MR JUGOVIC AND CONFIDENTIAL INFORMATION
133 It is now necessary to say something more about Mr Jugovic and the question of confidential information.
134 The defendants sought to downplay Mr Jugovic's role within Liberty. For that purpose my attention was drawn to Liberty's prospectus issued on 26 November 2020 where there was a description of the senior management team. The defendants pointed out that this did not identify Mr Jugovic. But this point did not take the defendants far. That team included the chief financial officer, Mr Riedel. Mr Jugovic reported to Mr Riedel.
135 Mr Jugovic's position description was in the following terms:
PD: Team Leader - Treasury
Department: Treasury (SU TRE)
Reporting to: Chief Financial Officer
1 POSITION OBJECTIVES
To ensure the timely execution of the company's funding and capital requirements within the framework of relevant covenant, policies and processes and to provide analytical support to senior management to assist with formulating and executing company funding and capital.
2 EXAMPLE DUTIES AND RESPONSIBILITIES
• Under the direction of the Chief Financial Officer manage the ongoing funding requirements of Liberty's portfolio of assets with a view to achieving the Company's capital and liquidity strategies.
• Monitor daily the liquidity and cashflows of Liberty accounts.
• Facilitate the ongoing operation of the Company through the timely review of surveillance reports, compliance with all allocated covenants, maintenance of sound relationships with all internal and external parties, and timely resolution of issues as and when they arise.
• Identify and resolve funding issues in a timely and competent manner under the direction of the Chief Financial Officer.
…
• Build a high performance Treasury team through proactive coordination of, but not limited to recruitment, team & individual development plans, budget & KPI adherence, staff training, regular team meetings & the development of strong external relationships.
136 Let me delve further into Mr Jugovic's position with Liberty.
137 Mr Jugovic started with Liberty in January 2002 in the position of services officer within Liberty's treasury team. He performed largely administrative duties and reported to Liberty's then finance manager. In mid-2002, Mr Jugovic was transferred to the position of treasury officer where he commenced training in relation to the treasury team's functions. In December 2009, Mr Jugovic was promoted to the position of senior analyst. In November 2010, Mr Jugovic was promoted to the role of team leader. Mr Jugovic's most recent employment agreement for the position of Team Leader - Treasury was signed on 3 October 2011. He changed his title since, but his duties remained largely unchanged.
138 Since November 2010, Mr Jugovic has been responsible for overseeing the functions of the treasury team. For Mr Jugovic to be an effective treasury professional, that is, to secure funding from clients for Liberty's debt instruments, he needed to understand and be able to explain key aspects of Liberty's business.
139 Over the first ten years of Mr Jugovic's employment, he became involved in working with Liberty's clients on their day-to-day needs concerning funding arrangements and any renewals. By late 2010, he was heavily involved in these tasks, having overall responsibility for them. Mr Jugovic had relationships with Liberty's clients and had frequent direct contact with them. During periods where the terms of securitisation were being negotiated between Liberty and its clients, Mr Jugovic had contact with relevant clients approximately weekly. For some clients, Mr Jugovic would typically be the first point of contact if they had a question regarding their investment.
140 By late 2010, Liberty relied very significantly on Mr Jugovic. He was responsible, under Mr Riedel's guidance, for an important business division, the performance of which underpinned Liberty's ability to write loans to borrowers. Mr Jugovic had simultaneously been involved in implementing Liberty's funding models, its pricing structures, and risk profiles and, by this stage, had overall responsibility for Liberty's funding platform. This necessarily entailed a reasonably high level of client contact and a detailed understanding of Liberty's processes and its confidential information, being, in this context, particularly client identities, investment preferences and appetite.
141 Over the 12 months prior to Mr Jugovic's resignation, Mr Jugovic had contact with a material number of Liberty's clients. Mr Jugovic maintained relationships with clients, so as to obtain funding that enabled Liberty to lend to specialty borrowers. If Mr Jugovic performs services the same as or similar to those that he performed for Liberty for some other business, it would likely be for a business which competes with Liberty and for a business for which Liberty's confidential and commercially sensitive information would be valuable. It is only non-ADI specialty lenders that operate as Liberty does, which require these services. There would be no role similar to Mr Jugovic's role with Liberty in a non-competing business, or in a business where Liberty's confidential information is not relevant or valuable. If Mr Jugovic were to perform a role within the treasury department of a commercial or investment bank, he would be performing different services to those that he had provided to Liberty. Whilst Mr Jugovic's skills are more broadly transferable within the finance sector, the particular services he provided for Liberty were narrow and limited.
142 Let me say something further concerning confidential information.
143 Liberty's treasury team is and has been exposed to highly confidential and commercially sensitive information of Liberty. At the date of entry into his employment agreement, Mr Jugovic had been working in the treasury team for about nine years and had been in a senior role, namely, team leader, for almost one year. He had therefore been exposed to Liberty's confidential and commercially sensitive information relevant to the treasury function for a reasonably long period.
144 Such confidential information may broadly be described as client identities, client preferences in relation to investing in wholesale and term trusts, commercial terms for wholesale and term securitisation and the manner in which Liberty manages its funding platform including by way of its wholesale and term trusts.
145 Liberty's evidence makes the point that there is value in that key information to competitors, including to a start-up like ORDE. All of that key information combines to enable the treasury team to do its core function, namely, to combine client funds in a manner that optimises the amount of funding available and the cost of funding. The cost of funding is critical in that lower costs may allow Liberty, for example, to out-compete rivals by offering borrowers products with a lower interest rate, or allow it to generate more revenue to be used for operating expenses or shareholder returns. A critical input into the cost of funding is margin, as issuers of debt securities are typically charged interest which is expressed as a function of the reference rate, for example, predominantly a one-month benchmark interest rate, plus a margin. Liberty aims to have the lowest margin. As the most experienced funder in this niche area, Liberty has more negotiating power than other non-banks. Further, potential investors in term trusts might agree to a lower margin in order to participate in certain securities. This is particularly important for the issue of subordinated debt securities where the potential client investor base is limited.
146 In evidence is an equity research report published by Credit Suisse on Liberty dated 9 February 2021. Figure 71 of that report shows a comparison between the average margin charged by Liberty to its clients versus other non-bank participants as estimated by the research analyst.
147 In that research report, Resimac and AFG Funding are non-banks who do not predominantly operate in Liberty's specialty segment. As a result, they have lower margins, as their lending is mainly in a less risky sector. Contrastingly, Pepper, Liberty and La Trobe Financial do operate in Liberty's specialty lending segment. Liberty's lower margin means that it commands a material advantage relative to Pepper and La Trobe Financial.
148 Liberty makes the point that a new entrant like ORDE will have a significantly higher funding margin than those shown in the graph above and will do so for quite some time. Liberty makes the point that it took over 20 years to secure a relative margin advantage like that reflected above. It says that access to, or knowledge or use of, Liberty's key commercially sensitive and confidential information would be valuable to ORDE as it will allow ORDE to gain a significant head start in accelerating its funding platform, thereby establishing itself as a threat to Liberty reasonably quickly.
149 On Liberty's case, Mr Jugovic's role as Executive Director of Debt Capital Markets at ORDE will necessarily require him to oversee and be responsible for ORDE's entire treasury function. This will involve securing funding so as to meet ORDE's needs and deliver its funding platform, as well as work aimed at continually improving that platform to make ORDE competitive in the market, including with Liberty. Mr Jugovic's role will therefore be similar to, if not the same as, the role that he performed for Liberty. Whilst he may not be, although he initially might be, as involved in the day-to-day operational tasks involved in treasury, he will have overall responsibility for them and will be responsible to the board for establishing and continuingly improving its funding capability.
150 Liberty says that if Mr Jugovic commences employment with ORDE he will unavoidably and necessarily use or disclose, even if inadvertently, Liberty's confidential information in performing his role. It will be impossible for him to perform his role in such a niche market for lending to specialty borrowers and in such a niche market for obtaining necessary funding, without him doing so. It is said that the risk of unauthorised use or disclosure of Liberty's confidential information is real and unavoidable. It is said that it will not be possible for Mr Jugovic to establish a treasury function without drawing on his knowledge of Liberty's confidential information such as the identity of potential clients and client preferences including as to the quality of underlying loan receivables. Further, it is said that information relating to Liberty's pricing, eligibility criteria and pool parameters will necessarily inform how Mr Jugovic determines similar criteria to apply to ORDE's securitisations. Further, it is said that information relating to Liberty's pool parameters and strategy regarding usage of wholesale funding will inevitably influence the funding platform that he develops for ORDE. It is said that such information has enabled Liberty to operate through ebbs and flows, or even major crises, in the economy and would be attractive to ORDE.
151 Further, it is said that the employment of Mr Jugovic by ORDE will enable it to obtain a significant head start as it attempts to position itself as a viable investment alternative for some client funders and a real competitive threat to Liberty much faster than it would do so if it were to establish its treasury function without the confidential information held by Mr Jugovic. By employing Mr Jugovic, with its attendant real risk of unauthorised disclosure and use, Liberty says that ORDE will be able to circumvent years of learning and investment.
152 Further, Liberty says that if Mr Jugovic is permitted to work for ORDE, there is a real risk that Liberty will lose clients or that clients will reduce their business with Liberty. And it is said that if Liberty is ultimately successful in this proceeding, proving a loss of clients due to Mr Jugovic's conduct in breach of any enforceable restraint will be difficult.
153 Now ORDE disputes these propositions.
154 Mr Wells gave evidence for ORDE that Mr Jugovic's role at ORDE during the next 12 months will involve:
(a) responsibility for day-to-day treasury (cash movement) operations;
(b) operating ORDE's completed warehousing arrangements, including managing and monitoring performance and compliance, building pool data sets, providing information and updates to financiers, managing portfolio allocations, utilisation and parameters;
(c) monitoring standard industry risk assessment models of trust pools;
(d) gathering public information on funding markets;
(e) management and completion of extensive generic warehouse trust facility documentation processes on behalf of ORDE;
(f) assisting Mr Wells to establish other significant funding operations relating to loan products not offered by Liberty and not funded through warehouses or term trusts, being product lines in which Liberty does not compete;
(g) participation in ORDE executive management committees covering core elements of the business (excluding the lending committee) reflecting both Mr Jugovic's specific skills and also broad lending business acumen and skills; and
(h) learning detailed aspects of credit processes and operations and product characterisations.
155 It is said that these tasks relate only to established ORDE funding operations and to standard financing. It is said that ORDE will not involve Mr Jugovic in certain facility negotiations relating to either future warehousing agreements or existing warehouse extensions.
156 It is said that Mr Jugovic's role will not involve the identification of new financiers or the development of the relationship with financiers with which ORDE does not already have developed relationships. It is said that such work has already been performed by Mr Harkness and Mr Wells, who hold the financier relationships.
157 It is said that Mr Harkness and Mr Wells are now in warehouse "scale-up" mode, in that they have established the required warehouse funding framework, and require Mr Jugovic to manage the operational aspects of this. It is said that they are well able and positioned to undertake the optimal negotiation of any new warehouses in the period to May 2022, but this is not what Mr Jugovic will be required to do.
158 It is said that Mr Jugovic will not be performing any work in relation to term securitisation in the next 12 months. Apparently, ORDE is still two or three years away from engaging in this type of funding and it is not possible to start this work within 12 months.
159 In summary, it is said that to the extent that Mr Jugovic has any information which may be considered confidential to Liberty, this cannot be used by ORDE to its advantage or to Liberty's detriment.
160 First, ORDE already has an existing warehouse facility arrangement in place, and has agreed terms with a new financier. It is not seeking to take any market share of finance from Liberty.
161 Second, ORDE already has relationships in place with potential financiers. Mr Jugovic is not required to introduce ORDE to new financiers.
162 Third, the terms on which ORDE will be able to obtain finance are based on objective criteria. It is said that knowledge of Liberty's specific terms cannot be used by ORDE to obtain better terms, as it simply won't be able to meet the other criteria imposed by the relevant financier.
163 Fourth, Liberty has existing warehouse facilities with a number of financiers, which cannot be broken by Mr Jugovic, and financiers would not be influenced by Mr Jugovic to cease or reduce the amount of finance they provide to Liberty.
164 Now I should say at this point that I am not at all convinced about the defendants' assertions and their evidence.
165 Evidence was given by Mr Wells of his understanding that Mr Jugovic's role at Liberty did not involve any direct experience in, or detailed understanding of, the lending side of Liberty's business. But evidence before me suggests that Mr Jugovic did have a detailed understanding of Liberty's lending business as he needed to convey Liberty's lending practices to its clients. Mr Jugovic had access to, and an understanding of, the interest rates offered to Liberty's borrowers, the policies and approaches used to assess the credit risk of Liberty's borrowers and the systems used by underwriters to assess the credit risk of Liberty's borrowers. Further, Mr Jugovic was responsible for managing the on-site visits of clients in executing their loan file auditing procedures. And Mr Jugovic was responsible for providing and demonstrating the underwriting systems to clients to enable the completion of their auditing work.
166 Further, evidence was given by Mr Wells of his understanding that Mr Jugovic was not responsible for managing financier relationships. But the evidence suggests that Mr Jugovic was for many years the principal point of contact for most of Liberty's senior funding clients.
167 Further, Mr Jugovic has also stated that he has not been involved in any discussions or negotiations about entering into new agreements following the expiry of Liberty's current warehousing agreements. But this is disputed.
168 Further, Mr Jugovic stated that for new agreements, the key terms were generally agreed between Mr Riedel and his equivalent at the relevant financier. But again this is disputed. According to Mr Riedel, Mr Jugovic was, for many years responsible for managing the facilities and renegotiating terms to Liberty's best advantage. He said that Mr Jugovic would recommend changes to him not the other way around.
169 Further, Mr Jugovic stated that financier parameters are dictated by the credit team within the relevant financier, and there is very little scope for Liberty or any other borrower to negotiate the terms. But again this is disputed. There is evidence before me to suggest that changes in parameters often occurred at each renewal and under Mr Jugovic's management.
170 Further, Mr Jugovic stated that he was not involved in tailoring parameters at a day-to-day level. But according to Mr Riedel, Mr Jugovic was responsible for managing this day-to-day process.
171 Further, Mr Jugovic stated that certain costs of funding could be ascertained from publicly available information about what rates Liberty has generally agreed with its financiers. But according to Mr Riedel, publicised costs of funding relate to the aggregate costs of term and wholesale funding facilities. It is not possible to separate the costs of wholesale funding from such information.
172 Further, Mr Jugovic stated that securitisation clients are not kept confidential to Liberty. But Mr Riedel explained that whilst the identity of those clients is known to the advisers such as the joint lead managers of the notes, the identity of those clients has never been made public by Liberty and third party advisers are under strict confidentiality arrangements to ensure that the information that Liberty provides them is not disclosed to others.
173 Further, Mr Jugovic stated that his discussions with potential investors in the bonds are relatively limited. But according to Mr Riedel, Mr Jugovic had direct engagement with Liberty's clients on each term securitisation.
174 Further, Mr Jugovic stated that the documentation for warehousing and securitisation facilities is prepared by external law firms and that he understands that the documents are basically industry standard, and are prepared regardless of the identities of the parties issuing the bond or entering into the warehouse facility. He stated further that because some bonds are publicly traded on the ASX, much of the documentation regarding securitisation is publicly available. But again according to Mr Riedel, there is no industry standard regarding the terms of warehouse facilities, and the terms negotiated between Liberty and its clients regarding warehouse facilities are not made public.
175 Now Mr Jugovic gave further evidence in an affidavit affirmed on 28 May 2021 seeking to contest some of these responses by Mr Riedel. But I cannot resolve such disputes in the present context. Suffice it to say that in my view, at the least, Liberty has a good prima facie case as to the likely risk of misuse of its confidential information, albeit subconsciously or inadvertently, if Mr Jugovic takes up his position with ORDE in the next 12 months.
176 Further, Mr Jugovic stated that to the extent that some financiers might have preferences about the mix of loans which would secure the relevant warehouse facility, that is a matter which is dictated by the financier. Mr Wells gave similar evidence. But according to Mr Ma, this is incorrect. It is not the case that the client dictates terms which are invariably met by Liberty. Liberty and the client negotiate the key terms of the relevant securitisation agreement, including but not limited to the pool parameters, eligibility criteria and the margins.
177 Further, Mr Jugovic stated that knowledge by him of the preferences of a financier does not give him any advantage. Further, Mr Wells said that in dealing with a client, it would be ORDE's usual process to ask the client to disclose its preferences and to work with these, and accordingly there is no need for ORDE to use or know a client's preferences vis-à-vis Liberty. But Mr Ma said that knowing the commercial terms to which a client has previously agreed to provide finance is valuable. This is the base from which any future negotiations commence. As Mr Ma explained, if you want to purchase a Mercedes, and you know the price that the dealer sold the same model to another person, and some of the other important features of the car, this sets the parameters of the future negotiations.
178 Further, although Mr Jugovic stated that the documentation for the wholesale and term trusts were industry standard, as Mr Ma explained, whilst it might be industry standard to have trusts, many of the terms are not standard; they are bespoke and unknown to Liberty's competitors.
179 Again, the defendants have sought to counter this by further evidence. But these are all triable questions. I should also say that I have not set out all the evidence on this topic as much of it has been subject to confidentiality claims.
180 I am not able to resolve the assertions and counter-assertions. Suffice it to say that I have considered that there is a real risk that Mr Jugovic may inadvertently or subconsciously use Liberty's confidential information if he takes up employment with ORDE in the next 12 months. But it is unnecessary for me to be more specific at this stage concerning the information. I am dealing with a threatened breach of confidence rather than a cause of action where there has been an actual breach. Further, I am not at all convinced that undertakings given by the defendants could address this problem. They would be difficult to police, particularly concerning subconscious or inadvertent misuse of confidential information.
181 In any event, I do not need to be more specific at this stage as in my view Liberty has made out a strong prima facie case in any event under the relevant restraint clause such as to now justify an injunction.