Gregory Robert Cave v Two Lands Services Pty Ltd and Another

LEGISLATION CITED : Industrial Relations Act 1996 A&M Thompson Pty Ltd and Others v Total Australia Ltd (1980) 2 NSWLR 1 Allison v Bega Valley Council (1995) 63 IR 68 Autobake Pty Ltd v Budd & Anor (1986) 19 IR 18 CASES CITED : Davies & Anor v General Transport Development Pty Limited & Ors [1967] AR 371 Smith v Director General of Education (1993) 51 IR 204 Stevenson v Barham (1977) 136 CLR 190 Two Lands Services Pty Limited & Ors v Cave [2000] NSWSC 14 HEARING DATES: 02/12/2001; 02/13/2001; 02/14/2001 DATE OF JUDGMENT: 03/09/2001

APPLICANT: Mr D Bernie of counsel SOLICITORS: Williams - The Law Firm LEGAL REPRESENTATIVES: RESPONDENTS: Mr C Magee of counsel SOLICITORS: McCabes Lawyers

JUDGMENT: - 53 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J DATE: 9 March 2001 MATTER NUMBER IRC 5020 OF 1999 GREGORY ROBERT CAVE v TWO LANDS SERVICES PTY LTD AND ANOTHER Application under s106 of the Industrial Relations Act 1996 JUDGMENT

1 This is an application brought under s106 of the Industrial Relations Act 1996 ('the Act') by Mr Gregory Robert Cave against his former employers, Two Lands Services Pty Limited and Two Lands Group Pty Limited. Mr Cave worked for the respondents between July 1998 and May 1999, initially on a commission only basis and latterly on a salary plus commission basis. The claim advanced particularly concerned the initial period of employment, during which over the course of some 6 months, Mr Cave was paid about $1086 in commission. 2 The claims advanced were: '1. An Order declaring the contract of employment between the Applicant and the Respondents dated 6th July 1998 whereby the Applicant performed work in an industry is unfair within the meaning of section 106 of the Industrial Relations Act 1996.

2. The said contract of employment between the Applicant and the Respondents dated 6th July 1998 to be varied as follows:- (a) Notwithstanding any other provision in the agreements between the applicant and the respondents, the respondents are to pay the applicant for salaries and wages for the period 4th July 1998 to 15th January 1999 in the sum of $26,296.02.

(b) Notwithstanding any other provision in the agreements between the applicant and the respondents, the respondents are to compensate the applicant for lack of notice by way of one month's salary in the sum of $4,014.66.

(c) Notwithstanding any other provision in the agreements between the applicant and the respondents, the respondents are to compensate the applicant for annual leave entitlements for the period 4th July 1998 to 15 January 1999 in the sum of $1,660.60.

3. The Respondents to pay the Applicant the sum of $31,971.28 together with interest on this amount at Supreme Court rates from the date of 6th May 1999.

4. The Respondents to pay the sum of $1,97l.40 on behalf of the applicant's superannuation as directed by the applicant to a superannuation fund.

5. The Respondents to pay the Applicant's costs of these proceedings.

3 Evidence was called from Mr Cave and in the respondents' case, from Mr Philip Pomfret and Mr Julio Labraga, directors of the two respondents. 4 Mr Cave came to be employed by the respondents after he had been involved with them in relation to the acquisition of some investment property and had also investigated a joint venture property project with them. There was a disagreement in the evidence of Mr Pomfret and Mr Cave as to whether it was Mr Cave who had raised the possibility of employment with Mr Pomfret or vice versa. In so far as it is necessary to resolve this controversy, I prefer the evidence of Mr Pomfret to that of Mr Cave on the matter. Mr Cave's version of events, as will be seen, painted a most unlikely scenario. When this was considered together with other difficulties in his evidence, the conclusion which I reached was that his evidence must be rejected in favour of that of Mr Pomfret on this point. 5 Mr Cave had for some 18 years been employed in the money market, latterly as the managing director of MW Marshall & Co's Australian operation. When that employment came to an end he received a significant payout. He also had a substantial amount of superannuation to invest. The investment of this latter money in a joint venture with the respondents was the subject of discussions in the first half of 1998 between he and Mr Pomfret, whom he had come to know while employed at Marshalls. 6 After Mr Cave's employment with Marshalls came to an end, he looked into the acquisition of a landscaping business and for that purpose, worked in the business concerned for some time. He eventually decided that the financial needs of his family were such that he would not pursue this business, but would return to work in the finance world. To that end he investigated the acquisition of a franchise in the mortgage industry from Mortgage Choice. 7 Mr Cave's affidavit evidence was that after he had decided to purchase that franchise he went to see Mr Pomfret in about June/July of 1998 about the possibility of the respondents referring work to him. Completely out of the blue, at that meeting Mr Pomfret told him of the possibility that he could work for the respondents in the mortgage origination field. Mr Pomfret offered him a job a few days later on a commission only basis and he decided not to go ahead with the Mortgage Choice franchise, because the job with the respondents offered him better prospects. He formed this view in light of the $25,000 franchise fee he would have to pay Mortgage Choice and even though he had had no discussions with Mr Pomfret as to how much commission he would be paid by the respondents or what his eventual salary might be. The employment commenced on 6 July 1998. 8 Mr Pomfret's affidavit evidence was to different effect. It was his evidence that Mr Cave had asked his advice about Mortgage Choice in about March 1998, while Mr Cave was investigating Mortgage Choice and Mr Pomfret had then told Mr Cave that the respondents were themselves proposing to enter the mortgage origination business, that Mortgage Choice was not, in his view, the best way for Mr Cave to get into that industry and that he should consider working for the respondents. This possibility was raised with him again by Mr Cave in late May. Mr Cave evinced an interest in working for the respondents. Mr Pomfret was careful about what he then said, because he was concerned to ensure that Mr Cave did not simply use the information which he obtained to further his own competing business. The upshot was that he then discussed the possibility of Mr Cave's employment with Mr Labraga and a few days later offered him a position on a commission only basis with the respondents until January 1999. The terms of that employment were further discussed between Mr Pomfret and Mr Cave later in June and it commenced on 6 July. Mr Labraga's evidence corroborated that of Mr Pomfret in a number of respects. 9 In cross examination, Mr Cave explained that his initial discussions with Mr Pomfret had occurred in May/June not June/July. He denied any earlier discussions, however, nor further discussions until the end of June. He also denied that he had discussed with Mr Pomfret the level of commission arrangements he was to receive or other terms of employment. Despite this he asserted that he had come to the view that employment with the respondents offered him better prospects than Mortgage Choice and he accepted the respondents' offer of employment on that basis without further investigation or discussion. Mr Cave's evidence was completely implausible and I had the greatest difficulty with it. I preferred the evidence of Mr Pomfret. 10 The parties executed a written employment agreement on 6 July, the first day of Mr Cave's employment. The agreement did not specify the commission rate, referring to other discussions about that matter and contemplating that the terms of the commission payments would be put into writing. That was not done, but there was no issue as to what the commission arrangement was. Mr Cave was content with the arrangement and made no complaint about it, while the employment subsisted. 11 It was apparent, from the evidence, that the respondents had always offered employment to Mr Cave on a commission only basis during the set up phase of their new mortgage origination business. The parties expected that significant returns would be generated for each of them, later in Mr Cave's employment. They went into the arrangement in the expectation that the relationship would be a long term one, with the possibility of Mr Cave taking an equity position in the business and leading the division being discussed. They had also discussed whether Mr Cave could afford to fund himself during this period, it being Mr Pomfret's expectation that he would not be making any real money for 6 to 12 months. Mr Cave was able to do so because of his income from other sources, although it was understood he was looking for work with which to support his family. The possibility of employment on a salaried position from January 1999 was also discussed, but not promised initially. 12 The written contract also contained various confidentiality and restraint of trade provisions. It was common ground that the terms of the contract were discussed by Mr Cave and Mr Pomfret on the first day of his employment. Their evidence differed in some respects as to the nature of this discussion. In Mr Cave's affidavit evidence he deposed that he was told by Mr Pomfret that he needed him to sign the agreement because: 'You're going to be a joint venture partner and you will be privy to sensitive information with respect to property developments.' It was also his evidence that he did not understand the terms of the restraints, but accepted Mr Pomfret's statement that they were concerned with the property development venture. 13 Mr Pomfret denied this. His affidavit evidence was that he said to Mr Cave in their discussions about the agreement that: "Greg I have here our company's confidentiality and working agreement that I have talked to you about before. What I now want to do is read through it with you, discuss and sign the agreement". Greg Cave said: "That's not a problem for me". I gave Greg Cave one copy of the agreement and retained a second copy. I then read through the entire agreement word for word with Greg Cave. At the end of each point I summarised the effect of the clause. After I read the agreement I said: "Greg you can see from this agreement that you have to keep confidentiality. After you leave us, you cannot contact clients and referrers. You cannot compete with us or establish another business in the same industry for 12 months after leaving". Greg Cave said: "That does not concern me. We have talked about these things before. Anyway these restraints are standard and they are probably not binding". I said: "No Greg. You should be quite clear on this. I have had advice from Terry that the agreement is binding and the restraints will work".

He said: "Well I have no problem with them anyway".

14 Mr Cave denied this conversation in his affidavit in reply, repeating the earlier conversation he asserted had taken place. His evidence was that: 'I deny that Philip Pomfret read the agreement to me word by word and say that I myself read the agreement and did not understand the terms of the restraints contained in clause 5 of the agreement, but accepted the representation by Philip Pomfret as set out in the conversation above to the effect that the restraints were to prevent me using knowledge gained in connection with property development.'

15 Despite this evidence Mr Cave agreed, in cross examination, that he had signed the agreement after his discussion with Mr Pomfret, because he was happy with it, that he had not been pressured into signing it and had he wished, he could have taken it away to study it or to seek legal advice about it. He agreed that he understood that the restraints in the agreement were not confined to the property development project and that he understood that they concerned information he would obtain regarding mortgage origination work. His evidence was, however, that he believed that these terms were not binding, because they would be in restriction of trade. That latter evidence, of course, accorded with Mr Pomfret's account of their discussion. 16 In this instance, I also prefer Mr Pomfret's evidence to that of Mr Cave. On Mr Cave's own evidence, he understood that the agreement was concerned with his employment and the information about the respondents' business which he would acquire in the course of that employment. He accepted the terms, having understood them, because it was his view that they were not, in any event, binding. This was consistent with his later conduct, when he acted in direct breach of those agreed terms. The fact that at the time of the employment commencing, the property joint venture between the parties had not progressed - and, in fact, never did, also tends to cast doubt on Mr Cave's version of the discussion. On his own evidence, Mr Cave never signed the joint venture agreement which he had received from the respondents in March. That agreement required Mr Cave to forward to the respondents the $250,000 to be invested in the joint venture on execution of the agreement. No such steps were ever taken. I also accept Mr Pomfret's evidence that he would not have provided Mr Cave with information about possible property projects, because he had not executed a joint venture agreement. Thus the issue of confidentiality in relation to such matters never arose and the confidentiality agreement was not directed to that topic. 17 A new salary arrangement was introduced for Mr Cave in February 1999 and backdated to 15 January, some two weeks after it had originally been anticipated. It provided for annual salary of $50,000 and new commission arrangements. The claim brought in these proceedings suggests that Mr Cave was content with the new arrangement. After all, he seeks to have the Court vary his employment contract so as to require the respondents to remunerate him on this basis during the first six months of his employment. 18 In cross examination, in answer to a question as to when he first considered leaving the respondents' employment, Mr Cave, however, said: 'I became frustrated when the - on two issues: When the salary package was introduced, one, it was much lower than what was indicate to me on a number of occasions and, two, 1 January was when I was told both initially and on an ongoing basis when the salary would start and then they decided to change that to 15 January. There was a number of issues, as you rightly pointed out. There was only $2 million of loans written. I became extremely concerned that the amount - the expectations put in those presentations were - sorry, I don't want sound - pie in the sky - I don't want to sound frivolous.'

19 There was, however, no evidence that any promises of a higher salary had ever been made to Mr Cave, nor was such a claim advanced in the proceedings. That evidence was also inconsistent with Mr Cave's affidavit evidence, where he deposed that '… after reviewing the Respondents career and remuneration structure I was disappointed because they were not competitive nor realistic.' No evidence from which it could be concluded that Mr Cave's package was either uncompetitive or unrealistic was led. That seems unlikely to have been the case. After all, this application is concerned with a claim for a variation of the contract in precisely those terms, in order to make the employment contract a fair one. 20 By the time the new structure was introduced, Mr Cave had been trained in the work, had participated in the development of certain 'scripts' used for cold calling purposes in the business and overheads for presentations to potential referrers and he had commenced soliciting business. Again, while Mr Cave's evidence was that he had been responsible for the development of these scripts and overheads and had not commenced soliciting business until September, that evidence conflicted with that of Mr Pomfret and Mr Labraga and as to soliciting work, with Mr Cave's own diary. I reject Mr Cave's evidence about these matters. I prefer the evidence of Mr Pomfret and Mr Labraga to that of Mr Cave, where their evidence differs. 21 Concerns about Mr Cave's work performance had also, however, emerged. There were differences of opinion between he and Mr Labraga, to whom he reported about various matters. He was unhappy about the appointment of another consultant, Mr Balmer, in respect of whose loans it had however been agreed he would be paid an override commission of 0.05%. There were concerns about his practice of taking long lunches on Fridays, his failure to schedule appointments during Friday afternoons and to return to the office after afternoon appointments. These matters were the subject of remonstration by Mr Pomfret and Mr Labraga, who were also concerned at the low number of loans Mr Cave was writing. 22 Mr Cave's performance did not match that of Mr Balmer, a cause of apparent friction between he and Mr Cave. During the first part of his employment, Mr Cave only wrote 3 loans, generating income to the respondents of $2046 and commission to him of some $1086. 23 Despite these difficulties, Mr Cave was given a salaried position in January 1999, as had been earlier discussed. Both Mr Pomfret and Mr Labraga explained this as giving effect to promises the respondents had made to Mr Cave and Mr Balmer, who was also given a salaried position at the time despite concerns about his performance being held as well. Mr Labraga described the decision in relation to Mr Cave as having been a bad one. Mr Pomfret's evidence was that it was made, in part, in order to motivate Mr Cave. It was his evidence that Mr Cave was being offered a fresh start under the new package and was told that if things were not going to change 'we might as well call it a day now, otherwise we are wasting each other's time'. While it was put both to Mr Pomfret and to Mr Labraga that at that time they were in fact satisfied with Mr Cave's performance, they each denied it. I accept those denials, having in mind the difficulties discussed with Mr Cave previously and his lack of success in generating loans up to this time. In this respect it seems he was treated similarly to Mr Balmer, whose performance, while better than that of Mr Cave, was still not up to the respondents' expectations. He too was employed on a salary and remained in the respondents' employment at the time of the hearing. 24 After the new arrangement was introduced, while on Mr Labraga's evidence, there was an initial improvement on Mr Cave's part, the difficulties continued. 25 In late March, Mr Pomfret and Mr Labraga met with Mr Cave and again discussed difficulties with his performance. Mr Cave again committed to improving his attitude and his work. In this latter period he wrote 5 further loans. His evidence was that had he become concerned that he would not meet his budget, so as to generate further commission payments in addition to his salary. None of the witnesses, however, gave evidence that Mr Cave raised concerns about his remuneration structure or his earnings prior to the termination of his employment. The steps then taken by Mr Cave in order to establish a business competing with that of the respondents where he would be entirely reliant on commissions flowing from loans arranged by him, suggest that, in reality, he had no concerns about his ability to generate loans. 26 In April, Mr Cave took steps to investigate the possibility of commencing his own business in competition with the respondents. He spoke with a competitor of the respondents, Mortgage Professionals, and discussed with his wife terminating his employment with the respondents. On 6 May, Mr Cave's employment came to an end. Again the evidence of Mr Cave and Mr Labraga as to what occurred cannot be reconciled. 27 Mr Cave's original affidavit evidence was that: 'On the morning of 6th May 1999 I met with Mr Labraga and said to him: "I feel that the budgets being used by Two Lands are unrealistic and I am concerned with the lack of response in respect of matters that I have raised with you in the past and I am not sure as to whether I want to work at Two Lands Services. I am considering my future, and there are a couple of options that I can consider. I could return to the money market or to an organisation more akin using my broking skills. I can of course continue working for Two Lands." Mr Labraga said to me:- "If you are unsure of your commitment to Two Lands Services it might be better for you to go." I said: "Do you want me to work out my one (1) months notice?" Mr Labraga said: "It is better for you to leave immediately." '

28 Mr Labraga gave his version of the conversation in his affidavit, it was to this effect: 'On 6 May 1999, I had my normal weekly meeting with Greg Cave. I said to him words to the following effect: "Your morale appears to be very low. You do not seem motivated. What is wrong?" He said to me words to the following effect: "It is good you have brought that up. I am not sure if this business is for me. I am uncertain as to whether I will reach the budget. What I need is some time to have a good think about it, if this business is for me. I have been talking about it with my wife and I will possibly go back to what I used to do before in the money market or go into some other field." I said to him words to the following effect: "Well maybe the best thing for you is to finish today. I am not sure how long you will decide to be with us and we need to do everything possible to continue to support and maintain the referrer base." He said to me words to the following effect: "Well that's fine as far as I am concerned." I said to him words to the following effect: "I was wondering what was happening when you did not come back into the office last Tuesday night." (It is a Company requirement that each evening the finance consultants return to the office to write up the results of their calls). He said to me words to the following effect: "I noticed you did not question me on that yesterday. If you have asked me about it, I had decided to tell you to f…..off. We would have had a fairly ugly scene and I would probably have left then and there. I am glad that we have been able to end up in an amicable way and I can leave here with no problems." Prior to 6 May 1999, I had no indication from Greg Cave that he wanted to leave after having a coffee and chatting about his future, we returned to the office. He handed his keys to me and I said words to the following effect: "I will give you a call and will arrange a time for you to come in and collect your personal belongings." '

29 By way of further affidavit evidence, Mr Cave denied Mr Labraga's version and said that he had said to Mr Labraga: GC "I can work out my one months notice" JL "It is company practice to have staff leave immediately."

30 In respect of this issue, I prefer the evidence of Mr Labraga to that of Mr Cave, for reasons which I will explain. 31 On 7 May, Mr Cave entered an agreement with Mortgage Professionals and began working in competition with the respondents, approaching the respondents' referrers in breach of the confidentiality provisions of his employment agreement. This led to proceedings in the Supreme Court in which Santow J made numerous findings against Mr Cave, including that Mr Cave took from the respondents the list of referrers with whom he had dealt. (See Two Lands Services Pty Limited & Ors v Cave [2000] NSWSC 14at para 28.) This was, nevertheless, denied by Mr Cave in cross examination in these proceedings. 32 On 11 May, Mr Cave returned to the respondents' premises to return to them various things in his possession and to obtain various personal items. He informed Mr Labraga that he was then considering various options. In fact he was already in business competing against the respondents and actively seeking to entice the respondents' referrer base away from them - a matter which he did not bring to the respondents' attention. This was in a context where, on his own evidence, he was aware that the respondents always regarded the initial stage of their business 'was to develop a solid referrer base in which they can reap the rewards at a later stage.' 33 Mr Cave also did not inform Mr Pomfret that he had commenced working on his own account with Mortgage Professionals when Mr Pomfret called him. The respondents discovered this over the next weeks, as they sought to pursue business with the referrers that Mr Cave had been servicing in his employment with them. In cross examination, Mr Cave also confirmed that he had used the respondents' standard loan assessment form in his new business. 34 The upshot for the parties has been that during Mr Cave's employment by the respondents: - Mr Cave wrote 8 loans for a total loan volume of $3,015,000. His budget for the latter part of that period was $13,700,000.

• Mr Cave was paid $17,917.51 during his employment, including $1086.25 commission, (for the period prior to January 1999, budget not being met thereafter and no further commission payments being generated).

• The respondents' earned $2,046.60 on the 5 loans written by Mr Cave, after payment of his commission and the referrer's fee. Those loans will generate further trail commission payments to the respondents in future years. No payments will be due to Mr Cave in respect of those payments, as the result of the termination of the employment. The respondents also incurred significant direct and indirect in costs as the result of Mr Cave's employment.

35 The aftermath of Mr Cave's decision was: - The respondent developed a referrer data basis as the result of Mr Cave's work. After he left, as the result of his activities, that business was largely lost to them. - The Supreme Court litigation. In those proceedings much, but not all, of the restraint was enforced against Mr Cave, with the end result that he was restrained from pursuing the respondents' referrers during the period from the judgment given in February 2000 to May 2000, the date falling 12 months from the termination of the employment. In addition, the respondents have leave of the Supreme Court to pursue a damages claim in respect of either an account of the applicant's profits or their own losses flowing from the business undertaken by the applicant contrary to the restraint, during the period from the termination of the employment in May 1999 to the judgment in February 2000. No such action has been commenced, although it remains open at present. The applicant has also been ordered to pay the respondents' costs of that litigation. A claim of $40,000 is to be taxed.

• A new business for Mr Cave, which is still ongoing and which, for instance in December 1999, generated a payment of $19,790.60 to his business, VMKS Holdings by Mortgage Professionals in respect of some 9 loans written between 10 November and 30 December 1999. How much of this income is potentially affected by the Supreme Court proceedings is unclear.

The decision of Santow J 36 The parties were agreed that the matters decided by Santow J were res judicata between them. There was no appeal from that judgment. In the context of the parties' respective cases, it is necessary to consider that judgment in some detail. 37 His Honour's relevant findings were: '11 Earlier on 25 March 1998 the Defendant told the Plaintiffs' director Philip Pomfret of his desire to enter the mortgage lending industry. The Defendant asked Pomfret if he could work at Two Lands Services Pty Limited.

12 It should be noted that as of May 1998 the Defendant's subsequent employer, the Mortgage Professionals had started in business.

13 After some discussions, in which I am satisfied Mr Pomfret advised the Defendant of the need to sign an agreement to prevent his use of the Plaintiff as a training ground to compete, the Defendant was retained. He started work with Two Lands Services around 6 July 1998.

14 On 6 July 1998 the Defendant signed the contract, comprising confidentiality and restriction of trade provisions with Two Lands Group Pty Limited. He was initially to be paid commission only and was to be on six months' probation.

15 The contract included terms relevantly as follows: "4. Confidentiality 4.1 The Employee agrees that except as authorised by the Company or as required by law he shall at all times keep secret and shall not at any time during the term hereof or thereafter use for his own or another's advantage or reveal to any person any of the trade or business secrets or information relating to the affairs and practices of the Company which the Employee knows or ought reasonably to know to be confidential and the Employee shall take or cause to be taken such reasonable precautions as may be necessary to maintain such secretary [sic] and confidentiality and prevent such disclosure. 4.2 The employee agrees not to contact nor conduct business with any referrers of clients of the Company or any clients of the Company either directly or indirectly for a period of at least twelve months from the date of termination of employment of the employee of the Company, without consent of the directors of the Company in writing. 4.3 All such information and other documents and materials made available to or made by the employee in connection with the performance of his duties herein shall be and at all times remain the property of the Company and copyrights in any document or other material prepared by the Employee for the Company pursuant to this Agreement shall be and remain the property of the company and the Employee hereby assigns the same to the Company. 4.4 Upon termination of this agreement for any reason the Employee shall forthwith deliver to the Company all documents materials and records which are then in his possession or control relating to the business carried on by the Company or its subsidiaries and no copies thereof shall be retained by the Employee.

5.1 The employee expressly acknowledges and agrees that the restrictions herein undertaken by him are fair and reasonable having regard to the nature of the Business, the information acquired by the Employee during his employment and the field of activities of the Employee, and necessary to protect the goodwill and the Business of the Company and that the Company has agreed to employ the Employee on the terms and conditions provided herein in consideration of the restrictions undertaken in this clause. The parties acknowledge that:- (a) The company has invested substantial capital and time in obtaining extensive contact with Banks, Insurance Companies and funds providers including (without limitation) Bank West, ANZ, Bank of Melbourne, Australian Mortgage Securities, Westpac, FAI Life and Zurich Australia; (b) There are very few companies providing the combination of loan and risk products with similar funding packages and services within New South Wales; and (c) The Company could suffer substantial damage if the Employee worked for a competitor in New South Wales after termination of his employment with the Company or if the Employee were himself to conduct a business in competition with that of the Company. 5.2 The employee agrees and covenants in favour of the Company that:- (a) During the currency of this agreement and for a period of twelve months after the expiry or termination thereof for any reason he will not directly or indirectly and whether jointly with or on behalf of any person in any capacity whatsoever whether as promoter, shareholder, director, secretary, sole trader, partner, joint venturer, independent contractor, sponsor, lender, supplier, licensor, licensee, owner, consultant, manager, agent or otherwise carry on, operate or be engaged or interested or employed in any business which carries on a business similar or related to the Business or any part thereof or any other business carried on by the Company within one year prior to expiry or termination of this Agreement within New South Wales or for any subsidiary or related company of a company carrying on such business; and further that:- (b) He shall not during the same period and within the same area procure or attempt to procure orders, contracts for or promote any person who carries on a business similar to or related to the said Business carried on by the Company or solicit, canvass or procure or attempt to solicit, canvass or procure for himself or for any other person whatsoever, any order, contracts, requests for services or business from any person with whom he or the Company has dealt in the course of his employment pursuant to the terms of this Agreement. Further the Employee shall refer any such order contract, and requests for services or business to the Employer and shall not thereafter maintain any communication with such person. (c) He shall not during the same period and within the same area enter into orders, contracts, requests, business or the provision of services with or from any of the Banks or Insurance Companies with whom he or the Company has dealt in the course of his employment including ( without limitation) Bank West, Wsetapc [sic], Australian Mortgage Securities, ANZ , Bank of Melbourne, FAI Life and Zurich Australia."

There is a general severance provision severing "provisions of this Agreement" in clause 7.2. It is not drafted in the conventional mode as a series of concentric circles progressively widening the restraints by reference to their geographic area and duration.

16 In that month (July 1998), the First Plaintiff (Two Land Services) had commenced its own mortgage origination lending program. Its business was to provide or procure residential finance through a system its director Mr Labraga called securitisation. The Company's main financial backer was, and is, ABN Amro, through a securitisation company called AMS. Through AMS, the First Plaintiff provide residential mortgages for borrowers.

17 The business was described by the Defendant, Mr Cave, (see his affidavit of 22 July 1999, paras 9 and following) as follows: "where the mortgage originator endeavours to arrange the lending of monies which are secured by mortgages. The borrowers are obtained by "referrers" of business, such as accountants or solicitors who may introduce to the mortgage originator one of their clients who may wish to borrow funds on the basis of a mortgage security. The funds are then directed from the lender to the borrower with the mortgage originator acting as the intermediary and receiving a portion of the interest rate charged. In recent years, mortgage originators are commonplace and established mortgage originators in the market include "Aussie Home Loans", "RAMS", "Wizard", "Mortgage Choice", "Quick Start Home Loans", "Residential Housing", and "Fairchilds."

18 When the First Plaintiff commenced its own mortgage origination lending programme in approximately July 1998, having then started its involvement with ABN Amro, it transacted that business almost entirely on a referral basis. Most of the First Plaintiff's referrals came through accountants or professionals such as solicitors. These referrers referred business to the First Plaintiff, which became responsible for the client so referred thereafter; see affidavit of Mr Labraga of 8 July 1999, paras 7 to 10.

19 The business thus started with Mr Cave's appointment. There were only two finance consultants, Mr Cave being one. He can be taken thereafter to have been involved with most if not all the Plaintiffs' referrers and clients. 20 Mr Cave confirms in his evidence that during the whole of the period of his employment with the Plaintiffs the only lender from whom the Plaintiffs' obtained finance was AMS.

21 Mr Cave's evidence on the nature of the business is consistent with the picture of the nature of the business as described by Mr Labraga. 22 Similarly consistent, is the description of the tasks required of the Defendant as "Finance Consultant". Essentially, the Company worked by a system whereby the finance consultant "cold calls" accountants and other potential referrers identified through the yellow pages; a cold calling script prepared by the Plaintiffs is utilised. When a meeting has been arranged, the consultant then goes through the Company's products and services using an overhead presentation developed by the Company. The referrer obtains a referral fee on what is described as a trailer commission or an up- front fee.

23 Mr Labraga explains the importance of the relationship with the referrers in para 9 of Mr Labraga's affidavit of 8 July 1999. I quote: "It is essential from the Company's business point of view that having developed a relationship with a referrer the Company is able to maintain that relationship and ensure business continues to flow from that referrer. This is because the Company has chosen not to mass market or advertise and referrals are the only significance source of business for the company. The Company has taken the view that it will spend time and in fact incur losses in developing a referral network that way so that having developed that network it will get an ongoing source of business from the referral network to offset its costs."

24 Mr Labraga then emphasised that, "The Company spends a large amount of time training the Finance Consultants. This training involves using set systems and presentations to engage and develop the relationships with the referrer through a number of stages." See Mr Labraga's affidavit of 8 July 1999, para 9. 25 While Mr Cave did not accept that his training was all that extensive, there is no major difference between Mr Labraga's description and Mr Cave's on that score and I accept that the First Plaintiff did expend time and effort on training Mr Cave. I note that his initial training took approximately two weeks and culminated in an examination which Mr Cave completed; see Mr Labraga's affidavit of 8 July 1999, paras 11 and following.

26 In addition, the First Plaintiff kept a list in which were graded its referrers from A to D, with the A referrers being those that had the greatest potential to send business, gradated down to the D referrers who are consider [sic] generally unlikely to refer work. Mr Labraga gave evidence, which I accept, that "A lot of the A's and B's are ones that have already referred business during that time. From the Company's point of view it is important that competitors not be aware of referrers who are on the A list and on the B list". While again Mr Cave doubted the value of that information or its accuracy, I am satisfied that the list certainly had some usefulness and could fairly be said to be part of the business know-how of the Plaintiff. Significantly, Mr Labraga states that "during Greg Cave's employment by the Company he developed a list which is (sic) approximately 150 referrers all ranked between A and D none of which he had prior to working at our firm", see para 19 of Mr Labraga's affidavit of 8 July 1999. The Company's computer system recorded when the particular referrers were last spoken to and the presentations that have been made and Mr Cave would update the computer system with details of meetings with referrers. It can be seen that the combination of that information and the gradation of the list was therefore important in the successful development of the Plaintiffs' business. It clearly would have had a value to competitors and I am satisfied that it constituted confidential information of the Plaintiffs.

27 Based on the evidence of Mr Labraga and Mr Pomfret and noting that that evidence was not effectively challenged in cross- examination, I would make the following findings: (i) The business of the Plaintiffs was in its infancy and required significant groundwork upon which to build in the future.

(ii) The development of the business of mortgage origination via referrers and without recourse to advertising or other means made the relationship with the referrer crucial to the Plaintiffs' business and its future success. (iii) While building up a relationship with a referrer with consequent benefit to the Plaintiffs' business necessarily took some time, it is clear from the evidence including the Plaintiffs' Statement of Loans (DX1) that there was an exponential increase in business following the establishment of such relationship with referrers, which mainly fructified shortly after the Defendant left the Plaintiffs' employment on 6 May 1999; indeed the business from the Defendant's relationship with referrers was at the level of 30-40% of the Company's total commissions; see paras 21 and 32 of Mr Labraga's affidavit of 8 July 1999. (iv) Mr Cave was in the Plaintiffs' mortgage origination business from the outset and could fairly be taken to have had contact with most of the referrers and clients.

28 I also accept the Plaintiff's evidence that the Defendant took from the Plaintiffs the list of referrers with whom he had dealt and built up a relationship during his employment. Thus see the Defendant's cross-examination following his initial denial at T, 39.40 and .55. At T, 43 he acknowledged that he could not derive the fax numbers which appear on the list of referrers from the Yellow Pages whom he contacted by fax after his employment terminated, leading irresistibly to the conclusion that he had such a list and used it. His initial denial did not assist his credit; he was not overall a convincing witness.

29 Thus Mr Cave attempted to argue that though he may have contacted the referrers by fax and phone but that it was merely to advise them of his new employment and because he did not want to be associated with Two Lands. However, I am satisfied that he was clearly soliciting their business under his new employment with Mortgage Professionals. He acknowledged that he was pointing out that Mortgage Professions [sic] "could offer a complete service"; see T, 44.40. He acknowledged that the faxes he sent such as the sample dated 9 May 1999 (PX4), looked at objectively, suggested that he was forced to leave Two Lands Services and join the Mortgage Professionals so that he could provide a complete service to the clients of the referrer to whom it was addressed; see T, 44.50-.55.

30 The inference is irresistible that in making these methodical contacts with each of the referrers by fax (and also by phone and in person) Mr Cave solicited their business as referrers of borrowers on mortgage; see T, 40, 43, 48, 58 and 59 and the evidence of Mr Labraga in his affidavit of 8 July 1999, paras 25, 28 and 29.

31 Nor can it be seriously disputed that the business now conducted by Mr Cave through Mortgage Professionals is other than competitive with and similar to the business of the Plaintiffs; indeed so similar that his only other contacts by way of referrers or borrowers since he started with Mortgage Professionals are "friends, acquaintances, other people I have made contact with"; see T, 60.31 to .35.

32 Furthermore, Mr Cave admitted obtaining business from the list of referrers and expects to obtain further business from the list (T, 38.48-.55) and also to obtain further business from approaches to referrers (T, 38.35-45, T, 39.3-.8 and T, 60.25).

33 While Mr Cave claimed that he did not use the gradings because he asserted they were "very subjective", I think it unlikely that he would not have gained some material advantage from it; see T, 39.20-.29. In particular, his new employer Mortgage Professionals would have gained some competitive advantage, in learning which referrers referred business and relatively speaking how much. If one is going to attack the underpinning to a customer base, as constituted by the referrer network, then it is clearly important to know both its strengths and weak links.

34 The Defendant also entered into commercial dealings with banks or insurance companies with whom he dealt in his employment with the Plaintiffs, again in furtherance of Mortgage Professionals' competing business with that of the Plaintiffs. Thus he has dealt commercially with at least Westpac and Bank West both during his employment with the Plaintiffs (Labraga T, 15.35, 17.52 and Mr Cave in cross-examination T, 56.28-57.18) and again subsequently. I do not accept his denials of knowledge of them during his employment. Indeed through the Plaintiffs he himself borrowed from Bank West (see cross-examination of Mr Cave T, 35.35 and 36.5) and sat a training exam with Westpac via their accreditation questionnaire; see Mr Cave's affidavit of 22 July 1999, para 15, cross-examination of the Defendant T, 56-7.

35 The Defendant did not dispute that the agreement was intended to be long-term with significant remuneration to flow to him once the business developed; see cross-examination of the Defendant, T, 53.57-54.10, T, 60.55. Indeed there is evidence that he was remunerated beyond his immediate earnings to the Company in anticipation of that future benefit; see cross-examination of Defendant T, 61.5 and Mr Labraga's affidavit of 8 July 1999, para 16, Mr Pomfret's affidavit of 11 August 1999 and the Summary of Commissions Earned from Referees in DX2 referred to in T, 23-4.

36 The Plaintiffs, in their written submissions contend that "the Defendant's exaggerated evidence of his responsibility for the establishment of the Plaintiff's business .... only supports the need for the restraints agreed, due to the improper influence he can bring to bear on the Plaintiffs' clients in reliance on the methods pursued and the relationships fostered during his employment."

37 Clearly enough it was not in dispute that the Defendant initially had no experience in mortgage lending at all, and certainly not in the accountant referred mortgage origination; thus his skills in that regard were developed whilst working for the Plaintiffs.

38 Next it should be noted that the Defendant not only conceded obtaining business via one referrer at least, Mr Beck, (T, 38.50, T 47.2 and T 62.35) but there is also the evidence from Mr Labraga as to referrers lost, being some 30 to 40 (T, 24.35). It was also conceded that the Defendant took the Plaintiffs' Standard Loan Assessment form and utilised it in his new employment with Mortgage Professionals; see T, 41.15-T, 42). That he had earlier denied taking anything with him when he left Two Land Services including documents (see T, 39.40 and T, 39.55) reinforces the impression that his evidence was not to be relied upon in the absence of independent substantiation, certainly where Mr Cave perceived that it might damage his case.

39 I agree with the Plaintiffs' contention that the Defendant's discovery has proven to be unreliable as a measure of the full extent of the business that he has taken from the Plaintiffs, utilising the Plaintiffs' list and referrers; see T, 45.40-T, 47.32.

40 Finally, the Plaintiffs contend that the Defendant has solicited business from John Harrison, John Shirlaw, David Mah Chut, Vince Russo, Ashely White, Anthony Kanaris and David Williams each being referrers of clients of the Plaintiffs. The particulars contained in the Plaintiffs' chronology in that regard were not seriously contested. I accept that contention.'

38 Santow J stated the legal issues which fell to him for determination to be: '42 Question 1 - Construction of relevant restraint

Do any of the alleged breaches infringe the relevant provisions of the contracts, properly construed, leaving aside questions of enforceability or validity, insofar as the particular conduct relied upon pertains to:

(i) failing to keep secret, allegedly confidential information consisting of or derived from the list of referrers gradated according to the level of their referrals (cl 4.1 and cl 4.3);

(ii) any referrers of mortgage origination business to the Plaintiff and the referrer restraint (cl 4.2);

(iii) dealings with any clients of the Plaintiff (cl 4.2)

(iv) dealings with any person dealt with in the course of the Plaintiffs' employment (see above);

(v) any bank or insurance company dealt with in the course of the Plaintiffs' employment (cl 5.2(c));

(vi) entering into orders, contracts, requests, business or the provision of services with or from any bank or insurance company dealt with in the course of the Plaintiffs' employment (cl 5.2(c));

(vii) being in employment or retainer with the new employer in a competing business with the Plaintiff (cl 5.2(a)), or promoting such new employer (cl 5.2(b))?

If the answer is yes to any of the foregoing, is the relevant restraint not against public policy insofar as applicable to the relevant conduct and thus not rendered invalid by s4(1) of the Restraints of Trade Act 1976 (NSW) ("the Act")?

If yes to question 2 in relation to any particular conduct in question, should relief be granted by way of injunction, account of profits or damages or to restrain use of confidential information by way of the list of referrers and their rating?'

39 His Honour concluded, amongst other things: '49 Accepting then that the referrer list with its rating of referrers based upon experience of the level of their referrals is confidential information, it is clear from cl 4.1 that it precludes not only during the term of employment but thereafter use of the list either for the employee's own "or another's advantage". In particular the employee is forbidden to "reveal to any person any ... information ... which the Employee knows or ought reasonably to know to be confidential". This would clearly cover the list with its appended information.

50 In the present case, instead of delivering up the referrer list and retaining no copy, he took it with him to his new employer. I am satisfied on the evidence, that such list with its gradings, would confer some material advantage upon both Mr Cave and his new employer and competitive detriment to his former employer; see 32 above.

51 Once that has been established, the principles are clear. Whether or not the relevant information amounts to a trade secret, the courts will uphold an agreement to protect information, which is understood by the parties to be sensitive to the restrainor's business or goodwill and might be used as "springboard" by the employee to commence in competition with his own former employer, as I am satisfied was the case here; see Wright v Gasweld Pty Limited (1991) 22 NSWLR 317 at 329D-E, 337-8, 341; K A & C Pty Limited v Ward (1998) 45 NSWLR 702 at 723A & F; SSC & B: Lintas NZ Ltd v Murphy (1986) 3 NZCLC 99, 546 and Canadian Aero Service Ltd v O'Malley (1973) 40 DLR(3d) 371.

60 The construction which I would prefer is at neither extremity. I would first include as a "referrer" within cl 4.2 anyone who had, during the term of the relevant employment, actually referred a client or of whom, already cultivated, it could reasonably be expected would refer a client in the foreseeable future. This recognises that cultivation of referrers on the evidence is a long-term process which does not yield immediate results and is indeed now yielding substantial results only after the employee has left. Likewise, included in the class of those referrers within cl 4.2 would be any diverted referrer who, but for the employee's subsequent contact from his new employment, would reasonably be expected to have referred a client or clients for the Plaintiffs' mortgage origination business, since obviously the employee should not be able to profit by his own wrong.

61 Clearly enough those referrers in the highest category of referrer in the list should be treated as "referrers" for the purposes of cl 4.2, in the absence of evidence from the Defendant that someone in that top category was not in reality a prospective referrer, leaving aside of course the effect of any contact with the referrer by the employee or new employer post-employment. I would leave open the possibility that someone not in that top category would in reality also be likely to refer clients. I would accept that my referrer who did in fact do so, though it be after the Defendant's departure, should be treated as within "referrers" for the purposes of cl 4.2. It follows from what I have said, that I would not draw the line at the point where the employment terminates and exclude as a referrer someone who had yet to refer any client but who subsequently did so to the Plaintiffs provided it can be shown that the referrer was originally cultivated by the Plaintiff via Mr Cave, such that a referral to the Plaintiff might reasonably have been expected, but for Mr Cave's departure. It should be remembered that the clause itself ceases to operate after twelve months from termination of the employment, giving a natural end point to the reach of the clause.

66 I have already referred to the context and factual matrix of this contract. Here we have a modus operandi which depends upon referrers and recognises the lengthy period from cultivation of the referrer to the actual referral of business. This makes a constraint upon access to referrers readily explicable. I turn now to the embargo on dealing with any clients of the Plaintiff, where the employee is similarly constrained by cl 4.2. …

69 That contention is not made out. The expression "similar or related" requires a comparison of the degree to which the two businesses compete in the same market. Clearly enough Mortgage Professionals is carrying on a similar or related business to that carried on by the Plaintiffs both in modus operandi and in pursuit of similar business. There is no need to identify the degree of similarity with any greater precision than that. Were it necessary to do so, I would include as "similar or related" any mortgage origination business whose modus operandi includes use of referrers via a concerted programme for their cultivation, whether or not accompanied by an advertising campaign and who operate generally in the same or overlapping territory. Such an interpretation is consistent with the language of the clause and negates any suggestion of uncertainty.

72 It thus follows that cl 5.2(c) is made out so far as Bank West, Westpac and Australian Mortgage Securities is concerned, with the issue remaining of validity and relief.

80 It is clear here that the actual breach is employment with Mortgage Professionals and only in relation to that employer. I have already concluded that its business is in competition with the Plaintiffs' business.

82 Thus I am satisfied that the twelve months stipulated does not exceed a reasonable period, looking at reasonableness as between covenantor and covenantee. Looking more broadly to the public interest and in particular as affecting the Defendant's new employer, Mortgage Professionals, its competitive capacity is simply denied the embargoed springboard that unconstrained access to the Plaintiffs' referrers would otherwise provide. It certainly does not drive Mortgage Professionals out of business so as to deny the public the benefit of that competition. No such submission was put to that effect. The public continue to have access to the mortgage origination services provided by Mortgage Professionals with many other competitors in the market.

83 Accordingly, I would conclude that the referrer restraint satisfies the requirement for validity set out in s4(1) of the Act . Client restraint and validity

84 Turning to the client restraint, the clients here are to be taken to be those who have used the services of the Plaintiffs in seeking mortgage accommodation. I am similarly satisfied that the "package", to use Young J's phrase, is not unreasonable in terms of s4(1) of the Act. While here Professor Blake's test of the substitute reasonably competent new employee may be more reasonable, I note that even in that situation, Young J would not have considered that a period of six months to a year was necessarily too long. The employee here was a senior one, one of only two, familiar with all the referrers and indeed vitally involved in maintaining the list. He was also, it can be said, likely to be familiar with all the clients in a small business and central to it. So the aspect of unreasonableness that applies in a large organisation where one employee may have little contact with more than a small fraction of employees is not applicable here.

85 Accordingly, I consider that the client restraint is reasonable and satisfies the requirements for validity under s4(1) of the Act. Constraint on dealing with any other person - validity

86 I do not consider the very generalised constraint on dealing with any person dealt with in the course of employment to be reasonable or such as to satisfy the requirement for validity in s4(1) of the Act. The restraint is simply too wide in its ambit with no evident justification for its reasonableness.

88 It follows that I conclude that the restraint on dealing with "banks or insurance companies" is unreasonable and against public policy in terms of s4(1) of the Act . Constraint on employment or retainer - validity

89 It will be apparent from the foregoing that the general constraint on employment or retainer with the new employer or promoting the new employer being respectively, cl 5.2(a) and 5.2(b), though capable of applying to constrain employment with a non-competing business elsewhere in New South Wales similar in character, should not in the present context be dealt with by reference to such an imaginary breach. Rather, the focus is on the actual breach in terms of the relief sought, being the breach constituted by employment with Mortgage Professionals. I am satisfied that the Defendant is precluded by the relevant clauses from such employment and that the operation of those provisions is not contrary to the public interest in terms of s4(1) of the Act in their actual operation in the present circumstances. Question 3 - Relief

90 Having regard to the conclusions I have reached in questions 1 and 2, the Plaintiffs are entitled to the relief sought both by way of injunction in relation to any future contravention of the relevant restraints (other than those dealt with in paras 87 and 88 above), limited to twelve months where so stipulated, and to either damages or an account of profits. The Plaintiffs must elect as between damages or an account of profits and I am satisfied that there is a sufficient degree of fiduciary fault for the latter.'

The parties' respective cases 40 The case advanced for Mr Cave by Mr Bernie of counsel was that the claim concerned a contract which was not unfair when made, but which rather became unfair as the result of the respondents' conduct. 41 It was accepted that a contract providing for employment on a commission only basis was not unfair per se and that even in this case, when formed, the contract was not unfair. The contract provided for commission only remuneration for at least 6 months, with all parties expecting significant returns in the long term. Had the contract continued on foot on a long term basis as the parties had envisaged, it was unlikely that the contract would have become unfair. 42 The relevant unfairness, however, arose when the applicant's employment was terminated by the respondents in May of 1999, with the consequence that the applicant was deprived of the expected long term benefits of the employment, including commission trails due to become payable 12 months after a loan was written. By way of contrast, the respondents retained the benefit of ongoing commission payments in respect of the applicant's work. Thus it followed that the contract became unfair, because the applicant did not receive reasonable remuneration for the substantial work undoubtedly performed during the first 6 months of the relationship. 43 The practical effect of the respondents' termination of the contract was that for a period of some 6 months during which it was common ground that the applicant had worked long hours, he had been paid only some $1086. On any view, it was unfair that an employee not be remunerated adequately for his work and these circumstances would lead to the relief sought being granted. Even if the payments made over the whole of the employment were considered, of some $17,000, no different conclusion would follow. The payment for the work was plainly inadequate and would warrant relief being granted. Furthermore, this was precisely the type of case for which the provision of s106 and its predecessors had been designed. 44 It would also be concluded that the complaints advanced by the respondents as to the applicant's work performance had no basis in reality. The respondents' conduct of appointing the applicant to a salaried position in January 1999 would be accepted as demonstrating that at that time, the respondents were satisfied with his performance. In this and other respects the applicant would be accepted as a witness of truth and Mr Pomfret as a witness who was prepared to exaggerate his evidence in order to advantage his case, particularly having regard to his demeanour and manner of responding to cross examination. 45 While Mr Labraga's evidence was differently given, in respect of the crucial question of who had terminated the employment, his language could not but lead to the conclusion that it was the respondents who had brought the employment to an end. There had plainly been personal difficulties between the applicant and Mr Labraga, for which neither should be criticised, but it was obvious that Mr Labraga took the opportunity to bring the employment to an end when it presented itself. It was unarguable that when an employer says that 'it is better that you go today', that there was a dismissal. 46 In that context, the consequences of the Supreme Court proceedings were a distraction from what fell here to be decided. If, as the respondents suggested, the breach of the restraint was to disentitle Mr Cave to relief in this case, he would, in effect, have been doubly punished for that conduct. In that respect, the costs order made against him in those proceedings would not be overlooked. This was a classic case of the kind for which the section and its predecessors had been designed and the relief would be granted. A&M Thompson Pty Ltd and Others v Total Australia Ltd (1980) 2 NSWLR 1 at 13-14 was relied upon: '(68) In the case of applications for reinstatement in employment the Industrial Commission has moved from its earlier principles applicable to such cases to the proposition that what was required was fairness. The industrial tribunals of the State have been quite ready to express their views upon whether there had been unfair treatment in an employment situation. (69) It has been said that fairness is determined by the commonsense approach of a juryman, and that it is a moral and not a legal issue ( Davies case (5b)). Whether this be so or not, it does seem that, in distinguishing between what is fair and what is not fair, the judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so, he would always have to bear in mind the conduct of the parties, their capability to appreciate the bargain which they had made and their comparative bargaining positions when entering into the contract or arrangement. (70) Again, in our opinion, a case involving the issue of unfairness of a contract cannot be disposed of simply by concluding that the complaining party was fully award of the nature of the transaction before entering into it, and later came to regret the bargain. It is insufficient to claim, as Total has done here, that the Thompsons "had their eyes open" when they entered into the subject licence agreement in 1977. Section 88F envisages a much more searching examination of the circumstances than that. Otherwise, its purpose would not be achieved.'

47 Here, it was obvious that the applicant was keen to get into the industry. He had an option to take the offer or to leave it. The end result, however, was that the 6 months training period was inadequately compensated and thus orders in the applicant's favour would follow. 48 It was the case advanced for the respondents by Mr Magee of counsel that many of the factual matters determined in the Supreme Court proceedings were relevant to a consideration of the issues which here arose, as was the outcome of the proceedings. 49 It could not be overlooked that in his supporting affidavit Mr Cave said that he had not had an opportunity to consider the restraint when the agreement was presented to him, but understood that it, in fact, related to his property joint venture with the respondents. When cross examined about the matter however, his evidence was that he understood that it concerned his employment and that he signed the agreement because in his experience in the money market such restraints were not binding and he thus did not regard himself as bound by it. 50 It followed that in this and other areas of the evidence where there was a conflict in the evidence of Mr Cave and that of the other witnesses, his evidence would not be accepted. Santow J came to a similar conclusion in the Supreme Court proceedings, where Mr Cave's evidence on a variety of matters was rejected. 51 In those proceedings it was concluded that immediately upon the termination of the employment, Mr Cave had entered into a business in competition with the respondents, in breach of the restraint and using the respondents' confidential information and its documents. He had done so without revealing his intention to the respondents, it would be inferred, so it was submitted, because he was aware that he was acting in breach of his contractual obligations. 52 It was not only the respondents' conduct which was relevant to an assessment of whether this contract was unfair, but also that of the applicant. Conduct was also relevant to the exercise of discretion, which was to be approached in the manner discussed in Autobake Pty Ltd v Budd & Anor (1986) 19 IR 18 at p20: 'Distinct and separate issues arise in relation to an application under s88F, as discussed by the Commission in Court Session in Hodges v Streets Ice Cream Pty Ltd [1985] 11 IR 60. The initial question which arises in relation to a contract or arrangement falling within the opening words of the section, is whether or not it offends against s88F(1)(a)(b)(c)(d) or (e). That is a mixed question of fact and of law. If such a finding is made, the next question involves the exercise of a judicial discretion. It is whether or not the contract or arrangement should be avoided or varied. If the contract or arrangement is avoided or varied pursuant to s88F(1), a further discretion then arises whether or not orders should be made under s88F(2).'

53 It followed that in this case, even if the contract were found to be unfair, it would not in the exercise of the Court's discretion be varied or avoided, nor would monetary orders be made in favour of the applicant, bearing in mind his conduct. 54 The parties' conduct in relation to the formation, operation and termination of the contract was relevant to this consideration. 55 It would be accepted that the employment arose because Mr Cave desired to get into this industry, in which he was inexperienced. During his investigation of Mortgage Choice, he was told by Mr Pomfret that the respondents themselves were proposing to establish a new venture in the industry. He formed the view that employment with the respondents, where he would receive training and office support, was preferable to establishing his own business with Mortgage Choice, where he would have to pay $25,000 franchise fee and would be responsible for his own business expenses. Under both arrangements he was to be remunerated on a commission only basis, but with the respondents had the prospect of earning a salary in 6 months' time. He also had no business expenses to meet. 56 It was thus relevant that during the first 6 months of the employment he had no complaint as to the commission only payments he received. Even when he became unhappy with the new arrangement in March 1999, it was the new arrangement with which he had a problem, not the pre-existing commission only arrangement. In that respect, it was relevant that in January when the new terms were introduced, he had been given a choice by the respondents of continuing on the commission only basis. He chose not to do so. 57 Under the arrangement here attacked, like with the Mortgage Choice franchise and his new relationship with Mortgage Professionals, Mr Cave's commission payments depended upon him writing loans. It followed that his earnings always depended on his own performance. Considered in that light and particularly when compared with his arrangement with Mortgage Professionals and the Mortgage Choice franchise he had rejected, the commission arrangement would be seen not to be an unfair one. The arrangement plainly offered him long term and generous rewards. 58 The commission structure initially in place involved the respondents paying Mr Cave 0.38% commission on all loans written, plus 0.05% commissions in respect of loans written by Mr Balmer and to ongoing trail commissions, 12 months after the loans were written. It was in this way that long term payments were expected to rise substantially. 59 By way of comparison, the evidence showed that commission payments later made to Mr Cave by Mortgage Professionals ranged from 0.23%, to 0.35% to 0.48%, the latter being the normal payment level. In respect of those payments Mr Cave, however, had to meet all of his own business expenses. 60 It followed that the claim that a payment of $1086 commission over 6 months was unfair had a superficial attraction, but other factors would lead the Court to reject that argument. The evidence was that Mr Cave was content with the arrangement because it would generate a good income over the long term. The evidence demonstrated this expectation to be a sound one. It would be accepted that this prospect had not been removed by the respondents, but rather by Mr Cave, who had terminated the contract and set himself up in competition with the respondents. By his conduct Mr Cave had thus retained for himself the benefit of the work he had performed for the respondents, thereby depriving them of the long term benefit of his work. The evidence of his earnings in the latter part of 1999 was relevant to this, as were the findings of Santow J. 61 The claim that the respondents had terminated the employment would be rejected. It was common ground that it was Mr Cave who had raised with Mr Labraga the possibility of leaving the respondents and who agreed with him when it was suggested that if he felt that way he should leave the same day. Even if the disputed words as to the working out of notice were accepted, they indicated an understanding by Mr Cave that it was he who had given the notice. After all, he asked Mr Labraga if he wanted him to work out his notice. 62 That it was Mr Cave who brought the employment to an end was also consistent with his other actions. Firstly, investigating the Mortgage Choice option and advancing his discussions to such a point that he was able the following day to enter an agreement with that firm and secondly, that he was able to commence trading in his new business within two days of the termination of his employment on a Friday, equipped with letterhead, an email address and so on.

Consideration 63 The case advanced for Mr Cave from the outset was not that a commission only basis of payment was intrinsically unfair in the circumstances of this employment, but rather that payment on that basis during the first 6 months became unfair when the employment was terminated by the respondents some 4 months later. In that context, the payment of remuneration of some $1086 for 6 months' work no longer had attached to it the prospect of long term substantial return and thus the employment became unfair, so it was argued. 64 I immediately observe that this submission was the most compelling aspect of the applicant's case. This was not a case where paragraph (d) of the definition of unfair contract appearing in s105 of the Act applied, because there was no award relied upon as regulating this employment. Rather, it was argued more broadly that fairness requires that any employee receive reasonable remuneration for work performed under a contract of employment. The sum of $1086 for 6 months' work was inherently unfair, so relief would follow. 65 That is a submission which has obvious attraction in principle, but which, in the circumstances of this case, I have concluded cannot be accepted. In my view, it is not correct to summarise the intent of the section as being simply that people receive adequate remuneration for work performed in an industry. Section 106 may, of course, in an appropriate case be used to achieve that result. Nevertheless, the section is concerned with 'unfair contracts' as defined and whether, in the proper exercise of the Court's discretion, in the circumstances of a particular case the contract in question is unfair and should lead to relief being granted to the applicant. In this case, a conclusion that the contract was unfair because the applicant earned $1086 for 6 months' work is not properly available. Such a conclusion would not provide a just basis for the resolution of the case here advanced by the applicant, that his contract was an unfair one. 66 Here the applicant, a well experienced business man who had been the managing director of a company involved in the money market for many years and who had since the termination of that employment been pursuing various business interests and investments, willingly entered into this employment on a commission only basis, having in mind the prospects of long term financial reward which the opportunity offered him, including potential equity in the business. The applicant was under no constraint to do so, he made no complaint about the fairness of the arrangement at any time prior to the institution of these proceedings and, after the termination of his employment, entered into another arrangement on a not dissimilar basis, albeit working on his own account. On the evidence, commission only payments in this industry are commonplace. When the rewards available from remuneration on that basis are understood, the approach of the applicant, that the contract as originally made between the parties was a fair one, can readily be appreciated. 67 The arrangement offered by the respondents was also an attractive one to the applicant, because he wanted to return to the finance industry, but in this sector, where he had no experience. His investigation of the Mortgage Choice franchise convinced him that employment with the respondents offered him better prospects. There was no dispute between the parties that substantial long term commission payments were likely to flow to him from his employment. The loans and commission payments which the applicant generated during his employment by the respondents don't detract from this reality, particularly when attention is paid to the earnings Mr Cave was then able to generate in his own business, when acting in competition with the respondents, not long after the termination of the employment. 68 During the whole of his employment with the respondents, Mr Cave had generated only 8 loans, 3 during the first 6 months of the employment, generating commission payments of 0.38%, or a total of some $1086 and 5 further loans in the period from January to May 1999, when no commission was paid in addition to his salary. By way of contrast, in the period from 10 November to December 1999, Mr Cave generated 9 loans, leading to income to his new business of over $19,000 on commission payments ranging from 0.23% to 0.48%. 69 It is in that light that the parties' expectation that the venture would lead to significant earnings for each of them in the long term can be understood. These loans, after all, generated not only initial commission payments, but also trail commissions in later years, throughout the continuation of the loan. Mr Cave would have received such trail commission payments from the respondents, had the employment continued, as well as commission on new loans written. 70 It is against that background that the termination of the employment in May 1999, which severed the relationship and deprived the applicant of future commissions earnings from the respondents, including the commission trails, arises for consideration. This is the heart of the applicant's case - that the respondents were responsible for the termination of the employment. 71 There was a real conflict in the evidence as to what occurred on 6 May. Relevant to a determination of that issue was the parties' respective conduct. 72 The written agreement entered on 6 May 1998 included confidentiality and restraint provisions. That this was required by the respondents can be understood in a context where they were entering into a new venture, Mr Cave had been attracted to the position and away from a competitor and they were concerned to ensure that he did not simply use his employment with the respondents as a basis to later set himself up in competition with them. 73 Mr Pomfret gave evidence about this concern and discussions with Mr Cave, from the outset, on this basis. As earlier noted, I accept his version of these conversations in preference to those of Mr Cave. It is necessary to make some observations about the evidence given by these two gentlemen at this point. 74 There were a number of troubling aspects of Mr Cave's evidence, given by way of affidavit and in cross examination, as I have already outlined, which led me to the view that his evidence had to be approached with caution. Mr Cave was prepared to make concessions when forced to do so, having in mind other documents which made it obvious that his evidence was not truthful. He gave the impression, however, that some of his responses were tailored in order to make his version of events fit the facts as they were revealed by other evidence which conflicted with his own. His evidence as to how the corporate vehicle used in the establishment of his new business came into his hands provides one illustration of this. There were others, some of which are dealt with earlier and others below. 75 Mr Pomfret's evidence did not suffer from the same difficulty. Nevertheless, it must be observed that his approach to cross examination was rather curious, to say the least. While it was submitted for the respondents that I would accept that his manner of responding to questions was really designed to ensure that his answers were precisely given, I am not comfortably able to accept that submission. I was left with the impression that Mr Pomfret was inclined to put a gloss on his evidence, which a simple adherence to the truth would not have warranted. His evidence in relation to Mr Cave's alcohol consumption, most clearly illustrated this concern. 76 The difficulty in resolving conflicts between the evidence of Mr Cave and Mr Pomfret was settled in my mind by various matters. Importantly, Mr Labraga gave evidence corroborating that of Mr Pomfret in a number of relevant respects. Various documents demonstrated that Mr Cave's evidence was wrong. Mr Cave's own conduct was inconsistent with his evidence as to various matters, as I have already noted. This was most compelling. My conclusion was that in the case of conflict between Mr Pomfret's evidence and that of Mr Cave, Mr Pomfret's evidence should be preferred. 77 The upshot of this approach was that, for example, I accepted that the respondents had a concern that Mr Cave's consumption of alcohol was involved in his attitude to work and his absences from work at Friday lunchtimes and on other afternoons. Having in mind Mr Labraga's evidence, it was apparent that it was not a concern which featured highly in the matters taken up with Mr Cave during the course of his employment and was of but little relevance to the matters which fall to be determined here. 78 As to Mr Labraga, I found him to be a particularly credible witness and was left with the impression of a real willingness to give accurate and forthright answers to questions put to him in cross examination, even where he might have perceived them not to be of assistance to the respondents' case. It follows that in cases of conflict between his evidence and that of Mr Cave, I have preferred Mr Labraga's version of events. 79 I turn then to Mr Cave's understanding of the restraint provision of the written employment agreement. As I earlier noted, his later conduct was consistent with the view which he had, even when first executing the agreement, that he was himself not bound by it. He later breached the agreement, set himself up in competition with the respondents and took for himself the benefit of the work which he had performed for them in the relevant period, in establishing the referrer data base as well as documents belonging to the respondents which he then used in his own business. That conduct, in my view, cannot simply be explained by a view Mr Cave held, based on past experience in his position as the managing director of a company in the money market, that the restraint which he willingly gave may have been unenforceable because it was too wide. Nor can those matters be dismissed as having been dealt with in the Supreme Court proceedings. Section 106(2) requires that consideration be given to the parties' conduct. 80 Mr Cave evinced an intention, from the outset, not to be bound by the terms of the employment contract which he accepted without hesitation. To later also take from the respondents its confidential material, seemingly without compunction and to use it for his own benefit, when the employment ceased and he began to compete with the respondents was a different matter entirely. The proper inference from that evidence was that those steps had been taken by Mr Cave in preparation for the termination of his employment and the establishment of his own business. The evidence does not allow for the conclusion that they were steps taken after the termination of the employment - Mr Cave being content to leave the respondents' employment on the same day he first raised that possibility with Mr Labraga, 6 May, and in fact doing so. In that light, this application, designed to also alter the remuneration aspects of the same agreement, to the applicant's benefit and the respondents' detriment, is nothing short of breathtaking. 81 It was said by Barwick CJ in Stevenson v Barham (1977) 136 CLR 190 at 192: 'The legislature has apparently left it to the good sense of the Industrial Commission not to use its extensive discretion to interfere with bargains freely made by a person who was under no constraint or inequality, or whose labour was not being oppressively exploited.'

82 It was also said even earlier, that the section's predecessor was not designed to provide anodynes. As Sheldon J put it in Davies & Anor v General Transport Development Pty Limited & Ors [1967] AR 371 at 374: 'On the other hand, the fact that the Commission has been given such massive power makes it imperative that it should be exercised with proper restraint. In particular, when issues arise under (a) or (b), it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. In my opinion, the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes. Of course, under (d) or (e), action may be required even when there is no moral distinction between the parties because there the Commission is enforcing more directly an explicit public policy.'

83 While it is true that these principles were established in cases which did not concern employment, but rather other arrangements under which work was performed, they have application to all proceedings brought under the section. While the resolution of each case must turn on its own facts, the principles to be applied by the Court to the section are constant. 84 In this case the claim advanced is not concerned with a failed business venture, but rather with the terms of an employment contract. It is not that the provisions of any applicable award were not adhered to which is the subject of complaint however. Nor is it that the employee was treated inconsistently with other employees, or on a basis inconsistent with standards in the relevant industry. This was also not a case where it could be found that the parties stood in unequal positions vis a vis each other, having in mind matters such as their experience or circumstances. Indeed, one of the respondents' initial concerns when considering employing Mr Cave was whether he could accept reporting to Mr Labraga, his junior in years and business experience, particularly given his previous experience as the managing director of a company. 85 It was true that Mr Cave took up employment with the respondents at a time when he had decided that the needs of his family required him to return to work in the finance industry. Employment with the respondents was, however, only one of the opportunities which he investigated at the time and he satisfied himself that it offered better prospects, having in mind that both that employment and running his own business as a Mortgage Choice franchisee involved remuneration on a commission only basis, but Mortgage Choice required him to pay a franchise fee and to bear his own business expenses. Indeed, Mr Cave remained of that view even when Mortgage Choice later offered to drop its franchise fee, if he agreed to join it rather than taking up employment with the respondents. Mr Cave declined that offer. 86 This decision is explained by the parties' view that the employment would be a senior one, in a long lasting relationship, with mutual financial benefits to each of the parties in the longterm. That expectation failed to materialise, on the evidence, plainly as a consequence of the steps taken by the applicant. 87 The trigger for the finding of unfairness, on the applicant's case, was that the employment was effectively terminated by the respondents - see Smith v Director General of Education (1993) 51 IR 204 at 219. Alternatively, there was a constructive dismissal. The law as to this topic is also well settled - see Allison v Bega Valley Council (1995) 63 IR 68. I have not been able to comfortably conclude, on the evidence, that the facts here may properly be viewed either as a termination by the respondents or as a constructive dismissal. 88 This conclusion flows from the circumstances in which the discussion on 6 May arose, as well as what was there said. This was reinforced when viewed in the context of Mr Cave's establishment of a competing business, contrary to his agreement with the respondents and utilising its information and documents in that endeavour. 89 I accept the evidence of Mr Labraga as to what occurred on 6 May, particularly that it was not his intention to dismiss Mr Cave in the discussion in question. On Mr Labraga's evidence it was Mr Cave who raised the topic of him leaving in that discussion, but having raised it, nevertheless, still had the option of telling him he preferred to remain in the respondents' employment. Had he done so, Mr Labraga would have accepted his decision. Having in mind the parties' relationship to that point, Mr Labraga's evidence was entirely plausible, and I accept it. In that light, it can be seen that these circumstances arose out of steps Mr Cave was considering taking, rather than the respondents. On the evidence, it must be concluded that the termination was not brought about by the respondents and was not designed to achieve their ends. 90 On 6 May, when Mr Labraga asked Mr Cave why his morale seemed so down, he was informed that Mr Cave was considering leaving. He was not confident, so he said, that he would meet his budget. At that time he had however, in fact, already investigated establishing his own business, by entering into a relationship with Mortgage Professionals. He had discussed the prospect with his wife. That this investigation and consideration was very well advanced indeed was demonstrated by the fact that he entered the relationship and commenced his own business the following day, armed with the respondents' confidential records and documents and utilising a corporate vehicle acquired by the respondents, at his instruction, for the purpose of the joint venture between them, which had come to nothing in the meantime. 91 I observe as to this entity that while Mr Cave denied in his affidavit evidence that the corporate vehicle had been acquired for the joint venture by Mr Pomfret on his instructions. In cross examination he conceded that those instructions had been given, because the letter in which he had done so was produced. That he also believed that this was a corporate vehicle which he controlled and was then available to him for the commencement of his new business at the time he swore his affidavit in these proceedings, was also revealed by earlier evidence which he had given in the Supreme Court proceedings, which he also accepted, when that affidavit was shown to him. This was yet another illustration of the unsatisfactory nature of the evidence given by Mr Cave, seemingly, in these proceedings, designed to conceal the fact that he was well prepared to establish his own business when his employment came to an end. 92 That the respondents were not the real and effective initiators of this termination, was also apparent on the evidence. (See Allison at p72-73). The competing versions of the conversation of 6 May were earlier set out. Mr Cave's immediate acceptance of Mr Labraga's observation: 'Well maybe the best thing for you is to finish today. I am not sure how long you will decide to be with us and we need to do everything possible to continue to support and maintain the referrer base', suggested nothing other than that Mr Cave had, in reality, already decided to leave, consistent with what he told Mr Labraga would have happened several days earlier, if Mr Labraga had then asked him as to his whereabouts at a time when he should have been in the office. 93 Even Mr Cave's version of what Mr Labraga said to him leads to no different conclusion. When Mr Labraga put to him that it might be better if he left, Mr Cave responded with '… well that's fine as far as I am concerned.' Mr Cave denied this, on his evidence asking instead whether he should work out his notice. Mr Labraga could not recollect such a question being asked, but did not deny that it might have been. Nevertheless, on his evidence, he was left with the impression that the employment had come to an end because of Mr Cave's desires, rather than his own. As I have already noted, I am firmly of the view that the conflict is to be resolved by Mr Labraga's evidence being preferred. Mr Cave's evidence as to the comments he made, however, reinforced the conclusion I have reached. 94 The discussion, in context, leads inevitably to the conclusion that the submission put for the respondents by Mr Magee must be accepted. Mr Cave had long been the managing director of a company operating in the money market. His evidence that he asked Mr Labraga if he had to work out his notice, demonstrated an understanding that, having taken a step to terminate his employment, he was obliged to work out his notice and was enquiring whether the respondents required him to do so. They did not. That concession by the respondents does not have the effect of making Mr Cave's decision to leave his employment that of the respondents. That it was of concern to Mr Cave that he might be required to work out his notice was understandable after all, given the establishment of his own business, which his conduct around this time confirmed. That the respondents did not require Mr Cave to give them notice of his departure, ought not now lead to the result that they should be required to pay him as if they had done so. 95 In light of this evidence, I am not of the view that this contract was terminated by the respondents, or even by the applicant, but as the result of the respondents' treatment of him, so as to make them the effective initiators of the termination. Nor am I of the view that this contract, as it was formed or performed, was unfair in the way that term must be understood having regard to the provisions of s105 of the Act. Mr Cave always understood and was content to take a commission only arrangement in the short term, having regard to long term gains, especially trail commissions, payable whilever a loan persisted and the employment remained on foot. 96 Once he went onto a salary basis, the commission structure altered, with the introduction of targets before commission became payable. I do not accept that Mr Cave genuinely held a concern that he would not meet those commission targets. On the one hand, his performance during his employment with the respondents was not good and compared poorly to that of Mr Balmer, whose employment had become a source of dissatisfaction to him. This led to the introduction of commission payments to Mr Cave, flowing from Mr Balmer's loans. On the other hand, his earnings in his own business conducted in competition with the respondents and utilising its referrer base, depended also on commissions flowing from loans written, in some cases at least, at not dissimilar rates of commission. Mr Cave's ability to write such loans evidenced a dramatic improvement, once he was working in his own business. If Mr Cave had truly doubted his ability to generate such commission earnings in this industry, it is difficult to imagine that he would have launched his own business, dependent entirely on that ability. 97 How it might seem to be more attractive to Mr Cave to have his own business, once he had been trained and had experience in this industry and where he would have the benefit of the whole of the commission payable by a lender on loans which were approved, together with trail commissions, can be readily understood. After all, Mr Cave did not regard himself as bound by the restraint and confidentiality provisions to which he had agreed and was seemingly untroubled by his use of the respondents' confidential information and documents to establish his own competing business. He believed he could not only compete with the respondents, but could do so by taking from them the information as to referrers which his work had built up. As I have found, this conduct assists in the resolution of the question as to who terminated this employment. It also throws light on the fairness of the contract - said to have been made unfair by the respondents' removal from Mr Cave of the long term benefits of the employment. 98 The evidence can only lead to the conclusion that the employment came to an end as a result of Mr Cave's conduct and that the respondents did not in fact deprive him of anything. To the contrary, he sought to deprive the respondents of information and other material which affected their long term earnings and necessitated their approach to the Supreme Court for relief. 99 That the respondents, as a result, have been successful in restraining Mr Cave from further damaging their business and might yet seek an amount of profits or other damages from him does not assist his case. To my mind, those circumstances provide a singularly inappropriate basis upon which any relief in favour of Mr Cave pursuant to s106 of the Act could be based. 100 While the establishment of his own business in competition with the respondents might be perfectly understandable from Mr Cave's point of view, it can hardly provide a proper basis for either a finding of unfairness in the contract or for the exercise of a discretion in his favour, on the evidence advanced here as to the original basis of his employment by the respondents. 101 Having concluded that the contract was not an unfair one, it is strictly unnecessary to further consider whether, even if it were unfair, the Court would exercise a discretion in favour of Mr Cave. The way in which the discretion to make an order in favour of an applicant should be exercised, once it is found that a contract offends the section, has often been considered. In Autobake (in a case where the benefits of an award were sought), it was said, for instance, at pp29-30 by the Industrial Commission in Court Session, that: 'Whereas no moral distinctions between the parties need be drawn when dealing with the initial question arising, namely, whether or not the contract offended again s88F(1)(d), the discretions which then arise under the section require for their exercise more than a mere comparison between award rates and actual remuneration and the circumstances that a calculated business risk, advisedly taken, has proved unsuccessful. Where such a calculated risk is taken it is not intended by s88F that the other party should become a guarantor, as it were, that the business will be successful, or that the party performing the work will receive at least the rates of pay he would have received had he been an employee. Each case has to be considered on its own merits and the discretion of the Commission exercised accordingly.'

102 This case is somewhat different, the successor to s88F(1)(d), not being relied upon here. Nevertheless, I observe having in mind this type of approach, that, in my view, the conduct of the applicant here was such that it would not be a proper exercise of the Court's discretion under the section to make orders in his favour, even if the view were reached that the contract was unfair. The applicant took a risk when agreeing that in the initial period of his employment he would only be rewarded by way of commission. That was because of the long term returns he anticipated. That this did not transpire was the result of Mr Cave's actions and not the respondents. They should not be called upon to compensate the applicant for the consequences of his own conduct.

Order 103 For all of these reasons, I order that the application be dismissed and that the applicant bear the respondents' costs, as agreed or assessed. ------------------------

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