Reeves v. Koops Martin Financial Services Pty. Limited

[2006] NSWCA 221

New South Wales

Court of Appeal

CITATION:	Reeves v. Koops Martin Financial Services Pty. Limited [2006] NSWCA 221 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	1 August 2006
JUDGMENT DATE:	1 August 2006
JUDGMENT OF:	Giles JA at 22; Hodgson JA at 1; Basten JA at 23
EX TEMPORE JUDGMENT DATE:	08/01/2006
DECISION:	Application for leave to appeal dismissed with costs.
CATCHWORDS:	RESTRAINT OF TRADE - Employer and employee - Construction of restraint - Where aim of restraint stated to be protection of confidentiality of business operations - Whether statement of aim limits words of restraint protecting customer connection.
PARTIES:	Dean Reeves - claimant Koops Martin Financial Services Pty. Limited - opponent
FILE NUMBER(S):	CA 40378/06
COUNSEL:	Mr. B. Walker SC with Mr. P.T. Russell for claimant Mr. P. Gray SC with Mr. D. Hand for opponent
SOLICITORS:	MBT Lawyers, Coffs Harbour for claimant Koops Martin Lawyers, Coffs Harbour for opponent
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	6336/05
LOWER COURT JUDICIAL OFFICER:	Brereton J
LOWER COURT DATE OF DECISION:	6 April 2006
LOWER COURT MEDIUM NEUTRAL CITATION:	[2006] NSWSC 449

CA40378/06
SC 6336/05

GILES JA
HODGSON JA
BASTEN JA

Tuesday 1 August 2006

REEVES V. KOOPS MARTIN FINANCIAL SERVICES PTY. LIMITED

Judgment

1 HODGSON JA: On 6 April 2006, in proceedings in the Equity Division brought by the opponent against the claimant, Brereton J made the following orders:

1. Order that until 7 November 2006 the defendant be restrained from, within the city of Coffs Harbour on his own account or on behalf of or in association with others, directly or indirectly:
(a) approaching or enticing or endeavouring to entice away from Koops Martin Financial Services Pty Limited any persons, firms or companies who were clients of Koops Martin Financial Services Pty Limited listed on Exhibit PX03;
(b) accepting any instructions to perform any financial planning or advisory work for any such person.
2. Order that the cross-claim be dismissed.
3. Order that the defendant pay the plaintiff’s costs.

2 The primary judge delivered reasons for those orders in a judgment handed down on 29 May 2006. The claimant seeks leave to appeal from those orders.

3 The case concerns a restraint contained in the claimant’s contract of employment with the opponent and the circumstances and terms of that restraint are set out in the following paragraphs of the primary judge’s reasons:

3 The restraint is contained in a letter agreement dated 8 May 2003 and accepted by Mr Reeves on 22 May 2003. The letter recorded that Mr Reeves was to be employed as a financial planner with a start date of 28 April 2003 on a salary of $40,000 per annum plus superannuation and leave loading. It provided for termination by one month’s notice, and included a confidentiality clause, and the restraint, which was in the following terms:

Restraint
You covenant that you will not, for a period of twelve (12) months from the termination of your employment, for any reason, within the city of Coffs Harbour, directly or indirectly, on your own account or on behalf of or in association with others:

Approach or entice or endeavour to entice away from the company any person, firm or company which was at any time during the 12 months before the termination of your employment, a client of the Koops Martin Group;

Accept any instructions to perform any financial planning or advisory work for any person who is or was a client of the company in the 12 month period before such termination;

Accept any employment which would require you to reveal any confidential information of the Koops Martin Group

This restraint is not intended to prevent you from working in Coffs Harbour after termination for any similar business. It is aimed at protecting the confidentiality of its business operations.


4 While the second limb of the restraint, pertaining to the acceptance of instructions, refers to clients of “the company” – which means the plaintiff, Koops Martin Financial Services Pty Limited, which I have called “Koops Martin” – the first and third limbs refer to the Group. The Group comprises several entities, of which the financial services company is but one; others include a mortgage broking practice, an accountancy practice, and a law firm. Mr Koops is the principal of the Group.

5 Mr Reeves had already commenced working for Koops Martin before he was presented with the employment contract for signature. Though he was young, he had once before had a formal employment contract (when with the National Australia Bank), and understood that it was an important document and set out his terms of employment. He was afforded an opportunity to, and did, read it, and though he says that he did not pay any particular attention to the restraint, he does not suggest that he was unaware of it. He did not seek or obtain any advice, and having signed it, returned it to Mr Koops, understanding that by signing it he had accepted the terms that it contained.

6 Mr Reeves worked for Koops Martin under supervision until January 2004, when having completed his Diploma of Financial Services and qualified to be an Authorised Representative, he began to deal with clients directly. By 2005, he and one other financial planner, Mr Corkill, were sharing the client load. According to Mr Reeves, he was servicing about 400 investment clients and 300 insurance clients. Data extracted by the plaintiff’s managing director, Mr Malouf, from its records, which became PX03, shows that in the twelve months prior to 8 November 2005, Mr Reeves had contact of some sort with clients in respect of just over 600 client accounts which were serviced by him (as distinct from with Mr Corkill). Although in some cases there were multiple accounts for one client, PX03 nonetheless contains a convenient record of those clients of Koops Martin for whom Mr Reeves was responsible and with whom he had contact in the twelve months preceding his departure.

4 On 7 November 2005, the claimant tendered his resignation from his employment with the opponent, and on 8 November 2005 the principal of the opponent asked him to leave immediately.

5 On 10 November 2005, the claimant commenced employment with a competing firm, MBT Financial Services Pty Limited (MBT) in offices located 150 metres away from those of the opponent. At MBT, the claimant accepted instructions to perform financial planning and advisory work for a number of persons who were clients of the opponent during the twelve months prior to the claimant’s departure.

6 The opponent, in the proceedings in the Equity Division, sought injunctive relief in terms of the restraint in the employment contract, and the claimant cross-claimed for an order under the Restraints of Trade Act 1976 s4(3).

7 In his reasons the primary judge identified three main issues. First, the construction issue: did the restraint operate only to protect the confidentiality of the business operations of the opponent or did it also protect its customer connections? Second, the validity issue: was the restraint relevantly excessive and contrary to public policy? Third, the s.4(3) issue: should any order be made pursuant to s.4(3)?

8 The primary judge held that the restraint on its true construction did protect the opponent’s customer connection; that it was not invalid in its application to clients of the opponent personally served by the claimant; and that no order should be made pursuant to s 4(3).

9 In its application for leave to appeal, the claimant challenges the decision on the construction issue.

10 Mr Walker SC, for the claimant, submitted that, in construing the restraint provision, the correct course was to construe it as a whole and not to treat any part of it as other than part of an operative clause; and that, to the extent that the primary judge did otherwise and treated the last two sentences as being other than operative, that was a question-begging exercise.

11 Mr Walker submitted that, in so far as the primary judge said that the second dot point taken in isolation was plain in its operation, he assumed the outcome of considering the last two sentences of the restraint that pulled in other directions. Mr Walker submitted that those last two sentences placed the second dot point in a different light, giving it a different significance from what it would have had in the absence of the last two sentences. Because the second dot point, read in isolation, would prevent customers of the opponent from being customers of the claimant in his new employment, this would cut down the effect of the second-last sentence, which permitted the claimant to be employed by a competitor; because it would be a considerable burden on that employment if the claimant could not accept instructions in that employment from customers of the opponent, that is, accept instructions in the very area where competitors compete.

12 Mr Walker submitted that the primary judge should not have proceeded on the basis that the words of the second dot point were too plain to permit the context to alter the plain meaning. The last two sentences of the restraint had the effect of instructing that what went before was to be read as not doing one thing, namely preventing a certain kind of employment, but only doing another, protecting confidentiality; whereas the primary judge’s construction imposed a substantial limitation on the first of those matters, that is permitting employment, without necessarily promoting the second matter, namely protecting confidentiality.

13 Mr Walker accepted that to preclude dealing with customers might be considered a reasonable measure to protect confidentiality of business operations in the area of identity of customers and their requirements; but submitted that, in the circumstances, to do so would be considered excessive, and the preferable view was that any doubt about the matter should be resolved in favour of the employee.

14 Mr Walker pointed to what he submitted was a particular error by the primary judge, in saying that the first two dot points in the restraint did not operate in the same area as the third dot point or the matter of confidentiality referred to in the last sentence of the restraint.

15 As I understand the submission of Mr Walker, it is to the effect that the second dot point should in its context be construed as applying only in cases where to accept instructions from clients would prejudice “the confidentiality of the opponent’s business operations”, so that no breach of the second dot point would be established unless such prejudice was proved.

16 In my opinion, the considerations advanced by Mr Walker are insufficient to justify such a restricted reading of the second dot point. Although I accept it is necessary to construe the restraint as a whole, in my opinion it is not inappropriate to have regard to the plain wording of the second dot point in deciding whether or not those words are to be read down having regard to their context.

17 In my opinion, the words “confidentiality of its business operations” can readily be seen as extending to the identity and requirements of customers of the business; and the second dot point can be seen as a practical way of protecting this aspect of confidentiality. It is also to be taken into account that the protection of confidentiality is expressed only as an aim, not as a definitively controlling consideration.

18 For those reasons, even if there is an aspect of the reasoning of the primary judge that might be questioned, as submitted by Mr Walker, the conclusion he reached was the correct one.

19 A subsidiary question was also raised in this application. The injunction granted by the primary judge extended to restraint of conduct, referred to in the first dot point, in circumstances where no breach of that first dot point had been established. That matter does not appear to have been the subject of extensive submissions below, and no reasons directed to that specific point appear in the judgment.

20 It seems to me that a breach of one aspect of the restraint could justify sufficient concern about breach of another aspect to justify an injunction, and no powerful discretionary consideration is raised against an injunction in those terms. In my opinion, this matter could not justify the grant of leave to appeal.

21 For those reasons, in my opinion the application for leave to appeal should be dismissed with costs.

22 GILES JA: I agree.

23 BASTEN JA: I agree with the orders proposed by Hodgson JA and with his Honour’s reasons and with the reasons given by Brereton J at paras [22] to [24] in the judgment below.

24 HODGSON JA: So the order of the Court is, therefore, that the application for leave to appeal is dismissed with costs.

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07/08/2006	-	"submitted that," added after "but" on line 3 - Paragraph(s) 13
05/03/2007	-	spelling correction - Paragraph(s) coversheet