Genesys Wealth Advisers Ltd v Miles

Genesys Wealth Advisers Ltd v Miles - [2008] NSWSC 802 - NSWSC 2008 case summary — Zoe

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(i) advice models for financial planning practices." 13 In 2006, Mr Miles was offered, and accepted, employment by Genesys itself in the position of "Managing Director - Member Firm Relations & Acquisitions". He was required to work a four day week in this position and reported to Genesys' managing director. He and Genesys entered into an employment contract, contained in a Letter of Offer dated 26 June 2006. Clause 5.3 imposed a restraint on competition following the termination of Mr Miles' employment. I will come to that restraint clause in more detail later. The contract also provided a Long Term Incentive Plan ("LTIP") which entitled Mr Miles to take up allocations of shares in Challenger at certain prices and at certain times. 14 Mr Miles' role, while employed by Genesys as Managing Director - Member Firm Relations and Acquisitions, required him to deal with existing Member Firms directly on a regular basis and to endeavour to recruit new Member Firms into the Genesys network. He was responsible for dealing with any substantial problems which Member Firms might have, so as to ensure that they did not leave the Genesys network. He did not, as part of his regular duties, deal directly with clients of Member Firms although, on occasion, he met them socially. He had performed the same role while employed by Challenger from August 2000 and, earlier, while employed by APFS. 15 By the time Mr Miles had come to leave the employment of Genesys in March 2007 he had, for almost twenty years, been responsible for managing the relationship between financial planning firms and the provider of financial services to those firms. He had developed a very good relationship with those firms and their principals and he had a high reputation in the financial planning services industry. Members Firms confided financial information to him about their businesses which they would not have provided if he was not in the position which he occupied and if they had not known and trusted him in that position. 16 I turn now to the information which Mr Miles received in the course of his employment with Genesys. I will refer only to those categories of information which Genesys has emphasised as highly confidential. 17 Mr Miles received monthly brokerage reports which identified the amount of gross brokerage revenue which Genesys received from each Member Firm. The brokerage reports were not distributed widely within Genesys and were not made available outside Genesys. The brokerage reports enabled a reader to identify quickly which Member Firms were generating the most income for Genesys. 18 In mid-2006 Mr Kirk, the CEO of Genesys, commissioned a firm of consultants, Booz Allen Hamilton ("BAH") to conduct a review of the business operations of Genesys. Their review was undertaken over a period of eight weeks. 19 A steering committee of senior executives of Genesys was formed to assist BAH in conducting its review of the Genesys business. Mr Miles was a member of the committee. The committee met a number of times during the review process and BAH made presentations to it, including analyses of sources of revenue and profit to Genesys and of the profitability of particular Member Firms. 20 On 6 November 2006, BAH provided to Mr Kirk a presentation of the results of their review. Based on that presentation and other information collected by Mr Kirk, Mr Kirk presented to the Board of Genesys on 16 November 2006 a Strategic Plan for 2007 to 2011. Mr Kirk says that the Strategic Plan is the "blue- print" for how he is presently running the Genesys business and for what he hopes to achieve in the next few years. 21 A copy of the Strategic Plan was made available to Mr Miles and to a few other senior executives of Genesys. It was not generally available within Genesys nor was it available to anyone outside Genesys or the Challenger group. 22 On 20 September 2006, a senior executive of Challenger sent to a number senior executives of Genesys, including Mr Miles, an analysis of the economic importance of the Member Firms who selected the Synergy administration platform ("Synergy") for their clients' investments. Synergy is administered by Genesys. The document contained information, not publicly available, as to the amount of Funds Under Advice which particular Member Firms had invested with Synergy. That information enables the reader to identify which particular Member Firms have the most funds under advice invested with Synergy and are therefore the most profitable to Genesys. 23 On 9 October 2006, Mr Miles sent to senior executives of Genesys a list of Member Firms, graded according to his assessment of those in serious danger of leaving the Genesys network, those in some danger, and those unlikely to leave. The list was compiled for the purpose of devising a strategy for retaining Member Firms. This information was not generally available in Genesys. Obviously, the list was compiled from information made available to Mr Miles in the course of his employment. Genesys says, and I accept, that the information would assist a competitor to assess which Member Firms were 'ripe for the picking'. 24 On 20 October 2006, the Chief Financial Office of Genesys sent to the directors, including Mr Miles, a paper setting out the identity of those Member Firms which were entitled to certain incentives under Genesys' Incentive Plan, the amounts of their respective entitlements and the applicable vesting date for those entitlements. Member Firms would lose their entitlement under the Incentive Plan if they terminated their Member Firm Agreements before the vesting date. That information was not generally available within Genesys and the Challenger group. The information would enable a competitor to know which Member Firms were unlikely to terminate their relationship with Genesys because of the imminence of their entitlement vesting date, and which firms may be susceptible to solicitation because their vesting date had passed and they had received their entitlement under the Incentive Plan.

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25 Shortly before Christmas 2006, Mr Miles had a discussion with Mr Kirk in which Mr Miles said that his role in Genesys was not providing him with enough challenges and he wanted to leave but did not want to forfeit his LTIP benefits. 26 In January 2007, Mr Miles told Mr Kirk that, following his departure, he would like to invest in one of Genesys' Member Firms called "Brown Bulley". Mr Kirk said that in order to preserve Mr Miles' LTIP benefits he would have to get authorisation from the CEO of the Challenger group, Mr Tilley. Mr Kirk was of the view that if Mr Miles left the employment of Genesys at the time envisaged, he would not be entitled to benefits under the LTIP. Mr Miles, however, held the view that he had been made redundant and was therefore entitled to the benefits. Mr Kirk says, and I accept, that he recommended that Mr Miles receive his LTIP benefits, notwithstanding the disagreement as to his entitlement, in consideration for restraints on competition to be imposed on Mr Miles under a Deed of Release which was being negotiated between the parties. 27 The Deed of Release was executed and exchanged on 27 February 2007. I will set out the relevant terms later. 28 In negotiating the terms of the Deed of Release, Mr Miles had the advice of independent solicitors experienced in employment law. It is clear that he read the terms of the various draft Deeds carefully, made some suggested amendments, and received detailed advice about the implications of the Deed. 29 When he left the employment of Genesys, Mr Miles took an equity position in, and commenced working with, a Member Firm, Brown Bulley, later known as Stamford Brown. The Deed of Release expressly permitted him to take up this position. He sold his equity and ceased working for Stamford Brown in March 2008. 30 Mr Miles frankly admits that he proposes, prior to expiry of the restraint period, to go into a new business venture which will compete directly with the business of Genesys. He has already had discussions with a major financial backer, Suncorp Metway Limited ("Suncorp"). He will be the Managing Director of the new venture and will be responsible for preparing its business plan. He intends to approach a number of Member Firms in the Genesys network to entice them away to the new business venture, and he has already approached five or six of the Member Firms for that purpose. 31 Mr Miles admitted in cross examination that:

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the extent to which the information can readily be isolated from the employee's general know-how acquired by experience in the particular industry: see per Hodgson JA in Del Casale at [40]; Wright v Gasweld at 334B per Kirby P. 48 Mr I.M. Neil SC, who appears with Ms Cochrane for Mr Miles, submits that the information in the brokerage reports was not confidential at all because each Member Firm knew what gross brokerage revenue it generated for Genesys and some would be likely to divulge that information to Mr Miles after he left Genesys. 49 I am unable to accept this submission. The information of an employer may be confidential even if it is known to persons outside the employer's business, as long as the information is not widely known or freely available to competitors: Del Casale at [39]; Coco v A.N. Clark (Engineers) Ltd [1969] RPC 41, at 47. 50 Here, the monthly brokerage reports enabled one to see at a glance which Member Firms were the top performers for Genesys in producing revenue. This is information which would otherwise have taken a competitor considerable time to piece together from enquiries made of Member Firms, one at a time, if they were willing to divulge that information. The brokerage reports were not distributed widely within Genesys and were not made available outside the business. The information as to which Member Firms were top performers and which were not was obviously valuable both to Genesys and to Mr Miles as a competitor, as it would enable one to know what Member Firms were worthwhile having in a network, and which were not, and how to apportion one's efforts accordingly. 51 I am satisfied that the monthly brokerage reports contained information which was confidential, within the meaning of that term in Clause 6.1 of the Deed of Release. 52 Mr Neil did not submit strongly that the Strategic Plan prepared by Mr Kirk following the BAH review did not contain confidential information. Rather, his submissions were more directed to whether use of such information could be detrimental. I will return to this aspect shortly. 53 There could be no doubt that the Strategic Plan, which Mr Miles conceded he received, contained highly confidential information as to the present operations of Genesys and its future direction. The Strategic Plan was the result of a lengthy and, doubtless, costly analysis carried by outside consultants. It was distributed only to the Genesys Board and to a few senior executives. It contained analyses of the strengths and weaknesses of the business and set out in some detail how the business would be developed in the future. A great deal of financial information concerning the business was incorporated in it. There could be no doubt that a great deal of the information in that Plan would be of considerable value to a competitor of Genesys in that it would show what weaknesses of Genesys could be exploited and what proposed course of action by Genesys could be countered. 54 I am satisfied that the Strategic Plan contained information which was confidential within the meaning of that term in Clause 6.1 of the Deed of Release. 55 For the same reasons as apply to the brokerage reports and the Strategic Plan, I am satisfied that the remaining documents relied upon by Genesys contained confidential information, namely, the analysis dated 20 September 2006, the list of Member Firms in danger of leaving, dated 9 October 2006, and the analysis dated 20 October 2006 of the vesting dates of Member Firms' entitlements under the Genesys Incentive Plan. Each of those documents was circulated to only a few senior executives in the business and was not available outside the business. Each was the result of analytical work done within Genesys on the basis of reliable information which it possessed and could conveniently collate. Each contained information which a competitor would find time saving and useful in targeting Member Firms to entice away from the Genesys network. 56 I am satisfied that each of the documents contained information which was confidential within the meaning of that term in Clause 6.1 of the Deed of Release.

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a great deal of the confidential information would, in any event, be of no use now as it is out of date. 58 Accordingly, Mr Miles says, even if he acts in a role or capacity in which he may be able to use confidential information, Genesys has failed to prove that such use would be "to the detriment of Genesys" , as required by Clause 6.1(a)(i). 59 I am unable to accept this submission. It is important to recall, as Mr A.J. Meagher SC emphasises, that the prohibition in the Clause 6.1(a)(i) is not against "using confidential information to the detriment of Genesys" . Rather, the clause prohibits Mr Miles from working in a role in which he may be able to use confidential information to the detriment of Genesys. 60 There could be no doubt that Mr Miles' role in his new business is one in which he could cause severe detriment to the business of Genesys were he to be able to use the confidential information contained in the documents given to him. Mr Miles is, quite clearly, the heart and mind of the new business. He is to draw up its business plan and it is an essential part of that plan that the new business prey upon the existing Member Firms of Genesys in the most effective way possible. The business plan which Mr Miles is developing with Suncorp calls for the new business to acquire one billion dollars in funds under advice within two years. To enable that targe to be reached, Suncorp will provide incentives of many millions of dollars. 61 Mr Miles does not say that he remembers nothing at all of the confidential information provided to him in the documents upon which Genesys relies. In view of the concessions which he made in cross examination, he could not do so. It is clear that he has already endeavoured to select Member Firms to solicit for the new business by reference to their performance for Genesys and by reference to their current investment platform use - all confidential information provided to him in the course of his employment: see particularly 31, (d), (e), (f), (g), (i), (j) and (k) above. 62 Mr Miles attempted to show that all of the confidential information which he might recollect would now be out of date and of no use, so that nothing he did in his role in the new business could be to the detriment of Genesys. I am far from persuaded by this submission. 63 Mr Kirk says, and I accept, that the Strategic Plan is still the blue-print for the future development of Genesys. The evidence is that, while there have been some changes in the constituency and performance of Member Firms since Mr Miles left Genesys, their overall position is not markedly different. Finally, Mr Miles himself conceded that, in competing with Genesys in the new business, he would still have a head start over those who had no knowledge of Genesys' business. I find it inherently unlikely that Mr Miles cannot recollect any part of the confidential information entrusted to him which may still be of competitive use. 64 For these reasons I find that in proposing to commence and conduct as a principal a new business in competition with Genesys within the restraint period, Mr Miles is in breach of the terms of Clause 6.1(a)(i) of the Deed of Release.

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Genesys has not proved that it would suffer any real detriment if Mr Miles was not restrained from competition in the terms provided in Clause 6.1. 75 I am unable to accept any of these submissions. 76 First, it is clear that the information received by Mr Miles and identified by Genesys was at a high level of confidentiality. It directly equipped a competitor to attack Genesys' weak points in its relationships with Member Firms and to build upon them. The Strategic Plan told Mr Miles what directions Mr Kirk, as CEO of Genesys, would take in the years up to and beyond 15 September 2009. It is commercially unreal to suggest that it is merely stifling competition to prevent one particular competitor who has that kind of inside information from using it. 77 Mr Miles' potential to damage the business of Genesys by using the confidential information and by soliciting its Member Firms was very high, as may be gauged from the target of one billion dollars in funds under advice which Mr Miles hoped to achieve within two years and for which Suncorp was prepared to offer many millions of dollars as an incentive. 78 I am satisfied that Genesys had a legitimate business interest to protect in seeking the restraints against competition from Mr Miles provided in Clause 6.1. 79 I acknowledge that the territorial reach of the restraints is wide. However, the evidence shows that the Member Firms are scattered across Australia. I am not persuaded that the duration of the restraints is unreasonable. I have regard to the following considerations. 80 First, Mr Miles' relationship with Member Firms at a senior level was very lengthy, almost twenty years. Mr Miles is very experienced in the financial planning industry generally and enjoys a high reputation with Member Firms. His recollection of the thrust and substance of the relevant confidential information provided to him is likely to be good and, at the least, useful in his new business. His ability to solicit Member Firms from the Genesys network to his own business would inevitably take some time for Genesys to counter and neutralise. What Mr Miles has built up over some twenty years could not be undone in thirteen weeks. Mr Miles himself concedes that his new business is "likely to have an impact on Genesys" : affidavit 27 May 2008, [70]. 81 At the time that the parties were negotiating the Deed of Release they were on an equal footing and Mr Miles had the benefit of independent and experienced legal advice in making a contractual admission that the restraints were reasonable. Although the Court does not regard such an admission as conclusive, the Court gives it considerable weight where the parties have negotiated on an equal footing and with the benefit of legal advice: Woolworths Limited v Olson [2004] NSWCA 372 at [39] per Mason P; Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260, at 268. 82 It is significant that, in support of his argument that the restraint period is unreasonable, Mr Miles does not rely upon any fact that was not known to both parties at the time that the restraint was negotiated. 83 I do not think that the restraint period of thirteen weeks provided in Mr Miles' original contract in June 2006 is a reliable guide as to what was reasonable in February 2007. By that time, he had received substantial new confidential information in the form of the Strategic Plan. Further, he was negotiating a settlement of a disagreement with Genesys as to his entitlement to benefits in the LTIP. The benefits he was to receive from that compromise would be substantial as the value of the shares in the LTIP then stood. The fact that those shares have diminished considerably in value since execution of the Deed of Release does not detract from the fact that settlement of the dispute as to Mr Miles' entitlement to retain his benefits in the LTIP was a valuable commercial consideration which Mr Miles was obtaining in exchange for the restraint clauses. 84 For these reasons, I am satisfied that the restraints in Clause 6.1(a)(i) and (iii) go no further than are reasonably necessary to protect Genesys' legitimate business interests against competition from Mr Miles for the remainder of the restraint period. I hold that the restraint clauses are valid. 85 It follows that Mr Miles' Cross Claim should be dismissed.

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