Southern Cross Financial Group (Newcastle) Pty Ltd v Rodrigues

[2005] NSWSC 621

Reported Decision: 66 IPR 166

New South Wales

Supreme Court

CITATION:	Southern Cross Financial Group (Newcastle) Pty Ltd v Rodrigues [2005] NSWSC 621
HEARING DATE(S):	30, 31 May 2005; 1, 2 and 3 June 2005
JUDGMENT DATE :	3 June 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Proceedings dismissed with costs.

CATCHWORDS:	CONTRACTS [4][7][9]-Brokers of insurance and financial products-Contract for sale of goodwill in part of business based on client list-Whether contract incomplete for lack of essential terms-Whether nature of property in client list sufficiently clear-Property is ability to produce income stream from list Price must almost always be identified-Insufficient identification of price or nature of property indicated arrangement was in third class of Masters v Cameron. CORPORATIONS [105]-Directors' duties-Duty not to improperly use information gained as director-Information must be gained because of defendant's role as director. EVIDENCE [138]-Clients' status reports-Original material on which reports are based must be available if presented by non-accountant-Difficulties arising where material stored on computer. INTELLECTUAL PROPERTY [112]-Confidential information-Client contact list-Ex "employee" used list to attract clients away from former "employer"-Whether information sufficiently confidential for equity to protect in absence of express or implied contractual term-Employee entitled to rely upon retained knowledge-Nature of relationship between employer and employee and instructions given to employee important-Question of fact-Client lists generally in borderline position.
LEGISLATION CITED:	Corporations Act 2001 (Cth) ss 183, 1317E, 1317H Evidence Act 1995, ss 50, 69, 135
CASES CITED:	Alcock v Robb (1978) 2 BPR 9625 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Baume v The Commonwealth (1906) 4 CLR 97 Coco v AN Clark (Engineers) Ltd [1969] RPC 41; (1968) 1A IPR 587 Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 Federal Commissioner of Taxation v Williamson (1943) 67 CLR 561 Forkserve Pty Ltd v Pacchiarotta (2000) 50 IPR 74 Hall v Busst (1960) 104 CLR 206 Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217 Masters v Cameron (1954) 91 CLR 353 Potts v Miller (1940) 64 CLR 282 Whiteman Smith Motor Company Ltd v Chaplin [1934] 2 KB 35 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
PARTIES:	Southern Cross Financial Group (Newcastle) Pty Limited (P1) Southern Cross Financial Group (Australia) Pty Limited (P2) The Southern Cross Financial Group Pty Limited (P3) Miguel Rodrigues (D1) Financial Management Resources Pty Limited (D2)
FILE NUMBER(S):	SC 33350/03
COUNSEL:	R S Angyal SC (P) M B Evans (D)
SOLICITORS:	Clinch Neville Long (P) DTA Lawyers (D)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Friday 3 June 2005

3335/03 – SOUTHERN CROSS FINANCIAL GROUP (NEWCASTLE) PTY LTD & ORS v RODRIGUES & ANOR

JUDGMENT

1 HIS HONOUR: This case has been heard by me over the last four days and has caused me some concern because at first glance the commercial righteousness of the transactions that I am about to discuss favour the plaintiffs and it is quite clear that in some respects the defendants have deliberately obscured the true position in material which they have prepared for the court. However, it is necessary not to judge this case on surface impressions, but to look keenly at the pleadings and the evidence and in particular the way in which the causes of action are pleaded and defended.

2 The plaintiffs are three companies each of which is controlled by Paul Del Grande, who is their sole director and shareholder. Throughout this week the plaintiffs have been represented by Mr R S Angyal SC. The first defendant was formerly involved with the plaintiffs, or one or more of them, and he was a director of some of them up to some date between 20 December 2002 and June 2003. The second defendant is a company controlled by the first defendant, who is its sole director and shareholder. This week they have been represented by Mr M B Evans of counsel.

3 The plaintiffs say that they have at all material times traded as financial planners and vendors of financial products. They say that in about October 1997 the first defendant entered into an agreement with an associated company of the plaintiffs, Southern Cross Financial Services (NSW) Pty Ltd whereby the first defendant became its employee as office manager. I will need to come back to the details of the relationship between the first defendant and one of the plaintiff companies, which can shortly be described as being of a quasi-employment nature, in due course.

4 The statement of claim (when I am referring to the statement of claim, I am referring to the final version which is the amended statement of claim of 27 July 2004) rather alarmingly says that the plaintiffs acted both as agents for various insurance companies for commission and received fees from its customers for advice. It then says that in late 1998 or early 1999 the defendants entered into an agreement with the first and third plaintiffs, that the first defendant would act as office manager of the first and third plaintiffs and for that purpose would have access to the plaintiffs' confidential information. At para 15 the statement of claim describes what it means by "confidential information", which can be briefly summarised as: (1) the name of the customer; (2) the address of the customer; (3) telephone contact numbers for the customer; (4) the financial circumstances and needs of the customer as disclosed to the plaintiffs; (5) details of any investments purchased or sold on behalf of the customer by the plaintiffs, including the customer number for each customer; and (6) details of any insurance policies sold to the customers by the plaintiffs, including the policy number and insurer.

5 The agreement of 1998/1999 was made by Paul Del Grande on behalf of the first and third plaintiffs and the first defendant for himself and the second defendant. It is then pleaded that in or about June 1999 the second plaintiff became a party to that agreement. Again, the variation was effected by an oral arrangement between Messrs Del Grande and Rodrigues. Then, it is alleged, that by oral agreement between the same agents the agreement was further varied in that the first defendant ceased to act as office manager for the first and third plaintiffs and his pay dropped by $36,000. Thereafter he appears to have been mainly a commission agent but one who performed his work inside the plaintiffs' premises. The plaintiffs say that during this period there continued to be an implied term in the arrangement between the parties, that the defendants would not divulge the alleged confidential information to any outsider.

6 The statement of claim then alleges that on or after 28 January 2003 the parties again varied their agreement.

7 The alleged variation brought the following terms into effect that:

(1) each plaintiff would without charge transfer to the defendants customers of the respective plaintiff who had been introduced to that plaintiff by the first defendant;

(2) the transfers would take place only on the defendants paying to each plaintiff the fair value of each customer transferred to the defendants who had not been introduced by the first defendant;

(3) if the defendants did not pay the plaintiffs that fair value, then the defendants would not be entitled to have transferred to them any customers of the plaintiffs nor would they be entitled to receive commissions with respect to customers and the defendants would not be free to solicit the business of those customers or any of the customers of the plaintiffs. The statement of claim alleges breach and asks for damages.

8 Paragraph 30 and onwards alleges the first defendant breached his fiduciary duty to the plaintiffs, or one or more of them, as director of the first and second plaintiffs by soliciting the plaintiffs' customers and appropriating for his own profit the plaintiffs' confidential information.

9 The plaintiffs claim damages for breach of contract, equitable compensation and/or an account of profits.

10 The final claim is a claim for breach of the obligation put, I think, though it is not particularly clear, both contractually and in equity, not to use the confidential information for the defendants' own profits.

11 The defendants admit that they entered into an arrangement with the plaintiffs in 1998 or 1999. They do not admit the terms as they are pleaded, in particular, they deny that there was any express or implied term as to confidentiality. They deny the alleged novation of June 1999. They admit the September 1999 variation and again deny that there was any term about confidentiality. They say that the first defendant resigned as director of the first and second plaintiffs on 20 December 2002. They say that he never attended a directors' meeting nor was ever called upon to engage in anything active as director of the first and second plaintiffs.

12 The defendants also seem to deny that the plaintiffs were actually engaged in the business of financial planners. The defendants say that persons who invested moneys in transactions in which the plaintiffs were involved were sometimes merely persons who purchased insurance policies through the agency of the plaintiffs and in other cases through a company called Mawson's Securities Pty Ltd. Further they say that at least up until 1999 the plaintiffs did not have the appropriate authorities to operate in what might be popularly called the financial planning industry.

13 The defendants admit that there were discussions between the first defendant and Mr Del Grande in or about 28 January 2003, but they deny that the discussions brought about a contract. They deny that the discussions brought about any agreement or variation or that there was ever any agreement to pay any particular value or fair value for the customers and generally say that the plaintiffs are not entitled to the relief on their contract count. The defence also includes a defence of unclean hands, estoppel, laches and acquiescence, but I can virtually forget about these because there was no evidence put that contained them.

14 The issues between the parties can usefully be considered in my view under the following headings:

1. The structure of the plaintiffs' business;

2. Mr Rodrigues' role in that business before 1 April 2003;

3. Issues of fact, credit and onus;

4. The claim in contract;

5. The Corporations Act 2001 (Cth) case;

6. The breach of confidence case;

7. The result of the suit.

15 1. The way in which the plaintiffs' case was presented was a tad unusual. I was given a lot of nebulous statements about what was the plaintiffs' business and how it was conducted, but it really required me to refer to the evidence of Mr Rodrigues to work out the essential details. Up until 1998 it would seem that the Southern Cross business was controlled by vehicles owned by Mr Del Grande as to 50 per cent and a Mr Hill as to the other 50 per cent. They then split up and amicably arranged their affairs, as a result of which the business that remained in Southern Cross was controlled by Mr Del Grande. He originally was operating through a company called Southern Cross Financial Services (NSW) Pty Ltd. In 1999 Mr Del Grande formed Southern Cross Financial Group (Australia) Pty Ltd, then known as Southern Cross Financial Group (Victoria) Pty Ltd, which is the second plaintiff. The third plaintiff was formed in 1998. The first plaintiff was formed in 1999, it would seem basically to be the vehicle that ran the Newcastle division of Mr Del Grande's enterprise. It would seem that up until the end of 2002 there were at least divisions of the enterprise in Brisbane, Newcastle, and Sydney.

16 The business that was operated by the plaintiffs probably changed its scope from time to time. However, describing the business as "vendors of financial products" or even "financial advisers" is not really adequate. It would seem that the plaintiffs by themselves or by Mr Del Grande or Mr Rodrigues were authorised to act as agent or sub-agent by various leading insurance companies on the sale of their life insurance products. On those products, commission was paid by the insurance companies in two classifications: (a) an upfront payment of commission which was payable out of the first year's premiums or so, but which might be repayable if the policy was cancelled within a certain time, then (b) a trailing commission paid from each instalment of the premium for a certain period. Then there were, what are called, superannuation products and these varied into probably at least three classes: (a) where a person just took up a superannuation policy; (b) where the expertise of superannuation planners was utilised in order to formulate a plan for the client; and (c) where employers paid their six per cent, or whatever it was, into a fund to meet their obligations under federal law.

17 The evidence of Mr Rodrigues was that in those cases the client's money was paid to the provider and the provider then paid commission to one of the plaintiffs. Next, there was an aspect of the business which operated as a vehicle for people wishing to invest in a managed investment scheme, in which case it would not be uncommon for an accountant or the like to have an arrangement with the plaintiffs or the defendants and to purchase units in the scheme by either passing money to the provider of the scheme through the plaintiffs or some similar arrangement. Again, the commission came, it would seem, from the provider. Finally, there was some financial advice given where presumably the remuneration came directly from the client. The business seems to have involved itself in all these types of businesses, but it is important to distinguish between them. In particular it is important to distinguish between cases where the plaintiff was the agent of the insurer to sell a policy and cases where the company was the broker for the customer to make an investment. The business of the company also involved what Mr Rodrigues describes as providing ongoing monitoring and supervision of the insured's super funds and investments.

18 There was some evidence put before me, and other material which I looked at before rejecting it, as to the basis of the commissions. However, it was impossible to work out, on the evidence that was admitted, what was the basis.

19 There is some reference, however, in some of the documents to a surrender value of superannuation policies. I found this concept difficult to understand and no-one explained it to me. Ordinarily, with life insurance, the surrender value of the policy has no relation at all to the valuation of the policy. The surrender value is merely the amount which the insurer is willing to take, in order to be free of the risk. To find the value of the policy, if there is a secondary life insurance policy market (which usually but not always exists), then one refers to the market to see what the value is. Whether, because of the structure of federal legislation, "surrender value" has some other meaning for superannuation policies, I do not know and was not told. However, it was very difficult to ascertain just what were the levels of commission and how one could be assured that the commissions would continue to flow and whether the commissions on superannuation policies, as with ordinary life policies, were both upfront commission and trailing commission.

20 2. I now pass to the position of Mr Rodrigues. The evidence shows that he had conversations with Mr Del Grande in about 1997 and at that stage was employed or involved with another company in the industry, "Supersolve". Mr Rodrigues says that Mr Del Grande said to him: "My office manager, Belinda, has gone to Melbourne. Would you be interested in coming to fill that role?" Mr Rodrigues eventually agreed but, in August 1999, Belinda Zanzerl returned from Melbourne and was re-hired. Mr Del Grande said:

“Belinda is coming back to Sydney. I have offered her the office manager role back so you can concentrate on sales ... . You won't be getting your three grand a month anymore. You'll just be getting 50 per cent of commissions but you'll have more time to spend on sales.”

to which Mr Rodrigues said: "That's okay with me."

21 From the evidence before me, from there on, there was no employee tax deducted. Mr Rodrigues acted without, it would seem, much, if any, supervision or direction from Mr Del Grande and Mr Evans put it correctly that Mr Rodrigues was not an employee. However, there is no doubt at all that he was working within the plaintiffs' organisation and that he would owe some fiduciary duties of loyalty and fidelity; to what extent, I will have to examine further when I deal with the question of confidential information in section 6 of these reasons.

22 3. I should make some general findings of fact and credit and I note the onus before dealing with the three principal heads of claim.

23 The evidence was not at all satisfactory. The plaintiffs' evidence was over-detailed in some respects, much of which I rejected because it had not been put together properly, but was also inadequate in other respects, particularly the way in which the plaintiffs really did operate. There were all sorts of nebulous terms used, such as "database", "transfer of customers", "financial products" and "access codes", and there was very little fleshing out of some of these terms to know what was really covered; for instance, the plaintiffs' claim that there was confidential information in their database. But it was just not at all clear where this database was. It would seem that the plaintiffs had a computer system and the computer system contained some details of just who their customers were. However, a lot of material was not personally kept by the plaintiffs, but the plaintiffs could, by use of some password or access code, obtain information directly from records kept by some other company, particularly the insurers who issued the relevant policies. Exactly what was there was never fully explained to me. I have already remarked about financial products. There was evidence from the defendants which fleshed that out and so far as the concept of transfer customers is concerned, I will be dealing with that under heading 4.

24 It was also quite clear, and it was quite clear within the first hour of Mr Angyal's cross-examination, that, generally speaking, Mr Rodrigues had endeavoured to bolster his case by presenting to the court in the exhibits FMR11-16 material which was altered in such a way as to make it appear that he had not made contact with customers who had dealt with him or with someone else in the plaintiffs' enterprise before 1 April 2003. There are many instances where the customer would appear to have signed a consent to his or her business being dealt with in the future by Mr Rodrigues at some time during March or early April where the date has been altered to a date late in April. The significance of this is that Mr Rodrigues physically left the plaintiffs' premises on 24 April 2003.

25 The matter was made worse by the fact that FMR11-16 contains photocopies of a subpoena and had the documents got into evidence, which they did not, the court would have taken from that that the documents were true copies of the documents obtained on subpoena from the insurance companies: they were not. They were copies of some altered document, the original of which has never been produced, but generated, as I say, for the purpose of deceiving the court.

26 This fact was established in the first half hour of cross-examination but this did not stop Mr Angyal pressing that point for a further five hours. However, whilst it is quite clear that a witness that would do that is not to be considered as generally reliable, and mostly I accept the evidence of Mr Del Grande as against the evidence of Mr Rodrigues, I do not discard all of Mr Rodrigues' evidence completely. In some respects his evidence is obviously correct and, indeed, is not contradicted by Mr Del Grande.

27 I also consider that the circumstances showed generally that it is more likely than not that he gave his resignation as a director to Mr Del Grande on 20 December 2002 or thereabouts rather than January of 2003. The fact that the relevant statutory return required by the resignation shows that the January date may not be accurate to my mind supports this view. I must note, however, that documents such as PX46 show that Mr Rodrigues was, even in December 2002, describing himself as a director of one of the plaintiff companies in correspondence with outsiders. Again, this is to be discounted by the fact that Mr Rodrigues may well have been signing a letter that the office secretaries had prepared in the conventional way.

28 For most purposes I will accept the evidence given to me by Mr Del Grande. Mr Del Grande came across as a likeable man of commerce, however, courts have got to be particularly careful of people who come across as likeable men of commerce because often one has to look at the details very carefully to make sure that there is some basis for what is said and the court is not over-influenced by the demeanour of the witness.

29 Accordingly, the facts as given by Mr Del Grande I basically accept. The onus is, of course, on the plaintiffs to prove their case on the balance of probabilities. Whilst very few cases depend on onus, so far as the breach of confidence case is concerned in the present matter, that may be of some importance.

30 I now pass to the three main aspects of the case.

31 4. The claim in contract. Mr Del Grande says that in early 2003 he and Mr Rodrigues were discussing what their future relationship would be and whether Mr Rodrigues wanted to purchase into Southern Cross. He said that Mr Rodrigues, after a fortnight's cogitation said that he was more inclined to do his own thing and leave Southern Cross. Mr Del Grande then said:

“You can without charge take with you on leaving us the business of any client that you introduced to Southern Cross. However, you should pay the Group for any other client whose business you wish to take on leaving the Group."

to which Mr Rodrigues said: "Okay, I've decided to move my clients' insurance portfolios to Mawsons." Mr Del Grande said: "Why Mawsons?" Mr Rodrigues was referring to Australia Life Brokers Pty Ltd who had the licences needed by Mr Rodrigues to continue in the same type of business. He said Mr Rodrigues then provided him with a list of the group customers. He had placed a tick next to some names, he had placed a cross next to other names, and he had placed a dollar sign next to yet other names. At the time he gave me these lists, Mr Del Grande says Mr Rodrigues said, "I have placed a tick next to the names of those I introduced to the Group. I have placed a cross next to the names of those whose business I don't want to take with me. I have put a dollar sign next to the names of those customers for which I acknowledge I have to pay the Group for taking their business with me on leaving."

32 Mr Del Grande said he replied: "Okay. I'll get one of the staff members to work out the cost of the customers you want to take with you" and Mr Rodrigues said "Okay." He then says that on about 25 March 2003 Mr Rodrigues asked him to sign consents for the transfer to Mawsons of the business of the customers designated with a particular sign and Mr Del Grande said he would not do that until the parties had agreed on the value of the dollar sign clients. They had a further meeting on 24 April at which time Mr Rodrigues said he was not going to pay for the business of the customers and intended to take them all with him. He left the office the next day.

33 Mr Rodrigues says that even before these conversations he had rights via Mawsons Securities Pty Ltd to offer clients investment opportunities in managed funds and he used those opportunities when he was still working in the plaintiffs' office. He then says that at the end of 2002 the plaintiffs were having difficulties in that the Newcastle office needed to be closed because it was not making money. Further, the person who was running the Brisbane office had appeared to have taken the customers with him. Added to this is the fact that Mr Del Grande made an offer for Mr Rodrigues to buy some equity in the Southern Cross Group, which offer he declined.

34 He then says that on 28 January, having not reached agreement with Mr Del Grande as to the value of the shareholding if he were to stay, he said that he preferred to do his own thing. He then requested Belinda Zanzerl to print out a list of the clients that he managed and marked this list, placing a tick next to the name of any client that he introduced, a cross next to the name of any client that did he not want to take with him, and a dollar sign next to the name of any client he wanted to take with him, and he gave that list to Mr Del Grande in February 2003.

35 Mr Rodrigues denies saying anything to the effect that he decided to move his clients' insurances to Mawsons because he says at that time he did not have it in his mind to do that and he only came to that view in early March. He says that from 1 April 2003 he operated his business as a broker representative of Mawsons and he was able to work on his own account and there was never any agreement made for the purchase of what I might call the dollar sign customers. Indeed, there was never any negotiation as to the value to be given to those customers, or that the plaintiffs held all the files and the right to earn commissions from all the customers and he was never in any position to negotiate a fair price nor was any price ever put to him. The evidence about not being involved with Mawsons until March made me think that, on the whole, I think I should just accept Mr Del Grande's version of the conversation.

36 In a contract for the sale of any article there are at least three basic requirements, maybe four. The three requirements are that there must be precise identification of: (a) the parties to the contract; (b) the property to be sold; and (c) the price at which it is to be sold (see the discussion of Fullagar J in Hall v Busst (1960) 104 CLR 206 at 222 to 223). The fourth possible requirement is a statement of the mutual promises, that is, the terms of the contract, or at least a statement of the essential and fundamental promises, but I can leave that aside.

37 In the present case, if there was to be a sale of the customers, who were the parties? One would consider that, on one side, it must have been the first or second defendant, but, query who it was on the side of the plaintiffs - one or all or both of the first and second plaintiffs. That causes me trouble, but not as much trouble as the other two necessities.

38 What was the property? The parties spoke in terms of paying for "clients whose business you wished to take" or paying for the transfer of clients. However, juristically, what they were really selling was goodwill. Mr Lonergan, an expert valuer called on behalf of the defendants, touched on this matter both in the evidence that he gave in this case and in his well-known book, The Valuation of Businesses, Shares and Other Equity 3rd Edition (Business and Professional Publishing, Sydney, 1998) pp 262 and following. The book was even referred to by the plaintiffs' expert, though the reference was to an earlier edition.

39 Mr Lonergan in evidence in this case said that the rights to the customers would be considered by valuers as "identifiable intangible assets." He says that, in order to classify something in that way, the asset must be: (a) "separately identifiable"; (b) "protected (or capable of protection)"; (c) "transferable"; (d) "enduring in nature". He then says:

“As there are transactions for client registers (for insurance business and for financial planning businesses), the client registers (by virtue of the ability to generate recurring and/or new income) are considered to be separately identifiable, enduring and transferable."

They are also capable of protection, though he says, in the instant case, because there did not appear to be any protection offered for the clients' list, the value would have to be significantly discounted.

40 A client list is something that courts come across in all sorts of businesses, most commonly real estate agents' rent rolls. However, what they really represent as saleable property to the purchaser is the likelihood that an income stream will be produced if the purchaser has access to that list. It must always be remembered that all aspects of goodwill have a nebulous quality about them. Goodwill is, of course, defined in the leading case in England Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217 at 224, as merely the attractive force which brings in custom. As is well-known from cases such as Whiteman Smith Motor Company Ltd v Chaplin [1934] 2 KB 35 at 42 and 49 and Federal Commissioner of Taxation v Williamson (1943) 67 CLR 561 at 564, customers are categorised into four groups which in classic legal literature are cats, dogs, rats and rabbits, depending on how faithful or how flighty the customer might be. Again, goodwill, unlike most other species of property, may vanish on the happening of certain events; Alcock v Robb (1978) 2 BPR 9625.

41 Furthermore, as the purpose of purchasing the goodwill is to produce an income stream, the purchaser must always take into account: (a) what income stream is likely to be produced; and (b) the cost of producing that income stream.

42 Mr Lonergan explained all this when giving evidence on what I might call the quantum of damages aspect of the case and said that the customer list really had a very small value.

43 However, the juristic analysis of what was being sold also goes to whether the parties had properly described the property that was going to be sold. In re-examination I think Mr Del Grande realised this because for the first time he made it clear that he would have expected that Mr Rodrigues would have asked him for a restrictive covenant and he said he would have given it. First, this goes to show that the exact nature of the property had not yet been decided upon; secondly, of course, it is significant for the Masters v Cameron point which I must deal with in due course; and thirdly, even if parties and property were properly identified, price certainly was not.

44 The analysis of Fullagar J in Hall v Busst to which I have already referred, makes it quite clear that, with very, very, very few exceptions, a contract to sell property at a fair value is not binding and is incomplete. There are exceptions where there is an industry which has a measure of what a fair value is or there is some other criteria or where one is proceeding in equity and there is a partially executed contract but, at common law, in the present case it must be fatal.

45 The other question is whether even if those matters were overcome, the case passes the test stated in the well-known case of Masters v Cameron (1954) 91 CLR 353 at 360. The High Court said that cases of the present type may fall into one of three classes:

(1) Where the parties have reached a final agreement on the terms of their contract and agree to be immediately bound but wish to restate those terms in a fuller or more precise way in a formal document;

(2) Where the parties have reached final agreement on all the terms and intend not to depart in any way from them but the performance of some part of the contract is made conditional on the execution of a formal contract;

(3) Where the parties intend there not to be a concluded contract unless and until a formal document is executed.

46 The recent cases show a fourth class, that is, one where parties are content to be bound immediately and exclusively whilst expecting to make a further contract in substitution for the first contract containing by consent additional terms: Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628 which was affirmed by the Court of Appeal in the same volume at page 631.

47 The answer that Mr Del Grande gave in re-examination about the need for a restrictive covenant and how he was always willing to give it makes it, I think, crystal clear that this case falls into the third class of Masters v Cameron. The parties had yet to agree on a price and had yet to agree on the vital terms: if there was any arrangement at all it was merely indicating where they thought their negotiations might go.

48 Even if I had been of the view that there was a contractual arrangement entered into between the parties, I would have found it very difficult to reach the view that the contract was as pleaded. It will be remembered that the pleading was that the defendants would not be entitled to have transferred to them any customers of the plaintiffs nor receive commissions nor split any business unless and until they paid for them. It is very hard, even accepting everything that Mr Del Grande told the court in his evidence, to spell those terms out of the conversation.

49 It is thus not necessary to go into the question of quantum of damages. However, I should say a little about that.

50 It was quite surprising that the plaintiffs had prepared a considerable bulk of material over a year ago, it would seem, when the case came on for an aborted hearing before Acting Justice Brownie. The material had mainly been assembled by Miss Belinda Zanzerl, who was the office manager of the plaintiffs, but had no accountancy qualifications whatsoever.

51 She appeared to have obtained this material from what she called the database, but whether this was kept in the office or obtainable by some other connections was not clear, but it would seem it came from both. The rule in Potts v Miller (1940) 64 CLR 282 is that where this sort of material is presented by a non-accountant, the original material must be available for examination. This is very difficult when it comes from a computer unless very great care is taken to identify all the base material and to get a hard copy of it. This difficulty can be averted by utilising s 50 of the Evidence Act 1995 for material to get before the court. However, to utilise s 50, people have to act well before the trial and that was not done in this particular case.

52 The material which was produced and which I rejected basically appeared to be clients' status reports which had been assembled by Miss Zanzerl from "generating" - to use the word that was often deployed in Mr Angyal's submissions - a document from the plaintiffs' computer. However, this was material which did not appear to be business records of the plaintiffs and, indeed, it was very difficult to see how the document was a business record at all.

53 There were, however, some representations in the document that I saw going to what was called the surrender value of policies and amount of premiums, which might have been admissible. These might have been tendered as individual representations, but, although Mr Angyal kept reminding me that it was not the document that was admitted but the representations, he only tendered the whole of the documents. There was no segregation of what might be called the sheep from the goats. The whole of the bulk of the material added up to a complete non sequitur, in that even if any of the material had been admitted from the evidence of Mr Lonergan, it would just be completely impossible to extrapolate the "fair value" of the transfer of the clients. The exercise that Ms Zanzerl did was to first get material from her computer, then get material from the insurance company's computer and where there were inconsistencies, to make a choice.

54 In one particular case she had conflicting information as to the amount invested, which differed by about $100,000, and she made a choice of taking the lower amount and then making calculations basically on the assumption that the premiums would be the same for the next period, that there was no cost in earning those premiums, and then multiplying the premiums by three. The documents were excluded as not being within section 69 of the Evidence Act, or even if they were, they were such a confused conglomerate of material that under s 135 of the Evidence Act they should be excluded.

55 That then meant, on the question of quantum, there was little material on which a court could have made a finding as to the quantum of the plaintiffs' loss even if their claim in contract had succeeded. Mr Angyal said that it did not matter too much, it was still the function of the court no matter how difficult it was to find a figure and it could either: (a) find nominal damages (he reminded me that nominal damages and small damages are not to be equated: Baume v The Commonwealth (1906) 4 CLR 97), or (b) alternatively, by extrapolating figures and employing Mr Lonergan's methods. As to the latter, although I strongly hinted that it would be very nice to know how one did that, Mr Angyal did not illuminate me.

56 Had I found liability in contract, I would have had to assess damages. Bearing in mind Mr Lonergan's evidence which I accept and which appeared completely logical, I would have awarded nominal damages at the lower end of the scale not exceeding $10,000.

57 5. The case under the Corporations Act was based on the fact that Mr Rodrigues was a director of the company at least until 20 December 2002 and that under ss 183, 1317E and 1317H he had a liability to pay compensation to a corporation of which he was a director if he was to use information improperly because he had been a director of the company. I accept Mr Evans' submission on that aspect of the case. Although Mr Rodrigues was a director and although documents such as PX46 show that he was more involved as a director than he would have me believe, the evidence does not allow me to find that he obtained this information (that is, the information that was allegedly used to assemble PX43, and to contact former customers of the plaintiffs) because of his role as a director.

58 6. I thus pass to probably the most difficult aspect of this case and that is the confidential information aspect. Although the plaintiffs sue both in contract and in equity and despite the fact that I generally accept Mr Del Grande's evidence, I cannot be satisfied on the balance of probabilities that there was any express term in the contract or various versions of the contract between the plaintiffs and the defendants, that the material in the computer was to be kept confidential. The parties appeared, from all the material, to have a fairly loose arrangement in which, to use Mr Angyal's words, "they trusted each other". I cannot see how Mr Del Grande did anything more than give some general comment to staff about not letting outsiders see what was in the computer rather than there being any express term or instruction as to confidential information.

59 So far as an implied term is concerned, again one must look at all the aspects of the relationship which I have set out mainly in heading 2 of these reasons. Mr Rodrigues was not an employee, he was a person earning commission. However, he was more closely involved than a mere commission agent in that some aspects of the work which earned revenue for the plaintiffs came about because of Mr Rodrigues' other efforts, using his own licences, while others came about because he used the licences of the plaintiffs. I do not consider that there was even any implied term to be gleaned, from the business efficacy or otherwise, that all the material in the computer was to be considered as confidential information.

60 Indeed, it is difficult to identify just what was in this database and just what was confidential and what was not. I have already set out details from paragraph 15 of the statement of claim as to what it was that the plaintiffs said was confidential.

61 However, when one looks at it, it must be a borderline situation. In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334, Kirby P goes through a number of the criteria that were relevantly involved in that particular case, one of which was that an employee was using material as to the identities and whereabouts of suppliers. Having referred to leading cases such as Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 at 133, and the decision in that case at first instance of Goulding J, as he then was, in [1984] ICR 589 at 598, Kirby P considered that that sort of information in the absence of any express covenant might not be protected by equity. He took into account the way in which the information was guarded by the employer, whether general instructions or particular instructions were given to employees, the practice of the industry and whether the information was made available for all employees or only employees at a particular level of seniority. In all situations the learned President said it was a question of fact.

62 In this case the information was available to employees of any status. The material contained matters which any employee dealing with a customer would already know, namely, the name of the customer and the person from whom the customer had been referred. In this, I accept Mr Rodrigues' evidence that some of the customers of a particular type were referred by chartered accountants and others who had particular methods of superannuation tax or estate planning and the transactions were then processed by Mr Rodrigues or the plaintiffs. As I have said earlier, I do not consider that there were specific instructions given by Mr Del Grande to Mr Rodrigues or to the staff generally, other than very, very general warnings.

63 As the textbooks say, the employer has rights in confidential customer lists and connections and it is quite clear that employees cannot take or copy a list of customers with the intention of using the list later for their own benefit. But in the absence of a valid legally enforceable restrictive covenant, an employee is entitled to rely upon any retained knowledge of the customers, their identity, requirements and so on, and this is especially the case where the ex-employee has personally dealt with the customer for some time and could reasonably be expected to recall their details in his mind. I have paraphrased what is in Hull's: Commercial Secrecy: Law and Practice (Sweet & Maxwell, London, 1998) paras 7.48 and 7.49. Again, I have been referred to previous cases which show that this sort of material is in a borderline position such as Coco v AN Clark (Engineers) Ltd [1969] RPC 41; (1968) 1A IPR 587 and my own decision in Forkserve Pty Ltd v Pacchiarotta (2000) 50 IPR 74.

64 Each case, as Kirby P said in Gasweld, must be looked at on the facts.

65 In this case the matters set out in paragraph 15 of the statement of claim really all turn around the name of the customer. Once one has the name of a customer, then virtually all the other information can be obtained by, as happened in this case to a great degree, getting the customer's assent to diversion of that customer's business and then forwarding the relevant documents to the insurance company. There is, of course, the necessity of finding out the policy numbers, but that can hardly, to my mind, be the confidential information of the plaintiffs. Once one has the names and if one has in one's head the name of the accountants or other intermediary who sends the business on, then there is no need at all to have to access any of the computers of the plaintiffs or the plaintiffs' information.

66 Although it is a borderline sort of case, to my mind the plaintiffs have not established that the defendants have used their confidential information. I take into account the rather detailed list in PX43 which sets out 223 customers, and it is tempting to say that that must have been obtained from the plaintiffs' computers, but there are no addresses on it, just names, and I consider that there was insufficient material there, for me to draw that inference.

67 7. As I said earlier, the other aspects of the defence are relevant. Accordingly, it follows that I should dismiss the proceedings with costs and give liberty to the defendants to apply in respect of any undertaking as to damages granted as a condition of interim relief. Exhibits to remain for 28 days and if there is an appeal they are to be forwarded to the Registrar of the Court of Appeal.

[After discussion]

Exhibit DX51 is the document now tendered by Mr Evans on the question of costs, being an offer of compromise of 11 November 2003. In view of the offer of compromise, the plaintiffs must pay the defendants' costs (subject to any special orders that have been made in the past) and the costs from 11 November 2003 are to be on the indemnity basis.

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