Prowealth Corporation Pty Ltd v Property Investment Advisory Pty Ltd

[2022] QDC 257

DISTRICT COURT OF QUEENSLAND

CITATION:

Prowealth Corporation Pty Ltd v Property Investment Advisory Pty Ltd [2022] QDC 257

PARTIES:

PROWEALTH CORPORATION PTY LTD (Plaintiff)

v

PROPERTY INVESTMENT ADVISORY PTY LTD & ORS

(Defendants)

FILE NO:

BD 3499/2020

DIVISION:

Civil

DELIVERED ON:

25 November 2022

DELIVERED AT:

Brisbane

HEARING DATE:

29, 30, 31 August, 1, 2 September, 20 October 2022

JUDGE:

Barlow KC, DCJ

ORDERS:

1.   Judgment for the plaintiff against the second defendants in the sum of $102,966.16, including interest of $8,466.16.

2.   Judgment for the plaintiff against the third defendant in the sum of $8,171.92, including interest of $671.92.

3.   The proceeding against the first defendant be dismissed.

CATCHWORDS:

EMPLOYMENT LAW– OTHER RIGHTS AND DUTIES OF PARTIES – DUTY OF CONFIDENCE OWED BY EMPLOYEE – AFTER EMPLOYMENT RELATIONSHIP ENDED – the plaintiff contended that an equitable duty of confidence was owed by the defendants by virtue of their employment and the duty of confidence exists due to the nature of the commercial value of the information – whether the defendants were contractually obliged to keep confidential information used for the purpose of the plaintiff’s business – whether any contractual obligation continued after the employment of the defendants ended

TRADE AND COMMERCE – OTHER REGULATION OF TRADE AND COMMERCE – RESTRAINTS OF TRADE – VALIDITY AND RESONABLENESS – GENERALLY – each contract contained a restraint of trade clause – whether the clauses were intelligible – whether they were reasonable and enforceable– where the Restraints of Trade Act 1976 (NSW) provides for an unreasonable restraint of trade to be enforced to the extent that is reasonable in the circumstances – whether an unreasonable restraint of trade can and should be read down under that Act to make it reasonable and enforceable

TRADE AND COMMERCE – OTHER REGULATION OF TRADE AND COMMERCE – RESTRAINTS OF TRADE – ENFORCEMENT OF AGREEMENT – REMEDIES FOR BREACH OF AGREEMENT – INJUNCTION/DAMAGES - where the defendants’ evidence was that all material taken from the plaintiff had been destroyed – whether the court should issue an injunction in any event to permanently restrain use of documents in which the plaintiff claimed copyright

Cases

C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd (1996) 37 IPR 315, considered
Faccenda Chicken Ltd v Fowler [1987] Ch 117, applied
Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft (2018) 267 FCR 428, applied
Geraghty v Minter (1979) 142 CLR 177, applied
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638, applied
Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535
Nottingham University v Fishel [2000] IRLR 471, applied
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, applied
Vision Eye Institute Ltd v Kitchen [2014] QSC 260, applied
Woolworths Ltd v Olson (2004) 184 FLR 121, applied
Woolworths Ltd v Olson [2004] NSWCA 372, applied
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317, distinguished

Legislation

Restraints of Trade Act 1976 (NSW)

Texts

Dal Pont, Equity and Trusts in Aus (Thomson Reuters, 7^th ed, 2019)

COUNSEL:

N Ferrett KC, for the plaintiff

D Keane, for the first defendant

SOLICITORS:

Romans and Romans for the plaintiff

Cantle and Carmichael for the defendant

Contents

Introduction

The contracts

The Price agreement

The Dunkley agreement

Events between March and August 2019

Termination of the Dunkley agreement

Termination of the Price agreement

The establishment of PIA

Events between July and November 2019

The alleged lost clients

The defendants’ alleged duties

Fiduciaries?

The indicia of a fiduciary relationship

Mr Dunkley

Mr and Mrs Price

Duties of confidence?

Restraint of trade clauses

Principles

The Dunkley agreement

The Price agreement

Did Mr Price and Mr Dunkley breach any obligations to Prowealth?

Did Mrs Price breach any obligations to Prowealth?

The alleged losses

The nature of the loss claimed

Would Prowealth have earned commissions from the lost clients?

Marginal and operational costs

Conclusions on commissions from lost clients

The lost income stream

Conclusions on loss

Injunction

The result

Introduction

1. The plaintiff (Prowealth) is a property investment advisory company and real estate agent.  It was founded by Leonard Goodwin, the father of the current director of the plaintiff, Daniel Goodwin.[1]  The company is based in Brisbane, but for several years it also operated in New South Wales through an office in East Maitland.

   [1]In these reasons, I shall refer to Daniel Goodwin as Mr Goodwin.

2. Prowealth’s business, so far as is relevant to this proceeding, was, in short, to enter agreements with developers of residential properties to find investors to purchase the properties.  It would then seek to attract potential purchasers and would advise them about the properties available.  A related company (with a financial services licence) would advise them about the financial advantages of purchasing a property for investment.  Prowealth would assist them to obtain loans and to purchase a property.  Upon the purchase, Prowealth would be paid a commission by the developer.

3. Prowealth is suing the defendants, Property Investment Advisory Pty Ltd (PIA), Roger Price (and his wife, Sharon Price) and Scott Dunkley, for breach of contract, misuse of confidential information, breach of fiduciary duty (or implied duties akin to fiduciary duties and (in the case of Mr Dunkley) breach of statutory duties.  Prowealth relies on a contract for services between Mr and Mrs Price and Prowealth made in 2012 and an employment contract between Mr Dunkley and Prowealth made in 2016.  Both contracts were (broadly speaking) for the provision of promotional services, business management and marketing of Prowealth’s business, and they each contained an agreement to protect confidential information and a restraint of trade clause.

4. Both Mr Price and Mr Dunkley were engaged in the New South Wales branch of the business.  They were based in the office located in East Maitland.

5. On 28 May 2019, Mr Price and Mr Dunkley incorporated PIA.  In June 2019 Mr Dunkley terminated his employment contract with Prowealth and in August 2019 Mr and Mrs Price followed with termination of their contract.  Prowealth alleges that PIA was created for the specific purpose of competing with Prowealth and that Mr Price and Mr Dunkley collected and later used information, client contact details and documents that belonged to Prowealth for the purposes and to the advantage of PIA.  In doing so, they breached confidentiality and restraint of trade clauses in their contracts with Prowealth and co-opted Prowealth’s own intellectual property to compete against it.

6. Prowealth also claims that the defendants engaged in misleading or deceptive conduct pertaining to alleged breaches of Prowealth’s copyright and confidential documents. It seeks an injunction under s 237 of the Australian Consumer Law restraining the continued use of the plaintiff’s copyright material.

7. Prowealth contends that Mr Price and Mr Dunkley took with them, in breach of their respective contracts, financial data and copyright protected documents, which allowed them to solicit active Prowealth clients using confidential information.

8. Prowealth’s claim against Mrs Price arises because she was a party (in partnership with Mr Price) to the contract for services.  Prowealth does not allege that she did anything relevant to its claim, but relies on Mr Price’s actions as giving rise to her liability, as his partner, for Mr Price’s breach of the contract.

9. Mr Price and Mr Dunkley contend that Prowealth, through Daniel Goodwin, notified them of a possible closure of the East Maitland office in March 2019.[2]  This closure was due to cashflow issues.  Mr Goodwin, on behalf of Prowealth, informed Mr Price and Mr Dunkley that their agreements would have to be discontinued or to continue on new terms, less favourable to them.  Mr Price and Mr Dunkley contend that they then chose to terminate their working arrangements with Prowealth and incorporated PIA in order to commence their own business.  The Prowealth East Maitland office closed on 1 July 2019.

   [2]Admitted at paragraph 7(a) of the Reply to the Third Further Amended Defence

10. After the closure of the East Maitland office and the conclusion of Mr Dunkley’s employment with Prowealth on 1 June 2019 and then Mr Price’s contract on 1 August 2019, Prowealth had no office or agents in New South Wales until 16 December 2019, at which time it registered a serviced office address.  In the circumstances, Mr Price and Mr Dunkley contend that they were not acting in competition with Prowealth, because they operated in a market where the plaintiff no longer operated (that being a market for potential purchasers from New South Wales).  They also contend that, even if they operated in breach of their obligations to Prowealth, their conduct did not cause Prowealth any loss.

11. As to Prowealth’s claim for an injunction, the defendants contend that they destroyed all Prowealth’s documents in their possession, on demand by Prowealth, in December 2019 and since then they have not used any material in which Prowealth may have copyright, so no injunction is necessary.

The contracts

The Price agreement

1. Mr and Mrs Price, as partners, entered into an independent contractor agreement with Prowealth on 15 April 2012.[3]  That agreement relevantly provided the following.[4]

   WHEREAS, The Vendor is in the business of Selling Investment and Owner Occupied Properties, Finance and Loan Products and Services, Accounting Products Services and Advice, Property Management Products and Services, Wealth Coaching Products and Services, Insurance Services and advice, Financial Planning Services and advice, Superannuation Services and advice and all related Software, Hardware, and Consulting Services, referred to as ‘Services’; …

   [3]Trial bundle (exhibit 1), tab 57, pp 70-95.  I shall refer to documents in exhibit 1 by tab and page numbers - eg TB57:70-95 – or by tab number and paragraph number – eg, TB4[22].

   [4]Typographical and grammatical errors in the original are shown here without correction.

   Section 1.02 - Definitions:

   (6)     Confidential Information: The term “Confidential Information” shall mean the Vendor business, legal, copy, drawings, financial, software development information and any other information of the Vendor as Confidential Information.

   (9)     Documentation:  The term “Documentation” shall mean Templates, Copy, System Design or written instructions originally designed by Vendor as identified but not limited only to the items set forth by Section 10.02.[5]

   [5]Despite many terms in this and other parts of the contract commencing with capital letters, they are not all defined terms.

   (12)     Marketing Term:  The term “Marketing Term” shall mean the time period that the “The Contractor” has the right to use the Branding and Software provided by the Vendor.

   (13)     Marketing Information: The term “Marketing Information” shall mean Marketing Data, Marketing Copy, Software demonstration materials, Documentation and Demonstration Code.

   (14)     Marketing Materials:  The term “Marketing Materials” shall mean advertising and promotional materials including (without limitation) pamphlets, brochures, booklets, tradeshow displays and materials, pricing information, Marketing Documentation, Contracts, Banners, End-User Agreements, Contract Proposals, Capability Statements, Calculation Forms, and other Documents approved by Vendor for Marketing promotion by the ‘The Contractor’.

   (15)     Software:  The term “Software” shall mean the scripts, Software products, Software coding, System Infrastructure Design, Web Site Design, PC Auto Build Scripts, Batch Files, Executable Programs, On line support systems and telecommunication solutions of any like nature of those certain products as modified and enhanced by Vendor from time to time.  Software is identified but not limited only to the items set forth by Section 10.03.

   Section 2.01 – Marketing Rights:  Vendor hereby grants ‘The Contractor’ the exclusive and nontransferable right to use the Software and Intellectual Property to advertise, promote and market the Service of the Vendor within the Territory to Customers and to distribute Marketing Materials within the Territory to Customers.

   Section 2.02 – Best Efforts:  ‘The Contractor’ shall promote the the Services of the Vendor on a best efforts basis.  …

   Section 2.03 – Customer Efforts: ‘The Contractor’ shall contact Customers for purposes of providing the Services of the Vendor (and other services introduced by the Vendor) from time to time.  ‘The Contractor’ shall submit Marketing Materials to such Customer and communicate with Customers for purposes of encouraging such Customers to execute sales.  The ‘The Contractor’ shall arrange, schedule, conduct and attend implementation of the Strategies, Services and Sales for Customers.

   Section 2.08 – Contacts: ‘The Contractor’ will use the ‘Vendors’ computerised database system (or similar at the vendors discretion) to store all contacts, clients, or other contact information for any and all contact the ‘Contractor’ makes while this agreement is in effect.  The Contractor expressly acknowledges that all contacts, regardless of origin, become the property of the Vendor for its exclusive use, or with permission, use by the Contractor on a limited basis but only whilst this agreement is in effect.  The ‘Contractor’ further agrees to use the system to its fullest extent as required.

   Section 5.01 – Confidentiality: ‘The Contractor’ shall not disclose Confidential Information except to Authorized Persons. ‘The Contractor’ shall not disclose Marketing Information except as permitted under this agreement.  

   Section 5.02 - Intellectual Property Rights: ‘The Contractor’ hereby acknowledges that the Products (including all modifications thereof and all materials incidental thereto) are the sole and exclusive property of Vendor, and that Vendor shall own all of the rights, title and interests to such Products, including (but not limited to) any and all copyrights, patents, trademarks and trade secrets related to the products.

   Section 5.03 – Branding Modification: ‘The Contractor’ shall not modify the Intellectual without the prior written consent of the Vendor.  If the Products are modified, such modification shall be the sole and exclusive property of Vendor and Vendor shall own all of the rights, title and interests to such modifications and any resulting computer scripts, computer software, including (but not limited to) any and all copyrights, patents and trade secrets related thereto.

   Section 5.06 – Continuation: This Article V shall survive the Marketing Term.

   Section 6.01 – Noncompete: ‘The Contractor’ shall not (directly or indirectly) engage in any activity in competition with or adverse to, the Vendor during the Marketing Term unless authorised in writing by the Vendor.  In addition, the ‘The Contractor’ shall not sell or promote in any way the following –

   -         a property not listed or authorised by the Vendor for sale on its stocklist,

   -         the sale of any products or services that the vendor can supply, including but not limited to Finance, Accounting, Superannuation Services, Financial Planning, Property Management, Wealth Coaching and other related products and services.

   -         the branding or intellectual property of a third party without the Vendors written permission.

   Section 6.02 – No Termination: Except if any of the events of section 8.021 occur, this Article 6.02 shall survive the Marketing Term for 1 (one) year.

   Section 8.03 - Return of Materials: ‘The Contractor’ shall return to Vendor all physical Marketing Materials, Information in the possession or control of ‘The Contractor’ (or any representative of ‘The Contractor’), Delete all copies of the Software, delete all Branding templates, on the last day of the Marketing Term, or as set forth in Section 8.02. This includes any Software or Branding that was purchased by ‘The Contractor’ and is without reimbursement or refund.

2. The essence of the agreement was therefore that Mr and Mrs Price (the Contractor) were to use their best efforts to promote Prowealth’s (the Vendor) services and, for that purpose, they had a licence to use Prowealth’s software and intellectual property during the term of the agreement.[6]  The “Documentation” referred to in section 10.02[7] included, most relevantly, all versions of the Prowealth Cash Flow Analysis Software and other templates created by Prowealth.

   [6]Sections 2.01 and 2.02.

   [7]Referred to in the definition of “Documentation”.

3. Although Prowealth’s “Services” were defined very broadly in the recitals, there is no evidence that Mr Price was asked to undertake or did undertake any of the described “Services” other than selling investment properties, nor that the parties contemplated, at the time of the agreement or later, that he would be involved in promoting any of the other described categories of “service”.  That is relevant to the proper construction and enforcement of the terms of the contract on which Prowealth relies.

4. The agreement also included a payment schedule[8] concerning commissions payable to the Contractor upon sales of properties to clients.  The Contractor was entitled to 43% of the gross commission actually received by Prowealth.  Part F of that schedule relevantly provided:

   Part F – Payment and eligibility of Commission after Termination

   If the ‘The Contractor’s Agreement or this Schedule is terminated for any reason the Vendor will continue to distribute Commissions in accordance with the agreement until all Commissions have been paid provided that clients/prospects have “Exchanged Contracts” for a purchase as at the date of termination only, excluding any notice periods and excludes any future purchases by that prospect/client.  The Contractor is not entitled to any commission payments where sale has NOT Exchanged contracts as at the date of termination.

   [8]TB57:90-95.

The Dunkley agreement

1. Mr Dunkley entered into an employment agreement with Prowealth on 3 August 2016, by which he was employed as a business development manager.  That agreement relevantly provided the following.

   1        DEFINITIONS

   1.1     In this Agreement:

   (c)     unless the context otherwise indicates:

   (iv)    ‘Client’ mens any actual or identified prospective property seller, … buyer … of the Employer (its agents or staff);

   (v)     ‘Confidential Information’ includes information which:

   (A)the Employer indicates is confidential;

   (B)by its very nature, might reasonably be understood to be confidential or to have been disclosed in confidence;

   (C)would be of commercial value to a competitor of the Employer;

   (E)relates to any arrangements or transactions between the Employer and a Client, property owner, or referrer of business to the Employer;

   (F)relates to any Clients who have approached the Employer, (including their details, their requirements, their identity and their financial affairs);

   (J)relates to the marketing and selling techniques used by the Employer (including marketing plans, sales plans, research and data surveys);

   except for information that:

   (K)was rightfully in the Employee’s possession and not subject to an obligation of confidentiality on the Employee before the negotiation leading to the commencement of the Employee’s employment with the Employer, whether pursuant to this agreement or otherwise; or

   (L)is, or after the date of this Agreement becomes, available in the public domain (other than as a result of a breach of this Agreement).

   14      TERMINATION OF EMPLOYMENT

   14.7    On termination of employment (for any reason), the Employee will immediately deliver to the Employer all property and information belonging to the Employer, including Confidential Information, client lists, all rental property details, files, business stationery, manuals, business equipment, business cards, legal documents, keys, books, plans, maps, tape recordings, two-way radios, mobile telephones, clothing and uniforms, credit cards and signs or marks in relation to any property or transaction completed or in the process of completion.

   15      DUTY OF CONFIDENTIALITY

   15.1    The Employee will not at any time, whether or not employed by the Employer, use or disclose any Confidential Information without the Employer’s prior written permission unless:

   (a)it is strictly necessary for the Employee to perform the Duties; or

   (b)for the purpose of disclosure only, the Employee is legally obliged to disclose the Confidential Information to a Court, Commission or Tribunal.

   17      RESTRAINT

   17.1    The Employee agrees that during the period of employment and for a period of three (3) months following the cessation of employment for any reason, the Employee will not, in any capacity, directly or indirectly: …

   (b)approach or accept any approach from any Client with a view to soliciting the business of that Client for anybody other than the Employer. 

1. The agreement contained a schedule containing a job description and a “Position Summary & Primary Objective”.  The latter provided relevantly:

   Prowealth Investments aims to provide competitive services in the real estate investment market.

   The company has 5 divisions –

   1.   Prowealth Investments – Property and related services

   …

2. As with the Price agreement, the agreement did not contemplate Mr Dunkley working in any other division.  His role and responsibilities, also set out in the schedule, included the following:

   ·   In conjunction with management and business divisions, formulate and assist where necessary to create a ‘Pathway’ for the client using the systems and services of Prowealth and encourage the use of Property as an investment vehicle.  Use of systemised company software and spreadsheets to prepare the relevant plan.

   ·   Generate additional leads by dealing with past clients or promotion attendees.

Events between March and August 2019

Termination of the Dunkley agreement

1. Toward the end of March 2019, Mr Goodwin told Mr Dunkley that Prowealth was having financial cashflow difficulties and needed to cut expenses.  In order to do that, Mr Goodwin proposed that Mr Dunkley cease to be employed and become an independent contractor on different terms as to income and benefits.  Mr Goodwin provided a detailed proposal by email on 1 April 2019[9] and they negotiated over the following two months.

   [9]TB64:[23], SD-4.

2. On 23 April, Mr Goodwin proposed some alternative income arrangements, saying that “Your final pay under the current structure will be next Thursday so we need to finalise which option you can work under the new setup …”.[10]

   [10]TB64:[26], SD-5.

3. In May, Prowealth stopped paying Mr Goodwin his salary due under his employment agreement.  Mr Goodwin eventually told Mr Dunkley that he would not pay him until he returned a signed contractor agreement.  On 31 May 2019, Mr Goodwin paid the amount due to Mr Dunkley and told him that “This resets your employment termination date to now be Saturday 1^st June” and that “I wont [sic] make any further payments as a contractor (nor employee) until we have signed off on an agreement … don’t do any further work for us until we have an agreement in place …”.[11]

   [11]TB62:[59], SD-18.

4. Under the Dunkley employment agreement, Prowealth was required to give Mr Dunkley 2 weeks’ notice of termination, or payment in lieu.  Mr Goodwin simply ignored that obligation, purporting to terminate the agreement, first, on 1 May (by notice on 23 April) and then on 1 June 2019 (by notice on 31 May).  The effective date of his termination is relevant only to the period of any effective restraint of trade on Mr Dunkley.  The plaintiff alleged in its statement of claim that Mr Dunkley “gave verbal notice” (which I assume means oral notice) of his resignation on 1 June 2019.  The defendants deny that and contend, in their defence, that the plaintiff constructively dismissed Mr Dunkley in April or May by refusing to allow him some of his income and benefits. 

5. Mr Dunkley did no further work for Prowealth from 1 June 2019 and, on 7 June, told Mr Goodwin that he would not accept the contract offered by Prowealth.  They arranged to meet at the office in East Maitland on 11 June, when Mr Dunkley returned the keys to the office.  According to Mr Dunkley, he told Mr Goodwin that he had no current plans for what he was intending to do.  According to Mr Goodwin, Mr Dunkley told him that he was intending to work with a friend who was a buyers’ agent for real estate.

6. Mr Goodwin’s email of 31 May evinced a clear intention to terminate the Dunkley agreement without giving the necessary notice.  Although he had earlier evinced an intention to terminate it from 2 May 2019, he resiled from that later in May by paying the amounts due in May.  While Mr Dunkley did not formally accept Prowealth’s repudiation until 7 June 2019, he did no work and he was not paid after 1 June.  I find that Prowealth effectively terminated Mr Dunkley’s employment from 1 June 2019.

Termination of the Price agreement

1. In March 2019, Mr Goodwin sent Mr Price a proposed new contract, which significantly altered the terms, particularly the remuneration and expense structure.[12]  At around the same time, Mr Goodwin told Mr Price that Prowealth intended to reduce its presence and to close its office in New South Wales.  They negotiated over the next few months, without reaching agreement.  Prowealth closed the New South Wales office at the end of June.

   [12]TB65:[27]-[28], RP-4.

2. On 13 July 2019, Mr Goodwin found an email in Mr Dunkley’s email account, attaching a solicitors’ draft costs agreement with Mr Price and Mr Dunkley for a shareholders’ agreement and advice about employment and contracting restraints.[13]  Mr Goodwin asked Mr Price what it was about and Mr Price said he and Mr Dunkley were planning to go into a business renovating properties and selling them.  Under cross-examination about that conversation, Mr Price said that that was part of the business they were discussing.  He also agreed that they were intending that PIA would undertake the same sort of business as Prowealth, including generating business from clients of Prowealth whom Mr Price felt he had brought into that business.[14]  Mr Price also said (in answer to an assertion that he was intending to mislead Mr Goodwin) that, in telling Mr Goodwin about the renovation business, it was partly true but he didn’t give him the whole information.  In doing so, he was trying to put Mr Goodwin off the scent so that he wouldn’t know that Mr Price and Mr Dunkley were going to compete with him.[15]

   [13]TB57:[34](a); DLG-13, p107.

   [14]T4-31:40 – 4-32:45.

   [15]T4-33:30-36.

3. On 1 August 2019, Mr Price told Mr Goodwin that he was resigning from Prowealth, effective immediately.  According to Mr Price, he told Mr Goodwin that he was doing a course in property investment, building and renovating.  According to Mr Goodwin, Mr Price said that he was starting a renovation business.  Prowealth accepted Mr Price’s resignation, effectively terminating the Price agreement with effect from 1 August 2019.

The establishment of PIA

1. In January 2019, at the latest, Mr Price had engaged a website design company to create a website that he said was for a company he was considering starting called Roger Price Property.  Mr Dunkley assisted by commenting on the drafts provided by the company.  Both Mr Price and Mr Dunkley denied that that was an early version of the business of what ultimately became PIA.  Mr Price said that he looked at starting it in order to generate leads that he would then direct to Prowealth, as Prowealth had not been successful in generating leads recently.[16]  His answer in this respect was not really challenged in cross-examination, although Prowealth’s counsel submitted that it should not be accepted, but rather the court should conclude that, even in January 2019, he and Mr Dunkley were preparing to set up a business in competition with Prowealth.

   [16]T4-29 – 4-30.

2. I do not believe Mr Price’s evidence about the reasons for him looking to start up Roger Price Property.  There is no supporting document in evidence and the defendants’ counsel did not put to Mr Goodwin that he was aware of Mr Price’s intentions at that time.  I consider it more likely that Mr Price at least had in mind starting his own business (probably similar to that of Prowealth) as, by January 2019, it was becoming obvious to him that Prowealth was no longer doing well in securing ongoing and new business.  No doubt he thought he could do better.  It is also clear that he did not get on with Mr Goodwin and Mr Dunkley’s evidence was that he did not want to deal with Mr Goodwin.  Mr Goodwin’s father had told Mr Dunkley, in late 2018, that he was intending to retire from the business and that Mr Goodwin would take over in 2019.  The timing is too coincidental.  By early 2019 Mr Price and Mr Dunkley were planning to start their own business, whether or not in competition with Prowealth.  By April 2019 they were intending that the business be a similar model to that of Prowealth and by May 2019 they had determined to proceed with that business.  Mr Price, at least, was intending to secure business from clients of Prowealth with whom he had been dealing, whether or not it would be in breach of his agreement with Prowealth.

3. PIA was incorporated on 28 May 2019.  Mr Price and Mr Dunkley are the directors and shareholders.  Its principal place of business was Mr Price’s home address from its incorporation.[17]  Even its name indicates the type of business that its directors intended it to undertake.

   [17]TB1:64.

Events between July and November 2019

1. As I have mentioned above, in July 2019 Mr Dunkley and Mr Price were seeking advice from solicitors.  Importantly, the scope of the advice being sought, as revealed in the draft costs agreement, was not limited to drawing a shareholders’ agreement between them.  It extended to advice on “employment and contracting restraints.”  To my mind that demonstrates that the defendants’ intentions were to undertake a business in New South Wales of the same nature as that of Prowealth and, for that purpose, they were seeking advice on the effectiveness of the restraint clauses in their respective agreements with Prowealth.  That intention was also confirmed by Mr Price in his cross-examination.[18]  He intended to do so even though he understood that, under his contract with Prowealth, he was not allowed to compete with Prowealth while working for it, nor for a year afterwards.[19]

   [18]See [26] above.

   [19]T4-33:38 – 4-34:25.

2. I set out later a description of the defendants’ dealings with Prowealth’s clients between August and November 2019.  As Mr Price conceded, they were the only people to whom PIA made sales between August and December 2019.[20]

   [20]T4-61:9-16.

3. In the course of their dealings, Mr Dunkley and Mr Price conceded (and it was confirmed by several clients in their evidence), they used documents (and the software behind the documents) that looked remarkably similar to the documents used by Prowealth to show potential purchasers the advantages of purchasing a particular investment property.  During the trial the parties concentrated on and compared one document in particular, together with a number of extracts from PIA’s website.

4. Mr Goodwin gave evidence that Prowealth had, over many years, generated spreadsheet templates that allowed the presentation of financial information to clients and potential clients in an easy to understand format.  The spreadsheets particularly included a “Prowealth Cash Flow Analysis” (which was headed “Property Cash Flow Calculator for Year 1”) that showed the customer the likely returns and tax implications of an investment, a similar spreadsheet for self managed superannuation funds and a “Wealth For Life Calculator” that, when populated with client data, calculated an estimated return on an investment in property over 10 years.[21]  Prowealth had also developed a company information booklet that provided a guide to the investment process for customers.[22]

   [21]TB57: [14]-[16] and respectively at 30, 31 and 32-34.

   [22]TB57: [17], 35-50.

5. In November 2019, Prowealth received from one of its former clients (Mr Adams) a copy of a spreadsheet that Mr and Mrs Adams had been given by Mr Price in a sales brochure.  That document was titled “Property Cashflow Calculator for Year 1” and was in all respects identical to the Prowealth document, except that it claimed copyright for PIA where the Prowealth document claimed copyright for Prowealth.[23]

   [23]A document showing a comparison between the Prowealth and PIA “Cash Flow Calculators” and between a Prowealth booklet and PIA’s website was marked for identification during the witnesses’ evidence and therefore was referred to during the evidence as “MFI-A”.  Ultimately it became exhibit 14.

6. Mr Dunkley gave evidence that, from July to October 2019, PIA used the Prowealth “Property Cash Flow Calculator” for sales to clients.  He said that PIA stopped using it in October 2019.[24]  Mr Price also said that PIA used that document and the “Wealth For Life” spreadsheet for sales to five of the clients with whom PIA dealt between July and October 2019 and stopped using them “in or around” October 2019.[25]

   [24]TB62:[72]-[74].

   [25]TB63: [58]-[60].

7. Both Mr Dunkley and Mr Price contended that there was nothing unusual in the spreadsheets or the information they calculated and provided.  They contended that similar documents were readily available on the internet or from other software providers.[26]  Mr Price also tried to downplay the usefulness of the cash flow spreadsheet when cross-examined about it.[27]  However, he agreed that he changed the copyright claim from Prowealth to PIA[28] and that he knew Prowealth claimed copyright in the cash flow calculator spreadsheet.[29]  Mr Dunkley said that he never used the spreadsheet, as the two clients he dealt with between August and November 2019 were purchasing through superannuation funds and so obtained the financial advice about their proposed purchases from Mr Woodards rather than from Mr Dunkley.[30]  That was inconsistent with Ms Levido’s evidence (which I summarise below).  I prefer her evidence and find that Mr Dunkley used the PIA copy of Prowealth’s document at least on that occasion.  He probably also used it in his discussions with Mr and Mrs Sawtell.  He certainly used the Prowealth designed client fact find document for them.[31]

   [26]TB64: [6]-[11]; TB65: [7]-[11].

   [27]T4-21:29 – 4-22:13.

   [28]T4-25:11.

   [29]Although at first he denied knowing that and later he said that he did not really understand what copyright was:  both statements that I do not consider were true.  Rather, in my view, he was dissembling.

   [30]T4-102 – 4-103.

   [31]TB29.

8. Exhibit 14 also included extracts from Prowealth’s guide to services that Mr Goodwin, in the document, compared to extracts from PIA’s website.  Despite Mr Price denying the similarity between them, it is clear on their face that much of the information on the website was taken from the Prowealth documents and the wording altered, but conveying the same message and in similar ways.  I have no doubt that, in creating the wording and graphics for PIA’s website, Mr Price based it closely on Prowealth’s documents.  For that purpose, Mr Price must have retained copies of Prowealth’s documents when he terminated his agreement.

The alleged lost clients

1. Prowealth called each of the clients allegedly diverted to PIA to give evidence.  It is necessary to summarise critical parts of their evidence.

2. Anne Levido lives near Newcastle in New South Wales.  She gave evidence that she and her husband, Andrew Levido, were introduced to Mr Dunkley by a friend of theirs.  They first bought a house with Mr Dunkley’s assistance in 2017.  They met him, they really liked him and they went ahead with the purchase.  In 2019, they felt that they were ready to buy another investment property, so they contacted Mr Dunkley.  They contacted him because they liked and trusted him.  They received financial advice about the proposed purchase from Matt Woodards of PFP Private Wealth and they bought a second property, in Thornton, New South Wales, in 2019.[32]  They have kept in touch with Mr Dunkley a few times a year since then.  Ms Levido said that, in discussing the proposed property with them, Mr Dunkley showed them a document with financial calculations that demonstrated how much it would cost them each week.  She agreed that the document was similar to the cash flow calculator shown in exhibit 14.

   [32]The defendants’ closing submissions, with which the plaintiff did not take issue, states that the “sale date” (which I take to be the contract date – see below concerning Ms Green’s contract) for that property was 28 August 2019.

3. In cross-examination, Ms Levido said that she was happy with the properties they had bought through Mr Dunkley, she trusted him, he was the person that she would like to deal with in relation to purchasing properties and she would not deal with anyone else.  She has received no contact from anyone at Prowealth (apart from “the girls in the office”) since 2019.

4. In re-examination, Ms Levido was asked whether, if Mr Dunkley had said to her in 2019, when she and her husband contacted him, that he could not deal with her right then but someone at Prowealth could help her, what her attitude would have been.  She said she would have waited until Mr Dunkley could help them.

5. Andrew Levido gave more limited evidence than Ms Levido.  He did not have as clear a recollection of events as his wife.  But to the extent that he could recall events, his evidence was to similar effect as that of Ms Levido.  He said he was very happy with the work done by Mr Dunkley and he trusted him.  When asked what he would say if Mr Dunkley had said he couldn’t deal with them, he responded that he probably would not have bought another property unless it was with him.

6. David Sawtell lives in New South Wales.  He was told about Mr Dunkley by a friend of his.  He contacted Mr Dunkley in about June 2019 to discuss investing in real estate.  He and his wife met Mr Dunkley, who discussed three or four options with them.  He did not recall the paperwork, including the PIA cash flow calculator.  They decided to deal with Mr Dunkley because they liked the way he presented himself, put no pressure on them, explained everything and was available to answer their questions.  Mr Sawtell said, “He’s a great bloke and I would deal with Scott wherever he chose to work regardless of what company.”[33]

   [33]T3-37:10-11.

7. Shirstine Green, who lives in Prahran, Victoria, bought a property in Newport, Queensland, under a contract made on 5 August 2019.[34]  She obtained (and still obtains) financial advice from Prowealth Financial Services.[35]  Through Prowealth, she met Mr Price and with his advice invested in a property in 2017.  In 2019, she was ready to invest further, so she contacted Mr Price, who put her onto the property in Newport.  She continues to have contact with Mr Price three or four times a year.

   [34]That date appears in the defendant’s closing submission.  The contract is at TB55.  Although it is undated on its face, it appears to have been signed and dated (on page 4) by Ms Green on 5 August 2019.  I shall assume, therefore, that the “sale date” in the closing submission for each contract is the date of the contract, not its settlement.

   [35]This was how she referred to it.  That was the former name of PFP Private Wealth.

8. Ms Green said that, in discussing the Newport property with Mr Price, he showed her a document that contained information about such things as the potential rental income, outgoings and whether the investment would be cash positive or cash negative.  Exhibit 14 was not shown to her.  She obtained financial advice, though, from Mr Woodards of Prowealth Financial Services.

9. Ms Green said that, if she had been approached by someone else at Prowealth to discuss the purchase of an investment property, if that person worked with Matt Woodards she would be open to dealing with such a person.  But she liked dealing with Mr Price and felt he gave her good advice.  She said that at some time Mr Price told her that he was no longer at Prowealth, but that would not impact her still working with Mr Woodards, which was important to her.  She has continued to be in contact with both Mr Woodards and Mr Price since 2019.

10. Luke Rochaix lives in Essendon, Victoria.  He was introduced to Prowealth by his father in 2009 and they subsequently bought two investment properties together with the assistance of Prowealth.  In about April 2019, he and his wife met Mr Price, after Mr Price rang him to talk about a property in Woolloongabba.  Mr Rochaix and his wife were married in May 2019 and they sought financial advice from Mr Woodards.  They did not buy the Woolloongabba property but, in about August 2019, Mr Price told them about a property in Spring Mountain, Queensland, which they bought in September 2019.[36] 

    [36]The defendants’ closing submissions identify the date of the contract as 5 September 2019.

1. Mr Rochaix said that, when Mr Price contacted him in August 2019, Mr Price told him that he was no longer at Prowealth.  Mr Price asked whether that made any difference and said he could refer Mr Rochaix back to Prowealth or could help him himself.  In deciding to deal with Mr Price, Mr Rochaix said, the important consideration for him was that Mr Price had worked very closely with him, had stayed in contact by email and telephone and face to face and had been very helpful through the process of considering the opportunity to buy the Woolloongabba property.  Mr Rochaix felt that he was dealing with somebody who had a genuine interest in him and was not just looking for a sale to cut and run.  Mr Rochaix liked the relationship side that Mr Price brought to the transactions.

2. Mr Rochaix said that, if he were approached by someone at Prowealth other than Mr Price, he would have been happy to deal with them.  He has had intermittent contact with Mr Price since 2019.

3. Michael Kokins lives in Thornton, New South Wales.  He and his partner, Jane Turner, were introduced to Prowealth in about May 2019 by a family friend who had bought investment property with the assistance of Mr Price.  Mr Kokins contacted Mr Price and they had an initial meeting, followed by another meeting in which Mr Price showed them a number of properties.  He showed them a document similar to exhibit 14 that set out tax and cash flow implications of an investment in each property. They initially decided to buy a property, but were not able to obtain the finance to buy it.  Later, when they had arranged finance, Mr Kokins contacted Mr Price and, after discussions with him, they decided to buy a property in Spring Mountain, Queensland, which they eventually bought under a contract made on 25 October 2019.  They have not bought any other investment properties, but Mr Kokins and Mr Price regularly keep in touch.

4. Mr Kokins said that, when he contacted Mr Price after arranging finance, Mr Price told him he was no longer with Prowealth and they could still deal with Prowealth if they preferred.  They decided to continue dealing with Mr Price because he had been “on the journey” with them.

5. Michael McNab lives in Cessnock, New South Wales.  He had been dealing with Len Goodwin since before he started Prowealth and he had been dealing with Prowealth since 2012, for both accounting and property investment advice.   Mr McNab received a text message from Mr Price in about May 2019, asking to meet with him after Prowealth had finished his tax affairs.  They met in June 2019, when Mr Price completed a client fact find document for Mr McNab and his wife.[37]  A month or so later, he received a voicemail from Mr Price and they met again on 22 July 2019.  On that occasion, Mr Price told them about a property in Spring Mountain, Queensland, which they subsequently bought.  Mr McNab said that, if another person from Prowealth had approached him instead of Mr Price, he would have been prepared to deal with that person.  He has subsequently bought other investment properties through a different group, not through Mr Price or Prowealth.

   [37]TB30.

6. Paul Adams lives in Jilliby, New South Wales.  His wife, Angela, used to work for Prowealth.  Through Prowealth, they bought a unit in Sippy Downs, Queensland, in about 2016.  Some time later, Mr Price contacted them and showed them a few properties, including one in Spring Mountain.  They signed a contract to buy that property but did not proceed when the valuation obtained in order to obtain finance was for less than the purchase price.[38]  They did not end up buying a property with Mr Price’s assistance.  Mr Adams said he had also introduced his sons to Prowealth and they had also bought properties through Prowealth.  He also said that, if someone else from Prowealth had contacted him, he would have been happy to deal with them.

   [38]The defendants’ submission asserts that they signed a contract to buy that property on 1 October 2019.  There does not appear to be direct evidence of that date, but it does not seem contentious.

7. Angela Adams also gave evidence.  She worked for Prowealth as an accountant for three years until the end of 2016.  In about 2014 or 2015, she obtained advice from Mr Woodards about setting up a superannuation fund, through which they then bought a property in Sippy Downs. 

8. In about September 2019, she received a telephone call from Mr Price.  He told her that he was working on his own now and could offer Mr and Mrs Adams some property choices if they were interested.  They subsequently met with him and he showed them a number of properties in Queensland.  They decided to buy a property in Spring Mountain.

9. Ms Adams was shown exhibit 14.  She said she was familiar with that type of document from her work with Prowealth.  Mr Price showed them documents like that when they were discussing properties in 2019.

10. Ms Adams also said that, if someone from Prowealth had approached her in 2019 for the purposes of selling her a property, she would have been interested in talking to them.

The defendants’ alleged duties

1. The plaintiff alleges that the defendants owed to it a number of duties or obligations, which they breached by their conduct described elsewhere in these reasons.  Those duties are variously described in the statement of claim as contractual obligations, implied contractual duties, fiduciary duties, an equitable obligation of confidence and, in the case of Mr Dunkley, statutory duties under the Corporations Act.[39]  It is necessary to consider each of the alleged duties in the context of the terms of the respective agreements and a more general duty of confidence, as well as to consider whether particular information was in fact confidential.

   [39]However, in address, Prowealth’s counsel disclaimed any claim for breach of statutory duties.  Any such claim is not within this court’s jurisdiction, as it may only be determined by a “Court” as defined in that Act:  ss 1317H, 58A.

2. The defendants admit that Mr Dunkley owed Prowealth duties under his employment agreement.  They deny that he was Prowealth’s fiduciary.  They also deny that Mr and Mrs Price owed Prowealth any fiduciary duties and that PIA owed Prowealth any duties.  Their counsel, Mr Keane, noted in his written closing submission that there is no Barnes v Addy[40] claim against any defendant, so each of them will only be liable for any individual breach.

   [40](1874) LR 9 Ch App 244.

Fiduciaries?

1. Prowealth contended, in its counsel’s final submissions,[41] that Mr Dunkley and Mr and Mrs Price were all fiduciaries of Prowealth, essentially because of their contractual relationships with it and the roles they had under those agreements.  Being fiduciaries, they were obliged not to act contrary to the interests of Prowealth, nor to allow their own interests to conflict with those of Prowealth.  Their conduct, in arranging to set up PIA and in taking client and business information while they were engaged by Prowealth and later using it for their own purposes and those of PIA, was in breach of their fiduciary obligations.

   [41]Although, in the statement of claim, it does not allege that Mr and Mrs Price were its fiduciaries.

2. The defendants contend that none of them owed any fiduciary obligations, although they do admit that, during the course of their engagement by Prowealth, they owed duties of fidelity and good faith.[42]  So far as Mr and Mrs Price are concerned, they submit that they are independent contractors with no particular relationship with Prowealth that would import fiduciary duties.  As for Mr Dunkley, they submit that, while he was an employee of Prowealth, he did not have any powers or discretions that would give rise to him having any fiduciary duties to Prowealth.

   [42]Defence, [20](c).

3. The defendants nevertheless admit that, under and during the terms of their respective agreements, there were implied terms of the agreements that they owed Prowealth duties to act honestly in the service of Prowealth, to act loyally and exclusively for, on behalf of and in the best interests of Prowealth, to disclose to Prowealth any conflict with obligations owed by them to Prowealth, not to retain any property or advantage the opportunity for the acquisition of which was furnished by their engagement by Prowealth and not to deal with Prowealth’s clients otherwise than on Prowealth’s behalf.[43]

   [43]Statement of claim [6], [7], admitted in defence [7], [8].

The indicia of a fiduciary relationship

1. There are certain categories of relationship in which one party is almost always, if not always, a fiduciary of the other.  In others, the particular circumstances will determine whether or not a fiduciary relationship exists.  In all cases, there are certain critical indicia of a relationship.  The “critical feature” of a fiduciary relationship has long been identified as,

   the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.  The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.  The expressions “for”, “on behalf of”, and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility …  It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …[44]

   [44]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 96-97, Mason J (dissenting).

2. It has subsequently been said that:

   “vulnerability”, though it may be a characteristic of some of those to whom fiduciary duties are owed, is [not] the touchstone of fiduciary obligation: the fundamental question is for what purpose, and for the promotion of whose interests, are powers held?”[45]

   [45]C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd (1996) 37 IPR 315, 355 (Lehane J).

3. Thus, it has been said, the vulnerability of any contracting party to breach by another is not sufficient, nor is the reliance on performance which any contracting party places on the other.  The distinguishing characteristic of a fiduciary relationship is that its essence or purpose is to serve exclusively the interests of a person or, to put it negatively, it is a relationship in which the parties are not free to pursue their separate interests.[46]

   [46]Heydon et al, Meagher Gummow and Lehane’s Equity Doctrines and Remedies (LexisNexis, 5^th ed, 2015), [5-005], 142, 143.

Mr Dunkley

1. Prowealth submitted that Mr Dunkley’s contract was an employment contract “and established a fiduciary relationship accordingly,” which was made more obvious because he was entrusted with confidential information like client data and other intellectual property.

2. The defendants’ counsel submitted that the mere existence of an employment relationship does not give rise to a fiduciary duty[47] and no relevant powers or discretions that might give rise to a fiduciary duty were given to Mr Dunkley under his employment agreement.

   [47]Citing Woolworths Ltd v Olson (2004) 184 FLR 121, [214].

3. An employee does not automatically owe fiduciary duties to her or his employer simply because of the fact of employment.  Rather, an employee may owe fiduciary duties to the employer only if the particular duties, powers and discretions given to the employee are of such a nature as to give rise to fiduciary obligations.  In determining whether that is the case, the tests, including the “critical feature”, that I have set out above remain relevant.

4. In Woolworths Ltd v Olson, Einstein J summarised the relevant principles applying to the question whether an employee owes the employer fiduciary obligations.  The last point he made in that summary was that,

   it is necessary to consider with precision the precise activity agreed to be undertaken by a particular employee and to ask if that employee had agreed to perform that activity solely in the interests of the employer to the exclusion of his/her interests.[48]

   [48](2004) 184 FLR 121, [212].

5. His Honour went on, at [214], to quote at length from reasons of Elias J of the England and Wales High Court of Justice (Queen’s Bench Division), in which his Lordship relevantly said,

   What then are the underlying principles which enable the court to determine whether or not fiduciary obligations arise?  Lord Millett, writing extra-judicially has identified three distinct categories of relationship (see his article "Equity's Place in the Law of Commerce"(1998) Vol. 114 L.Q.R. 214).  Two of them have no application in this case.  These are first, where the obligations arise out of the fact that one party is in a position of influence over another; and second, where they arise from the fact that one is in receipt of information imparted in confidence by the other.  Employees frequently fall into this latter category, because their work will often involve their being made privy to trade or business secrets of their employer.  But although the existence of the employment relationship explains why the employee comes to be in possession of such information, and the contract of employment will define the purposes for which such information may be used, the employment relationship itself in such cases is really only incidental to the imposition of the fiduciary duties.  …

   The third category identified by Lord Millett, and described by him as the most important, is as follows:

   " [it] is the relationship of trust and confidence.  Such a relationship arises whenever one party undertakes to act in the interests of another, or where he places himself in a position where he is obliged to act in the interests of another.  The core obligation of a fiduciary of this kind is the obligation of loyalty."[49]

   [49]Nottingham University v Fishel [2000] IRLR 471, [2000] ICR 1462, 1489.

6. Finally, the principles applicable to determining whether an employee owes the employer fiduciary duties or merely the ordinary duties of fidelity and loyalty that any employee will owe the employer have been usefully summarised by Professor Dal Pont:[50]

   As fidelity and loyalty are similar concepts, the boundary between a duty of fidelity and the full force of fiduciary duties, is inexact.  It has been suggested that the duty of fidelity does not require the employee to subordinate her or his own interests to those of the employer, but rather invokes fidelity to the employment relationship as defined by the contract of employment.  The issue is likely to be ultimately one of degree, involving inquiry into whether the relationship in question needs protection exceeding that prescribed by the terms of the employment contract.  Employees owe fiduciary duties if the nature of the employment relationship demands a standard of loyalty exceeding the duty of fidelity prescribed by contract.  The employee’s position and responsibility in the employer’s business is probative to this end:  the more senior the employee, and the greater the latitude afforded to the employee by the employer, the greater the employer’s vulnerability to the potential misuse of that position of power by the employee.

   [50]Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 7^th ed, 2019), [4.285] (citations omitted, although they included Hospital Products, University of Nottingham and Woolworths v Olson).

7. It is necessary, therefore, to consider the knowledge, obligations and discretions given to Mr Dunkley under his employment agreement in order to determine whether he owed any and what fiduciary duties to Prowealth.  I have set out above the most relevant terms of that agreement.  The following additional terms are also relevant to the issue with which I am now concerned.

   4        EMPLOYEE’S UNDERTAKINGS

   4.1     The Employee undertakes: …

   (d)not to incur expenses on the Employer’s behalf or to pledge the credit of the Employer without the prior written approval of the Employer; …

   (f)not to enter into any agreement or contract or make any promise or representation on behalf of the Employer without the prior written approval of the Employer.

   7       HOURS OF WORK

   7.3     The Employee will devote the whole of the Employee’s time and attention during the Hours of Work and at such other times as may be reasonably necessary to the business of the Employer.

   In the position summary, Mr Dunkley was required,

   to contribute to the provision of quality services by providing first contact support for the company in a professional and efficient manner …

   Supporting a team of professionals, the individual will be required to demonstrate initiative and work as an enthusiastic team member in accordance with the organisation’s office routines and procedures, keeping in mind the overall business objectives.

   Generally to –

   ·        In conjunction with management and business divisions, formulate and assist where necessary to create a ‘Pathway’ for the client using the systems and services of Prowealth and encourage the use of Property as an investment vehicle.  Use of systemised company software and spreadsheets to prepare the relevant plan. …

   ·        Provide the directors with a detailed typed report and plan (using MS Excel and Word) on the client’s financial situation and their concerns or comments as quickly as possible after the meeting but within 2 days.

   ·        Avoid giving specific advice or personal opinions to clients. 

   ·        Maintain familiarity with Prowealth concepts and strategies and properties.

8. Also particularly relevant, of course are Mr Dunkley’s duty of confidentiality in clause 15 and the restraint in clause 17.

9. Finally, it is also relevant that the procedures that sales people like Mr Dunkley were required, or at least encouraged, to follow in dealing with clients were set down quite prescriptively and linked to the payment of commissions in addition to his salary.  The sales people would have two or three meetings with the proposed client in the process of persuading the client to buy a property.  The first was an introductory meeting to obtain some personal and financial details of the clients (to complete a “Client Fact Find” document), to introduce them to the services available and to interest them in going further.  The second was to show the clients some properties (or a particular property) in which they might be interested, including the financial results of investing in the alternative properties and, hopefully, to have the clients sign up to buy a property.  The third, if necessary, was to sign up the clients to the chosen property.  During these meetings, the sales person was required to use the forms and spreadsheets developed by Prowealth, although Mr Dunkley said he did not always use all of them.  Mr Dunkley did not handle or control any money on behalf of Prowealth.

10. In my view, Mr Dunkley was essentially a sales person for Prowealth.  He did not hold a management position and had no direct involvement in the management of the company.  He was required to comply with and to use Prowealth’s systems and documents.  While he was required to keep information and systems confidential, that was not only an express term of his employment agreement but is a normal corollary of any employee who is given access to confidential or sensitive information in order to do the employee’s job.  He was not able to bind Prowealth in any contractual way.  His role was to deal with clients and prospective clients on behalf of Prowealth and he was not permitted to solicit business for persons other than Prowealth, but that too is a not unusual term of employment, particularly for sales people.

1. If I were wrong in excluding the commissions payable to the defendants had they secured these sales while engaged by Prowealth, then the loss would have been the following:

Client	Gross commission	Commission payable to Dunkley or Price	Net commission	Proportionate amount of net
Sawtell	$30,000	$4,100	$25,900	$6,475
Green	$35,000	$15,050	19,950	$19,950
Rochaix	$30,000	$12,900	$17,100	$10,260
Kokins/Turner	$35,000	$15,050	19,950	$9,975
McNab	$30,000	$12,900	$17,100	$13,680
Total loss	$60,340

The lost income stream

1. The basis of this component of Prowealth’s claim is that, if the defendants had not approached or dealt with the clients referred to above, they would have remained clients of Prowealth, they would have bought more investment properties with Prowealth’s assistance in future years and they would have referred other people known to them, such as friends or family, to Prowealth.  Prowealth would therefore have earned a stream of income over the years from these clients and people referred by them, which it no longer has or will have.  It is therefore entitled to damages comprising the current value of that future income stream.

2. Prowealth relied, in this respect, on evidence from Mr Green.  He recorded that Prowealth asserted that the defendants’ conduct had relevantly caused it a loss comprising “future marginal profits of Prowealth (assuming a continuation of loss from profits from sale of property commissions in the future) and resultant loss in capital value.”[92]

   [92]TB12, [1.22](b).

3. Mr Green stated that the loss of capital value/net present value of future loss of marginal profits represented:

   (a)  the risk adjusted net present value of future loss of marginal profits of the business; and

   (b)  the additional amount the Plaintiff could sell the business for, had the additional income and resultant net profit been derived in the future;

   assuming future losses of marginal profits would be suffered in relation to all clients of Prowealth (and not just those clients that make up the historical loss of marginal profits).[93]

   [93]TB12, [4.10].

4. He went on to say that, in determining the annual loss of marginal profits, he had adopted the annual past loss of marginal profits that he had calculated as a proxy for ongoing future losses of clients (that is, different clients, but of a similar transaction value, would be lost in the future).[94]  Therefore, he based his calculation of the value of lost future clients as the loss of marginal profits that he had calculated in two scenarios:  the first, assuming that all the “lost clients”, including the Sawtells and the McNabs, had purchased a property through Prowealth in 2019 and the second assuming that neither the Sawtells nor the McNabs had bought through Prowealth.  He referred to these alternative scenarios as scenarios 1 and 2 respectively.  Mr Green had calculated Prowealth’s loss of profit in the two scenarios at $149,082 and $99,255 respectively.

   [94]TB12, [4.13].

5. The factors relevant to the determination of an appropriate capitalisation rate, for the purpose of valuing a business or ongoing future income stream, are well known.  They include the past history of the business, its future prospects, its size, current and future economic climate, the security of the business and, by way of comparison, rates of return being generated by virtually risk-free investments (usually government bonds).  Mr Green said that he had taken these and other relevant matters into account in determining the capitalisation rate appropriate to the assumed future income stream for Prowealth.  He applied a rate of 40% (reflecting a very high risk of not achieving the assumed income).  Based on the assumed income stream, he therefore determined that the capitalised value of Prowealth’s loss of future income associated with the lost clients was $372,704 in scenario 1 or $248,136 in scenario 2.[95] 

   [95]Mr Green set out the factors and his calculation in section 6 of his first report: TB12:18-20.

6. Mr Green explained further the factors and reasoning leading to the 40% capitalisation rate in his second report.[96]  He noted that the risks to the revenue stream were both negative (eg, complete loss of revenue) and positive (eg increase in business from referral source and referral to other clients).  He said that he considered the business to be small (having average revenues of about $1.1M), with opportunities for expansion based on its methodology that differentiated it from other real estate agents, although it had not demonstrated year on year growth.

   [96]TB14.

7. In his oral evidence, Mr Green explained that he was not valuing Prowealth’s business as such, but only the assumed lost future income stream.  The historical financial performance of the business was relevant in the sense of getting a feel for the size of the business and the risks involved that were relevant to the determination of the capitalisation rate.[97] 

   [97]T2-21:34-44; T2-39:19-38.

8. Mr Green also confirmed that his calculation of future loss was, in effect, the net present value of a theoretical perpetual loss of the marginal profits that he had calculated.  He accepted that if the profits would not recur, then his methodology was not applicable.[98]  He did not accept that, to value an income stream as he had, the business to which the income related had to be profitable, because he was valuing the particular income stream.  Even if the company was not profitable overall, if the income stream had value it had lost that value.[99]  He was valuing the stream of future income from the particular clients concerned.  In doing so, he assumed that they would purchase other properties and refer other people to Prowealth, who would themselves buy properties.  That was part of the business methodology of Prowealth, with which he has had experience in valuing other real estate agents’ businesses.

   [98]T2-26:43-45; T2-27:10.

   [99]T2-28:17-24; T2-41:34-42.

9. Mr Green agreed that, in valuing the income stream from those clients (and their referred clients), he did not assume that they would all buy properties and refer other clients every year.  He took into account the variability of such an income stream in selecting the high capitalisation rate: 40% represents a very high level of risk that the future income stream would not eventuate.[100]

   [100]T2-42:20-33; T2-43:8-23.

10. Ms Wood, in her report,[101] criticised Mr Green’s methodology.  As to his determination of loss of marginal profits on the lost revenue from the lost clients, she contended that his methodology was theoretical and had no reference to Prowealth’s actual performance as reflected in its financial statements.  As for the lost capital value, she contended that there was insufficient evidence to demonstrate that there was any value in its business, particularly given that Prowealth essentially withdrew from having any presence in New South Wales (where most of the “lost clients” were situated), there was no evidence that any of those clients would have bought more properties through Prowealth (or at all) and there was no evidence that they would have referred other business to Prowealth; all particularly when Prowealth did not replace Mr Dunkley and Mr Price with other staff to service the clients.

    [101]TB13.

11. In my view, the evidence does not support the conclusion, on the balance of probabilities, that there would have been any stream of income from these clients and people referred by them that had any capital value to Prowealth.  Mr Green purported to value a stream of income over time, taking into account the likely risks to that income by selecting a high capitalisation rate.  But that assumed at least some reasonable prospect that each of the clients who purchased properties between July and December 2019 and the McNabs would have purchased more properties within a reasonable period of time or would have referred other potential purchasers to Prowealth, who would have bought properties through Prowealth, so that Prowealth would have earned more commissions from those people or referred clients.  That proposition suffers from the fundamental defect that there is no evidence that any of the people concerned, except the McNabs,[102] have purchased additional properties since 2019, nor that any of them have referred other potential clients to the defendants or anybody else.

    [102]Who did not buy through the defendants, but through a buyer’s agent: T2-63:24-33; T2-64:38-41.  It appears that they did not approach Prowealth or the defendants before buying those properties.

12. In the circumstances, I am not satisfied that there is any real prospect that Prowealth has lost a stream of income (whether intermittent, a trickle, a stream or a flood) that would have flowed from the relevant clients.  This part of its claim is not supported on the evidence and it fails, regardless of the other criticisms of Mr Green’s evidence.

Conclusions on loss

1. I therefore find that, as a consequence of the breaches of contract by Mr Dunkley and Mr and Mrs Green, Prowealth has suffered loss and is entitled to damages in the sums set out at [161] above, totalling $102,000. Of those losses, Mr Dunkley is liable for $7,500 and Mr and Mrs Price are liable for $94,500.

Injunction

1. Prowealth seeks a permanent injunction restraining each of the defendants from making any claim to copyright over any material in which Prowealth holds copyright.[103]  Mr Ferrett submitted that, although Mr Dunkley and Mr Price gave evidence that they had destroyed all the material that they had taken from Prowealth, the court should not accept that evidence because it is unreliable, especially given those witnesses’ other unbelievable evidence in which they sought to deny that they had used Prowealth’s material in the creation of PIA’s website.

   [103]Further amended statement of claim, prayer for relief, [4].

2. There is no evidence that the defendants have used any of Prowealth’s material, let alone confidential information, since November or December 2019.  In the circumstances, I do not consider that there is any need for, nor would there be any utility in, issuing an injunction. 

3. Indeed, even if there were evidence that the defendants had, since December 2019, used any material over which Prowealth claimed copyright, simply to state the terms of the injunction sought is to show how broad, vague and inappropriate it would be to make an injunction in those terms.  The defendants could rarely, if ever, be able to know if they might breach such an injunction if they were to draw a document similar to those used by Prowealth., because the terms of the injunction rely on the answer to legal and factual questions:  whether Prowealth in fact holds copyright (whether or not it claims to hold copyright) in any particular document, diagram, software or form of words.  A court should never make an injunction that is not in clear terms and raises issues of fact or law that can only be determined after an alleged breach.

4. I decline to make any injunction against the defendants.

The result

1. The result is that I shall give judgment for Prowealth for damages in the sum of $7,500 against Mr Dunkley and in the sum of $94,500 against Mr and Mrs Price. 

2. In each case I shall award interest on Prowealth’s loss from 1 December 2019 (as a reasonable proxy for the time when commissions would have been paid to Prowealth) to the date of judgment.  Neither party made any submission on the appropriate rate of interest.  In my view, given the low commercial rates of interest represented by the Reserve Bank’s cash rate target plus a margin over that period, a rate of 3% p.a. is appropriate.

3. As the only real claim against PIA was for an injunction, which I have declined to make, the proceeding against PIA should be dismissed.

4. I shall hear from the parties about the costs of the proceeding.