Andrew Douglas: Well we’re going to go to the main topic. Yeah, this is a scholars case. So this was a group of employees who were also shareholders. So they entered into a number of agreements, purchase of share agreement, shareholder agreement, employment contracts.

And there was a detailed restraint that had in one of them a five year restraint, which was a shareholder’s agreement. And by the way, there’s a interesting thing that commercial agreements that are for consideration. So that’s like buying shares, or doing things, or buying a business.

The restraints were inclined to have a longer, and broader scope of enforcement than an employment contract. So I want you to remember that. The restraint was incredibly broad in the way it acted. It acted for all clients of a scale. Although these people only provided a small amount of very successful people who did one particular thing. But a scale had a broad range of work.

It acted for all clients, people they had no control over. And it had no geographical limit. Now I’m not going to go into a lot of detail, but this is a great case to read, because it brings home to you the primary rules which are, court’s most reluctant to enforce restraints.

That’s to stop you competing, or to stop you having clients. Does that make sense? So when you leave here, and you are my employee, and I’ve got a restraint against you, you’re not allowed to use my clients. Okay? You’ve got to go and find your own.

But because the court’s reluctant to do it, they look very carefully at the words. Now, clearly, anything that has a restraint that’s not individualised to the personal circumstance of a person, is not going to be enforced. And that’s what I want to talk to you about today.

When you’re using restraints, if it’s Moon you’re restraining, it’s got to be about the job Moon does, and what control of goodwill she has. If it’s broader than that, it will not be enforceable. And although severability as a concept will apply, and there was a severance clause, and there was some cascading clauses, the court said, “In any particular clause, “if there’s words which taken or removed, “would make the clause meaningless.

You can’t sever it. They can’t add words. Now that’s slightly different in New South Wales, where the courts can read down, and re-craft restraints. I want you to understand that, okay? Slightly different. But the point of this case is, unless you individualise restraints to what a person does, what the clients are, they relate to the territory in which they were, in a time that is reasonable in the circumstance, simply won’t be enforceable.

So, I think a really important case, and a case that we should think about very seriously when we get involved in it. So, what we’re going to do today is we’re now going to go past this main topic, and I’m going to look at a case.

All right? So, this is a case study. And just before I start it, one of the interesting things about a scholar’s case is that they executed employment contracts for a period of time which would commence in the future.

So they went, ended it well before they started. And that gap between when they executed it, they had an opportunity to resign beforehand. So the actual employment contracts were held to be not enforceable. So it was a question around shareholder, the shareholder deed, and the share purchase agreement, and the restraints that went in there. I raised that now because it’s relevant to this case.

Now I’ve got a bit of a sore throat, so I’m going to have a drink. You can have a drink too. Normally you’d have to read this, but I think that’s a bit tough for you today. So I’ll read it. “Ivan was a mortgage broker “for Home Happy Mortgage Brokers. “When he started these employment with HHMB, “his clients followed. “His clientele came from across greater Melbourne. “HHMB appointed him head of broking for Victoria.

He had seven brokers under him, “and enjoyed a privileged position of influence “with the National Australia Bank, and the CBA. “Ivan signed an employment contract HHMB. “It was finally executed two days “after he commenced employment.” “At the same time, he executed a Deed Poll, “or a deed which had the restraints we’re going to talk about.

The deed was incorporated by reference into the contract.” Now, when you incorporate by reference, what you’re say in a contract is “This contract is the entire agreement, “saving accept for a deed, “which deals with the restraints, “which is attached to schedule one, “and is incorporated into this agreement.” So it actually sticks them together.

Okay? “The deed came as surprise to him. “The negotiations prior to the signing the contract “were limited to an agreed position description, “his remuneration, and notice period of six months. “The day before he accepted the role, “he received an email from George Sanders, “the CEO of HHMB that said:

Dear Ivan, great to catch up. “Happy with your REM at 240k plus super, “and the attached commission schedule. “The long term long term incentive is set out in schedule two, notice of six months. All okay?” And you understand there’s an oral agreement, and here is a notification of what George wants him to agree with. “Cheers, George.”

So what does Ivan say? Ivan comes back and said, “Done deal, George. “See you on Monday, Ivan.” All right? “They executed the contract and deed “on the Wednesday after he had started. “The deed contained the restraints “for all clients he had worked with, “or his staff in Victoria over the last 12 months, “and applied the similar broking businesses. “Eight months later, “Ivan realised he’d made a big mistake and resigned.

He was placed on gardening leave.” That is he’s sent home, and he’s told he’s not allowed to do any other work for anybody else. He’s still an employee and can be called upon to do work as and when it is required. “Whilst on gardening leave, “he arranged some new job “with Fast Mortgages Pty Ltd “as their national sales manager, “and introduced some clients surreptitiously “before his six months leave expired. “Okay, the first question, is, “Was the contract enforceable?” Now I want you, I want you to have a think about this. So there is a lot of discussions, okay? There’s an email, and they agree on something at the time of that email.

Moon Nguyen: Yeah.

Andrew Douglas: Do you think that’s a contract?

Moon Nguyen: Yes.

Andrew Douglas: Yes it is. That’s exactly right. I’m glad I nodded my head correctly. So if I say to you, “Honey, we can go out on Friday night, “and we can go and have dinner,” and you come back and say, “Oh, oh, what time is that Dad?” And I go, “Look, it’s six o’clock, “but you can only go if you’re well-behaved.” And you go, “I promise I’ll be well-behaved.”

And I give you a contract afterwards which lists 20 things that you have to do, we’ve already agreed to the agreement by the exchange of email at the beginning, and our discussions. So the answer is, was the written contract enforceable? The law is if a written contract contains clauses which are inconsistent with the agreement that was previously reached verbally or in writing, it will not be enforceable. And the second rule is, past consideration does not perfect a contract. That is, I offered Moon to go out for dinner.

Moon Nguyen: Yeah.

Andrew Doulas: On the basis that she was well behaved, her consideration, the moment she accepts that a contract is done. There’s no further consideration If I give her a document and say, “Sign this document.” So on two basis the contract, the written contract was not enforceable. Okay? Now that’s very, very important. Just going back to the oral one and the emails, that contract is enforceable, but there’s a lot missing.

So the court will imply terms which are reasonable, into it, but it won’t imply specific obligations which arose in the contract, which throws you to the bigger question, if, was the deed enforceable? Now, I don’t reckon you’re going to understand this, okay? But I don’t want to say it slowly. In a contract there must be consideration. You must do something for me, and I do something for you. Okay?

Moon Nguyen: It’s like trading.

Andrew Douglas: Yeah, it’s like trading. It’s exactly what it’s like. But in a deed, the very nature of the deed means you don’t have to have consideration, you don’t have to trade. It is an obligation you give under seal that says “I would do it. “I know there’s no consideration.” Okay? So on its face, the deed as a document could be enforceable.

The problem is, the deed is incorporated into reference in a contract, and for which there was no agreement to entering at the time the emails entered in. So it’s highly likely the deed is not enforceable, although it’s arguable. Okay? To the extent the deed could be enforceable, it’s far too broad, isn’t it? It involves clients it had no control of, it had no limitation on geography.

So, and the other part is the description of what it dealt with was too broad to be enforceable, because you can only enforce a deed that is reasonable to the individual circumstance of the person giving the commitment. Does that make sense?

Moon Nguyen: Yeah.

Andrew Douglas: So on the first two, Ivan’s out of problems, he has no difficulty. But the third questions a tough question. “Was there any action that HHMB “could bring against Fast Mortgages and Ivan? “And if so, what is it?” Now here’s the rub. He was sent home, and during that time he was an employee of HHMB. Is he allowed to try and take advantage, and use the information of that business to another business while he is still employed with HHMB?

Moon Nguyen: I don’t think so.

Andrew Douglas: No, he’s not! You’re back on the winning streak again. He is not allowed to do that. That breaches duties under the Corporations Act, 181 through to 185. It breaches his fiduciary duties, common law and equity, and it’s very easy to prove, okay?
So, not only that, Fast Mortgages in trouble because it procured, assisted, or helped him in breaching his contractual obligations, and is therefore liable as well.

So, what could HHMB do? Well, they could get an injunction, but damage had already been done. But they could get an injunction to stop further breach, and it would be easy and successful to achieve. Okay? So they could do that.

Moon Nguyen: Yeah.

Andrew Douglas: Remember, after a notice period is complete, it’s much harder. But they could also bring a thing called Account of Profits, which is a particular action, which captures the gross profit that is lost as a result of the breach, not the net profit, the gross profit. So you can see what a powerful remedy it is. Now you can also, because of the repudiatory nature, get future losses.

Now, you’re starting to see that this is a very, very substantial claim, and where it looked like the strength was in the contract and the deed, and they’re not enforceable, actually the breach is here. We’re much more real and much more dangerous for both Ivan and Fast Mortgages. So look, I think this is a fascinating case. What do you reckon?

Moon Nguyen: Yes. Really fascinating.

Andrew Douglas: You’re really fascinated by it. I tell you what, you’ll give Kim and Nina a run for their money. You’ve got more right than they ever get right. Sorry, Nina and Kim, I shouldn’t say that. Have you got any other questions there, or is that all the questions for today? So, I think that’s all the questions for today. So can you ask people to give them a thumbs up?

Moon Nguyen: Thumb up, Guys.

Andrew Douglas: Say, thank you for watching.

Moon Nguyen: Thank you for watching, everybody.

Andrew Douglas: See you later guys.

Moon Nguyen: Bye.

Andrew Douglas: Bye-bye.

Moon Nguyen: Have fun.