1796/03 HELLMANN INSURANCE BROKERS PTY LTD & ANOR v PETERSON
JUDGMENT - Ex tempore
1 HIS HONOUR: The first plaintiff in this matter conducts an insurance broking business. It sold that insurance broking business to the second plaintiff. The defendant was an employee of each plaintiff in their respective broking businesses. The defendant entered into a restrictive covenant with each of his employers, in terms which are not materially different one from the other. The restrictions which he entered relating to his employment with the first plaintiff are as follows:
"10 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
(a) The Employee must not either during his employment or at any time after the termination of his employment (except as required by law or by the Company in the proper course of his employment) use or disclose to any person, firm or company any Confidential Information relating to any of the Company's business, clients or customers or any trade secrets of which he shall become possessed while employed by the Company, nor use nor attempt to use any such confidential information in any manner which may cause or be calculated to cause injury or loss to the Company and during the continuance of his employment under this Agreement he shall use his best endeavours to prevent the disclosure of information by any other employees of the Company;
(b) The Employee must during his employment and after the termination of his employment (except as required by law or by the Company in the proper course of his employment) use his best endeavours to prevent the use or disclosure to any person, firm or company of any Confidential Information within the scope of Clause (a) obtained or acquired in the course of his employment under this Agreement.
(c) It is agreed that all property of the company shall remain the property of the Company and the Employee shall have no entitlement to remove any such items of property from the Company's place of business either during the course of the employment, or upon or after its termination without the consent of the Company. "Property" shall be defined as all items used by the Employee in the course of his employment and includes any form of computer or electronic storage of information, clients lists, account books or other information concerning clients, customers, products of the Company which is of a sensitive or of a confidential nature.
(d) For the purposes of this clause, "Confidential Information" includes but is not limited to:
(i) Client files/claims history.
(ii) Financial information including company financial statements information.
(iii) Salary information, including contract of employment, salary reviews etc.
(iv) Such other documents that are nominated confidential by the Company from time to time.
11. NON SOLICITING OF CUSTOMERS AND EMPLOYEES
(a) The employee either must not during the duration of this Agreement or for a period of 12 months after the termination of this Agreement within the State of New South Wales solely or jointly with any other person or company, whether as a principal, agent, employee, shareholder, director, partner, consultant or otherwise:-
(i) canvass, solicit or endeavour to entice away from the Company or any related company as defined under the Corporations Law ("related company") any person, firm or company who is or who has been during the 12 months preceding the termination of this Agreement a customer of the Company or any related company; or
(ii) solicit, interfere with or endeavour to entice away from the Company or any related Company any employee of the Company or any related company;
(iii) whether wholly or partly for the benefit of the Employee or for the benefit or any person or company.
(b) The Employee must not for a period of 12 months after the termination of this Agreement within the State of New South Wales solely or jointly with any other person or company whether as principal, agent, employee, shareholder, director, partner, consultant or otherwise tender, bid or contract to carry out work in the nature of the business of the Company;-
(i) at any site or location at which the Company or any related company carries on business or has carried on business during the 12 months preceding the termination of this Agreement; or
(ii) for any person who is or has been during the 12 months preceding the termination of this Agreement a customer of the Company or any related company."
2 The contract of employment between the first plaintiff and the defendant is one which was entered on 22 June 1999. The employment of the first plaintiff by that defendant came to an end on 30 October 2002.
3 A new contract of employment between the second plaintiff and the defendant was entered into on 6 November 2002. That contract came to an end on 19 December 2002.
4 The defendant, while he was employed by the plaintiffs, had responsibility for a particular portfolio of clients. There is evidence that various of those clients have now appointed the new employer of the defendant, DMA Insurance Brokers Pty Ltd, as their insurance broker.
5 The evidence shows that, after leaving the employment of the second plaintiff, the defendant took a holiday for a while, before starting duties with DMA.
6 The defendant has put on evidence denying that he has taken any client lists with him. I propose to deal with this application on the basis that that evidence is correct.
7 There is evidence that there was a close relationship of confidence between the defendant and the various people for whom he arranged insurance. It is well within the realms of likelihood that the defendant would have the identity of those people in his head.
8 The first injunction which the plaintiff seeks is an injunction to restrain solicitation of customers.
9 The plaintiff concedes that there is little evidence of direct solicitation. The defendant has put on evidence to the effect that various of his former clients contacted him, anxious to continue to place business with him. The thrust of the defendant's evidence is that, during the period he was on holidays, he told those clients that he was not able to deal with them because he was not working. In relation to some of them, the defendants evidence is that he recommended they get in contact with DMA. This was done at a time when the defendant had made arrangements to be employed by DMA. The arrangements between the defendant and DMA were consummated in December of 2002, and formalised in a letter of 12 December 2002 where DMA wrote to the defendant confirming his appointment as an insurance account executive.
10 The defendant is aware that the terms of the restrictive covenant with his previous employers forbade him from approaching former clients. The defendant gives evidence of the discussion he had with Mr Ross, who is a director of DMA, about joining DMA. In a conversation with Mr Ross of 6 December 2002 the defendant said to him, expressly, that he was interested in starting work, but that he could not approach the clients that he had at Hellmann. Mr Ross' response was: "Don't worry about that, we have more than enough leads for you to work on."
11 The meaning of "solicitation" is elucidated by a decision of Wood CJ at CL in R v Laws [2000] NSWSC 880 (2000) 50 NSWLR 96, at 98. His Honour, at [8] recorded the remarks of Spigelman CJ and Hidden J in R v Azzopardi, 1 October 1998, unreported, which in turn approved remarks of Stout CJ in Sweeney v Astle [1923] NZLR 1198 at 1202 which I quote:
"The word 'solicit' is a common English word and it means in a simplified form, 'to ask'. In various English dictionaries this simple meaning is given, but other simple words are also used to explain other meanings it possesses, such as 'to call for', 'to make a request','to petition','to entreat','to persuade','to prefer a request'."
12 Whether an employee is soliciting a former client is not something which depends upon whether it is the employee who telephones or arranges to meet the former client, or the other way around. Rather, whether solicitation occurs depends upon the substance of what passes between them once they are in contact with each other. There is solicitation of a client by a former employee if the former employee in substance conveys the message that the former employee is willing to deal with the client and, by whatever means, encourages the client to do so.
13 In the present case, there is evidence from some former clients of the plaintiffs, who are now dealing with DMA, which explain how they came to be dealing with DMA. One former client, Mr Heitner, gives evidence that the defendant came to see him and they discussed the insurance needs of the defendant's business, and Mr Heitner asked the defendant: "Okay, now what do I have to do to get you to act for us?", and the defendant replied: "You need to give me a letter of appointment to DMA".
14 There is likewise evidence from a Mr Bloom, another former client of the plaintiffs who has started dealing with DMA, of the defendant responding to a request about what Mr Bloom needed to do to get the defendant to act for him, by saying: "You need to give me a letter of appointment".
15 That is conduct concerning which there is a serious question to be tried about whether it amounts to solicitation or not. It is only through the chance that the two former clients, whose evidence I have quoted, have put on affidavits that the court has available, at the present time, that degree of detail concerning the way in which those clients came to be dealing with DMA. There are other former clients of the plaintiffs that the evidence shows now in fact deal with DMA, with no evidence about how it happened that they have changed brokers.
16 Most significantly, the defendant was, in effect, invited by the plaintiffs, both before today's hearing and during it, to give an undertaking that he would not solicit clients of the plaintiffs, and has declined to do so. That factor, combined with the evidence about numerous clients going over from the plaintiffs to DMA, suggests that there is a serious risk that, unless restrained, there may be solicitation of clients.
17 The next type of restraint that the plaintiffs seek is a restraint which is based upon cl 11 (b) of the contract of employment, which restrains the defendant from, as principal, agent, employee, shareholder, director, partner, consultant or otherwise tendering, bidding or contracting to carry out work in the nature of the business of the plaintiffs for any person who has or has been during the 12 months preceding the termination of employment agreement a customer of the plaintiffs.
18 The evidence establishes that there is a real risk that, unless restrained, the defendant will continue to carry on business relations with those clients. There is, it seems to me, a serious question to be tried about whether there would be a breach of the cl 11 (b) on its face.
19 There is a question of whether cl 11 (b) should be treated as though it imposed a restraint in accordance with its literal words, or whether it should be read down pursuant to the Restraints of Trade Act. It is submitted that it would be unreasonable in the interests of the parties to enforce the clause in its terms.
20 I accept that there is an argument about whether it would be unreasonable under the Restraints of Trade Act to enforce the clause in accordance with its terms. The effect of enforcing the clause in accordance with its terms is that it would not be possible for clients, who were strongly of the view that they wished to continue to deal with the defendant, as an employee of his new employer, to continue to do so. However, the situation that that is so is one which would come about by reason of the defendant having entered into the contract containing cl 11 (b) in the first place. By entering such a contract, he has narrowed down the scope of potential employment which he would be able to carry out in future, and a concomitant of narrowing down the scope of potential employment he can carry out in future in that way is that he has narrowed down the range of choice that his clients have. In that circumstance, I would not regard the argument of unreasonableness as a particularly strong one. The fact that it is not a particularly strong one is a matter which goes to the balance of convenience.
21 The balance of convenience, in my view, favours the granting of interlocutory injunctions to enforce these restrictions which I have been dealing with so far. The defendant has entered upon his present employment upon the basis that he is not free to deal with former clients. The way in which Mr Ross puts it is that it would be "preferable" to be able to use the defendant as the employee to service those clients who came across from the plaintiffs.
22 The very fact that insurance broking is an industry where there is a relationship of trust and confidence between the broker who handles an account and the client is something which means that an employer who seeks to buy the goodwill of the business has a particular vulnerability to employees who depart. Here, the second plaintiff has paid something over a million dollars to purchase the business from the first plaintiff. Of course, not all of that consideration relates to the particular stable of clients who were dealt with by the defendant, but the fact that there is such a price paid, and that the defendant's business is a significant proportion of the total portfolio, shows that the potential harm to the plaintiff, if an injunction were not to be granted, could be great.
23 As well, the plaintiffs offer the usual undertaking as to damages, and offer to consent to expedition of the final hearing, and to cooperate in achievement of an early final hearing.
24 There is an additional style of injunction which the plaintiffs seek. It is an injunction which restrains the defendant from using or disclosing information. Paragraphs 5 and 8 of the notice of motion seek orders as follows:
"5. That up to and including March 2003, the Defendant be restrained from making use of or disclosing to any person, including DMA Insurance Brokers Pty Ltd or any officer or employee of that company:
(a) any information as to the identity of any client of the First Plaintiff, being a client at any time during the period 1 November 2001 to 31 October 2002, or any officer or employee of such client;
(b) any information as to the details of insurance held by any such client; and
(c) any information as to the details of the insurance claims history of any such client.
8. That up to and including March 2003, the Defendant be restrained, from making use of or disclosing to any person, including DMA Insurance Brokers Pty Ltd or any officer or employee of that company:
(a) any information as to the identity of any client of the Second Plaintiff, being a client at any time from 1 November 2002 to 19 December 2002;
(b) any information as to the details of insurance held by any such client; and
(c) any information as to the details of the insurance claims history of any such client."
25 The information as to the identity of any client of the plaintiffs is not information which, in my view, falls within the express terms of cl 10 of the contract with the first plaintiff. The identity of a client does not fall within any of the specific examples of "confidential information", contained in para (d) of that clause, nor does it amount, in my view, to a trade secret. The evidence is that, in relation to many of these clients, the first defendant knew their identity prior to being employed by the plaintiffs.
26 The information as to the details of insurance held by any client is material which might or might not fall within the specific definition of "confidential information", insofar as it might be part of "client files/claims history". The plaintiffs have left it to inference, rather than proved, that "client files/claims history" contains such matters. It might depend upon facts concerning the individual client, as to whether the client had changed the nature of its insurance programme during the time that the defendant was working for the plaintiffs, as to whether the information fell within the scope of Clause 10(a). This is because it is unclear whether the words "of which he shall become possessed while employed by the Company" in Clause 10(a) describes only "trade secrets", or also "Confidential Information".
27 The information as to the details of the client history is, however, within the express definition of "confidential information".
28 It seems to me that there would be a serious question to be tried about whether there should be enforcement of cl 10 to prevent disclosure of information as to the details of insurance held by any such client, or use of that information, but I do not see that the balance of convenience would favour the granting of such an injunction, given the weak case which has been presented, so far, on the plaintiffs' part for an injunction on this head, and given the other restraints which I am minded to impose.
29 The contractual restraints on disclosure or use of client history is, however, in a different situation. In my view, it is appropriate that there be an interlocutory injunction relating to information as to details of the insurance claims history of clients, as falling within the express terms of the clause.
30 Upon the plaintiff by its counsel giving to the court the usual undertaking as to damages I extend to 5pm 25 March 2003 the orders made by Bryson J made 10 March 2003 and direct the parties to bring in short minutes of order to give effect to these reasons for judgment.
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