Landmark Underwriting Agency Pty Ltd v Kilborn

[2006] NSWSC 1108

CITATION:	Landmark Underwriting Agency Pty Ltd v Kilborn [2006] NSWSC 1108
HEARING DATE(S):	11, 12 September 2006
JUDGMENT DATE :	23 October 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Plaintiff is entitled to injunction to restrain defendants from involvement with other companies in the industry for four months. Set aside notice to produce relevant documents of legal advice because there was no waiver of privilege.
CATCHWORDS:	CORPORATIONS [105]- Officers' duties- Whether breach of statutory duty by using confidential information for own purposes- Held "Yes", but duty no higher than general law- However consequences flow from finding- Corporations Act, 2001 (Cth) ss 182, 183, 1317E. EQUITY [34]- Fiduciary obligations- Employees- Covenant to be loyal and keep confidences- Employees taking steps whilst still employed, but outside work hours to initiate new rival business to commence when employment terminated- Use of some of employer's information to do so- Employer traded with brokers- Employees intended to trade with brokers' customers directly- Whether employees' business competing. EVIDENCE [75]- Professional legal privilege- Legal advice referred to in employees' business plan- As supporting plan- Plan annexed to affidavit- Production sought of documents recording that advice- Whether waiver of privilege- Disclosure of "substance" of advice or merely the effect of advice- Borderline case- Held privilege not waived- Evidence Act 1995, s 122(2). INTELLECTUAL PROPERTY [112]- Confidential information- Employer, insurance underwriter of agricultural insurance, holding information as to weather conditions and claims details- Information held confidential. WORDS & PHRASES- "Client"- Who is client A or B where A submits insurance proposal through B a broker- Held, in circumstances, B is client.
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss 182, 183, 1317E, 1317H, 1324 Corporations Law, ss 232(5) & (6) Evidence Act 1995, s 122(2) Supreme Court Act 1970, s 23 Supreme Court Practice Note SC Eq 1, para 13
CASES CITED:	Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12 Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 70 ALJR 603 AWB Ltd v Cole (No 1) [2006] FCA 571 AWB Ltd v Cole (No 5) [2006] FCA 1234 Bennett v Australian Customs Service (2004) 140 FCR 101 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 Campbells Transport Pty Ltd (Ex parte); Re Sneddon [1962] NSWR 371 Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 Digital Pulse Pty Ltd v Harris (2002) 40 ACSR 487 Forkserve Pty Ltd v Pacchiarotta [2000] NSWSC 979 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 ICAP Australia Pty Ltd v BGC Parners (Australia) Pty Ltd [2005] FCA 130 Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 Mann v Carnell (1990) 201 CLR 1 Muschinski v Dodds (1985) 160 CLR 615 Portal Software Pty Ltd v Bodsworth [2005] NSWSC 1179 Reid v Burrows [1892] 2 Ch 413 Rosetex Company Pty Ltd v Licata (1994) 12 ACSR 779 Seven Network Ltd v News Ltd (No 10) (2005) 227 ALR 704 Terrapin Ltd v Builders' Supply Co (Hayes) Ltd [1967] RPC 375 Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353 Toulmin v Becker 124 NE (2d) 778 (1954) (Ohio Court of Appeals) Woolworths Ltd v Olson [2004] NSWCA 372 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
PARTIES:	Landmark Underwriting Agency Pty Ltd (P) Michael Kilborn (D1) James Hooper (D2)
FILE NUMBER(S):	SC 2942/06
COUNSEL:	P M Wood and J C Hewitt (P) G A Sirtes (D)
SOLICITORS:	Phillips Fox (P) Eakin McCaffery Cox (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Monday 23 October 2006

2942/06 – LANDMARK UNDERWRITING AGENCY PTY LTD v KILBORN & ANOR

JUDGMENT

1 HIS HONOUR: Prior to 2006, each of the defendants was in the employ of the plaintiff. Each of the defendants gave six months' notice of their resignation to the plaintiff on 3 January 2006. This was in accordance with their employment contract. However, on 5 May 2006 the plaintiff purported to terminate the defendants' employment and for present purposes, I can assume that that termination was effective.

2 Each of the defendants had entered into an employment agreement with the plaintiff. The agreement was signed on 26 August 2005 in the case of Mr Hooper, and 16 September 2005 in the case of Mr Kilborn. Mr Hooper had in fact commenced employment with the plaintiff on 22 January 2001 and Mr Kilborn on 29 July 2005.

3 Despite their previous uninterrupted employment, each of the agreements commenced with the statement that the plaintiff was pleased to offer the defendant employment on terms and conditions set out in their letter. No-one, however, has made any point about this.

4 It is necessary for me to set out clauses 6, 9 and 13 of the employment agreement which is the same in each case:

" 6. Your Responsibilities
6.1 You will at all times:
6.1.1 Comply with our lawful directions and our policies and procedures as may be amended from time to time; and
6.1.2 Comply with all legislation which applies to our business and the General Insurance Code of Practice.
6.2 You will maintain the skills, competencies and knowledge required to enable you to competently perform your Duties. You will undertake any further training or education that we reasonably require from time to time. We may pay for all or part of any training you undertake at our request in accordance with our policy.
6.3 You will devote the whole of your time during your Hours of Work to our business.
6.4 You will not undertake any other profession or business whatsoever for profit without our prior consent in writing.
6.5 You will not allow any conflict of interest to exist between you and us or between you and our clients. If any actual or potential conflict of interest arises, you will disclose it to us as soon as practicable. If you are unsure whether a conflict of interest has arisen, you will consult your Manager.
6.6 You have represented that you are a fit and proper person to carry out the duties of the position being offered to you. It is an essential condition of your continued employment that you remain a fit and proper person. If your situation changes you must immediately inform your Manager.
9. Confidential and Proprietary Information
9.1 As an employee you have a duty to protect our confidential and proprietary information. Our confidential and proprietary information includes but is not limited to:

· information about our, and our client's, organisation structure, strategies, plans, research, operations, processes, transactions, databases, customer lists, finances;

· documents or other material developed, written or amended by you in the course of your employment; and

· all current and future copyright and related rights, patent application rights, patent rights, design rights, trade mark rights (whether registered or unregistered), techniques, source code, object code, software, materials, documents or manuals and any other know how which we have used, developed, paid for or obtained in the conduct of our business

including any copies, which are not generally available to the public and to which you gain access or of which you become aware during the course of your employment.
9.2 You acknowledge that in the course of your employment you may become privy to and acquire access to confidential and proprietary information. You agree that this information belongs to us and will remain our sole property.
9.3 You consent to us doing any act or thing or failing to do any act or thing which would otherwise be a breach of your moral rights (as defined in the Copyright Act 1968 (Cth) ) in copyright material you have created or contributed to during your employment whether before or after the date of this Agreement.
9.4 You will at all times maintain absolute confidentiality of our confidential and proprietary information and will use your best endeavours to prevent its publication or disclosure to any third party and to protect it against unauthorised use.
9.5 You agree to assign to us all intellectual property rights which you may hold in documents or other material developed, written or amended by you in the course of your employment whether before or after the date of this Agreement.
9.6 To further protect our proprietary information you agree to execute all documents and perform all lawful acts which we reasonably require to perfect our title to it and anything that is based on or derived from it.
9.7 You will on demand promptly return to us all documents, notes, papers, diagrams, materials or other information in whatever form whether comprising part of our confidential and proprietary information and you must not keep any copies of such material or information in any format or medium.
9.8 You acknowledge that damages alone would not provide adequate compensation for a breach of this clause. Consequently, in the event of a breach of clause 9 by you we are entitled to injunctive relief against you and to compel specific performance of the provisions of this clause by you.
9.9 This clause 9 will continue to apply after this agreement is terminated.
13. Restrictive Covenants During and After Termination of Employment
13.1 While your employment continues, and after your employment ends for the Restraint Period shown in Schedule 1, you must not, in the Restraint Area, without our prior written consent, do any of the following on your account or on behalf of any other person or entity:

· Directly or indirectly carry on (whether alone, in partnership or in joint venture with anyone else) or otherwise be involved in a senior or managerial capacity (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) in any business competitive with our business at the date of the termination of your employment, excluding the holding of up to 5% of the shares in any publicly listed company;

· Solicit, canvass, approach, persuade or encourage any of our directors, managers, employees or agents to leave our employment or agency whether or not that person would commit a breach of that person's employment agreement;

· Solicit, canvass, approach, persuade, encourage or accept any approach from any person or entity who is, was or has at any time during the 12 months immediately preceding the termination of this Agreement been our client with a view to establishing a relationship with or obtaining the custom of that person or entity in a business which competes with us; and

· Interfere or seek to interfere directly or indirectly with our relationship with our clients, customers or employees in the conduct of our business.

13.2 You agree that:

· The obligations and restrictions contained in this clause and clause 9 are reasonable and necessary to protect our goodwill, commercial standing and competitive advantage;

· Clause 13.1 is construed and has effect as if it were a number of separate sub-paragraphs which result from combining each Restraint Area with each Restraint Period with each restrained activity. Each such resulting sub-paragraph has effect as a separate and severable prohibition or restriction and is to be enforced accordingly.

· If these restraints are void as unreasonable for the protection of our interests and would be valid if part of the wording was deleted or the Restraint Area and/or Restraint Period was reduced, then the restraints will apply with the modifications necessary to make them effective.

· We are entitled to obtain interim and final Court orders preventing you from breaching your obligations under this Agreement in addition to any orders for any other remedy arising from the breach.

13.3 This clause 13 will continue to apply after this Agreement is terminated."

5 Schedule 1 contains a series of time periods. However, the plaintiff has elected to seek to restrain the defendants from trading contrary to clause 13 until 4 February 2007, that is, nine months from 5 May 2006.

6 I heard the case on 11 and 12 September 2006, Mr P M Wood and Mr J C Hewitt appearing for the plaintiff, and Mr G A Sirtes for the defendants. Plaintiff's counsel very helpfully submitted a written outline which states the issues which the plaintiff wishes to be determined. Mr Sirtes does not cavil with this list.

7 The issues, which I will deal with seriatim, are:

8 (a) Whether the defendants have breached clauses 6, 9 and 13 of their employment agreements with the plaintiff or propose to breach clause 13 and what consequences follow from any breaches or proposed breaches.

(b) In particular, is clause 13 of the respective employment agreements enforceable to ground an injunction restraining the defendants from soliciting "clients" from the plaintiff or otherwise being involved in the rival business known as Rural Affinity Insurance Agency for a nine month period from the date of termination of employment.

(c) Do ss 182, 183 and 1324 of the Corporations Act 2001 (Cth) or fiduciary principles otherwise provide a basis for the court to restrain the defendants from soliciting clients from the plaintiff or otherwise being involved in the Rural Affinity business either by means of the "springboard" doctrine or as a consequence of post-employment fiduciary obligations for a four month period from the date of the orders?

(d) Whether Landmark is entitled to an injunction to protect confidential information.

9 The facts are not in dispute. I am taking these from Mr Wood's written submissions together with Mr Sirtes' comments on them.

10 The plaintiff, Landmark Underwriting Agency Pty Ltd ("Landmark") is an insurance underwriting agency operating in the area of agricultural insurance. Landmark acts as the agent for Allianz Australia Insurance Limited pursuant to an insurance underwriting agency agreement in writing contracts of insurance for Australian farmers and crop growers and in handling claims by those farmers and growers. Landmark commenced business in 2000. It employs 12 people in its Sydney office.

11 Landmark's main competitor is Agricola and its other major competitors are Insurance Facilitators, CGU, Wesfarmers Federation Insurance and QBE.

12 Landmark obtains its business through insurance brokers who act on behalf of insured farmers. A large proportion of its business is generated through AgriRisk Services ("AgriRisk"), a broker which is an associated entity of or affiliated with Landmark and Aon.

13 Landmark's most lucrative product lines are cotton and forestry insurance. For the 2005/06 season, 84% of Landmark's revenue was derived from 429 cotton and forestry clients (representing about 25% of the total client base by number of clients for that period).

14 A critical aspect of Landmark's business is in assessing the risks for potential insureds. Landmark compiles the information that enables it to assess risks in a number of ways. Landmark used a detailed proposal form for its policies which required extensive disclosure by farmers and growers on matters bearing on the risks involved. The defendants were involved in the assessment of risk process.

15 Landmark's claims handling processes were detailed in a claims manual; and it maintained a database containing detailed information on the individual insured, compiled over time based on a combination of claims histories as well as information gained from underwriting the risks. The database contained information specific to particular insureds, property locations, brokers, premiums and commissions and permitted models to be made incorporating changes to such variables as policy excess, sum insured, farm production, crop variety changes and total losses. The database information is critical for the actuarial studies undertaken by insurers and reinsurers to determine exposure. The defendants do not agree that Landmark utilized the services of any actuary.

16 Landmark owns claims records for cotton hail insurance dating back to 1989, and from an actuarial perspective they represent the most complete data set in Australia and have been used to develop zone ratings for cotton crops which aggregate risks that have similar exposures in terms of frequency and severity of insured perils, which are not based on local government areas and which are used to determine premium for those zones. There is no publicly available source of information for claims histories of individual farmers or for the geographical areas Landmark believes to be lowest risk.

17 The underwriting of risk in the cotton and forestry industries is a difficult business, requiring informed risk selection, assisted significantly by historical information on localities, including frequency and severity of hail, windstorm and fire and by actual farm management practices. The defendants had access to Landmark's information on those matters, and direct contact with farmers and growers.

18 Mr Hooper commenced employment with Landmark in January 2001 as an underwriting manager.

19 Mr Hooper was a very senior manager of Landmark. From July 2004 he was the acting general manager of Landmark and the most senior employee until July 2005 and in that capacity had primary managerial responsibility for Landmark.

20 When Mr Kilborn joined Landmark on 29 July 2005, Mr Hooper retained the product responsibility for Landmark's cotton and forestry product lines. Mr Hooper considers that his "special skills are in cotton insurance". He also had primary responsibility for the relationship between Landmark and the two most important brokers, AgriRisk and Aon. The two brokers account for approximately 83% of Landmark's business.

21 Mr Hooper also handled annually the negotiation of the annual renewal terms and conditions with Landmark's reinsurers in Switzerland and Germany.

22 Mr Hooper was closely involved in Landmark's claims settlement process. Mr Hooper, along with Mr Kilborn, had the highest claims settlement authority of anyone within Landmark.

23 Mr Kilborn commenced employment with Landmark around 29 July 2005 as an underwriting manager.

24 Mr Kilborn had senior management responsibilities with Landmark with responsibilities including staff management, product management, underwriting management, client management, claims handling and staff training. He had primary responsibility for the relationship between Landmark and the brokers that Mr Hooper was not dealing with. He also had a very senior role in Landmark's claims settlement process.

25 The defendants entered into Employment Agreements ("the Employment Agreements") with Landmark that were substantially identical. Mr Hooper's agreement is dated 4 August 2005, though it would seem it was signed on 26 August 2005 and Mr Kilborn's is dated 16 September 2005.

26 In March and April 2005, before Mr Kilborn had commenced employment with Landmark, Mr Hooper and Mr Kilborn had discussions about establishing an underwriting agency that would compete with Landmark.

27 The defendants' Employment Agreements were entered against a backdrop of discussions between the defendants and Mr Green (the managing director of the plaintiff) about the defendants becoming shareholders in Landmark.

28 On 26 August 2005, Mr Hooper sent an email to Mr Green regarding his Employment Agreement which stated:

I am happy to sign my employment agreement on the basis of our previous exchange ie if for some reason our SHA falls over the restraint period would be 9 months.

"SHA" appears to be a reference to a proposed shareholders agreement.

29 The discussions between the defendants and Mr Green came to a head at a meeting around 3 January 2006, immediately after which the defendants tendered notice of their resignations. The defendants' joint resignation letter dated 3 January 2006 states the defendants' desire to work "in a business run independent from any other and in accordance with a business plan or our design." The letter refers to the negotiations which were "premised on a compromise from both parties" but states that the defendants were no longer interested in pursuing a shareholding in Landmark. The letter was expressed to serve as notice of resignation to take effect on 3 July 2006 (in accordance with clause 10.1).

30 On 13 January 2006, Mr Green sent the defendants an email reminding them that they were required to adhere to the company policy on confidentiality. The email also stated:

Therefore until I advise you otherwise you are hereby instructed not to advise, discuss or infer to any staff member, client, underwriter, reinsurer or any service provider to Landmark Underwriting Agency that you have, may have or intend to resigned [sic] your employment from this company.

The defendants did not comply with this lawful direction.

31 Following their notice of resignation, and while still employed by Landmark, the defendants began taking steps to establish Rural Affinity, which was proposed to be an agricultural insurance underwriting agency business with products designed for, inter alia, the cotton and forestry markets.

32 Those steps included the following:

(a) The defendants prepared business plans for Rural Affinity. A 40 page draft of that plan was prepared by 10 March 2006. A further draft of the business plan was dated May 2006. The defendants commenced work on the business plan in early February 2006.

(b) The March 2006 Business Plan included details of Landmark's gross margins and both the March 2006 Business Plan and the May 2006 Business Plan included details of budgeted premium from its different product lines and also listed the strengths and weaknesses of Landmark.

(c) Mr Hooper sought underwriting support for the new business from Allianz, the plaintiff's underwriter, and sent a copy of the business plan to Glenn Lambert of Allianz on 9 March 2006.

(d) The defendants offered employment to Mr Alex Cohn, an employee of AgriRisk.

(e) The defendants provided Mr Cohn with a copy of the business plan that had been sent to Allianz.

(f) The defendants deliberately concealed their discussions with Allianz from Mr Green.

(g) Mr Hooper and Mr Kilborn met with Allianz on at least 10 January 2006, early February 2006, 13 April 2006, 27 April 2006 and 4 May 2006.

(h) By early May 2006, Mr Hooper believed that he had reached a firm agreement with Allianz.

(i) The proposal discussed with Allianz involved Allianz "incorporating their existing portfolio into the agency".

(j) The defendants also had discussions with another company for underwriting support and provided documentation to them concerning Rural Affinity.

33 The steps taken by the defendants described in the preceding paragraph were unknown to Landmark at the time. On 2 or 3 May 2006, Landmark became aware that the defendants had taken steps to establish Rural Affinity while still employed by Landmark. This was confirmed by the defendants in an email to Mr Green dated 5 May 2006. After receiving that email, Landmark immediately terminated the employment of the defendants and reminded them of their ongoing contractual obligations. On 12 May 2006 Landmark sought various undertakings from the defendants, and on 25 May 2006 the defendants refused to give most of the undertakings. The plaintiff commenced these proceedings on 26 May 2006.

34 The company, Rural Affinity Insurance Agency Limited, has been registered by the defendants. The defendants intend for Rural Affinity to cover the same crops as Landmark. They also intend to ultimately try and deal with several insurance brokers with whom Landmark currently deal.

35 Rural Affinity's plan is that rather than receiving a commission based on premium volume, the insurance capacity provider would instead fund Rural Affinity's expenses and Rural Affinity will share in the underwriting profit. The advantage of this approach is said to be as follows:

This ensures that the agency's focus is on reducing claims via a strong focus on risk selection. This is particularly the case with cotton and forestry, where there are greater opportunities for risk selection.

36 A major focus of Rural Affinity's business is to be cotton and forestry business because these "are two classes which require the greatest level of underwriting as the quality of these risks can be influenced significantly by management. The May 2006 Business Plan provides the following examples:

For example, the susceptibility of a plantation will be influenced by factors such as control of ground fuel load, adjoining land use, access control, the presence of fire breaks, availability of water and the presence of a fire management plan. Similarly, the crop management prior to and following a hail loss in cotton can have a significant impact of [sic] the eventual size of the claim.

37 Rural Affinity's focus on cotton and forestry business is on large accounts that are existing clients of Landmark. The May 2006 Business Plan states:

However, for large cotton and forestry accounts (ie premiums greater than $50,000, we believe that the current commissions paid to intermediaries are overly generous, given that within each segment the risks are similar and the products offer little opportunity for tailoring. …
For larger risks which offer superior risk characteristics, our aim will be to target these customers on a direct basis. Many of these accounts are currently held by intermediaries that we do not intend to utilize for distribution.

38 That concludes the summary of the essential facts.

39 The plaintiff says that the May 2006 Business Plan makes it plain that the defendants intend to approach Landmark's cotton and forestry clients directly during the restraint period. It further says that the March 2006 Business Plan included details of Landmark's gross margins and both the March 2006 and the May 2006 Business Plans included details of budgeted premium from its different product lines.

40 I will now deal with the matters raised as (a) to (d) earlier in these reasons.

41 (a) and (b) The first matter to consider is what is the meaning of the word "client" in clauses 9 and 13 of the employment agreement. The word comes up in a couple of contexts, the most significant being in clause 13 that the employee "must not … solicit … approach … any person or entity who … was … our client".

42 It will be remembered that the plaintiff organised its affairs so that the farmers who took out insurance policies approached a broker, such as the broker associated with the plaintiff AgriRisk Services which was affiliated with the plaintiff to place the risk. The plaintiff, of course, was merely the agent for companies like Allianz, but that is of no moment. The question is whether the word "client" in clauses 9 and 13 refers to the farmer or the broker.

43 The word "client" is a very old one and traditionally referred to the relationship between a noble or professional person and a lesser being who sought the protection or advice of the noble or professional person. A client relationship was not traditionally based on contract, but on some sort of feudal variation of noblesse oblige. Indeed, the relationship had nothing to do with contract.

44 However, in modern business speak, business persons who supply goods or services to others have sought to upgrade their status by referring to customers as clients. Some airlines have moved from passengers to customers to clients to guests. In such cases almost always the contractual relation is present though, in the case of airline passengers, the traveller may be merely a servant of some corporation with whom the airline has made its contract.

45 Mr Wood submits that in order to discern what the parties meant by the word "client" in the document the court must look at the commercial circumstances which the document addresses and the object which it is intended to serve. This, of course, is so. He submits that the word "client" clearly indicates the farmers who take out policies of insurance through the plaintiff because the expression "obtaining the custom of that person" in reference to client, suggests that client is not confined to brokers or intermediaries and is not used in distinction to customers, but rather is referring to customers. Furthermore, the plaintiff derives all its revenue from the farmers rather than the brokers.

46 Mr Sirtes, on the other hand, as one would expect, submits that "clients" mean "brokers" as they are the persons with the contractual relationship with the plaintiff. He referred me to annexures A and B of Mr Green's affidavit of 2 June 2006, but these are position descriptions written in some obscure dialect of commercialese and really do not assist, though I note that they do refer to both clients and customers on different pages.

47 If one goes to the cases, again one does not get that much help. In Toulmin v Becker 124 NE (2d) 778 (1954) (Ohio Court of Appeals) the court had to consider a restrictive covenant by a lawyer against soliciting clients of the firm. The ex-employee was soliciting German and other foreign patent solicitors who would pass work through to the firm in question in Ohio. The court held at [783] that:

"A 'client' in the usual sense of the word is the one who needs professional help and who ultimately pays for the same."

Thus the overseas patent attorneys were not clients within the meaning of the restrictive covenant.

48 On the other hand, in England it has been held over and over again, that where a country attorney has a London attorney act as his agent, the London attorney's client and the person liable to pay the London attorney's bill is the country attorney and not the lay client. Thus, in Reid v Burrows [1892] 2 Ch 413, North J held that a covenant by an articled clerk not to transact business with the persons who were his master solicitor's clients covered country solicitors who sent agency work to the firm. The Judge did not have to consider whether the lay clients who retained those country solicitors were also clients covered by the prohibition.

49 I have already referred to the rule of construction that courts interpret commercial documents in the light of surrounding circumstances and the object which the contract is intended to secure. I do not get much assistance from this on the meaning of the word "client". There is also another principle that one construes documents of this nature against the drawer if there is any ambiguity and one cannot solve that ambiguity by any other means.

50 The document is a technical legal document. The last bullet point of 13.1 speaks of "our clients, customers or employees" which seems to differentiate between a client and a customer. At first blush this would indicate that there is a difference between a client and a customer and one could argue that if the brokers were the client then the farmers were the customers. However, Mr Wood actually argues that client means customer. I think this is more likely to be correct and that the words in the last bullet point of 13.1 contain a tautology. With customer, again one usually requires at least a commercial relationship and not merely that a particular person is the source of the business.

51 Thus, if Mary Smith is the purchasing officer for Woolworths and does business with Suppliers Ltd, whose marketing manager is Bruce Jones, Woolworths is the customer of Suppliers, not Mary Smith, even though it is Mary Smith who directs the business to Suppliers Ltd. She is neither the customer nor the client. Thus if Jones has covenanted not to solicit clients or customers of Suppliers Ltd and approached Mary Smith who is now the purchasing officer for Coles, he may not be in breach of covenant.

52 Although it is, to a great extent a matter of impression, it seems to me that the word "client" in 13.1 and "customer" in 13.1 refer to the broker being the person with whom the plaintiff has the commercial and contractual arrangement. The broker seeks the service and pays the bill, even though it may be the conduit for the farmer.

53 As the defendants do not intend to solicit, canvass, approach, persuade, encourage or accept any approach from, any broker, clause 13.1 is not going to be any impediment to their activities.

54 The first bullet point of 13.1 is also hard to enforce. It prohibits the employees from "directly or indirectly carry(ing) on (whether alone, in partnership or in joint venture with anyone else) or otherwise be involved in a senior or managerial capacity (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) in any business competitive with our business …". The drafter seems to have deliberately omitted a person being involved in a corporation as a director.

55 There is then the vagueness of the phrase "business competitive with our business". Whether businesses are competitive with each other is a question of fact to be resolved by considering all relevant facts; see eg Ex parte Campbells Transport Pty Ltd; Re Sneddon [1962] NSWR 371. Ordinarily one needs to look to what is the relevant market and determine whether the rivals are both competing for custom in that market. If the market in the present case is farmers or vine growers seeking insurance then the defendants' proposed business is a competitive business. I suspect that what I have just said is the market. However, I would not be comfortable in making such a finding in the absence of proper evidence from either side.

56 This discussion highlights the problem often now found in documents in "plain English" style that, when analysed the language is simple but disguises the fact that the parties have not really considered a vital aspect of their contract which will now cost them tens of thousands of dollars for a court to determine.

57 Accordingly, I turn to clause 9. This provides that each employee will at all times maintain absolute confidentiality of the plaintiff's confidential information. "Confidential information" is defined as including, but not limited to, information about the plaintiff or its clients, organisation structure, strategies, plans, research, operations, processes, transactions, databases, customer lists and finances.

58 Mr Wood says that the plaintiff's confidential information includes who are the insured farmers including the location of the property, the brokers involved, the premium and commissions paid, the claims history of those persons, information on geographical areas that are low risk together with zone ratings data, the price structure and information relevant to the management and assessment of risks, the plaintiff's gross margins for 2005/2006 renewals and the plaintiff's budgeted premium income levels for 2005/2006.

59 Mr Sirtes says that there was no breach of any confidential information. He says that the plaintiff's evidence does not establish any confidential information was involved in this case. In any event, retaining in one's memory the names of people who had dealt with the plaintiff through brokers would not be a breach, and if the brokers were the customers, it was clear who they were and their names were not confidential.

60 However, it seems to me that on the authorities such as Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 and Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717, the matter that Mr Wood has set out and which is also detailed in the letter from the plaintiff's solicitors, Phillips Fox, to the defendants' solicitors of 1 September 2006 (see Tab 13 of Vol 1 of the agreed bundle, p 313), is within the modern concept of confidential information. It is information which is the key to a profitable business in this industry and it is material which has been amassed by the plaintiff so that the plaintiff can run a competitive business in the industry, the industry being the fixing of insurance rates for agricultural insurance.

61 I have also little doubt in finding that the confidential information was used in preparing the defendants' March and May 2006 business plans. Mr Sirtes says that one must take into account the fact that there was misinformation in the plans which shows that the defendants were operating from memory and not from confidential documents. They are, of course, entitled to use what expertise they have gained whilst in the plaintiff's employ. However, in my view, the business plans show that much more detailed information was used by the defendants than that which could be said to be retained in their memory.

62 I should note that Mr Justice Windeyer on the interlocutory hearing considered that he was not convinced on the material before him at that stage that there was sufficient case as to the information which the defendants may have gathered from their former employer was confidential. He spoke at para 11 of his judgment about the fact that there was no evidence before him that the defendants had taken customer lists or had any information available that would not generally be available. I do not know what material was before Justice Windeyer but it does seem to me that the material which goes to the frequency of hail in various areas and other matters which go to the assessment of the risk for underwriting purposes clearly come within the concept of confidential information.

63 It was also said by the defendants that this was purely a case to prevent competition. That is, indeed, almost always said in this class of case. Doubtless a motive of the plaintiff was to prevent competition, but its rights in equity are based on the fact that it did have information to which the defendants were privy by dint of their position, they contracted to use that information only for the benefit of the plaintiff and they are not entitled to use it to get a springboard to compete with the plaintiff.

64 In my view, the plaintiff has committed confidential information to the defendants and is entitled to a remedy to protect the threat to its confidential information.

65 Mr Sirtes then argues that if there is confidential information it is not the property of the plaintiff but rather of AgriRisk. He refers to Mr Green's affidavit sworn 7 June 2006, which shows that it is the broker that prepares a detailed underwriting or risk information report and submits it to the plaintiff. That annexes a sample placement slip for viticulture. It proposes that there be insurance from first emergence of fruiting buds for three properties near Emerald for a fixed sum, notes the previous losses and sets out the rate.

66 I do not consider that these pages demonstrate that the confidential information was the property of AgriRisk. They certainly show that some of the information came from AgriRisk, but pages such as 197 and following behind Tab 5 in Vol 1 of the documents, show that information held within the plaintiff's office was additional information and information which helped assess whether the risk would be accepted. I will return to the remedy that might be given in respect of confidential information after I have considered all other aspects of the case.

67 (c) The question here is whether ss 182, 183 and 1324 of the Corporations Act 2001 or fiduciary principles otherwise provide a basis for the court to restrain the defendants from being involved in Rural Affinity either by means of a springboard or as a consequence of post employment fiduciary obligations for a four month period from the date of the orders.

68 Section 182 of the Corporations Act prohibits an officer of a corporation from improperly using his position to gain an advantage or cause detriment to the corporation. Section 183 provides that a person who obtains information because they have been an officer of a corporation must not improperly use the information to gain a personal advantage or cause detriment to the corporation. I have paraphrased the sections.

69 Section 1324 empowers the court to grant an injunction on such terms as the court thinks appropriate on the application of a person whose interests would be affected by that conduct.

70 Attention should also be directed to section 1317E which provides that if a court is satisfied that a person has contravened one of the following provisions, it must make a declaration of contravention, one of the provisions being ss 182(1) and 183(1) of the Act. Section 1317H allows the court to award compensation.

71 The predecessor of ss 182 and 183 were to be found in ss 232(5) and (6) of the Corporations Law. In Rosetex Company Pty Ltd v Licata (1994) 12 ACSR 779, I ruled that the provisions of the Act were not to any major extent wider than the duties under the general rules of equity. I further repeated and explained that proposition in Forkserve Pty Ltd v Pacchiarotta [2000] NSWSC 979 [28].

72 Mr Wood invites me to take one of two factual findings, either:

(1) the defendants were unaware of their Corporations Act obligations; or

(2) that they were aware as they 'fessed up on 4 May 2006.

73 In my view the former finding should be made. The revelation on 4 May does not appear to be a revelation that there was a breach of the Corporations Act, but rather that the defendants thought in commercial fairness that they needed to make a disclosure.

74 However, it really does not matter whether the defendants were aware of their obligations under the statute or under the general doctrines of equity.

75 The evidence clearly shows that they did not in fact know about their obligations under the Corporations Act mainly because they never associated their position with the technical description of officer of a corporation as used in the relevant sections of the Corporations Act.

76 In view of what I said in Rosetex, it is sufficient to focus on the general fiduciary duties.

77 As I have set out in the facts, the defendants submitted their resignations in January 2006 to take effect on 3 July 2006. This was in accordance with clause 10 of the employment agreements. As I have said, their employment was terminated in May 2006.

78 Between January and May 2006, the defendants were still employed by the plaintiff and still owed the plaintiff fiduciary obligations. The provisions of clauses 6 and 9 (and 13) applied to them. The defendants seemed to have thought that formulating their business plans outside regular office hours enabled them to pave the way (I deliberately use a non-technical term here) for the start of their own business. Had they kept to the planning and preparation stage they may have escaped criticism from the court. However, the evidence shows that they did proceed beyond this, that they made contact with Allianz and other persons in the reinsurance industry.

79 The defendants say that because they did not do their work for themselves in office hours, they are not guilty of any breach of fiduciary duty. However, as Mr Wood submits, Palmer J in Digital Pulse Pty Ltd v Harris (2002) 40 ACSR 487, 491 (a passage not disturbed by the Court of Appeal when it allowed the appeal in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, see [5]) said:

"An employee has a duty to act in the interests of the employer with good faith and fidelity. That duty is implied in every contract of employment if it is not otherwise imposed by an express term. In addition, the duty is imposed upon every employee by the law of fiduciaries, the relationship of employer and employee being recognised as a paradigmatic fiduciary relationship.
The obligations imposed by the duty are not coterminous with the employee's normal working hours: they govern all the activities of the employee, whenever undertaken, which are within the sphere of the employer's business operations and which could materially affect the employer's business interests. Whether a particular activity could materially affect the employer's business interests is a question of fact and degree.
The duty of loyalty requires that an employee not place himself or herself in a position in which the employee's own interest in a transaction within the sphere of the employer's business operations conflicts with the employee's duty to act solely in the employer's interest in relation to that transaction. A fortiori, an employee may not take for himself or herself an opportunity within the sphere of the employer's business operations without the employer's fully informed consent."

80 I have already set out in para 32 of the facts what the defendants admittedly did to prepare for their exodus from the plaintiff company. To my mind these matters breached the fiduciary duties owed by the defendants under the employment agreements.

81 Unfortunately in one sense, I think it must follow that there has also been a breach by each of the defendants of ss 182(1) and 183(1) of the Corporations Act. I say "unfortunately", because I believe that under s 1317E(1) it is mandatory for me to make a declaration of contravention in the form of s 1317E(2). However, I have not heard counsel on that matter and I am willing for the argument to be reopened to persuade me that this is not a correct approach.

82 (d) I now pass to the question of remedy. Mr Wood says that the only appropriate relief is an injunction to prevent the defendants from gaining the advantage or as sometimes said, gaining the springboard of the information they have acquired. He suggests a period of four months from the orders that would be made consequent upon the delivery of these reasons.

83 There was some debate before me as to whether a springboard injunction as it is popularly called, can be granted in cases other than cases of protection of confidential information. See the judgment of Jacobson J in ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2005] FCA 130 [65]. With respect, I consider that that proposition is too narrow. Of course, Jacobson J was speaking as a member of a statutory court which only has confined powers. This court has plenary powers including the powers given to it by s 23 of the Supreme Court Act 1970 to make whatever orders are appropriate in the circumstances of the case. Whilst it takes fair notice of precedents because the orders of this court should not depend on the idiosyncratic notions of fairness and justice of individual judges (see per Deane J in Muschinski v Dodds (1985) 160 CLR 615), the court does have full scope to take whatever order is appropriate in the circumstances. See also the decision of Giles JA in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 at [182] to [184].

84 Because of the difficulty of making orders focused on the exact confidential information which is in question, as Mason P said in Woolworths Ltd v Olson [2004] NSWCA 372 at [67], a recognised method of protection is to restrain the former employee from taking up employment with a competitor whom he might be willing to provide with the information in question. See also Portal Software Pty Ltd v Bodsworth [2005] NSWSC 1179 at [83].

85 Order 1(a) in the amended summons seeks an order that up until 4 February 2007, each of the defendants be restrained from "directly or indirectly carrying on (whether alone, in partnership or in joint venture with anyone else) or otherwise be involved in a senior or managerial capacity (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) in any business competitive with the plaintiff's business." With respect, I think there are problems with that order, both problems with it not going far enough in not mentioning companies and directorships and also because it uses the words "business competitive with the plaintiff's business".

86 As to that last phrase, it could be argued that a business that deals directly with farmers and not through brokers was not such a competitive business. The court must endeavour to avoid such dry arguments.

87 It seems to me that it would be more appropriate to make an order that the defendants and each of them be restrained from acting in a senior or managerial capacity or as a director or officer of Rural Affinity Pty Ltd or any other partnership, company or joint venture which in any way deals with the underwriting of insurance to persons involved in the agriculture or viticulture industry. However, I will allow counsel at the short minutes stage to work out the exact text of the restraint.

88 The next question is for how long the springboard injunction should last.

89 Equity has the obligation to see fair play by restraining the misuse of confidential information. It is not usually practically possible to issue an injunction in the form that a person not use specific information as it is almost impossible to police. Confidential information does tend to age and although there is no direct evidence, in the insurance industry, vital information as to the rates available in the market will doubtless change within a matter of months. On the other hand, information as to what areas are hail prone and so a bad risk will last for a long time. The identity of people who would be likely to wish to effect insurance on agriculture or viticulture crops is something that one can obtain for oneself by survey within a few months.

90 The other factor that must be borne in mind is that whilst the defendants would have become free of most (but not all) restrictions to their contract on 3 July 2006, they in fact started taking advantages on 3 January through to 4 May, a period of four months. On 9 June 2006, Windeyer J declined to make wide-ranging injunctions but, without objection by the defendants, made orders that the defendants not solicit or otherwise approach any of the plaintiff's employees to leave the plaintiff's employment and not to solicit or make any approach to 17 listed brokers with a view to establishing a relationship with or obtaining the custom of that person in a business which competes with the plaintiff. However, other activities of the defendants in preparation to compete with the plaintiff were left unaffected, though there was an obligation to keep accounts.

91 The springboard doctrine was originally formulated by Roxburgh J in Terrapin Ltd v Builders' Supply Co (Hayes) Ltd [1967] RPC 375, 391. The essence of the doctrine is, to use Roxburgh J's words:

"That a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication."

92 The authorities show that a springboard injunction cannot last longer than the time when the confidential information which grounds it ceases to be confidential. However, it will often be appropriate to have it in place for a much shorter period because a competitor may very well find out the information by its own research over a short period of time.

93 Dean, The Law of Trade Secrets and Personal Secrets 2nd ed (Thomson, Sydney, 2002) para [3.420] based on what O'Loughlin J said in the Federal Court in Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353, 382 et seq, says that the court will calculate the time that would be taken by a competitor acting reasonably with commercial prudence to develop a marketable product, but it is not inappropriate to look at what the defendant actually did in an effort to determine objectively the appropriate length of the springboard restraint. In the Titan case O'Loughlin J took into account the fact that the defendant was not actually working full time in development of the competing product. This is also the case in the present matter.

94 As I read the authorities, it is also relevant to look at the contractual period during which the defendant is restrained. See the discussion in Gurry, Breach of Contract (Clarendon Press, Oxford, 1984) pp 252 et seq. In the present case the contractual period was negotiated at arm's length that being nine months. Nine months from 4 May brings us to 4 February 2007.

95 Because there has only been a very limited injunction pending trial, the defendants may well have been developing their competing product during the time the case has taken to come to final hearing. That must also be taken into account.

96 As the cases show, it is almost impossible to fix the springboard period with any degree of precision. Taking into account all the factors I have mentioned, it seems to me that a period expiring on 4 February 2007 is the most appropriate.

97 Accordingly, I will grant the sort of injunction I have indicated up to 4 February 2007.

98 There is one other matter with which I must deal.

99 On the first day of the hearing there was returnable a notice to produce requiring the production of "documents or things evidencing or recording the legal advice referred to on page 13 of the Rural Affinity Business Plan dated March 2006." After argument, I set aside the notice to produce with costs and said I would give my reasons later. I am now doing so.

100 Before I give those reasons, might I once again make it completely clear that it is not good practice to have subpoenas and notices to produce returnable before the trial judge on the first day of a hearing. The court specially sets aside time at 9 am before a Deputy Registrar for the return of subpoenas. Many practitioners have overlooked para 13 of Practice Note SC Eq 1 which reads:

"Subpoenas are to be made returnable before the Deputy Registrar in the 9 am list. In particular, the practice of making subpoenas returnable on the first day of hearing is to be avoided as this usually causes delays while documents are examined. … ".

101 There is still a lot of hearing time being wasted by barristers and solicitors deciding too late what notices to produce and subpoenas are necessary. If the Practice Note continues to be disregarded it may be that penal orders will have to be made against members of the profession for the waste of trial time.

102 What I have just said applies generally, not just to this particular case. Having, however, delivered that general message I will now turn to this particular case.

103 When the matter came before Windeyer J last June his Honour ruled on 6 June 2006 that the defendants had not waived privilege over the material.

104 However, the plaintiff says that there was a fresh action which amounted to waiver when an affidavit of 8 June 2006 was read before Windeyer J. The waiver is said to be in an affidavit of James Hooper, the second defendant, sworn 8 June 2006 which was read before Windeyer J on that day.

105 That affidavit annexed the March 2006 Business Plan and the first paragraph of p 13 read as follows:

"Legal advice has been obtained to determine what activities can be performed during the restraint period. In summary, Landmark can prevent us from making contact with intermediaries who currently deal with Landmark during the restraint period. However, our legal advice is that there is a strong case that we cannot be prevented from approaching the 'end customer' direct or via an intermediary that does not currently deal with Landmark."

106 Mr Sirtes puts that for there to be a waiver of privilege there must be a disclosure of the substance of the advice rather than merely the effect of the advice and that that material is insufficient to give rise to a waiver.

107 The argument focuses on s 122(2) of the Evidence Act 1995 which removes the privilege from communications between lawyer and client "if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence".

108 Mr Hewitt says that the ruling was made by Windeyer J because the only disclosure up to 6 June had been in the course of making a confidential communication, vide s 122(2)(a) but on 8 June the disclosure in the affidavit was sufficient to amount to a disclosure of the substance of the evidence. He referred to the decision of Rolfe J in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12 at 18 and following. His Honour there considered whether there was a distinction between the substance of advice and the effect of advice and went on to say that counsel had submitted:

"That it is not sufficient to constitute the substance of the advice to say what the conclusion is for that … is nothing more than giving the effect of the advice". The logical extension of that submission is that all the reasoning behind the conclusion must be exposed before it can be said that there is a disclosure of the substance. I do not agree essentially for the reasons I have given. In my opinion the substance of the advice may well be disclosed if the ultimate conclusion, without the supporting reasoning process, is revealed. At that stage there has been, in my opinion, a disclosure of the substance of the advice, that is, what the advice is. Further the ultimate conclusion, whilst it may be a 'result' or 'consequence' of the reasoning is more than that: in its own right it is the essence or vital part of the advice."

109 There was an appeal against this decision to the Court of Appeal which was dismissed and then an application for special leave to the High Court of Australia which was refused by Kirby J, Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 70 ALJR 603. At 607 Kirby J said:

"I agree that a mere reference to the existence of legal advice would not amount to a waiver of its contents. … But … it is strongly arguable that the public reference to the supporting legal advice, waived the privilege as to the precise content of the legal advice on that point."

110 Since then there have been a number of utterances by high judicial authorities on the point. In Bennett v Australian Customs Service (2004) 140 FCR 101, Gyles J, who constituted a Full Federal Court with Tamberlin and Emmett JJ, reviewed the cases to that date at p 119 and said that to draw a distinction between the conclusion expressed in legal advice on the one hand and the reasons for that conclusion on the other was to commit a question of law and that the predominant view on the authorities was that the voluntary disclosure of the gist or conclusion of legal advice amounts to waiver in respect of the whole of the advice to which reference is made including the reasons for the conclusion.

111 The Federal Court has also recently considered the matter in AWB Ltd v Cole (No 1) [2006] FCA 571 and (No 5) [2006] FCA 1234, both decisions of Neil Young J. His Honour said in the first judgment [136]:

"In my view, the distinction between a mere reference to advice having been obtained, and a reference that discloses the content or substance of the advice, has not been eliminated by the High Court's restatement of the relevant principles as to waiver in Mann v Carnell (1990) 201 CLR 1".

112 His Honour then went on to consider Bennett's case particularly to the judgment of Tamberlin J in that case who referred to authorities drawing a distinction between a mere reference and cases in which the substance of the advice had been disclosed. He referred to various other cases decided recently in the Federal Court of Australia.

113 In the second case at [158] his Honour repeated what he had said in his earlier judgment by reference and repeated the proposition that "the authorities draw a distinction between a mere reference to the existence of legal advice, which will not usually amount to a waiver, and cases in which the gist or substance of the legal advice has been disclosed".

114 The matter was considered by the Court of Appeal in this State in Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297.

115 In Seven Network Ltd v News Ltd (No 10) (2005) 227 ALR 704, Sackville J again reviewed the authorities and noted that questions of the waiver of legal professional privilege will involve questions of degree; see [48] at p 716. See also Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341.

116 The present, to my mind, is a borderline case. Borderline cases of this nature need to be decided by impression because dwelling on the matter usually only leads to confusion rather than to clarity. Bearing in mind that questions of waiver are philosophically based on the proposition found in Mann v Carnell, Chen's case and the Seven Network case that it would be unfair for a person both to parade the substance of a legal opinion and also to claim privilege about it so as to prevent the other party from testing what was said, it seems to me to follow from this philosophical base that if on one's impressionistic reading of the material one sees that it is a borderline case and has some doubt about the matter, then the doubt should be resolved by maintaining the privilege.

117 My assessment of the material conscious of all I have said in this case (except that AWB v Cole (No 5) had not been decided when I made my ruling), is that the privilege has not been waived.

118 I set aside the notice to produce for the reasons I have just given. In the ultimate, it made no difference as even without the material the plaintiff has been successful.

119 The plaintiff is entitled to the sort of injunction I have indicated earlier. I stand the matter over until 31 October at 9.30 am for the purpose of short minutes being brought in. However, it may well be that in view of these reasons the plaintiff wants some immediate order which can be cast as an interim order pending the formal orders being made at the short minute stage. Accordingly I will list the matter at 9.30 am on Thursday 26 October for that purpose. However, if counsel for the plaintiff do not wish to take advantage of that time, I would be obliged if they would contact my associate at least 48 hours beforehand.

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