Genesys Wealth Advisers Ltd v Miles (No 2) [2008] NSWSC 842

New South Wales Supreme Court

CITATION : Genesys Wealth Advisers Ltd v Miles (No 2) [2008] NSWSC 842

HEARING DATE(S) : 12 August 2008

JUDGMENT DATE : 12 August 2008

JURISDICTION : Equity Division

JUDGMENT OF : Palmer J

EX TEMPORE JUDGMENT DATE : 12 August 2008

DECISION : Orders as sought by Plaintiff.

CATCHWORDS : PRACTICE AND PROCEDURE – INJUNCTION – Form of order – whether appropriate to restrain breach of covenant in the terms used in the covenant.

CATEGORY : Consequential orders

PARTIES : Genesys Wealth Advisers Ltd (Plaintiff) Raymond John Miles (Defendant)

FILE NUMBER(S) : SC 2919/08

COUNSEL : G.K.J. Rich (Plaintiff) I.M. Neil SC, Ms C.L. Cochrane (Defendant)

SOLICITORS : Atanaskovic Hartnell (Plaintiff) Harmers (Defendant)

2919/08 Genesys Wealth Advisers Ltd v Miles (No 2)

JUDGMENT – Ex tempore 12 August, 2008

1 In this matter, I gave judgment on 7 August 2008. I found that the Plaintiff was entitled to orders restraining the Defendant, Mr Miles, until 15 September 2009 "from engaging in the activities referred to in paragraph 1 of the Amended Summons". However, I indicated that the parties might wish to discuss the precise terms of the orders to be made, so that I stood the proceedings over until today for the Plaintiff to bring in Short Minutes of Order. The terms of the orders proposed by the Plaintiff have now been the subject of debate and I must give a decision as to the appropriate orders to make. 2 The Short Minutes propounded by the Plaintiff reproduce in paragraph 1(a)(i) the relief sought in the Plaintiff's Amended Summons. The order sought restrains Mr Miles from engaging in or preparing to engage in a particular specified business in any capacity or role. There is really not much debate about whether the order should be made in such terms because Mr Miles has given unequivocal evidence during the course of the trial that, unless restrained, he proposes to engage in a venture with Suncorp Metway which is directly competitive with the Plaintiff's business, and I have found that the capacity in which he intends to engage in that business would be one which causes him to breach restraining clause 6.1(a)(i) of the Deed of Release. I propose to make an order in terms of paragraph 1(a)(i) of the Short Minutes of Order. 3 The more substantial debate has revolved around the orders sought in paragraph 1(a)(ii) and (b) of the proposed Short Minutes. Subparagraph (ii) restrains Mr Miles from being engaged: "in any capacity or role, (in) any other business or activity conducted or carried on or to be conducted or carried on within Australia which is the same as, substantially similar to or competitive with the business of the Plaintiff in which the Defendant worked at any time during the period 31 March 2006 to 30 March 2007, excepting that the Defendant may directly or indirectly engage in, or prepare to engage in, any Genesys practice that he buys into." 4 Mr Neil SC, who appears with Miss Cochrane of Counsel for Mr Miles, makes two submissions in relation to this proposed order. The first is that no order at all in these or even similar terms, should be made. The second is that, if such an order is to be made, it should be substantially modified to specify particular activities which will fall outside of the restraining provisions of the order to make it clear that Mr Miles will not be in breach of the order if he engages in those activities. 5 Mr Neil's first submission is that the order should not be made at all because it visits with penal consequences (that is, the consequences of a contempt of court) an indeterminate variety of possible situations in which Mr Miles may engage in the future. Mr Neil says that Mr Miles may engage, for example, in advising a competitor of Genesys in aspects of that competitor's business which do not involve Mr Miles using any confidential information. He may, for example, provide advice to a competitor as to suitable office premises. He may, for example, acquire shares in a competitor which is a listed public company and do no more than hold those shares. He says that an injunction should not go in such general terms when it may curtail all sorts of legitimate activities in which Mr Miles may engage in the future, particularly when the Court has not found that a covenant restraining Mr Miles from engaging in these so far unspecified activities would be reasonable, rather than void as contrary to public policy. 6 I am not able to accept that submission. It really amounts to this: that the Court should not grant an injunction restraining a future breach of covenant, using in the order the terms of the covenant which is being enforced. 7 The Court often grants such injunctions: it depends on the precision of the language used in the covenant and whether the defendant will be left in real doubt as to the scope of the order. Orders requiring the defendant to do something, or not do something, in general terms are made in certain cases. The most common example, probably, is an order for the specific performance of a contract for sale of land. That sort of contract may be breached at a very early stage by one of the parties before any steps in the routine conveyancing transaction have been taken. A Court, in ordering specific performance, does not order seriatim that the offending party will perform each one of the requisite steps in the conveyance. The Court makes an order that the delinquent party perform the contract. If that party fails to take some step subsequently in the due execution of the contract, the other party may come back to the Court and complain that the Court's order has been disobeyed. The offending party may be able to say that it was, for example, impossible to take such a step for one reason or another. The Court will investigate the circumstances at the time to see whether or not the general order for specific performance has been disobeyed. 8 Similarly, it is common for the Court to order, in enforcement of a covenant against solicitation of clients of a former employer, that an ex-employee not solicit those clients of the former employer with whom the ex-employee dealt. The Court does not always name each one of those clients in the order; the Court simply makes an order in general terms. Whether or not the ex-employee is in contempt of court in the future depends upon the employer proving as a fact that the ex-employee approached a particular person who was a relevant client at the time. 9 It is often not possible, nor is it desirable, to be overly precise in specifying what can be done or should be done, or cannot be done or may be done, in ordering a party to comply with the terms of a covenant. Experience teaches that the more specific one is in detailing circumstances to be guarded against in the future, the more one leaves scope for evasion of the real substance and intent of the particular covenant or order. 10 It may be that Mr Miles now proposes to engage in some activity which he considers will not involve him in a breach of the covenant which the Court has ordered him to perform by means of a restraining order. It will be for him at the time that he decides to engage in that activity to consider carefully whether the circumstances are factually within or without the terms of the covenant and therefore of the Court's restraining order. 11 Mr Neil submits that Mr Miles should not be put into the situation of having to make such a decision with the consequence that the result for him may not be simply that he is in breach of his covenant but, rather, that he may be in breach of the order of the Court, thereby attracting penal consequences. 12 This consideration is present every time the Court grants an injunction founded upon a contractual provision. The whole purpose of the trial in this case was to determine the validity of the covenant sought to be enforced and to seek the Court's order to compel performance of it by the contract breaker. That the consequences for Mr Miles of a further infringement of the covenant will be penal rather than purely civil is the very purpose of the equitable remedy of injunction. 13 I propose to make an order restraining further breach of Clause 6.1(a)(i) of the Deed of Release. However, the wording of paragraph 1(a)(ii) of the Short Minutes requires some adjustment. At the moment, the words go further than the covenant in Clause 6.1(a)(i). They omit the words "in which you may be able to make use of any part of the Confidential Information to the detriment of Genesys" after the words "in any capacity or role". 14 Mr Rich submits that the omitted words are otiose because the evidence in the trial has made it clear that Mr Miles will be able to compete to the detriment of Genesys in whatever role or capacity he fills in any competing business. As a matter of reality, that may be so, but not necessarily. I do not think that the terms of the Court's order should be more restrictive than the terms of the covenant which the Plaintiff seeks to enforce. It may well be that it will be an easy matter to prove that a particular involvement of Mr Miles with a competitor is one in which he is acting in a capacity in which he may be able to make use of confidential information to the detriment of Genesys, but that question should not be foreclosed now by an order in the terms sought by Mr Rich. 15 The Plaintiff is entitled to enforce only those rights which it has contracted to receive from Mr Miles. Therefore, the omitted words will be reintroduced into the orders in paragraph 1(a)(ii). 16 The next question arises as to the terms of paragraph 1(b) of the proposed Short Minutes. Mr Neil urges that the terms of the order should be amended, to delete the words "or dealing with" – which appear in the covenant itself – so that the order prohibits Mr Miles only from soliciting or attempting to solicit a person who was a party to a relevant Member Firm Agreement. Mr Neil says that it is possible that Mr Miles may wish to become engaged in a business of brokering the sale or purchase of financial planning practices or dealer groups and, in the course of such a business activity, he may have to deal with Member Firms. That activity, he says, should not involve a breach of the order of the Court, with penal consequences. 17 I do not think that it is appropriate to try to deal now with any number of hypothetical possibilities which may arise in the future and which may or may not involve Mr Miles in a breach of the covenant and, consequently, breach of the Court's order. 18 Mr Miles will have to take advice as to whether any particular proposed activity which he envisages in the future will, or will not, infringe the terms of the Court's order. The Court has made plain its construction of the covenant against solicitation in the course of the Court's reasons. Those reasons, hopefully, will provide a guide as to what is within the terms of the solicitation covenant and what is not. Whether or not Mr Miles' participation in a broking business or any other type of business infringes the terms of the Court's order will depend upon the facts as they are found if a motion for contempt ever reaches the Court. I do not think that I should, by the Court's order, restrict the terms of the solicitation covenant in the Deed of Release any more than I should, by the Court's order, enlarge the terms of the non-competition covenant in the Deed. 19 For those reasons, I propose to make an order in terms of paragraph 1(a)(i) of the proposed Short Minutes. I propose to make an order in terms of paragraph 1(a)(ii), with the addition of the words to which I have referred, and I will make an order in terms of paragraph 1(b) of the Short Minutes of Order. – oOo –