Sprout Trading NSW Pty Ltd trading as Sprout Ag v PBH Trading Pty Ltd

[2024] NSWSC 1647

Supreme Court

New South Wales

Medium Neutral Citation:

Sprout Trading NSW Pty Ltd trading as Sprout Ag v PBH Trading Pty Ltd [2024] NSWSC 1647

Hearing dates:

19-22 November 2024

Date of orders:

19 December 2024

Decision date:

19 December 2024

Jurisdiction:

Equity

Before:

Hmelnitsky J

Decision:

1. The parties are to bring in short minutes of order to give effect to my reasons on or before 7 February 2025.

2. The parties are to file and serve any evidence and short submissions on costs on or before 7 February 2025.

3. The parties are to file and serve any evidence and short submissions in reply on the question of costs on or before 14 February 2025.

Catchwords:

EMPLOYMENT AND INDUSTRIAL LAW — Contract — Restraint of trade — Where there was a Services Agreement between the plaintiff and the first defendant — Where a restraint clause in favour of the plaintiff bound the defendants to certain obligations — Whether the defendants breached the restraint clause by “soliciting”, “canvassing”, “securing”, “diverting” or “attempting to divert” former clients of the plaintiff to themselves or a third party after Services Agreement terminated — Where most former clients approached second defendant after termination of the Services Agreement for assistance — Whether “secure” or “divert” could capture a passive receipt of instructions from a former client — Whether restraint clause was valid under s 4 of the Restraints of Trade Act 1976 (NSW) — Whether restraint clause was reasonable — Whether plaintiff had a legitimate protectable interest — Where plaintiff was franchisee under a Franchise Agreement — Where second defendant knew most former clients personally, long before Services Agreement entered into

EQUITY — Fiduciary Duties — Whether a fiduciary duty existed between plaintiff and the defendants — Whether defendants breached a fiduciary duty by doing work for former clients of the plaintiff — Whether obligations subsisted beyond the termination of the relationship

Legislation Cited:

Restraints of Trade Act 1976 (NSW), s 4

Cases Cited:

Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102

Amoco Australia Pty Ltd vRoccaBros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43

Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294

Avtex Airservices Pty Ltdv Bartsch (1992) 107 ALR 539

Barrett v Ecco Personnel Pty Ltd (Court of Appeal (NSW), 24 November 1998, unrep)

Belflora Pty Ltd v Vinflora Pty Ltd (2021) 106 NSWLR 67; [2021] NSWCA 178

Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24

Canadian Aero Service Ltd v O’Malley [1974] SCR 592

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24

Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605; [1998] HCA 42

Federal Commissioner of Taxation v Williamson (1943) 67 CLR 561; [1943] HCA 24

Geraghtyv Minter (1979) 142 CLR 177; [1979] HCA 42

Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; [2012] FCAFC 6

Hellmann Insurance Brokers v Peterson [2003] NSWSC 242

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

IceTV v Ross [2007] NSWSC 635

In the matter of Sunnya Pty Ltd [2024] NSWSC 403

Isaac v DarganFinancial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) (2018) 98 NSWLR 343; [2018] NSWCA 163

Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449

Lindner v Murdock’s Garage (1950) 83 CLR 628; [1950] HCA 48

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Narellan Franchise Pty Ltd v RBME Pty Ltd [2022] NSWSC 988

Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21

Planet Fitness Pty Limited v Brooke Dunlop [2012] NSWSC 1425

Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989

Stacks Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77

Streetscape Projects (Australia) Pty Ltd v City of Sydney 85 NSWLR 196; [2013] NSWCA 2

TullettPrebon(Australia) Pty Ltdv Purcell [2008] NSWSC 852; (2008) 175 IR 414

Texts Cited:

Evans, Power and Power, Equity and Trusts, (LexisNexis, 5th Edition, 2024)

JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis, 5th Edition, 2015)

Category:

Principal judgment

Parties:

Sprout Trading NSW Pty Ltd t/as Sprout Ag (Plaintiff)
PBH Trading Pty Ltd (First Defendant)
Peter Lance Hollingworth (Second Defendant)

Representation:

Counsel:
D Neggo (Plaintiff)
R Notley (First and Second Defendants)

Solicitors:
Whiteley Ironside & Shillington (Plaintiff)
Wilsons Solicitors (First and Second Defendants)

File Number(s):

2022/00378431

Publication restriction:

Nil

Table of contents

The background to the Franchise Agreement and the Services Agreement

The Franchise Agreement

Deed of Variation

The decision to expand into the Dubbo area

The Services Agreement

The defendants performed services under the Services Agreement

The termination of the Services Agreement

The claims in more detail

The pleadings

The issues in dispute

Did the defendants breach clause 12.3?

What is the scope of the defendants’ obligation under clause 12.3?

Clause 12.3(a) - solicitation

Clause 12.3(a) - significance of the reference to “secure”?

Clause 12.3(b) – “divert or attempt to divert…”

Did the defendants breach clause 12.3?

Bowman Entities

Facts

Conclusions

Whillocks

Facts

Conclusions

Shorts

Facts

Conclusions

McCutcheon

Facts

Conclusions

Maiso

Facts

Conclusions

MacInnes Entities

Facts

Conclusions

Gin Gin Farms

Facts

Conclusions

Egan Entities

Facts

Conclusions

Vella Entities

Facts

Conclusions

Haddon Rig

Facts

Conclusions

Technotill Entities

Facts

August 2022 - September 2022

October 2022 – November 2022

February 2023

Conclusions

Other clients

Are the restraints unreasonable?

Applicable principles

Did the plaintiff have goodwill to protect?

Was there goodwill as at 25 June 2020?

Was there goodwill after 11 January 2021?

Reasonableness

Fiduciary Duty

Did the defendants owe fiduciary duties?

Was there a breach of fiduciary duty?

Bowman Entities

Whillocks

Shorts

McCutcheon

Maiso

MacInnes Entities

Gin Gin Farms

Egan

Vella Entities

Haddon Rig

Technotill Entities

Relief

Orders

JUDGMENT

1. Sprout Trading NSW Pty Ltd (the plaintiff) carries on business as a franchisee of Sprout Agribusiness Pty Ltd (Sprout AG). Sprout AG is a finance broking and financial advisory business that has a particular focus on the agricultural sector. Under its franchise arrangements with Sprout AG, the plaintiff is entitled to operate in a geographical area of central NSW that includes both Orange and Dubbo.

2. On 25 June 2020, the plaintiff entered into a Services Agreement with the first defendant, PBH Trading Pty Ltd (PBH Trading). Under that Services Agreement, PBH Trading agreed to supply services to the plaintiff in return for a fee, with the possibility of earning a bonus if certain revenue targets were met. PBH Trading agreed that these services would be performed by the second defendant, Mr Hollingworth, who was the sole director of PBH Trading.

3. For a period of almost two years, the defendants performed the services described in the Services Agreement, principally in the Dubbo area, which is where Mr Hollingworth lives. However, Mr Hollingworth was not entirely pleased about the remuneration payable under the Services Agreement. There had also been discussions between Mr Hollingworth and David Charge, who was the managing partner of the plaintiff, about Mr Hollingworth becoming a shareholder in the business (a somewhat vague notion to which I will return) but Mr Hollingworth did not wish to pursue that opportunity.

4. Mr Hollingworth eventually decided that he would prefer to branch out on his own. He took steps to terminate the Services Agreement on about 18 May 2022. At around the same time, he caused PBH Trading to register the business name “Worth Finance.” Under the name Worth Finance, PBH Trading offers very similar services to the plaintiff and operates in the Dubbo area. The plaintiff contends that many of the clients of Worth Finance were either clients or potential clients of the plaintiff’s business.

5. The plaintiff does not seek to prevent the defendants from operating in competition with it altogether. Rather, it contends that the defendants have breached the Services Agreement by soliciting its existing and potential clients or by diverting their business or clients to Worth Finance or another competitor in breach of the non-solicitation restraints in that agreement. The plaintiff also contends that the defendants owed fiduciary duties to the plaintiff, in part by reason of the Services Agreement, that those duties survived the termination of the Services Agreement, and that the defendants breached those duties by accepting work from its clients. The plaintiff seeks damages as a result of the contractual breaches. For the breach of fiduciary duties, it seeks an account of profits from PBH Trading and equitable compensation from Mr Hollingworth.

The background to the Franchise Agreement and the Services Agreement

6. As matters stand, the plaintiff has two directors, Mr Charge and James Littlejohn.

7. For many years prior to 2016, Mr Charge worked in commercial banking, first with Westpac Banking Corporation (Westpac) and then with Suncorp Bank (Suncorp), principally in their agribusiness teams. In 2016, he left Suncorp to become involved in a new broking business, Sprout AG. Troy Constance has been the sole director of Sprout AG since 28 January 2016. Sprout AG operates as a franchise business. Sprout AG is the franchisor.

8. One of Sprout AG’s original shareholders was a company controlled by Mr Charge, Murrays Lane Investments No. 1 Pty Ltd (Murrays Lane No. 1).

The Franchise Agreement

9. On 23 July 2017, another company controlled by Mr Charge, Murrays Lane Investments Pty Ltd (Murrays Lane), and Mr Charge entered into a Franchise Agreement with Sprout AG. From at least as early as that date, Murrays Lane operated as a franchisee of Sprout AG. Under the Franchise Agreement, Murrays Lane was entitled to carry on business as franchisee in “Central NSW”. It operated under the name “Sprout Ag Central NSW”.

10. The Franchise Agreement recited the fact that Sprout AG was the licensed user of the “System” and the “Image”. Those expressions were defined in fairly uncontroversial ways to refer, respectively, to the business system developed by the franchisor for use throughout the term of the agreement for the conduct of the business, and to the distinctive image and appearance specified by the franchisor for the operation of the franchised business, including registered trademarks.

11. Clauses 3.1 and 3.2 of the Franchise Agreement were as follows:

“3.1 Franchise

Subject to clause 3.2 and 3.3, The Franchisor grants a Franchise to the Franchisee to establish and operate the Franchised Business, within the Territory at the Premises using the System and the Image on the terms and conditions set out in this Agreement.

3.2 Territory Rights

The Franchisee acknowledges and agrees that, subject to clause 3.3(c), it is not granted any exclusivity or territorial rights under this Agreement and the Franchisor may during the Term:

(a) grant any person the right to operate a business similar to the Franchised Business at any location; and

(b) itself operate any business similar to the Franchised Business at any location.”

12. The franchisee was required to pay to the franchisor an initial “Franchise Fee” for the grant of the “Franchise” at the time of signing the agreement. It was also required by clause 5.2 to make ongoing payments, which were relevantly as follows:

“5.2 Ongoing Payments

The Franchisee must pay to the Franchisor each month for the whole of the Term, starting in the second month after the Commencement Date the Royalty Fee and any Advertising Fund Contribution on the seventh day of each month (or such other day of the month as the Franchisor specifies) in relation to Gross Commissions for the previous calendar month, for the whole of the Term, starting in the second month after the Commencement Date...”

13. “Royalty Fee” was defined to mean:

“… the monthly fee in respect of commissions and fees earned by the Franchisee calculated in accordance with the Rates Schedule as varied from time to time by notice from the Franchise, initially being those set out in the Reference Schedule.”

14. The schedule of rates in the reference schedule provided, first, for a flat rate of 20% of all income, and then for stepped commission for income above $500,000. It also provided that the franchisor reserved the right to make certain changes in the event that providers of commissionable products changed or stopped their commission structure.

15. Clause 7.8 provided that all invoices to clients of the franchised business were to be “issued and coordinated” by the franchisor, not the franchisee. Clause 5.3(a) provided that the franchisor would collect all “Third Party Royalty Payments”, which included commissions from financial institutions, and then:

“…remit those payments, less any payments or amounts due and owing to the Franchisor by the Franchisee…”.

16. Clause 5.3(b) provided that, during the period of the Franchise Agreement, all such Third Party Royalty Payments, including commissions from financial institutions, were accepted and held by the franchisor “as agent on behalf of the Franchisee”.

17. Clause 9 dealt with intellectual property. Clause 9.1 was as follows:

“9.1 Franchisor Owns All Intellectual Property

The Franchisee acknowledges that:

(a) the Franchisor is licensed to use the Intellectual Property;

(b) the Franchisee’s right to use the Intellectual Property is derived solely from this Agreement and is limited by it; and

(c) it does not own any goodwill that is or may become vested in the Intellectual Property.”

18. Clause 9.7 included an acknowledgement from the franchisee that the franchisor “may operate and maintain” the relevant website. The Franchisee agreed that it must not establish any online presence of its own, including on social media: clause 9.7(g).

19. Clause 16.5 had particular significance for the defendants’ case. It was as follows:

“16.5 Ownership of Clients

(a) The Franchisee agrees and acknowledges that the Franchisor owns all information in respect of the Clients of the Franchise and that the Franchisee is granted a licence to use and operate the Franchise in the service of the clients in accordance with the terms of this Agreement.

(b) The Franchisee agrees and acknowledges that the Franchisor may at its sole and absolute discretion deal with or contact Clients of the Franchisee.”

Deed of Variation

20. On 29 October 2019, Murrays Lane and Sprout AG entered into a Deed of Variation of Franchise Agreement. One of the amendments which the parties agreed to under this deed was to reduce the rate payable to the franchisor from 20% to 13% and remove all other forms of commissions, including stepped commission. The Deed of Variation of Franchise Agreement coincided with a share sale agreement by which Murrays Lane No. 1 agreed to transfer its shares in Sprout AG to Zaftcon Pty Ltd. The share transfer contemplated by the deed was completed in early November 2019. The evidence was that this share transfer was a quid pro quo “payment” from the franchisee to the franchisor in light of the changes to the schedule of rates. I gather from this that Zaftcon Pty Ltd is a company related to Mr Constance. As noted, Murrays Lane No. 1 is a company controlled by Mr Charge.

21. In early 2020, Mr Charge decided to expand the business being carried on by Murrays Lane. To that end, he decided to form the plaintiff, with the intention that the shareholders would be Murrays Lane No. 1 and a company associated with Mr Littlejohn.

22. It is at this point that some questions of timing become important.

23. The plaintiff was incorporated on 25 June 2020. At this date, Mr Charge was the sole director and Murrays Lane No. 1 the only shareholder.

24. The commencement date under the Services Agreement was 3 August 2020.

25. However, Mr Littlejohn did not become a director of the plaintiff until 1 January 2021 and the franchised business was only assigned to the plaintiff by Murrays Lane under the terms of a Deed of Assignment and Release made on 11 January 2021. The parties to that deed were Sprout AG, Murrays Lane, the plaintiff, Mr Charge and Mr Littlejohn.

26. The effect of the Deed of Assignment and Release is sufficiently described in the recitals under the heading “Background” as follows:

“BACKGROUND

A. The Franchisor and the Franchisee are party to a franchise agreement dated 1 April 2017 as varied by the 2019 Deed of Variation (the Franchise Agreement) in relation to the Sprout Ag franchise for Central NSW and a prior representations deed dated on or around the date of the Franchise Agreement (Prior Representations Deed).

B. Charge is the sole shareholder of the Franchisee. Pursuant to the terms of the Franchise Agreement, Charge has provided a personal guarantee to the Franchisor in respect of the Franchisee.

C. The Franchisee wishes to assign its entire interest in the Franchise to the Assignee (the Assignment) and the Franchisor has agreed to consent to the Assignment.

D. Charge and Littlejohn are the ultimate beneficial owners of the Assignee, and have agreed to provide personal guarantees to the Franchisor in respect of the Assignee under the Franchise Agreement (the Assignee Guarantee), including a confirmation of the undertakings in the Prior Representations Deed.

E. This Deed of Assignment and Release (this Deed) sets out the terms on which the Parties agree to enter into the Assignment and the Assignee Guarantee…”

27. Mr Charge and Mr Littlejohn both gave evidence that the plaintiff commenced carrying on the franchised business previously carried on by Murrays Lane from 1 July 2020. There is no doubt that the plaintiff was already carrying on a business of some kind prior to 11 January 2021, being the date of the Deed of Assignment and Release. For example, on 25 June 2020 it entered into the Services Agreement with PBH Trading. It also took out a lease on premises in Dubbo to accommodate the defendants, who had by then agreed to perform services for it and who commenced work at those premises in the latter half of 2020. It seems that the franchisor, Sprout AG, dealt with the plaintiff as though it, and not Murrays Lane, was the relevant franchisee from about July 2020. The plaintiff started to supply services to customers and receive commissions, which were paid in the first instance to Sprout AG and then remitted to the plaintiff less 13%.

The decision to expand into the Dubbo area

28. At about the same time that Mr Charge decided to bring Mr Littlejohn into the business, he also decided to expand the plaintiff’s business into the Dubbo area. I have used the expression “plaintiff’s business” here (and earlier in these reasons) somewhat loosely. It will in due course be necessary to identify more carefully who was carrying on what business and when.

29. Mr Charge knew the second defendant, Mr Hollingworth, from when they worked together at Suncorp. In 2011, Mr Charge had been the District Manager based in Orange and Mr Hollingworth had been in the bank’s agribusiness team in Dubbo. Later, when Mr Charge became the Regional Manager – Business Customers for Suncorp in Orange, Mr Hollingworth’s boss reported to him.

30. In early 2020, after Mr Charge had started working with Sprout AG, Mr Hollingworth expressed interest in leaving Suncorp as well.

31. Mr Hollingworth had a wealth of good connections in Dubbo and the surrounding area. Between 1996 and 2001, he worked in various farm management roles for cotton growers in Trangie and Narromine. In 2001, he started employment with Syngenta Crop Protection (Syngenta) as a territory manager throughout the Macquarie Valley and south as far as Hillston, Hay and Condobolin. Between 2004 and 2007, he worked for Cotton Australia as an area manager for much the same area he had covered whilst working for Syngenta.

28. In these various roles, Mr Hollingworth came to know a large number of cotton growers and farmers throughout the region in which he operated. During this time, he lived first in Trangie and then Narromine. Many of the cotton growers and farmers he came to know also became his friends through social events and through his participation in local sport.

29. In 2007, Mr Hollingworth started to work with Suncorp as a Business Banking Manager based in Dubbo, although he continued to live in Narromine with his family. Narromine is about 40km west of Dubbo. Whilst at Suncorp, Mr Hollingworth looked after the bank’s business and farming clients over a large territory that included the Macquarie Valley, areas to the south as far as Condobolin and West Wyalong, and areas to the north as far as Walgett, Coonamble and Gilgandra. In 2013, Mr Hollingworth took a role as District Manager for Suncorp, in which he had managerial responsibility for the same area as just described. He and his wife eventually bought a property closer to Dubbo to which they moved with their family in 2019. In 2019, Mr Hollingworth changed roles again to work as a Senior Agribusiness Manager at Suncorp.

30. By 2020, Mr Hollingworth was managing a lending portfolio of about $270 million at Suncorp, made up predominantly of rural and commercial clients. Many of them were friends and acquaintances from the time he had worked at Syngenta and Cotton Australia.

31. By this time, he also knew nearly all of the accountants and most of the lawyers in Dubbo, because he worked with them so often for mutual clients. He also knew most of the managers in similar roles to his at competing banks in the Dubbo area.

32. In 2020, Mr Hollingworth was interested in leaving Suncorp for reasons largely to do with the strain of working in that particular role during the COVID-19 pandemic. He had known both Mr Charge and Mr Constance for many years by this point.

33. Mr Charge and Mr Hollingworth set about negotiating the terms on which the latter might take up work as a broker and financial adviser with the plaintiff’s business, with an option to buy in down the track. Again, I have used the expression “plaintiff’s business” here somewhat loosely, because Mr Hollingworth claims to have believed that their negotiations were about him becoming, eventually, a shareholder in Sprout AG, not in the plaintiff.

The Services Agreement

38. On 25 June 2020, which was the day the plaintiff was incorporated, the plaintiff and PBH Trading executed the Services Agreement. PBH Trading was identified as the “Supplier”.

39. Clause 3.1 of the Services Agreement provided:

“3.1 Provision of Services

[The plaintiff] appoints the Supplier to provide the Services to [the plaintiff] in accordance with the terms of this Agreement for the Term. The Supplier agrees to accept the appointment by [the plaintiff] and to perform the Services in accordance with the terms of this Agreement for the Term.”

40. The Services were as follows:

“The Supplier must supply financial and advisory services to [the plaintiff], including but not limited to:

(a) the procurement, business development and relationship management of new clients for the Business;

(b) provide assistance with processing deals including but not limited to setting finance, putting together ongoing CFO reporting for customers, processing insurance etc;

(c) provide general administrative support to the Managing Partner and staff as required; and

(d) such further and other duties as directed by the Company from time to time, in the way and in the manner required by [the plaintiff].”

41. The commencement date was 3 August 2020 and the initial term was five years, with the option of a further five years.

42. Clause 7 was headed “Payment”. By clause 7.1, the plaintiff was required to pay the “Service Fee” to PBH Trading for the Services. The expression “Service Fee” was defined to be the amount stated in the reference schedule. That schedule relevantly stated that “Service Fee” was $150,000 per annum. The agreement also contained a definition of “Bonus Service Fee”. Clause 7.3(c) specified that if Annual Gross Revenue exceeded two times the Service Fee, PBH Trading was to invoice the plaintiff for the Bonus Service Fee prior to 30 June for the preceding twelve months. The plaintiff would then make the payment on 30 June. This fee was defined to be “[an] amount equal to 40% of the Annual Gross Income for the period between 1 July and 30 June each year.” The expression Annual Gross Income was defined to mean “all upfront payments, commission payments and ongoing payments for Clients originated and serviced by the Supplier.”

43. Clause 8 was entitled “Clients”. It provided as follows:

“8.1 Clients are property of [the plaintiff]

The Supplier acknowledges that all Clients, whether or not introduced by the Supplier, remain the property of [the plaintiff] during the Initial Term of this Agreement, any Further Term and following termination of this Agreement.”

44. Clause 12 was entitled “Non-Competition” and is centrally relevant to the issues now in dispute. It is therefore appropriate to reproduce it in its entirety.

“12. NON-COMPETITION

12.1 Restraint Obligations

Except as permitted by clause 11.2, the Supplier, the Supplier’s Representative and each director of the Supplier jointly and severally agree with [the plaintiff] that they must not, and must ensure that each of their respective Affiliates does not, do any of the following things during the Restraint Period in the Restraint Area:

(a) promote, participate in, operate or engage in (whether on their own account or in partnership or by joint-venture) in a Restrained Business;

(b) be concerned or interested (directly or indirectly, or through any interposed body corporate, trust, principal, agent, shareholder, beneficiary, representative, officer or employee or as an independent contractor, consultant or in any other capacity or pretence) in a Restrained Business.

12.2 Permitted Involvement

Clause 11.1 does not prevent the Supplier or each director of the Supplier, or any of their Affiliates, being the holders in aggregate of less than five per cent of the issued shares or units of a body corporate or unit trust listed on a stock market of the Australian Stock Exchange Limited.

12.3 Non-Interference

The Supplier, the Supplier’s Representative and each director of the Supplier must not, and must ensure that each of their respective Affiliates do not, during the Restraint Period:

(a) solicit, canvas or secure the custom of a person who is, or was within 12 months before the termination or expiration of this Agreement, a Client of the Business;

(b) divert or attempt to divert to itself or any competitor, any business or Client of the Business or of [the plaintiff]; or

(c) employ or seek to employ any person who is at the time employed by [the plaintiff], or otherwise induces any such person to leave his or her employment, during a Restraint Period.

12.4 Independence of Restraints

(a) Each of the restraint obligations imposed by clause 11.1 (which results from each combination of each Restrained Business, each Restraint Period and each Restraint Area and each type of activity and capacity) is a separate and independent obligation from the other restraint obligations imposed (although they are cumulative in effect).

(b) Each obligation operates concurrently and independently and is to be construed initially as being the maximum possible Restraint Period, maximum possible Restraint Area and to include all Restrained Businesses and all of the capacities and types of conduct referred to.

(c) If any separate obligation or provision is unenforceable, illegal or void as being unreasonable for the protection of the interests of the Franchisor but would be valid if part of the wording of that obligation or provision were deleted or the period or area were reduced, the obligation or provision will be severed and the other separate obligations and provisions will remain in force.

12.5 Reasonableness of Restraint

The Supplier, the Supplier[‘s] Representative and each director of the Supplier acknowledge and agree that:

(a) [the plaintiff] has considerable and recognised goodwill in the conduct of its business and in developing and promoting the Business;

(b) [the plaintiff] should be entitled to protect that goodwill for its own benefit and the benefit of all members of the Business by restricting the ability of the Supplier or a director of the Supplier to damage that goodwill by competing with [the plaintiff], and that [S]prout is otherwise entitled to protect its legitimate business interests including its relationships, Clients and the Confidential Information; and

(c) each of the restraint obligations imposed by clause 12.1 is reasonable in its extent (as to all the duration, geographical area and restrained conduct) having regard to the interests of each party to this Agreement, extends no further (in any respect) that is reasonably necessary, is solely to protect [the plaintiff] and its goodwill and Intellectual Property and is given for good consideration.”

45. There can be no doubt that the reference in clause 12.1 to clause 11.2 should have been a reference to clause 12.2, and that the references in clauses 12.2 and 12.4(a) to clause 11.1 should have been to clause 12.1.

46. The Restraint Area and Restraint Period were as follows:

“Restraint Area means:

(a) New South Wales or if that is invalid or unenforceable; then

(b) Central New South Wales or if that is invalid or unenforceable; then

(c) The area consisting of an area equal to a radius of 200km from the Dubbo post office.

…

Restraint Period means:

(a) during the Term of this Agreement; and

(b) a period of 24 months following the termination or expiry of this Agreement or if that is invalid or unenforceable; then

(c) a period of 12 months following the termination or expiry of this Agreement or if that is invalid or unenforceable; then

(d) a period of six months following the termination or expiry of this Agreement.”

47. The “Supplier’s Representative” was Mr Hollingworth, who executed the agreement both in his personal capacity and on behalf of PBH Trading.

The defendants performed services under the Services Agreement

48. At roughly the time the Services Agreement was executed, the plaintiff entered into a lease for the Dubbo office to which I have referred. The evidence does not allow me to identify with precision when the defendants moved into that office, but it was no later than a few months after executing the Services Agreement. Either way, Mr Hollingworth began performing services under the Services Agreement about a month after it was executed. He initially worked from home using his own laptop computer and his own telephone and phone number, which had not (and still has not) changed for many years.

49. Like many mortgage brokers, Sprout AG and its franchisees use an intermediary known as an aggregator to facilitate the collection of commissions from financial institutions. The aggregator used by Sprout AG and its franchisees is Connective Credit Services Pty Ltd (Connective). Soon after commencing work under the Services Agreement, Mr Hollingworth received some basic training in how to use the customer relationship management software used by Connective, known as Mercury, as well as other software which plaintiff used and had access to through Sprout AG, which included a practice management system called SILO.

50. There was very little evidence from the plaintiff as to the nature of its connection with clients for whom it brokers finance, such as whether the business now carried on by the defendants threatens the plaintiff’s entitlement to receive trailing commissions for existing loans brokered through Sprout AG. I infer that Mr Charge and Mr Littlejohn were concerned about losing trail commissions, but the evidence does not allow me to conclude that anything done by the defendants actually did cause the plaintiff to forgo trail commissions on existing loans, apart for one “outlier” exception to which I will later refer to as the “Technotill Clawback”. In fact, Mr Hollingworth’s evidence was that the plaintiff continued to receive trail commissions in respect of facilities which he brokered during the term of the Service Agreement.

51. Mr Hollingworth also explained that in the agribusiness sector, financing facilities were typically of fairly short duration and usually no longer than three years. The broker would be entitled to an initial commission and then periodic trailing commissions, however it would then be necessary for the facility to be revisited at the end of the term.

52. Most of the work performed by Mr Hollingworth under the Services Agreement was for clients who he already knew personally long before he started working with the plaintiff. Almost all of the clients he brought in were clients for whom he either already had contact details or for whom he knew how to get contact details through mutual acquaintances. He did have some very general introductions to clients of the plaintiff, but most of the clients who came to him for assistance with obtaining finance generally did so because they already knew him, either socially or through his banking background or (commonly) both. The plaintiff also provided Mr Hollingworth with some “leads”, being potential clients, but Mr Hollingworth’s evidence was that he did not follow these up. Neither Sprout AG nor the plaintiff had had any physical presence in Dubbo before Mr Hollingworth was engaged. It was not for nothing that Mr Charge and Mr Littlejohn considered Mr Hollingworth to be a good person to enlist to expand the business into the Dubbo area. Mr Charge and Mr Littlejohn had hoped he would be a rainmaker, and he was.

53. For the year ending 30 June 2021, the work done by the defendants under the Services Agreement produced commission revenue of $91,135.

54. For the year ending 30 June 2022, the work done by the defendants under the Services Agreement produced revenue of $310,588.

The termination of the Services Agreement

55. By about March 2022, Mr Hollingworth had generated sufficient revenue for the business that he was nearing the threshold to earn bonus commission and also to buy in to the business as had been discussed in the first half of 2020. However, there was a wrinkle. According to Mr Hollingworth, he had always understood that he would have the opportunity of buying in to the franchisor, Sprout AG. He says that he first became aware that he only had the option of buying in to the franchisee, the plaintiff, as opposed to the franchisor at around March 2022.

56. I have considerable difficulty with Mr Hollingworth’s claim that he believed he would have an opportunity to buy in to the business of the franchisor, as opposed to the plaintiff. He eventually accepted in cross-examination that this had really been nothing more than an “assumption” on his part, as opposed to a belief based on anything said by Mr Charge. The documents to which Mr Hollingworth pointed to found this assumption, and the documents which were tendered during his cross-examination on this topic, made it clear that his opportunity would be to become a shareholder in the plaintiff, not Sprout AG. It was fitting that Mr Hollingworth made the concession in the witness box that his belief about having an opportunity to become a shareholder in the franchisor had really been nothing more than an assumption on his part.

57. Whatever the true position as to what Mr Hollingworth believed he had been promised, the reality was that by the final quarter of the 2022 financial year Mr Hollingworth did not believe that it was in his financial interests to become a shareholder in the plaintiff on the terms being discussed. Rather, he formed the view that he would be better off continuing to work under the Services Agreement but with a more favourable bonus arrangement. On 1 April 2022, Mr Hollingworth sent an email to Mr Charge and Mr Littlejohn setting out his thoughts in relation to this matter. He attached a spreadsheet setting out a number of calculations to which his email referred. This led to an inconclusive meeting among the three of them at the Canobolas Hotel in Orange on 8 April.

58. On 16 May 2022, Mr Hollingworth informed Mr Charge that he wished to resign. This led to a meeting among Mr Hollingworth, Mr Charge and Mr Littlejohn in Dubbo on 18 May. On this occasion, Mr Hollingworth confirmed that he no longer wished to work for the plaintiff and that he would instead go out on his own. He told Mr Charge and Mr Littlejohn that he had not informed any clients of his decision. Arrangements were made to remove his access to the plaintiff’s IT systems.

59. Mr Hollingworth caused PBH Trading to register the business name “Worth Finance” on 29 April 2022. This was, notably, before he informed Mr Charge and Mr Littlejohn that he would be resigning. On 20 May 2022, he arranged to have PBH Trading appointed as an authorised credit representative of Connective. However, because Mr Hollingworth was already an authorised credit representative of Sprout AG and because he was only permitted to be an authorised representative of one credit licensee at a time, Mr Hollingworth was unable to work as a broker until he was released as a representative of Sprout AG, which did not occur until 3 August 2022. ASIC was duly notified and Mr Hollingworth was finally appointed as an authorised credit representative of Connective on 8 August 2022. Worth Finance also uses Connective as its aggregator.

60. The Services Agreement was terminated on 18 May 2022. The position seems to be that the parties agreed that the agreement was simply at an end. The plaintiff does not contend that PBH Trading repudiated the agreement in light of Mr Hollingworth’s resignation, and it does not seek damages arising out of any such breach.

61. Mr Hollingworth says that he “formally” started operating the business Worth Finance from 8 August 2022. However, the plaintiff contends that he was already doing work prior to this date for a number of clients using a neighbouring broker as, in effect, a shadow licensee.

62. Between late May and early August 2022 while Mr Hollingworth was waiting to be an authorised credit representative out on his own, Mr Hollingworth referred some people to Stuart Morrow of Central West Finance Solutions. Mr Morrow had moved his business into an office just down the hallway from the plaintiff’s office in Dubbo a few months after Mr Hollingworth began working there in 2020. Central West Finance Solutions was a “direct competitor” of Sprout AG. During the period after leaving the plaintiff and “formally” starting Worth Finance, PBH Trading received a share of commission earned by Central West Finance Solutions for the work Mr Hollingworth steered that way, which he characterised as a portion of the upfront payment for doing administrative “backend office” work for Mr Morrow’s clients.

63. PBH Trading rendered a number of invoices to Central West Finance Solutions between 28 June 2022 to 2 September 2022 for services performed during this period. However, they do not contain sufficient detail to allow me to draw a conclusion as to who the clients were or what work was performed. Mr Hollingworth was quite elusive when asked to recall these details, although he eventually admitted that there was a possibility that the invoices related to work done for clients who he had already been dealing with while the Services Agreement was still on foot.

64. There were several instances in the period between late May and August 2022 in which the following occurred: a potential client contacted Mr Hollingworth; Mr Hollingworth said he could not provide services but that Mr Morrow might be able to assist; the client then engaged Mr Morrow, who shared the resulting commission with Mr Hollingworth. In most of these instances, the client then engaged Mr Hollingworth once he became an authorised credit representative in August 2022. There is a fairly strong inference to be drawn that the arrangement with Mr Morrow was one that was essentially for Mr Hollingworth’s convenience to allow him to obtain commission from clients until such time he became duly authorised to do so in his own right.

The claims in more detail

65. It is at this point appropriate to identify the issues in dispute in more detail.

The pleadings

66. The substantive final orders sought by the plaintiff in the statement of claim are as follows:

“2. An order permanently restraining PBH and Hollingworth from diverting or attempting to divert to themselves, or any competitor of [the plaintiff], any client or potential client of [the plaintiff], prior to 18 May 2024, or such other date as the Court determines to be reasonable.

3. Damages for breach of contract.

4. Equitable compensation and/or an account of profits.

5. An order that PBH pay money to it by way of indemnification for the loss pleaded herein.”

67. Clause 9 of the statement of claim alleges that the effect of clause 8.1 of the Services Agreement was that “all clients and potential clients of [the plaintiff] (including any clients procured by [PBH Trading] in the course of providing the Services) were to remain the property of [the plaintiff] during the period of the Services Agreement and thereafter.” The reference to the “Services” is to the services to be provided under the Services Agreement.

68. The pleading makes reference to a number of other provisions of the Services Agreement, including those provisions dealing with confidential information. However, by the time of the hearing, the dispute about the defendants’ use of confidential information had largely fallen away and no damages were sought on the basis of those allegations.

69. Likewise, the contention that the defendants breached an equitable duty of confidence appeared to have fallen away altogether by the time of the hearing.

70. The plaintiff maintains its contention that the defendants were under a fiduciary duty, as follows:

“Within the scope of their retainer to provide the Services, PBH and Hollingworth owed a fiduciary duty to [the plaintiff] to act solely in the interests of [the plaintiff] and to not obtain a profit or advantage from the relationship (the Fiduciary Duty).”

71. The pleading identifies a number of breaches of the Services Agreement, including breaches of clauses 4.1, 12.1 and 12.3. However, on 31 August 2022, the (now former) solicitor for the plaintiff wrote to the solicitor for the defendants as follows:

“1.1 To be clear, the conduct my client is concerned about and seeks to restrict by way of the restraint is confined only to the conduct reasonably necessary to protect the legitimate business interests of [the plaintiff]. My client does not seek to prevent your client from setting up his own business or working for a competitor, just that he ceases soliciting [the plaintiff’s] Clients and interfering with [the plaintiff’s] client relationships.”

72. The plaintiff acknowledges that it is now bound to confine its case in this way, despite the scope of the statement of claim. It now only seeks damages for breaches of clause 12.3 of the Services Agreement and, further or in the alternative (to the extent there is no double recovery), equitable compensation and an account of profits for breach of fiduciary duty.

73. There has also been some evolution in the plaintiff’s case as to the particular clients whose business has been diverted to the defendants. The list of clients relevant to this issue was not identified with certainty until the commencement of the trial and necessitated an adjournment of one day to allow the defendants to file and serve evidence to deal with some clients not previously notified as being in dispute. There was some further evolution of this list, which included the addition of “Bowman” and the deletion of some entities, which was only handed up on the final day of the hearing. The final list of clients whose business, it is alleged, was wrongfully diverted or secured by the defendants was as follows:

Defined Term

Client name(s)

Egan Entities

BJ & EF Egan Pty Ltd and Benjamin (Ben) Egan

Gin Gin Farms

Gin Gin Farms Pty Ltd

Haddon Rig

Haddon Rig Pty Ltd

Maiso

MAISO Pty Ltd

MacInnes Entities

MacInnes Pastoral Pty Ltd (MacInnes Pastoral) and MacInnes Holdings Pty Ltd (MacInnes Holdings)

McCutcheon

Joseph McCutcheon and “associated entities” (which were not specified)

Technotill Entities

Irminrow Pty Limited (Irminrow) and Technotill Farming Pty Limited (Technotill Farming)

Shorts

Hannah Short and Martin Short

Vella Entities

Alfred Vella, EF & F Pty Ltd in its own right and as trustee for Vella Discretionary Trust (EF&F), Red Cattle Dog Condobolin Pty Ltd, Red Cattle Dog Land Pty Ltd, Red Cattle Dog Vella Pty Ltd and “associated entities”.

I gather from the evidence that these associated entities are: A&R Farms Trust (being the entity which Mr Vella is trustee of), Red Cattle Dog Land Trust (being the entity which Red Cattle Dog Land Pty Ltd is trustee of) and Vella Mulguthrie Farming Pty Ltd in its own right and as trustee for the Vella Mulguthrie Farming Trust (Vella Mulguthrie).

Whillocks

Benjamin (Ben) Whillock and Miranda Whillock

Bowman Entities

“Bowman” was not properly defined in the final list, but I take from the statement of claim that it should mean: John Bowman, Teresa O’Hara, John Bowman Family Trust, J.P Bowman & T.M O’Hara Partnership and J Bowman Investments Pty Ltd.

74. The plaintiff also alleges that the defendants wrongfully solicited many, or perhaps all, of these same clients.

75. By their defence, the defendants allege that the relevant broking business during the pendency of the Services Agreement was being conducted by Sprout AG, not the plaintiff.

76. The defendants plead that, on its proper construction, the post-contractual restraints in clause 12 did not survive termination of the contract. By the time of the hearing, however, it was common ground that clause 12 survived termination.

77. Next, the defendants plead that the restraints in clause 12 are otherwise in restraint of trade and are unreasonable. The defendants plead reliance on s 4 of the Restraints of Trade Act 1976 (NSW).

78. The defence also pleads an estoppel arising out of the 31 August 2022 letter to which I referred at paragraph [71] above. Because of the position taken by the plaintiff it is not necessary to resolve this issue. An additional allegation of laches, waiver or acquiescence by the defendants was not pressed.

79. The plaintiff filed a reply to address the allegation that it was not, relevantly, carrying on the “business” to which the Services Act referred. It alleges that:

1. from 25 June 2020 or, in the alternative, 11 January 2021, it carried on a finance broking and advisory business which had previously been carried out by Murrays Lane under a franchise agreement;

2. that Murrays Lane’s rights under that agreement were assigned to the plaintiff no later than 11 January 2021; and

3. that all parties are, effectively, estopped from denying that the plaintiff was carrying on a business, had clients and confidential information, and was able to enforce its rights in relation to its business, clients and confidential information against the defendants under the Services Agreement, at all relevant times.

The issues in dispute

80. It follows from all of this that the main issues in dispute – at least at a reasonably high level of generality – are as follows:

1. Was the plaintiff carrying on a business at the relevant times and, if so, what was it?

2. Did the defendants breach clause 12.3 of the Services Agreement?

3. Is clause 12.3 an unreasonable restraint of trade?

4. Were the defendants subject to a fiduciary duty and, if so, have they breached it?

5. Is the plaintiff entitled to damages or an account of profits and equitable compensation or both forms of contractual and equitable relief together?

81. I will deal with these issues in a slightly different order. That is because the question of whether the plaintiff was carrying on a business and, if so, what the nature of that business was, is one that arises chiefly in the context of considering the question of whether clause 12.3 operates unreasonably in restraint of trade. For the reasons explained by Gleeson JA in Isaac v DarganFinancial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) (2018) 98 NSWLR 343; [2018] NSWCA 163 (Isaac v Dargan) at [61]-[63] (with which Bathurst CJ and Beazley P agreed), before considering the question of whether a restraint is valid, it is first appropriate to consider whether there has been a breach of the contractual restraint in the first place.

Did the defendants breach clause 12.3?

82. The question of whether the defendants have breached clause 12.3 involves a series of issues. First, it is necessary to determine the scope of the defendants’ obligations under each of paragraphs (a) and (b) of that clause. It is then necessary to consider the circumstances relating to each client to determine whether the defendants did in fact breach their obligations under the clause.

83. It is relevant at this point to recall the general principles of contractual interpretation. The task is to discern the intention of the parties by reference to the language of the agreement and, where necessary, the surrounding circumstances. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, French CJ, Nettle and Gordon JJ said at [47]:

“In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.”

84. It is also appropriate to have regard to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24 (“Codelfa”) at 350-351, where Mason J quoted Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 996 on identifying the purpose or object of the particular transaction in question:

“…when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties.”

85. Although executed by Mr Hollingworth in his capacity as “Supplier’s Representative” as well as by him on behalf of PBH Trading, Mr Hollingworth is not named as a party to the Services Agreement. The parties are instead said to be only the Supplier (PBH Trading) and the plaintiff.

86. Nonetheless, the parties proceeded on the basis that Mr Hollingworth was subject to the restraints and that the plaintiff was entitled to proceed against him directly. This was appropriate in circumstances where the key obligations in clause 12 are expressed to be obligations not only of the Supplier, but of the Supplier’s Representative (namely, Mr Hollingworth) and each director of the Supplier: see clauses 12.1, 12.3 and 12.5 as set out at [44] above.

What is the scope of the defendants’ obligation under clause 12.3?

87. In the course of the hearing, the parties’ submissions as to the scope of clause 12.3 focused on three particular questions:

1. Does the concept of “soliciting” extend to those proposals made by the defendants where it was the former client and not Mr Hollingworth who made the first contact?

2. Does the word “secure” in clause 12.3(a), or the expression “solicit, canvas or secure” when read as a whole, comprehend a passive receipt of instructions from a former client even where there has been no encouragement or other positive enticement by the defendants?

3. Does clause 12.3(b), which uses the expression “divert or attempt to divert,” prevent the defendants from accepting instructions from a former client even where there has been no encouragement or other positive enticement?

88. Although it will of course be necessary to consider each alleged breach in the light of the language of clause 12 as a whole, it is helpful to address these discrete questions in a general way at the outset.

Clause 12.3(a) - solicitation

89. The concept of solicitation is well understood. In Hellmann Insurance Brokers v Peterson [2003] NSWSC 242, Campbell J said at [11]:

“The meaning of ‘solicitation’ is elucidated by a decision of Wood CJ at CL inR v Laws [2000] NSWSC 880 (2000) 50 NSWLR 96, at 98. His Honour, at [8] recorded the remarks of Spigelman CJ and Hidden J in R v Azzopardi, 1 October 1998, unreported, which in turn approved remarks of Stout CJ in Sweeney v Astle [1923] NZLR 1198 at 1202 which I quote:

‘The word “solicit” is a common English word and it means in a simplified form, “to ask”. In various English dictionaries this simple meaning is given, but other simple words are also used to explain other meanings it possesses, such as “to call for”, “to make a request”, “to petition”, “to entreat”, “to persuade”, “to prefer a request”.’”

90. The element of encouragement often gives rise to uncertainty where it is the client of an entity who first contacts the covenantor, usually a former employee or director of that entity. It is frequently argued that where the client made the first contact and requested the covenantor to perform work for the client, the covenantor does not “solicit” that client where they do so in response to that request.

91. Unsurprisingly, there is no hard and fast rule about this. In Barrett v Ecco Personnel Pty Ltd (Court of Appeal (NSW), 24 November 1998, unrep), Stein JA (Sheller JA and Fitzgerald AJA agreeing) said at 2:

“The appellants’ submission amounts to this. One should construe ‘solicit’ in the agreement in a highly mechanical fashion. You simply ask, who made the first approach? If an old customer made the first approach to a former employee, then whatever the facts thereafter which might lead to business being done, there cannot be solicitation. This cannot be correct. One may acknowledge that in most instances the first approach will be made by the ex-employee to the former customer. Common sense however demands that this not be the exclusive means by which a solicitation may occur.

A simple illustration will suffice as to why this is so. Assume a customer finds out, quite accidentally, that a former employee with whom it dealt had left his principal and established a business of his own and says ‘let us have a proposal’. The ex-employee then submits a proposal in very favourable terms and makes a presentation to the client which convinces it to award the contract to him. Should the fact of the first approach negative any solicitation or enticing away? I think not.

The task of the court is to interpret the words in the contract of employment in their context. In a liquor case in New Zealand (Sweeney v Astle [1923] NZLR 1198) Stout CJ noted that ‘solicit’ was a common English word, and in its simplified form meant ‘to ask’. Its other meanings included ‘to call for’ ’to make request’, ‘to petition’, ‘to entreat’, ‘to persuade’. Like Bryson J in Ridgeway International Ltd v McCullum (unreported, Equity Division, 9 April 1998) I cannot see that to propose to do business ceases to be soliciting business simply because the recipient invited the proposal.

It seems to me that Young J was saying that the approach by Nestlé merely provided the window of opportunity for the first appellant to submit a proposal more attractive to Nestlé than its current contract with the respondent. That the approach was the catalyst or trigger for the solicitation by the appellant does not make the appellant any less the mover for the action happening.”

92. It would for these same reasons be inappropriate to approach the present circumstances in a mechanical way by simply asking whether it was the client or Mr Hollingworth who made the first post-termination approach. Instead, it will be appropriate to consider all of the circumstances to determine whether, in any particular case, the defendants’ conduct falls within the scope of the prohibition.

93. I note that Courts have sometimes held that the expression “solicitation” is not apt to include responses to initial approaches. So, for example, in Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 (Koops Martin), Brereton J said at [12]:

“… Accepting instructions to act for former clients who initiate contact with the departed employee is not within the concept of ‘solicitation’ or ‘enticement’, which involve action initiated by the former employee, as distinct from responses to approaches from former customers. In Austin Knight (UK) Limited v Hinds [1994] FSR 52, Vinelott J (at 59) rejected an argument that submitting an offer or making a presentation to a former customer who had approached the employee’s new employers, or who put out work for tender, amounted to soliciting or endeavouring to entice away the customer:

‘That is not I think, comprehended in the usual meaning of soliciting, and as regards endeavouring to entice a customer away, if Mr Griffiths’ submission were well founded the covenant would amount to a covenant not to deal with customers of AK(UK), even customers with whom Miss Hinds had never dealt while an employee of AK(UK) and with whose relationship with AK(UK) she was wholly unaware. On that construction the covenant would amount in substance to a contract without territorial limit not to take employment in the field in which she had been previously employed and would plainly be an unreasonable restraint’.”

94. This conclusion has some resonance for this case because Mr Reeves was a financial advisor and it appears that the process of obtaining instructions to act for clients was quite similar to that involved here. At the same time, however, Brereton J referred to these same authorities at [44] to [46] of his reasons in IceTV v Ross [2007] NSWSC 635 and said, at [47]:

“However, I accept that who makes the initial contact is not decisive. On the other hand, not every positive response to an approach by a former client is solicitation of that client. As Barrett and Hellman show, the line is crossed where the former employee, in response to an approach by a customer, does not merely indicate a willingness to be engaged, but positively encourages the customer to engage him or her.”

95. His Honour’s reference to the crossing of a line emphasises the critically important aspect of the notion of encouragement. This is consistent with the reasons of McDougall J in Stacks Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 at [122] to [123], where at [123] his Honour concluded that soliciting may occur both where:

“1. the ‘solicitor’ makes the first approach to the ‘solicitee’; and

2. where, the ‘solicitee’ having made the first approach to the ‘solicitor’, the ‘solicitor’ thereafter asks for the business or custom of the ‘solicitee’.”

96. These authorities establish that a covenantor does not necessarily escape the reach of a non-solicitation clause by showing only that they were responding to a request by a client. In each case, it is necessary to consider the facts as a whole to determine whether the proscribed element of encouragement is present.

Clause 12.3(a) - significance of the reference to “secure”?

97. In final submissions, the plaintiff submitted that the scope of the expressions “solicitation” and “canvassing” involve some form of positive step. However, it contended that “solicit, canvas or secure” when considered as a whole, or at least that the expression “secure”, was apt to cover circumstances where there was no positive inducement or encouragement by the covenantor. It submitted that a client may be “secured” by the covenantor merely taking instructions to act, even where there was no prior encouragement or inducement on behalf of the covenantor.

98. I do not read the expression “solicit, canvas or secure” in the manner suggested by the plaintiff. The verb “to secure” is capable of a range of meanings, but to speak of a person “securing” a client generally connotes some active effort or encouragement on the part of the person doing the “securing”. In my view, the whole of the expression “solicit, canvas or secure” in clause 12.3(a) contemplates circumstances in which there has been some measure of active encouragement by the defendants. I am not prepared to read the expression as if the word “secure” is synonymous with the notion of having merely accepted instructions.

97. My approach is consistent with that adopted by White J in Planet Fitness Pty Limited v Brooke Dunlop [2012] NSWSC 1425. The restraint in that case was that the covenantor “must not…solicit, canvass or secure the custom of any person who is the Company’s client.” His Honour was dealing with an application for an interlocutory injunction to restrain a personal trainer. His Honour found that there was a strong prima facie case that the defendant covenantor had “solicited or canvassed persons for whom she provided personal training services when she was contracted to the plaintiff” because a number of clients had already taken up her services through other gyms. The question was whether, despite that strong prima facie case, it was appropriate to grant injunctive relief.

98. The plaintiff argued that there should be an injunction to prevent ongoing breaches of the restraint. It was argued that the breach was not complete because, even though the defendant would no longer be soliciting or canvassing those clients on an ongoing basis, she would be “securing” their custom each time she continued to provide services to them.

99. His Honour rejected that argument. At [18] and [19] his Honour said:

“[18] I do not think that that is the proper construction of clause 3.5. I agree with the submission of counsel for the second and third defendants that the words ‘solicit, canvas or secure the custom of’ have to be read as a whole phrase and that each word in it gives sense to what is restrained. I agree that, considered as a whole, the clause is a restraint against endeavouring to attract, or achieving the attraction of, custom of the former clients of the first defendant, after her contract with the plaintiff had been terminated.

[19] A clause which was intended simply to restrain the first defendant from providing services to former clients would need to be clearly so expressed. Different questions might then arise as to the enforceability of such a clause. I think the clause is one directed against soliciting and was not intended to deal, for example, with the case where a former client of his or her own volition wished to continue to use the first defendant as his or her personal trainer.”

102. The plaintiff submitted that his Honour’s reference to “achieving the attraction of” custom signalled his Honour’s acceptance of the proposition that merely accepting work would be a breach of the provision, even without any encouragement. I do not read Planet Fitness in that way. In my view, the decision is not authority for the proposition that a covenantor breaches an obligation not to “secure” work merely by accepting that work when offered to him or her.

Clause 12.3(b) – “divert or attempt to divert…”

103. It is next necessary to consider the scope of the restraint in clause 12.3(b).

104. The plaintiff accepted that “attempting” to divert involves some positive action on the defendants’ part. However, it submitted that the effect of the word “divert” in this restraint was to prevent the defendants from supplying services to clients or potential clients of its business even where there was no element of encouragement involved. The plaintiff submitted that if the defendants provided services to a potential client of the plaintiff even without any element of solicitation or canvassing whatsoever – such as where a potential client of the plaintiff contacted Mr Hollingworth entirely of his or her own volition – then the conduct was within the restraint.

105. The plaintiff’s specific submission was as follows:

“In context, solicitation and canvassing involve some positive step by the Defendants. In context, securing and diverting (as opposed to “attempting” to divert) do not require some positive step. They are as apt to describe an outcome (being the provision of services to a client) as they are to describe a process (being positive action to solicit a client relationship).”

106. I have already explained why I do not accept the plaintiff’s submission as to the scope of clause 12.3(a) including its submission as to the meaning of the word “secure”.

107. The precise scope of the restraint in clause 12.3(b) is somewhat unclear. There is a large area of overlap between paragraphs (a) and (b) of clause 12.3. If the defendants were actively to solicit a client of the plaintiff (contrary to paragraph (a)), they would at the same time be attempting to divert that client, or the business of that client, to themselves (contrary to paragraph (b)).

108. It is however apparent that the paragraphs deal with slightly different concepts. Clause (b) is concerned not only with specific clients, but with “business”. It is also concerned with the “diversion” of clients or business, regardless of whether it is to the covenantor. Thus an attempt to divert “business” away from the plaintiff would contravene paragraph (b), although it may not necessarily contravene paragraph (a). Similarly, attempts to divert business to a third party competitor would likely contravene (b) without contravening (a). In these respects, the scope of paragraph (b) is reasonably clear.

109. It is less clear that it has the operation for which the plaintiff contends. The clause uses the verb “to divert.” As used in paragraph (b), the verb has a direct object (any business or Client). It also takes a preposition, “to.” The conduct which paragraph (b) prohibits therefore involves a covenantor diverting a client or business to either itself or a third party. The restraint clause also comprehends that there may be “attempts” to divert that do not result in an actual diversion.

110. The construction of clause 12.3(b) for which the plaintiff contends comes extremely close to being a blunt restraint on competing with the plaintiff. On the plaintiff’s construction, any person who chooses to use Mr Hollingworth as his or her broker has been “diverted” away from the plaintiff even where Mr Hollingworth has taken no steps to entice that person away, and even where that person may have had no connection with Mr Hollingworth in the past.

111. I am unable to accept the plaintiff’s construction of clause 12.3(b). In the context of clause 12 of the Services Agreement as a whole, clause 12.3(b) is concerned with conduct that involves more than just competing and more than just passively accepting instructions. Those are matters that are comfortably within the scope of clause 12.1, because they are the ordinary incidents of competing with the plaintiff. Clause 12.3(b) on the other hand concerns something more, namely interference with the business or clients of the plaintiff by diverting or attempting to divert business or clients away from the plaintiff and to someone else. In my view, it involves something more than simply accepting the instructions of a client who has already decided not to give those instructions to the plaintiff.

112. On this approach, I would not be prepared to find that the defendants diverted business or clients away from the plaintiff if all that is shown is that they accepted instructions to provide services to clients who had already chosen to contact them after the Services Agreement was terminated.

Did the defendants breach clause 12.3?

113. By the end of the hearing, the plaintiff’s case was confined to the clients identified at paragraph [73] above. It is necessary to consider each in turn. I will generally refer to these as the disputed clients. For convenience, I will occasionally refer to Mr Hollingworth working at or for “Sprout”, which is an abbreviated way of referring to the fact that Mr Hollingworth was performing services under the Services Agreement on behalf of the plaintiff as a franchisee of Sprout AG.

Bowman Entities

Facts

114. Mr Hollingworth has known John Bowman since the time when he worked with Mr Bowman’s brother at Suncorp. Mr Hollingworth’s recollection is that Mr Bowman asked his brother for Mr Hollingworth’s contact details prior to him beginning work with the plaintiff.

115. Mr Littlejohn’s evidence was that the Bowman Entities “[do] not currently have a loan brokered with Sprout” (emphasis added). However, there had been some contact between Mr Bowman and Mr Hollingworth whilst Mr Hollingworth was at Sprout.

116. An email chain between Mr Hollingworth and Mr Bowman shows that they were in discussions in respect of a potential property purchase at Vinegaroy Road, Coolah and purchases of trade cattle from at least 9 March 2022. This was to be purchased in the personal names of Mr Bowman and Teresa O’Hara, and then run as a partnership. As at 30 March, Mr Bowman was tentative about whether the deal would be proceeding. He wrote: “[e]ven if not for this particular property, it would be good to have some sort of understanding in place in case something else comes up.”

117. Mr Hollingworth’s evidence was that Mr Bowman phoned him in “late May 2022” regarding a property opportunity. He accepted in cross-examination that they were speaking here about the same opportunity that had been discussed in March 2022.

118. His evidence was that, when approached by Mr Bowman in May, he advised Mr Bowman that he had left Sprout and that he was going to work for himself, to which Mr Bowman replied: “I’d like to keep dealing with you.” Although Mr Hollingworth said he was not an authorised credit representative yet, he did say that he could “help run some numbers”. Mr Hollingworth said he commenced work in June 2022, however an email dated 22 May 2022, which the plaintiff emphasises was just “days after” the termination of the Services Agreement, indicates that Mr Hollingworth was already assisting Mr Bowman with a proposed property loan and a loan for the purchase of cattle. This email begins: “Just looking at a few numbers before Monday’s meeting” and ends “Look forward to catching up at 11:30am Monday”. Mr Littlejohn pointed out that Mr Bowman forwarded financial statements and tax returns for all of the Bowman Entities to Mr Hollingworth’s Sprout email address on 23 May 2022. It appears these reached Mr Hollingworth’s correct email address soon after: in an email dated 30 May, Mr Hollingworth wrote to Mr Bowman and said that he had been “putting together the number[s] and projections”, which were “working” until he “put in the servicing of $750k loan for cattle” and that he had spoken to the National Australia Bank (NAB) the previous Friday.

119. Mr Charge also says that Mr Hollingworth used Sprout AG’s “Bank Tender Analysis” template in this 30 May email. Mr Charge put the Bank Tender Analysis pro forma into evidence. While there are obvious similarities between the spreadsheets that Mr Hollingworth sent to Mr Bowman and the pro forma, there were some slight differences. Mr Hollingworth denies all allegations of misusing Sprout AG’s templates at Worth Finance. He says that he developed his own templates largely based on ones he used at Suncorp. He cites overall similarities between the documents and spreadsheets which all lenders and brokers use to compile information in support of loan applications. Mr Hollingworth says this on the basis of having sighted similar templates at various banks. In circumstances where the issue had fallen away by the conclusion of the hearing, it is unnecessary to make findings as to whether Mr Hollingworth misused confidential information. If it were necessary to decide this issue, I would have found that he did not. Despite the similarities in the documents, I would not have been persuaded that there was anything particularly confidential about them.

120. This property loan and cattle purchase did not proceed. Even so, PBH Trading charged one of the Bowman Entities a fee of $2,750 for services rendered. Although Mr Hollingworth was briefly cross-examined on the evidence that he gave in respect of not yet being an authorised credit representative at this point, as part of a more general question about his relationship with Mr Morrow, the plaintiff did not directly suggest to Mr Hollingworth that he was engaging in “shadow broking” for this particular client. I also note that Mr Hollingworth’s 30 May invoice was issued to Mr Bowman directly, in contrast with other invoices discussed at [63] above, which were issued by PBH Trading and addressed to Central West Finance Solutions.

121. On 10 August 2022, being two days after Mr Hollingworth became an authorised credit representative, Mr Hollingworth emailed Mr Bowman with the subject line: “Follow up”. In his email, Mr Hollingworth wrote: “Just touching base to see how things are going & if you have anything back on the radar.” The next day, in reply to Mr Bowman’s indication that he had not been “looking much into things lately”, Mr Hollingworth said: “All’s good here, I’ll touch base from time to time or just reach out whenever you need me.” Mr Hollingworth did not give evidence as to this correspondence, nor was he cross-examined on it.

Conclusions

122. I am satisfied that Mr Hollingworth breached clause 12.3(a) in his dealings with the Bowman Entities. Mr Hollingworth knew that Mr Bowman had been contemplating a further financing from at least March 2022 while Mr Hollingworth was still providing services to the plaintiff under the Services Agreement. The fact that Mr Hollingworth was assisting Mr Bowman and other Bowman Entities with this work so soon after the termination of the Services Agreement, and in the light of the “follow up” email on 10 August 2022, I consider that both interactions involved a form of solicitation.

Whillocks

Facts

123. Ben and Miranda Whillock first contacted the plaintiff in response to a Facebook and Instagram campaign in March 2022. An email with the subject line: “Facebook Leads” sent from the Support Manager at Sprout to Mr Hollingworth on 7 March 2022 identified persons who “downloaded the Agribusiness Finance Guide” from their campaign. Mr Whillock was identified as having downloaded a copy of the guide on 3 January at 5:14pm.

124. Mr Hollingworth said that he did not follow up a potential lead with the Whillocks in response to this email and that he did not meet or speak with them until about August 2022.

125. Mr Charge suggested that Mr Whillock was one of a number of clients who had not yet finalised loans with the plaintiff as at the termination of the Services Agreement. However, there was a distinct lack of evidence as to what Mr Charge meant by this. The only documentary evidence that the Whillocks were actual or potential clients of the plaintiff was the “Facebook Leads” email to which I have already referred. Although the defendants did not dispute that the Whillocks were both “Clients” of the plaintiff, I am not satisfied that the Whillocks were seriously contemplating the finalisation of any financing arrangement with the plaintiff during the period of the Services Agreement.

126. Mr Hollingworth said that Mr Whillock made an approach to him only after he had left Sprout. In about August 2022, Mr Whillock called Mr Hollingworth and said:

“Peter, my accountant, Kevin Rankmore, has given me your name and number to help me and my wife, Miranda, get some help with getting an increase on our finance limit.”

127. Mr Hollingworth assisted the Whillocks in September and October 2022 with an increase on their previous loan limit. The evidence does not allow me to conclude that this “previous loan” was one brokered by the plaintiff. As part of this work, Mr Hollingworth assisted them to formulate a new loan structure with NAB, which involved a combination of an overdraft and term loan. PBH Trading initially received a trailing commission on the overdraft only.

128. In August and October 2023, Mr Hollingworth assisted the Whillocks to obtain an increase on their NAB term loan. In mid-November 2023, Mr Hollingworth noticed that PBH Trading was not receiving a trailing commission on the term loans despite the two increases to which I have referred. This was later corrected.

Conclusions

129. I am not satisfied that the defendants breached clause 12.3 of the Services Agreement in their dealings with Mr Whillock. Even if there was indeed a loan in prospect for the Whillocks with the plaintiff and they were in fact “Clients” as defined in the Services Agreement (though the evidence does not suggest this is the case), Mr Whillock was the one to approach Mr Hollingworth after his resignation from Sprout. There was no element of either encouragement (clause 12.3(a)) or diversion (clause 12.3(b)) in the way Mr Hollingworth responded to that approach.

130. The facts can in this respect be contrasted with the situation in Barrett v Ecco Personnel. In that case, the client invited the former employee to submit a proposal for his agency to obtain a contract with that client. The trial judge found that the “effective cause” of his agency acquiring the contract was the proposal which the former employee made to the client following the client’s invitation. It was perhaps unsurprising that the Court found, in those circumstances, that he had breached his obligation not to “canvass, solicit, interfere with or entice away any person firm or company…being a client or employee of” his former employer.

131. Here, however, I am unable to find that the “effective cause” of the Whillocks decision to use Mr Hollingworth (instead of the plaintiff) was any proposal or solicitation by Mr Hollingworth at all. Like most of the other disputed clients, the Whillocks approached Mr Hollingworth because they had already decided that they wanted him and not the plaintiff to be their broker. Neither they nor any of the other disputed clients approached him on terms like those on which the client approached Mr Barrett in Barrett v Ecco Personnel, namely by asking him to submit a proposal or recommendation that would allow them to decide whether to take their work to him or, alternatively, stay with the plaintiff.

Shorts

Facts

132. Mr Hollingworth has known the Shorts from about 1999 when he moved to Narromine. Mr Hollingworth said that they “move in the same circle of friends” and that he knows them “reasonably well at a social level”. Mrs Short is also the sister of Nick Mace for whom Mr Hollingworth did banking work from 2009 onwards while he was at Suncorp.

133. In about 2013 or 2014, Mr Short contacted Mr Hollingworth while he was at Suncorp and made some enquiries regarding equipment finance for some farming equipment. This deal did not proceed.

134. The defendants admit that the Shorts were “Clients” of the plaintiff. In late 2020, Mr Short contacted Mr Hollingworth in the context of seeking finance to purchase a property, “Myallawa”. In response to Mr Hollingworth stating that he no longer worked at Suncorp, Mr Short referenced the “family connection” with his brother-in-law (Nick) and stated that he and Mrs Short wanted Mr Hollingworth to handle their finances. Mr Hollingworth subsequently assisted them to obtain finance. There were many commission payment statements (Connective Commission Statements) in evidence, most of which were unexplained and as to which neither party made any comment. Connective Commission Statements to which I was specifically referred, and a list of Mr Hollingworth’s SILO transactions, show that the loan was for $1.12 million and that it settled in January or February 2021. An entry for “Short” is noted down in Mr Hollingworth’s income projection email to Mr Charge on 30 April 2021 as having an upfront commission in March, with trailing commissions following thereafter.

135. On 8 November 2021, Mr Hollingworth emailed Mr Charge attaching a work-in-progress update. “Short” was mentioned in respect of two loans: one of which had already settled and which appears to be related to Myallawa; the other of which was in prospect and was in the range of about $5 million, with the description: “Craig Woods Purchase…”. It was not clear on the evidence if this deal ever went ahead.

136. In about March 2022, Mr Short contacted Mr Hollingworth again. This time, he said that he was buying another property, “Allambie”, and that he wanted Mr Hollingworth’s help to procure finance. Mr Hollingworth assisted with this loan application with NAB. Mr Hollingworth gave evidence that this transaction was worth about $3.6 million, however, his list of SILO transactions shows that it was for around $2 million as at May 2022. Mr Hollingworth says that this loan application was incomplete when he left Sprout, but it seems to have settled at some point after (refer to [138] below).

275. For the defendants, it was submitted that almost all of the connections between Mr Hollingworth and the disputed clients were the product of long-standing relationships that well and truly predated the Services Agreement. They submitted that it was highly unlikely that any of these clients would have chosen to continue to use the plaintiff to provide broking services in circumstances where Mr Hollingworth had set up on his own and, as he was entitled to do, was operating in competition with the plaintiff.

276. There is force in these arguments, but I am unable to accept them. Once it is concluded that the arrangement between the parties was one that was likely to cause Mr Hollingworth to develop customer connections in the course of providing the Services, it is difficult to see why the plaintiff should not be entitled to protect that interest. The overall purpose of the arrangement was to give the plaintiff a toehold in the Dubbo region and the parties must have considered this to be the likely result of entry into the Services Agreement. I therefore conclude that clause 12.3 was reasonable to the extent it purported to prevent the defendants from providing services to those clients in respect of whom I have found a breach, namely Bowman, Egan and the Vella Entities. Although they did have a connection to Mr Hollingworth that preceded the Services Agreement, each was nonetheless a client of the plaintiff. As I have explained, the plaintiff’s customer connection to those clients was somewhat weak compared to Mr Hollingworth’s own connection. Nonetheless, the connections which it expected to have with the clients brought in by Mr Hollingworth were – and were expected to be – a source of goodwill capable of supporting clause 12.3 of the Services Agreement.

277. So far as the duration of the restraint is concerned, I find that a period of 12 months was reasonable. It is necessary to strike a balance between the parties’ competing interests in relation to this issue. At the time the agreement was entered into, the parties were each setting out on a new venture of sorts. For the plaintiff, it was attempting to expand into the Dubbo area and was largely dependent on Mr Hollingworth to achieve that goal. For the defendants, they were attempting to start out as brokers and were largely dependent on the plaintiff to achieve that goal. In these circumstances, neither party could have been terribly certain about what would transpire so far as the development of customer connections was concerned. It would, I think, be unreasonable in these circumstances to hold the defendants to the full 24 month restraint for which the plaintiff contends. Given the fact that the restraint has the effect of preventing Mr Hollingworth from doing work in his field of expertise in his local area, that being an area in which the plaintiff hitherto had no presence and in which it only hoped to have a presence by virtue of Mr Hollingworth, a more reasonable restraint period would be 12 months.

Fiduciary Duty

Did the defendants owe fiduciary duties?

280. In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43, Gageler J said at [67]:

“The fiduciary duty that an employee has to an employer within the scope of the relationship of employment, no less than the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person, is a duty of ‘absolute and disinterested loyalty’. That duty of loyalty is imposed in equity by means of two overlapping ‘proscriptive obligations’. Each proscriptive obligation, or ‘theme’, is ‘descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies’ (footnotes omitted).

281. The two rules to which his Honour referred were the “conflict rule” and the “profit rule.” It is relevant to refer to his Honour’s summary of each in paragraphs [68] and [69]:

“’The first’, often referred to as the ‘conflict rule’, ‘is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest’. The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal.

‘The second’, often referred to as the ‘profit rule’, ‘is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary’s] position for [the fiduciary’s] personal advantage.’ The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.’”

282. There are no closed categories of when these duties arise: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96; [1984] HCA 64 (“Hospital Products”). However there a number of relationships that have been recognised as giving rise to a fiduciary duty such as “trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners”: Hospital Products at 96. The employment relationship, of itself, gives rise to a fiduciary relationship: Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294 at [126].

283. It has also been held that the fiduciary duties that an employee owes to his or her employer can extend to a person working for a nominee company which has a consultancy arrangement with the de facto employer: see generally Avtex Airservices Pty Ltdv Bartsch (1992) 107 ALR 539; see also Evans, Power and Power, Equity and Trusts (LexisNexis, 5th Edition, 2024) at [12.43].

284. In Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; [2012] FCAFC 6 at [177] the Full Court of the Federal Court said, whilst nothing that “there is no generally agreed unexceptional definition” of who is a fiduciary in Australia, that:

“a person will be in a fiduciary relationship with another when and insofar as that person has undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other’s interest to the exclusion of his or her own or a third party’s interest.”

285. The plaintiff says that it is owed fiduciary duties by both of the defendants. Companies can both owe and be owed fiduciary duties: Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102 at [277].

286. Contractual duties and fiduciary duties can, and often do, coexist. In Hospital Products, Mason J (as his Honour then was) said at 97:

“That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.”

287. The content and background of the relevant contract must be examined closely to determine the existence and scope of any fiduciary relationship: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis, 5th Edition, 2015) (“Equity: Doctrines & Remedies”) at [5-010]. However, the relevant contract is not the sole influence on the nature of a fiduciary relationship between parties; fiduciary duties can be expanded by any subsequent course of dealing: Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24 at 400-1, 408.

288. Here, the plaintiff says that the relationship between itself and the defendants was on par with an employer/employee relationship and that the defendants had “a duty to act in the exclusive interests of the plaintiff”. It points to the accepted commercial purpose of the Services Agreement, namely to expand the plaintiff’s business operations in Dubbo, and to the nature of the parties’ underlying relationship, which involved the defendants acting to attract custom and to produce income for the benefit of the plaintiff.

289. The defendants denied that they were subject to any fiduciary duty. Relying on the reasons of Barrett JA (with Meagher and Ward JJA agreeing) in Streetscape Projects (Australia) Pty Ltd v City of Sydney 85 NSWLR 196; [2013] NSWCA 2 (“Streetscape”), the defendants submitted that the relationship between the plaintiff and the defendants was analogous to the one found in that case. I am unable to accept that submission. The agreements in Streetscape were a licence agreement and allied arrangements concerning the exploitation of certain intellectual property used in the manufacturing of street poles. The “detailed commercial contract” which was in issue in that case was of a very different nature to the one which governed the parties’ relationship here. The Services Agreement was, by comparison, very straightforward.

290. In my view, the defendants did owe fiduciary duties to the plaintiff, for one or both of two reasons. First, although not an employee, Mr Hollingworth was required to provide services to the plaintiff in a way that was very much like an employee. He went about his work in a way that was probably no different than if he had been directly employed by the plaintiff. The “Services” were defined to include “such further and other duties as directed by the Company from time to time, in the way and in the manner required by [the plaintiff].” This reference to the “Company” is a little confusing, but it is clear that Mr Hollingworth was, in substance, required to take direction from the plaintiff in the performance of his day to day work.

291. Secondly, in “procuring” clients for the business of the plaintiff, the defendants were acting as agents for the plaintiff, which would be reason enough to conclude that they owed fiduciary duties. The relationship between the parties, whereby the defendants possessed the ability to hold themselves out to the world for all intents and purposes as the plaintiff, would have enlivened a reasonable expectation that the defendants would act in the interests of the plaintiff to the exclusion of others.

Was there a breach of fiduciary duty?

292. The more difficult question is whether the defendants breached their fiduciary duties. This requires a consideration of the scope of the fiduciary relationship and whether or not the duties owed by the defendants extended to the conduct that is in each case said to constitute the breach. In particular, it is necessary to consider whether the duties applied at all in circumstances where the alleged breaches occurred after termination of the Services Agreement.

293. Fiduciary obligations generally terminate upon the cessation of the relevant underlying agreement: In the matter of Sunnya Pty Ltd [2024] NSWSC 403 (“Sunnya”) at [473]; see also Equity: Doctrines & Remedies at [5-020]. There are, however, circumstances in which obligations may subsist beyond the term of the underlying relationship.

294. The plaintiffs relied on the line of authority commencing with the Canadian decision of Canadian Aero Service Ltd v O’Malley [1974] SCR 592 (“Canadian Aero”) which suggests that fiduciaries are precluded from pursuing subsequent business opportunities that arose as a consequence of their position as a fiduciary. The defendants did not make any submissions about this issue. They dealt with the topic of fiduciary duties by simply denying that there was one.

295. In Canadian Aero, Laskin J said at [24]-[25] in the context of the duties owed by company directors:

“…Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer … is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to be properly manifested upon full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so where the director or officer is a participant in the negotiations on behalf of the company.

An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.”

296. In Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383 (Nicholls) Sackville AJA (with Meagher and Barrett JJA agreeing) said at [178]:

“Canadian Aero has frequently been cited with approval in Australia. The passage to which I have referred was quoted with approval (through the intermediary of another Canadian decision) by this court in Mordecai v Mordecai (1988) 12 NSWLR 58, at 65, per Hope JA (with whom Samuels and Priestley JJA agreed). (See also Edmonds v Donovan (2005) 12 VR 513, at [58], per Phillips JA (with whom Winneke P and Charles JA agreed) and cases cited there.) However, it is important to appreciate that, as Phillips JA pointed out in Edmonds v Donovan (at [57]), the contrast drawn by Laskin J is between a fresh initiative leading to the opportunity acquired by the director after his resignation and an opportunity ‘to which he is led by his own position with the company’. Phillips JA also pointed out that the effect of Canadian Aero is that the obligation of a director or employee to continue observing a fiduciary duty after resignation, where the duty arises before resignation, will be clearer if the resignation can fairly be said to have been prompted by the desire to obtain the ‘corporate opportunity’.”

297. It has sometimes been suggested that for a breach to occur following termination of the fiduciary relationship, the law in Australia requires the departing employee or director to both have gained the opportunity as a consequence of their fiduciary position and have been directly motivated by that position in terminating the relationship. However, as Williams J explained in Sunnya at [476]-[478], whilst it will be clearer that there was a breach if the termination of the relationship was motivated by the business opportunity, it is not strictly required.

298. At [485] her Honour said:

“The focus of the inquiry is on any ‘property or business advantage either belonging to the company or for which it has been negotiating’ or that the company has been ‘actively pursuing’ prior to the director’s resignation. Moreover, it is necessary to demonstrate that it is the director’s former position with the company that has led them to that business advantage or opportunity, which they then acquire for themselves or their associates after resignation. That is the ‘critical question’ identified by Hayne and Crennan JJ in Howard v Commissioner of Taxation. Whether the requisite connection exists between the opportunity and the former directorship will depend on all of the circumstances of the case, including: (1) what if any role the director played in negotiating or pursuing the opportunity on behalf of the company, and what information they obtained about the opportunity, prior to their resignation as a director; (2) the period of time that has elapsed since the director’s resignation and the director or their associates acquiring the opportunity; and (3) as stated in Canadian Aero, whether the director’s resignation was prompted or influenced by a wish to acquire the opportunity for themselves or their associates. Each case turns on its own facts in relation to each relevant opportunity, but a former director who has merely exploited their general fund of knowledge and expertise derived in whole or in part from their previous position for their own benefit after resignation is unlikely to have breached any continuing fiduciary duty, as Holmes J observed in Rishmont Pty Ltd v Tweed City Medical Centre Pty Ltd.” (Emphasis in original)

299. I accept the plaintiff’s submission that this line of authority extends beyond the categories of directors or employees (as recognised by Sackville AJA in Nicholls) to the kind of fiduciary relationship that existed between the parties in this matter. As I have already noted, the parties’ relationship shared many similar characteristics with the employer/employee relationship.

300. It is next necessary to determine whether the defendants’ duty extended to the particular conduct that is in each case said to constitute the breach: see Anderson v Canaccord Genuity Financial Ltd at [152]-[161]. I find that the scope of the defendants’ duty did extend to that conduct. In my view, the defendants were duty-bound not to exploit the kinds of business opportunities described in Canadian Aero. The Services Agreement clearly sought to protect the plaintiff’s interests in the clients which Mr Hollingworth brought to it. It was executed in the expectation that the defendants would bring new business opportunities to the plaintiff. The plaintiff would quite reasonably have expected that the defendants, as their agent in Dubbo, would not seek to take those opportunities for their own benefit.

301. It then becomes necessary to determine whether there was any breach of this prohibition in the case of the disputed clients. The circumstance that points more than any other to the conclusion that the defendants breached their duty is that within a very short time after the termination of the Services Agreement the defendants were providing services to a number of persons who had previously been clients of the plaintiff. This could suggest that Mr Hollingworth had exploited a business opportunity to which he was led by his own position with the plaintiff.

302. It is again necessary to consider the position in relation to each of the clients for whom the defendants provided services following the termination of the Services Agreement. As will become apparent, I have reached the conclusion that the defendants did breach their fiduciary duties and that they did so in relation to a number of clients in respect of whom I have otherwise found there was no contractual breach. The critical consideration, in each case, is my conclusion that although Mr Hollingworth did not solicit the clients or the work (or otherwise breach his contractual restraints), the particular items of work performed by the defendants were either in train or in prospect while Mr Hollingworth was still working with the plaintiff. They were not “fresh opportunities” for him to pursue. Rather, they represented a continuation of opportunities that were in train during the period in which the Services Agreement was in force and were obtained “by reason or by use of the relationship” between the defendants and the plaintiff: see Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [63] (Hayne and Crennan JJ).

299. For the same reasons as set out in [113] above, I will occasionally refer in this section to Mr Hollingworth working at Sprout.

Bowman Entities

304. I am satisfied that Mr Hollingworth breached his fiduciary obligation by assisting the Bowman Entities. The business opportunity that he benefited from arose during and as an incident of his work with the plaintiff. It was not a “fresh initiative”. Mr Hollingworth continued to advise the Bowman Entities on the same opportunity that he had been discussing with them prior to his departure from the plaintiff’s business: see [117].

Whillocks

305. There was no breach of fiduciary obligation in respect of the work done for the Whillocks. The work Mr Hollingworth performed for them after he left the plaintiff’s business was not related to any specific work that was being performed whilst Mr Hollingworth was at Sprout. There was no maturing business opportunity that arose in relation to the Whillocks in the period in which the Services Agreement was on foot.

Shorts

306. The evidence suggests that Mr Hollingworth completed different streams of work for the Shorts after he left Sprout. One such piece of work was the renegotiation of the rate with NAB on the Allambie loan. I note that the Allambie loan was originally negotiated whilst Mr Hollingworth was with Sprout. In my view, the fact that Mr Hollingworth assisted with the renegotiation of a loan that had been taken out with his assistance whilst at Sprout is sufficient reason to conclude that he breached his fiduciary obligation to the plaintiff in respect of the Allambie loan. The general nature of work in this area, as I noted above, is that facilities tend to be short term and therefore require renegotiation from time to time. The opportunity to be involved in a renegotiation of a facility would quite reasonably have been seen by the plaintiff as being part and parcel of the original engagement.

McCutcheon

307. The work completed by Mr Hollingworth for Mr McCutcheon following his departure was quite separate to the work completed whilst Mr Hollingworth was with the plaintiff. The refinancing initiated in September 2022 and the new equipment finance loan proposed in August 2023 did not directly relate to any business opportunity that was afoot whilst Mr Hollingworth was with the plaintiff. I do not consider that the defendants’ subsequent work for Mr McCutcheon constituted a breach of their fiduciary obligations.

Maiso

308. The work that Mr Hollingworth completed for Maiso whilst he was in the plaintiff’s business was related to an equipment finance loan for a Toyota Landcruiser in August/September 2020 and a proposed property purchase in July 2021. There was a suggestion of work done for “Gainsford”, however the evidence about this was quite unclear. That evidence could have related to Maiso or Matt and Emily Gainsford (or another client by the name of Gainsford, evidenced by a “J & J Gainsford” entry in one of Mr Hollingworth’s emails to Mr Jackson). In any case, the subsequent work that Mr Hollingworth did for Maiso after he left the plaintiff seems only to have related to a new equipment finance loan. It was a “fresh initiative” and the defendants did not breach their fiduciary obligations in doing it.

MacInnes Entities

309. As I concluded at [164], Mr Hollingworth did not do any work for the MacInnes Entities following his departure from Sprout. I find there was no breach of fiduciary obligations in relation to them.

Gin Gin Farms

310. Although I concluded that there was no breach of the contractual restraint in relation to Gin Gin Farms, the evidence suggests that Mr Hollingworth assisted with a refinance to Westpac while working at the plaintiff’s business (see [169] above) and then, after leaving, helped with two further refinances on these same Westpac facilities (see [173] and [175] above). The refinance Mr Hollingworth assisted with while at the plaintiff’s business settled in November 2021. In conversation with Mr Denston in 2022 after having resigned from the plaintiff’s business, Mr Hollingworth said: “I think you’re up for review in November.” This evidence shows that Mr Hollingworth was aware of their Westpac facilities and, most likely, that he was aware of these facilities because he assisted with them at Sprout.

311. I am satisfied that Mr Hollingworth breached his fiduciary obligation by assisting Gin Gin Farms with the 2022 and 2023 Westpac refinances. These business opportunities arose as an incident of his work with the plaintiff. These refinances were not “fresh initiative[s]”. Mr Hollingworth essentially advised on further refinances on an opportunity that first arose while he was at the plaintiff’s business.

Egan

312. As I concluded in respect of the breach of the contractual restraint, the $14 million refinance which Mr Hollingworth assisted with after leaving Sprout was already in contemplation while he was working at Sprout. This was the case as at 11 May 2022 (a week before he resigned), being when he emailed Westpac with: “Any room on this one? I’m just getting info together to try and refinance clients out of Suncorp $14M, would like to try and get them into Westpac…”. It was already also the case at 8 November 2021, when he emailed about “post-harvest banking opportunities”. As noted above at [190], during cross-examination, Mr Hollingworth accepted that the work he did in July or August 2022 (being the $14 million refinance) was directly related to the “post-harvest banking opportunities” discussed in late November 2021.

313. It follows that the July or August 2022 refinance which Mr Hollingworth took up was not a fresh initiative. Rather, it arose during and as an incidence of him being a broker at Sprout. I therefore conclude that there was a breach of fiduciary duty in relation to this refinance.

Vella Entities

314. At [204] above, I inferred that Mr Morrow was likely “shadow broking” for Mr Hollingworth in relation to the Third ANZ Refinance that was conducted while Mr Hollingworth was not yet an authorised credit representative. Commissions on this deal flowed to PBH Trading from 30 November 2022 onward. I find that the Third ANZ Refinance and the Fourth ANZ Refinance, also co-ordinated by Mr Hollingworth after he resigned from Sprout, were integrally connected with the First ANZ Refinance and the Second ANZ Refinance on which he worked whilst at Sprout. The Third ANZ Refinance and the Fourth ANZ Refinance were not new initiatives. Instead, they arose directly as a consequence of Mr Hollingworth being employed at Sprout. I note here again that Mr Hollingworth himself said that, generally, facilities tended to be short term in the agribusiness sector, and therefore, they required review from time to time. The opportunity to be involved in a refinance would likely have been foreseen at the time of the original engagement. I therefore conclude that there was a breach of the contractual restraint and that there was a breach of the fiduciary duty by Mr Hollingworth in the case of the Vella Entities, the breach of the fiduciary duty being in relation to the third and fourth ANZ refinances that Mr Hollingworth assisted the Vella Entities with.

Haddon Rig

315. Whilst Mr Hollingworth was with the plaintiff’s business, he arranged for George Falkiner to sign a 12-month consultancy arrangement with the plaintiff, on behalf of Haddon Rig. This arrangement was not renewed. The kinds of work covered in the proposal to the arrangement included the creation of a financial business plan, assistance with ongoing business and ownership strategy and creating clear goals for the family and its farming operation.

316. The work completed by Mr Hollingworth for Haddon Rig after he had left Sprout was extensive and included a wide range of work that fell within the same categories that were listed in the proposal. Details of that work are set out above at [215] to [226]. However, as the consultancy arrangement between Haddon Rig and the plaintiff had concluded prior to Mr Hollingworth’s departure and was not renewed whilst Mr Hollingworth was still at Sprout, I do not regard the subsequent work, although similar, to involve the same business opportunity as was being pursued whilst Mr Hollingworth was at Sprout.

Technotill Entities

317. Mr Hollingworth assisted the Technotill Entities with a loan refinance from CBA to NAB while at Sprout. Based on the evidence at [231] and [232] above, this transaction was to the value of around $4 million and settled on 17 March 2021. In September 2022, Mr Wyatt reached out and said: “We’re wanting to see if we can get an increase on our NAB facility, and we want you to help us with it.” The documentary evidence indicated that Mr Hollingworth likely assisted with this loan increase proposal to NAB through to October 2022. However, as discussed at [239] and [241] above, this proposal was eventually denied by NAB. Soon after this denial, Mr Hollingworth then assisted the Technotill Entities with a refinance of this facility from NAB to Suncorp. I find that Mr Hollingworth was not pursuing a “fresh initiative” in either of these transactions. Rather, these opportunities arose directly out of the transaction being completed while he was at Sprout. I therefore conclude that there was a breach of fiduciary duty in relation to this client in relation to the NAB loan increase proposal and the subsequent refinance to Suncorp.

Relief

318. I have concluded that the defendants breached clause 12.3 of the Services Agreement by soliciting the Bowman Entities, the Egan Entities and the Vella Entities and that clause 12.3 operated validly in relation to those breaches, save that it continued only for a period of 12 months. I have also found that there was a breach of the defendants’ fiduciary duties in respect of certain work done for these and other clients.

319. The plaintiff formulated its claim to damages by reference to a number of integers, including the commissions earned by the defendants in respect of the disputed clients. That is an appropriate starting point. It is however necessary to take into account that the amount of commission that might have been earned by the plaintiff if those disputed clients had stayed with the plaintiff would have been reduced by 13%, because in each instance the franchisor, Sprout AG, would have been entitled to its share. There was no evidence that Sprout AG would be entitled to any part of a damages award and so there is no occasion to gross up the award to accommodate that prospect.

320. The defendants submitted that any damages must be calculated on the basis that the loss to the plaintiff was only the loss of a chance to earn commissions and that, as such, it would be necessary to quantify that chance. If the question were only the measure of contractual damages, I would agree. However in circumstances where I have found in relation to those same breaches that there was a breach of a fiduciary duty for which the defendants are required to account, it is appropriate for the relief be calculated on that basis (that is, without discounting for the possibility that the clients would not have engaged the plaintiff in any event). Nonetheless, in case it matters, I accept the defendants’ submission that there was a strong likelihood that the plaintiff would not have picked up the work which Mr Hollingworth did in breach of clause 12.3. They submitted that this likelihood should be assessed at about 85%. I agree, because the evidence as to Mr Hollingworth’s personal connection to these clients demonstrates that they were highly likely to follow him even if he had not taken any steps to solicit their work.

321. It will be appropriate for the parties to bring in short minutes of order to give effect to these conclusions.

322. I note that there was no claim for interest.

323. The plaintiff, before the hearing commenced, made clear that it no longer sought injunctive relief for the delivery-up of “Confidential Information” (as defined in the Services Agreement) in the defendants’ possession. If the plaintiff had pressed this, I would not have thought it appropriate. The evidence does not demonstrate that the defendants are in possession of confidential information or that, if they are, they are unwilling to deliver it to the plaintiff.

324. The plaintiff also acknowledged before the start of the hearing that the order outlined in the second prayer of their statement of claim was “otiose” due to the “effluxion of time” and therefore no longer sought. I agree with this submission: I note that the Restraint Period under the Services Agreement has expired, even under the longest period expressed in the cascading definition of same. There is therefore no longer any occasion to consider injunctive relief along those lines.

Orders

325. The parties informed me that they wished to be heard on costs irrespective of the outcome. I will therefore also make directions for the parties to file and serve any additional evidence and submissions on costs.

326. The orders and directions will therefore be:

1. The parties are to bring in short minutes of order to give effect to my reasons on or before 7 February 2025.

2. The parties are to file and serve any evidence and short submissions on costs on or before 7 February 2025.

3. The parties are to file and serve any evidence and short submissions in reply on the question of costs on or before 14 February 2025.

Decision last updated: 19 December 2024