NSWNSWSC

Sprout Trading NSW Pty Ltd trading as Sprout Ag v PBH Trading Pty Ltd

[2024] NSWSC 1647

Supreme Court of NSW|2024-11-22|Before: Hmelnitsky J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2024-11-22

Before

Hmelnitsky J

Catchwords

[2014] WASC 102 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288
[1973] HCA 40 Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1
[2018] HCA 43 Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151
[2021] NSWCA 178 Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384

Source

Original judgment source is linked above.

Catchwords

[2014] WASC 102 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288[1973] HCA 40 Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1[2018] HCA 43 Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151[2021] NSWCA 178 Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384[1929] HCA 24 Canadian Aero Service Ltd v O'Malley [1974] SCR 592 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337[1982] HCA 24 Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605[1998] HCA 42 Federal Commissioner of Taxation v Williamson (1943) 67 CLR 561[1943] HCA 24 Geraghty v Minter (1979) 142 CLR 177[1979] HCA 42 Grimaldi v Chameleon Mining NL (No 2)Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296[2012] FCAFC 6 Hellmann Insurance Brokers v Peterson [2003] NSWSC 242 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41[2018] NSWCA 163 Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 Lindner v Murdock's Garage (1950) 83 CLR 628[1950] HCA 48 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

Judgment (67 paragraphs)

[1]

IceTV v Ross [2007] NSWSC 635 In the matter of Sunnya Pty Ltd [2024] NSWSC 403 Isaac v Dargan Financial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) (2018) 98 NSWLR 343; [2018] NSWCA 163 Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 Lindner v Murdock's Garage (1950) 83 CLR 628; [1950] HCA 48 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Narellan Franchise Pty Ltd v RBME Pty Ltd [2022] NSWSC 988 Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 Planet Fitness Pty Limited v Brooke Dunlop [2012] NSWSC 1425 Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 Stacks Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 Streetscape Projects (Australia) Pty Ltd v City of Sydney 85 NSWLR 196; [2013] NSWCA 2 Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414 Texts Cited: Evans, Power and Power, Equity and Trusts, (LexisNexis, 5th Edition, 2024) JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (LexisNexis, 5th Edition, 2015) Category: Principal judgment Parties: Sprout Trading NSW Pty Ltd t/as Sprout Ag (Plaintiff) PBH Trading Pty Ltd (First Defendant) Peter Lance Hollingworth (Second Defendant) Representation: Counsel: D Neggo (Plaintiff) R Notley (First and Second Defendants)

[2]

Solicitors: Whiteley Ironside & Shillington (Plaintiff) Wilsons Solicitors (First and Second Defendants) File Number(s): 2022/00378431 Publication restriction: Nil

[3]

Table of contents The background to the Franchise Agreement and the Services Agreement The Franchise Agreement Deed of Variation The decision to expand into the Dubbo area The Services Agreement The defendants performed services under the Services Agreement The termination of the Services Agreement The claims in more detail The pleadings The issues in dispute Did the defendants breach clause 12.3? What is the scope of the defendants' obligation under clause 12.3? Clause 12.3(a) - solicitation Clause 12.3(a) - significance of the reference to "secure"? Clause 12.3(b) - "divert or attempt to divert…" Did the defendants breach clause 12.3? Bowman Entities Facts Conclusions Whillocks Facts Conclusions Shorts Facts Conclusions McCutcheon Facts Conclusions Maiso Facts Conclusions MacInnes Entities Facts Conclusions Gin Gin Farms Facts Conclusions Egan Entities Facts Conclusions Vella Entities Facts Conclusions Haddon Rig Facts Conclusions Technotill Entities Facts August 2022 - September 2022 October 2022 - November 2022 February 2023 Conclusions Other clients Are the restraints unreasonable? Applicable principles Did the plaintiff have goodwill to protect? Was there goodwill as at 25 June 2020? Was there goodwill after 11 January 2021? Reasonableness Fiduciary Duty Did the defendants owe fiduciary duties? Was there a breach of fiduciary duty? Bowman Entities Whillocks Shorts McCutcheon Maiso MacInnes Entities Gin Gin Farms Egan Vella Entities Haddon Rig Technotill Entities Relief Orders

[4]

JUDGMENT

Sprout Trading NSW Pty Ltd (the plaintiff) carries on business as a franchisee of Sprout Agribusiness Pty Ltd (Sprout AG). Sprout AG is a finance broking and financial advisory business that has a particular focus on the agricultural sector. Under its franchise arrangements with Sprout AG, the plaintiff is entitled to operate in a geographical area of central NSW that includes both Orange and Dubbo.
On 25 June 2020, the plaintiff entered into a Services Agreement with the first defendant, PBH Trading Pty Ltd (PBH Trading). Under that Services Agreement, PBH Trading agreed to supply services to the plaintiff in return for a fee, with the possibility of earning a bonus if certain revenue targets were met. PBH Trading agreed that these services would be performed by the second defendant, Mr Hollingworth, who was the sole director of PBH Trading.
For a period of almost two years, the defendants performed the services described in the Services Agreement, principally in the Dubbo area, which is where Mr Hollingworth lives. However, Mr Hollingworth was not entirely pleased about the remuneration payable under the Services Agreement. There had also been discussions between Mr Hollingworth and David Charge, who was the managing partner of the plaintiff, about Mr Hollingworth becoming a shareholder in the business (a somewhat vague notion to which I will return) but Mr Hollingworth did not wish to pursue that opportunity.
Mr Hollingworth eventually decided that he would prefer to branch out on his own. He took steps to terminate the Services Agreement on about 18 May 2022. At around the same time, he caused PBH Trading to register the business name "Worth Finance." Under the name Worth Finance, PBH Trading offers very similar services to the plaintiff and operates in the Dubbo area. The plaintiff contends that many of the clients of Worth Finance were either clients or potential clients of the plaintiff's business.
The plaintiff does not seek to prevent the defendants from operating in competition with it altogether. Rather, it contends that the defendants have breached the Services Agreement by soliciting its existing and potential clients or by diverting their business or clients to Worth Finance or another competitor in breach of the non-solicitation restraints in that agreement. The plaintiff also contends that the defendants owed fiduciary duties to the plaintiff, in part by reason of the Services Agreement, that those duties survived the termination of the Services Agreement, and that the defendants breached those duties by accepting work from its clients. The plaintiff seeks damages as a result of the contractual breaches. For the breach of fiduciary duties, it seeks an account of profits from PBH Trading and equitable compensation from Mr Hollingworth.

[5]

The background to the Franchise Agreement and the Services Agreement

As matters stand, the plaintiff has two directors, Mr Charge and James Littlejohn.
For many years prior to 2016, Mr Charge worked in commercial banking, first with Westpac Banking Corporation (Westpac) and then with Suncorp Bank (Suncorp), principally in their agribusiness teams. In 2016, he left Suncorp to become involved in a new broking business, Sprout AG. Troy Constance has been the sole director of Sprout AG since 28 January 2016. Sprout AG operates as a franchise business. Sprout AG is the franchisor.
One of Sprout AG's original shareholders was a company controlled by Mr Charge, Murrays Lane Investments No. 1 Pty Ltd (Murrays Lane No. 1).

[6]

The Franchise Agreement

On 23 July 2017, another company controlled by Mr Charge, Murrays Lane Investments Pty Ltd (Murrays Lane), and Mr Charge entered into a Franchise Agreement with Sprout AG. From at least as early as that date, Murrays Lane operated as a franchisee of Sprout AG. Under the Franchise Agreement, Murrays Lane was entitled to carry on business as franchisee in "Central NSW". It operated under the name "Sprout Ag Central NSW".
The Franchise Agreement recited the fact that Sprout AG was the licensed user of the "System" and the "Image". Those expressions were defined in fairly uncontroversial ways to refer, respectively, to the business system developed by the franchisor for use throughout the term of the agreement for the conduct of the business, and to the distinctive image and appearance specified by the franchisor for the operation of the franchised business, including registered trademarks.
Clauses 3.1 and 3.2 of the Franchise Agreement were as follows: "3.1 Franchise Subject to clause 3.2 and 3.3, The Franchisor grants a Franchise to the Franchisee to establish and operate the Franchised Business, within the Territory at the Premises using the System and the Image on the terms and conditions set out in this Agreement. 3.2 Territory Rights The Franchisee acknowledges and agrees that, subject to clause 3.3(c), it is not granted any exclusivity or territorial rights under this Agreement and the Franchisor may during the Term: (a) grant any person the right to operate a business similar to the Franchised Business at any location; and (b) itself operate any business similar to the Franchised Business at any location."
The franchisee was required to pay to the franchisor an initial "Franchise Fee" for the grant of the "Franchise" at the time of signing the agreement. It was also required by clause 5.2 to make ongoing payments, which were relevantly as follows: "5.2 Ongoing Payments The Franchisee must pay to the Franchisor each month for the whole of the Term, starting in the second month after the Commencement Date the Royalty Fee and any Advertising Fund Contribution on the seventh day of each month (or such other day of the month as the Franchisor specifies) in relation to Gross Commissions for the previous calendar month, for the whole of the Term, starting in the second month after the Commencement Date..."
"Royalty Fee" was defined to mean: "… the monthly fee in respect of commissions and fees earned by the Franchisee calculated in accordance with the Rates Schedule as varied from time to time by notice from the Franchise, initially being those set out in the Reference Schedule."

[7]

Deed of Variation

On 29 October 2019, Murrays Lane and Sprout AG entered into a Deed of Variation of Franchise Agreement. One of the amendments which the parties agreed to under this deed was to reduce the rate payable to the franchisor from 20% to 13% and remove all other forms of commissions, including stepped commission. The Deed of Variation of Franchise Agreement coincided with a share sale agreement by which Murrays Lane No. 1 agreed to transfer its shares in Sprout AG to Zaftcon Pty Ltd. The share transfer contemplated by the deed was completed in early November 2019. The evidence was that this share transfer was a quid pro quo "payment" from the franchisee to the franchisor in light of the changes to the schedule of rates. I gather from this that Zaftcon Pty Ltd is a company related to Mr Constance. As noted, Murrays Lane No. 1 is a company controlled by Mr Charge.
In early 2020, Mr Charge decided to expand the business being carried on by Murrays Lane. To that end, he decided to form the plaintiff, with the intention that the shareholders would be Murrays Lane No. 1 and a company associated with Mr Littlejohn.
It is at this point that some questions of timing become important.
The plaintiff was incorporated on 25 June 2020. At this date, Mr Charge was the sole director and Murrays Lane No. 1 the only shareholder.
The commencement date under the Services Agreement was 3 August 2020.
However, Mr Littlejohn did not become a director of the plaintiff until 1 January 2021 and the franchised business was only assigned to the plaintiff by Murrays Lane under the terms of a Deed of Assignment and Release made on 11 January 2021. The parties to that deed were Sprout AG, Murrays Lane, the plaintiff, Mr Charge and Mr Littlejohn.
The effect of the Deed of Assignment and Release is sufficiently described in the recitals under the heading "Background" as follows: "BACKGROUND A. The Franchisor and the Franchisee are party to a franchise agreement dated 1 April 2017 as varied by the 2019 Deed of Variation (the Franchise Agreement) in relation to the Sprout Ag franchise for Central NSW and a prior representations deed dated on or around the date of the Franchise Agreement (Prior Representations Deed). B. Charge is the sole shareholder of the Franchisee. Pursuant to the terms of the Franchise Agreement, Charge has provided a personal guarantee to the Franchisor in respect of the Franchisee. C. The Franchisee wishes to assign its entire interest in the Franchise to the Assignee (the Assignment) and the Franchisor has agreed to consent to the Assignment. D. Charge and Littlejohn are the ultimate beneficial owners of the Assignee, and have agreed to provide personal guarantees to the Franchisor in respect of the Assignee under the Franchise Agreement (the Assignee Guarantee), including a confirmation of the undertakings in the Prior Representations Deed. E. This Deed of Assignment and Release (this Deed) sets out the terms on which the Parties agree to enter into the Assignment and the Assignee Guarantee…"

[8]

The decision to expand into the Dubbo area

At about the same time that Mr Charge decided to bring Mr Littlejohn into the business, he also decided to expand the plaintiff's business into the Dubbo area. I have used the expression "plaintiff's business" here (and earlier in these reasons) somewhat loosely. It will in due course be necessary to identify more carefully who was carrying on what business and when.
Mr Charge knew the second defendant, Mr Hollingworth, from when they worked together at Suncorp. In 2011, Mr Charge had been the District Manager based in Orange and Mr Hollingworth had been in the bank's agribusiness team in Dubbo. Later, when Mr Charge became the Regional Manager - Business Customers for Suncorp in Orange, Mr Hollingworth's boss reported to him.
In early 2020, after Mr Charge had started working with Sprout AG, Mr Hollingworth expressed interest in leaving Suncorp as well.
Mr Hollingworth had a wealth of good connections in Dubbo and the surrounding area. Between 1996 and 2001, he worked in various farm management roles for cotton growers in Trangie and Narromine. In 2001, he started employment with Syngenta Crop Protection (Syngenta) as a territory manager throughout the Macquarie Valley and south as far as Hillston, Hay and Condobolin. Between 2004 and 2007, he worked for Cotton Australia as an area manager for much the same area he had covered whilst working for Syngenta.
In these various roles, Mr Hollingworth came to know a large number of cotton growers and farmers throughout the region in which he operated. During this time, he lived first in Trangie and then Narromine. Many of the cotton growers and farmers he came to know also became his friends through social events and through his participation in local sport.
In 2007, Mr Hollingworth started to work with Suncorp as a Business Banking Manager based in Dubbo, although he continued to live in Narromine with his family. Narromine is about 40km west of Dubbo. Whilst at Suncorp, Mr Hollingworth looked after the bank's business and farming clients over a large territory that included the Macquarie Valley, areas to the south as far as Condobolin and West Wyalong, and areas to the north as far as Walgett, Coonamble and Gilgandra. In 2013, Mr Hollingworth took a role as District Manager for Suncorp, in which he had managerial responsibility for the same area as just described. He and his wife eventually bought a property closer to Dubbo to which they moved with their family in 2019. In 2019, Mr Hollingworth changed roles again to work as a Senior Agribusiness Manager at Suncorp.

[9]

The Services Agreement

On 25 June 2020, which was the day the plaintiff was incorporated, the plaintiff and PBH Trading executed the Services Agreement. PBH Trading was identified as the "Supplier".
Clause 3.1 of the Services Agreement provided: "3.1 Provision of Services [The plaintiff] appoints the Supplier to provide the Services to [the plaintiff] in accordance with the terms of this Agreement for the Term. The Supplier agrees to accept the appointment by [the plaintiff] and to perform the Services in accordance with the terms of this Agreement for the Term."
The Services were as follows: "The Supplier must supply financial and advisory services to [the plaintiff], including but not limited to: (a) the procurement, business development and relationship management of new clients for the Business; (b) provide assistance with processing deals including but not limited to setting finance, putting together ongoing CFO reporting for customers, processing insurance etc; (c) provide general administrative support to the Managing Partner and staff as required; and (d) such further and other duties as directed by the Company from time to time, in the way and in the manner required by [the plaintiff]."
The commencement date was 3 August 2020 and the initial term was five years, with the option of a further five years.
Clause 7 was headed "Payment". By clause 7.1, the plaintiff was required to pay the "Service Fee" to PBH Trading for the Services. The expression "Service Fee" was defined to be the amount stated in the reference schedule. That schedule relevantly stated that "Service Fee" was $150,000 per annum. The agreement also contained a definition of "Bonus Service Fee". Clause 7.3(c) specified that if Annual Gross Revenue exceeded two times the Service Fee, PBH Trading was to invoice the plaintiff for the Bonus Service Fee prior to 30 June for the preceding twelve months. The plaintiff would then make the payment on 30 June. This fee was defined to be "[an] amount equal to 40% of the Annual Gross Income for the period between 1 July and 30 June each year." The expression Annual Gross Income was defined to mean "all upfront payments, commission payments and ongoing payments for Clients originated and serviced by the Supplier."
Clause 8 was entitled "Clients". It provided as follows: "8.1 Clients are property of [the plaintiff] The Supplier acknowledges that all Clients, whether or not introduced by the Supplier, remain the property of [the plaintiff] during the Initial Term of this Agreement, any Further Term and following termination of this Agreement."

[10]

The defendants performed services under the Services Agreement

At roughly the time the Services Agreement was executed, the plaintiff entered into a lease for the Dubbo office to which I have referred. The evidence does not allow me to identify with precision when the defendants moved into that office, but it was no later than a few months after executing the Services Agreement. Either way, Mr Hollingworth began performing services under the Services Agreement about a month after it was executed. He initially worked from home using his own laptop computer and his own telephone and phone number, which had not (and still has not) changed for many years.
Like many mortgage brokers, Sprout AG and its franchisees use an intermediary known as an aggregator to facilitate the collection of commissions from financial institutions. The aggregator used by Sprout AG and its franchisees is Connective Credit Services Pty Ltd (Connective). Soon after commencing work under the Services Agreement, Mr Hollingworth received some basic training in how to use the customer relationship management software used by Connective, known as Mercury, as well as other software which plaintiff used and had access to through Sprout AG, which included a practice management system called SILO.
There was very little evidence from the plaintiff as to the nature of its connection with clients for whom it brokers finance, such as whether the business now carried on by the defendants threatens the plaintiff's entitlement to receive trailing commissions for existing loans brokered through Sprout AG. I infer that Mr Charge and Mr Littlejohn were concerned about losing trail commissions, but the evidence does not allow me to conclude that anything done by the defendants actually did cause the plaintiff to forgo trail commissions on existing loans, apart for one "outlier" exception to which I will later refer to as the "Technotill Clawback". In fact, Mr Hollingworth's evidence was that the plaintiff continued to receive trail commissions in respect of facilities which he brokered during the term of the Service Agreement.
Mr Hollingworth also explained that in the agribusiness sector, financing facilities were typically of fairly short duration and usually no longer than three years. The broker would be entitled to an initial commission and then periodic trailing commissions, however it would then be necessary for the facility to be revisited at the end of the term.

[11]

The termination of the Services Agreement

By about March 2022, Mr Hollingworth had generated sufficient revenue for the business that he was nearing the threshold to earn bonus commission and also to buy in to the business as had been discussed in the first half of 2020. However, there was a wrinkle. According to Mr Hollingworth, he had always understood that he would have the opportunity of buying in to the franchisor, Sprout AG. He says that he first became aware that he only had the option of buying in to the franchisee, the plaintiff, as opposed to the franchisor at around March 2022.
I have considerable difficulty with Mr Hollingworth's claim that he believed he would have an opportunity to buy in to the business of the franchisor, as opposed to the plaintiff. He eventually accepted in cross-examination that this had really been nothing more than an "assumption" on his part, as opposed to a belief based on anything said by Mr Charge. The documents to which Mr Hollingworth pointed to found this assumption, and the documents which were tendered during his cross-examination on this topic, made it clear that his opportunity would be to become a shareholder in the plaintiff, not Sprout AG. It was fitting that Mr Hollingworth made the concession in the witness box that his belief about having an opportunity to become a shareholder in the franchisor had really been nothing more than an assumption on his part.
Whatever the true position as to what Mr Hollingworth believed he had been promised, the reality was that by the final quarter of the 2022 financial year Mr Hollingworth did not believe that it was in his financial interests to become a shareholder in the plaintiff on the terms being discussed. Rather, he formed the view that he would be better off continuing to work under the Services Agreement but with a more favourable bonus arrangement. On 1 April 2022, Mr Hollingworth sent an email to Mr Charge and Mr Littlejohn setting out his thoughts in relation to this matter. He attached a spreadsheet setting out a number of calculations to which his email referred. This led to an inconclusive meeting among the three of them at the Canobolas Hotel in Orange on 8 April.
On 16 May 2022, Mr Hollingworth informed Mr Charge that he wished to resign. This led to a meeting among Mr Hollingworth, Mr Charge and Mr Littlejohn in Dubbo on 18 May. On this occasion, Mr Hollingworth confirmed that he no longer wished to work for the plaintiff and that he would instead go out on his own. He told Mr Charge and Mr Littlejohn that he had not informed any clients of his decision. Arrangements were made to remove his access to the plaintiff's IT systems.

[12]

The claims in more detail

It is at this point appropriate to identify the issues in dispute in more detail.

[13]

The pleadings

The substantive final orders sought by the plaintiff in the statement of claim are as follows: "2. An order permanently restraining PBH and Hollingworth from diverting or attempting to divert to themselves, or any competitor of [the plaintiff], any client or potential client of [the plaintiff], prior to 18 May 2024, or such other date as the Court determines to be reasonable. 3. Damages for breach of contract. 4. Equitable compensation and/or an account of profits. 5. An order that PBH pay money to it by way of indemnification for the loss pleaded herein."
Clause 9 of the statement of claim alleges that the effect of clause 8.1 of the Services Agreement was that "all clients and potential clients of [the plaintiff] (including any clients procured by [PBH Trading] in the course of providing the Services) were to remain the property of [the plaintiff] during the period of the Services Agreement and thereafter." The reference to the "Services" is to the services to be provided under the Services Agreement.
The pleading makes reference to a number of other provisions of the Services Agreement, including those provisions dealing with confidential information. However, by the time of the hearing, the dispute about the defendants' use of confidential information had largely fallen away and no damages were sought on the basis of those allegations.
Likewise, the contention that the defendants breached an equitable duty of confidence appeared to have fallen away altogether by the time of the hearing.
The plaintiff maintains its contention that the defendants were under a fiduciary duty, as follows: "Within the scope of their retainer to provide the Services, PBH and Hollingworth owed a fiduciary duty to [the plaintiff] to act solely in the interests of [the plaintiff] and to not obtain a profit or advantage from the relationship (the Fiduciary Duty)."
The pleading identifies a number of breaches of the Services Agreement, including breaches of clauses 4.1, 12.1 and 12.3. However, on 31 August 2022, the (now former) solicitor for the plaintiff wrote to the solicitor for the defendants as follows: "1.1 To be clear, the conduct my client is concerned about and seeks to restrict by way of the restraint is confined only to the conduct reasonably necessary to protect the legitimate business interests of [the plaintiff]. My client does not seek to prevent your client from setting up his own business or working for a competitor, just that he ceases soliciting [the plaintiff's] Clients and interfering with [the plaintiff's] client relationships."

[14]

The plaintiff also alleges that the defendants wrongfully solicited many, or perhaps all, of these same clients.
By their defence, the defendants allege that the relevant broking business during the pendency of the Services Agreement was being conducted by Sprout AG, not the plaintiff.
The defendants plead that, on its proper construction, the post-contractual restraints in clause 12 did not survive termination of the contract. By the time of the hearing, however, it was common ground that clause 12 survived termination.
Next, the defendants plead that the restraints in clause 12 are otherwise in restraint of trade and are unreasonable. The defendants plead reliance on s 4 of the Restraints of Trade Act 1976 (NSW).
The defence also pleads an estoppel arising out of the 31 August 2022 letter to which I referred at paragraph [71] above. Because of the position taken by the plaintiff it is not necessary to resolve this issue. An additional allegation of laches, waiver or acquiescence by the defendants was not pressed.
The plaintiff filed a reply to address the allegation that it was not, relevantly, carrying on the "business" to which the Services Act referred. It alleges that: 1. from 25 June 2020 or, in the alternative, 11 January 2021, it carried on a finance broking and advisory business which had previously been carried out by Murrays Lane under a franchise agreement; 2. that Murrays Lane's rights under that agreement were assigned to the plaintiff no later than 11 January 2021; and 3. that all parties are, effectively, estopped from denying that the plaintiff was carrying on a business, had clients and confidential information, and was able to enforce its rights in relation to its business, clients and confidential information against the defendants under the Services Agreement, at all relevant times.

[15]

The issues in dispute

It follows from all of this that the main issues in dispute - at least at a reasonably high level of generality - are as follows: 1. Was the plaintiff carrying on a business at the relevant times and, if so, what was it? 2. Did the defendants breach clause 12.3 of the Services Agreement? 3. Is clause 12.3 an unreasonable restraint of trade? 4. Were the defendants subject to a fiduciary duty and, if so, have they breached it? 5. Is the plaintiff entitled to damages or an account of profits and equitable compensation or both forms of contractual and equitable relief together?
I will deal with these issues in a slightly different order. That is because the question of whether the plaintiff was carrying on a business and, if so, what the nature of that business was, is one that arises chiefly in the context of considering the question of whether clause 12.3 operates unreasonably in restraint of trade. For the reasons explained by Gleeson JA in Isaac v Dargan Financial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) (2018) 98 NSWLR 343; [2018] NSWCA 163 (Isaac v Dargan) at [61]-[63] (with which Bathurst CJ and Beazley P agreed), before considering the question of whether a restraint is valid, it is first appropriate to consider whether there has been a breach of the contractual restraint in the first place.

[16]

Did the defendants breach clause 12.3?

The question of whether the defendants have breached clause 12.3 involves a series of issues. First, it is necessary to determine the scope of the defendants' obligations under each of paragraphs (a) and (b) of that clause. It is then necessary to consider the circumstances relating to each client to determine whether the defendants did in fact breach their obligations under the clause.
It is relevant at this point to recall the general principles of contractual interpretation. The task is to discern the intention of the parties by reference to the language of the agreement and, where necessary, the surrounding circumstances. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, French CJ, Nettle and Gordon JJ said at [47]: "In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract."
It is also appropriate to have regard to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24 ("Codelfa") at 350-351, where Mason J quoted Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 996 on identifying the purpose or object of the particular transaction in question: "…when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties."
Although executed by Mr Hollingworth in his capacity as "Supplier's Representative" as well as by him on behalf of PBH Trading, Mr Hollingworth is not named as a party to the Services Agreement. The parties are instead said to be only the Supplier (PBH Trading) and the plaintiff.
Nonetheless, the parties proceeded on the basis that Mr Hollingworth was subject to the restraints and that the plaintiff was entitled to proceed against him directly. This was appropriate in circumstances where the key obligations in clause 12 are expressed to be obligations not only of the Supplier, but of the Supplier's Representative (namely, Mr Hollingworth) and each director of the Supplier: see clauses 12.1, 12.3 and 12.5 as set out at [44] above.

[17]

What is the scope of the defendants' obligation under clause 12.3?

In the course of the hearing, the parties' submissions as to the scope of clause 12.3 focused on three particular questions: 1. Does the concept of "soliciting" extend to those proposals made by the defendants where it was the former client and not Mr Hollingworth who made the first contact? 2. Does the word "secure" in clause 12.3(a), or the expression "solicit, canvas or secure" when read as a whole, comprehend a passive receipt of instructions from a former client even where there has been no encouragement or other positive enticement by the defendants? 3. Does clause 12.3(b), which uses the expression "divert or attempt to divert," prevent the defendants from accepting instructions from a former client even where there has been no encouragement or other positive enticement?
Although it will of course be necessary to consider each alleged breach in the light of the language of clause 12 as a whole, it is helpful to address these discrete questions in a general way at the outset.

[18]

Clause 12.3(a) - solicitation

The concept of solicitation is well understood. In Hellmann Insurance Brokers v Peterson [2003] NSWSC 242, Campbell J said at [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".'"
The element of encouragement often gives rise to uncertainty where it is the client of an entity who first contacts the covenantor, usually a former employee or director of that entity. It is frequently argued that where the client made the first contact and requested the covenantor to perform work for the client, the covenantor does not "solicit" that client where they do so in response to that request.
Unsurprisingly, there is no hard and fast rule about this. In Barrett v Ecco Personnel Pty Ltd (Court of Appeal (NSW), 24 November 1998, unrep), Stein JA (Sheller JA and Fitzgerald AJA agreeing) said at 2: "The appellants' submission amounts to this. One should construe 'solicit' in the agreement in a highly mechanical fashion. You simply ask, who made the first approach? If an old customer made the first approach to a former employee, then whatever the facts thereafter which might lead to business being done, there cannot be solicitation. This cannot be correct. One may acknowledge that in most instances the first approach will be made by the ex-employee to the former customer. Common sense however demands that this not be the exclusive means by which a solicitation may occur. A simple illustration will suffice as to why this is so. Assume a customer finds out, quite accidentally, that a former employee with whom it dealt had left his principal and established a business of his own and says 'let us have a proposal'. The ex-employee then submits a proposal in very favourable terms and makes a presentation to the client which convinces it to award the contract to him. Should the fact of the first approach negative any solicitation or enticing away? I think not. The task of the court is to interpret the words in the contract of employment in their context. In a liquor case in New Zealand (Sweeney v Astle [1923] NZLR 1198) Stout CJ noted that 'solicit' was a common English word, and in its simplified form meant 'to ask'. Its other meanings included 'to call for' 'to make request', 'to petition', 'to entreat', 'to persuade'. Like Bryson J in Ridgeway International Ltd v McCullum (unreported, Equity Division, 9 April 1998) I cannot see that to propose to do business ceases to be soliciting business simply because the recipient invited the proposal. It seems to me that Young J was saying that the approach by Nestlé merely provided the window of opportunity for the first appellant to submit a proposal more attractive to Nestlé than its current contract with the respondent. That the approach was the catalyst or trigger for the solicitation by the appellant does not make the appellant any less the mover for the action happening."

[19]

Clause 12.3(a) - significance of the reference to "secure"?

In final submissions, the plaintiff submitted that the scope of the expressions "solicitation" and "canvassing" involve some form of positive step. However, it contended that "solicit, canvas or secure" when considered as a whole, or at least that the expression "secure", was apt to cover circumstances where there was no positive inducement or encouragement by the covenantor. It submitted that a client may be "secured" by the covenantor merely taking instructions to act, even where there was no prior encouragement or inducement on behalf of the covenantor.
I do not read the expression "solicit, canvas or secure" in the manner suggested by the plaintiff. The verb "to secure" is capable of a range of meanings, but to speak of a person "securing" a client generally connotes some active effort or encouragement on the part of the person doing the "securing". In my view, the whole of the expression "solicit, canvas or secure" in clause 12.3(a) contemplates circumstances in which there has been some measure of active encouragement by the defendants. I am not prepared to read the expression as if the word "secure" is synonymous with the notion of having merely accepted instructions.
My approach is consistent with that adopted by White J in Planet Fitness Pty Limited v Brooke Dunlop [2012] NSWSC 1425. The restraint in that case was that the covenantor "must not…solicit, canvass or secure the custom of any person who is the Company's client." His Honour was dealing with an application for an interlocutory injunction to restrain a personal trainer. His Honour found that there was a strong prima facie case that the defendant covenantor had "solicited or canvassed persons for whom she provided personal training services when she was contracted to the plaintiff" because a number of clients had already taken up her services through other gyms. The question was whether, despite that strong prima facie case, it was appropriate to grant injunctive relief.
The plaintiff argued that there should be an injunction to prevent ongoing breaches of the restraint. It was argued that the breach was not complete because, even though the defendant would no longer be soliciting or canvassing those clients on an ongoing basis, she would be "securing" their custom each time she continued to provide services to them.

[20]

Clause 12.3(b) - "divert or attempt to divert…"

It is next necessary to consider the scope of the restraint in clause 12.3(b).
The plaintiff accepted that "attempting" to divert involves some positive action on the defendants' part. However, it submitted that the effect of the word "divert" in this restraint was to prevent the defendants from supplying services to clients or potential clients of its business even where there was no element of encouragement involved. The plaintiff submitted that if the defendants provided services to a potential client of the plaintiff even without any element of solicitation or canvassing whatsoever - such as where a potential client of the plaintiff contacted Mr Hollingworth entirely of his or her own volition - then the conduct was within the restraint.
The plaintiff's specific submission was as follows: "In context, solicitation and canvassing involve some positive step by the Defendants. In context, securing and diverting (as opposed to "attempting" to divert) do not require some positive step. They are as apt to describe an outcome (being the provision of services to a client) as they are to describe a process (being positive action to solicit a client relationship)."
I have already explained why I do not accept the plaintiff's submission as to the scope of clause 12.3(a) including its submission as to the meaning of the word "secure".
The precise scope of the restraint in clause 12.3(b) is somewhat unclear. There is a large area of overlap between paragraphs (a) and (b) of clause 12.3. If the defendants were actively to solicit a client of the plaintiff (contrary to paragraph (a)), they would at the same time be attempting to divert that client, or the business of that client, to themselves (contrary to paragraph (b)).
It is however apparent that the paragraphs deal with slightly different concepts. Clause (b) is concerned not only with specific clients, but with "business". It is also concerned with the "diversion" of clients or business, regardless of whether it is to the covenantor. Thus an attempt to divert "business" away from the plaintiff would contravene paragraph (b), although it may not necessarily contravene paragraph (a). Similarly, attempts to divert business to a third party competitor would likely contravene (b) without contravening (a). In these respects, the scope of paragraph (b) is reasonably clear.

[21]

Did the defendants breach clause 12.3?

By the end of the hearing, the plaintiff's case was confined to the clients identified at paragraph [73] above. It is necessary to consider each in turn. I will generally refer to these as the disputed clients. For convenience, I will occasionally refer to Mr Hollingworth working at or for "Sprout", which is an abbreviated way of referring to the fact that Mr Hollingworth was performing services under the Services Agreement on behalf of the plaintiff as a franchisee of Sprout AG.

[22]

Facts

Mr Hollingworth has known John Bowman since the time when he worked with Mr Bowman's brother at Suncorp. Mr Hollingworth's recollection is that Mr Bowman asked his brother for Mr Hollingworth's contact details prior to him beginning work with the plaintiff.
Mr Littlejohn's evidence was that the Bowman Entities "[do] not currently have a loan brokered with Sprout" (emphasis added). However, there had been some contact between Mr Bowman and Mr Hollingworth whilst Mr Hollingworth was at Sprout.
An email chain between Mr Hollingworth and Mr Bowman shows that they were in discussions in respect of a potential property purchase at Vinegaroy Road, Coolah and purchases of trade cattle from at least 9 March 2022. This was to be purchased in the personal names of Mr Bowman and Teresa O'Hara, and then run as a partnership. As at 30 March, Mr Bowman was tentative about whether the deal would be proceeding. He wrote: "[e]ven if not for this particular property, it would be good to have some sort of understanding in place in case something else comes up."
Mr Hollingworth's evidence was that Mr Bowman phoned him in "late May 2022" regarding a property opportunity. He accepted in cross-examination that they were speaking here about the same opportunity that had been discussed in March 2022.
His evidence was that, when approached by Mr Bowman in May, he advised Mr Bowman that he had left Sprout and that he was going to work for himself, to which Mr Bowman replied: "I'd like to keep dealing with you." Although Mr Hollingworth said he was not an authorised credit representative yet, he did say that he could "help run some numbers". Mr Hollingworth said he commenced work in June 2022, however an email dated 22 May 2022, which the plaintiff emphasises was just "days after" the termination of the Services Agreement, indicates that Mr Hollingworth was already assisting Mr Bowman with a proposed property loan and a loan for the purchase of cattle. This email begins: "Just looking at a few numbers before Monday's meeting" and ends "Look forward to catching up at 11:30am Monday". Mr Littlejohn pointed out that Mr Bowman forwarded financial statements and tax returns for all of the Bowman Entities to Mr Hollingworth's Sprout email address on 23 May 2022. It appears these reached Mr Hollingworth's correct email address soon after: in an email dated 30 May, Mr Hollingworth wrote to Mr Bowman and said that he had been "putting together the number[s] and projections", which were "working" until he "put in the servicing of $750k loan for cattle" and that he had spoken to the National Australia Bank (NAB) the previous Friday.

[23]

Conclusions

I am satisfied that Mr Hollingworth breached clause 12.3(a) in his dealings with the Bowman Entities. Mr Hollingworth knew that Mr Bowman had been contemplating a further financing from at least March 2022 while Mr Hollingworth was still providing services to the plaintiff under the Services Agreement. The fact that Mr Hollingworth was assisting Mr Bowman and other Bowman Entities with this work so soon after the termination of the Services Agreement, and in the light of the "follow up" email on 10 August 2022, I consider that both interactions involved a form of solicitation.

[24]

Facts

Ben and Miranda Whillock first contacted the plaintiff in response to a Facebook and Instagram campaign in March 2022. An email with the subject line: "Facebook Leads" sent from the Support Manager at Sprout to Mr Hollingworth on 7 March 2022 identified persons who "downloaded the Agribusiness Finance Guide" from their campaign. Mr Whillock was identified as having downloaded a copy of the guide on 3 January at 5:14pm.
Mr Hollingworth said that he did not follow up a potential lead with the Whillocks in response to this email and that he did not meet or speak with them until about August 2022.
Mr Charge suggested that Mr Whillock was one of a number of clients who had not yet finalised loans with the plaintiff as at the termination of the Services Agreement. However, there was a distinct lack of evidence as to what Mr Charge meant by this. The only documentary evidence that the Whillocks were actual or potential clients of the plaintiff was the "Facebook Leads" email to which I have already referred. Although the defendants did not dispute that the Whillocks were both "Clients" of the plaintiff, I am not satisfied that the Whillocks were seriously contemplating the finalisation of any financing arrangement with the plaintiff during the period of the Services Agreement.
Mr Hollingworth said that Mr Whillock made an approach to him only after he had left Sprout. In about August 2022, Mr Whillock called Mr Hollingworth and said: "Peter, my accountant, Kevin Rankmore, has given me your name and number to help me and my wife, Miranda, get some help with getting an increase on our finance limit."
Mr Hollingworth assisted the Whillocks in September and October 2022 with an increase on their previous loan limit. The evidence does not allow me to conclude that this "previous loan" was one brokered by the plaintiff. As part of this work, Mr Hollingworth assisted them to formulate a new loan structure with NAB, which involved a combination of an overdraft and term loan. PBH Trading initially received a trailing commission on the overdraft only.
In August and October 2023, Mr Hollingworth assisted the Whillocks to obtain an increase on their NAB term loan. In mid-November 2023, Mr Hollingworth noticed that PBH Trading was not receiving a trailing commission on the term loans despite the two increases to which I have referred. This was later corrected.

[25]

Conclusions

I am not satisfied that the defendants breached clause 12.3 of the Services Agreement in their dealings with Mr Whillock. Even if there was indeed a loan in prospect for the Whillocks with the plaintiff and they were in fact "Clients" as defined in the Services Agreement (though the evidence does not suggest this is the case), Mr Whillock was the one to approach Mr Hollingworth after his resignation from Sprout. There was no element of either encouragement (clause 12.3(a)) or diversion (clause 12.3(b)) in the way Mr Hollingworth responded to that approach.
The facts can in this respect be contrasted with the situation in Barrett v Ecco Personnel. In that case, the client invited the former employee to submit a proposal for his agency to obtain a contract with that client. The trial judge found that the "effective cause" of his agency acquiring the contract was the proposal which the former employee made to the client following the client's invitation. It was perhaps unsurprising that the Court found, in those circumstances, that he had breached his obligation not to "canvass, solicit, interfere with or entice away any person firm or company…being a client or employee of" his former employer.
Here, however, I am unable to find that the "effective cause" of the Whillocks decision to use Mr Hollingworth (instead of the plaintiff) was any proposal or solicitation by Mr Hollingworth at all. Like most of the other disputed clients, the Whillocks approached Mr Hollingworth because they had already decided that they wanted him and not the plaintiff to be their broker. Neither they nor any of the other disputed clients approached him on terms like those on which the client approached Mr Barrett in Barrett v Ecco Personnel, namely by asking him to submit a proposal or recommendation that would allow them to decide whether to take their work to him or, alternatively, stay with the plaintiff.

[26]

Facts

Mr Hollingworth has known the Shorts from about 1999 when he moved to Narromine. Mr Hollingworth said that they "move in the same circle of friends" and that he knows them "reasonably well at a social level". Mrs Short is also the sister of Nick Mace for whom Mr Hollingworth did banking work from 2009 onwards while he was at Suncorp.
In about 2013 or 2014, Mr Short contacted Mr Hollingworth while he was at Suncorp and made some enquiries regarding equipment finance for some farming equipment. This deal did not proceed.
The defendants admit that the Shorts were "Clients" of the plaintiff. In late 2020, Mr Short contacted Mr Hollingworth in the context of seeking finance to purchase a property, "Myallawa". In response to Mr Hollingworth stating that he no longer worked at Suncorp, Mr Short referenced the "family connection" with his brother-in-law (Nick) and stated that he and Mrs Short wanted Mr Hollingworth to handle their finances. Mr Hollingworth subsequently assisted them to obtain finance. There were many commission payment statements (Connective Commission Statements) in evidence, most of which were unexplained and as to which neither party made any comment. Connective Commission Statements to which I was specifically referred, and a list of Mr Hollingworth's SILO transactions, show that the loan was for $1.12 million and that it settled in January or February 2021. An entry for "Short" is noted down in Mr Hollingworth's income projection email to Mr Charge on 30 April 2021 as having an upfront commission in March, with trailing commissions following thereafter.
On 8 November 2021, Mr Hollingworth emailed Mr Charge attaching a work-in-progress update. "Short" was mentioned in respect of two loans: one of which had already settled and which appears to be related to Myallawa; the other of which was in prospect and was in the range of about $5 million, with the description: "Craig Woods Purchase…". It was not clear on the evidence if this deal ever went ahead.
In about March 2022, Mr Short contacted Mr Hollingworth again. This time, he said that he was buying another property, "Allambie", and that he wanted Mr Hollingworth's help to procure finance. Mr Hollingworth assisted with this loan application with NAB. Mr Hollingworth gave evidence that this transaction was worth about $3.6 million, however, his list of SILO transactions shows that it was for around $2 million as at May 2022. Mr Hollingworth says that this loan application was incomplete when he left Sprout, but it seems to have settled at some point after (refer to [138] below).

[27]

Conclusions

I am not satisfied that Mr Hollingworth breached either clause in performing work for them in May and August 2023. The defendants had been carrying on business as Worth Finance for almost a year by the time Mr Short contacted him. The evidence does not show that there was any inappropriate element of solicitation in the way Mr Hollingworth responded to Mr Short's approach.

[28]

Facts

Mr Hollingworth has known Joseph McCutcheon and the McCutcheon family as friends since about 1996 or 1997 when he first moved to Trangie. He played rugby with Mr McCutcheon.
From 2016 onwards while he was at Suncorp, Mr Hollingworth was the "family banker" for the McCutcheon family and assisted with, among other things, setting up a term and overdraft facility for Mr McCutcheon to allow him to take over the family's earthmoving business.
In August or September 2020, Mr McCutcheon contacted Mr Hollingworth about an equipment finance loan for an earth scraper. This settled in September 2020, as noted in an email sent from Mr Hollingworth to Mr Charge on 30 April 2021.
Mr Hollingworth said that he does not recall doing any work for Mr McCutcheon between September 2020 and 18 May 2022. However, it is clear that he did do further work for him during this period. On 9 June 2021, Mr McCutcheon emailed Mr Hollingworth attaching a signed statement of position. Two days later, Mr Hollingworth confirmed to Mr McCutcheon that "everything" was sent off and they were awaiting approval. Correspondence between Mr Hollingworth and the Bank of Queensland (BOQ) on 28 June 2021 indicates that Mr Hollingworth had to revise the approval request for equipment finance on a CAT 623G Scraper. Approval was granted by BOQ the next day. This equipment finance loan appears to have settled on 30 July 2021 for the amount of $522,500, although on 5 August 2021 this was noted to be expired and for Mr Hollingworth's actioning. Mr Hollingworth could not provide an answer as to what the expired settlement alert meant, but accepted on cross-examination that he did indeed do work for Mr McCutcheon around August 2021.
There was a suggestion by Mr Hollingworth during cross-examination that he was simply mistaken about the year. He said in re-examination that the evidence he gave for the August or September 2020 loan should have instead been for the August 2021 loan. However, the 30 April 2021 email mentioned at [142] above suggests they may have been separate transactions, such that there was an August or September 2020 loan, and an August 2021 loan. A work-in-progress email from Mr Hollingworth to Mr Charge and Mr Littlejohn on 28 August 2020 also suggests that these were separate transactions: "McCutcheon, J" is listed as an approved transaction with the description: "EF - 2nd hand CAT Scraper" for $300,000. It may also have been this August or September 2020 loan that appears in a work-in-progress update sent from Mr Hollingworth to Mr Charge on 8 November 2021, which includes a settled entry for "Joe McCutcheon" in respect of "EF Scraper BOQ", to the amount of $355,000, as opposed to $522,500. This may also suggest that the "expired" settlement of the August 2021 loan was never actually remedied, as there was no other entry for McCutcheon in this email.

[29]

Conclusions

Although I accept that Mr McCutcheon was a "Client" for the purposes of clause 12.3, I am not satisfied that the defendants breached this clause in their dealings with Mr McCutcheon. The contact made by Mr McCutcheon in September 2022 related to new work which he wished Mr Hollingworth to perform. There was no element of encouragement in the way Mr Hollingworth responded to Mr McCutcheon's request.

[30]

Facts

Matt and Emily Gainsford are directors of Maiso. Mr Hollingworth first met the Gainsfords in 1999 when he moved to Narromine and has known them as friends ever since. Mr Hollingworth also worked for their farm as a "cotton picker" for a short period in 2000.
In about 2009, Mr Hollingworth took over the Gainsford's banking after they refinanced from NAB to Suncorp. He continued to do banking for them for the remainder of his time there, and he said this work included banking for Maiso as well.
The defendants, in final submissions, did not dispute that Maiso was a "Client" of the plaintiff. After Mr Hollingworth left Suncorp, Mrs Gainsford contacted him in about July or August 2020 and advised that she and Mr Gainsford were unhappy with Suncorp. She asked Mr Hollingworth to continue to look after their banking and requested assistance with an equipment finance loan for a Toyota Landcruiser. The finance was done through Maiso, and the loan settled in about September 2020. I gather from the list of Mr Hollingworth's SILO transactions, and a work-in-progress email from Mr Hollingworth to Mr Charge and Mr Littlejohn on 28 August 2020, that this loan was in the amount of $88,000.
Mr Hollingworth said that he did not recall doing any other loans or work for Maiso between September 2020 and 18 May 2022.
His evidence is somewhat contradictory in this respect, because in an email sent to George Jackson (an assistant at Sprout) in January 2022, Mr Hollingworth asked Mr Jackson to assist him with analysis and a bank proposal for a $1.4 million deal for "J & J Gainsford". It is unclear whether this reference, and other references, to Gainsford are to Matt and Emily in particular. He also said that on 18 May 2022, he offered to "see settlement through" on loans for the Gainsfords, but that Mr Charge and Mr Littlejohn said that he should finish up straight away. Further, in the email from Mr Hollingworth to Mr Charge and Mr Littlejohn on 28 August 2020 to which I have already referred, Gainsford is noted down as a "Prospect" to the amount of $1 million for: "Purchase - CFB, BP". Again, it is important to note that it is unclear whether these were references to Matt and Emily Gainsford, or to another client with the same surname.
More probative evidence that Mr Hollingworth was doing work for Maiso between September 2020 and 18 May 2022 is found in an email from "Buzz" (Mrs Gainsford) to Mr Hollingworth on 27 July 2021, which attached financial accounts for Maiso and included various "points to note". It added: "I haven't processed the unexpired charges on 2 x of the loans under Maiso" but did not reveal much else about what kind of assistance she was seeking from Mr Hollingworth. On 3 August, Mr Hollingworth told Mrs Gainsford that he would be looking at her work "next week". He subsequently emailed Mrs Gainsford on 11 August regarding a proposal for the purchase of an unnamed property for $3 million. This transaction did not proceed. During cross-examination, Mr Hollingworth referred to this as "general, hypothetical work", and said that he had only included "settled" work in his affidavit.

[31]

Conclusions

I am not satisfied that the defendants breached clause 12.3 in their dealings with Maiso in March 2023. Mr Hollingworth did not breach the clause by simply telling them that he had left Sprout and that he was now working on his own.

[32]

Facts

Mr Hollingworth met Phil and Jill MacInnes shortly after he moved to Narromine in 1999. He played rugby with their son, Charlie MacInnes, for several years in the 2000s.
I will refer to members of the MacInnes family by their first names. Charlie generally runs the family farming business. The family also has a trucking business.
In late 2021, Charlie rang Mr Hollingworth and advised that the MacInnes family was looking to move their business from NAB to another bank. Charlie said that because their family had known Mr Hollingworth "for a long time", he and his father were "keen to get [Mr Hollingworth] to do their general finance business." Mr Hollingworth told Charlie that he was no longer at Suncorp, to which Charlie replied that he already knew that and was coming to Mr Hollingworth because they were mates.
Mr Hollingworth subsequently assisted the MacInnes Entities with preparing a tender for a refinance to Suncorp. The work-in-progress update sent from Mr Hollingworth to Mr Charge on 8 November 2021 shows that there was a refinance application for "MacInnes" in progress, to the amount of $7.612 million. Mr Hollingworth recalls meeting with members of the MacInnes family and Cameron Collins, who he knew very well having worked with him at Suncorp, in December 2021. A SILO Extract indicates that it actually settled to the amount of $9.912 million on 6 July 2022 (by which point Mr Hollingworth had left Sprout). The extract confirms that this work was done for MacInnes Pastoral (one of the MacInnes Entities) as trustee for the MacInnes Pastoral Trust. On cross-examination, Mr Hollingworth said that MacInnes Holdings, being the other MacInnes Entity, was also involved in this transaction.
Mr Hollingworth said that he has not brokered any loan for the MacInnes Entities since 18 May 2022, and there was no evidence to suggest otherwise. In about November 2023, he became aware that PBH Trading was receiving commissions incorrectly for a loan that he brokered for the MacInnes Entities, he acknowledged, should have been accruing to the plaintiff instead. He took steps to ensure that this occurred.

[33]

Conclusions

The MacInnes Entities were undoubtedly each a "Client" of the plaintiff for the purposes of clauses 12.3. However, the defendants submit that Mr Hollingworth has "plainly" not breached clause 12.3 because there was no work done for the MacInnes Entities after the termination of the Services Agreement and because all relevant commissions accrued to the plaintiff. I agree.

[34]

Facts

The Denstons and the Richardsons own or control Gin Gin Farms. The Denstons are also directors of a company named Gin Gin Commodities Pty Ltd. However, the plaintiff indicated on the final day of the hearing that it no longer contended that Gin Gin Commodities Pty Ltd was one of the disputed clients.
Mr Hollingworth has known John and Rhonda Richardson since about 1996 when he moved to Trangie. He met their daughter Jenna around that time as well.
Stewart Denston worked for a competitor to Syngenta around the same time Mr Hollingworth worked there. Mr Hollingworth says he therefore "came to know [Mr Denston] quite well through work." He also gave evidence that he became good friends with Jenna Denston (nee Richardson) since the time she married Mr Denston in 2001. Mr Denston and Mr Hollingworth also played rugby together, knew each other's contact details before Mr Hollingworth started at Sprout, and "remain good mates".
While Mr Hollingworth was at Suncorp, he assisted the Denstons and the Richardsons with a refinance of a split loan facility and the purchase of a property. It was unclear whether this work was done for Gin Gin Farms. In any case, Mr Hollingworth stayed on as the banker for the Denstons and Richardsons until he left Suncorp.
The defendants do not dispute that Gin Gin Farms was a "Client" of the plaintiff. Mr Hollingworth gave evidence that Mr Denston contacted him regarding a refinance but did not say when this occurred. A Bank Tender document for "J & R Richardson & S & J Denston, T/As Richardson & Son - Gin Gin Farms Pty Ltd", prepared by Mr Hollingworth, indicated that this work was done around 13 April 2021, and for the proposed lending amount of $12.61 million. However, the refinance was only approved in July 2021. This transaction is noted on Mr Hollingworth's SILO transactions as being for "J & R Richardson & S & J Denston T/As Richardson & Son", despite Mr Hollingworth explicitly stating (and the Bank Tender documents indicating) that the loan involved Gin Gin Farms.
This transaction was approved in July 2021, but did not settle until November 2021. There is a notation for "Denston" with the description: "Ref - WBC (Beard)" in an email from Mr Hollingworth to Mr Charge on 8 November 2021 as one that had been signed and was "to settle". The plaintiff referred me to a Connective Commission Statement which records three transactions for Gin Gin Farms with a settlement date of 26 November 2021 in the amount of $10.26 million. It is unclear where the $2.35 million discrepancy lies but it may be the case that this portion of the transaction was for the Denstons and Richardsons in their personal capacities. As will be seen, many of the Westpac transactions for Gin Gin Farms on the one hand, and the Denstons and Richardsons on the other, were done simultaneously.

[35]

Conclusions

I am not satisfied that the defendants breached these clauses in their dealings concerning Gin Gin Farms. I accept that the discussion between Mr Denston and Mr Hollingworth at the golf club occurred in the terms recalled by Mr Hollingworth. Their discussion occurred during an accidental encounter in a social setting. It did not involve any inappropriate encouragement or solicitation by Mr Hollingworth.

[36]

Facts

Ben Egan and his wife Eleanor are directors of BJ & EF Egan Pty Ltd, which is the trustee for the BJ & EF Egan Family Trust (BJ & EF). Mr Hollingworth has known Ben since about 2015 when he began working in the family farming business with his parents, Michael and Sue Egan. I will generally refer to members of the Egan family by their first names.
Mr Hollingworth gave extensive evidence of his close relationship with Michael. Although Michael was not a "Client" for the purposes of the plaintiff's quantum claim, this evidence demonstrates (as will be seen) that the work which Mr Hollingworth did for the Egan Entities came about in part because of his pre-existing personal relationship with Michael.
Michael owns and operates the farming property "Kiameron". Mr Hollingworth first met Michael in about 2000 or 2001 when he was working at Syngenta, after Michael had a product complaint. Mr Hollingworth continued working with Michael after he moved to Cotton Australia and assisted him with an on-farm audit. He was Michael's bank manager while at Suncorp, and assisted him with a refinance during his time there.
In 2015 or 2016, Mr Hollingworth dealt regularly with Ben while he was at Suncorp and came to know him well. He met Eleanor in the following years.
In early 2020, while at Suncorp, Mr Hollingworth wrote a loan for Ben and Eleanor to acquire land through BJ & EF. After his resignation from Suncorp, he introduced Ben (and Michael) to Cameron Collins, another banker there.
The defendants do not dispute that the Egan Entities were each "Clients" of the plaintiff.
On 8 November 2021, Mr Hollingworth emailed Ben and Michael regarding "post-harvest banking opportunities". Mr Hollingworth wrote: "From memory I thought you might have a couple of facilities on fixed rates that may be maturing shortly? And you mentioned you'd be looking [at] John's place in the future". On the same day, Mr Hollingworth noted "M. Egan" down as a "Prospect" to the amount of $11 million in a work-in-progress email to Mr Charge. The description included: "purchase John's next door". A reply by Michael on 18 November, however, indicated that they would not be ready to explore financial options until "the new year" and that they had already "bought John's country" that they had been previously leasing.

[37]

Conclusions

I am satisfied that the defendants breached clauses 12.3(a) and (b) in their dealings with the Egan Entities. Despite the fact that Ben first contacted Mr Hollingworth after he left Sprout, Mr Hollingworth steered him towards Mr Morrow on terms (implicitly) that he would be able to share in any resulting commission. In my view, this involved a breach of both his non-solicitation and non-diversion obligations. That is because it was a way of ensuring that he, and not the plaintiff or any other third party, would secure the Egan Entities' business. He was not at that point simply taking instructions from a client who had decided to use his services. Moreover, the services involved work that was already in contemplation and which they had been actively discussing during the period in which Mr Hollingworth was still working at Sprout.

[38]

Facts

Mr Hollingworth has known Mr Vella since about 2010 when he picked up his banking work while at Suncorp. He visited Mr Vella at his property in the Condobolin area on many occasions before and after he started at Sprout. They knew each other's contact details before he started working at Sprout.
The defendants do not dispute that the Vella Entities were each a "Client" of the plaintiff, though for completeness they have omitted the associated entities identified at [73] above in making this submission.
In an email dated 30 April 2021 to Mr Charge, Mr Hollingworth referred to a $13.4 million deal for "Vella" that was "expecting approval this week. Doc sign up next week and settlement mid-May". In the same email, "Vella" is noted as having a projected upfront commission of $8,000 in June and then a trailing commission of $2,708 starting in July. Connective Commission Statements showing five transactions for several of the Vella Entities indicate this deal ultimately settled in June and July 2021, as does an Australia and New Zealand Banking Group (ANZ) Letter of Offer for a $13.7 million restated facility (First ANZ Refinance) dated 5 July 2021.
A work-in-progress update sent from Mr Hollingworth to Mr Charge on 8 November 2021 also shows two entries under "Settled" transactions for "Fred Vella". One entry concerned a refinance (likely the First ANZ Refinance), and the other a "Pub" purchase for which there was no other evidence.
Mr Hollingworth said that he helped Mr Vella with a refinance of an ANZ facility (Second ANZ Refinance) that was originally set to expire in May 2022, but was extended to 1 August 2022. He did not provide any indication as to when this work was done. I gather that this Second ANZ Refinance was completed in about March 2022: there is an ANZ Variation Letter dated 15 March 2022 in evidence. Schedule 2 to this letter contains the following variation to a "Clause 7.1": "Delete '31 May' and replace with '1 August'". There is a $0.0 entry for a "Review" for "Vella Group" created on 1 April 2022 in the list of Mr Hollingworth's SILO transactions.
In about June 2022, Mr Vella contacted Mr Hollingworth about a further ANZ refinance (Third ANZ refinance). Mr Hollingworth's evidence was that he told him that he had left Sprout, that he could not work for him and that the plaintiff would need to do it. In reply, Mr Vella said: "Pete, I don't want anyone at [the plaintiff] doing it. I only went to [the plaintiff] because you left Suncorp and I followed you, but I won't be staying there. If you can't do it, who else can do it?"

[39]

Conclusions

I am satisfied that the defendants breached clauses 12.3(a) and (b) in their dealings concerning the Vella Entities. My reasons for that conclusion are, essentially, the same as for the conclusions I reached in relation to the Egan Entities. In particular, the fact that, like the Egan Entities, the Vella Entities were steered towards Mr Morrow leads me to conclude that there was an element of encouragement in the way he dealt with them and because there was also an element of diversion. That is, he diverted them to Mr Morrow as a means of securing some benefit from the commissions payable in respect of the work which Mr Morrow might broker for them. Moreover, just as Mr Hollingworth's post-Sprout work with the Egan Entities was already in prospect and had been discussed between the parties prior to the termination of the Services Agreement, the further ANZ refinances co-ordinated by Mr Hollingworth for the Vella Entities were based on existing facilities brokered via the plaintiff.

[40]

Facts

George and Sally Falkiner run a large Merino Stud and farming property known as "Haddon Rig" (the Haddon Rig Farm) through their company Haddon Rig. They are both directors of Haddon Rig. I will generally refer to members of the Falkiner family by their first names.
Mr Hollingworth first met the Falkiners in about 1996 or 1997 when he lived at Trangie. He also played rugby with the farm manager at the Haddon Rig Farm, Justin McMillan. He would visit Mr McMillan at the Haddon Rig Farm and, while there, would regularly see the Falkiners. While living at Trangie and Narromine, Mr Hollingworth "had a lot of social contact" with the Falkiners and built a strong personal and professional relationship with them. He had George's contact details before he started at Sprout.
In April or May 2001, Mr Hollingworth assisted the Falkiners with cotton picking on the Haddon Rig Farm and stayed at Mr McMillan's place during this time. He had a "growing amount of contact" with the Falkiners in respect of their farming operations and chemical requirements when he worked at Syngenta. He continued to have a lot of involvement with George when he commenced at Cotton Australia, including when he undertook audits for their cotton growing operation.
Between 2008 and 2020, Mr Hollingworth was the bank manager for Haddon Rig while working at Suncorp.
Mr Littlejohn said that Haddon Rig was an "original consulting client" of the plaintiff. Mr Hollingworth does state in his evidence that in about January 2021, George set up a 12-month consultancy arrangement with the plaintiff, which was not renewed. An unsigned advisory proposal for Haddon Rig attached to emails from Mr Hollingworth to George dated 16 December 2020 and 12 January 2021 shows that the fee was to be $25,000 plus GST per annum to be paid six-monthly in advance. It seems that George agreed to this proposal: two "consulting" deals for Haddon Rig were noted as already having been settled in a work-in-progress update sent by Mr Hollingworth to Mr Charge on 8 November 2021. These both had upfront fees of $12,500. Furthermore, one of these consulting deals was already noted as part of February income that Mr Hollingworth sent to Mr Charge on 30 April 2021.
Despite this consultancy agreement, Mr Hollingworth says that no loan was brokered for Haddon Rig by him or any other person at the plaintiff. There was also no other evidence to suggest that Haddon Rig "now has a number of loans brokered by [the plaintiff]", as Mr Littlejohn deposed.

[41]

Conclusions

The interactions which Mr Hollingworth had with the Falkiners in the period immediately after he left Sprout were in response to the Falkiners saying that they wanted him to continue working for them and Haddon Rig. The fact that the Falkiners were so well known to Mr Hollingworth in May 2022 (as they had been before he started at Sprout) meant that Mr Hollingworth's move from Sprout to Worth Finance had almost no discernible impact on the parties' relationship. They continued to deal with one another as they had already been doing for a considerable time. I do not discern any material element of solicitation (nor any other conduct that might contravene clause 12.3) in the way Mr Hollingworth dealt with the Falkiners during this period.

[42]

Facts

The Technotill Entities are companies owned or controlled by Terry and Marguerite Wyatt. On cross-examination, Mr Hollingworth accepted that when he deposed to doing work for the Wyatts, he was referring to the Technotill Entities.
Mr Hollingworth's evidence was that Marguerite Macpherson (as she was then known) grew up about 20km away from where he did in Boggabri. He "knew the Macpherson family" and went to school with Marguerite's brothers. He also said that the Wyatts were initially referred to him for their banking requirements via Ray White or the Commonwealth Bank of Australia (CBA) but his evidence does not allow me to determine when this occurred.
The defendants do not dispute that the Technotill Entities were each a "Client" of the plaintiff. Connective Commission Statements indicate that the plaintiff settled three transactions for the Technotill Entities on 17 March 2021 for a total amount of $4.22 million. Although Mr Charge was noted down as the associate responsible for these deals on this document, Mr Hollingworth explained, and I accept, that he assisted the Technotill Entities with a refinance of "a loan from CBA to NAB" while working at Sprout. His evidence as to this refinance was very brief, however, the documentary evidence corroborates this.
An email from 1 September 2020 from Mr Hollingworth to Mr Charge with the subject line: "Wyatt Family - $4.3M refinance & purchase" attaches a draft Bank Tender Analysis, a draft Proposal, and several accounts and tax returns. Mr Hollingworth asked Mr Charge to "throw an eye" over the drafts and to send it out. The draft Bank Tender indicates that the proposed lending involved a term loan, overdraft and bank guarantee for Technotill Farming, and a term loan for Irminrow, to the total amount of $4.3 million.
The list of Mr Hollingworth's SILO transactions confirms that some work for Technotill Farming was completed in March 2021. In an email on 30 April 2021, Mr Hollingworth noted an entry for "Wyatt" in February with an upfront commission of $17,000 that was refunded in April, and then an upfront commission of $11,517.50 in April with trailing commissions of $849 thereafter.
In an email dated 8 November 2021 from Mr Hollingworth to Mr Charge, Mr Hollingworth indicated to Mr Charge that there was a $2 million application for "Wyatt" in progress, with the description: "Increase $2.0M purchase Bringa $4.1M". Connective Commission Statements indicated that this settled on 14 March 2022 for the sum of $2.4 million. These statements note Mr Hollingworth as the associate responsible for this deal.

[43]

August 2022 - September 2022

I have identified the following additional matters with which Mr Hollingworth assisted the Wyatts, starting in August 2022: 1. On 10 August, the Wyatts emailed Mr Hollingworth with the subject line "FWD: Spreader prices as [discussed]" and attached a quote and product brochure. The body of the email also states: "Spreader as discussed" and "PS note our new email address" and includes a mobile phone number. There followed quite a bit of back and forth between Mr Hollingworth and the Wyatts regarding an invoice from "Hansa Equipment" addressed to Technotill Farming for a Hansa T15 trailing spreader in late August. This deal settled on 25 August. 2. From late August to September 2022, there was also substantial correspondence about a "Hallerton" property purchase. On 23 August 2022, Mrs Wyatt emailed Mr Hollingworth attaching an excel spreadsheet titled "Hallerton". This spreadsheet set out valuations for what I understand to be their two existing properties "Cambridge Park" and "Bringa Plains" as well as Hallerton, and their existing and proposed borrowing. The body of the email stated: "As [Mr Wyatt] mentioned in his text - some food for thought." There followed more correspondence, including as to the rationale behind purchasing Hallerton and valuations for the Wyatts' existing properties. On 9 September, in reply to an email from the Wyatts attaching a cashflow budget and querying whether Hallerton should be purchased via auction, Mr Hollingworth said that he would ask NAB and then Suncorp as a second option and confirmed that he would "work on putting the proposal together and have it ready to send out by end of next week latest." The next day, Mr Hollingworth emailed about obtaining profit and loss statements for the 2022 financial year, for the purpose of "substantiating figures going forward" and "pushing up historical averages". I gather that this refers to values in the cashflow budget. Correspondence from late September indicates that NAB had certain concerns about the proposal. There was some discussion about a revaluation then as well, but ultimately it does not seem like the Wyatts proceeded with the property purchase.
A further transaction occurred around the time that Mr Wyatt purportedly asked Mr Hollingworth to assist on the NAB increase in September 2022. Correspondence on 6 and 7 September indicates that Mrs Wyatt emailed Mr Hollingworth regarding a John Deere 6100 Tractor for Technotill Farming. On 8 September, Mr Hollingworth confirmed that he was in contact with NAB. After some back and forth with NAB concerning, among other things, proof of ownership and insurance, the deal settled on 27 September in the amount of $79,750.

[44]

October 2022 - November 2022

Mr Hollingworth also assisted the Wyatts in October and November 2022; however, it was not clear whether these related to any deals in particular, or if they instead amounted to more general assistance. On 11 October, Mrs Wyatt asked Mr Hollingworth when he would like accounts and tax returns to be emailed to him. She appears to have sent these accounts to him a few weeks later. Further, in November, the Wyatts sent across a lease agreement for "Drungalear" and what appears to be an insurance renewal letter.

[45]

February 2023

There was also some documentary evidence about work done by Mr Hollingworth in early 2023, which was also not described in his affidavit. On 22 February 2023, the Wyatts sent various documents to Mr Hollingworth and requested him to take an "initial look" and then to give them a call before putting together something for Suncorp. The email continues "[t]here is probably a bit more context & info [Mr Wyatt] can provide around 2022 results & plans for 2023 that may help your submission". In reply, Mr Hollingworth suggested an overdraft increase. There was no other evidence as to whether this deal progressed.

[46]

Conclusions

I am not satisfied that the defendants breached clause 12.3 in their dealings with the Wyatts concerning the Technotill Entities. The fact that Mr Hollingworth continued to do work for them reflects the long-standing relationship he already had with them and owes nothing to any attempt by him to solicit or encourage them to direct their work to him once he left Sprout. As with many other disputed clients, the effective cause of the move of this work from the plaintiff to the defendants was the mere fact that the defendants, having gone out on their own, were willing and able to do the work.

[47]

Other clients

During the course of the hearing, there was some evidence directed towards Mr Hollingworth's dealings with Kate and Greg Broughton. However, the Broughtons were not on the final list of disputed clients and the plaintiff did not make any submission as to the relevance of this evidence to its claim for relief. I have therefore proceeded on the basis that it is unnecessary for me to decide any issue relating to the Broughtons.

[48]

Applicable principles

Clause 12 of the Services Agreement contains provisions in restraint of trade. Such provisions are "contrary to public policy and void unless justified by the special circumstances of the particular case": Isaac v Dargan at [59] per Gleeson JA (Bathurst CJ and Beazley P agreeing). As Gleeson JA explained at the same paragraph: "A restraint may be enforced if the restraint is reasonably necessary for the protection of the parties concerned and reasonable in the interests of the public..."
In New South Wales, it is also necessary to take into account of s 4 of the Restraints of Trade Act 1976 (NSW), upon which the defendants specifically rely. The first three subsections are as follows: 4 Extent to which restraint of trade valid (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.
As I have already mentioned, the correct approach to the application of this section was explained by Gleeson JA in Isaac v Dargan at paragraph [61]. I have also had regard to his Honour's statement of general principles at paragraphs [62] and [63].
In order to justify a restraint, a covenantee must demonstrate that they have a legitimate, protectable interest. In Koops Martin, Brereton J said: "An employer is not entitled to be protected against mere competition; the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary subject matter…including the employer's trade secrets and confidential information, and the employer's goodwill including customer connection."

[49]

Did the plaintiff have goodwill to protect?

The defendants put two submissions in relation to the plaintiff's goodwill in its business. The first concerned the position as at 25 June 2020 when the Services Agreement was entered into. The second concerned the position once the Franchise Agreement was assigned to the plaintiff from 11 January 2021.

[50]

Was there goodwill as at 25 June 2020?

The defendants pointed out that the plaintiff was incorporated on the very day that the Services Agreement was executed and that it did not take an assignment of the franchise from Murrays Lane until many months later in January 2021. On this basis, the defendants submitted that at the time of entering into the Services Agreement on 25 June 2020, the plaintiff: "…had no trade secrets, no confidential information and no goodwill. It had no clients or customers. It had no legitimate protectable interest whatsoever."
The inspiration for this submission was, no doubt, the proposition that the validity of a restraint is to be judged as at the date of the agreement by which it is imposed: Lindner v Murdock's Garage at 653 (Kitto J); Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40 at 318 (Gibbs J); Geraghty v Minter (1979) 142 CLR 177; [1979] HCA 42 at 181 (Barwick CJ); Isaacs v Dargan at [63] (Gleeson JA).
However, in judging the validity of the restraint the Court is entitled to "take into account future events that could have been foreseen": Isaacs v Dargan at [63] (Gleeson JA). As Kitto J said in Lindner v Murdock's Garage at 653: "The validity of the restraint must be decided as at the date of the agreement imposing it. 'The question is not whether experience gained during the service has shown the restriction to have been excessive or insufficient. The question is whether the covenant was a reasonable one for the parties to agree to at the outset of the service on the best estimate which they could then make of the future': Putsman v. Taylor" (footnotes omitted).
In the case of the Services Agreement, the question of validity needs to be considered in the light of what the parties had in mind when they entered into it, as revealed (at least) in the terms of the agreement itself: they contemplated a period of up to five years during which Mr Hollingworth would be providing services to the plaintiff, during which time the plaintiff would be carrying the business of franchisee to Sprout AG. Even if it be correct that the plaintiff had no goodwill at all on the date of entry into the Services Agreement, I would not for that reason alone conclude that clause 12.3 did not protect a legitimate, proprietary interest in the customer connections that Mr Hollingworth might make during the course of the agreement.

[51]

Was there goodwill after 11 January 2021?

The defendants' next and related submission was that even after the franchise agreement was assigned to the plaintiff pursuant to the Deed of Assignment and Release on 11 January 2021, the plaintiff still did not have any goodwill capable of supporting clause 12.3.
This submission relied particularly on clause 9.1(c) of the Franchise Agreement, which is set out at paragraph [17] above. The defendants also relied on what was said by Richmond J in Narellan Franchise Pty Ltd v RBME Pty Ltd [2022] NSWSC 988 (Narellan) at [52] and [53]. Given the reliance placed on those paragraphs, I will set them out in full: "[52] Given the inseparable connection between goodwill and the business to which it relates, it is necessary in the franchise context to identify the nature of the businesses conducted by the franchisor and the franchisee. Generally, it can be said that the business in which the franchisor is engaged is, in substance, the granting to others of the right to use the franchisor's trading or brand name and system for the supply of goods or services to the public. A licence to use the trading or brand name of the franchisor (as distinct from its registered trade mark or marks) and franchise system is valid as essentially a licence of the franchisor's goodwill. Each franchisee is engaged in a business of supplying those goods or services to the public with the benefit of the licence from the franchisor. Those two businesses are separate albeit symbiotic, and each is capable of having a separate goodwill. However, absent agreement to the contrary, the franchisor will own the goodwill associated with the franchisor's brand quoad the public arising from the conduct of the franchisee's business of selling goods or services to the public under that brand. The successful conduct of the franchisee's business will potentially enhance the franchisor's goodwill thereby increasing its fee income from existing franchisees and its ability to attract new franchisees at a suitable level of fees, as well as increasing the franchisor's profit from the sale of the franchised goods or services. [53] The franchisee may, in an appropriate case, generate goodwill separate from the goodwill attaching to the franchisor's brand which, absent agreement to the contrary, the franchisee may own. The franchise agreement will normally make clear that all goodwill accruing to the brand during the term of the franchise agreement will be owned by the franchisor in order to preserve the franchisor's ability to protect its goodwill associated with the brand by an action for passing off or for misleading and deceptive conduct." (footnotes omitted)

[52]

Reasonableness

However, it remains necessary to consider whether clause 12.3 was a reasonable restraint on Mr Hollingworth's entitlement to conduct his business. I have approached that question with particular regard to what was said by Brereton JA in Belflora Pty Ltd v Vinflora Pty Ltd (2021) 106 NSWLR 67; [2021] NSWCA 178 at [45] to [49].
The question of what is reasonable cannot be determined by a simple classification of rights and interests, such as by demonstrating that the case involves employer and employee, or that it involves "clients" of a principal's "business". As Brereton JA said at [47], "the balance between the competing interests of upholding contracts freely made and striking down bargains that unreasonably constrain an individual's liberty to trade may vary." Particular care is needed to ensure that the restraint in question does not operate merely to prevent competition.
For the defendants, it was submitted that almost all of the connections between Mr Hollingworth and the disputed clients were the product of long-standing relationships that well and truly predated the Services Agreement. They submitted that it was highly unlikely that any of these clients would have chosen to continue to use the plaintiff to provide broking services in circumstances where Mr Hollingworth had set up on his own and, as he was entitled to do, was operating in competition with the plaintiff.
There is force in these arguments, but I am unable to accept them. Once it is concluded that the arrangement between the parties was one that was likely to cause Mr Hollingworth to develop customer connections in the course of providing the Services, it is difficult to see why the plaintiff should not be entitled to protect that interest. The overall purpose of the arrangement was to give the plaintiff a toehold in the Dubbo region and the parties must have considered this to be the likely result of entry into the Services Agreement. I therefore conclude that clause 12.3 was reasonable to the extent it purported to prevent the defendants from providing services to those clients in respect of whom I have found a breach, namely Bowman, Egan and the Vella Entities. Although they did have a connection to Mr Hollingworth that preceded the Services Agreement, each was nonetheless a client of the plaintiff. As I have explained, the plaintiff's customer connection to those clients was somewhat weak compared to Mr Hollingworth's own connection. Nonetheless, the connections which it expected to have with the clients brought in by Mr Hollingworth were - and were expected to be - a source of goodwill capable of supporting clause 12.3 of the Services Agreement.

[53]

Did the defendants owe fiduciary duties?

In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43, Gageler J said at [67]: "The fiduciary duty that an employee has to an employer within the scope of the relationship of employment, no less than the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person, is a duty of 'absolute and disinterested loyalty'. That duty of loyalty is imposed in equity by means of two overlapping 'proscriptive obligations'. Each proscriptive obligation, or 'theme', is 'descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies' (footnotes omitted).
The two rules to which his Honour referred were the "conflict rule" and the "profit rule." It is relevant to refer to his Honour's summary of each in paragraphs [68] and [69]: "'The first', often referred to as the 'conflict rule', 'is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest'. The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal. 'The second', often referred to as the 'profit rule', 'is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary's] position for [the fiduciary's] personal advantage.' The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.'"

[54]

Was there a breach of fiduciary duty?

The more difficult question is whether the defendants breached their fiduciary duties. This requires a consideration of the scope of the fiduciary relationship and whether or not the duties owed by the defendants extended to the conduct that is in each case said to constitute the breach. In particular, it is necessary to consider whether the duties applied at all in circumstances where the alleged breaches occurred after termination of the Services Agreement.
Fiduciary obligations generally terminate upon the cessation of the relevant underlying agreement: In the matter of Sunnya Pty Ltd [2024] NSWSC 403 ("Sunnya") at [473]; see also Equity: Doctrines & Remedies at [5-020]. There are, however, circumstances in which obligations may subsist beyond the term of the underlying relationship.
The plaintiffs relied on the line of authority commencing with the Canadian decision of Canadian Aero Service Ltd v O'Malley [1974] SCR 592 ("Canadian Aero") which suggests that fiduciaries are precluded from pursuing subsequent business opportunities that arose as a consequence of their position as a fiduciary. The defendants did not make any submissions about this issue. They dealt with the topic of fiduciary duties by simply denying that there was one.
In Canadian Aero, Laskin J said at [24]-[25] in the context of the duties owed by company directors: "…Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer … is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to be properly manifested upon full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so where the director or officer is a participant in the negotiations on behalf of the company. An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired."

[55]

Bowman Entities

I am satisfied that Mr Hollingworth breached his fiduciary obligation by assisting the Bowman Entities. The business opportunity that he benefited from arose during and as an incident of his work with the plaintiff. It was not a "fresh initiative". Mr Hollingworth continued to advise the Bowman Entities on the same opportunity that he had been discussing with them prior to his departure from the plaintiff's business: see [117].

[56]

Whillocks

There was no breach of fiduciary obligation in respect of the work done for the Whillocks. The work Mr Hollingworth performed for them after he left the plaintiff's business was not related to any specific work that was being performed whilst Mr Hollingworth was at Sprout. There was no maturing business opportunity that arose in relation to the Whillocks in the period in which the Services Agreement was on foot.

[57]

Shorts

The evidence suggests that Mr Hollingworth completed different streams of work for the Shorts after he left Sprout. One such piece of work was the renegotiation of the rate with NAB on the Allambie loan. I note that the Allambie loan was originally negotiated whilst Mr Hollingworth was with Sprout. In my view, the fact that Mr Hollingworth assisted with the renegotiation of a loan that had been taken out with his assistance whilst at Sprout is sufficient reason to conclude that he breached his fiduciary obligation to the plaintiff in respect of the Allambie loan. The general nature of work in this area, as I noted above, is that facilities tend to be short term and therefore require renegotiation from time to time. The opportunity to be involved in a renegotiation of a facility would quite reasonably have been seen by the plaintiff as being part and parcel of the original engagement.

[58]

McCutcheon

The work completed by Mr Hollingworth for Mr McCutcheon following his departure was quite separate to the work completed whilst Mr Hollingworth was with the plaintiff. The refinancing initiated in September 2022 and the new equipment finance loan proposed in August 2023 did not directly relate to any business opportunity that was afoot whilst Mr Hollingworth was with the plaintiff. I do not consider that the defendants' subsequent work for Mr McCutcheon constituted a breach of their fiduciary obligations.

[59]

Maiso

The work that Mr Hollingworth completed for Maiso whilst he was in the plaintiff's business was related to an equipment finance loan for a Toyota Landcruiser in August/September 2020 and a proposed property purchase in July 2021. There was a suggestion of work done for "Gainsford", however the evidence about this was quite unclear. That evidence could have related to Maiso or Matt and Emily Gainsford (or another client by the name of Gainsford, evidenced by a "J & J Gainsford" entry in one of Mr Hollingworth's emails to Mr Jackson). In any case, the subsequent work that Mr Hollingworth did for Maiso after he left the plaintiff seems only to have related to a new equipment finance loan. It was a "fresh initiative" and the defendants did not breach their fiduciary obligations in doing it.

[60]

MacInnes Entities

As I concluded at [164], Mr Hollingworth did not do any work for the MacInnes Entities following his departure from Sprout. I find there was no breach of fiduciary obligations in relation to them.

[61]

Gin Gin Farms

Although I concluded that there was no breach of the contractual restraint in relation to Gin Gin Farms, the evidence suggests that Mr Hollingworth assisted with a refinance to Westpac while working at the plaintiff's business (see [169] above) and then, after leaving, helped with two further refinances on these same Westpac facilities (see [173] and [175] above). The refinance Mr Hollingworth assisted with while at the plaintiff's business settled in November 2021. In conversation with Mr Denston in 2022 after having resigned from the plaintiff's business, Mr Hollingworth said: "I think you're up for review in November." This evidence shows that Mr Hollingworth was aware of their Westpac facilities and, most likely, that he was aware of these facilities because he assisted with them at Sprout.
I am satisfied that Mr Hollingworth breached his fiduciary obligation by assisting Gin Gin Farms with the 2022 and 2023 Westpac refinances. These business opportunities arose as an incident of his work with the plaintiff. These refinances were not "fresh initiative[s]". Mr Hollingworth essentially advised on further refinances on an opportunity that first arose while he was at the plaintiff's business.

[62]

Egan

As I concluded in respect of the breach of the contractual restraint, the $14 million refinance which Mr Hollingworth assisted with after leaving Sprout was already in contemplation while he was working at Sprout. This was the case as at 11 May 2022 (a week before he resigned), being when he emailed Westpac with: "Any room on this one? I'm just getting info together to try and refinance clients out of Suncorp $14M, would like to try and get them into Westpac…". It was already also the case at 8 November 2021, when he emailed about "post-harvest banking opportunities". As noted above at [190], during cross-examination, Mr Hollingworth accepted that the work he did in July or August 2022 (being the $14 million refinance) was directly related to the "post-harvest banking opportunities" discussed in late November 2021.
It follows that the July or August 2022 refinance which Mr Hollingworth took up was not a fresh initiative. Rather, it arose during and as an incidence of him being a broker at Sprout. I therefore conclude that there was a breach of fiduciary duty in relation to this refinance.

[63]

Vella Entities

At [204] above, I inferred that Mr Morrow was likely "shadow broking" for Mr Hollingworth in relation to the Third ANZ Refinance that was conducted while Mr Hollingworth was not yet an authorised credit representative. Commissions on this deal flowed to PBH Trading from 30 November 2022 onward. I find that the Third ANZ Refinance and the Fourth ANZ Refinance, also co-ordinated by Mr Hollingworth after he resigned from Sprout, were integrally connected with the First ANZ Refinance and the Second ANZ Refinance on which he worked whilst at Sprout. The Third ANZ Refinance and the Fourth ANZ Refinance were not new initiatives. Instead, they arose directly as a consequence of Mr Hollingworth being employed at Sprout. I note here again that Mr Hollingworth himself said that, generally, facilities tended to be short term in the agribusiness sector, and therefore, they required review from time to time. The opportunity to be involved in a refinance would likely have been foreseen at the time of the original engagement. I therefore conclude that there was a breach of the contractual restraint and that there was a breach of the fiduciary duty by Mr Hollingworth in the case of the Vella Entities, the breach of the fiduciary duty being in relation to the third and fourth ANZ refinances that Mr Hollingworth assisted the Vella Entities with.

[64]

Haddon Rig

Whilst Mr Hollingworth was with the plaintiff's business, he arranged for George Falkiner to sign a 12-month consultancy arrangement with the plaintiff, on behalf of Haddon Rig. This arrangement was not renewed. The kinds of work covered in the proposal to the arrangement included the creation of a financial business plan, assistance with ongoing business and ownership strategy and creating clear goals for the family and its farming operation.
The work completed by Mr Hollingworth for Haddon Rig after he had left Sprout was extensive and included a wide range of work that fell within the same categories that were listed in the proposal. Details of that work are set out above at [215] to [226]. However, as the consultancy arrangement between Haddon Rig and the plaintiff had concluded prior to Mr Hollingworth's departure and was not renewed whilst Mr Hollingworth was still at Sprout, I do not regard the subsequent work, although similar, to involve the same business opportunity as was being pursued whilst Mr Hollingworth was at Sprout.

[65]

Technotill Entities

Mr Hollingworth assisted the Technotill Entities with a loan refinance from CBA to NAB while at Sprout. Based on the evidence at [231] and [232] above, this transaction was to the value of around $4 million and settled on 17 March 2021. In September 2022, Mr Wyatt reached out and said: "We're wanting to see if we can get an increase on our NAB facility, and we want you to help us with it." The documentary evidence indicated that Mr Hollingworth likely assisted with this loan increase proposal to NAB through to October 2022. However, as discussed at [239] and [241] above, this proposal was eventually denied by NAB. Soon after this denial, Mr Hollingworth then assisted the Technotill Entities with a refinance of this facility from NAB to Suncorp. I find that Mr Hollingworth was not pursuing a "fresh initiative" in either of these transactions. Rather, these opportunities arose directly out of the transaction being completed while he was at Sprout. I therefore conclude that there was a breach of fiduciary duty in relation to this client in relation to the NAB loan increase proposal and the subsequent refinance to Suncorp.

[66]

Relief

I have concluded that the defendants breached clause 12.3 of the Services Agreement by soliciting the Bowman Entities, the Egan Entities and the Vella Entities and that clause 12.3 operated validly in relation to those breaches, save that it continued only for a period of 12 months. I have also found that there was a breach of the defendants' fiduciary duties in respect of certain work done for these and other clients.
The plaintiff formulated its claim to damages by reference to a number of integers, including the commissions earned by the defendants in respect of the disputed clients. That is an appropriate starting point. It is however necessary to take into account that the amount of commission that might have been earned by the plaintiff if those disputed clients had stayed with the plaintiff would have been reduced by 13%, because in each instance the franchisor, Sprout AG, would have been entitled to its share. There was no evidence that Sprout AG would be entitled to any part of a damages award and so there is no occasion to gross up the award to accommodate that prospect.
The defendants submitted that any damages must be calculated on the basis that the loss to the plaintiff was only the loss of a chance to earn commissions and that, as such, it would be necessary to quantify that chance. If the question were only the measure of contractual damages, I would agree. However in circumstances where I have found in relation to those same breaches that there was a breach of a fiduciary duty for which the defendants are required to account, it is appropriate for the relief be calculated on that basis (that is, without discounting for the possibility that the clients would not have engaged the plaintiff in any event). Nonetheless, in case it matters, I accept the defendants' submission that there was a strong likelihood that the plaintiff would not have picked up the work which Mr Hollingworth did in breach of clause 12.3. They submitted that this likelihood should be assessed at about 85%. I agree, because the evidence as to Mr Hollingworth's personal connection to these clients demonstrates that they were highly likely to follow him even if he had not taken any steps to solicit their work.
It will be appropriate for the parties to bring in short minutes of order to give effect to these conclusions.
I note that there was no claim for interest.

[67]

Orders

The parties informed me that they wished to be heard on costs irrespective of the outcome. I will therefore also make directions for the parties to file and serve any additional evidence and submissions on costs.
The orders and directions will therefore be: 1. The parties are to bring in short minutes of order to give effect to my reasons on or before 7 February 2025. 2. The parties are to file and serve any evidence and short submissions on costs on or before 7 February 2025. 3. The parties are to file and serve any evidence and short submissions in reply on the question of costs on or before 14 February 2025. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 December 2024

Sprout Trading NSW Pty Ltd trading as Sprout Ag v PBH Trading Pty Ltd

At a glance

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Judgment (67 paragraphs)

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Cases Cited (48)