Mercantile Credit Ltd v Henry

TEXTS CITED : Michael Furmston & GJ Tolhurst, Contract Formation: Law & Practice, (2010) Oxford University Press J.D. Heydon The Restraint of Trade Doctrine, 3rd ed (2008) Butterworths

PARTIES : OAMPS Insurance Brokers Ltd - Plaintiff Peter Hanna - Defendant

COUNSEL : J.S. Darams [Plaintiff] A.R. Moses SC with V. Brigden [Defendant]

SOLICITORS : Lander & Rogers [Plaintiff] Colin Biggers & Paisley [Defendant]

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

2010/208648 OAMPS INSURANCE BROKERS LTD -V- PETER HANNA JUDGMENT 1 HIS HONOUR: The plaintiff sues to enforce confidentiality obligations undertaken and restraint covenants given by the defendant in an employment contract with the defendant which came to an end on 28 May 2010, after the defendant resigned.

2 The plaintiff ("OAMPS") carries on business as an insurance broker, amongst others, in New South Wales and the Australian Capital Territory. Its business involves acting as an intermediary between clients seeking insurance and risk advice, and insurance companies.

3 The defendant is an insurance broker of some thirty years standing. He has spent his entire working life in the industry. He was previously employed by a firm of brokers, Chambers Gallop McMahon, whose business OAMPS purchased. He commenced his employment with OAMPS on 8 October 1990 and was employed in a division of OAMPS styled OAMPS Consulting.

4 On 22 April 2010 the defendant resigned from OAMPS, having accepted an offer to work for one of its competitors, Strathearn Insurance Brokers ("Strathearn").

5 His resignation took effect on 28 May 2010 and his employment with Strathearn commenced on 7 June 2010. The Employment Contract

6 On 30 September 2008, the parties signed a written employment contract ("the Employment Contract"). Schedule 2 to, and incorporated in, the Employment Contract is an instrument described as Post Employment Restraint Deed ("the Restraint Deed ").

7 The following provisions of the Employment Contract are relevant to the present dispute: Position You are employed on a permanent full-time basis in the position of Client Director with OAMPS Insurance Brokers Pty Ltd (the "Company"), a business unit within the Wesfarmers Insurance Division. You may be required to perform the duties of that position and may be required to perform other duties or fill other positions as directed from time to time. Your continuity of service will be maintained in respect of calculating leave entitlements. Confidentiality You shall not at any time during the agreement period or after its termination discuss or disclose information including confidential information, processes, materials, costs, or secrets relating to any aspect of this agreement or any of the business or other affairs of the Company or any of its related companies or clients of the Company or any of its related companies to any person without the Company's express agreement, except that which may be required in the performance or discharge of duties under this agreement. You shall not make use of any such information, process or document to which you have had access during the period of your employment at any time during the agreement period or after its termination except on behalf of the Company, and in particular you will not use such information for your own purpose or for any purpose which is adverse to the interests of the Company. Without limiting the generality of the above, confidential information includes the following:

· The Company's client and supplier lists; · Information about the Company's clients; · The Company's financial information including prices, costs and margins; · Information about the Company's business strategies and identified business opportunities; · The Company's intellectual property, insurance policies, and computer formats; · Information which if disclosed might cause harm to the Company's business or advantage a competitor; · Information about the Company's administrative procedures and business; · The Company's know how including trade secrets, technical data and formulae, technical analysis, underwriting practises and models, computer programmes, research records, market surveys, market analysis, competitor information, slogans, technology information, sales techniques, designs, and copyright. Protection of the Company's interests The enclosed copy of a Post Employment Restraint Deed at Schedule 2 forms part of your Employment Agreement. Please read this carefully and seek advice if necessary before signing and returning it with your Employment Agreement. Your acceptance of this offer will not be valid unless you also execute the Schedule. You acknowledge that: during your employment you will:

· acquire significant information about the business of the Company including the names of employees, contractors, officers, agents, suppliers and clients with whom the Company does business; · have the opportunity to forge personal links with employees, contractors, officers, agents, suppliers and clients; · have the opportunity to learn and acquire trade secrets, business connections and other confidential information about the Company's business; · disclosure of confidential information could materially harm the Company; · the restrictive covenants contained in the Post Employment Restraint Deed are reasonable in scope and duration and reasonably necessary for the protection of the Company's goodwill and legitimate business interests, particularly in relation to the Company's core business activities; · the remuneration and other benefits payable to you include consideration in respect of your obligations under the Post Employment Restraint Deed; · the remedy of damages may be inadequate to protect the Company's interests and the Company is entitled to seek and obtain injunctive relief, or any other remedy, in any court; and · in view of the importance of the obligations contained in this clause for the protection of the Company's proprietary interests, this clause will survive the termination of your employment with the Company in all circumstances including repudiation by the Company of the remainder of this agreement. By accepting this offer and executing the Post Employment Restraint Deed, you represent to the Company that you have sought independent legal advice regarding the effect of the Post Employment Restraint Deed.

8 The Restraint Deed is in the following terms: SCHEDULE 2 - Post Employment Restraint Deed

OAMPS Insurance Brokers ABN 34005543920 of 176 Wellington Pde, East Melbourne (the Company )

1. To reasonably protect the goodwill and the legitimate business interests of the Company, during the Restraint Period and within the Restraint Area (referred to below), you will not, without prior written consent of the Company, directly or indirectly: (a) Entice or solicit, or assist another person to entice or solicit, an employee, contractor, officer, agent or supplier of the Company with whom you have had dealings prior to your employment ending, to cease to provide services to the Company; (b) Canvass, solicit or deal with, or counsel, procure or assist another person to canvass, solicit or deal with any client of the Company with whom you have had dealings during the two year period prior to your employment ending.

2. Restraint period means, from the date of termination of your employment: (a) 15 months; (b) 13 months; (c) 12 months.

Restraint Area means: (a) Australia; (b) The State or Territory in which you are employed at the date of termination of your employment; (c) The metropolitan area of the capital city in which you are employed at the date of termination of your employment. prior written consent includes a documented list of Clients agreed and authorised in writing by the Company prior to the termination of your employment.

3. The covenants given by you in this clause will apply, and may be enforced against you, regardless of the reason(s) for the termination of your employment.

4. Each restraint contained in this Deed (resulting from any combination of the wording in clauses 1 and 2) constitutes a separate and independent provision, severable from the other restraints. If a court of competent jurisdiction finally decides any such restraint to be unenforceable or whole or in part, the enforceability of the remainder of that restraint and any other restraint will not be affected. Executed as a Deed Poll The insurance broking business 9 OAMPS earns its revenue by way of fees paid by the client or commission paid by the insurer as a percentage (between 5 and 30 per cent) of the applicable premium of a policy taken out by the client. 10 The critical point of time for securing revenue is the entry into by the client of a contract of insurance. When a client's existing policy of insurance expires and is up for renewal is thus critical as well. An insurance policy usually operates for a twelve month period. Renewal programs almost invariably commence three months before expiry. 11 The starting point for a new client is a letter of appointment under which the broker is given authority to act in sourcing insurance. A standard letter is used throughout the industry.

12 Clients ordinarily expect their broker to obtain the lowest premiums and the most appropriate coverage. Comparative quotes are often obtained. 13 According to the unchallenged evidence of Mr Martin van Rhoon, OAMPS' Eastern Region and Corporate Manager, OAMPS will almost certainly lose its ability to earn revenue in respect of a client if a letter of appointment is given to another broker. If a competitor is appointed by a client as a broker prior to the next renewal of a policy, then unless the client can nevertheless be persuaded to maintain existing brokerage arrangements, the associated revenue will be lost.

14 According to Mr van Rhoon (and perhaps self-evidently), to retain a client, the employee responsible seeks to develop as good a relationship as possible with the client. This can be achieved by demonstrating an understanding of the client's business so that the appropriate cover is obtained. He also says that it is important to assist the client with issues which arise during the term of policies. Such issues may concern endorsements to policies, claims under policies, adjustments or risk advice. Further, the personal relationship between the OAMPS representative and the client's representative will often be an important factor in client retention. Whilst each client is different, Mr van Rhoon estimates that a Client Director in the OAMPS Consulting business will be in contact with a client for which he or she is responsible on average up to eight times per month. Client Directors, Account Managers and Account Executives undertake extensive information gathering for larger clients. This involves extensive client meetings and workshops with clients to tailor programs to their needs. The defendant's position and activities at OAMPS

15 At the time of termination of the defendant's employment with OAMPS, he was a Team Leader/Client Director in OAMPS Consulting, responsible for up to six brokers including two Senior Account Managers, one Account Manager and three Account Executives. He reported directly to Mr van Rhoon. 16 The defendant's duties included providing insurance broking services to clients directly. Jointly with Ms Barbara Blonk, another Client Director, he had responsibility for managing the service of a number of clients and for overseeing the provision of services provided by other members of the team. With Ms Blonk, he worked towards the development of new client relationships. He was responsible for team budgets and training and mentoring staff.

The defendant's activities after leaving OAMPS 17 Strathearn has offices across Australia and internationally, with offices in Sydney, Brisbane and Perth. 18 In early February 2010 Strathearn approached the defendant to offer him a position. Discussions then took place over some weeks. The defendant provided Strathearn with copy of the Employment Contract. He says he told Strathearn that he was not able to approach or provide services to OAMPS clients. He had the terms of the Restraint Deed in mind. He says that Strathearn offered him an incentive package and that he told them that if the job was dependent on him bringing business which he looked after at OAMPS, he could not do that. 19 The defendant commenced full-time employment with Strathearn in the position of Account Director in the Sydney office on 7 June 2010. On that day Strathearn published a notice of his appointment in the Australian Financial Review. 20 The terms of his employment with Strathearn include a base salary and a bonus of income for clients introduced over and above a specified threshold

21 The defendant has maintained his mobile telephone number. He says that when he started at Strathearn he was contacted by a number of OAMPS clients including Signature Orthopaedics (Mr Declan Brazil), Australian Biotechnologies (Mr Tom Mende) and Wave Hill Investments (Mr and Mrs Dossor). 22 After these conversations, these three clients went over to him at Strathearn.

23 He says that he maintains a client file for each client for which he provides services at Strathearn and has opened files for the three clients concerned. He says that he has not used any confidential information obtained from OAMPS about the client. In particular he has requested that the clients provide him with details of their current insurance coverage and fees to allow him to broker the most appropriate insurance product on the most competitive fee structure that he can negotiate, based on his knowledge of products available and the general pricing arrangements of insurers. 24 The evidence established that the defendant has had contact with a number of other OAMPS clients, including Mr Bill Rothery of the Swire Group of companies, Ms Gai Stevens and Mr Warwick Hicks of the Luxottica Group of companies and Mr Ian McAllister of Stannard Marine. 25 The defendant gave evidence that his approach so far has been that the Restraint Deed permits him to deal with clients of OAMPS with whom he previously dealt, but not to solicit their business. 26 However, handwritten file notes of conversations with clients reflect that this is in truth not the approach he has taken. For example, he advised Mr Dossor that if Mr Dossor requested that the defendant look after him, he would be able to do so. This clearly amounts to solicitation, and so much was accepted during submissions on his behalf. He told a number of clients that he was not permitted to solicit their business, but told them where he was going and what he would be doing. It also does not appear as if he has acted in accordance with his statement to Strathearn that he was not able to provide services to OAMPS clients. THE PROCEEDINGS 27 By Summons sued out of this Court on 28 June 2010, OAMPS sought urgent interlocutory relief restraining the defendant from breaching the confidentiality provisions in the Employment Contract and the Restraint Deed. The Summons was made returnable by the Duty Judge on 1 July 2010. On that date the matter came before me, the defendant gave certain undertakings (upon OAMPS giving the usual undertaking as to damages) and I set the matter down for final hearing commencing on 12 July 2010. 28 At the hearing, Mr J Darams of counsel appeared for OAMPS. Mr A Moses SC together with Ms V Brigden of counsel appeared for the defendant. 29 The Summons was amended at the commencement of the hearing. By it, OAMPS claims the following relief: a An order that the defendant be restrained up to and including 28 August 2011, alternatively 28 June 2011, alternatively 28 May 2011, throughout Australia, alternatively throughout New South Wales, without the prior written consent of the plaintiff, from, directly or indirectly, canvassing, soliciting, or dealing with, or counselling, procuring or assisting another person to canvass, solicit or deal with any of the clients listed in annexure C to the affidavit of Martin van Rhoon dated 28 June 2010. b An order that the defendant be restrained up to and including 28 August 2011, alternatively 28 June 2011, alternatively 28 May 2011, throughout Australia, alternatively throughout New South Wales, without the prior written consent of the plaintiff, from, directly or indirectly, enticing or soliciting, or assisting another person to entice or solicit, an employee, contractor, officer, agent or supplier of the plaintiff with whom the defendant had dealings prior to 28 May 2010 to cease providing those services to the plaintiff. c An order that the defendant be restrained from using or disclosing the following information about clients listed in annexure C to the affidavit of Martin van Rhoon dated 28 June 2010: i. renewal dates of any policy of insurance held by the clients; ii. assets over which any policy of insurance is to be obtained; and iii. the fees paid to the plaintiff by the clients in the period up to 28 May 2010.

30 The first order sought corresponds with cl 1(b) of the Restraint Deed, the second with cl 1(a) and the third with the confidentiality provisions in the Employment Contract. 31 Each party provided written submissions. The submissions were refined during oral argument.

32 At the conclusion of the hearing the defendant extended, until further order, the undertakings which he had earlier given, and OAMPS extended the usual undertaking as to damages. THE ISSUES 33 In final submissions the defendant conceded OAMPS' entitlement to relief in respect of the confidential information described in par 3 of the Summons, but with the caveat that he not be restrained from using information where the client has, without his involvement, made it directly available to Strathearn. OAMPS did not put anything to the contrary. The defendant accepted that such relief should operate for 12 months. OAMPS contends for 15. 34 The defendant concedes that if the Restraint Deed is enforceable, he has breached it. 35 The defendant did not press a number of unsustainable contentions which he put initially, including one that the plaintiff is not the OAMPS entity entitled to sue (apparently because there is another entity called OAMPS Consulting Pty Ltd).

36 Ultimately the defendant sought to impeach the Restraint Deed only as regards the prohibition imposed by cl 1(b). His challenge was on two bases: firstly, that the Restraint Deed is void for uncertainty and secondly, that the Restraint Deed is void as going beyond what is reasonably necessary to protect OAMPS' legitimate protectable interest. No submissions were directed to the prohibition on enticing or soliciting employees, contractors, officers, agents or suppliers of OAMPS provided in cl 1(a) of the Restraint Deed. 37 As a subordinate submission, the defendant put that a number of clients in the list referred to in prayer 1 of the Summons were private domestic clients with whom he had no significant contact or relationship and that they should be excluded from any relief. The parties agreed that if relief is to be given, it should prevent the defendant from soliciting those clients, but not from dealing with them. VOID FOR UNCERTAINTY? 38 A contract or a term of a contract is uncertain if a court cannot determine the meaning the parties intended. A term may be found to have a number of reasonable applications, but fail for uncertainty because it is not possible to determine which of those applications represents the intention of the parties: Michael Furmston & GJ Tolhurst, Contract Formation: Law & Practice, (2010) Oxford University Press at par 11.14 and following.

39 The defendant put that the Restraint Deed is void for uncertainty "by virtue of its cascading nature". 40 By "cascading" is meant that the restraint allows for a number of different combinations of operation (in this case, nine), in decreasing amplitude of time and area. Such clauses are also described as "ladder" clauses and "step" clauses. 41 It was not put that the words of the Restraint Deed are uncertain as not having a clear meaning in the English language. Rather, it was put that it is uncertain in its operation because each permutation is inconsistent with every other one and no mechanism is provided for the selection of the one which is to operate. Put another way, more than one set of facts is within the words used and the Restraint Deed does not define the set or sets of facts upon which it operates: Mercantile Credit Ltd v Henry [1962] 2 NSWR 248 at 150; Michael Furmston & GJ Tolhurst, Contract Formation: Law & Practice at par 11.18. 42 The certainty (or otherwise) of cascading restraints of various types has been the subject of extensive judicial consideration. However, save for the decision of the Full Court of the Supreme Court of Queensland in J.Q.A.T. Pty Limited v Storm [1987] 2 Qd. R 162, to which further reference is made below, the Court was referred only to first instance decisions.

43 The defendant placed heavy reliance on the decision of Wootten J in Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840 where a contract for the sale of a business partnership contained a covenant in restraint of trade under which the vendor covenanted that he would not "for the stipulated period engage in the business of the Partnership or any aspect thereof in the stipulated area". The definitions of stipulated period and stipulated area permitted 82,152 permutations. The restraint could properly be described as cascading because each stipulated area and period was qualified with words having the effect that if it was unenforceable, the next one down applied. 44 Wootten J considered that the parties had not defined their obligations precisely or presently, but had used words which called for some inquiry. At 845 his Honour said: But the agreement contemplates only one covenant. Which one is intended? The problem is not to be solved by saying that the widest enforceable covenant is intended because in the absence of any statement as to the priority of application of the variables it is not possible to say which covenant is widest. Does a 100 kilometre radius for one year give a wider covenant than a 10 kilometre radius for five years? How are ten years of tanks in situ to be weighed against four years of all the listed products? The case is in this respect similar to Davies v Davies where the Court of Appeal held void a covenant to retire from a business "so far as the law allows". Cotton LJ said (at p 387) that parties must "themselves fix the limits within which there is to be no carrying on of the trade, and then they do it at their peril …. There is no definite fixed rule as to the limits within which trade can be restrained. That must depend upon the circumstances of each case… are we again and again to have this question to arise on the covenant, where the parties have left the covenant entirely indefinite and have sought to get the Court, without risking the validity of their covenant, from time to time, to say whether a particular space and a particular time is within the limits?"

45 The covenant considered in J.Q.A.T. was in the following terms: 6.2 In the event that his Employment hereunder is terminated the Employee shall not, without the prior written consent of the Company, from the date of such termination for the period hereinafter specified be as principal interested, engaged or employed or act as an adviser or consultant in, or be an employee, agent or officer of, or an adviser or consultant to, any person, firm or corporation interested or engaged in: (a) (i) the provision of personnel/Human Resource services; (ii) any activity of a like or similar kind to that in which the Employee was interested or engaged during the course of his employment hereunder; (iii) any business of a like or similar kind to that engaged in by the company:

(b) (i) for a period of one (1) month; (ii) for a period of two (2) months; (iii) for a period of three (3) months;

(c) (i) in the State of Queensland (ii) in the State of New South Wales.

6.3 The preceding sub-clause 6.2 of this Clause 6 shall be construed and have effect as if it were the number of separate sub-clauses which results from combining the commencement of sub-clause 6.2 with each sub-paragraph of paragraph (a) and combining each such combination with each sub-paragraph of paragraph (b) and combining each such combination with each sub-paragraph of paragraph (c), each such resulting sub-clause being severable from each other such resulting sub-clause, and it is agreed that if any of such separate resulting sub-clauses shall be invalid or unenforceable for any reason, such invalidity or unenforceability shall not prejudice or in any way affect the validity or enforceability of any other such resulting sub-clause. 46 The Full Court rejected a contention that the covenant was void for uncertainty. 47 At 164 Connolly J said: It is true that the obligations the subject of the notional subclauses will overlap but that does not make them inconsistent if it is proper to regard them as cumulative. The fact that the obligations are imposed on the former employee by a series of overlapping covenants does not mean that the obligations are uncertain. He is subject to all eighteen, as a matter of construction. A question which is no doubt to be litigated in the action is whether cll.6.2 and 6.3 are, in any respect, in unlawful restraint of trade and whether, if that be so, the unlawful restraints may be severed from the obligation. It was not doubted in argument that the way in which these provisions are drafted is designed to facilitate severance should this be necessary. That, however, does not mean that the obligation which attaches to the employee under the contract is not clear. It is, in my judgment, an obligation to abstain from the activities specified in the commencing words in relation to the provision of personnel/Human Resource services, in relation to the activities in which he was engaged as an employee and in relation to a business similar to that engaged in by the appellant (the latter two possibly but not necessarily being covered by the first) for three months in both Queensland and New South Wales.

48 At 167-169 Ambrose J said: The respondent relied upon the decision in Austra Tanks Pty Ltd v. Running [1982] 2 N.S.W.L.R. 840 where Wootten J. held the covenant considered in that case void for uncertainty. In that particular case it was possible, theoretically, to spell out of a covenant in restraint of trade 82,152 notional covenants, many of which, in his Honour's view, might be held to be enforceable but many others of which might be held not to be enforceable. In that case however, the agreement was construed at 845 on the basis that: "The agreement contemplates only one covenant. Which one is intended? The problem is not to be solved by saying that the widest enforceable covenant is intended because in the absence of any statement as to the priority of application of the variables, it is not possible to say which covenant is widest. Does a 100 kilometre radius for one year give a wider covenant than a 10 kilometre radius for five years?" His Honour construed the agreement as one which sought to define the obligations imposed "through a series of enquiries as to what is enforceable". His Honour referred to the observations of Bowen L.J. in Davies v. Davies (1887) 36 Ch. 359, 393 to support his conclusion that the particular clause before him was void for uncertainty. The essence of the observation made by Bowen L.J. seems to be that all the different restrictions which might be spelt out of the clause to which he referred "would be absolutely inconsistent with each other". From my reading of cl.6 it appears clear that it has been drawn to provide eighteen separate and independent contractural restraints. If there is no uncertainty as to the definition of the contractual obligation or obligations created by that clause then the appeal must succeed. For the respondent it is argued that there is an inconsistency between the various contractual obligations imposed and therefore the clause is void for uncertainty. I concur with the view expressed by Connolly J. that the contractual obligations imposed by cl.6 are cumulative. In my view cl.6 could not be said to create mutually inconsistent contractual obligations. I refer to the observations of Higgins J. in Clyde Engineering Co. Ltd v. Cowburn (1926) 37 C.L.R. 466 where his Honour, dealing with the test of inconsistency between federal and state laws, said inter alia: "Etymologically I presume that things are inconsistent when they cannot stand together at the same time;" Later in Ex parte McLean (1930) 43 C.L.R. 472, 483 Dixon J. dealing with the same question observed inter alia: "… by prescribing the rule to be observed the Federal statute shows an intention to cover the subject matter and provide what the law upon it shall be. If it appeared that the Federal law was intended to be supplementary to or cumulative upon State law then no inconsistency would be exhibited in imposing the same duties or in inflicting different penalties. The inconsistency does not lie in the mere co-existence of two laws which are susceptible of simultaneous obedience …". The concept of "inconsistency" with which both Higgins J. and Dixon J. were dealing is constrained of course by the context in which that term is used in s.109 of the Constitution. Nevertheless in construing cl.6 I find the tests of "inconsistency" to which I have referred helpful and conclude - (i) Clauses are inconsistent when they cannot stand together at the same time; and (ii) Inconsistency does not lie in the mere co-existence of two or more clauses which are susceptible of simultaneous compliance even though the extent of the obligation imposed by each differs from that or those imposed by the others. In my view the extent of the contractual obligation imposed by each of the eighteen "notional covenants" is precisely defined and the respondent may perform the obligation imposed by each without thereby breaching the obligation imposed by any of the others. The fact that he may by some action breach one or more of the eighteen contractual obligations without thereby breaching all of them could not lead to the conclusion that there is an inconsistency in the obligations which renders the clause creating them void for uncertainty. 49 Support for the approach taken in J.Q.A.T. is to be found in the decision of Spender J in Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505. At 520 his Honour said: If, however, the clause contemplates all of the combinations applying with severance of those found to be an unreasonable restraint of trade, then no uncertainty exists. The clauses operate cumulatively, with any overlap between the obligations thereby imposed not being regarded as an inconsistency of the kind discussed by Bowen LJ in Davies v Davies . 50 In Brendon Pty Ltd v Russell (1994) 11 WAR 280, a restraint covenant provided permutations in respect of activities, area and period. The covenant contained the following provision (cl 16.3): This clause shall take effect as a severable covenant in respect of each relevant period to time, each area, each manner, each capacity, each business and each act of conduct mentioned in that clause and if any of the provisions contained in this clause are held to be unenforceable then in each and every such case the unenforceable provisions are severable and the remaining provisions of this clause shall be enforced between the parties.

51 In considering whether the covenant was void for uncertainty, Ipp J referred to the obiter comment of Pincus J in Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 expressing doubt about the reasoning in J.Q.A.T. and Lloyd's Ships that there is a qualitative difference between cases where there are cumulative covenants and where there is a single one. His Honour also did not find the reasoning in J.Q.A.T. to be persuasive. However, his Honour distinguished the case before him from Austra Tanks on the basis that cl 16.3 indicated that the widest enforceable covenant was intended. His Honour identified the widest one and the most limited one as being certain and all those in between as being uncertain. 52 In Tyser Reinsurance Brokers Pty Ltd v Cooper [1998] NSWSC 689, a covenant defined the restraint period as: the periods commencing on the Disassociation Date and expiring one (1) year, two (2) years or three (3) years immediately following such date, to the intent that; (a) if any such period shall be held to be invalid, illegal or unenforceable for any reason by any Court of competent jurisdiction, such invalidity, illegality or unenforceability shall not prejudice or in any way affect the validity of any lesser period specified; and (b) all such periods shall bind the Employee to the extent that no such finding is made.

53 Young J said: [t]he restraint period is defined in what has been called in argument "cascading drafting", but there are very real difficulties with a clause in that form. The restraint period should not differ depending on what a court should hold. First, it is not a reasonable way of letting an employee know what are the requirements that bind him or her; secondly, there is great difficulty if there is an appeal against the holding, both pending the appeal and, perhaps, afterwards. 54 J.Q.A.T. has been followed and its reasoning applied by Bleby J in Hydron Pty Ltd v Harris [2005] SASC 176 at par 61 - par 76, by Le Miere J in Sear v Invocare Australia Pty Ltd (2007) ATPR 42-149 at par 35 - par 46 and by Angel J in Extraman (NT) Pty Ltd v Blenkinship (2008) 23 NTLR 77 at par 45 - par 55. Additionally, J.Q.A.T. was referred to (with apparent approval) by Finkelstein J in Run Corp Ltd v McGrath Ltd [2007] FCA 1669 at par 31 - par 33. 55 Most recently, in Northern Tablelands Insurance Brokers Pty Ltd v Howell [2009] NSWSC 426, Barrett J considered a covenant in the following terms: 9.2 Non-solicit after the Term For a period of 12, 24 and 36 months after the Term, the Employee must not without the prior written consent of the Company:

(a) canvas, solicit or endeavour to entice away from any Group Company any person who or which at any time during the last 12 months of his or her employment with the Company was a client or customer of or supplier to any Group Company with whom the Employee dealt; (b) solicit, interfere with or endeavour to entice away any employee of any Group Company; or (c) counsel, procure or otherwise assist any person to do any of the acts referred to in clauses 9.2(a) and 9.2(b). 56 A further covenant provided:

If any part or any provision of this clause is held to be illegal or unenforceable it will be severed from this Agreement and the remaining provisions will continue in force. 57 At par 51, in concluding that the covenant was void for uncertainty, his Honour said: In the present case, there is a meaningless cumulation of three periods. It is not stated that any one of the three may alone stand and, if so, how the operative component is to be chosen from among the three.

58 Barrett J did not refer to J.Q.A.T. and it may safely be assumed that his Honour's attention was not directed to it. 59 The terms of the Restraint Deed are on all fours with the covenant in J.Q.A.T. except (to the extent that it is relevant) that it has only nine permutations, half the tally in J.Q.A.T. 60 The criteria for certainty applied in J.Q.A.T. (and the authorities which have followed it) are that each individual restraint covenant is in clear words, is capable of simultaneous compliance and does not require any inquiry or finding by the Court to make it operative. 61 The Restraint Deed meets these criteria. 62 By contrast, the covenants considered in each of Austra Tanks, Tyser and Northern Tablelands were materially distinguishable from that under consideration here.

63 Unlike the restraints there considered, cl 4 of the Restraint Deed is a clear and unambiguous statement that each restraint constitutes a separate and independent provision, severable from the others. Perhaps for this reason, "cascading" is an inapt description for the Restraint Deed. 64 It may also be observed that whilst the Restraint Deed does not make express reference to the maximum enforceable time period or area, as was the case in Brendon v Russell, cl 4 of the Restraint Deed viewed as a congruent part of the Restraint Deed as a whole indicates, like cl 16.3 in Brendon v Russell, that the widest enforceable covenant is intended. Clause 4 refers only to combinations resulting from the wording in cl 1 and cl 2. The activities in cl 1 are invariable. Clearly, 15 months across Australia is the widest and 12 months in the metropolitan area of Sydney is the narrowest. Applying Ipp J's reasoning, those two covenants would survive.

65 Beyond this, and in any event, I am bound to follow J.Q.A.T. unless I consider it to be clearly wrong: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 151. 66 Counsel for the defendant invited me to so conclude. However, nothing was put which demonstrated that the reasoning in J.Q.A.T. (or for that matter the reasoning in Lloyd's Shipping, Hydron v Harris, Sear v Invocare and Extraman (NT)) is wrong, let alone clearly wrong. 67 The defendant's submission that the Restraint Deed is void for uncertainty accordingly fails. REASONABLENESS OF THE RESTRAINT DEED 68 Section 4 of the Restraints of Trade Act 1976 (NSW) ("the Act") provides as follows: (1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. (3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order. (4) Where, under the rules of an association, a person who is a member of the association is subject to a restraint of trade, the association shall, for the purposes of subsection (3), be deemed to have created or joined in creating the restraint. (5) An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect. 69 The legal principles applicable to the operation of the Act and to assessing the validity and operation of the Restraint Deed can briefly be stated as follows: a under the Act a restraint is valid to the extent to which it is not against public policy, even if not in severable terms; b a restraint is invalid as contrary to public policy unless the restriction it imposes is reasonable in the interests of the parties; c reasonableness is a question of law. OAMPS has the onus to prove the circumstances from which reasonableness can, as a matter of law, be inferred; d the principal interest the Restraint Deed protects is OAMPS' customer connections; e the fact that the parties have, at arms length, agreed to the terms of the Restraint Deed and acknowledged its reasonableness is to be taken into account and indicates, subject to the relevant circumstances, that it is; f an employer's customer connection is an interest which can support a reasonable restraint of trade, but only if the employee has become, vis-a-vis the client, the human face of the business, namely the person who represents the business to the customer; g an employer is not entitled to require protection against mere competition. Covenants that restrain competition are invalid unless they are reasonably necessary to protect legitimate business interests; h the effect of the Act is that the Court must first determine whether the alleged or apprehended breach or breaches infringe or will infringe the terms of the restraint properly construed. Next, it must determine whether the restraint in its application to the breach or breaches offends public policy. If it does not then in its application to the alleged infringing conduct the restraint is valid unless the Court makes an order under s 4(3) of the Act. The effect of s 4(1) of the Act is that in determining the validity of the restraint, attention must be focussed on actual or apprehended breaches not on imaginary or merely potential breaches; i the Court gives considerable weight to what parties have negotiated and embodied in their contracts, but a contractual consensus cannot be regarded as conclusive, even where there is a contractual admission as to reasonableness; j the validity of the Restraint Deed is to be tested at the time of entering into the contract and by reference to what the Restraint Deed entitled or required the parties to do rather than what they intend to do or have actually done. See for example: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707; Amoco Australia v Rocca Bros Engineering Co (1973) 133 CLR 288 at 315 ; Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 at [176] and following; Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at 14; Woolworths Ltd v Olson [2004] NSWCA 372; Dewes v Fitch [1920] 2 Ch 159 at 181; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329; Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at par 24 and par 25; Koops v Martin v Reeves [2006] NSWSC 449 at par 28; Stacks Taree v Marshall [No 2] [2010] NSWSC 77; J.D. Heydon The Restraint of Trade Doctrine, 3rd ed (2008) Butterworths c 2 and c 8. 70 The onus is on OAMPS to establish that the Restraint Deed is reasonably necessary to protect its legitimate business interests, by adducing evidence of facts from which reasonableness can as a matter of law, be inferred. 71 Correctly, the defendant did not in final submissions contend that either the activities to be restrained under cl 1(b) or the area was unreasonable. The defendant was a human face of the business. He had strong connections with, and the ability to influence the actions of, clients with whom he dealt, as his handwritten file notes disclose and subsequent events have proved. Those dealings also displace propositions put by the defendant that clients of OAMPS rarely change brokers and that the defendant's influence was minimised by the fact that his role was supervisory, or in some cases, joint.

72 By the time the Restraint Deed was made, the defendant had had 19 years of building up customer connections. The activities restrained are limited to dealings with persons with whom the defendant had dealings whilst with OAMPS. Where a restraint operates with respect only to designated customers, no area limitation is generally required: Koops at par 86. An Australia wide limitation on dealing with the designated customers is not excessive.

73 By the Restraint Deed the parties agreed that 15 months was a reasonable period. They envisaged a minimum period of 12 months. There was a hint in the defendant's affidavit evidence that he was something of a naïve or unwilling signatory and that he had not negotiated on an equal footing. This was correctly not pressed. He is a confident, experienced and astute insurance broker. His dealings with OAMPS clients after his departure disclose that he does not lack shrewdness. Considerable (but not conclusive) weight is to be given to the parties' agreement on period. 74 OAMPS submitted that reasonable protection of its legitimate interests warranted it being given untrammelled access (that is, access without the intrusion of the defendant) to the designated clients during the period of three months up to and including the renewal date of all policies which were being serviced by the defendant on his departure ("the portfolio"). 75 A Schedule identified the portfolio and the expiry dates of the policies within it. The dates are fairly evenly spread throughout the year. 76 There was no issue that clients' insurance programs are usually 12 months and that renewal programs almost invariably commence three months before anticipated renewal. The critical point of time is the date of renewal. If, during the period leading up to renewal another broker is appointed, it is almost inevitable that the revenue will be lost to OAMPS. A history of dealing with the client is undoubtedly an important factor in the further retention of the broker. 77 Some of the policies in the portfolio are held by long-term clients, some going back to Chambers Gallop McMahon. 78 OAMPS submitted that given that every policy will be renewable within 12 months from the defendant's departure, 15 months restraint is the minimum period to ensure OAMPS an untrammelled opportunity of not less than three months across the portfolio to protect its customer connection by establishing a rapport with, and demonstrating competence to, the clients. 79 The defendant seemed only mildly (if at all) to contest that 12 months was the minimum period required by OAMPS to secure its customer connection. He submitted instead that this was the wrong criterion for assessing reasonableness of the period. He put that the correct criterion (indeed the only criterion) is the time needed to sever the relationship between the defendant and the OAMPS clients he serviced (and who presumably would patronise OAMPS after his departure). He put that OAMPS failed to establish reasonableness because it did not lead evidence of what time would be taken to effect such severance.

80 In this jurisdiction both criteria have been identified as appropriate.

81 Support for the approach taken by OAMPS is to be found, amongst others, in Koops. At par 88 Brereton J held:

Generally, the test of reasonableness for the duration of such a restraint is what is a reasonable time during which the employer is entitled to be protected against solicitation; that in turn depends on how long it would take a reasonably competent replacement employee to show his or her effectiveness and establish a rapport with customers [ Stenhouse ; Daly Smith Corporation (Australia) Pty Limited v Cray Personnel Pty Limited (NSWSC, Young J, 14 April 1997, unreported)]. A related albeit subsidiary consideration is how long might the hold of the former employee over the clientele be expected to last before weakening. 82 On the other hand, there is support for the defendant's submission in the decision of McDougall J in Stacks Taree [No 2]. At par 66 - par 72 his Honour said: The last question of principle concerns the approach to be taken in assessing the reasonableness of the duration of a restraint (either on solicitation or on competition). That question needs consideration because the submissions, and much of the evidence, for Stacks Taree addressed the length of time that it would take to introduce Mr Phoon to Mr Tim Stack's clients and to promote him to the local business community, in the same way that Mr Marshall had been introduced and promoted. Mr Moses submitted that this was not the correct approach; and that the correct approach required consideration of the time that it would take to sever the relationship built up between Mr Marshall and the clients for whom he had worked. For present purposes, the starting point may be taken to be the decision of Rath J in IRAF Pty Ltd v Graham [1982] 1 NSWLR 419. That case concerned a restraint in a contract of sale of a hairdressing salon. By that restraint, the vendor and his associates agreed that they would not for a period of three years from completion, and within a radius from one kilometre from the location of the business sold, be engaged directly or indirectly in the business of a hairdresser. Rath J held that some aspects of the restraint were too wide, but that they could be read down by reference to s 4(3) of the Restraints of Trade Act . His Honour dealt with the duration of the restraint at 428-429. At 429, he said that the most important consideration, in considering the reasonableness of the duration of the restraint, was "the time required for severing the relationship between the defendant [vendor] and those clients who would patronize the business after its sale". There was, as his Honour said, "necessarily a large element of conjecture involved here". It followed, his Honour said, that "considerable weight should attach to the period the parties themselves have selected". His Honour's approach of considering the time taken to sever the covenantor's connection with the customers or clients in question rather than the time for the covenantee to build up (or rebuild) a connection, was followed by the Full Court of the Supreme Court of South Australia in NE Perry Pty Ltd v Judge (2002) 84 SASR 86. See Doyle CJ at 91 [28] - [30], Bleby J at 96 [63] and Besanko J at 103 [101] - [104]. Besanko J explained the reason for this approach at 103 [100], by reference to the judgment of Kitto J in Lindner at 654. Besanko J said that the interest being protected was the purchaser's interest in its business connection: preventing that connection from being affected by the personal knowledge and influence over the customers of the business which the vendor might have. (In fact, and of more relevance to this case, Kitto J put the matter in terms of a covenant given by an employee, and referred to knowledge and influence gained by the employee in the course of employment.) Again, in Cream v Bushcolt Pty Ltd [2004] WASCA 82, the Full Court of the Supreme Court of Western Australia observed "that the most important consideration is the time required for severing the relationship between the vendor and those clients who would patronise the business after the sale". See Malcolm CJ (with whom Miller and McKechnie JJ agreed) at [53]. Of course, as Doyle CJ pointed out in Perry at 91 [31], there may be little practical difference between the two approaches. Nonetheless, his Honour said, "it is safer to focus on the period of time reasonably required to break the connection… rather than the period of time within which there would be an opportunity for [the employee] to establish a new connection." 83 After referring to the passage in Brereton J's judgment in Koops referred to above, his Honour continued at par 74: It does not appear that his Honour was referred to the decision of Rath J in IRAF , or to the Full Court decisions that I have cited. In circumstances where there is some conflict in the approach taken by two judges at first instance in this Court (Rath J in IRAF and Brereton J in Koops ), I think that it is open to me to consider the matter for myself. I prefer the approach of Rath J in IRAF , and I take into account that it has commanded the support of two intermediate appellate courts. Further, for the reasons given by Besanko J in Perry (see at [70] above), I think that the approach taken by Rath J and by the Full Courts of the Supreme Courts of South Australia and Western Australia accords with the principle on which restraints on trade are enforced. 84 Whichever approach is taken, the issue to be resolved remains the same, namely whether the Restraint Deed offers no more protection than is reasonably necessary to protect the legitimate business interests of OAMPS.

85 I do not consider that IRAF Pty Ltd v Graham [1982] 1 NSWLR 419, N E Perry v Judge (2002) 84 SASR 86 or Stacks Taree [No 2] elevates the approach which they took to an axiom or irrefrangible rule of law which has to be applied in resolving this issue. I do not consider that any of those decisions precludes (as wrong in law) resort to the criterion applied by Brereton J in Koops. 86 It is to be observed that in IRAF at 429, Rath J said: To my mind the most important consideration on the question of the period of the restraint is the time required for severing the relationship between the defendant and those clients who would patronize the business after its sale. There is necessarily a large element of conjecture involved here. Additional evidence might reduce that element, but in the main the matter involved is the exercise of business judgment. For this reason considerable weight should attach to the period the parties themselves have selected. (emphasis added) 87 In Perry, Doyle CJ, at par 30 - par 31 having determined to follow the approach in IRAF, said: I agree with the submission advanced by Mr White. The manner in which he put the matter is the manner in which it has been expressed in a number of cases: see, for example, IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 429. That approach also seems to me to be more consistent with principle. NEP was entitled to protect itself against the exercise of or impact of the connection between Dr Judge and patients of the Clinic. However, having agreed with the submission, I add that I do not consider that much weight can be put on this point. The fundamental issue is whether the restriction is reasonable in the interests of the parties, or whether it affords no more than adequate protection to NEP. (emphasis added) 88 His Honour went on to point out at 91 (as McDougall J observed in Stacks Taree [No 2] at par 72) that the period to secure the customer connection may be the same as that required to sever it. 89 At par 101, Besanko J referred to the two approaches as being in one sense different sides of the same coin. 90 In my view, McDougall J did no more than to prefer the approach taken in IRAF and Perry. 91 The Restraint Deed is aimed at protecting OAMPS' interest in its customer connections by preventing the defendant from using his personal knowledge and influence over the clients built up during the course of his employment with OAMPS. The question is whether, on the whole of the evidence, OAMPS has proved circumstances from which reasonableness can be inferred. 92 As earlier mentioned, the critical point in time for OAMPS in securing its business connection (or for that matter for bringing about severance of the defendant's relationship with the client) is the policy renewal date. The renewal dates of the portfolio are spread throughout the year. 93 At a minimum therefore, protection for 12 months is reasonable. This is the minimum necessary to give OAMPS one opportunity to cement its connection or for the defendant's connection to be severed across the portfolio.

94 Twelve months also ensures an untrammelled opportunity during the crucial three month renewal period in respect of policies renewed during the nine months commencing three months after the defendant's departure. 95 Twelve months does not, however, give OAMPS a full three month period in respect of policies that expire less than three months after the defendant's departure. 96 There is some force in OAMPS' submission, which was persuasively articulated, that an additional three months is required. 97 On this approach, however, OAMPS would get two opportunities (although the first would be less than three months) to retain the client in respect of renewal of policies in the portfolio which expire less than three months after the defendant's departure. OAMPS submitted that the first opportunity should be disregarded because the defendant would have had some involvement before his departure in relation to the renewal and it may be inferred that his involvement would have contributed to the retention of the business, so that OAMPS in its own right would have had insufficient opportunity to establish rapport with and demonstrate competence to the client. 98 However, to be balanced against this is that OAMPS will have had some opportunity in respect of policies renewed during the first three months and it will have the remainder of the year (including in most cases some part of the next renewal period) to secure its customer connection (or sever the defendant's). If OAMPS has retained the client in those first three months it will have gone at least some of the way (if not the entire distance) to severing the defendant's connection with that client. There is also nothing to prevent OAMPS from making efforts outside the usual three month renewal period, although that is the period when the client is most likely to determine who it will retain. It is then when clients focus on renewal. 99 The choice between 15 months and 12 months as the minimum period reasonably necessary to protect OAMPS' legitimate business interest is finely balanced. In all the circumstances however, I think the latter equates to the minimum period reasonably necessary to protect OAMPS' legitimate business interest and is the period in respect of which the defendant should be restrained. It is also the minimum period which the parties agreed under the Restraint Deed. 100 If I were to follow the reasoning of Ipp J in Brendon v Russell, the minimum covenant would be 12 months in the metropolitan area of Sydney. Given that the Restraint Deed is client specific, the difference in area would have little practical difference. 101 I should say that in the circumstances of this case, I do not consider that there would be any difference in outcome if the sole criterion applied were the time needed to sever the defendant's connection. The defendant neither adduced evidence nor made any submission which persuades me that it would. Policy renewal time and the period leading up to it is when OAMPS both has the realistic opportunity of securing its customer connection and when the defendant's connection is likely (if at all) to be severed.

CONCLUSION 102 OAMPS is entitled to relief in accordance with prayers 1, 2 and 3 of the Amended Summons for a period of 12 months. The order in terms of par 1 is to be modified so as to restrict its operation to soliciting the clients with whom it is agreed the defendant had no significant contact or relationship. Such a modification can be ordered under s 4(3) of the Act. Anyway, it is agreed. The clients concerned can be identified in a confidential exhibit should the parties wish. 103 The order in terms of paragraph 3 is to be modified in the way earlier identified and is also to be of 12 months duration on the basis that that period is sufficient to protect the confidentiality of the information. 104 The parties are to bring in short minutes reflecting these reasons and I will stand the matter over to Friday's Motions List for that purpose. 105 Provisionally I order that the defendant is to pay OAMPS' costs of the proceedings. Any party wishing to submit that there should be a different order is to serve on the other party and deliver to my Associate a brief written outline not exceeding three pages by 5.00pm on Thursday 29 July 2010. If no such submissions are received, the provisional costs order will solidify. If any submissions are received, I will rule on costs on Friday 30 July 2010 when the matter is re-listed.

106 The exhibits are to be returned. **********

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