clients, but not Financial Planning clients, whereas I say wages need to be taken into account in both contexts. I disagree that the marginal cost methodology is appropriate because it is almost certain that following the departure of a number of clients, management would take steps to reduce costs in salaries and overheads so that existing cost structures and margins could be maintained across the client base – particularly if they were still operating with the free capacity to service both outgoing and retained clients, but only continuing to receive income from the latter. This is especially true in Financial Planning, where a very specific skill set and supporting qualifications are needed in order to provide these services, with legal implications if this advice is provided by an individual who does not possess the appropriate authority, giving Financial Planning staff a higher value – and therefore a higher cost – than other professions where there is less of a focus on regulatory compliance.” [389]

389. Exhibit B, p 1835

305. In the joint report, Mr Charlton nevertheless stated that he was unable to agree on the calculation of costs associated with producing accounting and financial planning revenue in the case of Focus Partners as insufficient data had been supplied. [390] He stated that, since his report of 27 August 2014, a schedule of staff and salaries had been supplied to him, however, this was a list of employees/directors with their gross salaries and it was insufficient for the purposes of determining wage costs between financial planning and accounting. He received profit and loss statements from Focus Partners but only some of the expenses had been disclosed and there was no detailed breakdown of the service fees component. [391] As a result of the lack of information concerning the true relationship between expenses and income, Mr Charlton relied on industry averages as a reasonable basis for determining the true profitability for the accounting and financial planning businesses. [392] For the purposes of his calculations, Mr Charlton used industry performance benchmarks prepared by B-Star Pty Ltd. [393] The two methodologies used by Mr Charlton involved using an average cost approach whereby he subtracted from projected revenues for the client the projected average expenses associated with that client based on industry averages for comparable businesses. These calculations were performed on two alternative bases:-

1. A gross profit calculation in which he subtracted from the projected future income stream over the longevity of each of the clients an average allocation (based on industry averages) for the direct costs of servicing those clients, being salaries, wages, superannuation, payroll tax, dealer fees and training and development costs. [394]

2. A net profit calculation in which he subtracted from the projected future income stream over the longevity of each lost client an average allocation of the total costs for services those clients (based on industry averages) including the direct costs but including other costs, including fixed costs such as rent. [395]

   390. Exhibit C7 at [6](21)(v)

   391. Exhibit C7 at [6](21)(viii)

   392. Exhibit C7 at [6](21)(ix)

   393. Exhibit B, p 331-3

   394. T 255.36-256.5

   395. T 255.30, 256.35

306. In my view, bearing in mind the fact that the fixed costs have already been incurred by Focus Partners, the appropriate calculation would be a gross profit calculation as proposed by Mr Charlton. This comes to a figure of $347,127.00 in relation to both accounting and financial planning. [396] Mr Charlton’s detailed calculations, based on his assumptions as to the costs issue and the longevity issue are contained in attachment 6 to his report of 27 August 2014. [397]

     396. Exhibit C7 at [7](26)(b)

     397. Exhibit B, p 1863-4

307. I do not regard a more realistic approach to the lost profits being a review of the actual revenue and costs as per HFP’s profit and loss statement. The object of the award of damages in a tortious case is to put the injured Plaintiffs in the position that he/she would have been had the tort not occurred. [398] I accept the Plaintiffs’ contention that the exercise involves a comparison between the Plaintiffs’ actual position and the position that the Plaintiffs would have been in had the tort not occurred. I do not accept that this can be viewed by examining the performance of HFP after the occurrence of any tort by HFP. Nor do I accept the submission by HFP that the loss occasioned through the “Schedule A” clients can be estimated by averaging out the profits of Focus Partners in respect of the remaining 346 financial planning clients which, according to HFP’s submissions, would come to a profit of $275 per client. [399]

     398. Todorovic v Waller (1981) 150 CLR 402 at [412] per Gibbs CJ and Johnson v Perez (1988) 166 CLR 351 at [355] per Mason CJ; McCrohon v Harith [2010] NSWCA 67 at [51]

     399. Written submissions of HFP at [133]

308. I accept Professor McMaster’s evidence that that he could not draw any conclusions based on a profit per client of $275 based to the remaining not the lost clients. [400]

     400. T 251.10

309. In its written submissions [401] HFP referred to the evidence of Professor McMaster and, in particular, to his acknowledgment in evidence that, as a general rule in the financial planning industry, profitability amounts to 20% of gross fees and expenses account for about 80% of revenue. [402] HFP further submitted that, in the case of the June 2013 profit and loss for the financial planning division, Professor McMaster acknowledged that the division ratio of expenses to revenue was about 80% [403] and the ratio was 65% for June 2011 and 75% for June 2012. [404] On this basis, HFP submitted that, based on Focus Partners’ own profit and loss statements, the appropriate deductions should have been made for costs for financial planning was approximately 80% not 9%. However both the 2012 and 2013 year figures are affected by the loss of clients.

     401. Written submissions of HFP at [135]-[136]

     402. T 239.3-.11

     403. T 240.10

     404. T 240.46, 241.4

310. In the circumstances I would prefer to rely on the industry averages utilised by Mr Charlton in his calculations and, on this basis, I would have awarded damages in the amount of $347,127.00.

Orders

311. For these reasons the orders are as follows:-

1. Verdict for the Fifth Defendant.

2. Subject to an approach to my Associate within 14 days from the date hereof to relist the matter for argument as to any further or other orders as to costs, the Plaintiffs are to pay the costs of the Fifth Defendant, HFP.

3. The exhibits are to be retained for 28 days.

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APPENDIX

Endnotes

Decision last updated: 12 October 2015