2nd Chapter Pty Ltd & Ors v Sealey & Ors

Are any of the restrictive covenants set out in cl 20.2 to 20.6 of the SPA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs say that there is an element of value judgment involved in determining the question of whether a restrictive covenant is lawful.[68]
2. The first agreed proposition is that a restraint of trade is presumed to be void as contrary to public policy. The presumption may be rebutted if there are special circumstances which demonstrate the covenant to be (a) reasonable as between the parties; and (b) not unreasonable in the public interest. The Plaintiffs say that there are special circumstances demonstrating that the covenants are reasonable as between the parties here, noting that this is dependent on the situation of the parties.
3. The Plaintiffs make submissions on the SPA restraints, first in terms of their reasonableness as between the parties, and second in terms of their reasonableness in the public interest.

1. The Plaintiffs say that the covenants in the SPA are reasonable as between the parties in connection with the protection of the goodwill of the Escala Partners business. That goodwill, considered as a whole and inseverable asset, points to the reasonableness of the scope of the restraints, as applying to all clients and not just those with whom the restrained person has had dealings.
2. In their submissions, the Plaintiffs pointed to caselaw by way of analogy, to illustrate to the Court the circumstances and sorts of restraints that have been found to be reasonable.
3. One case cited by the Plaintiffs is Allan Janes LLP v Johal,[69] concerning restraints in the employment contract of an assistant solicitor. In that case, 12‑month restraints applying to solicitation of any clients of the solicitor's old firm in the prior year were found to be reasonable, because the solicitor would be introduced to a large proportion of the firm's clients who had special status. The Plaintiffs submit that Sealey's situation has parallels to the circumstances of that case, as he was involved in training all of the teams in the business, knew what business had been won and lost and was involved in prospects and marketing. The Plaintiffs say it was within the contemplation of the parties when Sealey joined (and the agreements were entered into) that he would be introduced to a portion of the clients with whom he did not deal.
4. In Bridge v Deacons,[70] another decision concerning a restrictive covenant applying to a solicitor, the Privy Council considered a restraint which prevented a partner of a law firm from acting in Hong Kong for anyone who had been a client of the firm in the three years before the solicitor ceased to be a partner, and which operated for five years. The partner had no contact with the majority of the firm's clients and the firm's office was divided into a number of departments which were largely separate from each other. The restraints were valid, because they protected the goodwill of the business as a whole, where all of the partners had determined that the covenants were reasonable. The Plaintiffs say that the circumstances of that case are not unlike those before the Court, as the restrained persons account for a small percentage of the firm's total revenue and had no connection or dealings with the majority of the clients of the firm. Importantly, no one knows precisely what would happen at the time at which the contract is entered into, and so facts such as the percentage of revenue for which Sealey and Vickers‑Willis were ultimately responsible are apt to mislead.[71] It is goodwill overall and as a whole which is protected by the restraints.
5. Another case cited by the Plaintiffs is GW Plowman & Son Ltd v Ash,[72] in which the defendant was a sales representative subject to a covenant preventing him from soliciting any farmer or market gardener who had been a customer of the employer during the term of his employment, including those with whom the defendant had no dealings. The covenant was upheld because the plaintiffs in that case had a proprietary interest in maintaining their connection with both discontinued and existing customers:[73]

(..[t]his is, in my opinion, the nub of the matter) that though customers are limited to those who were customers during the period of employment, it does not exclude people who have ceased to be customers and therefore form no part of the goodwill of the employer, nor does it confine itself to customers with whom in some way or other the employee has come into contact. It is on that ground, I think, that the judge refused the motion. I have felt great doubt on this point, but on the whole, if a man was a customer at the beginning of the employment, I do not see why hope should be abandoned of his becoming a customer again at the end of it and why, therefore, people who have, for the time being at any rate, ceased to be customers have fallen outside the proprietary interest.

1. The Plaintiffs also point to that decision in respect of solicitation or accepting approaches from persons that are not known to be former clients of Escala Partners through practicing circumspection and asking people whether they were clients of Escala Partners during the relevant period of time.[74]
2. The Plaintiffs submit that the meaning of 'engage in' must be construed together with exceptions identified in cl 20.7 so that they only prevent engaging in the relevant conduct at a material or influential level.
3. The Plaintiffs submit, in response to any criticism of the restraints based on the fact that they are not drafted and tailored with respect to the interests of the individual advisors in the SPA, SHA and Management Deed, that of course they are not: the restraints are drafted to protect the goodwill of the business, which is a single indivisible asset. The individual advisors are themselves not the goodwill of the business; they are sources of that goodwill, and collectively with other advisors they generate the goodwill.

1. In respect of the geographic reach of the covenants in the SPA, the Plaintiffs say that they cover the areas in which Escala Partners operates.[75] Accordingly, the covenants comply with the general rule that the area of the covenant must not be more extensive than that of the business sold.[76]
2. The Plaintiffs also submit that nationwide restraints are more readily seen as appropriate in light of the reality of the contemporary business environment, where large parts of the interaction between clients and service providers occurs online, such as via Zoom, and clients may be based across Australia. The Plaintiffs took the Court to references to such online communications in the evidence as a basis for this flexibility.[77] Nowadays, a lot of the personal connection and communications can be managed by electronic means, such that one may more readily accept an Australia‑wide restraint.
3. The Plaintiffs cite Taxation Services of Australia Ltd v Townsend,[78] which concerned a restraint for one year post‑termination against soliciting, serving or acting for clients of the employer at any time in the six months prior to termination:

It seems to me that the mere fact that the defendant here had been manager in Sydney for Taxation Services of Australia Ltd. might be a very great attraction to and an influence over the clients of that company in Melbourne, Brisbane or Adelaide and might enable him to entice them away from the plaintiff company. That attraction and influence would not be due to his inherent or acquired ability and experience (which the authorities say he is entitled to exploit) but to the special characteristic he possessed of being an ex‑employee of the company. This is close to the distinction between "objective" knowledge and "subjective" knowledge mentioned by Lord Shaw. The exhibition of his plate by the defendant, opening an office or inserting an advertisement as to starting business would be a soliciting by the defendant of all and sundry (including the clients of the plaintiff company) to come and do business with him. In fact, if counsel for the defendant be right in his argument that the covenant is void because it extends to other States, the defendant would be entitled to issue circulars and insert advertisements in any one of those States worded thus: "To the clients of Taxation Services of Australia Ltd. Mr W.H. Townsend former manager of the company in Sydney has started practice on his own account in this city and solicits your patronage."

Is this something which the plaintiff company is entitled to protect itself against by a covenant with its employee? I think it is. Lord Atkinson contemplated the possibility of the employee enticing away clients by "other means" than soliciting and I think that the opening of an office in this case would be "other means." As the Court will not in many cases prevent a professional man altogether from practising his profession the only way in such cases of preventing a professional man enticing away the clients of his former employer is to allow him to start practice and to secure a covenant from him that he will not "act for" the clients of his former employer for a fixed period of time.

In my approach to the case I have, so far, not referred to the possibility of the defendant being transferred from Sydney to one of the other States. Having regard to the actual instances proved this does seem to me to have been a possibility and this possibility of transfer to another State is, I think, an additional argument in support of the necessity for and the validity of such a wide covenant, although it is not the basis of my decision.

Mr. Weston, however, argued that, if the company were entitled to protect itself against an officer soliciting, serving or acting for its clients in any other State than that in which the officer was employed at the date of the covenant, the covenant should at any rate have been limited so that it should operate in that other State only in cases in which the officer was in fact transferred by the company to that other State and there employed by the company. I do not think that that was necessary, as the defendant might, either by proper or improper means and either during or after the period of his employment, acquire knowledge of the customers in another State and lists of their names without ever actually being stationed in that State.

1. In terms of geographic reach, the Plaintiffs submit from this decision that particularly for Vickers‑Willis, but also for Sealey, the fact of their seniority in Escala Partners might be very attractive to clients in locations across Australia, and enable them to entice those clients from Escala Partners. That attraction and influence would not be due to their inherent or acquired ability and experience, but due to the special characteristics each possessed because of being an ex‑employee of the company. In this regard, the Plaintiffs submit that both Vickers‑Willis and Sealey refer to their successful prior employment with Escala Partners: each rely on the fact that they have had success at Escala Partners on a publicly‑available webpage to attract customers to Crestone.
2. In addition, the potential geographic reach of the client base of Sealey and Vickers‑Willis at the time of the execution of the agreements must be considered, and one must allow for potential developments in the role of the employee and the nature of the business for which he or she might be responsible in the future.[79] For example, an office may have been opened in Adelaide or Brisbane during an employee's tenure at the business and that employee might have gained a client base or been re‑located there. Similarly, increased use of technology is a potential development for which allowance must be made, even though the time at which reasonableness is assessed is the date of execution.

1. In respect of the five‑year maximum duration of the covenants, the Plaintiffs say that this operates together with the Earn Out payments which are payable in each of the first five years post-Completion, assuming revenue targets are met. There is a symmetry in this operation of the restraints and it is reasonable for the restraint period to last for the period during which the purchaser is liable to pay for the assets it acquires (and it is therefore vulnerable to destruction of goodwill of the business), and the vendors are entitled to receive monies such as the Earn Out amounts.
2. The Plaintiffs also submit that how valuable as a source of goodwill each principal might be in five or 10 years may change, and the restraints cannot be drafted to have different durations because the information about how valuable that person will be to the goodwill of the business is not known.
3. In situations where the restraint is given as part of the sale of a business, the question is: does the duration of the restraints do no more than is reasonably necessary by reference to the time that it would take the vendor to subtract the goodwill from the business?[80] The duration of the prohibition is a substantive aspect in dispute in respect of the SPA, up to the fifth anniversary of the Completion Date (31 March 2024). In this regard, the interrelated context of the Management Deed and SPA is important, as at the time of entry into the SPA, it was known that the vendors would remain in the business for some time.
4. Moreover, the Plaintiffs say that there are cases where restraints lasting as long as 10, 12 or 20 years have been found to be reasonable in the context of a sale of business transaction. This is subject to the caveat, however, that each case turns on its own set of facts and cases in this area provide only limited assistance to the Court in considering the specific facts of the case before it.
5. The Plaintiffs point to caselaw which indicates that a five‑year duration of a restraint is not unreasonable. The Plaintiffs refer to the decision of Gray J in Positive Endeavour Pty Ltd v Madigan,[81] which cited with approval the following extract from the decision of Maugham VC in Connors:[82]

If the restriction as to space is considered to be reasonable, it is seldom in a case where the sale of a goodwill is concerned that the restriction can be held to be unreasonable because there is no limit as to time. Their Lordships accept as correct the statement by Lord Cave in Fitch v Dewes, at p 168:

... it has been settled (I think) since Hitchcock v Coker, that where there is a goodwill to be protected, a covenant in restraint of trade, even when imposed as a condition of employment, may be so framed as to give adequate protection not only to the covenantee himself but also to his successors in the business, and this although it may be necessary for that purpose to impose a restriction upon the covenantor for the remainder of his life.

1. Here, the duration is said to be reasonable to protect goodwill in the context of the financial advisory business, where it typically takes a long period of time for a financial advisor to build up a relationship of trust and connection with a client.[83]
2. Further, the Plaintiffs cite the observations of McDonald J in Southern Cross Computer Systems Pty Ltd v Palmer (No 2):[84]

Finally, I accept the plaintiffs' submission that whilst the consideration of the reasonableness of a restraint turns upon the facts of a particular case, there is nothing exceptional in a four year restraint in the context of a goodwill case where the vendor receives a substantial amount of consideration. In Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd, a ten year restraint was upheld. In C & S Constructions Pty Ltd v Dawson, a five year restraint was upheld. In Pioneer Concrete Services Ltd v Galli, a five year restraint was upheld. In Bridge v Deacons, a five year restraint was upheld.

1. The negotiation process for the sale of the Escala Partners business took several months. There is no suggestion that the parties to the SPA paid, or accepted, a sum for the Escala Partners shares other than what they were worth: this was not a sale of distressed assets. The Plaintiffs say that both Sealey and Vickers‑Willis were compensated in exchange for providing the covenants and disposing of their shares, with each also retaining an ongoing entitlement to profits from Escala Partners through their shareholdings in 2nd Chapter. However, they also submit that, while relevant, the adequacy of the consideration received in exchange for giving the restraint is not determinative of reasonableness, and that it is unclear as to whether or not one can look at the value of what is being paid for a covenant.[85]
2. In respect of the significant cost at which Focus Financial purchased the Escala Partners business, the Plaintiffs say that the initial purchase price of $57.6 million is an eight times multiple of the EPBC. Given this cost, the Plaintiffs suggest that the five‑year duration of the restraint in the SPA is almost inadequate. Sealey received approximately $4 million from the acquisition under the SPA, and had not paid any consideration for over half of his initial shareholding in Escala Partners. The Plaintiffs say that the five‑year SPA restraint against competing with the business he sold does not appear to be a terrible imposition, in those circumstances.
3. The Plaintiffs accept, however, that the situation of Vickers‑Willis might be a little different to that of Sealey because of the lower quantum obtained by Vickers‑Willis pursuant to the SPA.

G.1.5 Express acknowledgement and agreement

1. The Plaintiffs refer to the express acknowledgement and agreement of Terrung and JCVW that the restraints are reasonable in cl 20.8 of the SPA. In this regard, the Plaintiffs place reliance on the comments of Menzies J in Amoco:[86]

... [w]hen parties negotiate a commercial arrangement from positions where one does not have the other at an unfair advantage and do, after hard bargaining, reach an agreement which each finds in its interests to accept, the Court will not readily find that their bargain is unreasonable as between themselves, notwithstanding the well‑established policy of the law against restraints of trade.

1. Although it is accepted that Vickers‑Willis received less compensation than Sealey, the Plaintiffs nevertheless submit that the SPA is an agreement which Vickers‑Willis elected to sign and he agreed, by signing, that it was reasonable. The Plaintiffs submit that Vickers‑Willis might have been in a powerful position if he had elected not to go along with signing the documents for the acquisition, and the Plaintiffs note that there has been no evidence from the Defendants that Vickers‑Willis would have been forced to sell his shares in that situation.
2. Vickers‑Willis and Sealey both entered into sign‑on bonus agreements on around 22 May 2023 with Crestone, each of which included in the agreement recitals a statement that their respective employment at Crestone was 'expected to commence on 22 March 2024'. This date was around 10 months after they both resigned from their roles at Escala Partners and the sign-on bonus for each was in the amount of $1.5 million. On a somewhat similar note, the Plaintiffs say that the delayed commencement indicates that Vickers‑Willis and Sealey intended to honour at least part of the restraint period, which in turn indicates that their restraints are reasonable as between the parties.

1. The Plaintiffs say that cl 20.6 provides that the separate restraints are intended to be treated as such and as separate covenants, each being severable from the other. Accordingly, if the Court is not persuaded that the covenants in cl 20.2(a)‑(f) are enforceable against each of the first to fourth defendants until the fifth anniversary of the Completion Date, being 31 March 2024, across the whole of Australia, it should find the restraints are enforceable for a more limited duration or over a more limited geographical area.
2. There is also said to be scope for the 'blue pencil principle' to be applied, if necessary. In this regard, the Plaintiffs did not specifically address such amendments in relation to the SPA, but said later when addressing the Employment Agreements and giving examples of how the blue pencil may be wielded that they made the same submissions regarding the use of the blue pencil for all of the agreements.
3. The Plaintiffs' submissions did not address the Defendants' argument concerning a limit to severance arising out of the fact that severance was specifically covered in the SPA.

1. The Plaintiffs say that the SPA covenants are not unreasonable in the public interest. The Defendants' public interest point is described as an ephemeral grasp at straws. The wealth management industry is highly competitive, with many advisors that the public can choose between, such that there will not be any appreciable injury to the public interest, should Sealey and Vickers‑Willis be kept to their SPA covenants. Further, the Plaintiffs submit that retaining key employees assists in training new staff which ultimately benefits the general public who receive those services. They say that there would be less incentive to provide training and career development if staff could leave 'at the drop of a hat' to work for a competitor.
2. The Plaintiffs submit, in response to the Defendants' public interest argument, that while Sealey and Vickers‑Willis are very, very good, skilful and highly‑qualified and experienced financial advisors, they properly admitted that they are not the 'best' technical advisors in Australia, and it could only be in the bests interests of the client to follow Vickers‑Willis and Sealey if they were the best (noting that there is no available information about the difference in fees, service, or outcomes should a client leave Escala Partners). Accordingly, it is not in the best interests of the clients to follow Vickers‑Willis and Sealey. The Defendants bear the onus of establishing that the restraints are unreasonable in the public interest and, in the Plaintiffs' submission, that onus has not been discharged.[87]

1. The Defendants submit that the restraints in cl 20 of the SPA are presumed to be void as contrary to public policy, and it is for the Plaintiffs to rebut that presumption, by showing that the restraints go no further than reasonably necessary to protect the Plaintiffs' legitimate interest, such that they are reasonable as between the parties.[88] They accept the general proposition that a purchaser of a business is entitled to protect itself from competition by the vendor,[89] but they say that the assessment of reasonableness for restraints in the SPA is the same as is customary for restraints accompanying the sale of goodwill, and by this assessment standard, they are nevertheless unreasonable.
2. The Defendants agree that there is an element of value judgment in determining whether the restraints go further than is reasonably necessary.
3. The Defendants say the reasons that the SPA restraints are unreasonable (outlined below) apply cumulatively (and this cumulative operation is said to demonstrate further the unreasonableness of the restraints).

1. The Defendants emphasise the importance of the context of the Escala Partners business at the time of acquisition. In early 2019, there were more than 40 employees at Escala Partners. The advisors in the business worked in teams, and one team included Sealey, Vickers‑Willis and Allen. There were at least 10 other teams at that time and at least 16 other key personnel with standing equal to or greater than Sealey. The team in which Sealey, Vickers‑Willis and Allen worked was responsible for a small proportion of the business and, even if this was around 10% of the business, that does not reflect their contribution to the business, as their team dealt with only 5% of the total assets held.[90] The clients with whom team members dealt as individuals and the respective assets of those clients is a smaller proportion still, which is relevant to the importance placed on the personal connection of advisors with clients. In addition, the evidence is consistent with the Defendants' position that teams deal with their own clients in a segregated way, without any meaningful crossover between advisors and teams. Teams are discrete units. The work and clients were not shared between teams and advisors did not win new business by injecting themselves into an existing relationship, other than where existing advisors were exiting the business.
2. The abovementioned context is submitted to be applicable to all of the restraints at issue in the proceeding. This context is the reality revealed by the evidence and it does not accord with the context as described by the Plaintiffs.
3. The Defendants reject the Plaintiffs' prism of Escala Partners as one big valuable business with a small number of principals who work closely together and make equal and individually significant contributions to the revenue.
4. The Defendants dismiss the Plaintiffs' suggestion that advisors might have relationships with the clients of other advisors or that there was cross‑fertilisation among advisors or teams.
5. In respect of Bennard's evidence that advisors may have some knowledge of clients of Escala Partners with whom they did not work, by example arising from Sealey's involvement in coaching other advisors, the Defendants say that this does not amount to any meaningful or material dealings with other clients or a suggestion that the client will know about the other advisors at the firm.
6. Sealey's evidence was that he did not know the relationship between other advisors and their clients or about the service offering of other advisors, as this was not commonly spoken about, and he was not questioned in any substantive way about the relationships he had with clients of other advisors. His evidence was that he might know a couple of dozen client names of other advisors but would not have contact information for them. Any work that he assisted other advisors with did not amount to anything significant.
7. Perry's evidence was that there was some discussion and awareness across the organisation of investment instruments, strategies for client events and interactions, and best practice conversations, and that Sealey had spearheaded an initiative where he and Perry would sit down with advisors on a quarterly basis to go through business won and lost, to gauge how individual advisors were tracking. According to Perry, Sealey had the opportunity to know every single client won by the firm through his involvement in those meetings. But, the Defendants submit, Perry also accepted that Sealey and Vickers‑Willis did not work generally in direct relationships with clients of other advisors. Further, knowledge that a client has been won does not suggest a relationship between the client and Sealey. The evidence on this point appears to go no higher than that there might be some knowledge of some names of clients being managed by other advisors. It does not amount to a personal connection and a personal relationship of sufficient strength that if the advisor exits the business, they will take the client with them or the client will choose of their own accord to move their business to the advisor's new firm.
8. The evidence of Vickers‑Willis was that he sometimes attended training with advisors, on occasion including advisors from other teams, that he had social conversations with advisors in other teams, and that he attended some meetings or social functions, in which the name of a client might be discussed by an advisor. He also accepted that some clients may attend social functions, but said that he would focus on his own clients at those events. He would, very rarely, chat with other advisors at Escala Partners about their clients and said that he only knew the names of 10 to 20 clients of other advisors at the firm. This does not amount to a personal connection with clients of other advisors.
9. Perry gave evidence that an advisor with access to client information could approach clients with whom there was no existing relationship and offer to provide the same services at half the cost to that client. The Defendants submit that this evidence is far too general and vague to assist the Court. The Plaintiffs could have chosen to lead evidence about the information which an advisor could obtain and how that could be deployed in that scenario or evidence from experienced advisors as witnesses, perhaps with real life examples of this scenario occurring, but did not do so. The Plaintiffs did not lead evidence explaining the implementation of pricing structures, establishing that pricing structures are sensitive or confidential, or setting out how realistic it is for a wealth management advisor to undercut fees of competitors as Perry suggested. Evidence from Sealey and Vickers‑Willis suggests that pricing structures and fees are fairly standard across the industry, and Vickers‑Willis stated that he could not undercut a competitor as Perry had hypothesised. The Defendants also observe that knowing this information does not provide a great advantage; one can approach a potential client, inquire about their fees and then make a lower fee offer, or offer to provide services at half the price of whatever that potential client is being charged. Clients know their fees and are able to disclose this to Sealey or Vickers‑Willis, or any other advisor, as part of assessing whether they wish to move their business to another firm.
10. The Defendants submit that the correct approach to the analysis of the restraints in respect of persons who were not clients of the restrained persons is that set out in Wallis Nominees, Harlow Property Consultants Pty Ltd v Byford[91] and Cactus Imaging Pty Ltd v Peters.[92]
11. Noting the above, the Defendants say that the Plaintiffs have failed to establish that an advisor has a valuable personal relationship with all the clients of Escala Partners, or that what interaction or awareness there was with clients of other advisors is of such value as to legitimise a restraint protecting against its misuse.
12. The Defendants submit that the importance of a personal relationship in this business is common ground and it illustrates the 'vice' in the restraints at issue: the fact that the restraints are not confined to clients with whom such a relationship existed, and where the Plaintiffs' own evidence is that the risk relates to clients leaving with exiting advisors on the basis of a close personal relationship.
13. The Defendants urge against viewing Sealey and Vickers‑Willis as a combined entity and looking at the restraints applying to them in this way. This would be incorrect. The reasonableness of the restraints must be assessed as at the date in which they were entered into, not with the benefit of hindsight, and each restraint needs to be assessed separately in respect of the particular individual to which it applied and separately from the other restraints at issue.
14. The Defendants also say that Focus was content for the relationship with Vickers‑Willis to be severed on the acquisition of Escala Partners, as his continued involvement with Escala Partners was not required for the deal to go ahead (in contrast to the advisors listed in Part 1 of Schedule 4, including Sealey).
15. The Defendants submit that these were standard‑form restraints that were not individually crafted to account for the particular circumstances of Escala Partners or any of its key personnel and they were not negotiated. As Bennard accepted, no attempt was made to differentiate restraints according to the compensation received by shareholders under the SPA. This indiscriminate approach supports the view that the restraints go further than is reasonably necessary to protect a legitimate interest.[93]
16. Other deficiencies in the Plaintiffs' evidence were also the subject of submissions from the Defendants. Notably, the Plaintiffs did not lead evidence from people working as financial advisors: Bennard has never been a financial advisor and Perry has not worked in that capacity since before the acquisition of Escala Partners.
17. What is more, Perry's statement during cross-examination that '[w]e constantly and continuously have people that our clients haven't met, that have knowledge of those clients that ... try to approach our clients to go to other firms. It happens frequently' highlights the deficiency in the evidence on what comes of these frequent approaches, and whether there is a difference in success rates between advisors with detailed knowledge of those clients or approaches without that depth of knowledge based merely on a client's public profile. If high‑end clients are frequently approached by the competition, the Defendants ask: what is the true risk of those clients being poached by a competitor who does not have a personal connection with the clients?
18. In respect of the scope of the non‑competition restraint, the Defendants make the submission that cl 20.2(a)(i) and (ii) which sets out the businesses and activities which the restrained persons should not 'engage in' is unreasonable in its terms because it is anti‑competitive and broad. The non‑competition restraint would prevent the restrained persons from undertaking a wide range of activities, including being employed as a financial advisor, even in circumstances that would not damage or endanger the goodwill of the Escala Partners business (for example, being employed by Crestone in respect of Crestone's existing client base).
19. The cl 20.2(a) restraint would also prevent the restrained persons from:

(a) providing any service at all to a relevantly similar or competing business, such as financial research or analysis, even as a third‑party contractor or consultant;

(b) having a 0.1% shareholding in a private company or a 5.1% shareholding in a publicly listed company, even if the shareholding was indirectly held;

(c) lending money, directly or indirectly, to a business, regardless of the terms of the funding arrangement; or

(d) having involvement as a 'beneficiary', which arguably would prevent them from being clients of a competing business.

1. The Defendants submit that if a non‑solicitation provision is excessive in the circumstances, so too is a more onerous non‑competition provision.[94] The reasonableness of the non‑competition clause must be assessed by reference to the adequacy of the protection of the legitimate interests offered by the non‑solicitation clause and will only be upheld if the latter provides inadequate protection.[95]
2. In the case of the SPA, the Defendants submit that there is no additional interest beyond client connection that only the restraint in cl 20.2(a) can adequately protect. To illustrate this point, the Defendants refer to Pryse v Clark, which concerned partners of a law firm leaving for another firm.[96] In that case, there were restraints that applied to a 'Client', defined to include a client of the partnership 'with whom the Outgoing Partner had material dealings in the course of performance of duties'. Justice McDougall accepted that it was strongly arguable that the identified legitimate interests of the law firm were sufficiently protected by those carefully drafted clauses, and in those circumstances, his Honour observed that there was a powerful argument that the remaining restraints in other clauses directed to restricting competition went beyond what was required for the law firm's legitimate protection, because their real purpose was to suppress competition.[97]
3. What is more, the Plaintiffs have not made out any case in their evidence to justify protecting themselves from competition of the kind stipulated in clause 20.2(a).[98] There is no evidence to support their case.
4. Further, the Defendants say that the restraint in cl 20.2(b) of the SPA regarding soliciting, canvassing, approaching or accepting an approach from customers or clients of Escala in the 24 months after the Completion Date is unreasonable in its terms. This is because it applies to clients with whom Sealey or Vickers‑Willis had no dealings, including former clients.
5. Insofar as cl 20.2(b) captures clients with whom individual advisors had no material dealings, the Defendants submit that, in the circumstances (including that Sealey and Vickers‑Willis' clients accounted for only around 5% of the revenue of the business at the time of the SPA being entered into), the reasonableness of the non‑solicitation restraint in the SPA is to be assessed in the same way that a non‑solicitation restraint imposed on a former employee is assessed. The Defendants say that the following principles should guide that assessment:

(a) Covenants against soliciting customers including those with whom an employee has had no dealings are, as a matter of principle, wider than is reasonably necessary to protect the employer's customer connection and will be invalid unless they can be upheld on other grounds.[99]

(b) The more significant the personal relationship between the employee and customers is to the finding of legitimate interest, the less likely it is that a restraint will be found reasonable if it relates to customers with whom the employee did not have dealings.[100]

(c) By definition, a non‑solicitation or client restraint which extends beyond those customers with whom the employee had a substantial connection would go beyond the legitimate interests of the employer in protecting the customer connections developed by the employee.[101]

(d) The more important a role, the more quickly one would expect an organisation out of necessity to be content to replace the employee who is leaving or unavailable with another employee, including where that replacement would be performing the same role and interacting with the client.[102]

(e) A restraint may be reasonable even though it extends beyond customers with whom the employee has personal contact if the employee has gained special knowledge of and/or influence over customers or potential customers or their requirements.[103] This is in contrast to a situation where the employee's contact with other clients is incidental and those other clients had a primary attachment to someone else.[104]

(f) It might also be reasonable where the employee is very senior (like a CEO or COO) in a business with limited customers such that there is no real difference between a restraint operating in respect of customers with whom that employee had contact and all of the business' customers.

1. Having regard to these principles, the Defendants say:

(a) The restraint is wider than is reasonably necessary because it applies to all customers or clients of the Group or the Business. There is no distinction between those clients with whom Sealey or Vickers‑Willis had a substantial connection and those with whom they had no connection or relationship at all. The restraint is anti‑competitive and offends public policy.

(b) There is little scope for an advisor to win new business by injecting him or herself into an existing relationship between a client and another advisor, because of the close client‑advisor relationship. This makes the restraint less likely to be reasonable insofar as it relates to clients with whom Sealey or Vickers‑Willis had no material dealings.

(c) Having regard to the importance of the role between advisor and client, one would expect Sealey or Vickers‑Willis to be replaced if they were unavailable to clients during their notice period and/or were directed to facilitate the transition of clients to a replacement in the notice period.

(d) There is no evidence to satisfy the Court that Sealey or Vickers‑Willis had acquired influence over or special knowledge of Escala Partners' clientele such as would justify a restraint that applied to customers of Escala Partners with whom they did not deal and, indeed, the contrary view is supported by the evidence.

(e) This is not a situation in which Sealey or Vickers‑Willis held very senior executive roles in a business with limited customers, such that it might be inferred that they had knowledge or influence in relation to the clients.

1. The Defendants submit that insofar as the restraint captures former clients with the business from 1 April 2017 to 30 March 2019, it is also unreasonable. The revenue model which Escala Partners operates requires funds to be under management and an ongoing relationship with clients (in contrast to a business like a medical practice where some time may elapse between appointments). Clients who left the business many months or years prior would not have this ongoing relationship with advisors in the business and there is nothing in evidence to suggest that the business had any expectation of those clients returning.
2. Insofar as the restraint captures unsolicited approaches, the Defendants say this cannot be justified when it applies equally to current and former clients of the business with whom Sealey and Vickers‑Willis had no material dealings and (in the case of current clients) with whom there was no expectation they would start a relationship even if they remained with the business as set out in the transition plan.
3. The Defendants understand that the restraints in cls 20.2(c) to (e) are not relevant to the proceeding. They say that cl 20.2(f), which restrains the encouragement or inducement of another person to do the things set out in the earlier sub‑paragraphs, is unreasonable in its terms a fortiori, if the restraints in the earlier sub‑paragraphs are found to be unreasonable.

1. Clause 20.5 provides that the restraints apply to activity within: (a) Australia; (b) the East Coast States, WA and the ACT; (c) NSW, Victoria and the ACT; (d) NSW and Victoria; and (e) Sydney and Melbourne. The Defendants submit that all of the relevant restraints in cl 20.2 are unreasonable as between the parties because, at all levels, they operate in locations where Sealey and Vickers‑Willis had no or negligible clientele.
2. The relevant time at which reasonableness must be assessed is when the parties entered into the restraints. The Defendants say that the restraints in the SPA were agreed before the COVID‑19 pandemic, when online interactions were limited. At that time, Escala Partners' shareholders were based in Victoria or NSW; the business had real estate in Melbourne and Sydney and a small Perth office; most advisors were in Melbourne, there were fewer in Sydney and only one advisor in Perth; the business in Sydney was a recent expansion and the core business was based out of Melbourne. In terms of the team led by Sealey and Vickers‑Willis, all advisors were based in Melbourne and the client mix was largely based in Melbourne or Victoria, with around a fifth based in Tasmania and a very small number of not more than 5% based in Sydney or Brisbane.
3. The Defendants' position is that it is therefore unreasonable to impose a restriction in respect of former clients other than those based in Melbourne, Victoria, or Tasmania. The cascading geographic reach of the restraints in cl 20.5 at each level goes beyond those areas and is therefore unreasonable.

1. The Defendants submit that the duration of the restraints in the SPA is not reasonable.
2. The relevant restraints in cl 20.2 are timed by reference to cl 20.4, which defines the duration of the restraints as the period from the Completion Date to each of the fifth, fourth, third, second and first anniversaries of the Completion Date.[105] The Completion Date was 31 March 2019 and the alleged breaches in this proceeding are pleaded as having taken place from June 2023 onwards, more than four years after the Completion Date. As a result, sub‑paragraphs 20.4(b) to (e) are irrelevant and the SPA restraints in cl 20.2 are only relevant for the purpose of this proceeding if the Plaintiffs can establish that each restraint is valid and enforceable for the maximum duration of five years post-Completion (per sub‑paragraph 20.4(a)). The Defendants submit that all of the relevant restraints in cl 20.2 are unreasonable as between the parties because they operate for five years, which is unreasonable in length.
3. The restraint in cl 20.2(a), if valid and enforceable for five years, would have prevented Sealey and Vickers‑Willis from being employed by Crestone in the period from their commencement in October 2023 to 31 March 2024, as this would involve engaging in a business or activity that is accepted to be in competition with Escala Partners. The restraint in cl 20.2(b) would have prevented Sealey and Vickers‑Willis from soliciting or accepting an approach from clients from June 2023 to 31 March 2024, if valid and enforceable for five years. The restraint in cl 20.2(f) would have prevented Sealey and Vickers‑Willis from encouraging or inducing Allen from soliciting or accepting an approach from clients from June 2023 to 31 March 2024, if valid and enforceable for five years.
4. The Defendants submit that the risk to which the restraints are directed is described by the Plaintiffs as a failure to realise the value of Focus's investment in Escala Partners. However, a consideration as to how long it may take to recover the full investment based on the agreed purchase price is not to the point of the exercise. The key question in respect of restraints protecting the interest in customer connection is how long it will take to protect the goodwill from being subtracted by the vendor or former employee.[106]
5. The Defendants submit that the correct approach in respect of assessing the reasonableness of a restraint accompanying the sale of goodwill is to take as the primary consideration the time required for severing the relationship between the covenantor and those clients who would patronise the business after its sale.[107] The Defendants say that the contrary view (that it is seldom the case that a restraint accompanying the sale of goodwill will be treated as unreasonable on account of its duration if the restraint is otherwise reasonable) should not be adopted.[108]
6. In connection with the Defendants' preferred approach, they ask the question: how long would it take to sever the relationship between an advisor and his or her client, in the context where it was expected that the advisor would continue to service that client after the Completion, but there was no guarantee for how long the advisor would remain with the business?
7. Advisors gain new clients by winning work through a competitive pitch in response to a tender, referrals from other service providers such as accountants, word‑of‑mouth referrals, and through a transition from another advisor within the business who is leaving or has left the business. This last way of gaining a new client is important here.
8. The Defendants say that the evidence of the Plaintiffs on how long it would take for a transition to occur in which another advisor secures a relationship with a client[109] falls short of justifying a five-year restraint.
9. In contrast, the Defendants say their evidence on the transition time suggests that five‑year restraints are unjustified. According to the Defendants, clients can make the decision to engage an advisor relatively quickly (eg, in one or two meetings over a month) and then, once engaged, it can take one to three months to develop a good working relationship. There are no barriers to clients taking their business to another advisor, so advisors have to demonstrate value to clients in a matter of months or expect that the client will move elsewhere. It is significant that clients of the Escala Partners business are mainly sophisticated, high‑net‑worth individuals and families and their controlled entities. These are sophisticated clients with significant sums to invest and they are more likely to invest their money based on the value proposition than because of friendly correspondence with a service provider.[110] The Defendants therefore say that any assessment of the reasonableness of the duration of the restraints should take this into account.
10. In the Defendants' submission, it is incumbent on the Plaintiffs to establish that there was nothing else that the Plaintiffs could do to protect their legitimate interest, other than to impose the restraints at issue in the proceeding. The Plaintiffs cannot establish this as they did not take such common sense steps and measures, such as implementing a transition protocol and holding handover meetings with Sealey and Vickers‑Willis and the clients.
11. The transition plans in evidence did not contemplate Vickers‑Willis or Sealey (or anyone in their team) taking on clients from other teams in the event that another team lost an advisor. There was nothing exceptional or unique in the position of either Vickers‑Willis or Sealey in the business; they were overshadowed by other partners in terms of revenue and client share and their shareholdings were not among the largest. There was no exceptional issue or difficulty identified in the transition plans for Vickers‑Willis or Sealey, in contrast to other more prominent advisors.
12. Further, there is no evidence of the talented and successful advisors who remained with Escala Partners being deployed in respect of clients of Vickers‑Willis and Sealey, or of any other attempt to maintain those clients other than by the use of restraints. The Defendants submit that in this way, the evidence before the Court falls far short of the standard required to persuade the Court that the restraints are valid. I note in respect of this point that counsel for the Plaintiffs objected that these factual assertions were not pleaded.
13. The Defendants emphasise that the question as to the reasonableness of the duration of the restraints is in respect of the individual Principal under the SPA who has given the covenant, and that the restraints in question were designed to apply to each of Sealey and Vickers‑Willis if one of them departed Escala in October 2019 in the same way as if they both departed the business at the same time in October 2023. The Defendants say that there is no evidence to support this operation or to explain why a period as long as five years is needed to sever the relationship between advisor and client. Further, the specific plan to deal with the departure of Sealey and/or Vickers‑Willis did not suggest that a significant period of time was needed to manage the transition to new advisors in contrast to other identified difficulties in that plan.
14. In reply to the Plaintiffs' submissions summarised at paragraph 144 above, the Defendants submit that there is direct evidence regarding the correlation between the proportion of the assets under management and number of clients, as both Sealey and Vickers‑Willis have given evidence on the number of clients with whom they had contact.
15. Exacerbating this point on the duration of time needed to sever a relationship is the issue (discussed further below) of the restraint applying to clients of Escala Partners with whom Sealey and Vickers‑Willis never had a relationship.

1. The Defendants take issue with the consideration paid for the restraints. They submit that the relevant restraints in cl 20.2 are unreasonable because JCVW received negligible consideration for the sale of its shares, and Terrung received substantially less than some other shareholders subject to the same restraints.
2. The Defendants submit that the consideration paid under the SPA is a distraction to the Court: the payment of significant consideration is apt to distract the Court from analysing the interest being protected and the question of what was reasonably necessary to protect that interest, but a low consideration may point against the reasonableness of a restraint.[111]
3. Vickers‑Willis paid $16,491.60 for his shares in Escala Partners and received $16,981.40 as part of the initial purchase price in the acquisition by Focus Financial and Focus Escala Holdings. He received a further $7,103.66 over the next four years in connection with the additional payments and Earn Out payments. In respect of the substantial total purchase price, Vickers‑Willis therefore received only $24,085.05. The Defendants submit that the fact that Vickers‑Willis would be bound to the same restraints as those who made many millions of dollars from the sale points to the entirety of the restraint being unreasonable insofar as it applies to him.
4. The Defendants acknowledge that Sealey had a larger stake in Escala Partners and Terrung received substantial compensation for its shares. However, they say this was still significantly less than seven other shareholders. The Defendants say it cannot be reasonable for Sealey to be subject to the same restraint as those seven other shareholders. Accordingly, the Defendants say that even if a five‑year restraint could be reasonable in the context of the acquisition of Escala Partners, the Court should find that the only persons potentially subject to such a long restraint were the seven shareholders with holdings larger than Sealey's.

G.2.5 Express acknowledgement or agreement

1. The Defendants also made submissions regarding the express acknowledgement as to reasonableness in cl 20.8 of the SPA. First, they submit that it is a matter of law whether the restraint clause is reasonable as between the parties.[112] While it has been said that the courts give considerable weight to what parties have negotiated and embodied in their contracts, a contractual consensus cannot be regarded as conclusive, even where there is a contractual admission as to reasonableness.[113] They also say that the particular acknowledgement in cl 20.8 is of diminished importance, given that the contract contains a cascading series of restraint terms, periods and areas, which constitutes an implicit acceptance that not all permeations of these multiple restraints may be reasonable as between the parties to the agreement, and cl 20.6 expressly contemplates that some of the restraints may be struck down. The Defendants also say that the evidence is that neither Sealey nor Vickers‑Willis were involved in negotiating the restraints and neither obtained independent legal advice before entering into the agreements.

1. The Defendants also made submissions in respect of confidential information. The Defendants accept as uncontroversial that a covenantee may have a legitimate interest in protecting confidential information and trade secrets,[114] including by a non‑competition restraint in limited circumstances.[115] However, they reject any suggestion that the SPA restraints could be so justified. The information that is said to be sufficiently confidential and could be used to the detriment of the covenantee was not sufficiently identified at the time the SPA was entered into, as is necessary to justify the restrictive covenant on this basis (although it is not necessary for the information to be identified with precision by the covenantee).[116] Confidential information does not appear to be associated with the way in which advisors gain clients or practice their craft, and it is well‑known that business records will not be protected if there is no evidence that there is anything secret with how the business is conducted.[117] The Defendants also say that neither Sealey nor Vickers‑Willis had a senior management role suggestive of access to confidential information concerning the operation of another advisor's practice, if that information existed.
2. The Defendants understand that the confidential information raised by the Plaintiffs in this case is the names, contact details and portfolio size of clients. The Defendants say this is quite a limited set of information which does not justify the restraints, for the reasons set out in the following sub‑paragraphs:

(a) First, the evidence is not sufficient to satisfy the Court on the balance of probabilities that the information is confidential and/or justifies the restraints.[118]

(b) Second, the evidence does not demonstrate that the identity of clients or potential clients, or any other information about them, is truly confidential.

(c) Third, problems associated with a non‑solicitation covenant that goes beyond customers with whom the covenantor dealt directly cannot be overcome merely by the identity of customers being described as confidential information.[119]

(d) Fourth, the Plaintiffs have not acted consistently with the notion that the identity of their clients and their assets are confidential, as all this information has been put into evidence by Perry on an open basis.

(e) Fifth, the restraints do not restrict any future business or activity in which '[the covenantor] may be able to make use of any part of the confidential information to the detriment of [the covenantee]'.[120]

(f) Sixth, the Defendants say that the Plaintiffs' concern is clearly centred on misuse of confidential information about clients with whom the advisor has had dealings and there is no justification for a restraint to go beyond the solicitation of those clients, even if the restraint is designed to protect the covenantee's confidential information.

(g) Seventh, there is no explanation in the evidence as to what use an advisor can make of information about the high-net-worth and sophisticated clients of another advisor.

(h) Eighth, even if a covenantee has established that the protection of confidential information is a legitimate interest, they must still justify the reasonableness of the restraint by reference to how long the information is likely to remain current and of commercial advantage, and the Plaintiffs have not done so.[121] The extent to which such information might not be remembered by the covenantor and/or might become stale or lose its commercial advantage is also relevant, and there is no evidence about this.[122] The Plaintiffs have not led any evidence about any of these matters.

(i) Ninth, the covenantee must show that the restraint goes no further than is necessary for the protection of the interest and the Plaintiffs have not done so. This is in circumstances where there are obvious commonsense ways that confidential information might be protected that have not been taken and there has been no demonstration of why the extensive confidentiality provisions in the SPA, SHA, Management Deed, statutory obligations or obligations imposed in equity do not provide adequate protection.

(j) Tenth, the evidence from Bennard and Perry to the effect that advisors learn confidential information about clients with whom they have no business/advisor dealings due to participating in meetings or social activities does not justify the restraints because much of this information is not confidential, the Plaintiffs have not identified any specific confidential or proprietary information which can be misused other than general statements, and even if confidential, it is a low order of confidentiality and there is no evidence that the Defendants have taken or memorised lists of clients to be misused.[123]

1. The Defendants say that the only real protectable interest is client connection. To the extent there is any protectable confidential information, it is information that flows from and augments the client connection. Accordingly, the Defendants say that protection of confidential information here does not justify anything beyond a non‑solicitation restraint in respect of clients with whom the advisors had material dealings for a period of one to three months.

1. The Defendants submit that the restraint in cl 20.2 is not amenable to severance: the parties have turned their mind to how severability will operate for this clause and have treated each sub‑clause in cl 20.2 as a discrete, unified, non‑severable suite of obligations, in contrast to how severability operates in respect of cls 20.3 and 20.5.
2. More particularly, with regard to the principles relevant to severance in the context of restrictive covenants,[124] the Defendants say there can be no relevant severance within cl 20(2)(b). This is because:

(a) clause 20.6 provides for the severance of separate provisions or undertakings, but it does not provide for severance within any provision or undertaking;

(b) the words 'customers or clients' cannot be re‑written so as to create a distinction based on whether the covenantee had material dealings with them;

(c) the words 'at any time during the 24 months ending on the Completion Date' cannot be re‑written to include only those clients who were still clients of the Group or the Business; and

(d) the words 'accept an approach' cannot be severed in circumstances where the restraint is wide and subject to a combination of variables, and therefore operates in terrorem of the covenantor against a well‑resourced covenantee.

1. Similarly, the Defendants say that there can be no severance within cl 20.2(a), because:

(a) clause 20.6 provides for the severance of separate provisions or undertakings, but it does not provide for severance within any provision or undertaking;

(b) the clause is more onerous than cl 20.2(b) and this cannot be cured except by a wholesale rewrite of the clause, which is impermissible;

(c) the word 'employee' cannot be severed from the definition of 'engage in' without also severing other words (eg 'consultant', 'advisor', 'contractor', 'principal' or 'partner') which would allow the covenantee to perform the same type of work as an employee, albeit pursuant to a different legal relationship. Such substantial amendment to the definition would be impermissible;

(d) severance of other offending words in the definition of 'engage in' (eg 'indirectly', 'shareholder', 'financier' and 'beneficiary') would also substantially amend the meaning of the definition and is impermissible; and

(e) in circumstances where the restraint is wide and subject to a combination of variables, and therefore operates in terrorem of the covenantor against a well‑resourced covenantee, no particular word or set of words can be severed.

1. The Defendants reject any idea that cl 20.2(b) can be fixed by being amended with a blue pencil: the clause cannot be re‑written by the Court.
2. For there to be severance, the covenants must be distinct, ie, there must be an independent covenant capable of removal without offending the remaining part. The only change should be the sphere of operations of the clause.[125] Importantly, courts have demonstrated reluctance to engage in curial disentanglement, if the clause is not a genuine attempt to establish reasonable protection for the legitimate interests of the employer.

G.2.8 The importance of the circumstances of the particular case

1. The Defendants submit that the cases to which the Plaintiffs refer are no more than examples of the application of judgment in the particular circumstances of each of those cases and caution is advisable with respect to those authorities. In this regard, the Defendants refer to Stacks Taree:[126]

I accept that the decision - in particular, the speech of Lord Birkenhead - identifies the principles and the relevant considerations of fact. I accept, too, their Lordships' reasoning process. But I have to say that I have some doubt as to whether the case would be decided in the same way today - at least, in this country. Competition law has moved a long way in the 90‑odd years since the dispute between Messrs Dewes and Fitch came before the courts. It might now be thought appropriate to give greater recognition to the public interest in ensuring competition, and hence efficiency, in the market for the provision of legal services.

There can of course be a problem with excessive reliance on decided cases. The question of validity of a covenant in restraint of trade (including, in this, a covenant against solicitation of the covenantee's customers or clients) is not really a question of law. Decided cases state the relevant principles, and may provide useful, indeed valuable, guidance as to their application in particular factual circumstances. But the validity of a covenant in restraint of trade is to be assessed having regard to the terms of the particular covenant and the facts of the particular case. See Evans LJ, with whom Nourse and Ward LJJ agreed, in Dawnay Day and Co Ltd v de Braconier d'Alphen [1997] EWCA Civ 1753; [1998] ICR 1068 at 1111 - 1112.

1. In support of the Defendants' suggestion that caution must be exercised when considering the authorities, they draw out differences between some of the Plaintiffs' cited cases and the facts of this proceeding. For example:

(a) Isaac v Dargan[127] did not involve a sale of business or an employee restrictive covenant, rather it concerned a contractor in a mortgage brokerage business, who had downloaded a confidential customer list and sought to use that information. That decision is also notably from New South Wales and, as a result, the Court was required to have regard to the Restraints of Trades Act 1976 (NSW). These differences are clear from the Court's statement of the legal principles it applied (at 355-6 [60]‑[62]), and can be contrasted with the position in Victoria, where, absent severance, if any part of the clause goes too far then the clause as a whole falls over. The Defendants also refer to Stafford, in respect of unreasonableness of a restraint where voluminous information to which a restrained person had access could not be carried away in his head and there was no suggestion he had downloaded the information.[128]

(b) Allan Janes[129] involved facts that are completely different to the proceeding before this Court and this is evident from an examination of the case headnote:

On the evidence it was within the contemplation of the parties in 2000[130] that the defendant would be introduced to a large proportion of the firm's clients with a view to establishing a relationship with them, and she had been endowed with a special status on which she could rely even vis‑à‑vis those clients with whom she had no prior contact; and that, therefore, as a non‑dealing covenant, had the advantage of being certain as to the area of application and, having regard to the matters which were in the minds of the parties at the time the contract was made, the protection which it provided was reasonable, both as regards the restriction and the limited period of time in which it was to operate...

(c) Bridge v Deacons[131] is a case which also has a number of differences to the present proceeding.

1. The same point about the importance of the circumstances of the individual case applies to cases to which Defendants refer. For example, Pryse v Clark does not involve the same facts as this proceeding. In that interlocutory decision, the Defendants say that there is the notion of material contact with clients, numerous partners working on advices for the one client, some partners who were not client‑facing but nevertheless contributed to the business, and some partners who worked primarily on business development for other partners, in circumstances of a partnership in equal shares, in contrast to the differing ownership stakes in the business in this proceeding and siloed teams at Escala Partners.

1. The Defendants say that the restraints in SPA cls 20.2(a) and (b) are unreasonable in the public interest. The Defendants accept that they have the onus of establishing this proposition.[132]
2. The Defendants say that the restraints are unreasonable in the public interest because they prevent clients, even those with no former association with Sealey or Vickers‑Willis, from selecting either as their preferred financial advisor, and prevent Sealey or Vickers‑Willis from accepting an approach from a client who wishes to seek their advice, as well as preventing other firms from employing or engaging Sealey or Vickers‑Willis, even where that would have no direct impact on Focus Escala Holdings or Focus Financial. This means that the interests of the clients are placed below that of the Plaintiffs. It could also prevent Sealey or Vickers‑Willis from working at another firm with a better service offering and then accepting an approach from an existing client or prevent a fully‑informed client from engaging an advisor of their choice or continuing to engage an advisor of their choice.
3. As a result of the above, the Defendants say that the restraints are inconsistent with the obligations of a holder of an AFSL and their representatives pursuant to s 921E of the Corporations Act and the Financial Planners and Advisors Code of Ethics 2019 (Code of Ethics).[133] Standard 2 of the Code of Ethics requires an advisor to act in the best interests of the client. The advisor must also act in a way that demonstrates, realises and promotes trustworthiness, competence, honesty and diligence. The clear intention of the Code of Ethics is that the financial interests of the licensee are subsidiary to the client's best interests. As was accepted by Bennard in cross‑examination, there are situations where it may be in a client's best interests to retain the services of a former Escala advisor, and this is prevented by the restraints in the SPA.

1. Clause 20.2 of the SPA sets out the prohibited activities. I did not apprehend cl 20.2(e) to be in dispute between the parties, and cl 20.2(c) and (d) were not the focus of the parties' submissions. Rather, it was the activities in cl 20.2(a), being the non-compete provision, and cl 20.2(b), being (broadly speaking) the non-solicitation provision, which were in issue. Clause 20.2(f) is relevant as well in the same ways.
2. Bearing that in mind, the answer to question one as it is phrased is that none of the restrictive covenants in cls 20.2 to 20.6 of the SPA are enforceable against any of Sealey, Vickers‑Willis, Terrung and JCVW, for the reasons set out below.
3. The legal tests and principles to be applied are well‑known and agreed by the parties. The parties do not agree on how those legal tests and principles apply to the facts before me.
4. The Court derived extremely limited assistance from the cases to which the Plaintiffs referred as examples of how the principles have been applied by the courts in other circumstances. The cases themselves underscore that the application of the principles is so fact‑specific that no analogy to other cases can be easily made. In this regard, I agree with the second paragraph of the passage cited from Stacks Taree in paragraph 276 above.

G.3.1 Legitimate interest and need for restraints

1. First, as outlined in section F.1.3, I find Focus, Escala Partners and 2nd Chapter have a legitimate interest in the protection of customer connections as a primary source of the goodwill of the business which was acquired and that this interest can be protected by restraints. I must now consider whether the restraints in question do no more than is reasonable to protect their interests.
2. As a general matter, Bennard's affidavit evidence was that the contractual restraints at issue are:

absolutely necessary to ensure (to the greatest extent possible) that Focus is able to realise the value of any investment it makes in a partner firm and to disincentivise principals from taking significant purchase price consideration from Focus, and then leaving the business and taking the clients with them.

1. The Defendants argue that the risks which necessitate the restraints are, in part, of Focus' own making through its model. Bennard accepted in cross‑examination that it would be open to Focus to change its acquisition and business model, so as to take a hands‑on role in day‑to‑day operations of firms it oversees or to involve itself in the relationships between clients and advisors. However, Bennard did not agree that the risks are part and parcel of Focus' business model, or that being more involved in operations would necessarily ameliorate those risks. She stated that it would be hard to say whether those risks possibly could be reduced, because this would depend on the management in place. I agree with counsel for the Plaintiffs that I should not engage in speculation of how the risks to the interests of the various parties could have been managed if the transaction had been different. In my view, the focus of the reasonableness question is the arrangements between the parties to the transaction, such that what may have resulted from some other form of transaction is not to the point.
2. The Defendants also argue that Escala Partners could have done other things to protect the goodwill of the business. It is suggested that the restraints are not the only option available in that regard. Under cross‑examination, Bennard accepted that it is open for Escala Partners to put in place strategies for substituting advisors who exit the firm in retaining clients, such as when advisors exit due to ill‑health or retirement, for example. Bennard's evidence is that this is done and it is common business practice for its partner firms. This work happens but it is not a way that Focus, via its partner firms, manages the risks arising when advisors leave. To the extent that it may be suggested that Focus could have controlled day‑to‑day management of advisors, the Plaintiffs say this goes nowhere: Focus bought what it bought and the contractual agreements that were put in place are the contractual agreements. To say otherwise would be to say that Focus could have managed that risk differently if they had a completely different transaction.
3. Accordingly, it is not the case that measures to transfer client work to new advisors does not occur, on Bennard's evidence. I accept that evidence, although I also accept that insofar as Sealey and Vickers‑Willis are concerned, they were not involved in any such measures with respect to their clients at Escala Partners after they gave notice of their resignation. Perry's evidence was that Sealey and Vickers‑Willis were not involved because trust was gone. I consider that it was open to Escala Partners to mitigate risks of clients leaving with advisors through such measures, but such measures do not necessarily supplant the need for restraints to prevent solicitation of and approaches by clients. This situation is a textbook example in which one would expect to see restraints in place, and an appropriately drawn restraint is likely to be acceptable to this Court. However, the scope of the restraints must be appropriate. It is convenient to note here that while it may be true that measures other than restraints could have been used to protect the goodwill of the business, in particular the customer connections, I do not accept the Defendants' argument that the potential availability of such measures means that the restraints are unreasonable.

1. One aspect of the restraints that is particularly important in this case is the scope of the restraints against solicitation and acceptance of approaches, in terms of which clients, or former clients, are captured. In this regard, careful analysis of the evidence is required.
2. I accept Bennard's evidence that advisors may have awareness of clients with whom they have had no dealings through, for example, coaching other advisors, involvement in succession or transition planning, assisting other advisors with particular advice for those clients, or hearing about the clients through discussions about client relationships, retention or profitability. That evidence was very general but it does appear to make sense and I accept that this awareness could include knowing the identity of those clients. Advisors would be aware of the firm's fee model, and it is possible that the advisor may even know information about fees for those clients because they might have access to that information.
3. Perry similarly noted that it would be possible for someone such as Sealey to know every client won by the firm and every pitch or prospective client. Perry says that, armed with information about clients of the other advisors (even without a physical copy of a client list), it would be easy for Sealey or Vickers‑Willis to offer to those clients of other advisors the same services at 50% less.
4. Sealey acknowledges that he knows the identity and other information of some Escala Partners clients despite not working with them directly, that he has met some of those clients, and he had access to the CRM software used by Escala Partners, which contained detailed notes about clients. He also agrees with Perry about his role in ensuring accountability in the business through reviews of pitches and business won or lost and that he was involved in client event discussions.
5. Perry's evidence was that personal relationships might develop outside of the assigned client relationships, and for his part considers that he has personal relationships with persons with whom he has interacted at an annual golf day, or where he has been involved in giving advice. His evidence suggested that the teams at Escala Partners were much less segregated and distinct than Sealey and Vickers‑Willis say. He did not agree that, generally, financial advisors don't work directly with clients who are being serviced by other teams. However, I consider that Perry's experience as CEO is distinct from that of Sealey and Vickers‑Willis. Further, while there may not be a completely siloed operation at Escala Partners, it is the evidence of both Sealey and Vickers‑Willis that they did not interact with clients serviced by other teams and that their exposure to those clients was limited.
6. Access to CRM software or awareness of pitches may lead to the advisor being aware of clients of the firm. However, the evidence did not clearly show that Sealey or Vickers‑Willis would be aware of the fee structures of other clients. What is more, Perry's own evidence is that many of the clients of Escala Partners are high‑net‑worth individuals or families with some public profile, and that those clients are regularly approached 'cold', as it were. I do not see how a general awareness of a high‑profile client's identity would give an exiting advisor any greater prospect of winning that work than a third-party advisor. The evidence of the Plaintiffs as to what information might be gleaned by Vickers‑Willis or Sealey and how that might be deployed (including in relation to undercutting pricing of competing firms) was so vague as to be almost speculative, and it is not sufficient in my view to justify the application of the restraints beyond clients with whom there is a personal connection. Sealey and Vickers-Willis both gave evidence that while they had access to CRM data concerning other clients, they did not access the CRM for that purpose. That evidence is not really to the point, as I accept that it is the risk which is relevant here. Nonetheless, the real point is that even with access to that information, the close personal connection between advisor and client does not exist for clients of Escala Partners who were not clients of Sealey or Vickers-Willis.
7. Bennard accepts that it would be 'unlikely' for clients with whom an advisor has had no dealings and who have never met the advisor leaving with that advisor. She accepted in cross-examination that when an advisor leaves, generally the risk is related to their client base but at the same time asserted that generally, the risk applies to the whole business. She says there could be a risk that an advisor with a larger role in the business reached out to clients to whom they were not assigned because the advisor had awareness of those clients as part of their larger role. Her example of such a role and potential risk is Sealey's responsibility for coaching advisors at Escala Partners. This is unconvincing evidence. Even if Sealey gained some information about a client from coaching an advisor, he would have had no contact with the client and no ability to forge a close relationship with that client. Given the negligible risk associated with clients with whom the advisor has no relationship, the risk identified by Bennard and relied upon to justify the SPA restraints is more speculative than real.
8. When asked why the restraints are not limited to clients with whom an advisor has had contact (whether as an allocated advisor or as part of a larger role they play in the business), Bennard's reply was that the restraints are standard ones covering the entire business and not specific to individual advisors. Bennard was taken at length to her description of the risk at paragraphs 85 and 86 of her affidavit, which does not encompass a risk where there was no client contact with an advisor. Her evidence is that it is hard to say whether that risk does not exist at all, but she agrees that Principals only maintain and service a client relationship which they are assigned.
9. Bennard's evidence, outlined above, demonstrates how the application of the restraints to solicitation of or accepting approaches from clients with whom restrained persons have had no dealings means that the restraints go further than reasonably necessary to protect the legitimate interests of Focus and Escala Partners.
10. General awareness of client names or information as to a successful pitch is not the same as the purpose of protecting customer connection by the restraints and, as I clarified with Bennard at the hearing, information regarding the fee model and fees charged to particular clients would be confidential information that a former employee would be bound not to disclose or misuse. The risk that a former employee might misuse that information is already guarded against by confidentiality obligations and the restraints cannot be justified by an assertion that principals/employees might misuse that information when there are already contractual and other protections addressing that risk.
11. None of the submissions put forward by the Plaintiffs as to the involvement of Sealey in coaching or in business development and pitching reviews, involvement in conversations around clients, prior access to CRM software, or attendance at the odd client event convince me that there is a need for Sealey to be restrained in respect of clients with whom he had no dealings. He simply did not have the connections with those customers. The case of Allan Janes, referenced by the Plaintiffs, does not provide a true parallel to the circumstances of this case. Relevantly, in that case the restraint was much more confined in its temporal and geographic operation, and I do not consider that Sealey's limited awareness of clients is the same as the role of the solicitor in that case, and I do not think that the contemplated roles can be conflated. Similarly, I am not convinced that Bridge v Deacons is sufficiently analogous to be helpful in this case.
12. The above finding in respect of Sealey means that the situation is even clearer‑cut insofar as Vickers‑Willis is concerned. His exposure to or awareness of the firm's broader client base was much less than Sealey and, insofar as the restraint applies to clients with whom he had no dealings, it goes further than is reasonably necessary.
13. The evidence before me establishes that advisors at Escala Partners were assigned to particular clients and had extremely limited opportunities to develop relationships with other clients of the firm. In my view, in this context the restraints do go further than is reasonably necessary to protect the customer connections of the firm. While goodwill can be seen as an inseverable asset, and it is goodwill overall and as a whole which is protected, that goodwill accrues to Escala Partners through the close connections established between an advisor and their clients, and it is these connections which can be legitimately protected by restraints. As the restraints apply even where there would be no such connection, they go beyond what is needed to protect the goodwill. None of the variations referred to in the passage from Wallis Nominees cited at paragraph 118 above as justifying a restraint which applies to clients (or former clients) of Escala Partners with whom Sealey and Vickers-Willis did not have an advisor/client relationship.
14. If the restraints applied only to clients with whom the restrained persons had dealings, I would allow those restraints to encompass both restrictions on solicitation and acceptance of approaches from clients. In this regard, it is clear to me that clients who have developed a level of trust and connection with their advisor may seek to follow that advisor to another firm without any solicitation (as, indeed, Sealey's evidence has confirmed) and in these circumstances a restraint could extend to approaches from those clients without going too far. However, insofar as the restraints prevent an approach by or solicitation of a client who has had no dealings with the restrained person, I think they do go too far; there is no relationship of trust or connection there to be protected. However, and for the sake of completeness, the practical problem referred to by the Defendants, of Sealey or Vickers-Willis being able to identify someone who approaches them as an Escala Partners client if they have had no connection with them, is not a basis for rejecting the restraint on accepting approaches if the restraint were otherwise reasonable. Such a practical difficulty could be readily overcome by Sealey or Vickers-Willis asking the person making an approach if they were a client of Escala Partners.
15. In respect of former clients of Escala Partners, being persons who were clients at some point during the 24-month period ending on the Completion Date (ie in around 2017 to 2019), I would draw the same distinction; where there was or has been a customer connection with that former client and an advisor then the restraints on solicitation could be justified, however, it is on the application of the restraints to former clients with whom there were no dealings and therefore no customer connection that the restraint is not tenable. In this regard, I refer to Plowman (at 572).
16. I will elaborate the topic of severance further in section G.3.8. However, as will be clear from that section, it is not possible to narrow the scope of the restraint in cl 20.2(b), such that cl 20.2(b) cannot be enforced.
17. The Defendants say that if a non‑solicitation restraint is not enforceable as it is goes further than is reasonably necessary, then a non‑competition restraint will also be unenforceable. The non‑competition restraint in cl 20.2(a) is too broad, including in terms of the activities covered, and I find that it too is not enforceable. I accept the Defendants' submissions in this regard. I reject the Plaintiffs' submission that the meaning of 'engage in', construed with the exceptions identified in cl 20.7, means that the restraint operates only to prevent conduct at a material or influential level. The exceptions in cl 20.7 are limited and do not support that construction. Indeed, only one exception relates to activity outside of the Escala Partners business, being the exception of ownership of 5% or less of the shares of a listed company. A wider material threshold is not supported by the text of cl 20, but even if it were, such a restraint would still operate to prevent the restrained persons from plying their trade, including in respect of customers who have never received services from Escala Partners; this goes much further than is necessary to protect the goodwill of that business. It would also prevent the restrained persons from broadly-defined engagement in a business substantially the same as that of Escala Partners, even if that engagement did not involve the exiting advisor providing financial advisory services. Again, this goes much further than necessary to protect the goodwill of Escala Partners.

1. The parties appeared to agree about the geographic spread of the client base of Sealey and Vickers‑Willis, with roughly around 40‑50% of clients in Melbourne, 20‑30% in regional Victoria, 20 to 30% in Tasmania and around 5% in other locations in Australia.
2. It also seems to be accepted by all that Melbourne was the primary base of Escala Partners at the time of the negotiation of the acquisition and entry into the restraints, and that there was a newer, smaller Sydney office and a small Perth office, with clients in other parts of the country.
3. Bennard's evidence was that the geographic scope of the restraints concern the business of Escala Partners as a whole and did not take into account the client base of individual advisors in the restraints which apply to those advisors. In the negotiations, she did not inquire directly with Sealey or Vickers‑Willis as to the location of their clients and, while during due diligence client locations were discussed, they did not drill down advisor‑by‑advisor on this topic. Her evidence was that it was not necessarily an advantage for advisors to be located close to clients before the widespread use of remote conferencing technology, because many advisors travel to clients.
4. In my view, the geographic application of the restraints to the whole of Australia is not unreasonably broad. It is clear that the restraints referring to particular states do not reflect the client base of Sealey and Vickers‑Willis, notably Tasmania is not mentioned despite being a state where Sealey and Vickers‑Willis had a significant client base. However, I do not think that in this agreement, in the context of a sale of a business, the restraint is too broad. Escala Partners was a business which was growing at the time of the acquisition, both in terms of the physical offices of the firm and its client base. In the context of a growing business which had clients across Australia (and allowing for potential development and growth in the client base of its advisors including Sealey and Vickers‑Willis across Australia), the fact that the restraint operates across Australia does not render it unreasonably broad.
5. I do not need to delve further into the parties' submissions regarding the contemporary business environment post‑COVID-19 and the prevalence of Zoom these days as opposed to when the restraints were entered into. Even before the COVID‑19 pandemic and reliance on those technologies, Sealey and Vickers‑Willis maintained relationships with clients in multiple states, including Tasmania, NSW and Queensland. While Sealey and Vickers‑Willis had relatively few clients in Sydney, for example, they did appear to have had at least one client there. The Defendants say that at all levels, the geographic scope included locations beyond Melbourne, Victoria or Tasmania where most of the restrained persons' clients were based. Yet, it is not improbable that they might gain clients in other areas or that their existing clients might themselves move to another part of the country and wish to retain the services of a trusted financial advisor. I am satisfied that an Australia‑wide restraint does not go further than reasonably necessary in the circumstances of this case.

1. Vickers‑Willis' evidence as to the impact of an absence of more than a year from the industry, was that he would 'simply need to move on' and would be 'starting from scratch' if he were to return to the industry after a gap of more than a year. Similarly, Sealey's affidavit evidence was that, in his experience:

there is no "standard" time that it takes to transition a client from one employed advisor to another, although this obviously depends on the nature of the client, the advisor and the relationship between the two. It varies on a case by case basis. However, where relationships have been particularly successful, or have been long‑standing, these transitions may take significantly longer.

1. Sealey goes on in his affidavit to say that the impact of his being out of the industry for a year or more would be severe:

If I were not working in the industry for at least a year, as the Plaintiffs have sought, all of the activity connected with winning and servicing clients would cease. My "centres of influence" would need to send clients to other advisors, clients would not refer friends or contacts to me, and my knowledge of industry trends and developments would become out‑of‑date. Upon being able to resume in the industry, I would be starting again from scratch after spending over 10 years building up a reputation and my capabilities.

1. Perry did not agree that there would be an enormous impact on an advisor of being out of the industry for over a year as a general or blanket statement, but he appreciates that this is the opinion of Vickers‑Willis.
2. Bennard appeared to justify the duration of the various restraints being in excess of three months (in contrast to the restraints in the Crestone employment contracts) as resulting from the fact that Sealey and Vickers‑Willis held equity in the business, they acquired that equity in the transaction whereby the restraints were entered into and the parties agreed by that transaction about the way that the business would operate moving forward. In those circumstances, there was material consideration given for the restraints. Her experience in respect of employment restraints in Australia (based on Focus' eight or nine Australian businesses) is that employees who do not hold equity in the business are restrained for more than three months.
3. The difficulty with that argument is that the same duration applies to principals with very little equity (such as Vickers-Willis) as applies to those with larger shares of equity (such as the founding principals) or those in the mid-range (such as Sealey). A five‑year restraint may be reasonable for those at the upper end, but it is difficult to see how a restraint of that length is justified for someone who held 0.0335% of the shares sold to Focus, as JCVW did. It is also difficult to see how a five-year restraint on Sealey is justified. Accordingly, a five‑year restraint is therefore unreasonable.[134]
4. I agree with the Defendants' submission as set out in paragraph 251 above. As was said in DXC Eclipse (at 121 [157]), the key question is not how long it may take to recover the full investment based on the purchase price, but how long it will take to protect the goodwill from being subtracted from the business by the vendor. There is no evidence to suggest that it may take five years to protect the goodwill here.
5. The Plaintiffs' argument that the Earn-Out period under the SPA justifies the five‑year duration of the restraint, as set out at paragraph 196 above, cannot be accepted. That argument is superficially attractive, but it requires closer analysis. In respect of the purchaser's position, Focus only has to pay the Earn Out payments above a certain revenue threshold. If revenue is lower than the relevant threshold, say, for example, because some of the principals have left, then Focus' liability for an Earn Out payment is reduced. The restraints are not necessary to protect Focus' interests in respect of the Earn Out payments. Focus does not need to protect the Earn Out payments via a restraint, because it is liable for those payments and does not benefit from them. Focus is not made more vulnerable to the destruction of the goodwill of the business because of its liability for the Earn Out amounts. It is the vendors, not the purchasers, who benefit from that payment. The situation is different in respect of the vendors, who stand to benefit from payments in that five-year period, and I accept that the symmetry argument in respect of the vendors has greater relevance. However, it was not made clear how the SPA restraints were justified to protect the vendors' interests. Even if that had been made clear, I am not satisfied that the restraints go no further than in reasonably necessary to protect the vendors' interests, for the same reasons as set out above.
6. Accordingly, in the circumstances of this case, a five-year restraint post-Completion of the SPA is unreasonable.

1. The problem with the standard‑form nature of the restraints imposed under the SPA is most apparent when one looks at the compensation received by shareholders in the transaction. It is hard to see why it is fair for someone in the position of Vickers‑Willis to be restrained in the same way as someone in the position of Perry, for example, when the consideration given to Perry for signing up to the SPA so outstripped that given to Vickers‑Willis.
2. The Plaintiffs' somewhat grudging acceptance that the situation may be a little different for Vickers-Willis (see paragraph 205 above serves to illustrate this point. The Plaintiffs did not elaborate on this or explain how it was consistent with their submissions that the circumstances of the individual advisors do not need to be taken into account (see paragraph 190 above)
3. Perry says that Vickers‑Willis' compensation under the SPA could be described as a fair price, although he accepts it was lower than what Perry himself received as a result of their different shareholdings. Perry's evidence in cross-examination on why the difference in compensation did not mean it was unfair for Vickers‑Willis to be subject to the same restraints was:

I'll speak specifically to Mr Vickers‑Willis and executing that contract. Mr Vickers‑Willis's career was built by Escala Partners, while he worked at Escala Partners. When he joined our organisation, um, he produced no revenue for the business. He worked very hard. He's a very sharp guy and he was helped by the entire business and all the employees of it to get to the level that he achieved. These contracts are a moment in time and they have to be treated as such...I can't speak for him and why he thinks it's not fair. But he thought it was fair when he signed the contract.

1. Perry's evidence in this regard does not justify the restraints on Vickers-Willis. That Vickers-Willis may have been young and relatively inexperienced when he joined Escala Partners and benefited from the training and experience he gained there is not to the point. There was no suggestion in the Plaintiffs' case that protecting the investment of an employer's resources in developing the skills of the employee is a legitimate interest to be protected by restraints.
2. In terms of compensation paid (based on shareholding), Bennard says that there is not necessarily a direct relationship between the shareholding of an advisor and their relative importance to the business in terms of their revenue generation; this will vary based on the firm and transaction. However, this observation merely illustrates that the consideration paid under the SPA was not connected to the relative importance of each person to the business in terms of their capacity to generate revenue, and further, that the restraints under the SPA do not differentiate between the relative importance of each person to the business.
3. The position of Sealey is different to that of Vickers‑Willis, as Sealey received greater compensation in return for entering into the SPA.
4. It is undeniable that Focus spent a great deal of money on the Escala Partners business, and that most of the value of the business that Focus bought was in respect of its goodwill. The courts are more willing to find a restraint as reasonable in circumstances of a sale of a business for valuable consideration, and where the negotiations were conducted between two experienced commercial entities on equal bargaining terms. The fact of significant money being spent by Focus alone, however, is not sufficient to justify such heavy restraints applying to all Principals irrespective of their relative shareholdings or positions in the business. In particular, this will not be sufficient where the restraints go much further than is necessary to protect the goodwill of the business, in this case, such as through application to clients where there is no client connection with the restrained advisor. That is, the compensation does not cure the problems of scope affecting the SPA restraints.

G.3.6 Express acknowledgement or agreement

1. I do not consider that cl 20.8 is curative of the restraints' problems either; I give this little weight.
2. The Defendants' argument that the cascading structure of the restraints means that the parties contemplated the possibility that the restraints might be found to be unreasonable and unenforceable, such that the effect of the acknowledgment in cl 20.8 is diminished, has considerable force.[135]
3. Neither Sealey nor Vickers‑Willis in fact obtained independent legal advice in respect of the SPA, although on its own I give that little weight. However, of more concern is the evidence that Sealey and especially Vickers‑Willis did not have any role in negotiating the SPA or the restraints. The negotiations for the transactions were conducted by Bennard and Kodialam for Focus and by Perry for Escala Partners. Perry's role was in respect of Escala Partners as a whole; his primary concern or responsibility was not the interests of individual shareholders. There is no evidence that individual Principals had any real input into the negotiation of the restraints. The evidence that does exist is that Vickers‑Willis says that when he asked Perry about seeking his own legal advice on the acquisition documents, he was told words to the effect that he had to sign the paperwork overnight if he still wanted a job; Vickers‑Willis signed the paperwork overnight without receiving legal advice, and certainly without having any real ability to negotiate the restraints.[136]

1. I agree with the Defendants' position in respect of confidential information; the protection of confidential information cannot be used to justify these restraints. The Plaintiffs did not put their case sufficiently clearly so as to allow for that justification. Further, the Plaintiffs have other avenues to protect their confidential information.

1. Severance and interpretation of the restraints is a matter covered in cl 20.6 of the SPA.
2. As noted in the Defendants' submissions (and was not disputed), the three references to cl 20.3 in cl 20.6 of the SPA appear to be erroneous and should be references to cl 20.4. These are obvious typographical errors in cl 20.6, most evident where that clause refers to 'each period in clause 20.3'. Clause 20.3 relates to undertakings given by the Vendors and Principals and several liability of those persons under cl 20. There are no periods in cl 20.3. The periods of restraint are found in cl 20.4. As it is written, the interpretation of the agreement insofar as the actual cross-references are concerned is nonsensical or absurd. It is obvious to me that the drafting of the SPA miscarried in respect of these clause references, and the parties objectively intended to refer to cl 20.4. This is a clear error in language and it is self‑evident that the error can be corrected by reading each reference to cl 20.3 as a reference to cl 20.4. I can and do construe the SPA so as to correct that obvious drafting mistake to avoid absurdity.[137]
3. The cascading operation of the SPA restraints in cls 20.4 and 20.5 (in respect of the duration and geographic reach of the restraints, respectively) clearly accommodates severance, should any of the broader geographic reach or durations in those sub‑paragraphs be unenforceable, per cl 20.6. Clause 20.6 confirms that the relevant sub‑clauses should be treated as separate provisions, each being severable, and with each separate provision resulting from a combination of the undertaking in sub‑cl 20.2 with the cascading periods and areas in sub-cls 20.4 and 20.5.
4. However, the overly broad scope of the non‑solicitation restraint (in its application to clients with whom advisors had no dealings and where there is no legitimate interest in customer connection to be protected) cannot be fixed by severing parts of the restraint. The 'blue pencil principle' does not assist; the authorities are clear that I cannot add words or re‑write the clause, and there is no way to remedy this problem with the scope of the non‑solicitation restraint by merely striking through certain words. The only way to amend sub-cl 20.2(b) in that regard would be to add words, which is not permissible under the 'blue pencil principle'.
5. The nature of the over-reach of the non-competition restraint also cannot be cured through the use of the blue pencil. Confining the restraint to clients of Escala Partners with whom Sealey and Vickers-Willis had a client relationship would require the addition of words. More importantly, narrowing the scope of 'engage in' to circumstances where Sealey or Vickers-Willis' engagement concerns them providing financial advisory services would require the addition of words, since there are no deletions from that definition which would achieve that result.

1. Bennard accepted that it might, potentially, be in the best interest of a client to take their business to another firm and to work with a former advisor of Escala Partners, if that is the client's choice. However, she did not accept that the effect of the restraints might potentially subordinate the client's interests to those of the firm. She rejected the idea that the restraints concern client behaviour or prevent clients from doing anything. With respect, this ignores the practical outcome of the restraints. If followed, the restraints would prevent the restrained persons from providing services to certain persons and that would have the practical outcome that certain clients have a more limited choice in whom they select as an advisor during the operation of the restraints. While the restraint would not prevent a client from approaching Sealey or Vickers‑Willis, it would prevent either from accepting that approach. That restriction on choice is part of why restraints on trade are presumed void in the first place. That said, it does not necessarily follow that a restraint that restricts choices available to consumers of services will invariably be unreasonable in the public interest. In this instance, I am not satisfied that this restriction on clients is contrary to the public interest.
2. I do not agree with the Defendants' submission that the restraints are contrary to the Code of Ethics. While I would not go so far as to describe this part of the Defendants' position as an ephemeral grasp at straws, it did have a flavour of a throw‑everything‑including‑the‑kitchen‑sink approach to fighting the enforceability of the restraints. There was no evidence to suggest that the public interest was adversely impacted by restraints being placed on individual financial advisors. The evidence is that financial advisory and wealth management services is a competitive industry with plenty of choice available to clients. I do not consider that they have discharged the onus of establishing that the restraints are unreasonable in the public interest.
3. I did not find the Plaintiffs' submissions as to the Defendants' public interest arguments persuasive, but that is of no consequence given that the burden lies with the Defendants in this respect and they have not discharged it.
4. Given that I have found the restraints not to be reasonable as between the parties as a result of their broad scope, my finding on the public interest does not change the answer to this question.

1. Flowing from the above, the Plaintiffs have failed to demonstrate that the restrictive covenants in the SPA are reasonable as between the parties, and the SPA restraints are therefore void as contrary to public policy. The relevant restraints in the SPA are therefore unenforceable against all of Sealey, Vickers-Willis, Terrung and JCVW.

H Question two: the Management Deed restraints

Are any of the restrictive covenants set out in sections 3.2 to 3.6 of the Management Deed enforceable against either or both of Sealey and Vickers‑Willis? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs say that the Management Deed restraints in cl 3.2 are directed to the protection of the goodwill of the Escala Partners business. They say that similar matters as relate to the SPA covenants apply to the restraints in the Management Deed.
2. One difference, however, is that in respect of cl 3.2 of the Management Deed, the consideration included a proportion of the ongoing cash flow, which depended on the performance of 2nd Chapter and its staff. The purpose of the Management Deed restraints was the protection of the interests of all shareholders in 2nd Chapter, who all obtain the benefit and have the burden of them. The Management Deed restraints operated to stop them from leaving but also kept them together. Here, importantly, the vendor and purchaser of the business are effectively going into business together. The Plaintiffs characterised this ongoing relationship as almost like the former Escala Partners shareholders were joint venture partners with Focus Escala Holdings following the acquisition. The Management Deed's context is people going into business together: Focus, 2nd Chapter and the Principals. Each of them stands to benefit and each of them is at risk. Focus bought the shares in Escala Partners and Escala Partners assigned half the value of the ongoing business to 2nd Chapter. In that way, one can view the parties as agreeing to go into business together for five years (generating goodwill and protecting each other's interest) and, if it ends at that point, agree not to compete with each other for one or two years after that point. It is not unlike a fixed‑term partnership agreement.
3. The Plaintiffs submit that the time taken for the vendor, departing shareholder, manager or principal under the Management Deed to erode the goodwill must start after that departure. A restraint for two years after that date is reasonable, given the nature of the investment and risks, and the commitment made by those involved to grow the business together.
4. The Plaintiffs refer to the transition plan contemplated at the time of the acquisition, included as a schedule to the Management Deed. In that schedule, both Vickers‑Willis and Sealey are listed as 'key members'.[138] Counsel for the Plaintiffs suggested that they are young employees with a long future in the industry to look forward to and offering significant revenue generation possibilities for their employer, they are good with clients, they are good advisors, and it is because they are so important and because personal relationships in the industry are so important, that the restraints are necessary to protect the investment made by Focus Financial into Escala Partners.
5. The Plaintiffs make the same points in respect of severance and the use of the 'blue pencil principle' for the Management Deed as for the restraints in the other agreements.

1. The Defendants say that the reasonableness of the Management Deed restraints must be assessed according to the strict approach taken for employment restraints. This is because the Management Deed required Sealey and Vickers‑Willis to devote the whole of their time, energy and efforts to the performance of the services, and on cessation of employment with 2nd Chapter, a Principal's obligations under the Management Deed also effectively come to an end.[139]
2. Using this strict approach, they say that the presumption that the Management Deed restraints are void as contrary to public policy cannot be rebutted for several reasons which apply cumulatively (and that this application further demonstrates their unreasonableness).

1. On the Plaintiffs' submission that the Management Deed restrains should be assessed in the context of the arrangement into which the parties entered, the Defendants say this is a bootstraps argument; the Plaintiffs cannot create the risk through having no day‑to‑day involvement in the operations of the partner business and say that they have an entitlement to the onerous restraints because that is the only way they can control the risks they created. The Plaintiffs' submission overlooks the underlying public policy that underpins this area of jurisprudence: that people should be free to ply their trade, subject to the fact that if there is a legitimate interest, a restraint which does no more than is reasonably necessary can be imposed.
2. The Defendants also submit that the term Management Deed is a misnomer, as neither Sealey or Vickers‑Willis had any management function in respect of the business operations. They remained advisors working with clients.
3. The restraint in section 3.2(a) is in substantively the same terms as cl 20.2(a) of the SPA and the Defendants repeat their submissions for that clause in respect of why such a restraint is unreasonable as between the parties.
4. The Defendants say that the non‑competition restraint in the Management Deed is anti‑competitive and too broad; preventing Sealey and Vickers‑Willis from a wide range of activities, not just from being employed as a financial advisor.
5. The restraint in section 3.2(b) is expressed to apply during the 'Current Restraint Term'. The Defendants submit that, if it operates beyond the Principal's period of employment, it is unreasonable because it applies to clients with whom Sealey or Vickers‑Willis had no dealings and to the acceptance of an approach from any client, including ones with whom Sealey or Vickers‑Willis had no dealings. Moreover, the restraint has the potential to prevent the Principal from soliciting or accepting an approach from a client of Escala Partners who only became a client after the relevant Principal ceased to be employed by 2nd Chapter, which is unreasonable.
6. What is more, section 3.2(c) is unreasonable in its application to clients with whom Sealey or Vickers‑Willis had no dealings, former clients (including those with whom Sealey or Vickers‑Willis had no dealings), and the acceptance of an approach from any such person. The Defendants say that this restraint is substantively the same as cl 20.2(b) of the SPA, and repeat their submissions in that regard.
7. The Defendants contend that sections 3.2(d) to (g) are not relevant.
8. The Defendants submit that the restraint in section 3.2(h) is unreasonable if the restraints in the earlier sub‑paragraphs are found to be unreasonable.

1. In respect of the duration of the restraints in the Management Deed, section 3.4 provides that they commence at the beginning of the Current Restraint Term, and cease on the second anniversary, or the first anniversary, of the Cessation Date for the relevant Principal (being the date of the termination of their appointment as an authorised representative of Escala Partners). The Defendants submit that the duration of one year (or two years) after the Cessation Date in section 3.4(a) and (b), is too long, such that all of the relevant restraints in section 3.2 are unreasonably long. The unreasonableness of this duration is exacerbated in circumstances where there is contractual uncertainty and confusion about the Cessation Date.
2. This confusion over the Cessation Date is canvassed in the Defendants' closing submissions. According to the terms of the Management Deed, the appointment of a Principal as an authorised representative is subject to and in accordance with the terms and conditions of an authorised representative appointment deed (defined as an AR Appointment Deed). The SPA provided that before Completion, AR Appointment Deeds would be executed by Escala Wealth Management and persons employed by 2nd Chapter to provide financial services after Completion.[140] The Sealey Employment Agreement and Vickers‑Willis Employment Agreement also included acknowledgements on behalf of Sealey and Vickers‑Willis respectively that they are party to an AR Appointment Deed and provided that it was a requirement of their employment that they comply with the terms of the Management Deed and the AR Appointment Deed. The Defendants say that accordingly, it was contemplated that AR Appointment Deeds would be executed in conjunction with the other acquisition agreements. However, the terms of such deeds were not annexed to the SPA, Management Deed or Employment Agreements, with the consequence that the termination of a Principal's appointment as an authorised representative 'remained a mystery' for the purposes of construing the Management Deed in accordance with orthodox principles of contractual construction.
3. As concerns Perry's evidence of 'authorised representative appointment deeds' entered into by Sealey and by Vickers‑Willis (both on 24 July 2014), the Defendants say that these documents cannot be the AR Appointment Deeds, because they were executed in 2014 (rather than near to the time of the acquisition agreements being executed), they are not deeds, and they do not contain terms and conditions. The Defendants say that this causes confusion.
4. The Defendants also highlight the initial error made by the Plaintiffs regarding whether the AR Appointment Deeds for Sealey and Vickers‑Willis had in fact been terminated, which was corrected by an amendment in the 2FASOC. The Defendants describe this correction as a 'volte‑face', and point to the evidence of Sealey and Vickers‑Willis that the MoneySmart register suggests that Escala ceased their status as an Authorised Representative on 21 June 2023. The Defendants say that the correction, and the difficulties in reconciling the Management Deed and references to the AR Appointment Deeds, show the uncertainty about when and how a person ceases to be an authorised representative.
5. From the above, the Defendants submit that the Court should conclude that at the time the Management Deed was executed, it was not possible to work out how the Principal's appointment as an authorised representative of the Company could be terminated, such that the Cessation Date was unknown and the anniversary dates of the Cessation Date were unknown. These unknowns mean that the restraints were unreasonable.
6. On the assumption that the Cessation Date was 21 June 2023, the Defendants nevertheless submit that the restraints are too long in duration. They repeat the submissions made in respect of the duration of the restraints in the SPA, but submit that the Court should be less lenient in its assessment of the Management Deed restraints, which do not involve the sale of goodwill.
7. The Management Deed provides that the deed will operate for a term of six years from the date of execution and, following that initial term, it will automatically renew and continue in full‑force and effect for successive periods of one year until 2nd Chapter gives Focus 12 months' prior written notice of 2nd Chapter's election not to renew the deed, subject to Article 6 of the Management Deed. Article 6 sets out early termination for cause requirements. There is no capacity for any Principal to terminate the Management Deed, and so the restraints operate indefinitely unless and until it is terminated by 2nd Chapter on 12 months' notice or there is a basis for termination for cause. This is a fundamental difference between the Management Deed restraints and the SPA restraints, as the former may still be operating decades after the acquisition of Escala Partners.
8. Generally, the Defendants emphasise that there was no obligation for any Principal (including Sealey or Vickers‑Willis) to remain involved with Escala Partners following completion of the initial term of the Management Deed of six years. Once a Principal's employment ceased with 2nd Chapter, their Management Deed obligations would also come to an end, subject to the usual exception concerning obligations intended to survive termination. The Employment Agreements could be terminated on three months' written notice by either party. If a Principal ceased employment with 2nd Chapter, 2nd Chapter and the other Principals were obliged to ensure that the management and ownership of the Management Company transitioned to another person or persons in accordance with the Transition Plan.

1. The Defendants say the geographic reach of the restraints in section 3.5 of the Management Deed is also unreasonably wide. That section provides for a cascading geographic operation similar to the SPA. The operation is across Australia at its widest and within Sydney and Melbourne at its narrowest. The Defendants say this is too broad and therefore unreasonable, as it purports to operate in locations where Sealey and Vickers‑Willis had no or negligible clientele. Similar arguments as to the reach of the SPA restraints apply.

1. Moreover, the Defendants say that the restraints are unreasonable because the Management Deed did not provide Vickers‑Willis and Sealey with adequate (if any) compensation for the covenants. The structure of compensation under Article 4 of the Management Deed meant that Sealey and Vickers‑Willis could receive little or no compensation for their covenants and obligations, and the extent of the restraints were not fashioned or conditioned upon the extent of the compensation received.
2. In response to an argument that the compensation under the Management Deed reflected some kind of joint venture between the former Escala Partners shareholders and Focus Escala Holdings, the Defendants underline that the thresholds for compensation turned on EBPC, which included wages and remuneration of principals, such that profit share was necessarily reduced and the quantum of compensation that might be paid was, at the very least, uncertain. It left Sealey and Vickers‑Willis at risk of receiving little or no compensation for the obligations and covenants imposed on them under the Management Deed.

H.2.5 Express acknowledgement or agreement

1. The Defendants deny the assertion that sub‑section 3.8(c) makes the restraints reasonable as between the parties. In respect of sections 3.6 and 3.8(c), the Defendants repeat their submissions for this point in respect of cl 20.8(a) and 20.6 of the SPA, which are substantively similar.

1. Further, the Defendants say that the purported protection of confidential information does not justify the restraints, as the relevant restraints in the Management Deed are not justified by reference to any protectable interest in confidential information in the hands of the covenantee. The submissions in respect of confidential information and the SPA are referred to and repeated.

1. As with the restraint in the SPA, the Defendants submit that the structure of the restraint in sections 3.1(b) and 3.2(a) of the Management Deed is a single covenant, not amenable to severance. The restraint in section 3.2(b) is also a single covenant, not amenable to severance. With respect to the restraint in section 3.2(c), the Defendants say that it is also a single covenant, not amenable to severance.

1. The Defendants submit that the restraints in sections 20.2(a) and (b) are unreasonable in the public interest because:

(a) they prevent clients, even those with no former association with Sealey or Vickers‑Willis, from selecting either as their preferred financial advisor;

(b) they prevent any other firm from employing or engaging Sealey or Vickers‑Willis, even in circumstances that could have no direct impact on Focus or 2nd Chapter; and

(c) their application is inconsistent with the Code of Ethics.[141]

1. The restraints in ss3.2(d) to (g) were not in contention between the parties. Their focus was on ss 3.2(a) to (c). Section 3.2(h) is only relevant if any of ss 3.2(a) to (c) are enforceable.
2. The submissions of the parties were, as a result of the overlap in some aspects of the numerous restraints in this case, duplicative. To avoid unnecessary repetition, I have dealt with these duplicative submissions with similar brevity, by referring to earlier paragraphs of these reasons.
3. To my mind, the relevant Management Deed restraints are no better than the SPA restraints. Indeed, they may be worse. While the SPA, Management Deed and SHA were a suite of documents relating to the one transaction, being the purchase of Escala Partners and the future operation of the business, each of the agreements served different purposes and created different sets of rights and obligations. The provisions of the Management Deed mean that it is appropriate to assess the reasonableness of the restraints through the prism of an employment relationship, given it is ongoing and the obligations and duration of the restraints are linked to the principal being an Authorised Representative such that it is their activities in providing financial advisory services which are viewed as important, rather than through the prism of a sale of business. The Court views restraints in the employment context more strictly.[142]
4. The Management Deed restraints also encompass solicitation or acceptance of approaches by clients with whom a restrained person has had no dealings and where, as a result, there would not be a customer connection. While I accept that there is a legitimate interest in the protection of customer connections, these restraints go further than is reasonably necessary. The Management Deed also contains a very broad non‑competition restraint, as a result of the wide meaning given to the phrase 'engage in'. Thus both the non-solicitation and non-compete restraints go further than is reasonably necessary to protect Focus' and 2nd Chapter's legitimate interest in protecting customer connections, for the same reasons as I found the scope of the restraints in the SPA to be too broad.
5. There are further difficulties raised by the Cessation Date and lack of clarity over the AR Appointment Deeds, both in terms of identifying those deeds and when they were terminated. It appears that the parties now agree that Sealey and Vickers‑Willis ceased to be authorised representatives on 21 June 2023, however, I accept the Defendants' submission that these difficulties regarding uncertainty over the Cessation Date, which date was critical to determining when the restraint would be in effect, further point to the unreasonableness of the restraint. Given that the termination of the AR Appointment Deeds may occur at any time at the Plaintiffs' election, a restraint commencing from that date is unreasonable as it is not necessarily tied to when the exiting principal ceases with Escala Partners.
6. The geographic reach of the Management Deed restraints is similar to the SPA restraints' cascading operation and, for the same reasons as expressed regarding the SPA, I consider that the geographic reach of the restraints across Australia is not excessive to protect the legitimate interests of Focus and Escala Partners.
7. The compensation arrangements under the Management Deed were such that it was possible that Sealey and Vickers‑Willis would receive very little under the Management Deed profit-sharing arrangement. This does not support the reasonableness of the restraints in terms of the Plaintiffs' argument of the new enterprise being a joint venture and all the Principals and Focus going into business together, however, it is not a significant factor in my consideration.
8. I do not accept that sub‑section 3.8(c) of the Management Deed makes the restraints reasonable as between the parties. The same reasoning regarding the SPA can be applied here.
9. My findings and reasoning in respect of confidential information and the public interest argument regarding the SPA apply to the restraints in the Management Deed.
10. The answer to question two is that none of the relevant restrictive covenants in sections 3.2 to 3.6 of the Management Deed are enforceable against Sealey or Vickers‑Willis.

Are any of the restrictive covenants set out in cl 20.2 to 20.5 of the SHA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs submit that each of the covenants in cl 20.2 (a)‑(f) should be held to be enforceable against Sealey and Vickers‑Willis until the second anniversary of Terrung and JCVW ceasing to be shareholders in 2nd Chapter, and that the covenants should apply across the whole of Australia. The restraints are said to be reasonable as between the parties and not unreasonable in the public interest.
2. As to whether the covenants in the SHA are reasonable as between the parties, the Plaintiffs contend that ongoing revenue to shareholders in the form of potential dividends is the interest which is protected by the SHA restraints.

1. As to the argument outlined at paragraph 409 below, the Plaintiffs say that there is, in any company, a discretion in the board to pay dividends in the ordinary course, and the absence of any dividend at a point in time is not a relevant factor to take into consideration in assessing the validity of the SHA restraints, given that the test of reasonableness is at the time of entering into the agreement. Clause 2 of the SHA says that these persons were all intending to go into business together and to grow the business. The Defendants' argument on this point has no substance.
2. The Plaintiffs say that it is irrelevant that the shareholders received no premium for their shares in exchange for the restraint: the shareholders' promises in the SHA represented a commitment made to each other to continue to participate in the business, to help each other and share the burden and benefits of the restraints. The Plaintiffs liken the situation of the SHA to partners in a law firm or accounting practice, which go into business to expand and make money together.
3. Noting the ability of any party under the SHA to apply for injunctive relief in respect of a breach of the restraints, the Plaintiffs say that Sealey and Vickers‑Willis obtained the benefit of the equivalent promises by fellow shareholders in connection with the burden of their obligations under the SHA.
4. Perry's evidence was that there is little 2nd Chapter can do to prevent clients moving with a departing advisor other than through use of restraints. Further, he personally would not have entered into the SHA without the benefit of the restraints imposed on the other shareholders by the SHA, as his entitlement to dividends under the SHA depended on 2nd Chapter's ability to earn management fees under the Management Deed (which, in turn, depended on fees earned by Escala Partners on account of services to clients of the business).

I.1.2 Express acknowledgement or agreement

1. The Plaintiffs point to the agreement and acknowledgement in cl 20.7 of Sealey and Vickers‑Willis, among others that the prohibitions and restrictions were reasonable in the circumstances, necessary to protect the goodwill of the business, 'and have served as a critical inducement to the entry by each Shareholder into this Agreement'.
2. By that clause, there was also an agreement that standing was conferred upon all of the parties to the SHA to apply for injunctive relief, in the event of breach or threatened breach of a restrictive covenant. This cures any issue with the covenants being given under the SHA by shareholders 'severally to the Company'.

1. In respect of the duration of the restraints, the Plaintiffs note that the restraints run from two years, or one year, after Terrung and JCVW cease to be shareholders. Each entity is presently still a shareholder in 2nd Chapter and there is a separate dispute between the parties relating to the purchase of those shares concerning whether Sealey and Vickers‑Willis are 'bad leavers' as defined in the SHA. While this may drag out the period of the restraint under the SHA, potentially to a maximum of four years from their departure, as long as they remain shareholders, Terrung and JCVW are still in a position to benefit economically from the business.
2. Further, to the extent that the Defendants say that 2nd Chapter has delayed the transfer process for those shares, the Plaintiffs refer to the cross‑examination of Sealey on this point and say that the ball is in the Defendants' court to have delivered a notice under cl 18.2 of the SHA of the existence of the market value dispute, so that the dispute could be referred to expert determination and resolved in a timely way, or a mediation notice under cl 26. Accordingly, it cannot be said that 2nd Chapter or the other shareholders are responsible for dragging the process out. There could have been action on both sides to resolve this issue.

1. Regarding the geographic scope of the restraints, the Plaintiffs submit that the restraints cover the areas in which Escala Partners operates.

1. The Plaintiffs also submit that cl 20.9 provides that the restraints are intended to be treated as separate covenants, with consequent options for severance should parts of the restraints be found to be unenforceable. There is also scope to take out the 'blue pencil' in respect of the SHA restraints, as for the Employment Agreements.

1. The Plaintiffs say that the covenants are not unreasonable in the public interest, because the wealth management industry is highly competitive and there will not be any appreciable injury to the public interest in the event Sealey and Vickers‑Willis are restrained in accordance with the SHA.

1. The Defendants submit the Plaintiffs are unable to rebut the presumption that the SHA restraints are presumed void as contrary to public policy, and repeat their submission on this point as I have outlined earlier in these reasons.
2. The Defendants say that the reasonableness of the SHA cl 20.2 restraints is to be assessed in line with the strict approach typically used in employment restraints, as the SHA is an instrument that regulates the affairs of 2nd Chapter and purports to restrain a shareholder following the buy‑back of their shares in 2nd Chapter. The SHA is not directly concerned with the sale of the business. The Defendants cite Popham Holdings Pty Ltd v Franklin,[143] which concerned a restraint in a share buy‑back agreement of a former employee who held a small minority stake in the company, where there was no evidence that the former employee had been paid a significant premium for his shares in order to secure the additional restraint. In the circumstances of that case, the Court considered that it should take a stricter view of the restraint than a restraint contained in a sale of business, and that the restraint in question was unreasonable.
3. Here, the Defendants say that adopting a stricter assessment akin to an assessment of an employment restraint shows the SHA restraints are unreasonable as between the parties and not in the public interest.

I.2.1 Why the scope of the restraints is unreasonable

1. The Defendants highlight that the restraints in the SHA are otherwise the same as the restraints in the Management Deed, such that the SHA restraints are similarly unreasonable, as between the parties. Accordingly, there is a repetition of the submissions set out earlier, noting in respect of duration that these restraints should be treated more strictly than those in the SPA. For example, the Defendants say that the restraints are unreasonable as between the parties because cl 20.4 is geographically too wide, like the Management Deed restraints.
2. In addition, the Defendants point to a further factor for the unreasonableness of cl 20.2(c) as between the parties: as it is defined as applying to clients in the 24 months before the Cessation Date, and the Cessation Date might be as late as two years after the Prohibited Person ceased employment, it is possible for the 24-month period to be in part or entirely a period in which the Prohibited Person was no longer employed at 2nd Chapter. This potential operation of the restraint is described as extreme.
3. Further, cl 20.2(b) is expressed to apply during the 'Current Restraint Term' to current clients, such that it ends on the Cessation Date. Accordingly, it may operate as late as two years after the Prohibited Person resigns from 2nd Chapter, and while it does not apply to former clients, it could still apply to a client of Escala Partners who became a client after the Prohibited Person had resigned.

1. The duration of the restraint in cl 20.3 commences from the first or second anniversary of the Cessation Date which applies to the Principal or Shareholder (as applicable).
2. In the present circumstances, Sealey and Vickers‑Willis are still shareholders and, assuming that their departure date is treated as 21 June 2023, the buy‑back may not be complete until 21 June 2025. If so, 21 June 2025 would be the Cessation Date, and the SHA restraints would be operating potentially until 21 June 2026 or 21 June 2027. However, the reasonableness of the restraints is to be assessed as at the date the SHA was entered into. On that date, the Cessation Date for each shareholder was not known and it was possible that it would not be until the very end of the buy‑back period, being up to 24 months after the termination of the Principal's employment.
3. In reply to the submission at paragraph 391, the Defendants submit that it is not the case that Sealey and Vickers‑Willis are dragging their feet or delaying the sale process for their shares in 2nd Chapter. There does not appear to have been a response to correspondence on this issue, and more fundamentally, the SHA confers upon 2nd Chapter a discretion as to when and if it repurchases the shares during the buyback period, irrespective of whether there is a pricing dispute. Properly construed, the Cessation Date was within the control of 2nd Chapter and could be only at the end of the Buy Back Period (which might be up to 24 months after the termination of the applicable Employment Agreement). The discretion of 2nd Chapter in this regard was unfettered. As a result, the duration of the restraints was not known and the shortest possible duration could be for up to three years after the relevant employment relationship ceased. This is said to be unreasonable. Given this three‑year operation is unreasonable, any operation for four years is also unreasonable. The Defendants repeat submissions set out earlier in these reasons that the duration of these restraints should be treated more strictly than those in the SPA. They say that any period more than three months is unreasonable between the parties in respect of the SHA.
4. In respect of the suggestion that Vickers‑Willis might have been in a powerful position to elect not to sign the SHA in the negotiations, the Defendants point to the evidence of Vickers‑Willis that he was told by Perry to sign the agreement if he wanted to keep his job.

1. The observations of Elliott J in Popham Holdings[144] are also cited with respect to compensation as an analogous case. The Defendants note that under the SHA, shares are bought back at 'Market Value', calculated as a current valuation of the shares by reference to earnings on a multiple of seven. They submit that the evidence is that the 'Market Value' did not include a premium payable to compensate shareholders for the restraints on the 'Prohibited Person' from working in their chosen field for a period up to four years after the termination of their employment (as it lasts for two years after the Cessation Date, which might be two years after termination of employment).
2. The Defendants say that importantly, there may also be a discount on the market value of 35% if the shareholder is deemed to be a 'bad leaver'.
3. Correspondence from 2nd Chapter to Sealey outlined the asserted value of the shares of 0.3185 cents per share, which would mean that Sealey's shareholding was worth a total of $222,950. When a 35% 'bad leaver' discount is applied, the amount which 2nd Chapter was willing to pay Sealey for his shares drops to $144,915. This valuation does not sit with an assertion that the shares held by Sealey and Vickers‑Willis have significant value.
4. The Defendants say that assessing the enforceability of the restraints in the SHA should not take into account any money paid to shareholders in the sale of Escala Partners to Focus Escala Holdings, because that money was paid by Focus Escala Holdings and/or Focus Financial in exchange for the SPA restraints. In contrast, the SHA restraints come into play when a shareholder ceases employment and shares are bought back by 2nd Chapter.
5. The Defendants specifically reject the argument of the Plaintiffs that, while still shareholders, Sealey and Vickers‑Willis could enjoy the economic fruits of the business. They say that these fruits are more apparent than real. Most significantly, while they continue to be entitled to receive dividends when one is declared, the Board has sole discretion in determining whether a dividend is payable and they lose all of the rights attached to the shareholding on their departure from the position as director, entailing a loss of influence over the affairs of 2nd Chapter and any part in making decisions such as whether a dividend should be declared.

1. The Defendants also note that the restraints in the Management Deed are not justified by reference to any protectable interest in confidential information in the hands of the covenantee, and repeat earlier submissions on that point.

I.2.5 Express agreement or acknowledgement

1. The Defendants submit that cl 20.7(a) does not assist the Plaintiffs, in the same was as cl 20.6 of the SPA does not assist with the assessment of reasonableness of the restraints in that agreement.

1. Finally, the Defendants refer to and repeat earlier submissions in respect of the Management Deed restraints being unreasonable in the public interest.

1. The answer to question three is that none of the relevant restrictive covenants in the SHA are enforceable against any of Sealey, Vickers‑Willis, Terrung and JCVW.
2. The legitimate interest of 2nd Chapter and its shareholders as conceptualised by the Plaintiffs is the ongoing revenue earned by shareholders in the form of potential dividends arising from the profits derived from services provided by 2nd Chapter to Escala Partners. That ongoing revenue is threatened when Principals providing those services exit the business and take clients with them, including the prospect of future referrals. As described in section F.1.3 above, I consider that there is a legitimate interest here in protecting this ongoing revenue through protecting customer connections with appropriately drafted restraints. However, the restraints in the SHA are not appropriately drafted. For the reasons set out below, they go further than is reasonably necessary to protect the legitimate interest they are aimed at protecting. The Plaintiffs' submissions set out at paragraphs 384 and 385 above seem to me to suggest that a purpose of the restraints in the SHA is to lock Sealey and Vickers-Willis in, rather than preventing competition with the business or solicitation of clients. I do not consider that to be a legitimate interest capable of being protected by such restraints.
3. As with the Management Deed, I consider that the SHA restraints should be viewed in an employment context rather than a sale of business context, for the same reasons. An exiting Controlling Principal is required to also exit as a shareholder. Their role as a financial advisor is a key aspect.
4. Fundamentally, the scope of the restraints is too broad as they would operate where there is no risk to customer connection, in respect of clients with whom restrained persons have had no dealings. In respect of cl 20.2(c), this breadth is also too wide because it applies to clients in the 24 months before the Cessation Date. The restrained person may have ceased employment in that time such that it would apply to clients of the firm who began to receive services after the restrained person was no longer employed. Clause 20.2(b) is too broad for similar reasons. In addition, cl 20.2(a) of the SHA goes further than is reasonably necessary, for the same reasons as cl 20.2(a) of the SPA does (which is in identical terms), including the breadth of 'engage in'.
5. I do not give weight to the dividends paid to date under the SHA as I agree with the Plaintiffs that the focus of my inquiry is on the reasonableness of the restraints when they were entered into. I accept that the shareholders (and their Principals) were going into business together and they entered into these restraints as part of protecting their interests in receiving ongoing revenue from that business which was dependent on the customer connections of advisors, including the Principals. I further accept that Sealey and Vickers‑Willis would also have received under the SHA the benefit of the other Principals being subject to similar restraints.
6. The duration of the Current Restraint Term in the SHA is unreasonable, be it for one year or two years. This is because of the manner in which the commencement of the Current Restraint Term is determined. It commences on the Cessation Date, which is when the shareholder ceases to be a shareholder. Under the SHA, a shareholder ceases to be a shareholder at the end of the buyback period which was largely within 2nd Chapter's control and could be up to 24 months after the termination of the Employment Agreement.[145] As a consequence, the potential duration of the restraints under the SHA is up to four years (or three years) from the time Sealey or Vickers-Willis resigns from their employment with 2nd Chapter. No reasonable justification for a restraint of that length has been established. That Terrung or JCVW may continue to receive dividends is not to the point. The potential 'consideration' to Terrung and JCVW for the restraints does not serve to make the restraints reasonable.
7. Whether or not one party or the other has delayed the resolution of any dispute as to the buyback of Terrung or JCVW's shares is not relevant for the purposes of this proceeding.
8. My view of the geographic scope of the restraints in the SHA is the same as it was in respect of the Management Deed and SPA restraints.
9. I do not consider that the restraints are justifiable by reference to any protectable interest in confidential information, for the same reasons as already expressed.
10. The problem with the scope of the restraints cannot be addressed by severance; the same issues as set out above apply.
11. I also do not accept the Defendants' public interest argument as it applies to the SHA restraints, for the same reasons as have been set out elsewhere.
12. Accordingly, the relevant restraints in cls 20.2 to 20.5 are not enforceable against Sealey, Vickers-Willis, Terrung or JCVW.

J Question four: clause 13.5 of the Sealey Employment Agreement

Are any of the restrictive covenants set out in cl 13.5 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs say that the non‑compete period in cl 13.5 of each of the Employment Agreements is reasonably necessary to protect 2nd Chapter's interests. The Plaintiffs point to the line of authority that courts will be prepared to enforce restraints in employment contracts that are reasonably necessary to protect a legitimate business interest of the employer.[146] Legitimate business interests include the protection of confidential information and connection with customers.
2. The Plaintiffs suggest that the area requirement is to be inferred into cl 13.5 by reference to the words 'that is in direct competition with' the business.

1. The Plaintiffs cite Birdanco Nominees Pty Ltd v Money,[147] in which the Court of Appeal upheld the validity of a three‑year restraint in an accountant's employment contract in the following terms:

(a) Not on my own account, or for any other person, for a period of 3 years after ceasing employment with the Company, to provide any of the Services to either:

(i) any person who as a client of the Company was provided with any of the Services by me at any time during the 3 years prior to my ceasing to be employed by the Company, and who was a client of the Company at the time of my ceasing employment with the Company.

1. The Plaintiffs say that it was critical to the reasoning of the Court of Appeal that the accountant had a close client connection with clients he had advised during his employment. A parallel is drawn with the circumstances before me.

1. The Plaintiffs refer to the warranty that each of Vickers‑Willis and Sealey were required to give as part of accepting offers of employment with Crestone that they were not subject to, among other things, any restrictive covenant, non‑competition or non‑solicitation provision with a former employer that may prevent them from commencing with Crestone in March 2024.[148] Rhetorically, they say that this was a much safer warranty for Vickers‑Willis and Sealey to give if they were to start with Crestone in March 2024, and points to the reasonableness of a 12‑month restraint in the employment contracts with 2nd Chapter.[149] Under cl 13.1 of their respective Employment Agreements, Sealey and Vickers‑Willis were required to provide three months' notice of the termination of the agreements. Based on a resignation date of 20 June 2023, both Sealey and Vickers‑Willis' notice period, where both would be on gardening leave from 2nd Chapter and Escala Partners, was to run to around 19 September 2023. The non‑compete period under cl 13.5 of the contract would therefore be from around 19 September 2023 to around 20 March 2024, if found to be enforceable at a duration of six months. The Plaintiffs infer from this timing that Sealey and Vickers‑Willis intended (with the benefit of legal advice from Gadens) to comply with the three‑month gardening leave and notice period under their Employment Agreements and to comply with the full six‑month non‑compete period under cl 13.5 of the Employment Agreements.

1. The Plaintiffs say that it is a well‑established and known feature of the industry for a sign‑on bonus to be payable when an advisor moves to a new firm. They contend this may help an employee through the duration of any non‑compete period where he or she might have to sit out of the market. They submit that in cross-examination Sealey agreed that it was common for there to be non‑solicitation clauses and that this could be the reason, or one of the reasons, for the sign‑on bonus. They also note that the sign‑on bonus for each of Sealey and Vickers‑Willis was in the amount of $1.5 million, and that in the first year at Crestone, they would receive 70% commission. Accordingly, the Plaintiffs say that, in respect of both the non‑compete and non‑solicit elements of the restraints in the Employment Agreements, it is an agreed and well‑established feature of the industry that employees who leave for another firm are likely to be compensated by the new employer for the time they are subject to the restraint. This is said to be a commercial circumstance of common industry practice, known to all parties. It is something that the parties would anticipate occurring, and which the Plaintiffs say is relevant here. This is said to be in respect of future employment generally, not merely only where Sealey or Vickers‑Willis move to an advisor role with their next employer. In this way, the Plaintiffs say that the industry self‑regulates and balances itself out.
2. The Plaintiffs cite Ausdale Enterprises v Sandford:[150]

As the authorities demonstrate, the restraint must be reasonable in relation to the party restrained in the sense that it preserves that party's fullest liberty of action consistent with what is necessary for the adequate protection of the restraining party. It is not an error to focus on what was reasonably necessary for the protection of the [employer]. However, that assessment ordinarily includes consideration of the nature and extent of the impact of the restraint on the party who is restrained.

1. The Plaintiffs submit that, if the Court finds that the covenants are too wide and not each enforceable, the bullet points in cl 13.5 should be severed using the 'blue pencil principle' and the Court should hold that each of the remaining bullet points are enforceable for the period until six months from the date of termination, or alternatively, until three months from that date. The Plaintiffs submit that each bullet point operates as independent covenants from the balance of cl 13.5. The Plaintiffs say that this would not amount to curial disentanglement as identified in Peck.[151]
2. In addition, the Plaintiffs say that the following words (or some of them, depending on the Court's findings as to the reasonable scope of the restraint) could be removed using the 'blue pencil principle' from cl 13.5, as shown below:

13.5 The non‑compete period, is for 6 months or if that period is unenforceable, 3 months from the date of termination of employment. During this period, in consideration of this agreement and the payments to you, referred to in clause 7, you must not (and will ensure that your Affiliates do not), directly or indirectly, on your own behalf or on behalf of any other person or entity, in any capacity, engage or prepare to engage in any business or activity that is the same or similar to the business activities of Escala or the Company in whole or part, or that is in direct competition with the business of Escala or the Company.

Without the prior written consent of the Company you also agree;

• not to accept or conduct any activity or business which would be in direct competition with the business of Escala or the Company, with any person or entity who at any time during 12 months preceding your termination was a client of Escala or the Company; and
• not to solicit, encourage, assist or seek to entice any individual to leave their employment with the Company

1. The Plaintiffs also submit that the covenants are not unreasonable in the public interest, because the wealth management industry is highly competitive and there will not be any appreciable injury to the public interest in the event Sealey and Vickers‑Willis are restrained in accordance with their respective Employment Agreements.

1. The Defendants say that the restraints in cl 13.5 (which are in two limbs) are presumed to be void as contrary to public policy, and that presumption cannot be rebutted for the reasons set out in the following paragraphs. The Defendants submit that the covenants in both limbs are not reasonable as between the parties, assessed in the same strict way as restraints in contracts of employment are normally assessed.

1. The first limb is comprised of the first paragraph of cl 13.5 of the Sealey Employment Agreement.
2. In particular, as to the first limb the Defendants say:

(a) it is anti‑competitive;

(b) it has no geographical restriction, with the potential to restrict Sealey from working anywhere in Australia or world‑wide for a business that provides wealth management services to high net‑worth clients;

(c) it prohibits Sealey from being employed by a competitor, anywhere in Australia or the world, even if he has no involvement with current or former clients of Escala Partners in his new role; and

(d) it would prevent Sealey from starting a wealth advisory firm or embarking on preparations to start such a firm, even if he had no plans to take on any of his own former clients, or any other clients of 2nd Chapter.

1. They contend that the first limb restraint is unjustified for any period of time because if prevents Sealey from competing with 2nd Chapter. In doing so, it goes beyond any legitimate interest that 2nd Chapter might be seeking to protect.[152] The restraints cannot be rewritten or relevantly severed. Accordingly, the first limb is unreasonable between the parties and unenforceable.

1. The second limb of the restraint is the bullet point list in cl 13.5 which sets out additional agreements of the employee not to do particular things without the prior written consent of the Company.
2. As to the second limb the Defendants say:

(a) it is anti‑competitive;

(b) it has no temporal limitation, as it is without reference to any time period;

(c) it has no geographical limitation;

(d) it applies to any client during the 12 months preceding termination, even if that client had no dealings with Sealey, or was a former client who left without any involvement of Sealey, and it extends to accepting approaches from clients regardless of whether he had any material dealings with them;

(e) it applies to former clients; and

(f) it prohibits Sealey (or a business that employs him) from accepting the business of a client.

1. The Defendants say that the first dot point of the second limb would also prevent Sealey from starting a wealth advisory firm in partnership with, or using the funding from, any client of Escala Partners, and therefore it is a covenant against mere competition, which is not enforceable. The first dot point of the second limb is the only part of the restraint in issue in this proceeding.

1. In respect of Birdanco Nominees,[153] the Defendants submit that the facts in that case and the nature of the restraint at issue were materially different. One difference is that in that case, the restraint was confined to persons with whom the former employee had a direct connection and the clause did not purport to prohibit the employee from providing services to such clients, rather, it provided a mechanism where moneys earned from such services could be recouped by the former employer. The restraint did not, for example, purport to prohibit the former employee from working in his chosen profession.

1. As to the Plaintiffs' argument summarised at paragraph 430 above, insofar as they say that the Court should have regard to the sign‑on bonus and commission rates at Crestone agreed with Sealey and Vickers‑Willis, the Defendants' position is that one cannot assume that a sign‑on bonus will be paid or that an employee will receive a higher commission rate at their next employer. The evidence does not support that assumption so as to allow it to inform the Court's approach. Also in connection with the sign‑on bonus, the Defendants submit that it was not payable until Sealey and Vickers‑Willis started work at Crestone and so it should not be suggested that the bonus is compensation for the fact that they will be out of work. The commission rates also could not be earned until Sealey and Vickers‑Willis started work at Crestone. These forms of compensation in the Crestone contracts cannot have a role to play in enforcing the non‑competition restraints, as those clauses are aimed at preventing Sealey and Vickers‑Willis from earning that compensation. The parties should not be presumed to have understood that hardship occasioned by the restrains could be ameliorated by compensation at the restrained person's next place of employment; that suggestion does not bear scrutiny and there is a paucity of evidence on this point.

1. The Defendants make the same point as they have made in respect of the other agreements regarding confidential information: that the restraints in cl 13.5 of the Sealey Employment Agreement are not justified by reference to any protectable interest in confidential information in the hands of 2nd Chapter.

1. The Defendants submit that the covenant that the first limb seeks to put in place is a single covenant, which is not amenable to severance. The same is true of the covenant in the second limb.

1. Further, the Defendants say that the covenants in both limbs are unreasonable in the public interest as they operate to prevent unrelated third parties from being able to have a professional relationship with Sealey. For the same reason, the covenants are also inconsistent with the Code of Ethics.

1. The first limb of cl 13.5 is unreasonable, for the following reasons:

(a) There is no geographic limit to the restraint. I do not accept the Plaintiffs' submission that one can be inferred by the phrase 'in direct competition with the business of Escala or the Company'. That Escala Partners, as at the time of entry into the restraints, serviced clients in Australia (and continues to do so) is insufficient to infer such limitation.

(b) It applies irrespective of Sealey's role in the new firm, not just to him being a financial advisor.

(c) Neither of these unreasonable aspects of the restraint in the first limb of cl 13.5 can be made reasonable through the use of the blue pencil.

(d) Confidential information can be protected by other contractual provisions and legal obligations, hence it is unnecessary to rely on a restraint to perform this function. Further, I do not consider that the restraint is directed to this concern: it smacks of after-the-fact justification.

1. I do not accept the Plaintiffs' attempts to justify the duration of the restraint by relying on inferences arising from the start date agreed between Crestone and each of Sealey and Vickers-Willis (see paragraph 429 above). This is a bootstraps argument that lends nothing to an assessment of the reasonableness of the restraint at the time it was entered into.
2. Nor do I accept the Plaintiffs' argument that the significant sign-on bonuses Sealey and Vickers-Willis obtained from Crestone function as compensation for the restraints, such that the terms of the restraints and their duration are reasonable (see paragraph 430 above). I accept the Defendants' submissions, set out at paragraph 443 above. Further, Sealey and Vickers-Willis both gave evidence that the sign-on bonuses were part of their remuneration package as it would take them time to build the commission element of their remuneration. More importantly, it is simply unfathomable that at the time of entering into the Employment Agreement, the parties considered it reasonable to restrain the employee from competing with the employer for a substantial period of time because after that time they would receive a substantial sign-on bonus or remuneration. Rather, the 'compensation' for the employee agreeing to the restraint needs to be a function or product of the terms of the employment relationship that imposes that restraint.
3. Both Sealey and Vickers‑Willis gave evidence of their experience of restraints in the wealth management industry and referred to restraints they had been subject to in other roles that had a much shorter duration. In contrast, Perry says in his experience, he has seen 'the gamut', including being subject to a seven‑year restraint himself (with UBS in the United States) and having negotiated and hired employees with restraints over six months in Australia. Perry agrees, however, that five‑year restraints outside of a purchase of a business are not seen often.
4. A three-month, or possibly even six-month, non-compete period for Sealey (and Vickers-Willis) in their employment contracts may have been reasonable, had the scope of the restraint been reasonable. It is not, so the duration question is not determinative. Had I taken the view that three months was reasonable but six months was not, then the 'blue pencil principle' could have been used here.

1. The second limb of cl 13.5 is unreasonable, for the following reasons:

(a) The second limb contains no time limit. As far as I can ascertain, the Plaintiffs did not directly address this issue. It is possible that it may be contended that the second limb of cl 13.5 is to be read with the first limb, so that the time limit of six or three months applies, however that is not especially clear.

(b) More importantly in the context of this case, the scope of the restraint in the second limb of cl 13.5 is too broad. It should only apply to clients with whom the financial advisor has worked, given that it is the close customer connection that needs to be protected. The same considerations as discussed earlier in these reasons regarding this aspect apply here. The scope being too broad cannot be fixed by using the blue pencil, as it would require the addition of words.

1. I struggle to see why the Plaintiffs place emphasis on Birdanco Nominees, in particular in respect of the importance of close client connections in upholding a three‑year restraint. Birdanco Nominees relates to a restraint on the provision of services to persons who had been clients serviced by the restrained person in their former employment. The non-compete and non‑solicitation restraints in the Employment Agreements are directed at all clients of the firm including those who have not been provided with any services by Sealey, Vickers‑Willis or Allen. This is a fundamental difference between the circumstances of both cases. Birdanco Nominees does not assist the Plaintiffs in establishing the reasonableness of the restraints in cl 13.5. I also consider that Birdanco Nominees is far more relevant to cl 14.1 of the Employment Agreements, because of this aspect regarding non‑solicitation. However, as the parties refer to it in their submissions in respect of cl 13.5, I have discussed this here, noting that it is of no more assistance to the Plaintiffs in respect of cl 14.1 than it was for cl 13.5.

1. Accordingly, for these reasons the answer to question four is No. None of the restrictive covenants in cl 13.5 of the Sealey Employment Agreement are enforceable against Sealey.

K Question five: clause 14.1 of the Sealey Employment Agreement

Are any of the restrictive covenants set out in cl 14.1 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs say that similar principles and considerations apply in respect of these restraints as the employment contract restraints considered in question four (see the summary of the Plaintiffs' submissions in section J.1 of these reasons). Particular submissions in respect of cl 14.1 are elaborated below.
2. The Plaintiffs refer to the principle articulated in Wallis Nominees:[154]

... a restraint clause that goes beyond solicitation, such as accepting a customer's offer, may be reasonable where there is a strong customer connection and solicitation might not be necessary (for example, the customer might approach them).

1. The Plaintiffs submit, in respect of Escala clients who are looked after by another advisor at Escala and with whom Sealey does not have the same relationship as his direct clients, that the advisors worked in teams and that, undoubtedly, teams would refer work at times from one team to another.
2. The Plaintiffs say that the restraint in question is reasonable, because the Court will observe that clients do seem to migrate to Crestone despite no apparent solicitation. I note that there was some evidence before the Court as to persons who had moved their business to Crestone.

1. The Restraint Period is 12 months, alternatively nine, six or three months. While Vickers‑Willis said that it would be harder to get a client after a 12‑month gap in communications, Perry's evidence was that some clients only touch base with their advisors on an annual basis. The Plaintiffs say that there is no reason to conclude that 12 months goes further than is needed in circumstances where some of the clients only get seen once a year.
2. Clause 14.2 does not state when the Restraint Period applicable for cl 14 of the Employment Agreement commences. The Plaintiffs say it has to commence from when the employment ends, otherwise the clause would be pointless.

1. In respect of the restraint's geographical scope, the Plaintiffs say that when the agreements were executed, changes in client locations and employee responsibilities were anticipated.[155] With travel options and technology to communicate with clients remotely, it is reasonable for the restraint to operate across Australia. The business of Escala Partners was expanding and Focus invested in the business to assist that expansion, which all supports a wider geographical scope of the restraints. The Plaintiffs also observe that the new employment contracts signed by Vickers‑Willis and Sealey and Crestone impose an Australia‑wide restraint.
2. In respect of cl 14.3, Australia is a reasonable geographical scope. The Court could reduce the scope down to the city of Melbourne, if necessary (but the removal of 'including all surrounding suburbs' was described as ridiculous by counsel for the Plaintiffs).

1. The Plaintiffs submit that cl 14.1 is reasonable as it reads. However, the Plaintiffs say that if the Court concludes otherwise, there is 'blue pencil potential' in cl 14.1, and the Court should make such subtractions to the maximum extent possible in order to make the clause reasonable. The Plaintiffs submit that the Court could pick up a 'blue pencil' and subtract from cl 14.1 so that it reads:

14.1 In consideration of this agreement and the payments to you referred to in clause 7 which are greater than those payable to at law, you agree that you will not, and will ensure that your Affiliates do not, during the Restraint Period and in the Restraint Area, directly or indirectly, on your or their own behalf or on behalf of any other person or entity, in any capacity:

• solicit, canvas, approach, encourage, entice, or assist any person or entity who at any time during the period of 12 months preceding the termination of your employment was a client of the Company or Escala, to cease doing business with Escala or the Company, or reduce the amount of business the client may or would conduct with Escala or the Company, or alter the terms of the client's dealings with Escala or the Company;

• assist another person or entity to solicit, canvas, approach, encourage, entice, or assist any person or entity who, at any time during the period of 12 months preceding the date of termination of your employment, was a client of Escala or the Company, to cease doing business with Escala or the Company, or reduce the amount of business the client may or would conduct with Escala or the Company, or alter the terms of the client's dealings with Escala or the Company;

• do or say anything harmful to the reputation of Escala or the Company or which may lead a person or entity to cease, curtail or alter the terms of their dealings with Escala or the Company;

• accept any approach from any person or entity who, at any time during the period of 12 months preceding the date of termination of your employment, was a client of Escala or the Company with a view to obtain the custom of that client in a business that is the same or as similar to any part or parts of the business of Escala or the Company;

• not interfere with the relationship between any employee, or member of Escala or the Company and any of their clients; and

• not solicit, encourage, entice, assist (including assisting any other person or entity to do so) any individual/s to leave their employment with Escala or the Company.

14.2 Restraint Period means each of the periods described below separately:

• Twelve (12) months; if that is not enforceable, then

• Nine (9) months; if that is not enforceable, then

• Six (6) months; if that is not enforceable, then

• Three (3) months.

14.3 Restraint Area means each of the areas described below, separately:

• Australia; or if that is unenforceable;
• The state of Victoria; or if that is unenforceable;
• the city of Melbourne in Victoria, including all surrounding suburbs.

1. As best as I can tell, these were the deletions proposed by the Plaintiffs during closing submissions. I have to note, however, that it was not entirely clear for the first dot point whether the words from and including 'to cease doing business' were also to be deleted.
2. Notably, the Plaintiffs say that the entire bullet point concerning approaches could be subtracted to ensure the validity of cl 14.1. However, they say this is not necessary as it is permissible to protect the goodwill of a business by precluding an ex‑employee from accepting an approach, even where that approach is unsolicited.[156] Here, the Plaintiffs note that Sealey gave evidence that he had been approached by a former client.

1. The Defendants submit that the restraints have expired and are therefore not enforceable. Clause 14.1 imposes restraints during the Restraint Period, defined to mean three, six, nine or 12 months. There is no nominated commencement date for the Restraint Period. The Defendants say that cl 14.1 therefore reads as beginning on the date that the Sealey Employment Agreement was signed, expiring no later than March 2020.

K.2.2 Why the restraints are unreasonable

1. In the alternative, and assuming that the Restraint Period commences on the date of termination of employment, the Defendants say that the restraints in cl 14.1 are presumed to be void as contrary to public policy, and the Plaintiffs cannot rebut this presumption for the reasons set out in the following paragraphs. Those reasons mean that the restraints are not reasonable as between the parties, with the assessment of reasonableness being strict, as restraints in contracts of employment are normally assessed.
2. The effect of the first bullet point in cl 14.1 is to prevent Sealey from soliciting, encouraging or assisting a client to cease doing business with Escala or to reduce the business they conduct with Escala. The Defendants say that this bullet point would prevent an Escala Partners client asking Sealey for his opinion about whether to engage an advisor with a particular attribute or to invest in a particular product in respect of an unrelated firm and whether that firm met that client's requirements. It would also prevent Sealey from giving advice to an Escala Partners client in a social setting, if asked for his opinion about withdrawing funds from their Escala Partners portfolio to fund a real estate investment and that opinion was followed by the Escala Partners' client.
3. This bullet point imposes an unreasonable restraint as between the parties because of its application to clients with whom Sealey had no dealings and former clients (including those with whom Sealey had no dealings, and even if the client left Escala Partners of their own accord) in the 12 months preceding termination of employment.
4. The second bullet point in cl 14.1 is said to be unreasonable for the same reasons and, if the first bullet point is unreasonable then the second bullet point is equally so.
5. The Defendants say that the covenant in the fourth bullet point of cl 14.1 is unreasonable because it applies to clients with whom Sealey had no dealings, former clients (including those with whom Sealey had no dealings), and to the acceptance of an approach from any client (even former clients and clients with whom Sealey had no dealings).
6. The Defendants contend that the restraints set out in the other bullet points in cl 14.1 are not relevant.
7. The Defendants submit that the reasons that the relevant restraints are unreasonable apply cumulatively not separately, and that this demonstrates their unreasonableness all the more.

1. The Defendants point to the cascading duration of the restraints in cl 14.2, which they say are all unreasonable in length. The restraints in cl 14.1 are unreasonable if they operate beyond three months.[157]

1. The geographic application of cl 14.1 is also submitted to be unreasonable insofar as the restraints purport to operate outside the areas where Sealey had a client base at Escala Partners. In closing submissions, the Defendants contended that the restraints are all unreasonable if they operate outside of Melbourne.

1. Where restraint clauses are expressed as a single covenant, such as cls 13.5 and 14.1 of the Employment Agreements, there can be no severance using the 'blue pencil principle', as the Plaintiffs advocate. The first bullet point in cl 14.1 is submitted to be a single covenant not amenable to severance. Clause 14.4 does not allow for severance within each of the bullet points. The clause describes the class of person who is to be subject of the non‑solicitation, and this is a single descriptor with no waterfall or stepping of the clause, such that a deletion suggested by the Plaintiffs would change the meaning of the clause. The fourth bullet point of cl 14.1 contains another single covenant which is not amenable to severance.

1. As elsewhere, the Defendants submit that these restraints are not justified by reference to any protectable interest in confidential information in the hands of 2nd Chapter, as those interests are well protected by 2nd Chapter's other rights.

K.2.7 Express acknowledgement or agreement

1. Further, for the same reason that cl 20.8 in the SPA does not assist the Plaintiffs, cl 14.5 of the Sealey Employment Agreement does not assist 2nd Chapter, especially when read with cl 14.4.

1. The Defendants further submit that the restraints in cl 14.1 are unreasonable in the public interest because they prevent unrelated third parties from being able to have a professional relationship with Sealey, and are inconsistent with the Code of Ethics.

1. The restraints in the first two dot points of cl 14.1 are somewhat curious. They prevent Sealey from soliciting, canvassing, approaching, encouraging, enticing or assisting an Escala client (including a former client) from ceasing to be a client of Escala, reducing their business with Escala, or altering the terms of their dealings with Escala. However, unlike cl 20.2(b) of the SPA, subcls 20.2(b) and (c) of the SHA, and subsections 3.2(b) and (c) of the Management Deed, those prohibitions are not linked to doing so for the purpose of obtaining the client's custom in a business that is the same or substantially similar to Escala Partners' business or in competition with it. The Plaintiffs did not address this aspect, however, the Defendants did (see paragraph 468 above). I accept the Defendants' submissions in this regard. The restraint in those two dot points is far too broad in that it goes beyond what is reasonably necessary to protect the Plaintiffs' interests. Restricting the scope of the first two dot points to soliciting, canvassing, approaching, encouraging, enticing or assisting an Escala client (including a former client) from ceasing to be a client of Escala, reducing their business with Escala, or altering the terms of their dealings with Escala with a view to obtaining the client's custom in a similar business may have been reasonable, but this cannot be achieved via severance under cl 14.4 or by using the blue pencil.
2. Further, the restraint in the first two dot points is not confined to clients or former clients with whom Sealey has had dealings.
3. The problem with the application of the restraints to clients with whom the restrained person has not had any dealings is that it is manifestly excessive to protect a legitimate interest based on customer connections with advisors, as there is no connection between those persons if they have not dealt with each other before.
4. The Plaintiffs submit, and it is accepted by Vickers‑Willis and Sealey, that it would be easy for either to ascertain whether a person approaching them at Crestone had previously been a client of Escala Partners. However, the problem with the restraints applying to clients of Escala Partners with whom the restrained persons may not have had any dealings is not just a matter of impracticability. Clearly, a restrained person could easily find out if a person had been an Escala Partners' client in the relevant time periods by asking that person or reviewing their financial records and documents as part of an onboarding process. Thus the practical difficulties could be easily overcome, but that does not render the scope of the restraint reasonable.
5. Perry's evidence was that 2nd Chapter would not have hired Sealey (or Vickers‑Willis or Allen) without the restrictive covenants in their respective Employment Agreements, as these covenants are essential for the business to know with a degree of certainty that its employees will not seek to solicit former clients. Of course, solicitation is only part of the scope of the restraints included in the Employment Agreements. I accept that there is a legitimate business interest in protecting the customer connections of 2nd Chapter employees who are providing services to Escala Partners. I do not accept, however, that the restraints in this case are directed at the legitimate business interest of the protection of confidential information; there are ongoing obligations under other clauses of the Employment Agreements which protect that interest.
6. Clause 14.4 is somewhat ambiguous. It is unclear whether there is one restraint (all the dot points in cl 14.1) that can be seen as more than one restraint once combined with the differing duration and geographic elements in combination, or whether each dot point in cl 14.1 is a separate restraint that then is combined with the differing geographic and duration elements to create even more restraints. I think it more likely that the latter is the correct construction here, but the lack of clarity tends towards the unreasonableness of the restraints. In any event, severance does not assist the Plaintiffs here given that the elements which I have found to be unreasonable cannot simply be excised within each dot point so as to make the remainder reasonable. Further, that cannot be fixed by using the blue pencil as words need to be added, not just deleted.
7. With respect, the Plaintiffs' suggested use of the blue pencil for cl 14.1 is unhelpful here. It appeared to be done on the run and without sufficient thought as to the finished product. By way of example:

(a) as noted above, the amendment of the first dot point is not entirely clear; and

(b) the second dot point was not amended in a similar way, which does not make sense.

1. Nonetheless, the Court itself can wield the blue pencil to make the otherwise unreasonable restraint reasonable. For the reasons already stated, however, no use of the blue pencil here within the parameters permitted under the 'blue pencil principle' is going to render the restraint reasonable.
2. I do not find the Defendants' submission that the restraint in cl 14.1 has expired (see paragraph 466 above) to be at all persuasive. Rather than the obligation commencing for the stipulated period with the signing of the Sealey Employment Agreement, it can only be sensibly interpreted as applying from the time the employment ceases. In my view, a six-month or three-month period for the restraint would be reasonable, rather than nine or twelve months. However, it is not necessary to determine this given that I have found the scope of the restraint to be unreasonable.
3. For the same reasons as expressed earlier, I do not consider an Australia-wide restraint in cl 14 to be unreasonable.
4. I do not accept the Defendants' public interest arguments, for the same reasons as expressed earlier, but that is not determinative here given the above finding.
5. Accordingly, none of the restraints in cl 14.1 of the Sealey Employment Agreement are enforceable against Sealey.

L Question six: clause 13.5 of the Vickers‑Willis Employment Agreement

Are any of the restrictive covenants set out in cl 13.5 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs and Defendants repeat their submissions on question four mutatis mutandis in respect of the identical clause considered in question six (see sections J.1 and J.1.6 above, respectively).

1. My findings in respect of the identical clause considered in question four apply, and I refer to section J.3 above.
2. Accordingly, the restrictive covenants in cl 13.5 of the Vickers-Willis Employment Agreement are not enforceable against Vickers-Willis.

M Question seven: clause 14.1 of the Vickers‑Willis Employment Agreement

Are any of the restrictive covenants set out in cl 14.1 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs say that similar considerations apply in respect of these restraints as the employment contract restraints considered in question five (see the summary of the Plaintiffs' submissions in section K.1 of these reasons).
2. The Defendants repeat their submissions for question five mutatis mutandis in respect of the identical clause considered in question seven (see section K.2 above).

1. My findings in respect of the identical clause considered in question five apply, and I refer to section K.3 above. The answer to the question is No. The restraints are not enforceable.

N Question eight: clause 14.1 of the Allen Employment Agreement

Are any of the restrictive covenants set out in cl 14.1 of the Allen Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent?

1. The Plaintiffs point to a summary of the Escala Partners business in which Allen is mentioned as a person who had begun to close out clients on his own and therefore was a source of goodwill himself.
2. The Plaintiffs say that similar considerations apply in respect of these restraints as the employment contract restraints considered elsewhere in these reasons and repeat the submissions they made in respect of the above questions regarding employment restraints.

1. The Defendants repeat their submissions for question five mutatis mutandis in respect of the identical clause considered in question eight (see section K.2 above), subject to a handful of differences in the situation of Allen compared with Sealey and Vickers‑Willis.
2. 2nd Chapter permitted Allen to commence his employment with Crestone in April 2023, which is why cl 13.5 of the Allen Employment Agreement is not in issue in these proceedings. There are also differences in that Allen was relatively junior as an employee with an initial base salary inclusive of super of $87,600 (less than half the salaries of Sealey and Vickers‑Willis), he was not a shareholder of Escala Partners at the time of the acquisition and he was not a shareholder of 2nd Chapter.

1. It is true that Allen was a relatively junior employee when he entered into the Allen Employment Agreement compared to, say, Sealey. However, the assessment of the reasonableness of the restraints at the time when they were entered into can accommodate changes in the employee's responsibilities such as that he might gain seniority during his employment. That said, my findings in respect of cl 14.1 of the Allen Employment Agreement are the same as in respect of the same clause in the Sealey Employment Agreement and Vickers‑Willis Employment Agreement. Those reasons apply here.
2. The answer to the question is No. The restraints are not enforceable.

O Question nine: Repudiation of Employment Agreements

Whether Sealey or Vickers‑Willis has repudiated the Sealey Employment Agreement or Vickers‑Willis Employment Agreement, as alleged in section E.3 of the 2FASOC?

1. By section E.3 of the 2FASOC, the Plaintiffs allege that:

(a) in 2023 and prior to 23 May 2023, each of Sealey and Vickers‑Willis negotiated with Crestone to become employed by Crestone and:

(i) communicated with Crestone about the benefits that would or may accrue to Crestone if it employed him, whilst he was still employed by 2nd Chapter; and

(ii) communicated with Crestone about the remuneration and other benefits that would or may accrue to him if he were to be employed by Crestone, and if he was able to enhance the economic performance of Crestone's business, including by generating new business for that firm, whilst he was still employed by 2nd Chapter;

(b) while still employed by 2nd Chapter, entered into an employment agreement with Crestone;[158] and

(c) failed to disclose to the Plaintiffs, the fact that he had communicated and negotiated with Crestone,[159] or had entered into an employment agreement with Crestone, until after the commencement of these proceedings.

1. The Plaintiffs plead that as a result of the abovementioned allegedly wrongful conduct, each of Sealey and Vickers‑Willis have breached their obligations under the Sealey Employment Agreement and Vickers‑Willis Employment Agreement, respectively, to:

(a) devote his whole time and attention and the whole of his skills to his duties during the hours of work and such reasonable additional hours as may be necessary to perform his duties (as required by cl 2.4);

(b) use his best endeavours to promote the business interests of 2nd Chapter (as required by cl 2.4);

(c) faithfully, diligently and lawfully perform his duties (as required by cl 2.4);

(d) not undertake any other trade, business or profession without prior written approval of 2nd Chapter (as required by cl 2.5);

(e) not be involved in any activity, which creates or may create a conflict of interest with 2nd Chapter, Escala Partners or the Clients, the requirements of his position or his ability to carry out his duties without prior written approval of 2nd Chapter, (as required by cl 2.5); and

(f) devote his full time and energy and efforts to the performance of the Services and the performance of the Management Company's duty to the Company and to not engage, directly or indirectly, in any other business activity, whether or not similar to that of the Company (other than acting authorised representatives of the Company); (as required by cl 2.6, and also cl 2.6 of the Management Deed).

1. The Plaintiffs further allege that Sealey and Vickers‑Willis have both evinced an intention no longer to be bound by the Sealey Employment Agreement and Vickers‑Willis Employment Agreement, respectively, and have thereby repudiated their respective Employment Agreements.
2. The Plaintiffs say that 2nd Chapter accepted the abovementioned repudiations and terminated the Sealey Employment Agreement and Vickers‑Willis Employment Agreement on or about 21 August 2023.
3. In respect of the alleged repudiation of the Employment Agreements of Sealey and Vickers‑Willis described above, the Defendants plead that Sealey and Vickers‑Willis were not under a legal obligation to make the pleaded disclosure to the Plaintiffs and no cause of action arises from the non‑disclosures.[160] The Defendants plead that the execution of the agreements and non‑disclosure (assuming those are the repudiations) was not repudiatory conduct.[161] On that basis, 2nd Chapter could not have accepted the repudiations by their letter dated 23 August 2023. That letter purported to accept repudiation based on insufficient notice and, at that time, the Plaintiffs were not aware of Sealey and Vickers‑Willis' new employment at Crestone. The Plaintiffs cannot as a matter of law rely on conduct of which they were not aware to justify what purported to be an acceptance of a repudiation constituted by entirely different conduct.[162]

1. On 22 May 2023, Vickers‑Willis received a letter of offer of employment with Crestone. The offer specified a commencement date of employment of 22 March 2024.[163] Sealey also received an offer of employment with Crestone on 22 May 2023 which specified the same start date of 22 March 2024.
2. Vickers‑Willis' evidence is that he decided to resign in mid‑May 2023, just prior to when he received the Crestone offer and negotiated the terms of his contract with Ginnivan. He says he decided the date of resignation would be by 30 June 2023, so that he and Sealey could assist clients with work associated with the busy end of financial year period. Sealey agrees with this evidence from Vickers‑Willis.
3. By accepting the offers of employment, Vickers‑Willis and Sealey were required to agree with the warranties set out in the offer letters. Those warranties included the following:

You warrant that you are not bound by any legal or other obligation which is inconsistent with you accepting this offer of employment with LGT Crestone or performing your work as an employee of LGT Crestone. In particular, you warrant that;

a. By entering into this Letter and performing your duties under this Letter, you will not be in breach of any agreement with, or obligation owed to, any third party;

b. You are not subject to any restrictive covenant, notice provision, non‑competition or non‑solicitation provision with any former employer or any other agreement or court order that may prevent you commencing or remaining in employment with LGT Crestone or restrict you in the performance of your duties;

c. You have diligently reviewed all copies of your agreements with your former employer to ensure that these warranties are correct...

1. On 23 May 2023, each of Sealey and Vickers‑Willis executed employment agreements and sign‑on bonus agreements with Crestone. It is common ground that Sealey and Vickers‑Willis did not disclose to the Plaintiffs that they had entered into these employment and sign-on bonus agreements until after the proceeding commenced.[164]
2. Sealey's evidence is that he made the final decision to join Crestone in late May 2023 and, until he signed his offer of employment letter with Crestone, he was still considering other possible options.

1. On the question of repudiation, the Plaintiffs say that the following approach is preferable:[165]

One would ordinarily expect that on a repudiation by the grantor (employee) a restraint clause would survive acceptance of the repudiation and would apply notwithstanding termination, because that is the purpose of a clause which is intended to apply after termination of the contract. By contrast on a repudiation by the grantee (employer) the presumed intention would ordinarily be that the restraint trade would not survive termination.

1. Whether the clause survives termination is a question of construction of the relevant agreement.[166] The Plaintiffs say that cl 13.7 expressly provides that the restraints were to survive termination.
2. The Plaintiffs' case is that 2nd Chapter terminated the Sealey Employment Agreement and the Vickers‑Willis Employment Agreement following the repudiation by Sealey and Vickers‑Willis of those agreements. That repudiation involved both Sealey and Vickers‑Willis, while each was employed by 2nd Chapter:

(a) negotiating and entering into employment agreements with Crestone;

(b) communicating with Crestone about the benefits that would or may accrue to Crestone if it employed either of them; and

(c) communicating with Crestone about the remuneration and other benefits that would or may accrue to either of them if they were to be employed by Crestone, and if they were able to enhance the economic performance of Crestone's business, including by generating new business for Crestone.

1. Sealey and Vickers‑Willis did not communicate this information to 2nd Chapter prior to their resignation. The Plaintiffs submit that this conduct evinces an intention not to be bound by their Employment Agreements with 2nd Chapter. Those contracts of employment with Crestone provided for each of Sealey and Vickers‑Willis to receive a relatively low salary and relatively high commission, and a significant sign‑on bonus, as long as they met certain revenue targets.
2. The Plaintiffs say that the impugned conduct described above was a clear repudiation of the Employment Agreements, which the Plaintiffs were entitled to accept.[167] Entry into the employment contracts with Crestone and failing to disclose this, in the Plaintiffs' submission, constitutes being involved in an activity that created or may create a conflict of interest with 2nd Chapter, Escala Partners, and its clients, in breach of cl 2.5 of the Sealey Employment Agreement and Vickers‑Willis Employment Agreement. This is a serious and persistent breach of those Employment Agreements.
3. The Plaintiffs say that cl 2.5 expressly refers to being engaged as an employee of another firm as an act that might create a conflict, and the Employment Agreements also stipulate that the employee must immediately notify 2nd Chapter of any prospective conflict that arises. Because of this, the clause does not require the conflicting employment to have commenced for there to be a breach, if there is no compliance with the requirement for disclosure of the prospect of a conflict. As soon as the contract is signed, it is inevitable that there is a prospective contract with the competitor, and they will be paid under the contract by reference to how much they earn for that competitor. Sealey and Vickers‑Willis have signed up to the competition and are committed to starting on a set date, with obligations owing under their new employment contracts and the general law as soon as they start, and before they start under the terms of the contracts. The Plaintiffs say this is a prospective conflict at the very least. There is a potential conflict in that it might then be to Sealey and Vickers‑Willis' benefit not to service their existing clients, because the clients may then become unhappy and leave Escala Partners. Those same clients, unhappy with their service by Sealey and Vickers‑Willis at Escala Partners, might think that their advisors' poor service was due to their imminent exit and then elect to follow Sealey and Vickers‑Willis to Crestone. Counsel for the Plaintiffs says that this potential conflict and turn of events is not speculative, and point to the long‑term relationships and loyalty to which Sealey refers in his Crestone website profile.
4. According to the Plaintiffs, Sealey and Vickers‑Willis' obligations under their respective Employment Agreements to act in the best interests of Escala Partners would involve servicing their clients and assisting with the transition of clients to other advisors so as to enable Escala Partners to continue receiving revenue flow, and disclosing their departure to Perry and others at 2nd Chapter so as to facilitate a smooth transition for clients.
5. The Plaintiffs submit that they did not accept the repudiation at the time because they were not aware of it, but this does not preclude subsequent acceptance of the repudiatory conduct.[168] In this regard, even if 2nd Chapter's reasons for termination in the 21 August Letter were 'rolled up', the Plaintiffs can rely on different grounds based on facts which existed at the time, even if those facts were not known by 2nd Chapter at the time. The grounds can be relied on to entitle 2nd Chapter to terminate the employment of Sealey and Vickers‑Willis without notice pursuant to cl 13.6.
6. The Plaintiffs say that the repudiation is particularly clear because Sealey had been communicating with Crestone as early as July 2022, less than two months after receiving his third Earn Out payment, leading to the inference that Allen left Escala Partners as part of a pre‑arranged plan to 'establish a beach head' at Crestone. According to the Plaintiffs, after Allen left Escala Partners, clients who were normally serviced by Vickers‑Willis and Sealey began to leave and refer their work to Allen. The Plaintiffs submit that, as Allen did not give evidence, a Jones v Dunkel inference is available. The Court can infer that Allen left at the instigation of Crestone, Sealey and Vickers‑Willis to establish this base for Sealey and Vickers‑Willis. That is said to be the 'antithesis' of the obligations in the Employment Agreements.

1. The Defendants say that question nine only arises in certain circumstances, namely:

(a) if the Court would otherwise find that some or all of the relevant restraints in the Employment Agreements are valid and enforceable because they are reasonable as between the parties and not unreasonable in the public interest;

(b) by relying on an allegation that Sealey and Vickers‑Willis breached their Employment Agreements by tendering contractually defective resignation notices, 2nd Chapter engaged in repudiatory conduct when it purported to terminate the Employment Agreements on 21 August 2023. In relying on this repudiatory conduct, Sealey and Vickers‑Willis validly terminated the Employment Agreements; and

(c) as a consequence of Sealey and Vickers‑Willis validly terminating their Employment Agreements following the repudiatory conduct of 2nd Chapter, the restraints - which otherwise would have been valid and enforceable - in the Employment Agreement can no longer be relied upon by 2nd Chapter.

1. I shall put to one side the contentions in (b) and (c) above, as I have already determined that these allegations do not fall to be determined in the trial of the stated separate questions.
2. In respect of whether Sealey and Vickers‑Willis repudiated their Employment Agreements, the Defendants accept that the dismissal of an employee may be justified on grounds upon which the employer did not act and of which the employer was unaware when the employee was discharged.[169]
3. The Defendants submit that Sealey and Vickers‑Willis' failure to inform 2nd Chapter that they were moving to Crestone is relevant only up until the point of their notice of resignation on 20 June 2023, after which time their move to Crestone was known.[170]
4. Leaving aside the issue of 2nd Chapter's alleged repudiation, the Defendants articulate the following issues arising from question nine:

(a) Issue one: By negotiating to become employed with Crestone, signing an employment contract with Crestone, and then failing to inform 2nd Chapter of these matters until after their notice of resignation, did Sealey and Vickers‑Willis breach the relevant contractual provisions?

(b) Issue two: If yes to (1), would the breaches have entitled 2nd Chapter to terminate the relevant Employment Agreements?

1. Put shortly, the position of Sealey and Vickers‑Willis is that there was no such repudiatory breach. Nothing suggests that they were evincing an intention not to fulfil their obligations under their respective Employment Agreements.
2. As to issue one, the Defendants reject the allegation that Sealey and Vickers‑Willis breached terms of their Employment Agreements. Sealey and Vickers‑Willis admit that they engaged in negotiations and discussions with Crestone prior to signing their contracts with Crestone on 23 May 2023. They say that they were not required to resign prior to looking for other employment or to disclose to their employer that they were looking for other work or had signed employment contracts with another employer. Their employment contracts with Crestone provided that their employment would commence on 22 March 2024 (10 months after the contracts were executed). Merely executing contracts of employment to commence in the future does not constitute embarking on another trade, business or profession or any other business activity. Because the work would not start for 10 months, there was no conflict of interest or failure to devote best endeavours to promote the business interests of 2nd Chapter or to faithfully and diligently perform their duties.
3. Here, the Defendants point to the statement of the High Court in respect of analogous fiduciary interests that '[a]n actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises'.[171]
4. The Defendants submit that there is no allegation that the negotiations or execution of the Crestone employment agreements took place during business hours or otherwise in a way that prevented Sealey and Vickers‑Willis from doing their work, or took them away from their work, at 2nd Chapter.
5. The Defendants say that the evidence is to the contrary: Sealey and Vickers‑Willis delayed giving notice of their resignation because they wanted to service clients through to the end of the financial year, as this was an important and busy time for the business.
6. As to issue two, the Defendants submit that if there was a breach by reason of the impugned conduct, it was not a serious or persistent breach because the employment was not due to start for another 10 months, and so there was no ability of 2nd Chapter to terminate their respective Employment Agreements without notice.[172] Moreover, there is no evidence about the consequences to 2nd Chapter of Sealey and Vickers‑Willis not disclosing that they had negotiated and then executed contracts of employment with Crestone.
7. Further, the Defendants reject the Plaintiffs' argument at paragraph 519 that Sealey and Vickers‑Willis created a conflict of interest or potential conflict of interest because they entered into employment contracts with Crestone, due to commence in March 2024. When Sealey and Vickers‑Willis signed their contracts, they were still employed by 2nd Chapter, they did not have employment obligations to Crestone, and it was contemplated that Sealey and Vickers‑Willis would terminate their employment with 2nd Chapter prior to commencing employment at Crestone. There is no conflict or prospective conflict because it was never envisaged that they would be engaged by both Crestone and 2nd Chapter at the same time.

1. I agree with the Defendants' submission that two issues arise here, as set out in paragraph 527 above.
2. Pursuant to cl 2.5 of the Employment Agreements, Sealey and Vickers‑Willis agreed not to undertake any other trade, business or profession or be involved in any activity, which creates or may create a conflict of interest. As was noted by the Plaintiffs, this clause included an express reference to being engaged as an employee.
3. I do not accept the Plaintiffs' contention that by negotiating employment with Crestone, signing an employment contract with Crestone, and then failing to inform 2nd Chapter of these matters until after their notice of resignation, Sealey and Vickers‑Willis breached the terms of their employment contracts. Rather, I accept the Defendants' submissions on this point. Merely executing a contract of employment to commence in the future does not constitute embarking on another trade, business or profession or any other business activity. No conflict of interest existed at this stage.
4. Clause 2.5 also contains a requirement that, should a prospective conflict of interest arise, the relevant employee notify 2nd Chapter of the conflict in order to obtain written permission to engage in the interest or activity. I accept the Plaintiffs' submission that this clause does not require the conflicting employment to have commenced for there to be a breach. However, I do not accept that as soon as the contract is signed, it is inevitable that a prospective conflict will arise. That may have been the case if, for example, the employee planned that their employment with 2nd Chapter and new interest or activity would overlap. That is not this case.
5. I do not find the Plaintiffs' submissions on the topic of prospective conflict to be at all persuasive. For example, I find it highly unlikely that either Sealey or Vickers‑Willis could start neglecting their Escala Partners clients but that those same clients would elect to follow the two to Crestone, having surmised that the poor service they received was due to Sealey and Vickers‑Willis' imminent exit. Especially in the context of the relatively sophisticated and high-net-worth client base of Escala Partners, it appears unlikely that clients who begin to experience poor service would move firm to follow the very same people who provided the poor service. These submissions were highly speculative and are contrary to common sense; I reject them.
6. The Plaintiffs submit that Sealey and Vickers‑Willis had obligations under their respective Employment Agreements to act in the best interests of 2nd Chapter, which would involve servicing their Escala Partners clients and assisting with the transition of clients to other advisors. However, the Plaintiffs have adduced no evidence that Sealey or Vickers‑Willis failed to act otherwise than in the best interests of the company or that they refused to assist in a transition process.
7. I accept Sealey's evidence that he continued to work for Escala Partners in order to service clients' needs through the end of the financial year, that he ensured that detailed and complete status notes were entered into Escala Partners systems for all clients, and that he sought direction from Perry as to how to comply with his obligations on resignation. This evidence was supported by Vickers‑Willis.
8. I do not accept the Plaintiffs' suggestion at paragraph 520 that Sealey and Vickers‑Willis ought to have told their current employer as soon as they signed their contracts with Crestone, and have provided a month's notice to facilitate a smooth transition. This seems to me to be a spurious argument, which mischaracterises the notices provided by both Sealey and Vickers‑Willis to their employer. I consider that both intended to serve out their notice period rather than to cease their employment immediately on tendering their resignations, and the fact that they continued to be paid their entitlements, along with enquiries they made to Perry about next steps, supports my view. Sealey and Vickers‑Willis properly gave notice of their resignation and, pursuant to their Employment Agreements, there was a three‑month notice period during which 2nd Chapter could direct their cooperation in the transition to new clients. That they were not involved in this way was a decision made by 2nd Chapter. It is hard to see how things would have changed had Sealey and Vickers‑Willis flagged an intention to resign a month earlier than they did; they would likely have been put straight onto gardening leave at that time. I do not see how this would have facilitated a smooth transition as I do not think that Perry would have been any more willing to involve the exiting advisors in the transition process if he was told a month earlier of their intention to exit. As noted earlier, Perry's evidence regarding involving Sealey in transitioning the clients was unequivocal. This argument simply does not go anywhere.
9. The Plaintiffs say that the repudiation is particularly clear because Sealey had been communicating with Crestone as early as July 2022. However, I do not consider that this has any bearing on whether a conflict did or was likely to arise. The critical factor is that Sealey and Vickers‑Willis were not set to commence their employment with Crestone until 10 months after the contracts were executed. The date at which negotiations commenced has little if any bearing on this. Further, the Plaintiffs' repeated allegation that Sealey and Vickers-Willis had facilitated Allen's exit so as to provide a beach head for their future arrival at Crestone went nowhere. The Plaintiffs adduced no evidence in support of it and the allegations were denied by Sealey and Vickers-Willis in cross-examination. These allegations amounted to little more than unfounded insinuations. Allen is a party to this proceeding and his affidavit was not read and he did not give evidence, so it is possible to infer that his evidence on this topic may not have assisted Sealey and Vickers-Willis. However, the Plaintiffs never made it clear how this allegation, which is not made in section E.3 of the 2FASOC, was relevant to or affected consideration of this question nine.
10. In my view, Sealey and Vickers-Willis have not breached their Employment Agreements in the manner alleged in section E.3 of the 2FASOC. Nor have they evinced an intention, by virtue of that conduct, no longer to be bound. In signing contracts of employment with Crestone, it is tolerably clear that Sealey and Vickers‑Willis intended to terminate the Employment Agreements in the future. This does not amount to evincing an intention no longer to be bound as soon as that decision was made. They were entitled, under the Employment Agreements, to terminate those agreements in accordance with their terms. Exercising their rights under the Employment Agreements, or evincing an intention to do so, is not repudiatory conduct. Further, there was no renunciation of their employment. To the contrary, the evidence is that Sealey and Vickers-Willis continued to perform work under their Employment Agreements up until they handed in their respective notices of resignation. Thus the question of repudiation does not arise.
11. Even if the conduct alleged in section E.3 of the 2FASOC constituted a breach of the Employment Agreements, I am not satisfied that this constitutes a repudiatory breach. The Plaintiffs' submissions on this point seemed to conflate breach and repudiation.
12. Accordingly, the answer to question nine is: No, neither Sealey nor Vickers-Willis repudiated their Employment Agreements as alleged in section E.3 of the 2FASOC.

1. From the findings made above, the Court answers the questions before it as follows:

(a) Question one: Are any of the restrictive covenants set out in cl 20.2 to 20.6 of the SPA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent? No, none of the relevant restraints are enforceable.

(b) Question two: Are any of the restrictive covenants set out in sections 3.2 to 3.6 of the Management Deed enforceable against either or both of Sealey and Vickers‑Willis? If so, which restrictive covenants are enforceable and to what extent? No, none of the relevant restraints are enforceable.

(c) Question three: Are any of the restrictive covenants set out in cl 20.2 to 20.5 of the SHA enforceable against any or all of Sealey, Vickers‑Willis, Terrung and JCVW? If so, which restrictive covenants are enforceable and to what extent? No, none of the relevant restraints are enforceable.

(d) Question four: Are any of the restrictive covenants set out in cl 13.5 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.

(e) Question five: Are any of the restrictive covenants set out in cl 14.1 of the Sealey Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.

(f) Question six: Are any of the restrictive covenants set out in cl 13.5 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.

(g) Question seven: Are any of the restrictive covenants set out in cl 14.1 of the Vickers‑Willis Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.

(h) Question eight: Are any of the restrictive covenants set out in cl 14.1 of the Allen Employment Agreement enforceable? If so, which restrictive covenants are enforceable and to what extent? No, none are enforceable.

(i) Question nine: Whether Sealey or Vickers‑Willis has repudiated the Sealey Employment Agreement or Vickers‑Willis Employment Agreement, respectively, as alleged in section E.3 of the 2FASOC? Neither Sealey or Vickers‑Willis has repudiated the Sealey Employment Agreement or Vickers‑Willis Employment Agreement, respectively, as alleged in section E.3 of the 2FASOC.

(a) the parties are to confer and provide my Chambers with a proposed form of order to give effect to these reasons, including as to costs; or

(b) if the parties are not able to agree on the form of order, then each party is to provide their preferred form of order to my Chambers.

1. If sub-paragraph (b) applies, then the proceeding will be listed for 10:00am on 15 November 2024 for the making of orders, including as to costs.

[1] Focus Escala Holdings and Focus Financial are both companies registered in the State of Delaware in the United States of America. At CB.1601, there is a company structure diagram which showed the relationship between each of the relevant companies as at 9 February 2024.

[2] Fees earned from clients are paid to Escala Partners, and then are distributed up the chain of companies to Focus Financial.

[3] The Plaintiffs allege that Sealey and Vickers-Willis repudiated their employment contracts in a number of ways, but only part of this is relevant to the separate questions. This will be explained further below.

[4] Escala Wealth Management holds an Australian Financial Services Licence (AFSL) and Escala Partners is its Corporate Authorised Representative. For the sake of convenience in these reason (and unless the distinction is necessary), I will refer only to Escala Partners.

[5] Perry is a director and Chief Executive Officer of 2nd Chapter. He was previously CEO and a director of Escala Partners, until around March or April 2024. He is also an authorised representative of Focus Escala Holdings and Focus Financial.

[6] It is unclear when Sealey became a partner, but it was from at least 2014.

[7] Terrung did not purchase its shares in Escala Partners. Sealey did not pay any money for an initial 4% shareholding and, at a later stage, obtained a further 2% when he agreed to take a salary cut.

[8] There were also negotiations in 2014 to 2015 which did not progress to an agreement.

[9] Bennard held senior roles at Focus Financial from March 2015 to June 2022, and is the former CEO of Connectus Group LLC, director of Escala Wealth Management and director of Escala Partners. Bennard is currently the President of International Operations of Focus Financial. Bennard is a certified public accountant who has worked in the financial services industry since 2003.

[10] Bennard sent this email in response to a request from Perry on 6 August 2018 to assist him with a meeting to be held on 9 August 2018.

[11] Vickers‑Willis did not meet with Bennard as part of these one‑on‑one meetings.

[12] The structure was slightly modified in this instance from Focus' usual model, with the primary difference being that all the share capital in the Escala Partners business was acquired rather than solely its assets. This modification was implemented to facilitate the transfer of control of the AFSL and to minimise client disruption.

[13] On about 29 March 2019, the parties to the SPA executed a Deed of Variation, Confirmation and Termination in relation to the SPA, which is not relevant to this dispute.

[14] The SPA has a lengthy definition of Control, which it is unnecessary for me to set out.

[15] A list of Controlled Vendors and Principals was contained in Schedule 3 to the SPA.

[16] This reference to cl 20.3 should be a reference to cl 20.4. I will address this later.

[17] There are also various definitions applicable to clause 15 which are set out at cl 15.1.

[18] There is a slight inconsistency with the dates of the Employment Agreements, as used by the parties. I have adopted the date used in the Chronology agreed and filed by the parties.

[19] The Plaintiffs' position is that the fourth payment was not earned, following the requirements under the SPA.

[20] 2FASOC and Defence [14]‑[15]: In their pleadings, the Defendants say Terrung was paid a total of $3,973,574.44 and JCVW was paid $24,085.06.

[21] The arrangement as set out in the Management Deed was amended to adjust calculations to account for matters such as changes in employee compensation.

[22] The Plaintiffs had previously pleaded that the appointments of both Sealey and Vickers‑Willis were not yet terminated, but confirmed that this was incorrect in the 2FASOC: 2FASOC [40].

[23] 2nd Chapter Pty Ltd & Ors v Sealey & Ors [2023] VSC 599.

[24] Also during the hearing, the Court refused leave to amend the Plaintiffs' pleading in respect of more substantive changes, largely because of the impact that the proposed amendments would have on the scope of the separate questions before the Court and the potential prejudice that the proposed amendments would have on Sealey in the trial of the separate questions. The Plaintiffs renewed that application on two further occasions during the course of trial and was refused both times. The Court's reasons for each of the three rulings in respect of the unsuccessful applications by the Plaintiffs for leave to amend are recorded in the transcript of the hearing.

[25] Question nine initially referred to the previous pleading filed by the Plaintiffs in the proceeding, being the amended statement of claim dated 27 October 2023. During the hearing, the Court granted leave for the Plaintiffs to file the 2FASOC. Section E.3 of the 2FASOC will be set out in section O.1 of these reasons.

[26] The Plaintiffs rely on this affidavit and the Defendants' assertion to the contrary is incorrect.

[27] Tender documents in CB tabs 268‑71.

[28] An affidavit of Sealey affirmed on 9 February 2024 was not read.

[29] An affidavit of Allen affirmed on 4 October 2023 was not read.

[30] Findings as to these circumstances are not a matter for this trial of separate questions.

[31] [2023] VSCA 55; (2023) 170 IPR 399, 403 [21].

[32] [2016] VSCA 334; (2016) 344 ALR 162, 173-178 [30]-[39] (Peck).

[33] [2020] FCAFC 182, [83]‑[87] (Findex); see also the general principles outlined at [76]-[82].

[34] [2013] VSCA 24; (2013) 45 VR 657, 662 [14], 663-664 [20]‑[26] (Wallis Nominees) (citations omitted).

[35] See also Wallis Nominees, 665 [29], citing Jardin v Metcash Ltd [2011] NSWCA 409; (2011) 285 ALR 677, 696-697 [97].

[37] Airmaster Corp Pty Ltd v Mohtadi [2022] VSC 822, [46].

[38] For example, the Management Deed was annexed to the SPA and referenced in the conditions subsequent, such that the parties to the SPA know that the Management Deed is going to be entered into post‑completion. The parties know that the vendors are going to remain in the business for some time, as contemplated by the Management Deed. See cl 8.2 of the SPA.

[39] The Plaintiffs point to Sealey having led a KPI project to convert prospective clients to clients of the business, which was noted by Focus prior to the acquisition as a key driver of growth.

[40] [2010] VSC 35, [8].

[41] Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] UKLawRpAC 20; [1901] AC 217, 223‑224, 235 (Muller & Co's Margarine Ltd), cited in Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, 613 [16]‑[17] (Murry).

[43] Perry's evidence is that all employees of 2nd Chapter have access to Praemium, the software it uses to manage Escala Partners client accounts, and its Central Relationship Management (CRM) software, both of which provide detailed information about all of the clients, including their contact information and the size of their portfolios.

[44] CB.694, 696, 697, 699, 836‑7, 952‑3, 1096‑8.

[48] (2018) 98 NSWLR 343, 365-7 [110]‑[123] (Isaac v Dargan).

[49] The Plaintiffs pointed to various letters requesting the transfer of business to Allen at Crestone in the CB.622‑629.

[51] Muller & Co's Margarine Ltd, 223‑224, cited in Murry, 613 [17].

[54] The Plaintiffs also handed up a note in respect of the 'blue pencil principle'.

[55] SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516, 531 [46] (SST Consulting); Wallis Nominees, 676 [92]‑[94].

[59] [1995] SASC 5318; (1995) 66 SASR 301 (Rentokil).

[60] In the context of that restraint, capacity was defined to mean any capacity including, without limitation, as principal, agent, director, employee, shareholder or unitholder (other than as the holder of no more than 5% of the issued capital of any company or trust whose shares or units are listed on a recognised stock exchange), partner, joint‑venturer, member, trustee, beneficiary, financier, guarantor, advisor or consultant.

[61] This clause provided: '[a]ny provision of this Deed which is, or becomes, illegal, void or unenforceable, shall be ineffective to the extent only of such illegality, voidness or unenforceability and shall not invalidate any other or the remaining provisions of this Deed.' Rentokil, 327.

[63] [2019] WASC 269.

[65] [2020] SASC 222.

[68] The Plaintiffs point to Peck for the principles relevant to determining this question and to Findex in respect of the principles relevant to the proper construction of restrictive covenants.

[69] [2006] EWHC 286 (Ch), [62]‑[63], [66], [68]‑[69] (Allan Janes).

[70] [1984] 1 AC 705, 715‑716 (Bridge v Deacons).

[72] [1964] 1 WLR 568 (Plowman).

[75] As at the time of entry into the SPA, Escala Partners had offices in Melbourne, Sydney and Perth, and serviced clients throughout the country.

[76] Findex Group Limited v McKay (2019) 148 IPR 284, 310 [163] (McKay), wherein the Court refers to JD Heydon, The Restraint of Trade Doctrine (LexisNexis Butterworths, 4th ed, 2018), 222 (Heydon), citing British Reinforced Concrete Engineering co Ltd v Schelff [1921] 2 Ch 563 and D Bates & Co v Dale [1937] 3 All ER 650. The Court also confirmed that it is not necessary for a covenantee to prove that the business was conducted throughout the whole of that area, citing Connors Bros Ltd v Connors [1940] 4 All ER 179, 194 (Connors).

[78] [1936] NSWStRp 62; (1936) 37 SR (NSW) 98, 107‑108 (Townsend).

[79] Wallis Nominees, 664 [28], citing Brereton J in Koops Martin v Reeves [2006] NSWSC 449, [53] (Koops Martin).

[80] This submission also applies in respect of the Management Deed restraints.

[81] [2009] SASC 281; (2009) 105 SASR 109, 142 [115].

[83] With reference to McKay, 311 [176].

[84] [2017] VSC 460, [30].

[85] Amoco Australia Pty Ltd v Rocca Bros Motor engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288, 306-7, 316 (Amoco).

[86] At 294, cited in Specialist Diagnostic Services Pty Ltd v Healthscope Ltd [2012] VSCA 175; (2012) 41 VR 1, 13 [49].

[88] Peck, 173-174 [30]‑[31], 175 [36].

[90] This is contrasted with the contribution of advisors, as evidenced by Focus Financial's due diligence records from the time: CB.2463‑81, and in particular CB.2480.

[91] [2005] NSWSC 658 (Harlow Property).

[92] [2006] NSWSC 717; (2006) 71 NSWLR 9 (Cactus Imaging).

[93] News Life Media Pty Ltd v Janeke [2016] NSWSC 1835, [67]‑[69], in respect of confidentiality restraints. The Defendants also rely on Peck, 177-178 [39].

[94] Australian Regional Wholesalers v Stafford [2007] NSWSC 572; (2007) ATPR 42-168, 47,651 [61] (Stafford).

[95] Stacks Taree v Marshall (No. 2) [2010] NSWSC 77, [63] (Stacks Taree).

[96] (2017) 264 IR 451 (Pryse v Clark).

[98] Specifically, the Plaintiffs have not put on evidence about the industry generally, the number of players in the industry, the potential client pool, or the impact to a business if an advisor is employed by one firm rather than another in any given location performing any particular kind of work.

[99] Harlow Property, [30]‑[31], [40]; Cactus Imaging, 19 [32].

[101] Emeco International Pty Ltd v O'Shea (No 2) [2012] WASC 348; (2012) 225 IR 423, 458-9 [187]‑[195] (Emeco International).

[103] Emeco International, 458-9 [189]‑[190].

[104] Koops Martin, [66], [70]; Cactus Imaging, 19-20 [33].

[105] The relevant anniversaries are 31 March 2020 (first anniversary), 31 March 2021 (second anniversary), 31 March 2022 (third anniversary), 31 March 2023 (fourth anniversary), and 31 March 2024 (fifth anniversary).

[106] DXC Eclipse Pty Ltd v Wildsmith (2023) 324 IR 89, 121 [157] (DXC Eclipse).

[107] The Defendants refer to the adoption of this approach by the Courts of Appeal of Victoria, New South Wales, and Western Australia: Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13, [65] (Bond v Rees); DXC Eclipse, 121 [157]; Cream v Bushcolt Pty Ltd [2004] WASCA 82; (2004) ATPR 42-004, 48,777 [53] (Cream v Bushcolt); IRAF Pty Ltd v Graham [1982] 1 NSWLR 419, 429 (IRAF); Fadu Pty Ltd v ACN 008 112 196 Pty Ltd as Trustee of the 'International Linen Service Unit Trust' [2007] FCA 1965, [83], [99] (Fadu); Sidameneo (No 456) Pty Ltd v Plint [2015] WASC 243, [31] (Sidameneo); Synavant Australia Pty Ltd v Harris [2001] FCA 1517, [85] (Synavant).

[108] See Extraman (NT) Pty Ltd v Blenkinship (2008) 23 NTLR 77, 98-100 [67]‑[80]; McKay, 310-1 [171]‑[174].

[109] The Plaintiffs' evidence was that this time would vary depending on the client and nature of the relationship with the advisor, and this transition time will be longer if the pre‑existing client relationship was a long and successful one. Vickers‑Willis agrees with this proposition in his evidence.

[110] The evidence of Vickers‑Willis is that several clients from Escala Partners put their business to tender on his departure and engaged a third firm, Koda Capital, instead of staying with Escala Partners or moving to Crestone.

[111] Heydon, 230, cited in DXC Eclipse, 117 [131].

[113] Woolworths Ltd v Olson [2004] NSWCA 372, [39] (Olson).

[114] Peck, 174 [34(a)]; Olson, [38].

[115] Stafford, 47,650-1 [52]‑[53].

[116] McMurchy v Employsure Pty Ltd (2022) 409 ALR 199, 213 [54]; Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25; (2009) 201 IR 1, 16 [27] (Miles v Genesys); Olson, [40].

[118] The Defendants point out that the evidence does not explain with any detail when the relevant databases were implemented, where the information comes from, who has access to which parts of the relevant databases, what information an advisor can see, or whether access can be restricted, blocked or monitored.

[120] See, for example, Miles v Genesys, 10 [3].

[121] Miles v Genesys, 16 [26]‑[27].

[123] Forkserve Pty Ltd v Pacchiarotta [2000] NSWSC 979, [20].

[126] Stacks Taree, [53]‑[54], referencing a speech of Lord Birkenhead LC in Fitch v Dewes [1921] AC 158.

[127] See above at paragraphs 140 and 141.

[129] See above at paragraph 185.

[130] The date at which the contract was entered into by the parties.

[131] See paragraph 186 above.

[133] The Defendants refer in particular to Standards 2‑4 of the Code of Ethics.

[134] I do not need to consider whether the other possibilities are also unreasonable, since those time periods had expired by the relevant time and so were not seeking to be enforced.

[135] As was the case in DXC Eclipse, 121 [156].

[136] Sealey's evidence is that he did not obtain independent legal advice before entering into the SHA and the Management Deed, but I am unclear whether this extends to the SPA.

[137] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426-427. See also James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311; (2020) 103 NSWLR 850.

[139] Management Deed, Section 2.6, Section 9.7.

[141] The Defendants repeat their submissions on the public interest in respect of the SPA restraints.

[143] [2016] VSC 597, [99]‑[101] (Popham Holdings).

[145] This is because the transfer price could be paid in instalments, at 2nd Chapter's election, the last of which could be no later than 24 months after termination of the relevant Employment Agreement.

[147] [2012] VSCA 64; (2012) 36 VR 341, 538 [83]‑[84] (Birdanco Nominees).

[148] See paragraph 511.

[149] Noting that I assume this reference to 12 months is to cl 14 of the Employment Agreement, not to cl 13.5.

[150] [2006] WASCA 191, [36], cited with approval in Wallis Nominees, 670 [59].

[152] Monash Real Estate Pty Ltd v Ross [2005] VSC 116, [17].

[154] At 669 [52], citing Koops Martin, [82]-[85].

[157] See Cactus Imaging, 20 [36]; Bond v Rees, [65]; DXC Eclipse, 121 [157]; Cream v Bushcolt, 48,777 [53]; IRAF, 429; Fadu, [83], [99]; Sidameneo, [31]; Synavant, [85].

[158] The date on which Sealey entered into his Crestone employment agreement is pleaded as on or about 23 May 2023 and the date on which Vickers‑Willis entered into his Crestone employment agreement is stated not to be known: 2FASOC [83], [87].

[159] As alleged at paragraphs [82A] of the 2FASOC (in respect of Sealey) and, in respect of Vickers‑Willis, as alleged in paragraph [86A] of the 2FASOC and to the extent that the conduct was while he was still employed by 2nd Chapter and failed to disclose the same (because the date(s) on which Vickers‑Willis negotiated and entered into the contract with Crestone were stated as not known by the Plaintiffs in the 2FASOC.

[163] According to Vickers‑Willis, this start date of March 2024 was based on legal advice he received, and that one factor was that this date would accommodate the gardening leave and six‑month non‑compete period in the Employment Agreements and SHA.

[165] Francis Dawson, 'Survival of Restraint of Trade Clauses' (2013) 129 Law Quarterly Review 508, 512.

[167] The Plaintiffs refer in particular to clauses 2.4 to 2.6 of the Employment Agreements.

[168] Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359.

[169] Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693, 701 [29]; Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20; (2015) 229 FCR 221, 242-8 [89]-[119].

[170] On 7 July 2023, the Defendants' solicitors advised the Plaintiffs' solicitors that their clients consent to 2nd Chapter obtaining their employment contracts 'from Crestone.'

[171] Blyth Chemicals Ltd v Bushnell [1933] HCA 8; (1933) 49 CLR 66, 81‑82. See also 74.