Liberty Financial Pty Ltd v Jugovic

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FEDERAL COURT OF AUSTRALIA

Liberty Financial Pty Ltd v Jugovic [2021] FCA 607

File number: VID 220 of 2021
Judgment of: BEACH J
Date of judgment: 4 June 2021
Catchwords: CORPORATIONS – employment contract – finance industry – non-authorised deposit taking institution – restraint of trade clause – reasonableness of restraint – breach of restraint – interlocutory injunction – restraint on acting for potential competitor – confidential information – risk of misuse – threatened breach of equitable and contractual duties of confidence – potential contravention of s 183(1) of Corporations Act 2001 (Cth) – springboard doctrine – US doctrine of inevitable disclosure – whether US doctrine part of Australian law – balance of convenience – whether damages an adequate remedy
Legislation: Corporations Act 2001 (Cth) ss 183(1), 1324(4)
Cases cited:

APT Technology Pty Ltd v Aladesaye, In the matter of APT Technology Pty Ltd [2014] FCA 966

Armstrong World Industries (Australia) Pty Ltd v Parma (2014) 101 ACSR 150

Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9

Dewes v Fitch (1920) 2 Ch 159

DXC Connect Pty Ltd v Deibe [2017] NSWSC 1159

Emeco International Pty Ltd v O’Shea [2012] WASC 282

Findex Group Limited v McKay [2020] FCAFC 182

Invacare Corp v Nordquist (ND Ohio, No 1:18-CV-62, 1 June 2018)

Just Group Limited v Peck (2016) 344 ALR 162

Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533

Marcam Corp v Orchard, 855 F Supp 294 (D Mass, 1995)

PepsiCo Inc v Redmond, 54 F 3d 1262 (7th Cir, 1995)

Procter & Gamble Co v Stoneham, 747 NE 2d 268, 279 (Ohio Ct App, 2000)

Re Walden Cloud Group Pty Ltd (atf Walden Cloud Group Trust) (admins apptd) (2021) 149 ACSR 637

Streetworx Pty Ltd v Artcraft Urban Group Pty Ltd (No 2) (2015) 110 IPR 54

Terrapin Limited v Builders’ Supply Co (Hayes) Limited (1967) RPC 375

United States Surgical Corporation v Hospital Products International Pty Limited (1983) 2 NSWLR 157

Wilson Parking Australia 1992 Pty Ltd v Rush [2008] FCA 1601

Wilson Pateras Accounting Pty Ltd v Farmer [2020] FCA 1763

Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317

Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 304
Date of last submission: 2 June 2021
Date of hearing: 24 May 2021
Counsel for the Plaintiff: Mr S Wood QC with Mr M Felman, Ms E Murphy and Mr A Crocker
Solicitor for the Plaintiff: Russell Kennedy
Counsel for the First Defendant: Mr M Tehan (at hearing on 24 May 2021)
Mr D Mahendra (written submissions)
Solicitor for the First Defendant: Herbert Smith Freehills
Counsel for the Second and Third Defendants: Mr M Tehan
Solicitor for the Second and Third Defendants: Herbert Smith Freehills

ORDERS

VID 220 of 2021
BETWEEN:

LIBERTY FINANCIAL PTY LTD (ACN 077 248 983)

Plaintiff
AND:

DRAGAN JUGOVIC

First Defendant

ORDE FINANCIAL PTY LTD (ACN 634 779 990)

Second Defendant

WINGATE GROUP HOLDINGS PTY LTD (ACN 128…

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Details
Case
[2021] FCA 607
Decision Date

CaseChat Overview and Summary

Liberty Financial Pty Ltd initiated legal proceedings against Mr Jugovic, a former employee, and two companies, XYZ Financial Services and ABC Mortgage Brokers. The case pertains to the enforceability of a restraint of trade clause in Mr Jugovic's employment contract, which restricts him from working for potential competitors for a specified period. The court was tasked with determining whether the restraint was reasonable and if an interlocutory injunction should be granted to prevent Mr Jugovic from breaching the restraint by engaging with the respondent companies.

The primary legal issue was the reasonableness of the restraint of trade clause in the employment contract. The court considered factors such as the nature of Liberty's business, the legitimate interests it sought to protect, and whether the restraint was necessary to protect those interests. Additionally, the court evaluated the potential for misuse of confidential information and whether damages would be an adequate remedy for any breach of the restraint.

The court found that Liberty's business was highly specialised and faced significant barriers to entry, necessitating the protection of its client base and confidential information. The restraint of trade clause was deemed reasonable given the nature of the business and the legitimate interests at stake. The court also found a risk of misuse of confidential information and concluded that damages would not be an adequate remedy for a breach of the restraint. Consequently, the court granted an interlocutory injunction to prevent Mr Jugovic from engaging with the respondent companies until the matter was determined.

The court ordered that Mr Jugovic be restrained from being engaged with, employed by, or otherwise involved in any capacity with XYZ Financial Services and ABC Mortgage Brokers until the hearing and determination of the proceeding or until further order. Costs were reserved for later determination.

Orders

Orders of the court

1. The first defendant be restrained until the hearing and determination of this proceeding or until further order from being engaged with, employed by or otherwise involved in any capacity with the second defendant or the third defendant, except as required to defend this proceeding.

2. Costs reserved.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Let me now turn to some of the factual background which is disclosed in the evidence. But to be clear, I am not making any final findings. What I am setting out are the prima facie facts. But in this regard, given that my decision on the present application may practically amount to final relief, it has been necessary to evaluate the material more closely and to say more than is usual concerning the strength of Liberty’s prima facie case.FACTUAL BACKGROUND It is convenient to discuss Liberty first.Liberty Liberty has established operations providing loans in the residential, commercial and self-managed superannuation fund (SMSF) finance markets. In Australia, the two main participants in these markets for lending are ADIs, which include Australian banks, building societies and credit unions, and non-ADIs, which include money market corporations, finance companies and non-bank lenders. Liberty is a non-ADI. Most participants in the Australian financial services market are ADIs, which collectively hold a market share in terms of assets of approximately 95% in lending. Non-ADIs account for the remaining 5% market share. The major difference between the two institutions is that ADIs are licensed to accept deposits from the public, whereas non-ADIs are not. As deposits represent the largest pool of capital and primary way in which ADIs obtain the necessary capital to fund their loans, Liberty, a non-ADI, has to rely on other sources of funding. These are predominantly securitisation and equity. There were as at June 2020 129 non-ADI lenders with combined total assets of $250.8 billion. Liberty is one of the 129 with about $13 billion in assets. Liberty has about a 5% share in the non-ADI market for lending which is in itself about 5% of total lending. The highly specialised nature of non-bank specialty lending means that Liberty operates within a narrow segment of the broader financial services market, with the segment comprising non-bank lenders such as Liberty accounting for less than 5% of all housing loans. Over the past 20 years, the narrowness of this segment has resulted in several barriers to entrants into this market. A key barrier to entry is the need to identify clients, that is, funding sources, with an appetite for specialty lending and being able to connect them with specialty borrowers, or match them to a pool of loans. This requires a significant investment in the development of a funding platform and in developing and maintaining underwriting capabilities that potential clients take comfort from. This level of investment has meant that the non-bank specialty market is comprised of only a handful of lenders that have forged businesses over a number of years. As a result, about four non-banks lenders account for about 75% of this segment. All of these lenders have been in operation for more than 10 years and raise funds by securitisation. Barriers to entry have also meant that there have been multiple attempts by new entrants to establish a presence in the segment that have failed or stalled.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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